However, the stock has faced significant headwinds over the past year, declining 26.83% compared to the Sensex's 7.39% gain, reflecting investor concerns about valuation sustainability and competitive pressures. Trading at ₹688.05 as of November 12, 2025, the stock remains 36.00% below its 52-week high of ₹1,075.00, though it has recovered 15.69% from its 52-week low of ₹594.75. The company's current technical trend is mildly bearish, having shifted from sideways on November 6, 2025.
The quarter's standout feature was the dramatic 66.87% sequential revenue jump to ₹655.75 crores from ₹392.96 crores in Q1 FY26, driven by strong demand across technology distribution channels. This represented the highest quarterly revenue in at least seven quarters and marked a 59.39% year-on-year acceleration from ₹411.42 crores in Q2 FY25, suggesting robust underlying business momentum despite broader market volatility.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | OPM (%) |
|---|---|---|---|---|---|
| Sep'25 | 655.75 | +66.87% | 18.95 | +86.15% | 3.49% |
| Jun'25 | 392.96 | -2.49% | 10.18 | -25.86% | 2.77% |
| Mar'25 | 402.99 | -38.85% | 13.96 | -19.57% | 3.37% |
| Dec'24 | 659.06 | +60.19% | 17.07 | +29.12% | 1.85% |
| Sep'24 | 411.42 | +36.68% | 13.22 | +45.43% | 2.98% |
| Jun'24 | 301.01 | -1.03% | 9.09 | -55.35% | 2.67% |
| Mar'24 | 304.15 | — | 20.36 | — | 3.87% |
Financial Performance: Profit Surge Driven by Volume, Not Efficiency
Creative Newtech's Q2 FY26 results revealed a company riding a strong revenue wave, with net sales reaching ₹655.75 crores, the highest quarterly figure in recent history. The 66.87% quarter-on-quarter growth and 59.39% year-on-year expansion underscore robust demand in the technology distribution sector, particularly as enterprises accelerate digital transformation initiatives.
However, beneath the impressive topline growth lies a more nuanced profitability picture. Operating profit before depreciation, interest, tax, and other income (PBDIT excl OI) stood at ₹22.88 crores in Q2 FY26, representing a 3.49% operating margin—the highest in seven quarters but still indicating thin profitability relative to revenue scale. This margin expansion from 2.77% in Q1 FY26 suggests improving operational leverage, though the absolute margin level remains constrained by the low-margin nature of technology distribution.
The company's PAT margin improved to 2.89% in Q2 FY26 from 2.59% in Q1 FY26, driven by operating leverage and a favourable tax rate of 13.07%. Interest costs rose to ₹4.49 crores from ₹3.01 crores sequentially, reflecting higher working capital requirements to support the revenue surge. Employee costs remained well-controlled at ₹4.91 crores, representing just 0.75% of revenue, indicating a lean organisational structure appropriate for a distribution business.
Other income declined to ₹3.84 crores in Q2 FY26 from ₹4.22 crores in Q1 FY26, reducing its contribution to overall profitability. This decrease, while modest, highlights the company's increasing reliance on core operations rather than treasury income—a positive development for earnings quality. Over the past year, Creative Newtech has demonstrated consistent improvement in core operating metrics, with operating margin (excluding other income) expanding from 2.67% in Jun'24 to 3.49% in Sep'25.
Quality of Earnings Assessment
The company's earnings quality appears robust, with profit growth driven primarily by volume expansion and operational leverage rather than one-time gains or accounting adjustments. The declining contribution of other income as a percentage of total profit strengthens the sustainability of earnings. However, the persistently thin margins inherent to technology distribution necessitate continuous volume growth to sustain profitability expansion.
Operational Excellence: Strong ROE Signals Efficient Capital Deployment
Creative Newtech's return on equity (ROE) stands at an impressive 18.06% for the latest period, significantly above the company's five-year average of 20.74%. This elevated ROE reflects management's ability to generate strong returns on shareholder capital despite operating in a capital-intensive distribution business. Higher ROE indicates superior capital efficiency and profitability, positioning Creative Newtech favourably within its peer group.
The company's return on capital employed (ROCE) registered 14.47% for the latest period, compared to a five-year average of 12.99%. This upward trajectory in ROCE suggests improving operational efficiency and better utilisation of total capital deployed in the business. The positive spread between ROE and ROCE indicates judicious use of financial leverage, with debt enhancing rather than diluting shareholder returns.
