Despite the quarterly profit surge, operational performance reveals underlying weaknesses. Net sales reached ₹15.37 crores in Q3 FY26, up 34.24% year-on-year and 21.89% sequentially, but operating profit margin (excluding other income) stood at just 17.27%, whilst other income contributed a substantial 59.10% of profit before tax—raising questions about earnings quality and sustainable profitability.
The Hyderabad-based brokerage firm, incorporated in 1985 and renamed B N Rathi Securities in 1994, operates in the competitive NBFC space with promoter holding at 46.76% and no institutional participation. The company's current valuation metrics present a mixed picture: trading at a P/E ratio of 10.78x—significantly below the industry average of 23x—with a price-to-book value of 0.83x and an attractive dividend yield of 3.38%.
| Quarter | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 15.37 | 12.61 | 11.58 | 8.37 | 11.45 | 14.37 | 13.63 |
| QoQ Growth | +21.89% | +8.89% | +38.35% | -26.90% | -20.32% | +5.43% | — |
| YoY Growth | +34.24% | -12.25% | -15.04% | — | — | — | — |
| Net Profit (₹ Cr) | 3.01 | 2.34 | 1.45 | 0.38 | 1.52 | 3.96 | 3.60 |
| QoQ Growth | +28.63% | +61.38% | +281.58% | -75.00% | -61.62% | +10.00% | — |
| YoY Growth | +98.03% | -40.91% | -59.72% | — | — | — | — |
| Operating Margin (Excl OI) | 17.27% | 14.14% | 10.99% | -11.94% | -2.22% | 25.70% | 22.10% |
| PAT Margin | 25.91% | 23.80% | 15.93% | 5.32% | 17.22% | 37.29% | 35.77% |
Financial Performance: Recovery Driven by Non-Operating Income
The company's Q3 FY26 financial performance presents a tale of two narratives. On the surface, consolidated net profit of ₹3.01 crores represents the highest quarterly profit in recent quarters, surging 98.03% year-on-year from ₹1.52 crores in Q3 FY25 and climbing 28.63% quarter-on-quarter from ₹2.34 crores in Q2 FY26. However, a deeper examination reveals that this growth is substantially supported by other income rather than core operational strength.
Net sales in Q3 FY26 reached ₹15.37 crores, marking a 34.24% year-on-year increase and a 21.89% sequential improvement. Whilst this revenue growth appears encouraging, it follows a challenging Q2 FY26 where sales declined 12.25% year-on-year. The operating profit before depreciation, interest, and tax (excluding other income) stood at ₹2.00 crores, yielding an operating margin of 17.27%—a marked improvement from the negative -2.22% margin in Q3 FY25, yet significantly below the 25.70% achieved in Sep'24.
The most concerning aspect of the quarterly results is the disproportionate contribution of other income to profitability. Other income totalled ₹2.37 crores in Q3 FY26, representing 59.10% of profit before tax of ₹4.01 crores. This heavy reliance on non-operating income raises questions about the sustainability of earnings and the underlying health of the core brokerage business. For a financial services company, such dependence on other income suggests that the primary revenue-generating activities may not be sufficiently robust.
On a nine-month basis for FY26, the picture becomes even more challenging. Consolidated net profit for the nine months ended December 2025 stood at ₹6.80 crores, declining 25.11% compared to the same period in the previous fiscal year. This deterioration in nine-month performance, despite the strong Q3 showing, indicates that the recent quarterly improvement may not represent a sustainable turnaround but rather a temporary uptick in a broader declining trend.
Operational Challenges: Margin Volatility and Quality Concerns
B N Rathi Securities faces significant operational challenges that extend beyond headline profit numbers. The company's operating margin (excluding other income) has exhibited extreme volatility over recent quarters, swinging from 25.70% in Sep'24 to -11.94% in Mar'25, before recovering to 17.27% in the latest quarter. Such dramatic fluctuations suggest an unstable business model vulnerable to market conditions and lacking operational consistency.
