Deep Industries Limited, formerly known as Deep CH4 Limited until September 2020, has demonstrated remarkable resilience in navigating the cyclical oil services industry. With a market capitalisation of ₹2,644 crores and a book value per share of ₹284.31, the company trades at 1.38 times its book value, reflecting a modest premium despite strong operational fundamentals.
The December 2025 quarter marked a continuation of the company's growth trajectory, with net sales reaching ₹221.50 crores, a marginal 0.22% increase from the previous quarter's ₹221.01 crores. More impressively, the year-on-year comparison reveals a 43.06% surge from ₹154.83 crores in December 2024, underscoring the company's ability to capitalise on improving industry dynamics and operational scale-up.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | YoY Growth | Net Profit (₹ Cr) | Operating Margin |
|---|---|---|---|---|---|
| Dec'25 | 221.50 | +0.22% | +43.06% | 68.06 | 45.22% |
| Sep'25 | 221.01 | +10.78% | +69.20% | 67.41 | 41.45% |
| Jun'25 | 199.50 | +19.30% | +61.59% | 58.82 | 40.90% |
| Mar'25 | 167.23 | +8.01% | — | -209.17 | 33.88% |
| Dec'24 | 154.83 | +18.53% | — | 43.61 | 43.11% |
| Sep'24 | 130.62 | +5.80% | — | 38.41 | 44.01% |
| Jun'24 | 123.46 | — | — | 37.06 | 40.98% |
Financial Performance: Margin Excellence Drives Profitability
Deep Industries' Q3 FY26 financial performance showcases operational excellence, with operating profit before depreciation, interest, and tax (excluding other income) reaching ₹100.17 crores, the highest quarterly figure on record. This translated into an operating margin of 45.22%, marking a significant improvement from 41.45% in Q2 FY26 and 43.11% in the year-ago quarter. The margin expansion reflects improved operational efficiency, better asset utilisation, and favourable contract terms in the oil services segment.
Net profit for Q3 FY26 stood at ₹68.06 crores on a consolidated basis, representing a modest 0.96% quarter-on-quarter increase but a robust 56.07% year-on-year surge. The profit after tax margin remained stable at 32.21% versus 32.23% in the previous quarter, indicating consistent profitability despite modest revenue growth. The company's ability to maintain margins above 30% consistently over the past four quarters demonstrates strong pricing power and cost discipline.
Other income for the quarter declined to ₹9.91 crores from ₹21.26 crores in Q2 FY26, a 53.39% drop that warrants monitoring. However, the core operating profit excluding other income remained strong, indicating that the company's primary business operations continue to drive value creation rather than treasury income or one-time gains.
Employee costs rose to ₹22.42 crores in Q3 FY26 from ₹19.47 crores in the previous quarter, a 15.15% increase that reflects business expansion and potentially higher headcount to support growing operations. Interest costs declined to ₹4.32 crores from ₹6.51 crores, providing relief to the bottom line and suggesting improved working capital management or debt reduction.
Quality of Earnings: Strong Fundamentals
Deep Industries' earnings quality remains robust, with operating profit to interest coverage at 23.19 times for Q3 FY26, the highest on record. The company generated ₹209.00 crores in cash flow from operations during FY25, demonstrating strong cash conversion despite capital-intensive expansion. With negligible net debt-to-equity ratio of 0.02 and debt-to-EBITDA of just 0.64, the balance sheet provides ample financial flexibility for growth initiatives.
Operational Excellence: Return Metrics Tell a Cautionary Tale
While operational metrics paint a positive picture, return ratios reveal an area requiring investor attention. The company's average return on equity (ROE) stands at 8.92%, whilst the latest ROE for the half-year period improved to 10.96%. Although this represents progress, it remains below the threshold typically expected from quality businesses. For context, peer companies in the oil services sector often deliver ROE in the range of 15-25%, suggesting Deep Industries has room for improvement in capital efficiency.
Return on capital employed (ROCE) averaged 7.85% over the measurement period but improved to 12.62% in the latest period, indicating better asset productivity. The half-yearly ROCE reached 13.88%, the highest on record, signalling that recent capital investments are beginning to generate adequate returns. However, investors should note that these returns, whilst improving, remain modest compared to the company's cost of capital and industry standards.
