The quarter's results reveal a troubling disconnect between top-line growth and bottom-line performance. Whilst revenue grew modestly by 5.79% sequentially to ₹8.96 crores and posted a respectable 10.48% year-on-year increase, the company's profitability metrics collapsed across the board. Operating profit excluding other income plummeted to ₹1.19 crores, representing the lowest level in the past seven quarters, with operating margins compressing sharply to 13.28% from 18.06% in the previous quarter.
Financial Performance: A Quarter of Deterioration
The Q3 FY26 results expose fundamental weaknesses in Compucom Software's operational efficiency and cost management. Despite achieving net sales of ₹8.96 crores, the company's operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) contracted to ₹1.19 crores from ₹1.53 crores in Q2 FY26, marking a sequential decline of 22.22%. Year-on-year, operating profit fell 21.71% from ₹1.52 crores in Q3 FY25, signalling persistent operational challenges.
| Quarter | Revenue (₹ Cr) | QoQ Growth | Operating Profit (₹ Cr) | Operating Margin | Net Profit (₹ Cr) | PAT Margin |
|---|---|---|---|---|---|---|
| Dec'25 | 8.96 | +5.79% | 1.19 | 13.28% | -0.24 | -2.68% |
| Sep'25 | 8.47 | -3.53% | 1.53 | 18.06% | 0.69 | 8.15% |
| Jun'25 | 8.78 | -8.64% | 2.28 | 25.97% | 1.34 | 15.26% |
| Mar'25 | 9.61 | +18.50% | 1.53 | 15.92% | 0.85 | 8.84% |
| Dec'24 | 8.11 | -5.37% | 1.52 | 18.74% | 0.33 | 4.07% |
| Sep'24 | 8.57 | +16.12% | 1.83 | 21.35% | 1.06 | 12.37% |
| Jun'24 | 7.38 | — | 0.97 | 13.14% | -0.76 | -10.30% |
The profit before tax (PBT) turned negative at ₹0.17 crores, a stark reversal from the ₹1.10 crores profit in Q2 FY26. After accounting for an unusual tax charge of ₹0.07 crores despite reporting losses (resulting in a negative tax rate of 41.18%), the company posted a net loss of ₹0.24 crores. This represents the company's second quarterly loss in the past seven quarters, with the previous loss of ₹0.76 crores occurring in Q1 FY25.
Margin compression has been severe and broad-based. The operating margin excluding other income fell to 13.28%, the lowest in seven quarters, down from 18.06% in Q2 FY26 and 18.74% in Q3 FY25. Gross profit margins also deteriorated to 15.07% from 29.63% sequentially, whilst PAT margins turned negative at -2.68% compared to a healthy 8.15% in the previous quarter. This consistent margin erosion across multiple profitability metrics suggests fundamental operational inefficiencies rather than temporary headwinds.
Operational Challenges: The Earnings Quality Concern
A deeper examination of Compucom Software's operational performance reveals concerning trends in earnings quality and cost structure. The company's heavy reliance on non-operating income has become increasingly problematic. In Q3 FY26, other income stood at ₹1.55 crores, representing a staggering 534.48% of profit before tax. This excessive dependence on non-core income sources masks the underlying weakness in the company's primary business operations.
Critical Red Flag: Earnings Quality Deterioration
Compucom Software's profit before tax excluding other income turned deeply negative at ₹1.26 crores in Q3 FY26, marking the lowest level on record. This metric reveals that the company's core operations are loss-making, with profitability entirely dependent on other income. Such a structure is fundamentally unsustainable and raises serious questions about the viability of the business model.
Interest costs surged to ₹0.93 crores in Q3 FY26, up 66.07% from ₹0.56 crores in Q2 FY26, indicating rising debt servicing obligations. Combined with depreciation charges of ₹1.52 crores, the company's fixed costs consumed nearly all of its operating profit, leaving little room for profitability. Employee costs remained elevated at ₹1.74 crores, though down from ₹1.80 crores in Q3 FY25, representing 19.42% of revenues.
The company's balance sheet shows deteriorating health. Long-term debt increased sharply to ₹15.03 crores in FY25 from zero in FY24, whilst current liabilities declined to ₹25.55 crores from ₹52.85 crores, primarily due to a reduction in other current liabilities. Current assets contracted to ₹102.12 crores from ₹140.22 crores, with cash and cash equivalents showing concerning trends. The company's return on capital employed (ROCE) stands at a meagre 0.71%, whilst return on equity (ROE) languishes at just 2.28%, both significantly below acceptable thresholds for capital efficiency.
