Cords Cable Industries Q2 FY26: Revenue Growth Masks Margin Compression and Profitability Concerns

The company's performance in the September 2025 quarter reveals a troubling pattern: whilst top-line growth remains robust on a year-on-year basis, sequential momentum has stalled completely. Revenue remained unchanged at ₹225.70 crores compared to Q1 FY26, signalling potential demand softness or operational bottlenecks. More concerning is the 7.49% decline in net profit to ₹3.58 crores from ₹3.87 crores in the previous quarter, driven primarily by a sharp 6.67% increase in interest costs to ₹7.04 crores. This deterioration in profitability, despite stable revenues, points to mounting financial leverage and inefficiencies in cost management that merit close scrutiny from investors.

The stock's technical positioning adds to the bearish narrative, with shares trading below all key moving averages and exhibiting a clear bearish trend since November 12, 2025. The 3.15% single-day gain on November 13 offers little comfort, as the stock has underperformed the Sensex by 16.16% over the past year and is down 17.18% year-to-date against the benchmark's 8.56% gain. For a company operating in the capital-intensive cables sector, such persistent underperformance coupled with weakening margins raises fundamental questions about competitive positioning and operational efficiency.

Financial Performance: Growth Trajectory Losing Steam

Cords Cable's Q2 FY26 financial performance presents a paradox: impressive year-on-year growth masking concerning sequential deterioration. Net sales of ₹225.70 crores remained absolutely flat compared to the previous quarter, breaking the company's recent pattern of sequential expansion. On a year-on-year basis, the 23.37% revenue growth appears robust, but this must be contextualised against the company's stagnating quarterly momentum. The half-yearly performance for H1 FY26 shows combined revenues of ₹451.40 crores, representing a 26.88% increase over H1 FY25, but the complete absence of sequential growth in Q2 raises questions about demand sustainability heading into the festive season.

The profitability picture deteriorated materially during the quarter. Net profit declined 7.49% quarter-on-quarter to ₹3.58 crores from ₹3.87 crores, despite revenues remaining unchanged. This compression reflects mounting cost pressures, particularly in financing expenses. Interest costs surged 6.67% to ₹7.04 crores in Q2 FY26 from ₹6.60 crores in Q1 FY26, now consuming a disproportionate 1.46 times the company's profit before tax of ₹4.82 crores. The interest coverage ratio has weakened considerably, with EBIT to interest averaging just 1.40 times over recent periods—a precarious level that leaves little room for operational missteps or further rate increases.

Margin trends reveal a company struggling to maintain operational efficiency amidst expansion. The operating margin excluding other income stood at 6.18% in Q2 FY26, marginally improving by 14 basis points quarter-on-quarter but remaining well below the 6.75% achieved in March 2024. More tellingly, the PAT margin contracted to 1.59% from 1.71% in the previous quarter, reflecting the cascading impact of higher interest costs. The company's gross profit margin of 3.29% in Q2 FY26, whilst stable, remains wafer-thin for a manufacturing business, leaving virtually no buffer for input cost volatility or competitive pricing pressures.

The quality of earnings warrants scrutiny. Operating profit before depreciation, interest, and tax (PBDIT) excluding other income reached ₹13.95 crores in Q2 FY26, up marginally from ₹13.63 crores in Q1 FY26. However, the company's reliance on other income has diminished, with the line item contributing just ₹0.51 crores in Q2 FY26 compared to ₹0.71 crores in the previous quarter and ₹0.62 crores in the year-ago period. This decline in non-operational income, whilst making earnings purer, also removes a cushion that previously helped offset operational challenges. With depreciation rising to ₹2.61 crores from ₹2.48 crores quarter-on-quarter, the company's fixed cost base is expanding faster than its ability to generate incremental profits.

Operational Challenges: Debt Burden and Capital Efficiency Concerns

The most pressing operational challenge facing Cords Cable is its mounting debt burden and deteriorating capital efficiency. With interest costs of ₹7.04 crores in Q2 FY26 representing 3.12% of revenues, the company's financial leverage is becoming a significant drag on profitability. The debt-to-EBITDA ratio averages 1.99 times, which whilst not alarming in absolute terms, becomes concerning when viewed alongside the company's weak interest coverage and modest return ratios. The net debt-to-equity ratio of 0.45 suggests moderate leverage, but the trajectory is worrying—interest costs have grown from ₹6.32 crores in June 2024 to ₹7.04 crores in September 2025, a 11.39% increase over five quarters.

Return on capital employed (ROCE) provides a mixed picture. The latest ROCE of 15.50% appears reasonable on the surface, but the five-year average of 15.22% indicates limited improvement in capital productivity despite significant revenue growth. More concerning is the return on equity (ROE), which averaged just 5.14% over recent periods, rising to 8.59% in the latest calculation. This low ROE—well below the cost of equity for most investors—signals that the company is destroying shareholder value even as it grows revenues. For context, a 5.14% average ROE barely exceeds risk-free government bond yields, making the equity investment proposition questionable from a risk-adjusted return perspective.

