Crest Ventures Q2 FY26: Sharp Profit Decline Raises Serious Concerns

The micro-cap NBFC's revenue fell 16.51% year-on-year to ₹29.54 crores in Q2 FY26, whilst also contracting 53.19% sequentially from ₹63.11 crores in Q1 FY26. Operating margins collapsed to 40.15% from 72.16% a year ago, marking the lowest quarterly margin in recent history. The results underscore mounting operational challenges and raise questions about the sustainability of the company's business model in the current environment.

The magnitude of the profit decline has sent shockwaves through the investment community. What makes this quarter particularly alarming is not just the year-on-year comparison, but the sequential deterioration. After posting a relatively strong Q1 FY26 with ₹25.19 crores in consolidated profit, the company experienced an 85.23% collapse in just three months. This pattern suggests operational disruptions rather than seasonal variations, pointing to deeper structural issues within the business.

Financial Performance: A Quarter of Deterioration

The financial metrics for Q2 FY26 paint a troubling picture across virtually every parameter. Net sales of ₹29.54 crores represent the lowest quarterly revenue in the recent tracking period, falling well below the company's recent run rate. The 53.19% quarter-on-quarter contraction is particularly concerning, suggesting significant business disruption rather than normal cyclical patterns.

Operating profit before depreciation, interest, and tax (PBDIT) excluding other income collapsed to ₹11.86 crores from ₹42.43 crores in Q1 FY26, marking a 72.05% sequential decline. The operating margin of 40.15% represents a dramatic compression from 67.23% in the previous quarter and 72.16% a year ago. This 3,201 basis point year-on-year margin erosion signals severe pressure on the company's core business operations.

The profit cascade reveals multiple pressure points. Interest costs remained elevated at ₹4.98 crores, whilst operating profit fell sharply. Profit before tax stood at just ₹5.59 crores, the lowest quarterly figure recorded. After accounting for taxes of ₹1.85 crores at an effective rate of 33.09%, consolidated net profit settled at a mere ₹3.72 crores. The PAT margin of 12.63% compares unfavourably to 50.57% in Q2 FY25 and 40.79% in Q1 FY26.

Employee costs increased to ₹8.28 crores from ₹6.16 crores a year ago, representing a 34.42% rise even as revenues contracted. This divergence between cost growth and revenue decline suggests operational inefficiencies and raises questions about the company's cost management capabilities. The operating profit to interest coverage ratio fell to just 2.38 times, the lowest level recorded, indicating deteriorating debt servicing capacity.

Operational Challenges: Profitability Under Severe Pressure

The company's return ratios tell a story of deteriorating operational efficiency. The return on capital employed (ROCE) for the half-year period stood at just 5.61%, marking the lowest level on record. This compares to a historical average ROCE of 14.08%, indicating a substantial erosion in capital productivity. The latest annual ROCE of 7.38% already signalled weakness, but the half-yearly figure suggests accelerating deterioration.

Return on equity (ROE) has similarly weakened, with the latest annual figure at 4.28% compared to the five-year average of 11.23%. Whilst the average ROE of 11.23% demonstrates that Crest Ventures historically generated reasonable returns on shareholder capital, the recent collapse to 4.28% represents a significant concern. This level of return barely exceeds risk-free rates, questioning whether the company is adequately compensating shareholders for the risks inherent in NBFC operations.

The balance sheet presents a mixed picture. Shareholder funds stood at ₹1,194.81 crores as of March 2025, up from ₹1,104.62 crores a year earlier, reflecting retained earnings accumulation. The company maintains a debt-free status on long-term borrowings, with current liabilities of ₹240.51 crores. Investments totalled ₹341.41 crores, whilst current assets stood at ₹525.53 crores. The book value per share of ₹380.03 provides some valuation support, though operational concerns overshadow this metric.

Industry Context: Underperformance Across Metrics

Crest Ventures' struggles stand in stark contrast to the broader NBFC sector performance. The company's stock has declined 18.28% over the past year, significantly underperforming the NBFC sector return of 2.93% by 21.21 percentage points. This substantial underperformance reflects investor concerns about company-specific challenges rather than sector-wide headwinds.

The company's five-year sales growth of 23.51% and EBIT growth of 34.54% demonstrate historical expansion capability. However, recent quarterly trends suggest this growth trajectory has reversed sharply. The disconnect between long-term growth metrics and recent quarterly performance raises questions about sustainability and the factors driving current weakness.

From a risk-return perspective, Crest Ventures presents an unfavourable profile. The stock exhibits high volatility of 48.56% with negative risk-adjusted returns of -0.38 over the past year. This places it firmly in the "high risk, low return" category. The beta of 1.50 indicates the stock is 50% more volatile than the broader market, amplifying downside risks during market corrections.

Relative to NBFC peers, Crest Ventures trades at a P/E of 20.45x, which appears reasonable compared to Saraswati Commercial's 67.19x. However, the company's 0.88x price-to-book ratio, whilst below several peers, fails to account for the sharp deterioration in profitability. The average ROE of 11.23% positions Crest Ventures in the middle of the peer group, but the latest annual ROE of 4.28% suggests this comparative advantage is eroding rapidly.

Valuation Analysis: Premium Unjustified by Fundamentals

Despite the operational challenges, Crest Ventures trades at what the proprietary assessment classifies as "Very Expensive" valuation levels. The P/E ratio of 20.45x appears elevated given the sharp profit decline and uncertain earnings trajectory. With quarterly profits collapsing 78.28% year-on-year, the trailing twelve-month earnings base supporting this multiple is rapidly deteriorating.