Nine-Month Performance: Modest Positives Amid Quarterly Weakness
Whilst the quarterly results paint a concerning picture, the nine-month performance for FY26 (April-December 2025) offers some silver linings. For the nine-month period, Compucom Software reported cumulative net sales of ₹26.21 crores, representing a 9.12% increase from ₹24.06 crores in the corresponding nine-month period of FY25. The company posted a net profit of ₹1.79 crores for the nine-month period, though this represents a decline from ₹2.15 crores in 9M FY25.
However, even this nine-month view cannot mask the deteriorating trajectory. The company's performance has weakened progressively through FY26, with Q1 delivering strong profits of ₹1.34 crores, Q2 showing moderation at ₹0.69 crores, and Q3 slipping into losses. This sequential deterioration suggests mounting operational pressures that management has been unable to address effectively.
Industry Context: Struggling in a Challenging Environment
Compucom Software operates in the "Other Consumer Services" sector, a diverse category that has faced headwinds over the past year. The sector itself has delivered a negative return of 41.80% over the past year, indicating broad-based challenges. Compucom's one-year return of -39.83% actually represents a marginal outperformance of 1.97 percentage points versus its sector, though this provides little consolation given the absolute wealth destruction.
The company's positioning as a micro-cap IT services provider specialising in telecom and GIS software places it in a highly competitive and capital-intensive segment. With a market capitalisation of just ₹115.21 crores, Compucom lacks the scale advantages enjoyed by larger peers, making it vulnerable to pricing pressures, client concentration risks, and talent retention challenges. The company's institutional holding stands at a negligible 0.02%, reflecting minimal confidence from sophisticated investors.
Quality Assessment: Below Par Performance
Compucom Software carries an "Average" quality grade based on long-term financial performance, though recent trends suggest even this assessment may be generous. The company's average ROCE of 2.26% and average ROE of 4.03% over the past several years rank well below industry standards. Whilst the company has demonstrated reasonable sales growth (16.90% CAGR over five years) and EBIT growth (19.50% CAGR), the weak returns on capital indicate poor capital allocation and operational efficiency.
Peer Comparison: Valuation Without Justification
When benchmarked against peers in the Other Consumer Services sector, Compucom Software's valuation metrics reveal a puzzling premium despite inferior fundamentals. The company trades at a price-to-earnings (P/E) ratio of 35.18 times trailing twelve-month earnings, significantly higher than peers such as Zee Learn (10.96x) and CP Capital (4.66x), though lower than the sector outlier Golden Crest (977.26x).
| Company | P/E (TTM) | ROE (%) | Dividend Yield | Debt to Equity | Price to Book |
|---|---|---|---|---|---|
| Compucom Software | 35.18 | 4.03% | 1.40% | 0.00 | 0.80 |
| Zee Learn | 10.96 | 6.46% | — | 2.16 | 1.05 |
| CP Capital | 4.66 | 5.18% | 1.03% | 0.10 | 0.32 |
| VJTF Eduservices | NA (Loss Making) | 4.10% | — | 0.01 | 1.47 |
| Sodhani Academy | 28.84 | 28.23% | 0.26% | -0.05 | 7.98 |
More concerning is Compucom's inferior return on equity of 4.03%, which falls well short of peers like Sodhani Academy (28.23%) and even lags behind Zee Learn (6.46%) and CP Capital (5.18%). The company's price-to-book ratio of 0.80 times suggests the market recognises the weak return profile, valuing the company below its book value of ₹17.76 per share. However, even this discount appears insufficient given the deteriorating fundamentals and questionable earnings quality.
Compucom's dividend yield of 1.40% provides some income support, with the company maintaining a dividend payout ratio of 59.65%. However, given the recent loss-making quarter and weak cash generation, the sustainability of this dividend policy must be questioned. The company's zero debt-to-equity ratio represents one of the few positives in the peer comparison, though the recent addition of ₹15.03 crores in long-term debt in FY25 suggests this advantage is eroding.
Valuation Analysis: Expensive Relative to Quality
Compucom Software's current valuation appears unjustified when assessed against its operational performance and financial quality. Trading at ₹14.56 per share with a market capitalisation of ₹115.21 crores, the stock carries a P/E ratio of 35.18 times, which appears elevated for a company delivering sub-5% returns on equity and experiencing deteriorating profitability trends.
The company's enterprise value to EBITDA multiple of 16.47 times appears reasonable on the surface, but becomes concerning when considering the quality of EBITDA, which is heavily supported by other income rather than core operations. The EV to EBIT multiple of 112.03 times reflects the extremely weak operating profit generation, whilst the EV to sales ratio of 3.24 times suggests the market is pricing in a turnaround that recent results fail to support.
