Baid Finserv Q2 FY26: Strong Profit Growth Masks Underlying Concerns

Despite the robust quarterly profit growth, Baid Finserv's shares have delivered a disappointing performance over the past year, declining 25.71% compared to the Sensex's 8.42% gain, resulting in a negative alpha of 34.13 percentage points. The company's weak return on equity of 6.68% and high leverage ratio of 1.43 times debt-to-equity underscore fundamental quality concerns that have kept institutional investors at bay, with institutional holdings standing at a mere 0.26%.

The company's performance in Q2 FY26 represents a continuation of its growth trajectory, with revenue reaching an all-time high of ₹23.84 crores. However, the marginal sequential revenue growth of just 0.25% quarter-on-quarter raises questions about momentum sustainability, even as the year-on-year comparison of 21.51% appears robust.

Financial Performance: Margin Expansion Drives Profitability

Baid Finserv's Q2 FY26 results reveal a company successfully leveraging operational efficiency to drive bottom-line growth. Net sales of ₹23.84 crores represented a modest 0.25% sequential increase but a healthy 21.51% year-on-year expansion. More impressively, the operating profit margin (excluding other income) expanded to 59.27%, up 263 basis points quarter-on-quarter from 56.64% in Q1 FY26.

The profit after tax margin climbed to 19.09% in Q2 FY26 from 16.90% in the previous quarter, reflecting improved operational leverage and cost management. Net profit of ₹4.55 crores marked the second-highest quarterly profit in the company's recent history, trailing only the ₹4.73 crores reported in Q3 FY25 (December 2024 quarter).

On a half-yearly basis, Baid Finserv reported cumulative revenue of ₹47.62 crores for H1 FY26, representing growth from the corresponding periods. Net profit for H1 FY26 stood at ₹8.57 crores, demonstrating consistent profitability across both quarters of the current fiscal year.

Interest costs remained flat at ₹7.99 crores quarter-on-quarter, indicating stable funding costs despite the challenging interest rate environment. Employee costs also held steady at ₹2.38 crores, unchanged from Q1 FY26, suggesting disciplined cost control. The tax rate of 25.16% in Q2 FY26 remained consistent with the 25.14% reported in the previous quarter, reflecting normalised tax provisions.

Operational Challenges: Weak Return on Equity Signals Capital Inefficiency

Despite the positive quarterly momentum, Baid Finserv's fundamental quality metrics paint a concerning picture. The company's return on equity stands at a weak 8.02% for the latest quarter, with the five-year average ROE at just 6.68%. This level of capital efficiency falls significantly short of what investors typically expect from financial services companies, where ROE levels above 15% are generally considered healthy.

The company's return on capital employed (ROCE) of 11.20% likewise indicates suboptimal deployment of capital resources. For a non-banking financial company operating in a competitive lending environment, these profitability metrics suggest either margin pressure, asset quality concerns, or inefficient capital allocation—or possibly a combination of all three factors.

Balance sheet leverage remains elevated, with the debt-to-equity ratio standing at 1.43 times. Whilst this level of leverage is not uncommon for NBFCs, it does amplify risks in an environment of potential asset quality deterioration or funding stress. Current liabilities of ₹280.98 crores as of March 2025 significantly outweigh shareholder funds of ₹179.03 crores, indicating reliance on external funding for operations.

Industry Context: Struggling Amidst Sector Tailwinds

The broader NBFC sector has delivered robust returns of 24.57% over the past year, benefiting from strong credit demand, improving asset quality, and favourable regulatory developments. However, Baid Finserv has dramatically underperformed this sector benchmark, posting a negative return of 25.71% over the same period—a differential of 50.28 percentage points.

This stark underperformance suggests company-specific challenges rather than sector-wide headwinds. Whilst larger, better-capitalised NBFCs have successfully navigated the operating environment, Baid Finserv's micro-cap status, limited institutional following, and weak profitability metrics have left it out of favour with investors.

The company's five-year sales growth of 8.10% and EBIT growth of 5.36% lag behind the more aggressive growth rates posted by many peers in the NBFC space. This modest growth profile, combined with weak return ratios, positions Baid Finserv as a laggard in a sector that has otherwise been characterised by strong performance and attractive investment opportunities.

Peer Comparison: Valuation Discount Reflects Quality Concerns

A comparison with peer NBFCs reveals why Baid Finserv trades at a significant valuation discount despite appearing statistically cheap on conventional metrics.

Baid Finserv's P/E ratio of 9.15 times and price-to-book value of 0.73 times appear attractive on the surface. However, these multiples must be evaluated in the context of the company's weak 6.68% ROE, which significantly lags behind high-quality peers such as Stellant Securities (33.26% ROE). The market's valuation discount reflects justified concerns about capital efficiency and earnings quality.

Notably, Baid Finserv carries higher leverage (1.43x debt-to-equity) compared to most peers, amplifying both returns and risks. Whilst RSD Finance trades at a similar P/E multiple of 8.94x, it maintains significantly lower leverage at just 0.10x debt-to-equity, suggesting a more conservative capital structure.

