Artemis Electricals Q3 FY26: Profit Surge Masks Concerning Sequential Decline

With a market capitalisation of ₹514.00 crores and trading at ₹20.08, the stock has struggled significantly, losing 13.82% over the past year whilst the Sensex gained 8.74%, resulting in an alpha of -22.56%. The company's technical trend remains bearish, with the stock trading below all major moving averages and facing resistance at the ₹20.71 level. Despite the impressive year-on-year growth numbers, investors remain cautious, particularly given the company's negative financial trend classification and premium valuation at 45x trailing P/E.

Financial Performance: Volatility Remains the Dominant Theme

In Q3 FY26, Artemis Electricals reported net sales of ₹15.80 crores, down 20.00% sequentially from ₹19.75 crores in Q2 FY26, though significantly higher than the ₹4.02 crores recorded in Q3 FY25. This extreme volatility in quarterly revenue has been a persistent characteristic, with the company experiencing swings ranging from ₹2.46 crores to ₹37.49 crores over the past seven quarters. The operating profit margin of 29.94% in Q3 FY26, whilst respectable, represented a compression from the 33.83% achieved in the year-ago quarter, though it marked a substantial recovery from Q2 FY26's anaemic 11.19%.

The nine-month performance for FY26 presents a more encouraging picture, with net profit reaching ₹5.65 crores, representing growth of 51.88% compared to the prior year period. However, this improvement is built on an exceptionally low base from FY25, when the company was emerging from operational challenges. The PAT margin for Q3 FY26 stood at 22.41%, considerably higher than the year-ago quarter's 18.66%, indicating improved cost management despite revenue fluctuations.

On an annual basis, FY25 witnessed sales of ₹72.00 crores, marking a robust 75.60% increase from FY24's ₹41.00 crores. However, this growth trajectory has been inconsistent, with FY24 actually recording a 29.30% decline from FY23. The company's operating profit margin has also exhibited volatility, ranging from 15.30% in FY25 to 19.00% in FY23, before plunging to a loss-making -20.60% in FY22. Such erratic performance patterns raise questions about the sustainability of current growth rates and the company's ability to maintain consistent operational excellence.

Capital Efficiency: Weak Returns Despite Recent Improvements

Artemis Electricals' return on equity of 12.47% for the latest fiscal year, whilst representing an improvement from historical levels, remains substantially below industry benchmarks and peer performance. The average ROE of 11.17% over recent years indicates weak capital efficiency, particularly concerning for a company trading at premium valuations. The higher ROE demonstrates better utilisation of shareholder capital compared to earlier periods, but the absolute level suggests the company is not generating returns commensurate with the risk profile of a micro-cap stock in a cyclical sector.

The return on capital employed tells a similar story, with the latest ROCE of 15.86% showing improvement from the average of 7.09%, yet still falling short of creating substantial economic value. The company's balance sheet reveals shareholder funds of ₹85.96 crores as of March 2025, supported by minimal long-term debt of ₹2.47 crores, resulting in a conservative debt-to-equity ratio. This low leverage provides financial flexibility but also suggests the company may not be optimising its capital structure to enhance returns.

The Volatility Problem: Inconsistent Revenue and Margin Performance

The most striking aspect of Artemis Electricals' operational profile is the extreme quarter-to-quarter volatility in both revenue and profitability. Over the past seven quarters, net sales have ranged from a low of ₹2.46 crores to a high of ₹37.49 crores, representing a 15-fold variation. This inconsistency suggests either project-based revenue recognition, lumpy order execution, or fundamental challenges in maintaining steady business momentum. Such volatility makes financial forecasting exceptionally difficult and increases the risk profile for investors.

Operating margins have exhibited similar instability, fluctuating between 6.38% and 40.65% across quarters. Whilst the Q3 FY26 margin of 29.94% appears healthy, the lack of consistency raises questions about the company's pricing power, cost management capabilities, and competitive positioning. The electrical equipment sector typically demands consistent execution, particularly for companies serving infrastructure and industrial clients where project timelines and payment cycles can be extended.

The company's current financial trend has been classified as "Negative" by proprietary analysis, primarily driven by concerning quarterly metrics. Despite the nine-month profit growth of 51.88%, quarterly PAT has fallen 71.70% compared to the previous four-quarter average, and operating profit stands at its lowest level. These red flags indicate that the recent quarter's absolute numbers, whilst showing year-on-year improvement, represent a concerning deterioration in underlying business momentum.

Industry Leadership: How Artemis Electricals Compares to Peers

Within the other electrical equipment sector, Artemis Electricals occupies a modest position with a market capitalisation of ₹514.00 crores, ranking fifth amongst its peer group. The company's valuation metrics present a mixed picture when benchmarked against competitors. At a trailing P/E of 45.20x, Artemis trades at a significant premium to peers like Mangal Electricals (15.81x) and RMC Switchgears (16.28x), though below Permanent Magnet (53.86x) and Kirlampudi Electric (36.97x).

The critical differentiator lies in return metrics. Artemis Electricals' ROE of 11.17% significantly trails the peer group average of approximately 19%, with companies like Kirlampudi Electric (30.21%), RMC Switchgears (27.27%), and Mangal Electricals (25.51%) demonstrating substantially superior capital efficiency. This performance gap raises fundamental questions about why Artemis commands a premium valuation despite generating inferior returns. The company's price-to-book ratio of 5.63x appears elevated given the weak ROE, particularly when compared to Mangal Electricals trading at just 1.33x book value whilst delivering double the return on equity.