The valuation grade has fluctuated significantly over the past 18 months, moving from "Very Expensive" to "Risky" and back, currently assessed as "Very Expensive" since August 2025. This volatility in valuation assessment reflects the company's inconsistent performance and the market's uncertainty about its prospects. The stock trades 40.30% below its 52-week high of ₹24.39, though it remains 13.22% above its 52-week low of ₹12.86, suggesting significant downside risk remains if operational trends do not improve.
Shareholding: Stable Promoter Base, Negligible Institutional Interest
The shareholding pattern reveals a stable but concerning structure. Promoter holding has increased marginally to 71.06% in Q3 FY26 from 70.96% in Q2 FY26, demonstrating continued promoter confidence. However, the sequential increases have been minimal (just 0.10% in Q3), suggesting limited fresh capital commitment from the controlling shareholders.
| Quarter | Promoter | QoQ Change | FII | MF | Insurance | Other DII | Public |
|---|---|---|---|---|---|---|---|
| Dec'25 | 71.06% | +0.10% | 0.00% | 0.00% | 0.00% | 0.02% | 28.92% |
| Sep'25 | 70.96% | +0.07% | 0.00% | 0.00% | 0.00% | 0.02% | 29.02% |
| Jun'25 | 70.89% | +0.01% | 0.01% | 0.00% | 0.00% | 0.02% | 29.09% |
| Mar'25 | 70.88% | +0.04% | 0.00% | 0.00% | 0.00% | 0.02% | 29.10% |
| Dec'24 | 70.84% | — | 0.00% | 0.00% | 0.00% | 0.02% | 29.14% |
The complete absence of foreign institutional investor (FII) and mutual fund holdings signals a serious credibility gap. Institutional investors, who conduct rigorous due diligence before deploying capital, have consistently avoided this stock, with total institutional holding at a mere 0.02%. This lack of institutional validation raises red flags about the company's governance, transparency, and growth prospects. The public shareholding of 28.92% consists primarily of retail investors who may lack the resources to conduct thorough fundamental analysis.
Promoter entities include Compucom Technologies Pvt Ltd (25.19%), Sambhav Infotech Private Limited (23.69%), and Rishab Infotech Private Limited (19.26%). Positively, there is no promoter pledging, eliminating one potential risk factor. However, the absence of institutional investors and the concentrated promoter base limit liquidity and price discovery mechanisms.
Stock Performance: Severe Wealth Destruction Across Timeframes
Compucom Software's stock price performance has been dismal across virtually all meaningful timeframes, reflecting the market's loss of confidence in the company's prospects. The stock has delivered a negative return of 39.83% over the past year, catastrophically underperforming the Sensex's 7.85% gain by 47.68 percentage points. This represents one of the worst relative performances in its peer group.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +4.07% | +2.83% | +1.24% |
| 1 Month | -3.51% | +0.48% | -3.99% |
| 3 Months | -20.74% | +0.91% | -21.65% |
| 6 Months | -29.01% | +5.15% | -34.16% |
| YTD | -10.46% | -1.46% | -9.00% |
| 1 Year | -39.83% | +7.85% | -47.68% |
| 2 Years | -51.37% | +17.29% | -68.66% |
| 3 Years | -24.56% | +38.10% | -62.66% |
The deterioration accelerates as the timeframe shortens. Over six months, the stock has declined 29.01% whilst the Sensex gained 5.15%, producing negative alpha of 34.16 percentage points. The three-month return of -20.74% versus the Sensex's +0.91% indicates mounting selling pressure. Even the year-to-date performance shows a decline of 10.46%, underperforming the Sensex by 9.00 percentage points.
Only over a five-year horizon does the stock show positive absolute returns of 68.52%, marginally outperforming the Sensex's 63.60% gain by 4.92 percentage points. However, this long-term outperformance is entirely attributable to earlier periods and provides no comfort to recent investors who have experienced severe capital erosion.
The stock's technical position has deteriorated sharply. Currently in a bearish trend since October 6, 2025, the stock trades below all key moving averages—5-day (₹14.33), 20-day (₹14.35), 50-day (₹15.65), 100-day (₹17.15), and 200-day (₹19.04). This alignment of moving averages in descending order confirms a strong downtrend. With a high beta of 1.51, the stock exhibits significantly greater volatility than the broader market, amplifying losses during market corrections whilst offering limited upside capture during rallies.