The balance sheet as of March 2025 reveals shareholder funds of ₹1,819.61 crores, up from ₹1,443.25 crores a year earlier, reflecting retained earnings and wealth creation. Fixed assets stood at ₹1,080.70 crores, with current assets of ₹909.70 crores providing operational liquidity. Long-term debt increased to ₹104.33 crores from ₹96.70 crores, a modest rise that maintains the company's conservative leverage profile.
Key Concern: Return Ratios Below Industry Standards
Deep Industries' ROE of 8.92% (average) and ROCE of 7.85% (average) trail industry benchmarks significantly. Whilst recent periods show improvement, with latest ROE at 10.96% and ROCE at 12.62%, these metrics remain below the 15-20% range that characterises high-quality compounders. Investors should monitor whether margin expansion and asset turnover improvements can drive returns towards industry-leading levels in coming quarters.
Growth Trajectory: Five-Year Momentum Impressive
Deep Industries has delivered commendable long-term growth, with five-year sales compound annual growth rate (CAGR) of 29.24% and EBIT growth of 55.29%. This growth trajectory positions the company favourably within the oil services sector, reflecting successful contract wins, capacity expansion, and market share gains. Annual revenue grew from ₹341.00 crores in FY23 to ₹576.00 crores in FY25, a 35.20% year-on-year increase that underscores robust demand for the company's services.
The company's sales-to-capital employed ratio of 0.26 times suggests capital-intensive operations typical of the oil services industry. Whilst this metric appears low, it reflects the nature of the business, which requires significant upfront investment in equipment and infrastructure before revenue generation commences. The improving ROCE trend indicates that deployed capital is gradually becoming more productive.
| Year | Net Sales (₹ Cr) | YoY Growth | PAT (₹ Cr) | Operating Margin | PAT Margin |
|---|---|---|---|---|---|
| FY25 | 576.00 | +35.20% | -78.00 | 40.10% | -13.50% |
| FY24 | 426.00 | +24.90% | 125.00 | 37.30% | 29.30% |
| FY23 | 341.00 | +6.20% | 125.00 | 38.10% | 36.70% |
| FY22 | 321.00 | +66.30% | 72.00 | 35.50% | 22.40% |
| FY21 | 193.00 | -26.10% | 64.00 | 41.50% | 33.20% |
Industry Leadership: How Deep Industries Compares to Peers
Deep Industries operates in a competitive landscape dominated by larger players with stronger return profiles. A peer comparison reveals both strengths and areas where the company trails industry leaders. The company's price-to-earnings ratio of 12.55 times appears reasonable compared to peers like Castrol India (18.94x) and Gulf Oil Lubricants (14.83x), suggesting the market recognises valuation concerns despite operational progress.
| Company | P/E (TTM) | P/BV | ROE % | Div Yield | Debt/Equity |
|---|---|---|---|---|---|
| Deep Industries | 12.55 | 1.38 | 8.92% | 0.73% | 0.02 |
| MRPL | 14.69 | 2.40 | 20.58% | — | 0.75 |
| Castrol India | 18.94 | 9.63 | 44.92% | 7.02% | -0.57 |
| C P C L | 6.19 | 1.51 | 25.48% | 0.56% | 0.20 |
| Gulf Oil Lubricants | 14.83 | 3.34 | 23.09% | 4.30% | -0.37 |
| Veedol Corporation | 13.67 | 2.71 | 17.72% | 3.68% | -0.07 |
The most glaring difference emerges in return on equity metrics. Deep Industries' ROE of 8.92% pales in comparison to Castrol India's 44.92%, MRPL's 20.58%, and C P C L's 25.48%. This gap explains the lower price-to-book multiple of 1.38x versus peers commanding 2.40x to 9.63x. Investors pay premium valuations for superior capital efficiency, and Deep Industries must demonstrate sustained ROE improvement to justify multiple expansion.
On the positive side, Deep Industries maintains minimal leverage with a debt-to-equity ratio of 0.02, providing financial stability that several peers lack. The company's dividend yield of 0.73%, whilst modest, reflects a conservative payout ratio of 12.61%, allowing management to retain earnings for growth investments. The PEG ratio of 0.24 suggests the stock may be undervalued relative to its growth rate, though this metric should be interpreted cautiously given the cyclical nature of the oil services industry.