Return on equity (ROE) provides a mixed assessment of capital efficiency. The company's average ROE stands at 15.14%, which is respectable and above the peer group average of approximately 11%. However, the latest ROE has declined to 7.74%, indicating deteriorating profitability relative to shareholder equity. For investors focused on capital efficiency, this downward trend in ROE is concerning, particularly when considering that higher ROE typically signals better management effectiveness and competitive advantage.
The balance sheet reveals a company with minimal leverage—total long-term debt stands at zero, and the debt-to-equity ratio is 0.00. Whilst this debt-free status eliminates financial risk, it also suggests limited use of financial leverage to enhance returns. Shareholder funds increased to ₹70.94 crores as of March 2025 from ₹62.99 crores a year earlier, supported by a substantial increase in share capital from ₹10.25 crores to ₹20.75 crores, indicating a capital raising exercise that diluted existing shareholders.
Critical Concern: Earnings Quality
Non-operating income contributed 59.10% of Q3 FY26 profit before tax, raising serious questions about the sustainability of reported earnings. Core brokerage operations generated operating profit (excluding other income) of just ₹2.00 crores against total profit before tax of ₹4.01 crores. This heavy dependence on other income suggests the primary business may be struggling to generate adequate returns, making future profitability highly uncertain.
Employee costs have remained relatively stable at ₹2.36 crores in Q3 FY26 compared to ₹3.09 crores in Q3 FY25, suggesting some cost management discipline. However, the company's inability to translate revenue growth into proportionate operating profit growth points to underlying inefficiencies in the business model. The gross profit margin of 35.66% in Q3 FY26, whilst improved from 25.11% a year earlier, remains below the 50.75% achieved in Sep'24, indicating margin compression pressures.
Industry Context: Struggling in a Buoyant NBFC Sector
The broader NBFC sector has delivered strong returns over the past year, with the industry average return of 23.77% significantly outpacing the Sensex's 8.80% gain. Against this favourable backdrop, B N Rathi Securities' 53.37% decline stands out as particularly alarming, representing an underperformance of 77.14 percentage points versus the sector. This massive underperformance suggests company-specific issues rather than sector-wide headwinds.
The Indian brokerage and financial services industry has benefited from increased retail participation in equity markets, rising trading volumes, and growing investor interest in financial products. However, the sector has also become increasingly competitive, with larger, technology-enabled platforms gaining market share at the expense of smaller, traditional brokers. B N Rathi Securities, as a micro-cap company with limited institutional backing and no mutual fund or FII holdings, faces significant competitive disadvantages in this evolving landscape.
The company's quality assessment reveals fundamental weaknesses. Classified as "Below Average" quality by proprietary metrics, B N Rathi Securities struggles with institutional credibility—institutional holdings stand at 0.0%, indicating a complete absence of professional investor interest. Whilst the company demonstrates healthy long-term sales growth of 10.95% (5-year CAGR) and EBIT growth of 14.39%, these positives are insufficient to offset concerns about earnings quality, operational volatility, and competitive positioning.
| Company | P/E (TTM) | Div Yield | ROE % | Debt/Equity | P/BV |
|---|---|---|---|---|---|
| B N Rathi Securities | 10.78 | 3.38% | 15.14% | 0.00 | 0.83 |
| SKP Securities | 7.03 | 2.02% | 17.20% | 0.35 | 1.22 |
| Ceejay Finance | 9.01 | 0.64% | 9.30% | 0.62 | 0.86 |
| SPA Capital Services | 99.32 | — | 2.82% | 1.45 | 3.82 |
| 3P Land Holdings | 28.99 | — | 1.49% | 0.00 | 0.37 |
| Banas Finance | NA (Loss Making) | — | 24.63% | 0.00 | 0.32 |
Valuation Analysis: Attractive Metrics Cannot Offset Fundamental Concerns
At the current market price of ₹15.20, B N Rathi Securities trades at seemingly attractive valuation multiples that warrant closer examination. The P/E ratio of 10.78x represents a significant 53% discount to the industry average of 23x, whilst the price-to-book value of 0.83x suggests the stock trades below its accounting book value of ₹16.14 per share. On the surface, these metrics appear to offer value, but they must be interpreted in the context of deteriorating fundamentals and operational challenges.
