Century Extrusions Q2 FY26: Margin Expansion Drives Profitability Despite Modest Revenue Growth

The quarter's performance showcased Century Extrusions' ability to enhance profitability through margin expansion, with operating margins reaching a seven-quarter high of 6.99%, up from 6.69% in Q1 FY26 and 6.24% in Q2 FY25. This improvement in operational efficiency, combined with better cost management, enabled the company to deliver robust bottom-line growth despite facing a challenging demand environment in the aluminium extrusion industry.

The stock has exhibited significant volatility over the past year, delivering a one-year return of 26.67%, outperforming the Sensex's 9.50% gain by a substantial margin. However, recent momentum has softened, with the stock declining 11.55% over the past month, reflecting broader market concerns and profit-booking after a strong run-up earlier in the year.

Financial Performance: Margin Expansion Takes Centre Stage

Century Extrusions' Q2 FY26 financial performance revealed a company successfully navigating through a period of modest demand growth by focusing on operational efficiency and margin improvement. Net sales for the quarter stood at ₹109.66 crores, representing a sequential growth of 5.29% from ₹104.15 crores in Q1 FY26 and a year-on-year increase of 2.97% from ₹106.50 crores in Q2 FY25. Whilst the revenue growth remained subdued, the company's ability to extract better profitability from its operations stood out as the defining characteristic of the quarter.

The operating profit before depreciation, interest, and tax (PBDIT), excluding other income, reached ₹7.67 crores in Q2 FY26, marking the highest level in seven quarters and reflecting a sequential improvement of 10.04% from ₹6.97 crores in Q1 FY26. The corresponding operating margin expanded to 6.99%, up from 6.69% in the previous quarter and 6.24% in the year-ago period. This 75-basis-point year-on-year margin expansion signals improving pricing power and better cost management, particularly noteworthy given the competitive nature of the aluminium extrusion industry.

Employee costs for Q2 FY26 stood at ₹5.10 crores, representing 4.65% of net sales, slightly higher than the ₹4.95 crores (4.75% of sales) in Q1 FY26 but lower than the ₹5.28 crores (4.96% of sales) reported in Q2 FY25. Interest expenses increased to ₹3.02 crores from ₹2.67 crores in the previous quarter, reflecting higher working capital requirements as the company scaled up operations. Depreciation remained relatively stable at ₹1.11 crores compared to ₹1.22 crores in Q1 FY26.

The profit before tax (PBT) for Q2 FY26 reached ₹3.57 crores, up 13.69% sequentially from ₹3.14 crores and 11.91% higher year-on-year from ₹3.19 crores. The effective tax rate for the quarter came in at 22.69%, down from 24.84% in Q1 FY26, contributing to the stronger net profit growth. The net profit after tax (PAT) of ₹2.76 crores translated to a PAT margin of 2.52%, marking a 25-basis-point sequential improvement and a 29-basis-point year-on-year expansion.

On a half-yearly basis, H1 FY26 saw net sales of ₹213.81 crores, up 5.58% from ₹207.92 crores in H1 FY25. Net profit for H1 FY26 stood at ₹5.12 crores compared to ₹4.81 crores in the year-ago period, representing a growth of 6.44%. The company's ability to maintain profitability growth ahead of revenue growth underscores the success of its margin enhancement initiatives.

Operational Excellence: Return on Capital Efficiency Shines Through

Century Extrusions has demonstrated impressive capital efficiency metrics that position it favourably within the industrial products sector. The company's return on capital employed (ROCE) stands at a robust 19.45% for the latest period, significantly higher than the five-year average of 16.60%. This elevated ROCE indicates that the company is generating superior returns on the capital deployed in its business, a critical metric for evaluating management's ability to create shareholder value. The improvement in ROCE from the historical average suggests that recent capital allocation decisions and operational improvements are bearing fruit.

The return on equity (ROE) metric tells a more nuanced story, with the latest figure of 12.34% showing improvement from the five-year average of 9.29%. Whilst this represents positive momentum, the ROE remains in single digits on a historical basis, reflecting the company's moderate leverage and the capital-intensive nature of the aluminium extrusion business. Higher ROE indicates better capital efficiency and profitability, and Century Extrusions' improving trajectory in this metric deserves recognition, though there remains scope for further enhancement.

The company's balance sheet reflects a disciplined approach to leverage management. As of March 2025, shareholder funds stood at ₹82.97 crores, up from ₹73.05 crores in March 2024, driven by retained earnings. Long-term debt has been progressively reduced to ₹1.86 crores from ₹4.30 crores a year earlier, demonstrating management's commitment to deleveraging. The net debt to equity ratio of 0.39 indicates a conservative capital structure, providing financial flexibility for future growth investments whilst maintaining a cushion against cyclical downturns.