Valuation Analysis: Premium Pricing Despite Mixed Fundamentals
Deep Industries currently trades at what the company's own valuation assessment categorises as "Very Expensive" territory, a designation that has persisted since March 2024 with brief interruptions. At a price of ₹415.15, the stock commands a P/E ratio of 13.00 times trailing twelve-month earnings, moderately above the industry average of 15.00 times but below several higher-quality peers.
The price-to-book ratio of 1.38 times appears reasonable on the surface, trading at a modest premium to book value of ₹284.31 per share. However, this premium seems unjustified when considering the company's below-average ROE of 8.92%. Financial theory suggests that companies earning returns below their cost of capital should trade at discounts to book value, whilst those generating superior returns deserve premiums. Deep Industries' current valuation implies market expectations of significant ROE improvement ahead.
The enterprise value-to-EBITDA multiple of 9.06 times and EV-to-EBIT of 10.85 times reflect the market's recognition of the company's strong operational cash generation capabilities. These multiples appear fair for a growing business in the oil services sector, though they leave little room for disappointment. The EV-to-sales ratio of 3.62 times underscores the premium valuation, particularly given the capital-intensive nature of operations.
The stock's 52-week range of ₹332.30 to ₹590.00 illustrates significant volatility, with the current price 29.64% below the peak reached earlier. This correction reflects broader market concerns about valuation sustainability and technical deterioration. The PEG ratio of 0.24 suggests potential value, but investors should weigh this against execution risks and competitive pressures.
Shareholding: Stable Promoter Base, Minimal Institutional Interest
Deep Industries' shareholding pattern reveals a stable promoter base and minimal institutional participation, a characteristic common among small-cap companies. Promoter holding has remained steady at 63.49% for the past five quarters, with no pledging of shares—a positive indicator of promoter confidence and financial stability. The Rupesh Savla Family Trust holds 31.49%, followed by Shantilal Savla Family Trust at 12.70%, demonstrating concentrated family ownership.
| Quarter | Promoter % | FII % | MF % | Insurance % | Other DII % | Non-Inst % |
|---|---|---|---|---|---|---|
| Dec'25 | 63.49% | 1.71% | 0.05% | 0.00% | 1.05% | 33.71% |
| Sep'25 | 63.49% | 2.09% | 0.00% | 0.00% | 1.15% | 33.27% |
| Jun'25 | 63.49% | 1.50% | 0.00% | 0.00% | 1.15% | 33.85% |
| Mar'25 | 63.49% | 2.18% | 0.00% | 0.00% | 1.17% | 33.17% |
| Dec'24 | 63.49% | 1.99% | 0.00% | 0.00% | 1.03% | 33.49% |
Foreign institutional investor (FII) holding declined to 1.71% in December 2025 from 2.09% in the previous quarter, a 0.38 percentage point reduction that signals cautious sentiment among global investors. The presence of 39 FIIs suggests some interest, but the aggregate holding of just 1.71% indicates limited conviction. Mutual fund participation remains negligible at 0.05%, with only one fund holding shares as of December 2025, up from zero in previous quarters—a marginal positive development.
Insurance company holdings remain at zero, whilst other domestic institutional investors (DIIs) hold 1.05%, down from 1.15% in September 2025. The total institutional holding of just 2.80% reflects the stock's small-cap status and limited liquidity, factors that deter larger institutional allocations. Non-institutional investors account for 33.71% of the shareholding, a stable base that provides some liquidity but lacks the research depth and conviction of institutional money.
Stock Performance: Underperformance Raises Concerns
Deep Industries' stock performance over the past year presents a concerning picture for investors. The shares have declined 24.24% over the trailing twelve months, significantly underperforming the Sensex's 6.44% gain, resulting in negative alpha of 30.68 percentage points. This underperformance extends to the six-month horizon, with the stock down 21.92% versus the Sensex's 3.23% gain, and the three-month period showing a 16.37% decline against the benchmark's marginal 0.17% dip.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +12.92% | +0.91% | +12.01% |
| 1 Month | -4.20% | -2.49% | -1.71% |
| 3 Months | -16.37% | -0.17% | -16.20% |
| 6 Months | -21.92% | +3.23% | -25.15% |
| YTD | -9.81% | -2.24% | -7.57% |
| 1 Year | -24.24% | +6.44% | -30.68% |
| 2 Years | +67.40% | +16.15% | +51.25% |
| 3 Years | +184.45% | +36.94% | +147.51% |
The longer-term picture provides some solace, with two-year returns of 67.40% and three-year returns of 184.45%, both substantially ahead of benchmark indices. This suggests that early investors who entered at lower valuations have been rewarded handsomely, but recent entrants face significant mark-to-market losses. The stock's four-year return of 353.22% demonstrates the wealth creation potential during the company's growth phase, though such returns may prove difficult to replicate from current elevated valuations.