The company's valuation grade has been classified as "Attractive," having shifted from "Very Expensive" in July 2025 as the stock price collapsed. However, attractive valuation alone does not constitute an investment case when accompanied by declining nine-month profitability, excessive reliance on non-operating income, and complete absence of institutional support. The stock's 57.78% decline from its 52-week high of ₹36.00 reflects market recognition of these fundamental issues rather than an attractive entry point.
The dividend yield of 3.38% provides some income support, with the company paying ₹0.50 per share in its latest dividend (ex-date: July 25, 2025). For income-focused investors, this yield offers modest compensation, though dividend sustainability remains questionable given the volatile earnings profile. The negative EV/EBITDA of -40.18x and EV/EBIT of -54.65x reflect the company's substantial cash holdings relative to its market capitalisation, but these metrics also highlight the market's deep scepticism about future earnings power.
Comparing B N Rathi Securities to its peer group reveals a company trading at lower multiples but also delivering inferior operational performance. Whilst the company's ROE of 15.14% exceeds the peer average, its latest ROE of 7.74% has fallen well below this benchmark. The zero debt-to-equity ratio, whilst eliminating financial risk, also suggests limited growth ambition and an inability to leverage the balance sheet for expansion—a potential competitive disadvantage in a capital-intensive financial services sector.
Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest
The shareholding pattern of B N Rathi Securities reveals a stable promoter base with minimal institutional participation—a structure that presents both stability and liquidity concerns. As of December 2025, promoter holding stood at 46.76%, declining marginally by 0.28 percentage points from 47.04% in the previous quarter. This minor reduction, whilst not alarming, indicates some dilution or stake reduction by the promoter group.
| Quarter | Dec'25 | Sep'25 | Jun'25 | Mar'25 |
|---|---|---|---|---|
| Promoter Holding | 46.76% | 47.04% | 47.04% | 47.04% |
| Sequential Change | -0.28% | 0.00% | 0.00% | — |
| FII Holding | 0.00% | 0.00% | 0.00% | 0.00% |
| Mutual Fund Holding | 0.00% | 0.00% | 0.00% | 0.00% |
| Insurance Holdings | 0.00% | 0.00% | 0.00% | 0.00% |
| Non-Institutional | 53.24% | 52.96% | 52.96% | 52.96% |
| Sequential Change | +0.28% | 0.00% | 0.00% | — |
The most striking aspect of the shareholding structure is the complete absence of institutional investors. Foreign institutional investors (FIIs), mutual funds, insurance companies, and other domestic institutional investors (DIIs) collectively hold 0.00% of the company's equity. This institutional void speaks volumes about professional investors' assessment of the company's prospects, governance quality, and growth potential. For a publicly traded financial services company, such institutional neglect is a significant red flag.
Non-institutional shareholders hold the remaining 53.24%, with a marginal increase of 0.28 percentage points in the latest quarter. The key promoters include Hari Narayan Rathi (28.02%), Nisha Rathi (12.17%), Chanda Devi Rathi (6.43%), and Chetan Rathi (0.14%). Positively, there is no promoter pledging, eliminating concerns about forced selling or governance issues related to pledged shares. However, the lack of institutional participation severely limits liquidity and professional oversight.