Working capital management has shown mixed signals. Current assets stood at ₹113.29 crores against current liabilities of ₹83.10 crores as of March 2025, providing a healthy current ratio of 1.36x. However, the cash flow from operations of ₹13 crores in FY25, whilst positive, reflected a ₹8 crore outflow due to changes in working capital, indicating that the company has been building inventory and receivables to support growth. Trade payables decreased to ₹27.13 crores from ₹28.46 crores, suggesting improved supplier payment terms or reduced credit purchases.

The company's fixed asset base stood at ₹27.37 crores as of March 2025, relatively stable compared to ₹27.84 crores in the previous year. Capital expenditure of ₹6 crores during FY25 suggests ongoing maintenance and modest capacity expansion, though not at levels that would indicate aggressive growth plans. The sales to capital employed ratio of 3.00x demonstrates efficient asset utilisation, with the company generating three rupees of revenue for every rupee of capital employed.

The Interest Burden: A Monitoring Point for Profitability

One aspect that warrants closer attention is Century Extrusions' interest coverage, which has shown signs of strain. The EBIT to interest ratio averaged 2.11x over the past five years, indicating that the company's earnings before interest and tax cover interest expenses just over twice. Whilst this is above the critical threshold of 1.5x, it leaves limited cushion during periods of operational stress or rising interest rates. In Q2 FY26, interest expenses of ₹3.02 crores represented 27.54% of the operating profit, a significant proportion that constrains net profitability.

The debt to EBITDA ratio of 2.18x, based on historical averages, falls into the moderate category. For a manufacturing company with cyclical exposure, this level of leverage requires careful monitoring, particularly as the company navigates through periods of softer demand. The good news is that the absolute debt levels have been declining, with long-term debt falling from ₹12.62 crores in March 2022 to just ₹1.86 crores in March 2025, a reduction of over 85%. This deleveraging trajectory provides confidence that management is prioritising balance sheet strength.

Cash flow generation remains a strength, with the company posting positive operating cash flows of ₹13 crores in FY25, up from ₹11 crores in FY24. However, the cash flow from operations has been volatile historically, turning negative in FY22 (₹7 crores outflow) due to significant working capital build-up. The company's ability to maintain positive cash generation whilst supporting growth will be a key determinant of its financial flexibility and debt reduction capacity going forward.

Industry Context: Navigating the Aluminium Extrusion Landscape

Century Extrusions operates in India's aluminium extrusion industry, which serves diverse end-use sectors including construction (doors, windows, partitions), furniture, transport, and consumer durables. The company's strategic location in Kharagpur, West Bengal, provides proximity to leading primary aluminium manufacturers in eastern India, offering logistical advantages and potentially better raw material pricing. As one of India's larger pure-play aluminium extrusion manufacturers, Century Extrusions benefits from scale advantages in a fragmented industry.

The aluminium extrusion market in India has been growing steadily, driven by increasing urbanisation, infrastructure development, and the gradual shift from traditional materials to aluminium in construction and automotive applications. However, the industry remains highly competitive and price-sensitive, with margins often compressed by fluctuations in aluminium prices and intense competition. The modest 2.97% year-on-year revenue growth in Q2 FY26 reflects the challenging demand environment, possibly impacted by slower construction activity and cautious consumer spending.

Century Extrusions' ability to expand margins despite flat-to-modest revenue growth suggests it may be gaining market share, improving product mix towards higher-value applications, or successfully passing through cost increases to customers. The company's focus on operational efficiency and cost control appears to be paying dividends in a competitive market where many players struggle to maintain profitability.

Looking ahead, the industry's growth prospects remain tied to infrastructure spending, real estate activity, and the adoption of aluminium in new applications. The government's push for affordable housing, smart cities, and metro rail projects could provide tailwinds for aluminium extrusion demand. However, any slowdown in construction activity or volatility in raw material prices poses risks to revenue growth and margin sustainability.

Peer Comparison: Valuation Discount Despite Operational Strength

When benchmarked against peers in the industrial products sector, Century Extrusions presents an interesting valuation proposition. The company trades at a price-to-earnings (P/E) ratio of 21.00x, significantly lower than most of its listed peers. L.T. Elevator trades at 34.73x, Galaxy Bearings at 38.36x, Sampann Utpadan at 43.19x, Baroda Extrusion at 32.51x, and Shilp Gravures at 48.92x. This valuation discount suggests the market is either undervaluing Century Extrusions' earnings quality or factoring in concerns about growth sustainability.

