Bajaj Electricals Q2 FY26: Profit Plunges 96.76% as Operating Margins Collapse

The quarterly performance represents one of the weakest periods in recent years for the 87-year-old electrical equipment manufacturer. Sequential performance was equally dismal, with net profit plummeting 98.46% from ₹59.05 crores in Q1 FY26. This dramatic reversal came despite the company's historically stronger performance in the March quarter, raising serious questions about the sustainability of its business model and competitive positioning in an increasingly challenging consumer durables market.

The stock closed at ₹513.25 on October 31, 2025, down 2.87% for the day and trading 44.60% below its 52-week high of ₹926.50. With all major moving averages breached and technical indicators firmly in bearish territory, the stock reflects the market's deep concerns about the company's fundamental deterioration and uncertain recovery prospects.

Financial Performance: A Quarter of Severe Deterioration

The numbers for Q2 FY26 paint a picture of comprehensive operational distress. Net sales declined 7.82% year-on-year to ₹1,064.59 crores from ₹1,154.91 crores, whilst sequentially falling 15.87% from ₹1,265.47 crores in Q1 FY26. This dual decline across both sequential and annual comparisons signals weakening demand across the company's product portfolio, particularly concerning given the typically strong summer season for appliances and fans.

Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) collapsed to ₹33.34 crores, representing a meagre operating margin of just 3.15% compared to 6.54% in Q2 FY25 and 7.37% in the previous quarter. This 339 basis points year-on-year margin compression reflects severe pricing pressure, adverse product mix, and operational inefficiencies that the company has struggled to address.

The profit before tax stood at a paltry ₹1.52 crores compared to ₹38.29 crores in the year-ago quarter, representing a 96.03% decline. After accounting for tax of ₹0.61 crores at an effective rate of 40.13%, the consolidated net profit came in at ₹0.91 crores, translating to an abysmal PAT margin of 0.09% versus 2.44% in Q2 FY25. This near-complete erosion of profitability underscores the magnitude of challenges facing the company.

Employee costs increased to ₹99.01 crores from ₹93.21 crores year-on-year, rising as a percentage of sales even as revenues declined. Interest costs climbed to ₹17.58 crores from ₹15.78 crores, whilst depreciation surged to ₹37.17 crores from ₹31.96 crores, reflecting the company's capital-intensive operations and ongoing investments that have yet to translate into improved returns.

Balance Sheet Under Pressure: Quality Deterioration Evident

The balance sheet as of March 2025 reveals a company grappling with operational challenges whilst maintaining a relatively debt-free structure. Shareholder funds stood at ₹1,725.11 crores, up from ₹1,441.22 crores in March 2024, supported by reserves of ₹1,670.87 crores. However, this increase came primarily from retained earnings in earlier quarters rather than the recent dismal performance.

The company operates with zero long-term debt, a positive from a solvency perspective. However, current liabilities stood at ₹2,246.60 crores as of March 2025, including trade payables of ₹1,912.52 crores. Current assets of ₹2,888.72 crores provide coverage, but the working capital intensity of the business remains high, tying up significant capital in inventory and receivables.

Return on equity, a critical measure of capital efficiency, averaged just 9.09% over recent years and fell to 6.71% in the latest period. This weak ROE, significantly below the cost of equity for most investors, indicates poor capital allocation and operational inefficiency. Return on capital employed (ROCE) tells a similar story at 9.15%, barely above the company's cost of capital and far below industry leaders.

Cash Flow Analysis: Operations Under Strain

Cash flow from operations for FY25 stood at ₹346 crores, down from ₹353 crores in FY24, marking the lowest level in recent years despite the company's scale. This deterioration in operating cash generation reflects the underlying profitability challenges and working capital inefficiencies that have plagued the business.

Cash flow from investing activities consumed ₹194 crores in FY25, down from ₹448 crores in FY24, suggesting a moderation in capital expenditure. Financing activities resulted in an outflow of ₹146 crores, primarily reflecting dividend payments and other shareholder distributions. The net cash position improved marginally to ₹119 crores from ₹114 crores, but this modest increase masks the underlying operational weakness.

Peer Comparison: Lagging on Most Metrics

When compared to peers in the electronics and appliances sector, Bajaj Electricals' underperformance becomes starkly evident. The company's ROE of 9.09% trails the peer average significantly, with competitors like Cello World (15.63%), Symphony (16.86%), and TTK Prestige (11.91%) demonstrating superior capital efficiency.

Despite trading at a P/E ratio of 65.90x, amongst the highest in the peer group, the company's operational metrics fail to justify such a premium valuation. The price-to-book ratio of 3.53x appears reasonable relative to peers but looks expensive when considering the weak ROE and deteriorating profitability trends.

The dividend yield of 0.57% is amongst the lowest in the peer group, with the latest dividend of ₹3 per share representing a payout ratio of 26.37%. Given the current profitability challenges, the sustainability of even this modest dividend appears questionable without a material improvement in earnings.

Valuation Analysis: Attractive Price Masks Fundamental Weakness

At the current price of ₹513.25, Bajaj Electricals trades at a P/E ratio of 65.90x based on trailing twelve-month earnings, a multiple that appears elevated given the deteriorating fundamentals. The price-to-book ratio of 3.53x translates to a premium of 243% over book value of ₹149.57 per share, difficult to justify with an ROE of just 6.71% in the latest period.

The stock has fallen 44.60% from its 52-week high of ₹926.50, leading to a valuation grade revision to "Attractive" as of October 15, 2025. However, this attractiveness is relative to the stock's own historical valuations rather than absolute value creation potential. The company's EV/EBITDA of 23.20x and EV/EBIT of 53.03x remain elevated, particularly when considering the margin pressures and profitability challenges.