Balance sheet health remains adequate though not exceptional. The company's debt-to-EBITDA ratio averaged 2.75 over the past five years, indicating moderate leverage levels. Net debt to equity averaged a low 0.06, suggesting minimal net debt burden after accounting for cash balances. Total shareholder funds stood at ₹294.01 crores as of March 2025, up from ₹215.71 crores in March 2024, reflecting retained earnings accumulation and prudent capital management.
Working Capital Concerns: The company's debtor turnover ratio declined to 4.45 times in H1 FY26, the lowest in recent periods, indicating slower collection cycles. This deterioration, combined with rising trade payables (₹135.35 crores in Mar'25 vs ₹52.12 crores in Mar'24), suggests increasing working capital intensity. Management must monitor receivables quality closely to prevent cash flow pressures as the business scales.
Fixed asset base remains modest at ₹8.34 crores as of March 2025, appropriate for a distribution business with limited manufacturing or infrastructure requirements. Current assets surged to ₹518.00 crores from ₹352.22 crores year-on-year, driven primarily by inventory build-up to support higher sales volumes. The company's sales-to-capital-employed ratio averaged a strong 5.89 times, demonstrating efficient asset utilisation and rapid inventory turnover characteristic of successful distribution operations.
The Margin Challenge: Navigating Competitive Pressures in Distribution
Despite impressive revenue growth, Creative Newtech faces persistent margin pressures inherent to the technology distribution sector. The company's gross profit margin compressed to 3.39% in Q2 FY26 from 3.73% in Q2 FY25, reflecting intensifying competition and pricing pressures from both vendors and customers. This margin erosion, though partially offset by operating leverage, underscores the challenging economics of low-margin, high-volume distribution businesses.
The company's EBIT-to-interest coverage averaged 3.19 times over the past five years, indicating adequate but not robust debt servicing capacity. With interest costs rising in line with working capital requirements, maintaining this coverage ratio will require sustained profit growth. The relatively low interest coverage compared to higher-margin businesses reflects the capital-intensive nature of distribution and the thin profitability cushion available to absorb financial costs.
Looking at longer-term trends, Creative Newtech has delivered impressive sales growth of 34.90% annually over five years, substantially outpacing EBIT growth of 30.95% over the same period. This divergence suggests that revenue expansion has come at the cost of some margin compression, likely due to competitive dynamics and the need to maintain market share in a consolidating industry. Management's ability to balance growth with profitability will be critical for long-term value creation.
| Year | Revenue (₹ Cr) | YoY Growth | PAT (₹ Cr) | YoY Growth | PAT Margin |
|---|---|---|---|---|---|
| FY25 | 1,782.00 | +3.6% | 53.00 | +10.4% | 3.0% |
| FY24 | 1,720.00 | +23.6% | 48.00 | +77.8% | 2.8% |
| FY23 | 1,392.00 | +47.0% | 27.00 | +42.1% | 1.9% |
| FY22 | 947.00 | +82.1% | 19.00 | +111.1% | 2.0% |
| FY21 | 520.00 | +13.8% | 9.00 | +28.6% | 1.7% |
| FY20 | 457.00 | — | 7.00 | — | 1.5% |
Industry Leadership: Valuation Disconnect with Operational Reality
Within the miscellaneous sector peer group, Creative Newtech demonstrates superior operational metrics that justify a valuation premium, though its recent stock price decline has narrowed this gap. The company's ROE of 20.74% significantly outpaces peers such as R M Drip & Sprinklers (9.24%), Tembo Global (18.18%), and Kokuyo Camlin (6.78%), reflecting more efficient capital deployment and stronger profitability.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Creative Newtech | 19.21 | 3.54 | 20.74 | 0.06 | 0.07 |
| Dredging Corporation | NA (Loss Making) | 1.93 | 0.75 | 0.72 | — |
| R M Drip & Sprinklers | 83.19 | 24.89 | 9.24 | 0.32 | 0.05 |
| Tembo Global | 19.48 | 5.95 | 18.18 | 1.21 | 0.09 |
| Uniphos Enterprises | NA (Loss Making) | 0.38 | 1.16 | -0.01 | 0.33 |
| Kokuyo Camlin | 55.95 | 3.16 | 6.78 | -0.04 | — |
Creative Newtech's price-to-earnings ratio of 19.21 times appears reasonable compared to R M Drip & Sprinklers' 83.19 times and Kokuyo Camlin's 55.95 times, particularly given its superior ROE. The company's price-to-book value of 3.54 times trades at a discount to R M Drip & Sprinklers (24.89 times) and Tembo Global (5.95 times), suggesting relative value despite recent price weakness. The minimal debt-to-equity ratio of 0.06 provides financial flexibility and reduces balance sheet risk compared to more leveraged peers.