The price-to-book value (P/BV) ratio of 2.59x for Century Extrusions sits in the middle of the peer range, higher than Shilp Gravures (1.34x) and Galaxy Bearings (2.19x) but well below Sampann Utpadan (20.26x) and Baroda Extrusion (7.93x). This suggests the market is assigning reasonable value to the company's book value, neither excessively optimistic nor overly pessimistic.

From a profitability standpoint, Century Extrusions' ROE of 9.29% compares favourably to Baroda Extrusion (6.10%) and Shilp Gravures (9.48%) but lags Galaxy Bearings' impressive 17.86%. The company's conservative debt-to-equity ratio of 0.39 positions it well relative to highly leveraged peers like Sampann Utpadan (10.42x debt-to-equity), providing financial stability and flexibility.

The absence of dividend payments across most peers, including Century Extrusions, reflects the capital-intensive nature of the industry and management's preference to retain earnings for growth and debt reduction. Only Shilp Gravures offers a modest 0.93% dividend yield, suggesting that investors in this sector should focus on capital appreciation rather than income generation.

Overall, Century Extrusions appears to offer a compelling valuation relative to peers, trading at a discount despite maintaining respectable profitability and a strong balance sheet. The lower P/E multiple may reflect concerns about the company's modest revenue growth or its smaller market capitalisation (₹205 crores), which limits institutional participation and liquidity.

Valuation Analysis: Attractive Entry Point at Current Levels

At the current market price of ₹26.88, Century Extrusions trades at a P/E ratio of 21.00x, which appears reasonable given the company's improving profitability trajectory and operational efficiency. The industry average P/E of approximately 10x suggests Century Extrusions commands a premium, justified by its higher ROCE and improving margins. However, compared to the broader peer group trading at 30-45x earnings, Century Extrusions looks attractively valued.

The enterprise value (EV) to EBITDA multiple of 8.98x provides another lens for valuation. This metric, which accounts for the company's debt levels, suggests the market is valuing the business at less than 9 times its operating cash flow generation. For a company with improving margins and declining debt, this appears conservative. The EV to capital employed ratio of 2.14x indicates investors are paying ₹2.14 for every rupee of capital employed, which, combined with a ROCE of 19.45%, suggests value creation potential.

The PEG ratio of 0.65x is particularly noteworthy, suggesting the stock is undervalued relative to its growth rate. A PEG ratio below 1.0 typically indicates that a stock is trading below its growth-adjusted fair value. Given Century Extrusions' five-year sales CAGR of 18.67% and EBIT CAGR of 26.34%, the current valuation appears to offer a margin of safety.

The stock's 52-week range of ₹15.36 to ₹34.80 provides context for the current price. Trading at ₹26.88, the stock sits 22.76% below its 52-week high but 75.00% above its 52-week low. This positioning suggests the stock has corrected from recent highs but remains well above its lows, indicating market confidence in the company's fundamentals despite near-term volatility.

The valuation grade has fluctuated between "Attractive" and "Very Attractive" over recent months, currently sitting at "Attractive." This assessment, combined with the proprietary Mojo Score of 64/100 (HOLD rating), suggests the stock offers reasonable value but may not represent a compelling "buy" at current levels without further catalysts or price correction.

Shareholding Pattern: Stable Promoter Base with Limited Institutional Interest

Century Extrusions' shareholding structure reveals a company with an unusually low promoter holding of just 13.54%, which has remained unchanged over the past five quarters through September 2025. This low promoter stake is atypical for Indian companies and raises questions about the level of promoter commitment and alignment with minority shareholders. The promoter group includes entities such as Paramsukh Properties (14.26% of promoter holding), Sita Devi Jhunjhunwala (12.63%), and Vintage Securities Limited (9.30%), amongst others.

Foreign institutional investor (FII) holding stands at a negligible 0.16% as of September 2025, down from 0.32% in June 2025, indicating some selling pressure from foreign investors. The presence of only two FIIs in the shareholding structure underscores the limited institutional interest in the stock, likely due to its micro-cap status and liquidity constraints. Mutual fund holding remains at zero, with no domestic institutional investors showing interest, further highlighting the stock's under-the-radar status.

The non-institutional shareholding, which includes retail investors and non-institutional entities, accounts for 47.80% of the equity, showing a marginal increase of 0.17 percentage points in Q2 FY26. This substantial retail presence suggests the stock is primarily held by individual investors rather than sophisticated institutional players, which can contribute to higher volatility and lower liquidity.

The absence of mutual fund and insurance company participation is concerning from a liquidity and discovery perspective. Institutional investors typically conduct thorough due diligence and their participation often validates a company's fundamentals and governance standards. The lack of such endorsement may keep the stock in relative obscurity, limiting its ability to command premium valuations despite improving fundamentals.

