The September quarter results underscore the ongoing challenges facing the brokerage firm, with revenue pressures persisting despite sequential improvements. Net sales of ₹56.98 crores in Q2 FY26 represented a 12.23% quarter-on-quarter recovery from June's ₹50.77 crores, yet remained substantially below the ₹76.38 crores generated in the corresponding period last year. This 25.40% year-on-year revenue contraction reflects the broader headwinds confronting capital markets intermediaries, including subdued retail participation and volatile trading volumes.
For the first half of FY2026 (H1 FY26), the company's consolidated net profit stood at ₹25.78 crores, down 33.47% from ₹38.75 crores in H1 FY25. Revenue for the six-month period aggregated to ₹107.75 crores, representing a 27.78% decline from the previous year's ₹149.19 crores. These half-yearly figures highlight the sustained pressure on the company's top-line growth trajectory.
| Quarter | Net Sales (₹ Cr) | QoQ Change | YoY Change | Cons. Net Profit (₹ Cr) | QoQ Change | YoY Change | Operating Margin |
|---|---|---|---|---|---|---|---|
| Sep'25 | 56.98 | +12.23% | -25.40% | 13.08 | +2.99% | -34.40% | 42.16% |
| Jun'25 | 50.77 | +9.56% | -30.27% | 12.70 | +64.94% | -32.48% | 39.98% |
| Mar'25 | 46.34 | -10.52% | -27.29% | 7.70 | -37.14% | -68.78% | 34.18% |
| Dec'24 | 51.79 | -32.19% | — | 12.25 | -38.57% | — | 32.13% |
| Sep'24 | 76.38 | +4.90% | — | 19.94 | +6.01% | — | 40.15% |
| Jun'24 | 72.81 | +14.25% | — | 18.81 | -23.72% | — | 41.08% |
| Mar'24 | 63.73 | — | — | 24.66 | — | — | 57.82% |
Financial Performance: Margin Resilience Amidst Revenue Headwinds
Whilst Arihant Capital's top-line performance has been under pressure, the company has demonstrated commendable margin discipline. The operating profit margin (excluding other income) expanded to 42.16% in Q2 FY26 from 39.98% in the preceding quarter, though it remained below the exceptional 57.82% achieved in March 2024. This 218 basis point sequential improvement reflects management's focus on cost optimisation and operational efficiency.
Operating profit before depreciation, interest, and tax (PBDIT) excluding other income stood at ₹24.02 crores in Q2 FY26, up 18.32% from Q1's ₹20.30 crores but down 21.68% year-on-year from ₹30.67 crores. The company's ability to maintain margins above 40% despite revenue contraction demonstrates operational leverage and disciplined expense management. Employee costs remained relatively stable at ₹9.49 crores in Q2 FY26, representing 16.65% of net sales compared to 16.50% in the previous quarter.
Interest expenses increased notably to ₹6.25 crores in Q2 FY26 from ₹3.91 crores in Q1 FY26, reflecting a 59.85% quarter-on-quarter surge. This substantial rise in financing costs warrants attention, as it directly impacts bottom-line profitability. The company's profit after tax (PAT) margin compressed to 22.96% in Q2 FY26 from 25.01% in Q1 FY26, primarily attributable to this elevated interest burden.
Balance Sheet Quality: Stable Foundation with Limited Leverage
Arihant Capital maintains a robust balance sheet characterised by negligible long-term debt and healthy shareholder funds. As of March 2025, the company's shareholder funds stood at ₹384.46 crores, comprising share capital of ₹10.41 crores and reserves of ₹365.48 crores. The debt-free status on long-term borrowings provides financial flexibility, though the company does utilise short-term working capital facilities.
The company's book value per share stands at ₹36.10, translating to a price-to-book value ratio of 2.52x at the current market price of ₹100.25. This valuation multiple appears reasonable given the company's return on equity profile, though it trades at a premium to some capital markets peers. Fixed assets increased to ₹28.66 crores in FY25 from ₹14.88 crores in FY24, suggesting continued investment in infrastructure and technology capabilities.
Return on equity (ROE), a critical profitability metric for financial services firms, registered at 10.43% for the latest period, significantly below the company's five-year average of 17.75%. This compression in ROE reflects the challenging operating environment and subdued profitability. The average net debt to equity ratio of 0.25 indicates prudent leverage management, providing comfort on financial stability despite near-term earnings volatility.