Investment Thesis: Multiple Red Flags Outweigh Limited Positives
The investment case for Compucom Software has deteriorated significantly following the Q3 FY26 results. The company's proprietary Mojo Score stands at just 34 out of 100, placing it firmly in "SELL" territory with a recommendation to consider exit opportunities. This score reflects a comprehensive assessment across four critical parameters: valuation (graded as "Very Expensive"), quality (graded as "Average"), financial trend (assessed as "Flat"), and technical trend (classified as "Bearish").
The bearish technical trend, combined with flat-to-negative financial performance and a "Very Expensive" valuation grade, creates a toxic combination for investors. The company's weak return ratios (ROE of 4.03% and ROCE of 2.26%) indicate poor capital efficiency, whilst the heavy dependence on other income for profitability raises serious sustainability concerns. The absence of institutional investors and the weak stock price performance across all recent timeframes further validate the negative thesis.
Key Strengths & Risk Factors
Key Strengths
- Stable Promoter Holding: Promoter stake at 71.06% with no pledging demonstrates long-term commitment and eliminates pledging-related risks.
- Revenue Growth: Q3 FY26 revenue of ₹8.96 crores grew 5.79% QoQ and 10.48% YoY, showing top-line momentum.
- Long-Term Growth Track Record: Five-year sales CAGR of 16.90% and EBIT CAGR of 19.50% demonstrate historical expansion capability.
- Dividend History: Consistent dividend payer with 1.40% yield and 59.65% payout ratio provides some income support.
- Nine-Month Performance: 9M FY26 net profit of ₹1.79 crores shows cumulative profitability despite Q3 loss.
Key Concerns
- Profitability Collapse: Q3 FY26 net loss of ₹0.24 crores represents 134.78% QoQ decline and 172.73% YoY deterioration.
- Earnings Quality Issues: Other income at 534.48% of PBT indicates core business is loss-making; unsustainable earnings structure.
- Margin Compression: Operating margin fell to 13.28% (lowest in 7 quarters); PAT margin turned negative at -2.68%.
- Weak Return Ratios: ROE of 4.03% and ROCE of 2.26% significantly below acceptable thresholds for capital efficiency.
- Rising Debt Burden: Long-term debt increased to ₹15.03 crores in FY25 from zero in FY24; interest costs surged 66.07% QoQ.
- Zero Institutional Interest: Total institutional holding at 0.02% signals lack of sophisticated investor confidence.
- Severe Stock Underperformance: 1-year return of -39.83% vs Sensex +7.85%; trading below all moving averages in bearish trend.
Outlook: What to Watch
Positive Catalysts
- Return to profitability in Q4 FY26 with improving operating margins above 18%
- Reduction in dependence on other income to below 100% of PBT
- Stabilisation of interest costs and debt levels
- Entry of institutional investors (FII/MF holdings)
- Improvement in ROCE above 5% and ROE above 8%
Red Flags to Monitor
- Another quarter of losses or declining profitability in Q4 FY26
- Further margin compression below 13% operating margin
- Increase in debt levels or deteriorating interest coverage
- Dividend cut signalling cash flow stress
- Promoter stake dilution or emergence of pledging
- Stock breaking below 52-week low of ₹12.86
The path forward for Compucom Software requires immediate and decisive management action to address the profitability crisis. Investors should closely monitor Q4 FY26 results for signs of operational turnaround, particularly improvements in core business profitability (excluding other income) and margin stabilisation. Any further deterioration in earnings quality or continued losses would validate the bearish thesis and suggest deeper structural problems requiring more drastic remedial measures.
The Verdict: Operational Crisis Warrants Caution
Score: 34/100
For Fresh Investors: Avoid initiating positions. The Q3 FY26 loss, deteriorating margins, poor earnings quality (with other income at 534.48% of PBT), and weak return ratios (ROE 4.03%, ROCE 2.26%) present significant risks. The bearish technical trend and absence of institutional investors further validate the cautious stance. Wait for sustained profitability improvement and margin stabilisation over multiple quarters before considering entry.
For Existing Holders: Consider reducing exposure or exiting on any technical bounce. The operational deterioration evident in Q3 FY26, combined with the unsustainable reliance on other income for profitability, raises serious questions about business viability. The stock's 39.83% decline over the past year and positioning below all moving averages suggests further downside risk. Only long-term investors with high risk tolerance and conviction in management's turnaround capability should maintain holdings.
Fair Value Estimate: ₹11.50-12.50 (21.14% downside from current price of ₹14.56). This valuation assumes P/E compression to 25-28x on normalised earnings of ₹0.40-0.45 per share, reflecting the weak quality profile and operational challenges. Significant upside potential exists only if management successfully addresses margin compression and reduces dependence on other income.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