The balance sheet reveals a company stretched thin by growth ambitions. Employee costs have risen steadily from ₹8.17 crores in June 2024 to ₹10.44 crores in September 2025, a 27.78% increase that outpaces revenue growth over the same period. This suggests either aggressive hiring in anticipation of future growth or inefficiencies in labour productivity. The company's total expenditure as a percentage of sales remains elevated, with operating leverage failing to materialise despite scale expansion. The five-year EBIT growth of just 7.43% annually—significantly lagging the 18.68% sales CAGR—underscores the fundamental challenge: Cords Cable is growing revenues but not translating that growth into commensurate profit expansion.

Industry Context: Navigating a Competitive Cables Market

The cables and electricals sector in India has experienced robust demand driven by infrastructure development, real estate construction, and industrial expansion. However, the industry remains intensely competitive with low barriers to entry, resulting in persistent margin pressures. Cords Cable operates in the customised cables segment, which theoretically offers better pricing power than commodity cable manufacturing, yet the company's wafer-thin margins suggest limited differentiation or strong competitive intensity. The sector's average PE ratio of 45 times (excluding loss-making entities) indicates market enthusiasm for growth stories, making Cords Cable's valuation at 14 times earnings appear attractive—but this discount likely reflects concerns about profitability sustainability.

Raw material price volatility represents a significant headwind for cable manufacturers. Copper and aluminium prices, which constitute the bulk of input costs, have exhibited considerable fluctuation over the past year. Cords Cable's inability to maintain stable gross margins despite revenue growth suggests either weak pricing power with customers or ineffective hedging strategies. The company's gross profit margin of 3.29% in Q2 FY26, whilst marginally better than the 3.07% recorded in September 2024, remains precariously thin. Any adverse movement in metal prices or rupee depreciation (affecting imported raw materials) could quickly turn profitable quarters into loss-making ones.

Peer Comparison: Valuation Discount Reflects Fundamental Weakness

Cords Cable's positioning within the cables and electricals peer group reveals a company trading at a significant valuation discount, but for justifiable reasons. With a price-to-earnings ratio of 13.89 times, the stock trades at less than one-third the sector average PE of approximately 45 times (excluding loss-making entities). The price-to-book ratio of 1.19 times appears reasonable, but this must be viewed in context of the company's weak return on equity of 5.14% average—at such low ROE levels, a P/BV ratio even at 1.2 times may not represent compelling value.

The peer comparison reveals Cords Cable's relative weakness in profitability metrics. Whilst the company's ROE of 5.14% exceeds Plaza Wires' 2.36%, it lags significantly behind Paramount Communication's 9.53% and Quadrant Future's 12.47%. This ROE differential explains much of the valuation discount—investors are unwilling to pay premium multiples for a business generating sub-par returns on equity. The company's debt-to-equity ratio of 0.45, whilst moderate, is higher than several peers operating with minimal leverage, suggesting Cords Cable requires more financial leverage to achieve its current growth trajectory.

The market capitalisation ranking places Cords Cable as the fifth-largest entity in its peer group at ₹224.30 crores, reflecting its micro-cap status. This small scale presents both opportunities and challenges. On one hand, the company has significant runway for growth; on the other, it lacks the economies of scale enjoyed by larger competitors. The dividend yield of 0.59% (based on a ₹1 per share dividend) appears token, with the 8.81% payout ratio indicating management's preference to retain earnings for growth—a strategy that would be more palatable if the company demonstrated stronger returns on incremental capital deployed.

Valuation Analysis: Attractive Multiples Offset by Fundamental Concerns

Cords Cable's valuation metrics present a superficially attractive picture, but deeper analysis reveals why the market has assigned such modest multiples. The trailing twelve-month PE ratio of 14 times represents a substantial 69% discount to the sector average, whilst the EV/EBITDA multiple of 5.69 times appears reasonable for a manufacturing business. The PEG ratio of 0.34 suggests the stock is trading well below its growth rate, typically an indicator of undervaluation. However, these metrics must be interpreted in light of the company's deteriorating profitability trends and weak return ratios.

The valuation grade of "Very Attractive" assigned by quantitative screening models reflects the statistical cheapness of the stock, but fails to capture the qualitative concerns around business sustainability. The stock has oscillated between "Attractive" and "Very Attractive" gradings over the past year, suggesting it remains perpetually cheap for a reason. With the stock trading 29.64% below its 52-week high of ₹246.60, the price correction reflects market recognition of the profitability challenges. The 18.11% premium to the 52-week low of ₹146.90 offers little comfort, as technical support levels provide no fundamental floor when business performance deteriorates.

Fair value estimation becomes challenging given the company's inconsistent profitability trajectory. Applying a conservative 12-15 times earnings multiple to normalised earnings of approximately ₹14-15 crores annually suggests a fair value range of ₹130-145 per share, implying 16-25% downside from current levels of ₹173.50. This valuation assumes no improvement in ROE or margin profile—a realistic assumption given recent trends. For the stock to justify its current price, the company would need to demonstrate sustained improvement in operating margins back towards 7% levels and stabilisation of interest costs, neither of which appears imminent based on recent quarterly performance.