Rising Interest Costs: A Monitoring Point
The 59.85% quarter-on-quarter surge in interest expenses to ₹6.25 crores in Q2 FY26 represents a significant development. At ₹6.25 crores, interest costs now consume 10.97% of net sales compared to just 7.70% in Q1 FY26. This elevated interest burden, if sustained, could materially constrain profitability recovery even if revenue growth resumes. Investors should monitor whether this represents temporary working capital financing or signals a structural shift in the company's funding requirements.
Market Context: Capital Markets Sector Headwinds
The challenges confronting Arihant Capital must be viewed within the broader context of the Indian capital markets ecosystem. The brokerage and financial services sector has experienced a period of consolidation following the exceptional growth witnessed during the pandemic-driven retail participation surge. Reduced trading volumes, compressed brokerage yields, and heightened competition from discount brokers have pressured revenue growth across the industry.
Arihant Capital's 25.40% year-on-year revenue decline in Q2 FY26 underscores these sector-wide headwinds. The company's diversified service offerings—spanning equity broking, commodity trading, depository services, and investment banking—provide some insulation, yet cannot fully offset the impact of subdued market activity. The recovery in Q2 FY26 net sales to ₹56.98 crores from Q1's ₹50.77 crores suggests stabilisation, though the path to sustained growth remains uncertain.
The company's membership across multiple exchanges—BSE, NSE, MCX, and NCDEX—positions it to capitalise on activity across equity and commodity markets. However, the concentration of revenues in volatile trading-related income makes earnings susceptible to market sentiment and regulatory changes. The SEBI-registered status across multiple categories provides regulatory credibility and diversification opportunities.
Industry Leadership: How Arihant Capital Compares to Peers
Within the capital markets peer group, Arihant Capital occupies a mid-tier position based on market capitalisation and valuation metrics. The company's return on equity of 17.75% (five-year average) compares reasonably with peers such as Geojit Financial Services (17.31%) and Master Trust (18.57%), though it lags significantly behind Dam Capital Advisors (41.81%) and Wealth First Portfolio Managers (34.91%).
| Company | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Arihant Capital | 24.14 | 2.52 | 17.75 | 0.50 | 0.25 |
| Geojit Fin. Ser. | 18.07 | 1.81 | 17.31 | 1.98 | 0.11 |
| Dam Capital Advi | 17.19 | 6.83 | 41.81 | — | 0.01 |
| Dolat Algotech | 11.11 | 1.28 | 24.64 | 0.33 | 0.19 |
| Master Trust | 10.59 | 1.66 | 18.57 | — | 0.22 |
| Wealth First Por | 32.40 | 7.13 | 34.91 | 1.19 | 0.00 |
Arihant Capital's price-to-earnings ratio of 24.14x positions it at the higher end of the peer spectrum, above Geojit (18.07x), Dam Capital (17.19x), and significantly above Dolat Algotech (11.11x) and Master Trust (10.59x). This valuation premium appears challenging to justify given the company's current ROE of 10.43% and negative financial trend. The price-to-book ratio of 2.52x, whilst lower than Dam Capital (6.83x) and Wealth First (7.13x), exceeds that of Geojit (1.81x) and Dolat Algotech (1.28x).
The company's dividend yield of 0.50% trails most peers, with Geojit offering 1.98% and Wealth First providing 1.19%. The modest payout reflects management's preference for capital retention, though it offers limited income attraction for yield-seeking investors. With a market capitalisation of ₹1,052 crores, Arihant Capital ranks sixth amongst its peer group, classifying it as a micro-cap stock with attendant liquidity considerations.
Valuation Analysis: Fair Value Amidst Mixed Signals
At the current market price of ₹100.25, Arihant Capital trades at what proprietary analysis categorises as "Attractive" valuation, though this assessment warrants scrutiny given the deteriorating financial trends. The stock's price-to-earnings ratio of 24.14x aligns with the capital markets sector average of 24x, suggesting neither meaningful premium nor discount on this metric.
The price-to-book value of 2.52x appears reasonable when contextualised against the company's historical ROE of 17.75%, though the current ROE of 10.43% raises questions about the sustainability of this multiple. Using a conservative valuation framework that applies a 1.5x price-to-book multiple to the book value of ₹36.10, a fair value estimate of approximately ₹54 emerges, implying the stock may be trading at a 86% premium to this conservative base case.
However, employing an earnings-based approach with normalised earnings and a sector-appropriate 18x multiple suggests a fair value range of ₹90-₹110, within which the current price resides. The enterprise value to EBITDA multiple of 10.80x and EV to sales of 4.03x reflect the company's capital-light business model and reasonable profitability profile, though these multiples appear elevated relative to near-term earnings visibility.