The market capitalisation of ₹5,921 crores values the company at 1.30x sales, a premium that assumes significant operating leverage and margin expansion potential. However, the recent quarterly performance suggests the opposite trend, with margins contracting and profitability evaporating. Until the company demonstrates a credible path to restoring margins and growth, the current valuation appears to price in an optimistic recovery scenario that may not materialise.

Shareholding Pattern: Institutional Confidence Waning

The shareholding pattern reveals a company with minimal promoter holding of just 2.55%, unchanged over the past five quarters. This low promoter stake, whilst not unusual for professionally managed companies, removes a key alignment mechanism between management and minority shareholders. The promoter group, led by Jamnalal Sons Private Limited (19.54% within the promoter category) and Bajaj Holdings and Investment Limited (16.59%), has maintained a hands-off approach.

Foreign institutional investors (FIIs) held 7.75% as of September 2025, down marginally from 7.89% in June 2025 and 8.23% a year ago. This gradual reduction in FII holding, whilst modest, signals declining foreign investor appetite for the stock amidst the operational challenges. Mutual funds, holding 15.87% as of September 2025, have shown marginal increases recently but remain cautious.

The absence of insurance company holdings and minimal other domestic institutional investor (DII) participation suggests limited conviction amongst long-term institutional investors. Combined institutional holding of 23.62% remains modest, particularly for a company of this vintage and market presence. The recent marginal increase in mutual fund holdings appears tactical rather than reflecting strong fundamental conviction.

Stock Performance: Severe Underperformance Across All Timeframes

The stock's performance has been abysmal across virtually every meaningful timeframe, reflecting the market's loss of confidence in the company's business model and management execution. Over the past year, Bajaj Electricals has declined 41.34% whilst the Sensex gained 5.73%, resulting in a negative alpha of 47.07 percentage points. This massive underperformance ranks amongst the worst in the consumer durables sector.

The damage extends across longer timeframes as well. Over three years, the stock has plummeted 56.03% compared to the Sensex's 38.18% gain, producing a negative alpha of 94.21 percentage points. Even over five years, the stock's modest gain of 5.17% pales against the Sensex's 111.89% surge, resulting in a negative alpha of 106.72 percentage points.

The stock's risk-adjusted return of -1.18 over the past year, combined with high volatility of 35.14%, places it firmly in the "high risk, low return" category. The beta of 1.35 indicates the stock is 35% more volatile than the broader market, amplifying losses during downturns without commensurate gains during rallies. This unfavourable risk-return profile makes the stock unsuitable for conservative investors.

Relative to its sector, Bajaj Electricals has underperformed by 15.23 percentage points over the past year, with the electronics and appliances sector itself declining 26.11%. This suggests company-specific issues beyond broader sector headwinds, pointing to market share losses, margin pressures, and execution failures that have compounded industry challenges.

Technical Analysis: All Signals Point Downward

The technical picture for Bajaj Electricals is uniformly bearish across all major indicators and timeframes. The stock entered a bearish trend on September 25, 2025, at ₹565.65 and has since declined a further 9.26% to the current level of ₹513.25. The stock trades below all key moving averages—5-day (₹529.01), 20-day (₹538.93), 50-day (₹563.09), 100-day (₹606.55), and 200-day (₹617.36)—a classic sign of a sustained downtrend.

The MACD indicator shows bearish signals on both weekly and monthly charts, whilst the RSI, despite showing a bullish signal on the weekly chart, has failed to translate into price recovery. Bollinger Bands indicate the stock is trading in the lower band territory, suggesting oversold conditions but without signs of reversal. The On-Balance Volume (OBV) indicator shows a mildly bearish trend, indicating that volume is not supporting any potential recovery attempts.

Investment Thesis: Quality Concerns Outweigh Valuation Appeal

The investment case for Bajaj Electricals rests on a single pillar—attractive valuation following the severe price correction. However, this lone positive is overwhelmed by multiple fundamental and technical negatives. The company's quality grade of "Average" reflects long-term financial performance that has failed to create meaningful shareholder value, with weak ROE of 9.09% and ROCE of 11.49% over time.

The financial trend is decisively negative, with the Q2 FY26 results representing a nadir in profitability. Operating cash flow has declined to its lowest level in years at ₹346 crores, whilst profit after tax has collapsed. The concerning aspect is that this deterioration comes despite the company maintaining a debt-free balance sheet, suggesting operational rather than financial leverage issues.

The proprietary Mojo score of 28 out of 100 places the stock firmly in "Strong Sell" territory, down from 31 in mid-September. This score reflects the confluence of negative factors—bearish technicals, negative financial trends, consistent underperformance against benchmarks, and deteriorating operational metrics. The score has oscillated between "Sell" and "Strong Sell" ratings over recent months, never approaching even a "Hold" recommendation.

Outlook: What Lies Ahead

The path forward for Bajaj Electricals requires a comprehensive operational turnaround that addresses margin compression, restores pricing power, and revitalises demand across its product portfolio. The company operates in structurally attractive consumer durables and engineering segments, but has failed to capitalise on India's consumption growth story, losing ground to more agile competitors.

Management's ability to execute a credible turnaround plan will be critical. This must include rationalising the product portfolio, improving supply chain efficiency, reducing working capital intensity, and potentially exiting or restructuring loss-making business segments. The engineering, procurement, and construction (EPC) business, in particular, has been a source of volatility and margin pressure.

For the stock to merit reconsideration, investors would need to see at least three consecutive quarters of margin improvement, revenue stabilisation, and credible progress on operational efficiency metrics. Until such evidence emerges, the risk-reward remains unfavourable despite the valuation correction.