From a financial strength perspective, Artemis maintains the lowest debt-to-equity ratio at 0.02, providing superior financial flexibility compared to peers. However, this conservative balance sheet has not translated into competitive operational performance or consistent growth, suggesting the company may be under-leveraging its capital structure in a sector where judicious use of debt can accelerate growth and enhance returns.

Valuation Analysis: Premium Without Justification

Artemis Electricals currently trades at a trailing P/E ratio of 45.20x, representing a substantial premium to the sector average P/E of 60x. However, this comparison is somewhat misleading, as the sector average is inflated by loss-making companies. When compared to profitable peers with sustainable business models, Artemis' valuation appears stretched. The company's P/E multiple of 45.20x implies expectations of robust growth and margin expansion, neither of which are clearly visible in recent trends.

The price-to-book ratio of 5.63x further underscores the valuation concern. With an ROE of just 12.47%, the company is trading at approximately 0.45 times its ROE-adjusted fair value (using a simplified P/B = ROE × P/E/100 framework). This suggests the market is either pricing in a dramatic improvement in returns or the stock is overvalued relative to fundamentals. The EV/EBITDA multiple of 32.23x and EV/Sales of 5.61x both indicate premium valuations that require significant operational improvements to justify.

The proprietary Mojo Score of 27/100 and "Strong Sell" rating reflects the disconnect between valuation and fundamentals. The stock has been classified as "Very Expensive" since July 2023, with brief interruptions, indicating persistent overvaluation. The PEG ratio of 0.17x might suggest value, but this metric is distorted by the company's erratic growth patterns and should be interpreted with extreme caution given the volatility in earnings.

Shareholding: Stable Promoter Base, Zero Institutional Interest

The shareholding pattern reveals a stable promoter holding of 72.45% that has remained unchanged over the past five quarters through December 2025. This consistency provides governance stability and aligns promoter interests with minority shareholders. However, the complete absence of institutional participation—with zero holdings from foreign institutional investors, mutual funds, insurance companies, and other domestic institutional investors—represents a significant red flag.

The lack of institutional interest despite the company's listing and operational history suggests sophisticated investors have conducted due diligence and chosen to remain on the sidelines. Institutional investors typically avoid companies with inconsistent financial performance, weak return metrics, and limited visibility into future growth. The 27.55% non-institutional holding comprises primarily retail investors, who may lack the resources to conduct comprehensive fundamental analysis and are more susceptible to price volatility.

Additionally, the presence of 20.67% pledged shares amongst promoter holdings raises governance concerns. Whilst not at alarming levels, any promoter pledging introduces additional risk, particularly for micro-cap stocks where liquidity constraints can exacerbate price declines if pledged shares face margin calls during market downturns.

Stock Performance: Significant Underperformance Across Timeframes

Artemis Electricals has delivered disappointing returns across most relevant investment horizons, significantly underperforming both the broader market and its sector. Over the past year, the stock declined 13.82% whilst the Sensex gained 8.74%, resulting in negative alpha of -22.56%. The underperformance versus the electrical equipment sector, which returned 12.26%, amounts to -26.08%, indicating company-specific challenges rather than sector-wide headwinds.

The medium-term picture is even more concerning, with the stock down 51.14% over two years, massively underperforming the Sensex's 15.71% gain by -66.85%. This dramatic decline suggests fundamental deterioration in business prospects or a correction from previously inflated valuations. The three-year return of 129.75% appears impressive in isolation but largely reflects recovery from extremely depressed levels in 2023, rather than sustainable value creation.

From a technical perspective, the stock remains in a confirmed bearish trend since December 10, 2025, trading below all key moving averages. The 52-week range of ₹16.50 to ₹28.00 shows the current price of ₹20.08 positioned 28.29% below the high and 21.70% above the low, suggesting the stock is in a downtrend without clear support levels. The high beta of 1.50 indicates the stock is 50% more volatile than the market, amplifying both gains and losses—a characteristic that has worked against shareholders during the recent correction.

Investment Thesis: Multiple Red Flags Overshadow Growth Narrative

The investment case for Artemis Electricals rests on a narrow foundation of year-on-year growth metrics that, upon closer examination, reveal significant structural weaknesses. Whilst the company has demonstrated the ability to grow revenues and profits from a low base, the consistency required for sustainable value creation remains elusive. The proprietary Mojo Score of 27/100 reflects a confluence of negative factors across all four key dimensions of investment analysis.

The valuation dimension presents the most immediate concern, with the stock classified as "Very Expensive" since July 2023. Trading at 45.20x trailing earnings whilst generating ROE of just 12.47% creates a fundamental disconnect between price and value. The quality assessment of "Average" reflects modest long-term growth rates (9.25% sales CAGR, 4.28% EBIT CAGR over five years) and weak return metrics that fail to distinguish the company from peers. The negative financial trend, driven by deteriorating quarterly metrics despite year-on-year growth, signals momentum loss. Finally, the bearish technical trend with the stock trading below all moving averages indicates lack of buying interest and potential for further downside.

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