Calcom Vision Q2 FY26: Strong Revenue Surge Masks Margin Pressures

The quarter's standout feature was the company's ability to translate robust revenue growth into improved profitability despite margin compression at the operating level. Net sales for Q2 FY26 reached ₹50.06 crores, representing an 11.05% sequential increase and a remarkable 46.89% year-on-year surge. This revenue momentum reflects strong demand for the company's LED lighting and related electronic products across domestic and industrial segments.

However, beneath the headline numbers lies a nuanced story of operational challenges. Operating profit margin (excluding other income) contracted to 7.77% in Q2 FY26 from 8.41% in the previous quarter, signalling rising cost pressures. The company's heavy reliance on other income—which constituted 71.79% of profit before tax—raises questions about the sustainability of core earnings. This dependency on non-operating income merits close scrutiny from investors evaluating the quality of reported profits.

Financial Performance: Revenue Momentum Meets Margin Headwinds

Calcom Vision's Q2 FY26 financial performance presents a tale of two narratives: impressive top-line expansion coupled with concerning margin dynamics. Net sales of ₹50.06 crores marked the second consecutive quarter of growth, following the sharp 146.74% year-on-year increase in Q1 FY26. On a half-yearly basis, H1 FY26 revenues stood at ₹95.14 crores, representing an 81.74% surge compared to the corresponding period last year.

The margin picture reveals underlying stress. Operating profit (PBDIT excluding other income) improved to ₹3.89 crores in Q2 FY26 from ₹3.79 crores in Q1 FY26, but the operating margin contracted by 64 basis points to 7.77%. This compression occurred despite revenue growth, suggesting that cost inflation—particularly in raw materials or employee expenses—is outpacing pricing power. Employee costs rose to ₹5.69 crores in Q2 FY26 from ₹5.39 crores in the previous quarter, a 5.57% sequential increase.

Interest expenses remained elevated at ₹1.73 crores, reflecting the company's debt burden. With long-term debt of ₹22.13 crores as of March 2025, financing costs continue to weigh on profitability. The interest coverage ratio (EBIT to Interest) averaged just 1.87 times over recent periods, indicating limited cushion to absorb further rate increases or business volatility.

Operational Challenges: The Margin Compression Story

While Calcom Vision's revenue trajectory appears robust, the operational efficiency metrics paint a more sobering picture. The company's return on equity (ROE) stands at a modest 3.59% on average, significantly trailing the sector's healthier performers. This weak ROE—far below the 15% threshold typically associated with quality businesses—indicates that the company is generating relatively poor returns on shareholder capital despite its growth initiatives.

Return on capital employed (ROCE) averaged 11.72% over recent periods, with the latest reading at just 5.65%. This deterioration in capital efficiency suggests that incremental investments are yielding diminishing returns. For a manufacturing business in the competitive electronics sector, such weak ROCE metrics indicate either intense pricing pressure, operational inefficiencies, or both.

The balance sheet reveals a company in expansion mode but carrying substantial leverage. Total debt stood at ₹22.13 crores as of March 2025, resulting in a debt-to-equity ratio of 0.65. While not alarming, this leverage level limits financial flexibility, particularly given the weak interest coverage. The debt-to-EBITDA ratio averaged 3.48 times, indicating that the company would need over three years of current EBITDA to repay its debt—a moderate concern for a cyclical business.

On the positive side, cash flow from operations turned decisively positive at ₹11.12 crores for FY25, the highest in recent years. This improvement in operating cash generation provides some comfort that the business is converting sales into cash despite margin pressures. However, the company invested ₹26.00 crores in capital expenditure during FY25, necessitating ₹14.00 crores in financing inflows to bridge the gap.

Industry Context: LED Lighting Market Dynamics

Calcom Vision operates in India's LED lighting and electronics manufacturing sector, a segment experiencing structural growth driven by energy efficiency mandates, government initiatives like the UJALA scheme, and increasing adoption across residential and industrial applications. The company's ISO 9001:2015, SA 8000:2014, and ISO 14001:2015 certifications position it to serve quality-conscious customers and participate in government procurement.

However, the sector remains intensely competitive with thin margins, as evidenced by Calcom's own operating margin profile. Chinese imports, domestic competition from larger players, and pricing pressures from procurement-driven sales create a challenging environment. The company's ability to grow revenues by 38.84% annually over five years demonstrates market share gains, but sustaining this momentum while improving profitability remains the critical challenge.

Relative to peers, Calcom Vision trades at a moderate P/E multiple of 29.53 times, below the sector outliers but above the most efficiently managed competitor, Veto Switchgears. The company's ROE of 3.59% lags significantly behind Maruti Interior's 13.64% and Veto's 8.23%, highlighting the profitability gap. However, Calcom's debt levels remain comparable to peers, suggesting the leverage itself isn't the primary concern—rather, it's the returns generated on that capital.

Valuation Analysis: Attractive Entry Point or Value Trap?