Pledged shares stand at 13.54%, though specific details about which promoter entities have pledged shares are not available. Any level of promoter pledging warrants caution, as it can create overhang concerns during market downturns and raises questions about the promoters' financial health and confidence in the business.

Stock Performance: Strong Long-Term Returns Amid Recent Volatility

Century Extrusions has delivered impressive long-term returns for patient investors, with the stock generating a 26.67% return over the past year, substantially outperforming the Sensex's 9.50% gain by 17.17 percentage points. The alpha generation becomes even more pronounced over longer time horizons, with the stock posting a three-year return of 158.96% compared to the Sensex's 37.57%, translating to an alpha of 121.39 percentage points. Over five years, the stock has surged 591.00%, dwarfing the Sensex's 93.28% gain.

However, recent performance has been choppy, with the stock declining 11.55% over the past month and 0.99% over the past week, underperforming the Sensex in both periods. This near-term weakness follows a strong run-up, with the stock gaining 43.05% over six months and 24.68% over three months, suggesting profit-booking and consolidation after rapid appreciation.

The stock's year-to-date (YTD) return of 10.03% marginally outpaces the Sensex's 8.72% gain, indicating that whilst the stock has delivered positive returns in 2025, the momentum has slowed compared to the exceptional performance seen in 2023 and 2024. The stock's one-year return of 26.67% slightly outperformed the industrial products sector's 26.06% return, suggesting Century Extrusions has kept pace with industry peers.

From a technical perspective, the stock currently trades below all major moving averages, including the 5-day (₹26.98), 20-day (₹28.47), 50-day (₹27.37), 100-day (₹25.01), and 200-day (₹22.28) moving averages. This positioning suggests near-term weakness, though the stock remains well above its long-term 200-day moving average, indicating the broader uptrend remains intact despite recent consolidation.

The stock's beta of 1.50 classifies it as a high-beta stock, meaning it tends to move 50% more than the broader market in either direction. This high volatility (63.62% annualised) translates to a risk-adjusted return of 0.42 over the past year, lower than the Sensex's 0.77, indicating that the stock's returns have not adequately compensated for its elevated risk profile in the near term.

Investment Thesis: Quality Improving, But Execution Must Continue

Century Extrusions presents an investment case built on improving operational efficiency, strong capital returns, and reasonable valuation, tempered by concerns about modest revenue growth, limited institutional participation, and high volatility. The company's quality grade of "Average" reflects its solid long-term financial performance, with five-year sales CAGR of 18.67% and EBIT CAGR of 26.34%, but also acknowledges weaknesses in interest coverage and return on equity metrics.

The financial trend for Q2 FY26 is classified as "Positive," driven by highest-ever quarterly PBDIT, operating margins, and PAT. This positive momentum, if sustained, could drive re-rating as the market gains confidence in the company's ability to deliver consistent profitability growth. The technical trend of "Mildly Bullish" suggests cautious optimism, though the stock's position below key moving averages indicates near-term headwinds.

The Mojo Score of 64/100 places the stock in "HOLD" territory, with the recommendation stating it is "not recommended for fresh buy" but "you can continue to hold." This assessment reflects the balanced risk-reward profile at current levels, with the stock offering reasonable value but lacking compelling catalysts for immediate outperformance.

Key strengths supporting the investment case include high management efficiency with ROCE of 19.45%, improving quarterly metrics across profitability parameters, and attractive valuation with an EV to capital employed ratio of 2.14x. The company's deleveraging trajectory and positive cash flow generation provide financial stability and flexibility for growth investments.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

The Verdict: Hold for Existing Investors, Wait for Better Entry for New Buyers

Century Extrusions Ltd. has delivered a commendable performance in Q2 FY26, with margin expansion and profitability growth showcasing management's operational capabilities. The company's improving ROCE, declining debt levels, and positive cash generation provide a solid foundation for long-term value creation. However, the modest revenue growth of 2.97% year-on-year, combined with limited institutional participation and high stock volatility, tempers enthusiasm at current price levels.

The stock's valuation appears reasonable at 21x earnings, particularly when compared to peers trading at 30-45x, and the PEG ratio of 0.65x suggests potential upside. However, the recent 11.55% decline over the past month and positioning below key moving averages indicate near-term technical weakness. For existing shareholders, the improving fundamentals and long-term wealth creation track record justify holding the position. For fresh investors, waiting for a better entry point around ₹24-25 levels or evidence of sustained revenue acceleration would offer a more attractive risk-reward proposition.