Stock Performance: Severe Underperformance Across All Timeframes
The stock's price performance has been disastrous across virtually all meaningful timeframes, with only longer-term periods showing positive returns. Over the past year, B N Rathi Securities has plummeted 53.37%, massively underperforming the Sensex's 8.80% gain by 62.17 percentage points. This represents one of the worst performances in the NBFC sector, where the average stock returned 23.77%—an underperformance of 77.14 percentage points versus the sector.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +4.25% | -0.89% | +5.14% |
| 1 Month | -4.70% | -0.94% | -3.76% |
| 3 Months | -17.44% | -1.94% | -15.50% |
| 6 Months | -37.27% | +2.85% | -40.12% |
| Year-to-Date | -8.60% | -2.80% | -5.80% |
| 1 Year | -53.37% | +8.80% | -62.17% |
| 2 Years | -38.05% | +15.77% | -53.82% |
| 3 Years | +55.70% | +37.08% | +18.62% |
| 5 Years | +133.85% | +60.71% | +73.14% |
The medium-term picture is equally concerning. Over six months, the stock has declined 37.27% whilst the Sensex gained 2.85%, resulting in a negative alpha of 40.12 percentage points. The three-month return of -17.44% versus the Sensex's -1.94% decline demonstrates continued weakness even in a softer market environment. Year-to-date, the stock is down 8.60% compared to the Sensex's 2.80% decline, indicating persistent selling pressure.
Recent price action offers little solace. Whilst the stock gained 4.25% over the past week and 3.47% on the latest trading day, these short-term bounces occur against a backdrop of severe technical damage. The stock trades below all key moving averages—5-day (₹14.91), 20-day (₹15.13), 50-day (₹15.97), 100-day (₹17.69), and 200-day (₹20.52)—indicating a firmly established downtrend with significant overhead resistance.
From a risk perspective, B N Rathi Securities exhibits high volatility with an annualised volatility of 36.71% compared to the Sensex's 11.46%. The stock's beta of 1.50 indicates it moves 50% more than the broader market, amplifying both gains and losses. However, with a risk-adjusted return of -1.45 over the past year, the stock falls into the "HIGH RISK LOW RETURN" category—the worst possible combination for investors. The negative Sharpe ratio confirms that investors have not been compensated for the substantial risk undertaken.
Technical Analysis: Bearish Trend with Limited Near-Term Catalysts
From a technical perspective, B N Rathi Securities remains entrenched in a bearish trend that shifted from "Mildly Bearish" to "Bearish" on February 10, 2026, at ₹15.16. The technical indicator summary presents a predominantly negative picture, with weekly MACD showing "Mildly Bullish" signals whilst monthly indicators remain firmly bearish. Bollinger Bands indicate "Mildly Bearish" conditions on a weekly basis and "Bearish" on a monthly basis, suggesting the stock continues to trade in the lower portion of its recent range.
Key technical levels define the near-term trading landscape. Immediate support rests at ₹14.00, representing the 52-week low and a critical psychological level. A break below this support could trigger accelerated selling. On the upside, immediate resistance appears at ₹15.13 (20-day moving average), followed by more substantial resistance at ₹17.69 (100-day moving average) and ₹20.52 (200-day moving average). The 52-week high of ₹36.00 represents distant resistance that appears increasingly unattainable given current fundamentals.
Delivery volumes have shown some improvement, with a 15.66% increase over the trailing one-month period compared to the previous month. The latest trading session recorded delivery volume of 28,480 shares representing 74.78% of total volume—slightly below the 5-day average of 75.38% but indicating reasonable conviction amongst buyers. However, this marginal improvement in delivery volumes does not alter the broader bearish technical structure or suggest an imminent trend reversal.
Investment Thesis: Value Trap Despite Attractive Valuation
The investment thesis for B N Rathi Securities presents a classic "value trap" scenario—superficially attractive valuation metrics masking deteriorating fundamentals and structural challenges. The proprietary Mojo Score of 32 out of 100 places the stock firmly in "SELL" territory, with the overall advisory recommending investors "Consider selling" and "Look for exit opportunities." This assessment reflects the convergence of multiple negative factors that outweigh any valuation appeal.
