Centrum Capital Q2 FY26: Losses Deepen as Interest Burden Overwhelms Revenue Growth

With a market capitalisation of ₹1,593 crores, Centrum Capital faces a critical juncture as soaring interest costs continue to erode profitability. The company's net sales stood at ₹822.94 crores in Q2 FY26, reflecting a 5.02% year-on-year increase but a 2.76% sequential decline from Q1 FY26's ₹846.27 crores. The quarter's results highlight persistent structural challenges in the NBFC's business model, with interest expenses of ₹458.99 crores substantially exceeding operating profit.

The September 2025 quarter results paint a concerning picture for Centrum Capital, with operational metrics deteriorating across multiple dimensions. The company's inability to translate revenue growth into profitability stems primarily from an unsustainable interest burden that has grown faster than income. Interest costs surged 26.61% year-on-year to ₹458.99 crores, whilst operating profit before depreciation, interest, and tax stood at ₹451.14 crores—barely sufficient to cover debt servicing obligations.

Financial Performance: Deteriorating Profitability Amidst Revenue Volatility

Centrum Capital's Q2 FY26 financial performance reveals a company struggling with fundamental operational challenges. Net sales of ₹822.94 crores represented a modest 5.02% year-on-year increase from ₹783.63 crores in Q2 FY25, but the sequential 2.76% decline from Q1 FY26 signals inconsistent momentum. More troubling is the company's inability to convert this revenue into positive earnings, with the consolidated net loss widening dramatically to ₹40.65 crores from ₹13.93 crores in the previous quarter.

The operating margin excluding other income contracted sharply to 22.13% in Q2 FY26 from 25.21% in Q1 FY26, reflecting deteriorating operational efficiency. This margin compression occurred despite employee costs remaining relatively stable at ₹206.52 crores, up just 3.33% quarter-on-quarter. The real culprit behind the widening losses is the company's escalating interest burden, which consumed ₹458.99 crores during the quarter—representing 55.78% of net sales. This interest coverage ratio is unsustainable for any financial services business and points to a capital structure that requires urgent restructuring.

On a standalone basis, Centrum Capital reported a net loss of ₹8.50 crores in Q2 FY26, compared to a loss of ₹106.96 crores in Q1 FY26. However, this apparent improvement masks deeper issues at the consolidated level, where subsidiary performance has deteriorated. The profit after tax margin stood at a deeply negative 1.07% in Q2 FY26, whilst the gross profit margin remained negative at 0.99%, indicating that the company is operating below breakeven on core activities.

The Interest Burden Crisis: Unsustainable Capital Structure

The most critical issue facing Centrum Capital is its overwhelming interest burden, which has reached crisis proportions. In Q2 FY26, interest expenses totalled ₹458.99 crores, representing a 26.61% year-on-year increase from ₹362.53 crores in Q2 FY25. This expense line alone consumed more than half of the company's net sales and exceeded its operating profit of ₹451.14 crores, leaving no margin for profitability even before accounting for depreciation and taxes.

The company's debt-to-equity ratio stands at an alarming 58.09 times, amongst the highest in the NBFC sector and indicative of severe financial leverage. With shareholder funds of just ₹279.26 crores as of March 2025, the company is operating with borrowed capital that far exceeds its equity base. Current liabilities ballooned to ₹22,580.29 crores in FY25 from ₹17,269.97 crores in FY24, a 30.74% year-on-year increase that reflects aggressive borrowing to fund operations.

The return on equity (ROE) paints an even grimmer picture, standing at a deeply negative 67.13% for the latest period. This metric indicates that the company is not only failing to generate returns for shareholders but actively destroying shareholder value at an accelerated pace. The average ROE over the longer term is effectively 0.0%, highlighting chronic profitability challenges that have persisted across multiple years. For a financial services company, these metrics represent fundamental business model failure rather than temporary cyclical weakness.

Asset Quality and Balance Sheet Concerns

Centrum Capital's balance sheet reveals a company that has expanded rapidly but without corresponding improvements in profitability or capital efficiency. Fixed assets increased to ₹663.12 crores in FY25 from ₹440.37 crores in FY24, representing a 50.57% year-on-year growth. Investments surged to ₹5,281.11 crores from ₹3,913.85 crores, a 34.94% increase. However, this asset expansion has been funded almost entirely through debt, as evidenced by the explosion in current liabilities.