The stock's 52-week range of ₹56.31 to ₹120.35 illustrates significant volatility, with the current price residing 16.70% below the high and 78.03% above the low. The valuation grade has oscillated between "Attractive" and "Fair" over recent months, reflecting the uncertainty surrounding earnings trajectory. Investors should approach valuation with caution, recognising that attractive multiples matter little if earnings momentum remains negative.
Shareholding: Stable Promoter Base, Minimal Institutional Interest
The shareholding pattern reveals a stable promoter holding of 69.81% that has remained unchanged across the past five quarters, signalling strong promoter commitment and alignment with minority shareholders. The promoter group, led by Ashok Kumar Jain (32.21%) and Kiran Jain (22.71%), maintains significant skin in the game with no pledging of shares—a positive indicator of financial health and confidence.
| Quarter | Promoter (%) | FII (%) | MF (%) | Insurance (%) | Other DII (%) | Non-Inst (%) |
|---|---|---|---|---|---|---|
| Sep'25 | 69.81 | 0.22 | 0.00 | 0.00 | 0.00 | 29.97 |
| Jun'25 | 69.81 | 0.03 | 0.00 | 0.00 | 0.00 | 30.16 |
| Mar'25 | 69.81 | 0.09 | 0.00 | 0.00 | 0.00 | 30.10 |
| Dec'24 | 69.81 | 0.51 | 0.00 | 0.00 | 0.00 | 29.68 |
| Sep'24 | 69.81 | 0.68 | 0.00 | 0.00 | 0.00 | 29.51 |
Foreign institutional investor (FII) holdings increased to 0.22% in September 2025 from 0.03% in June 2025, though this remains negligible in absolute terms. The sequential increase of 0.19% suggests marginal interest from overseas investors, possibly reflecting value-seeking behaviour at current price levels. However, the complete absence of mutual fund and insurance company holdings (both at 0.00%) raises concerns about institutional validation of the investment thesis.
The lack of domestic institutional participation—with zero mutual fund and insurance holdings—represents a significant red flag. Quality mid-cap and small-cap companies typically attract at least some institutional interest, and the complete absence suggests either limited awareness, liquidity concerns, or scepticism about growth prospects. The non-institutional shareholding of 29.97% comprises primarily retail and high-net-worth investors, contributing to the stock's volatility profile.
Stock Performance: Long-Term Outperformance Masks Recent Struggles
Arihant Capital's stock performance presents a tale of two timeframes. Over longer horizons, the stock has delivered exceptional returns—a remarkable 2,369.21% over ten years and 587.11% over five years, vastly outpacing the Sensex returns of 228.45% and 93.28% respectively. These historical returns generated substantial alpha of 2,140.76% and 493.83%, reflecting the company's successful navigation of India's capital markets evolution.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.55% | 1.69% | -1.14% |
| 1 Month | 0.55% | 1.19% | -0.64% |
| 3 Months | 4.11% | 5.40% | -1.29% |
| 6 Months | 43.62% | 3.18% | +40.44% |
| YTD | 1.98% | 8.72% | -6.74% |
| 1 Year | 0.75% | 9.50% | -8.75% |
| 2 Years | 47.25% | 29.12% | +18.13% |
| 3 Years | 43.42% | 37.57% | +5.85% |
| 5 Years | 587.11% | 93.28% | +493.83% |
| 10 Years | 2,369.21% | 228.45% | +2,140.76% |
However, recent performance tells a markedly different story. The one-year return of just 0.75% significantly underperforms the Sensex's 9.50% gain, resulting in negative alpha of 8.75%. Year-to-date returns of 1.98% also trail the broader market's 8.72% advance. This recent underperformance of 24.85% versus the Capital Markets sector index over the past year reflects investor concerns about the company's earnings trajectory.
The six-month return of 43.62% represents an anomaly, driven by a sharp rally from the 52-week low of ₹56.31 touched earlier in the year. This recovery generated positive alpha of 40.44% versus the Sensex, suggesting value buyers emerged at distressed levels. Technical indicators currently show a "Mildly Bullish" trend, with the stock trading below its 5-day, 20-day, 50-day, and 100-day moving averages, indicating near-term weakness despite longer-term support above the 200-day moving average of ₹87.50.
Investment Thesis: Balancing Long-Term Potential Against Near-Term Challenges
The investment case for Arihant Capital rests on several competing factors that investors must carefully weigh. The company's historical track record demonstrates capability in navigating market cycles and generating substantial long-term returns. The five-year average ROE of 17.75% reflects reasonable capital efficiency, whilst the debt-free balance sheet provides financial stability and flexibility for opportunistic growth initiatives.