The price-to-book ratio of 0.88x provides some downside protection, trading below the net asset value of ₹380.03 per share versus the current price of ₹367.75. However, this discount may simply reflect market concerns about asset quality and future profitability rather than presenting a value opportunity. The EV/EBITDA multiple of 11.46x and EV/Sales of 6.13x appear stretched given the margin compression and revenue challenges.

The stock has declined 27.74% from its 52-week high of ₹508.95, reflecting the market's reassessment of the company's prospects. Trading 20.75% above the 52-week low of ₹304.55, the current price level offers limited margin of safety given the deteriorating fundamentals. The dividend yield of 0.25% provides negligible income support, with the latest dividend of ₹1 per share representing a meagre 4.69% payout ratio.

The valuation grade history reveals a dramatic shift in market perception. The stock moved from "Very Attractive" in November 2022 to "Very Expensive" by August 2023, and has remained at elevated valuation levels despite the recent profit collapse. This suggests the market has yet to fully price in the deteriorating fundamentals, potentially leaving room for further downside.

Shareholding: Stable Promoter Base Amid Institutional Absence

The shareholding pattern reveals a promoter-dominated structure with limited institutional participation. Promoter holding stood at 69.75% as of September 2025, unchanged from June 2025 but up from 69.11% in December 2024. The gradual increase in promoter stake over recent quarters demonstrates continued commitment, though this has not translated into improved operational performance.

Foreign institutional investor (FII) holding remains minimal at 1.63%, with just six FII holders. The absence of mutual fund holdings is particularly noteworthy, suggesting professional fund managers see limited value or excessive risk in the stock. Insurance companies similarly maintain zero exposure. The 28.62% non-institutional holding represents largely retail investors, who may lack the resources to conduct deep fundamental analysis.

The absence of institutional investors serves as a red flag. Mutual funds and insurance companies typically conduct rigorous due diligence before investing, and their complete absence from the shareholder register suggests concerns about the company's business model, governance, or growth prospects. The minimal FII presence of 1.63% reinforces this cautious stance from sophisticated investors.

Stock Performance: Significant Underperformance Across Timeframes

The stock's price performance reflects growing investor concerns about the company's prospects. Over the past year, Crest Ventures has declined 18.28% whilst the Sensex gained 9.50%, resulting in negative alpha of 27.78 percentage points. This substantial underperformance has persisted across multiple timeframes, with the stock declining 13.57% year-to-date against an 8.72% Sensex gain.

The longer-term performance presents a contrasting picture. Over three years, the stock has gained 111.29%, substantially outperforming the Sensex's 37.57% return with positive alpha of 73.72 percentage points. The five-year return of 323.43% versus the Sensex's 93.28% demonstrates the stock's historical wealth creation capability. However, this strong long-term track record has reversed sharply in recent periods, with all short to medium-term timeframes showing negative alpha.

From a technical perspective, the stock trades in a "Mildly Bearish" trend, having changed from "Bearish" on November 13, 2025. The stock trades below all key moving averages, with the 5-day MA at ₹372.02, 20-day MA at ₹374.19, 100-day MA at ₹376.34, and 200-day MA at ₹386.11. This alignment of moving averages in descending order confirms the negative technical momentum.

Investment Thesis: Multiple Red Flags Outweigh Limited Positives

The investment case for Crest Ventures has deteriorated significantly following the Q2 FY26 results. The company's proprietary Mojo Score stands at just 24 out of 100, firmly in "Strong Sell" territory. This assessment reflects the confluence of negative factors across valuation, quality, financial trends, and technical indicators.

The financial trend is classified as "Negative," driven by the lowest quarterly net sales, PBDIT, profit before tax, and operating margins on record. The ROCE for the half-year period of 5.61% marks a multi-year low, whilst the operating profit to interest coverage ratio of 2.38 times raises concerns about debt servicing capacity. These metrics suggest structural challenges rather than temporary headwinds.

The quality assessment of "Average" reflects mixed signals. Whilst the company maintains healthy long-term growth metrics with 23.51% sales CAGR and 34.54% EBIT CAGR over five years, recent performance contradicts this historical strength. The absence of promoter pledging provides some comfort, but the minimal 1.63% institutional holding suggests sophisticated investors remain unconvinced about the company's prospects.

The valuation grade of "Very Expensive" appears particularly concerning given the deteriorating fundamentals. Trading at a P/E of 20.45x with profits collapsing 78.28% year-on-year creates significant downside risk if earnings continue to disappoint. The technical trend of "Mildly Bearish" with the stock below all moving averages reinforces the negative momentum.

Outlook: Critical Monitoring Points Ahead

The path forward for Crest Ventures depends critically on management's ability to arrest the profit decline and restore operational momentum. Investors should closely monitor the Q3 FY26 results for signs of stabilisation or further deterioration. Key metrics to watch include revenue trends, margin recovery, and return ratio improvements.

The technical setup suggests limited near-term upside, with resistance at ₹374.19 (20-day MA), ₹376.34 (100-day MA), and ₹386.11 (200-day MA). A sustained break above these levels would be required to signal a trend reversal. Conversely, a break below the 52-week low of ₹304.55 could trigger further selling pressure.

From a fundamental perspective, the company needs to demonstrate that Q2 FY26 represents a temporary aberration rather than the beginning of a sustained downturn. Management commentary on the factors driving the profit collapse and concrete steps to address them will be critical. Without clear evidence of operational improvement, the stock faces continued pressure from both fundamental and technical perspectives.