Shareholding Pattern: Stable Promoter Base, Limited Institutional Interest

The shareholding structure of Cords Cable reflects a promoter-dominated company with minimal institutional participation. Promoter holding has remained rock-solid at 51.92% over the past five quarters, with no pledging of shares—a positive indicator of promoter confidence and financial stability. The promoter group, led by Naveen Sawhney (47.22%) along with family members Adarsh Sawhney (1.73%), Gaurav Sawhney (1.54%), and Varun Sawhney (1.44%), maintains clear control and alignment with minority shareholders.

The concerning aspect of the shareholding pattern is the near-total absence of institutional investors. Foreign institutional investors hold a negligible 1.29%, declining marginally from 1.35% in December 2024. More tellingly, mutual fund holding stands at absolute zero, as does insurance company participation. The complete absence of domestic mutual funds—typically the most research-intensive institutional investors—speaks volumes about the company's appeal to professional fund managers. Other domestic institutional investors hold a mere 0.08%, up from zero in previous quarters but still inconsequential.

The non-institutional shareholding of 46.70% represents primarily retail investors, whose presence in such large proportion (nearly matching promoter holding) increases stock volatility and reduces governance oversight. The lack of institutional ownership means the company lacks the scrutiny, governance standards, and strategic guidance that institutional investors typically provide. With just three foreign institutional investors holding stakes and zero mutual funds, Cords Cable operates largely off the radar of professional investors—a red flag that suggests fundamental concerns have kept sophisticated investors away despite the seemingly attractive valuation multiples.

Stock Performance: Persistent Underperformance Across Timeframes

Cords Cable's stock performance paints a picture of long-term wealth creation undermined by recent deterioration. Over a ten-year horizon, the stock has delivered exceptional returns of 402.17%, vastly outperforming the Sensex's 231.23% gain by 170.94 percentage points. The five-year return of 349.48% similarly trounces the benchmark's 95.26% advance. However, this historical outperformance reflects the company's journey from a much smaller base and masks the concerning recent trajectory.

The troubling pattern emerges in shorter timeframes. Year-to-date, the stock has declined 17.18% whilst the Sensex has gained 8.56%, resulting in negative alpha of 25.74 percentage points. The one-year return of -6.97% versus the Sensex's +9.19% gain represents underperformance of 16.16 percentage points. More concerning is the consistent underperformance across all timeframes from one week to six months, with negative alpha ranging from 4.63% to 10.14%. This persistent underperformance coincides with the deterioration in quarterly financial metrics, suggesting the market is forward-looking in its pessimism about the company's profitability trajectory.

The technical picture reinforces the bearish narrative. The stock trades below all key moving averages—5-day (₹178.82), 20-day (₹180.97), 50-day (₹178.49), 100-day (₹184.97), and 200-day (₹181.59)—a classic sign of established downtrend. The overall technical trend classification of "Bearish" since November 12, 2025, with multiple oscillations between bearish and mildly bearish over recent months, indicates a stock struggling to find sustainable support. The high beta of 1.50 amplifies volatility, making the stock 50% more volatile than the market—a risk factor that demands premium returns to justify, which the company is currently failing to deliver.

Investment Thesis: Quality Concerns Outweigh Valuation Appeal

The investment case for Cords Cable rests on a tension between attractive valuation multiples and deteriorating business fundamentals. The company's proprietary Mojo Score of 46 out of 100, placing it in "SELL" territory (recently downgraded from "HOLD"), encapsulates this conflict. The four-pillar Mojo analysis reveals: (1) Mixed near-term drivers—positive quarterly financial trend offset by bearish technicals; (2) Average quality grade reflecting modest long-term financial performance; (3) Very attractive valuation multiples; and (4) Overall mixed assessment with multiple red flags.

The quality assessment of "Average" represents a recent upgrade from "Below Average" prior to May 2023, but this improvement appears fragile. The company's five-year sales CAGR of 18.68% demonstrates revenue generation capability, but the anaemic 7.43% EBIT CAGR reveals the profitability challenge. The average EBIT-to-interest coverage of just 1.40 times sits uncomfortably close to the danger zone, whilst the average ROE of 5.14% fails to meet most investors' return thresholds. The absence of promoter pledging and low debt-to-EBITDA ratio of 1.99 provide some comfort, but these positives are insufficient to offset the fundamental profitability weaknesses.

The bearish technical trend adds a timing dimension to the investment decision. With the stock in a confirmed downtrend and trading below all moving averages, attempting to catch a falling knife carries significant risk. The 49.31% volatility over the past year (compared to Sensex's 12.33%) makes this a high-risk proposition, with the negative Sharpe ratio confirming that investors are not being compensated for the volatility they're assuming. The risk-adjusted return of -0.14 over one year versus the Sensex's +0.75 demonstrates the opportunity cost of holding this stock during a period of market strength.

Key Strengths and Risk Factors

Outlook: What to Watch in Coming Quarters