Valuation Analysis: Cheap for a Reason

At the current market price of ₹10.92, Baid Finserv trades at a P/E ratio of 9.15 times trailing twelve-month earnings and 0.73 times book value. The company's PEG ratio of 0.24 suggests the stock is trading well below its growth rate, whilst the EV/EBITDA multiple of 7.38 times appears reasonable for a financial services company.

The proprietary valuation assessment classifies Baid Finserv as "Very Attractive" from a pure valuation perspective. However, this attractive valuation grade must be tempered by the company's "Below Average" quality rating, which reflects weak long-term financial performance, low institutional holdings of just 0.26%, and subpar return on equity.

The stock currently trades 39.16% below its 52-week high of ₹17.95 but remains 20.26% above its 52-week low of ₹9.08. This positioning suggests the market has already priced in significant concerns, though further downside cannot be ruled out if operational performance deteriorates or if the technical trend worsens.

The dividend yield of 0.91% based on the latest dividend of ₹0.10 per share provides minimal income support for investors. The modest payout reflects the company's need to retain capital for growth and to strengthen its capital adequacy ratios.

Shareholding Pattern: Stable Promoter Base, Negligible Institutional Interest

The shareholding structure of Baid Finserv reveals a stable promoter base but an alarming absence of institutional investor confidence.

Promoter holding has remained stable at 36.25% for the past four quarters, following a marginal increase from 35.41% in September 2024. This stability provides some comfort regarding management commitment, with no signs of promoter exits or pledge concerns (the company reports zero pledged shares).

However, the near-complete absence of institutional investors is a significant red flag. Foreign institutional investor holdings stand at a negligible 0.26%, having declined marginally from 0.29% in the previous quarter. More concerning is the complete absence of mutual fund holdings, insurance company investments, and other domestic institutional investors. This lack of institutional participation suggests quality concerns that have deterred sophisticated investors from building positions despite the seemingly attractive valuation.

Non-institutional shareholders, comprising retail and other investors, hold 63.49% of the company—a proportion that has remained relatively stable. Whilst retail investor interest can sometimes drive short-term price movements, the absence of institutional anchor investors limits liquidity and increases volatility risk.

Stock Performance: Persistent Underperformance Across Timeframes

Baid Finserv's stock price performance has been disappointing across most relevant timeframes, with particularly sharp underperformance versus the broader market.

The recent one-week gain of 7.16% and one-month advance of 5.51% suggest some near-term momentum, potentially driven by the positive Q2 FY26 results. However, these short-term gains pale in comparison to the severe underperformance over longer horizons. The year-to-date decline of 28.39% against the Sensex's 7.64% gain translates to negative alpha of 36.03 percentage points.

The two-year and three-year returns paint an even grimmer picture, with the stock down 50.36% and 44.99% respectively, whilst the Sensex surged 29.53% and 36.49% over the same periods. This persistent underperformance suggests deep-seated fundamental challenges that have eroded shareholder value.

The stock's beta of 1.50 indicates high volatility relative to the broader market, with volatility of 50.12% significantly exceeding the Sensex's 12.26%. This high-beta, high-volatility profile, combined with negative returns, places Baid Finserv in the undesirable "high risk, low return" category.

Technical Analysis: Mildly Bearish Trend Offers Little Support

From a technical perspective, Baid Finserv's chart presents a challenging picture. The stock currently trades in a "Mildly Bearish" trend as of November 12, 2025, having shifted from a "Bearish" classification. The stock price of ₹10.92 sits below all key moving averages—the 5-day (₹10.55), 20-day (₹10.53), 50-day (₹10.84), 100-day (₹11.37), and 200-day (₹11.16) moving averages.

This positioning below all major moving averages indicates weak momentum and suggests that any rallies may face resistance at these technical levels. The immediate resistance zone lies at the 20-day moving average of ₹10.53, whilst the 52-week low of ₹9.08 provides crucial support. A breach of this support level could trigger further selling pressure.

Technical indicators present mixed signals, with MACD showing bearish readings on the weekly timeframe but mildly bullish on monthly charts. The Relative Strength Index (RSI) shows no clear signal, suggesting the stock is neither oversold nor overbought. Bollinger Bands indicate mildly bearish conditions on both weekly and monthly timeframes, reflecting ongoing price weakness.

Investment Thesis: Quality Concerns Outweigh Valuation Appeal

The investment case for Baid Finserv presents a classic value trap scenario—statistically cheap valuations that mask fundamental quality deficiencies.

The company's overall Mojo Score of 43 out of 100 results in a "SELL" rating, reflecting the confluence of negative factors that outweigh the attractive valuation. The primary concerns limiting the score are the bearish technical trend and weak long-term fundamental strength characterised by the average ROE of just 6.68%.

Key Strengths & Risk Factors

Outlook: What to Watch

Looking ahead, Baid Finserv faces the challenge of converting its recent quarterly momentum into sustained performance improvement. The company must demonstrate consistent profitability, improve return ratios, and attract institutional investor interest to justify a re-rating. Until these fundamental improvements materialise, the stock is likely to remain range-bound with limited upside potential despite appearing statistically cheap.