The Mojo 4 Dots analysis reveals a mixed picture that ultimately tilts negative. Valuation appears "Very Attractive" with the stock trading at significant discounts to book value and peer multiples. However, quality assessment rates the company as "Below Average" due to zero institutional holdings, operational volatility, and concerns about earnings sustainability. The financial trend shows "Positive" for the latest quarter but remains concerning on a nine-month basis with a 25.11% decline in profitability. Technical indicators remain firmly "Bearish," with the stock trading below all major moving averages.
KEY STRENGTHS
- Attractive Valuation: P/E of 10.78x represents 53% discount to industry average of 23x
- Below Book Value: Trading at 0.83x book value offers potential margin of safety
- Debt-Free Balance Sheet: Zero long-term debt eliminates financial risk and interest burden
- Healthy Dividend Yield: 3.38% yield provides income support for patient investors
- Strong Q3 Profit Growth: 98.03% YoY increase in net profit demonstrates recovery potential
- Above-Average ROE: Average ROE of 15.14% exceeds peer group average
- No Promoter Pledging: Eliminates governance concerns related to pledged shares
KEY CONCERNS
- Earnings Quality Issues: 59.10% of PBT comes from other income rather than core operations
- Nine-Month Profit Decline: 9M FY26 profit down 25.11% YoY despite Q3 recovery
- Zero Institutional Holdings: Complete absence of FII, MF, and DII participation signals lack of confidence
- Severe Stock Underperformance: 53.37% decline over past year vs Sensex +8.80%
- Deteriorating ROE: Latest ROE of 7.74% well below average of 15.14%
- Extreme Margin Volatility: Operating margins swinging from -11.94% to 25.70% across quarters
- High Volatility, Low Returns: 36.71% volatility with negative risk-adjusted returns
Outlook: Limited Catalysts for Near-Term Recovery
The forward outlook for B N Rathi Securities remains challenging, with limited visible catalysts for a sustainable turnaround. Whilst the Q3 FY26 profit recovery provides a positive data point, the underlying drivers—particularly the heavy reliance on non-operating income—raise questions about sustainability. For the stock to re-rate meaningfully, the company would need to demonstrate consistent improvement in core operating profitability, attract institutional investor interest, and stabilise its volatile margin profile.
POSITIVE CATALYSTS
- Sustained improvement in core operating margins above 20%
- Entry of institutional investors (MF/FII) signalling confidence
- Consistent quarterly profit growth reducing dependence on other income
- Strategic initiatives to enhance competitive positioning
- Technical breakout above ₹17.69 (100 DMA) with volume confirmation
RED FLAGS TO MONITOR
- Further increase in other income as percentage of PBT beyond 60%
- Q4 FY26 profit decline reversing Q3 recovery momentum
- Additional promoter stake reduction below 45%
- Technical breakdown below ₹14.00 support (52-week low)
- Continued absence of institutional buying despite low valuations
Key monitoring points for investors include the composition of Q4 FY26 earnings—specifically whether core operating profit can grow without disproportionate contribution from other income. Any signs of institutional accumulation would represent a significant positive development, though none appears imminent given the current quality assessment. From a technical perspective, a sustained move above the 100-day moving average of ₹17.69 with strong volumes would suggest potential trend reversal, but the stock currently lacks the momentum for such a breakout.
The Verdict: Avoid This Value Trap
Score: 32/100
For Fresh Investors: Avoid initiating positions. Whilst valuation metrics appear attractive, deteriorating nine-month profitability, excessive reliance on non-operating income, zero institutional participation, and severe technical damage create a high-risk proposition with limited upside visibility. The 53% annual decline reflects fundamental concerns that cheap valuations alone cannot overcome.
For Existing Holders: Consider reducing exposure on any technical bounce towards ₹17-18 levels. The Q3 profit recovery does not represent a sustainable turnaround given the quality concerns. With the stock in a confirmed bearish trend and nine-month profits declining 25%, the risk-reward profile remains unfavourable. Use any strength to exit rather than averaging down.
Fair Value Estimate: ₹12-14 (18% downside from current levels). The market's valuation reflects legitimate concerns about earnings quality and business sustainability that are unlikely to resolve in the near term.
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.