However, the company's negligible dividend yield of 0.07% reflects management's preference for reinvesting profits into growth rather than distributing cash to shareholders. This capital allocation strategy appears appropriate given the company's strong growth trajectory and high ROE, which suggests reinvested capital generates attractive returns. The recent dividend of ₹0.50 per share (ex-date September 23, 2025) represents a minimal payout, indicating management's focus on funding working capital expansion rather than maximising immediate shareholder distributions.
"With ROE exceeding 20% and a P/E ratio below 20 times, Creative Newtech offers a rare combination of strong profitability and reasonable valuation—if margin pressures can be contained."
Valuation Analysis: Attractive Entry Point After Sharp Correction
Creative Newtech's current valuation presents a compelling risk-reward proposition following its 36.00% decline from 52-week highs. At ₹688.05, the stock trades at a P/E ratio of 19.21 times trailing twelve-month earnings, representing a significant discount to its own historical averages and several peer comparisons. The price-to-book value of 3.54 times, while elevated in absolute terms, appears justified given the company's 18.06% ROE—a premium that reflects genuine earnings power rather than speculative excess.
The company's valuation grade has evolved favourably, transitioning from "Expensive" in late January 2025 to "Fair" by early February, then to "Attractive" in mid-May, and finally to "Very Attractive" in early August 2025. This progression reflects both the stock's price correction and improving fundamentals, creating what analysts characterise as a "very attractive" entry point for long-term investors willing to accept near-term volatility.
The EV-to-EBITDA multiple of 21.61 times and EV-to-EBIT of 22.15 times appear elevated on an absolute basis but must be contextualised against the company's 34.90% five-year sales growth and improving profitability trajectory. The EV-to-sales ratio of 0.57 times reflects the low-margin nature of distribution businesses, where value creation depends on volume throughput and capital efficiency rather than pricing power. The EV-to-capital-employed ratio of 3.41 times suggests the market values the company's deployed capital at a reasonable premium, acknowledging its demonstrated ability to generate returns above the cost of capital.
Based on current fundamentals and peer valuations, a fair value estimate for Creative Newtech ranges between ₹750-850 per share, implying 9-24% upside from current levels. This valuation assumes maintenance of current ROE levels, continued revenue growth in the mid-teens percentage range, and gradual margin stabilisation. The primary risk to this valuation centres on margin sustainability—any further compression below 3% operating margins would necessitate downward revision of fair value estimates.
Shareholding: Stable Promoter Base, Minimal Institutional Interest
Creative Newtech's shareholding pattern reveals a stable promoter base with minimal institutional participation, creating both opportunities and risks for investors. Promoter holding stood at 56.62% as of September 2025, marginally increasing from 56.60% in June 2025 and March 2025. This stable and substantial promoter stake signals management confidence and alignment with minority shareholders, with no pledging of shares providing additional comfort regarding financial stability.
| Quarter | Promoter (%) | FII (%) | MF (%) | Insurance (%) | Other DII (%) | Non-Inst (%) |
|---|---|---|---|---|---|---|
| Sep'25 | 56.62 | 0.37 | 0.00 | 0.00 | 0.98 | 42.03 |
| Jun'25 | 56.60 | 1.01 | 0.00 | 0.00 | 0.96 | 41.43 |
| Mar'25 | 56.60 | 0.98 | 0.00 | 0.00 | 0.96 | 41.47 |
| Dec'24 | 56.16 | 0.89 | 0.00 | 0.00 | 1.52 | 41.43 |
| Sep'24 | 56.16 | 0.29 | 0.00 | 0.00 | 1.52 | 42.02 |
Foreign institutional investor (FII) holding declined to 0.37% in September 2025 from 1.01% in June 2025, representing a 0.64 percentage point sequential decrease. This reduction suggests some foreign investors booked profits following the stock's earlier rally, though the absolute FII holding remains negligible. The presence of six FII investors indicates some international awareness of the stock, but the minimal aggregate holding reflects limited institutional conviction or liquidity concerns among foreign funds.