The current proprietary score of 50 out of 100 places the stock in "HOLD" territory, with the assessment noting "not recommended for fresh buy" whilst suggesting existing holders "can continue to hold." This neutral stance reflects the tension between attractive valuation metrics (price-to-book of 2.52x with historical ROE of 17.75%) and concerning near-term financial trends (negative revenue and profit growth).
The quality assessment of "Average" acknowledges the company's reasonable long-term fundamentals whilst recognising limitations including minimal institutional participation (0.22% total) and recent operational challenges. The negative financial trend, driven by declining sales and profits over the past six months, represents the most significant headwind to the investment thesis. Until this trend reverses, upside potential remains constrained despite seemingly attractive valuation.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Strong historical returns with 587% five-year gain, vastly outperforming Sensex's 93% return
- Debt-free balance sheet with zero long-term borrowings provides financial flexibility
- Healthy five-year average ROE of 17.75% demonstrates reasonable capital efficiency
- Stable promoter holding of 69.81% with no pledging indicates strong alignment
- Operating margins above 40% reflect operational efficiency and cost discipline
- Diversified service offerings across equity, commodity, and advisory segments
- Attractive valuation grade at current price levels based on historical metrics
⚠ KEY CONCERNS
- Revenue declined 25.40% YoY in Q2 FY26, reflecting sustained top-line pressure
- Consolidated net profit down 34.40% YoY, with H1 FY26 profits falling 33.47%
- Current ROE of 10.43% significantly below five-year average of 17.75%
- Interest expenses surged 59.85% QoQ to ₹6.25 crores, pressuring margins
- Zero institutional participation from mutual funds and insurance companies
- Negative financial trend persists with declining sales and profits
- One-year stock return of 0.75% underperforms sector by 24.85%
- High volatility with 58.52% standard deviation categorised as "high risk, low return"
Outlook: What to Watch
The near-term outlook for Arihant Capital hinges on several critical factors that will determine whether the current challenges represent a cyclical trough or signal structural deterioration. Investors should monitor quarterly revenue trends closely, looking for stabilisation or recovery in net sales as an early indicator of improving market conditions. The sustainability of operating margins above 40% will be crucial, particularly in the context of competitive pressures and potential regulatory changes.
POSITIVE CATALYSTS
- ▲ Revival in retail participation and trading volumes across equity and commodity segments
- ▲ Stabilisation of interest costs and improvement in net interest margins
- ▲ Recovery in quarterly revenue growth demonstrating market share gains
- ▲ Expansion of advisory and fee-based income reducing trading dependency
- ▲ Institutional investor interest emerging as financial trends improve
RED FLAGS
- ▼ Sustained revenue decline beyond Q3 FY26 indicating structural market share loss
- ▼ Further deterioration in ROE below 10% eroding return profile
- ▼ Continued elevation in interest costs without corresponding revenue growth
- ▼ Operating margin compression below 35% due to competitive pressures
- ▼ Absence of institutional buying despite attractive valuations signalling deeper concerns
The company's ability to navigate the current challenging environment whilst preserving its margin profile will be critical. Management commentary on client acquisition, technology investments, and strategic initiatives will provide important insights into long-term positioning. Given the capital-light nature of the business, any sustained recovery in market activity should translate relatively quickly to improved financial performance.
"Arihant Capital's impressive long-term track record confronts the harsh reality of current operational challenges—investors must decide whether today's attractive valuation represents opportunity or value trap."
The Verdict: Hold with Caution
Score: 50/100
For Fresh Investors: Not recommended at current levels. Whilst valuation appears attractive on historical metrics, the negative financial trend and sustained revenue decline warrant caution. Wait for clear evidence of stabilisation in quarterly revenues and improvement in profitability metrics before initiating positions. The absence of institutional participation raises questions about visibility that prospective investors should heed.
For Existing Holders: Continue to hold positions with close monitoring of quarterly results. The company's strong historical track record, debt-free balance sheet, and stable promoter holding provide some comfort for patient investors. However, set strict review triggers—specifically, if quarterly revenues fail to stabilise by Q4 FY26 or if ROE declines further below 10%, consider reducing exposure. The 69.81% promoter holding with no pledging offers downside protection.
Fair Value Estimate: ₹90-₹110 per share (current price ₹100.25 within range). The stock trades near fair value based on normalised earnings assumptions, offering limited margin of safety. Meaningful upside requires earnings momentum to resume, which appears unlikely in the immediate term given sector headwinds and the company's negative financial trend.
Note- ROCE = (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance does not guarantee future results, and all investments carry risk of loss.