The company's current assets declined sharply to ₹1,942.49 crores in FY25 from ₹4,870.48 crores in FY24, a 60.12% contraction that raises questions about liquidity management and asset quality. This dramatic reduction in current assets alongside rising liabilities suggests potential stress in the company's working capital cycle. Cash flow from operations turned positive at ₹2,532 crores in FY25, but this was offset by significant investing activities consuming ₹1,704 crores, indicating that the company continues to deploy capital despite inadequate returns.

The absence of long-term debt on the balance sheet might appear positive at first glance, but the reality is that Centrum Capital is heavily reliant on short-term borrowings reflected in current liabilities. This funding structure creates refinancing risk and explains the elevated interest costs, as short-term debt typically carries higher rates and requires constant rollover. The company's book value per share stands at ₹7.91, yet the stock trades at ₹34.83—a price-to-book ratio of 5.73x that appears unjustified given the negative earnings and weak return metrics.

Peer Comparison: Centrum Capital Lags on All Key Metrics

When compared to peers in the NBFC sector, Centrum Capital's underperformance becomes starkly evident. The company's return on equity of 0.0% (averaged over multiple years) pales in comparison to peers such as Arman Financial Services (14.71%), PNB Gilts (13.28%), and LKP Finance (13.44%). Even Balmer Lawrie & Co., with a relatively modest ROE of 10.23%, significantly outperforms Centrum Capital on this critical profitability metric.

The valuation disconnect is equally striking. Centrum Capital trades at a price-to-book ratio of 5.73x, substantially higher than the peer average of approximately 3.3x. This premium valuation appears entirely unjustified given the company's negative earnings and weak return profile. Arman Financial Services, despite delivering superior ROE of 14.71%, trades at just 2.00x book value. PNB Gilts, with a healthy 13.28% ROE, commands a mere 1.02x book multiple. Centrum Capital's elevated P/BV ratio suggests significant downside risk as the market eventually reprices the stock to reflect fundamental reality.

From a leverage perspective, Centrum Capital's debt-to-equity ratio of 58.09x stands as an extreme outlier. Most peers maintain far more conservative capital structures, with Balmer Lawrie debt-free (0.00x), LKP Finance at 0.10x, and Finkurve Financial Services at 0.83x. Even Arman Financial, which operates in the higher-risk microfinance segment, maintains a manageable 1.41x debt-to-equity ratio. Centrum Capital's leverage is not only the highest in its peer group but represents a fundamental risk to the company's financial stability.

Valuation Analysis: Premium Pricing for Subpar Performance

Centrum Capital's valuation metrics present a paradox: the company trades at premium multiples despite delivering amongst the weakest financial performance in its peer group. With a price-to-book ratio of 5.73x and an EV-to-EBITDA multiple of 12.68x, the stock appears significantly overvalued relative to both its earnings power and asset base. The company's "Very Expensive" valuation grade—assigned by proprietary assessment models—accurately reflects this disconnect between price and fundamentals.

The absence of a meaningful P/E ratio (the company is loss-making) and dividend yield (no dividends paid since September 2019) eliminates two traditional valuation anchors for equity investors. The EV-to-sales ratio of 4.52x appears elevated for an NBFC struggling with profitability, particularly when compared to the sector average. The company's enterprise value relative to capital employed stands at 1.09x, suggesting the market is pricing in future growth and profitability improvements that have yet to materialise in reported results.

Historical valuation patterns reveal persistent overvaluation, with the stock oscillating between "Expensive" and "Very Expensive" grades since May 2023. This sustained premium pricing appears disconnected from operational reality, as the company has reported consecutive years of losses in FY25, FY24, and FY23. The stock's 52-week range of ₹22.41 to ₹41.90 indicates significant volatility, with the current price of ₹34.83 sitting 16.87% below the yearly high. However, even at the 52-week low, the stock would trade at approximately 3.69x book value—still expensive for a loss-making entity.

Shareholding Pattern: Promoter Accumulation Amidst Institutional Exit

The shareholding pattern for Centrum Capital reveals interesting dynamics, with promoters steadily increasing their stake whilst institutional participation remains minimal. Promoter holding stood at 49.90% as of September 2025, up from 46.91% in August 2025 and 45.24% in June 2025. This 299 basis points sequential increase suggests promoter confidence, though it's worth noting that promoter holding had declined sharply from 54.88% in March 2025 to 39.15% in December 2024 before the recent accumulation phase began.