At the current price of ₹122.85, Calcom Vision trades at a P/E ratio of 29.53 times trailing twelve-month earnings—a significant discount to the sector average P/E of 66 times. The price-to-book ratio of 2.07 times appears reasonable given the book value per share of ₹40.07, though investors must question whether this book value accurately reflects earning power given the weak ROE.

The company's valuation grade has been upgraded to "Very Attractive" as of October 2025, reflecting the stock's underperformance relative to fundamentals. With an EV/EBITDA multiple of 14.85 times and EV/Capital Employed of 1.65 times, the valuation appears undemanding for a company growing revenues at 38.84% annually. The PEG ratio of 0.04 suggests the stock is trading well below its growth rate, typically a sign of attractive value.

The stock's technical trend turned bullish on November 7, 2025, at ₹124.50, supported by bullish signals from MACD, moving averages, and KST indicators. The stock trades above all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting positive momentum. However, with a high beta of 1.50, the stock exhibits significantly greater volatility than the broader market—a consideration for risk-averse investors.

Shareholding Pattern: Stable Promoter Base

The shareholding structure reveals a stable promoter base with minimal recent changes. Promoter holding stood at 64.32% as of September 2025, declining marginally by 0.12 percentage points from 64.44% in June 2025. The absence of promoter pledging (0.0% pledged shares) provides comfort regarding financial stability and alignment of interests.

Foreign institutional investor (FII) holding remained stable at 7.28%, with minimal quarterly fluctuations. The presence of two FIIs and three mutual funds, though representing modest stakes, indicates some institutional validation. However, the low institutional holding of 10.34% overall suggests limited coverage from the investment community—a characteristic common among micro-cap stocks that can lead to liquidity challenges and price volatility.

Non-institutional shareholding increased marginally to 25.35% in September 2025 from 25.21% in the previous quarter, suggesting retail investor accumulation. This trend, combined with stable promoter holdings, indicates a shareholder base that hasn't been shaken by recent volatility.

Stock Performance: Volatile Journey with Long-Term Gains

Calcom Vision's stock performance presents a study in contrasts across different time horizons. The immediate post-result reaction was positive, with the stock gaining 5.00% on November 14, 2025, outperforming the Sensex's 0.10% gain by 4.90 percentage points. Over the past month, the stock has delivered impressive returns of 13.28% against the Sensex's 3.09%, generating an alpha of 10.19 percentage points.

The medium-term performance shows strong momentum, with three-month returns of 19.21% and six-month returns of 33.77%, both significantly outperforming the benchmark. However, the one-year return of just 3.24% trails the Sensex's 9.00% gain, indicating recent underperformance. The two-year picture is particularly concerning, with the stock declining 16.43% while the Sensex gained 30.23%—a negative alpha of 46.66 percentage points.

The longer-term perspective dramatically shifts the narrative. Five-year returns of 514.25% and ten-year returns of 3,450.58% demonstrate exceptional wealth creation for patient investors. This performance suggests the company has successfully navigated multiple business cycles and captured significant market share gains over time, despite recent volatility.

Investment Thesis: Growth at a Reasonable Price with Quality Concerns

Calcom Vision's investment case rests on several pillars. The company has demonstrated impressive long-term growth, with sales expanding at a 38.84% compound annual rate over five years and EBIT growing at 65.64%. This growth trajectory, combined with a "Very Attractive" valuation grade and a PEG ratio of just 0.04, suggests the stock trades well below its growth potential.

The proprietary Mojo Score of 77 out of 100 places the stock in "BUY" territory, upgraded from "HOLD" on November 7, 2025. The score reflects positive near-term drivers (positive quarterly financial trend and bullish technicals), attractive valuation, and improving financial trajectory. The company's quality grade, while only "Average," has improved from "Below Average" in August 2025, indicating progress on operational metrics.

However, significant concerns temper the enthusiasm. The weak ROE of 3.59% and deteriorating ROCE of 5.65% indicate poor capital efficiency. Operating margins have contracted from 9.61% to 7.77% over recent quarters, suggesting pricing pressure or cost inflation. The heavy reliance on other income (71.79% of PBT) raises earnings quality questions. Interest coverage of just 1.87 times leaves limited cushion for business volatility.

Key Strengths & Risk Factors

Outlook: What to Watch

The forward outlook for Calcom Vision hinges on management's ability to translate revenue growth into sustainable margin expansion. The LED lighting sector offers structural tailwinds from energy efficiency adoption and government initiatives, but the company must demonstrate pricing power and operational efficiency to capitalise on these opportunities. Investors should monitor quarterly margin trends closely—any sustained improvement above 8.5% would signal successful navigation of cost pressures.

The company's heavy reliance on other income remains a critical monitoring point. If this dependency persists or increases, it would suggest that core operations aren't generating adequate returns, potentially undermining the growth narrative. Conversely, a reduction in other income's contribution to below 50% of PBT would indicate improving core profitability and enhance earnings quality.