Mutual fund and insurance company holdings remain at zero, highlighting the stock's limited appeal to domestic institutional investors. This absence of mutual fund interest likely reflects the company's micro-cap status, limited liquidity, and concentration in the competitive technology distribution sector. Other domestic institutional investors (DII) hold 0.98% as of September 2025, marginally up from 0.96% in the previous quarter. Non-institutional investors comprise 42.03% of the shareholder base, representing retail and high-net-worth individuals attracted by the company's growth story.
The shareholding pattern suggests Creative Newtech remains largely undiscovered by institutional investors, creating potential upside if the company's consistent performance attracts fund interest. However, the flip side is limited institutional support during market downturns and potentially higher volatility due to retail-dominated shareholding. For investors, this creates both opportunity (potential re-rating if institutions enter) and risk (limited buying support during corrections).
Stock Performance: Significant Underperformance Pressures Sentiment
Creative Newtech's stock performance over the past year has been disappointing, with the shares declining 26.83% compared to the Sensex's 7.39% gain, resulting in negative alpha of 34.22 percentage points. This substantial underperformance reflects investor concerns about margin sustainability, competitive pressures, and valuation following the stock's earlier rally to ₹1,075.00 in previous quarters.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -3.89% | +1.23% | -5.12% |
| 1 Month | +10.97% | +2.41% | +8.56% |
| 3 Months | +7.26% | +5.30% | +1.96% |
| 6 Months | -4.46% | +2.50% | -6.96% |
| YTD | -25.84% | +8.12% | -33.96% |
| 1 Year | -26.83% | +7.39% | -34.22% |
| 2 Years | -3.13% | +29.46% | -32.59% |
| 3 Years | +47.13% | +36.72% | +10.41% |
| 5 Years | +485.33% | +94.86% | +390.47% |
Recent momentum has been mixed, with the stock gaining 10.97% over the past month (outperforming the Sensex by 8.56 percentage points) but declining 3.89% over the past week. The three-month return of 7.26% modestly exceeds the Sensex's 5.30% gain, suggesting some stabilisation after earlier sharp declines. However, the year-to-date performance remains deeply negative at -25.84%, reflecting the stock's January-to-September correction from elevated valuations.
Taking a longer-term perspective reveals a more impressive picture. Over three years, Creative Newtech has delivered 47.13% returns versus the Sensex's 36.72%, generating positive alpha of 10.41 percentage points. The five-year performance is exceptional, with the stock surging 485.33% compared to the Sensex's 94.86% gain—a remarkable 390.47 percentage points of alpha. This long-term outperformance reflects the company's successful transformation from a ₹457 crore revenue business in FY20 to a ₹1,782 crore enterprise in FY25.
The stock's beta of 1.50 indicates high volatility relative to the broader market, with movements amplified in both directions. This high-beta characteristic, combined with 40.65% volatility and negative risk-adjusted returns over the past year, classifies Creative Newtech as a "high risk, low return" investment in the current market environment. The stock trades below all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), reinforcing the bearish technical setup and suggesting further consolidation may be needed before a sustained recovery emerges.
Investment Thesis: Quality Business at Attractive Valuation, But Timing Uncertain
Creative Newtech presents a mixed investment proposition characterised by strong operational fundamentals, attractive valuation following recent price correction, but concerning technical momentum and margin sustainability questions. The company's Mojo score of 51 out of 100 reflects this balanced assessment, placing it firmly in "HOLD" territory rather than offering a clear buy or sell signal.
The bull case centres on the company's demonstrated ability to scale revenue rapidly whilst maintaining reasonable profitability. The 34.90% five-year sales CAGR, combined with ROE exceeding 18%, indicates a business model capable of generating attractive returns on incremental capital. The "very attractive" valuation grade following the stock's 36% correction from peaks suggests the market has overreacted to near-term margin pressures, creating a potential entry point for patient investors.
However, the bear case cannot be dismissed. Operating margins remain thin at 3.49%, leaving little room for error if competitive pressures intensify or vendor terms deteriorate. The declining debtor turnover ratio and rising working capital intensity suggest potential cash flow challenges ahead. Most concerning is the stock's mildly bearish technical trend and trading below all major moving averages, indicating momentum remains negative and further downside may materialise before a sustained recovery begins.