Foreign institutional investor (FII) participation remains negligible at 1.55% as of September 2025, down slightly from 1.63% in August. The minimal FII interest—with just 8 foreign institutions holding stakes—reflects international investors' lack of conviction in the company's turnaround prospects. Mutual fund holdings are conspicuously absent at 0.00% across all recent quarters, indicating that domestic institutional investors have completely avoided the stock despite its small-cap classification typically attracting fund interest.

The emergence of other domestic institutional investors (DIIs) with a 3.86% stake in September 2025 (up from 0.00% in June 2025) provides a modest positive signal. However, insurance companies remain entirely absent from the shareholder base. Non-institutional holdings dominate at 59.75%, suggesting the stock is primarily held by retail investors and high-net-worth individuals rather than sophisticated institutional capital. This shareholding structure creates liquidity challenges and increases volatility, as evidenced by the stock's high beta of 1.35.

Stock Performance: Volatile Returns with Sector Underperformance

Centrum Capital's stock performance reflects the underlying business volatility, with returns varying dramatically across different timeframes. Over the past year, the stock has delivered a mere 0.64% return, significantly underperforming both the Sensex (4.62% return) and the broader NBFC sector (19.74% return). This 19.10 percentage point underperformance versus the sector benchmark highlights investor concerns about the company's financial health and future prospects.

The stock has shown strength in certain periods, particularly over six months with a 44.88% return that substantially outpaced the Sensex's 3.06% gain. However, this rally appears to have lost momentum, with the three-month return showing a 10.00% decline whilst the broader market gained 3.22%. Year-to-date, Centrum Capital has delivered a modest 5.35% return, slightly trailing the Sensex's 6.50% advance. The stock's recent one-week performance of 2.47% (versus Sensex's -0.86%) suggests some near-term buying interest, though this must be viewed in the context of broader underperformance.

Longer-term returns paint a mixed picture. The three-year return of 45.13% outperforms the Sensex's 36.01%, whilst the five-year return of 101.91% marginally exceeds the index's 98.64% gain. However, the four-year return of -16.77% against the Sensex's 38.54% advance reveals a period of significant value destruction. The stock's high volatility of 50.05% (versus Sensex volatility of 12.35%) and elevated beta of 1.35 classify it as a high-risk investment. The risk-adjusted return of just 0.01 over the past year indicates that investors are not being adequately compensated for the substantial volatility they must endure.

Investment Thesis: Multiple Red Flags Outweigh Limited Positives

The investment case for Centrum Capital is fundamentally challenged by structural issues that overshadow any potential positives. The company's proprietary investment score of 37 out of 100, accompanied by a "SELL" rating, accurately reflects the numerous concerns facing investors. The technical trend has recently turned "Mildly Bullish" as of October 30, 2025, but this short-term price momentum cannot offset the deep-seated fundamental weaknesses evident in the financial statements.

From a quality perspective, Centrum Capital rates as "Below Average," with the assessment explicitly noting weak long-term financial performance characterised by an average ROE of 0.0%. The company's quality grade has been stuck in "Below Average" territory since August 2025, following a downgrade from "Average" earlier in its history. The valuation assessment of "Very Expensive" compounds the quality concerns, creating a toxic combination of poor fundamentals and elevated pricing that leaves little margin of safety for investors.

The company's financial trend is described as "flat" in recent quarters, which understates the severity of deteriorating profitability. Whilst sales growth of 50.78% over five years appears impressive, this topline expansion has not translated into bottom-line improvement. The debt-to-equity ratio of 58.09x represents the highest amongst peers and serves as the primary structural impediment to profitability. Without significant deleveraging or a dramatic improvement in operating margins, the path to sustainable profitability remains unclear.

Key Strengths and Risk Factors

Outlook: Critical Monitoring Points for Investors

The path forward for Centrum Capital requires decisive action on capital structure, with debt reduction or equity infusion being non-negotiable priorities. The company's ability to navigate the next 12-18 months will determine whether it can restore investor confidence or faces more severe financial distress. Given the magnitude of challenges and the absence of near-term catalysts for improvement, investors should approach with extreme caution and prioritise capital preservation over speculative turnaround bets.