KEY STRENGTHS
- Exceptional 34.90% five-year revenue CAGR demonstrates strong market positioning
- ROE of 18.06% significantly above sector average, indicating efficient capital deployment
- Operating margin at seven-quarter high of 3.49% shows improving operational leverage
- Zero promoter pledging and stable 56.62% promoter holding signals management confidence
- Minimal net debt-to-equity of 0.06 provides financial flexibility for growth investments
- Very attractive valuation grade following 36% correction creates potential entry point
- Q2 FY26 profit surge of 86.15% QoQ demonstrates strong operational momentum
KEY CONCERNS
- Thin operating margins of 3.49% leave minimal buffer for competitive pressures or cost inflation
- Declining debtor turnover ratio to 4.45 times suggests deteriorating working capital efficiency
- Stock declined 26.83% over past year versus Sensex gain of 7.39%, reflecting investor concerns
- Mildly bearish technical trend with stock below all major moving averages signals weak momentum
- Zero mutual fund and insurance holdings indicate limited institutional conviction
- High beta of 1.50 and 40.65% volatility classify stock as high-risk investment
- Gross margin compression from 3.73% to 3.39% YoY indicates pricing pressure
Outlook: What to Watch in Coming Quarters
Creative Newtech's near-term trajectory will largely depend on management's ability to sustain revenue momentum whilst stabilising or expanding operating margins. The technology distribution sector faces ongoing consolidation pressures, with larger players leveraging scale advantages to compress margins for smaller competitors. Creative Newtech's ability to maintain its 3.49% operating margin—or ideally expand it towards 4%—will be the critical determinant of investment success over the next 12-18 months.
POSITIVE CATALYSTS
- Sustained revenue growth above 40% annually would validate market share gains
- Operating margin expansion towards 4% would significantly enhance earnings power
- Improvement in debtor turnover ratio back above 5 times would ease working capital concerns
- Entry of mutual funds or FIIs could provide institutional support and liquidity
- Technical trend reversal to bullish would attract momentum-driven buying
RED FLAGS
- Operating margin compression below 3% would raise serious profitability concerns
- Revenue growth deceleration below 20% annually would suggest market share loss
- Further deterioration in debtor turnover or working capital metrics
- Stock breaking below ₹594.75 (52-week low) would signal technical breakdown
- Promoter stake reduction or any pledging of shares would undermine confidence
Investors should monitor quarterly results closely for signs of margin stabilisation and working capital improvement. The December 2025 quarter (Q3 FY26) will be particularly important, as it will reveal whether the September quarter's strong performance represents a sustainable trend or a temporary spike driven by seasonal factors. Management commentary on competitive dynamics, vendor relationships, and customer concentration will provide valuable insights into medium-term margin sustainability.
From a technical perspective, the stock needs to reclaim its 20-day moving average at ₹659.07 and subsequently the 200-day moving average at ₹703.20 to signal a trend reversal. Until these resistance levels are convincingly breached, the path of least resistance remains downward, and investors should be prepared for continued volatility and potential retests of the ₹594.75 support level.
The Verdict: Hold for Existing Investors, Wait for Fresh Entry
Score: 51/100
For Fresh Investors: Wait for technical trend reversal and clearer margin stabilisation before initiating positions. The current mildly bearish technical setup and trading below all moving averages suggest patience will be rewarded with better entry points. Consider accumulating only if the stock breaks above ₹720 with volume confirmation or if operating margins expand above 3.75% in Q3 FY26.
For Existing Holders: Maintain positions given the company's strong operational fundamentals, attractive valuation following recent correction, and impressive long-term track record. The 18.06% ROE and "very attractive" valuation grade provide sufficient comfort to ride out near-term volatility. However, set a mental stop-loss at ₹575 (below 52-week low) to protect against further deterioration. Consider averaging down only if margins stabilise and debtor turnover improves.
Fair Value Estimate: ₹800 per share (16% upside from current levels), assuming maintenance of 3.5% operating margins, 25% revenue growth, and gradual institutional participation. Primary risks centre on margin compression and working capital deterioration.
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. Past performance does not guarantee future results, and all investments carry risk of loss.