Compared to the broader oil sector, which delivered 15.96% returns over the past year, Deep Industries' 24.24% decline represents underperformance of 40.20 percentage points. This sector-relative weakness suggests company-specific concerns beyond broader industry dynamics. The stock's beta of 1.86 indicates high volatility, with price movements nearly twice as dramatic as the overall market—a characteristic that amplifies both gains and losses.
Technical indicators paint a uniformly bearish picture, with the stock trading below all major moving averages including the 5-day, 20-day, 50-day, 100-day, and 200-day averages. The current trend classification of "Bearish" as of February 5, 2026, represents a deterioration from "Mildly Bearish" previously, suggesting momentum has shifted decisively negative. MACD, Bollinger Bands, and KST indicators all flash bearish signals on weekly charts, whilst the monthly outlook shows "Mildly Bearish" to "Sideways" readings.
Investment Thesis: Mixed Signals Across Parameters
Deep Industries presents a complex investment thesis characterised by strong operational momentum offset by valuation concerns and technical weakness. The company's quality grade of "Average" reflects solid long-term financial performance with room for improvement in capital efficiency metrics. The financial trend remains "Positive" based on record quarterly metrics including highest-ever operating margins and profit figures, suggesting operational execution continues on track.
However, the "Very Expensive" valuation grade and "Bearish" technical trend create significant headwinds. The proprietary Mojo score of 43 out of 100 places the stock firmly in "SELL" territory, down from "HOLD" status in November 2025. This rating reflects the combination of premium valuation, recent underperformance, and deteriorating technical momentum despite positive fundamental trends.
Key Strengths & Risk Factors
KEY STRENGTHS
- Robust Revenue Growth: 43.06% YoY sales growth in Q3 FY26, with five-year CAGR of 29.24% demonstrating strong market position
- Margin Excellence: Operating margin of 45.22% in Q3 FY26, highest quarterly figure, reflecting operational efficiency
- Strong Balance Sheet: Minimal leverage with debt-to-equity of 0.02 and debt-to-EBITDA of 0.64 providing financial flexibility
- No Promoter Pledging: Zero pledged shares with stable 63.49% promoter holding signals confidence
- Improving Returns: ROCE improved to 13.88% (half-yearly), showing capital productivity gains
- Cash Generation: Operating cash flow of ₹209.00 crores in FY25 demonstrates strong cash conversion
- Interest Coverage: Operating profit to interest at 23.19 times provides substantial debt servicing cushion
KEY CONCERNS
- Below-Average ROE: ROE of 8.92% significantly trails peer average of 26%, questioning capital efficiency
- Premium Valuation: "Very Expensive" grade with P/BV of 1.38x unjustified by return metrics
- Technical Weakness: Bearish trend with stock 29.64% below 52-week high, below all moving averages
- Underperformance: 24.24% decline over past year versus Sensex gain of 6.44%, negative alpha of 30.68%
- Minimal Institutional Interest: Just 2.80% institutional holding limits liquidity and research coverage
- High Volatility: Beta of 1.86 indicates significant price swings, unsuitable for conservative investors
- Declining Other Income: Other income dropped 53.39% QoQ to ₹9.91 crores, requiring monitoring
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained Margin Expansion: Further improvement beyond 45% operating margin would validate pricing power
- ROE Improvement: Movement towards 15-20% ROE range would justify current valuation premium
- Contract Wins: New long-term contracts in oil services sector driving revenue visibility
- Institutional Accumulation: Increased FII/MF participation would improve liquidity and valuation support
- Technical Reversal: Break above ₹462 (200 DMA) could trigger momentum shift
RED FLAGS
- Margin Compression: Any decline below 40% operating margin would signal competitive pressure
- Revenue Growth Stagnation: QoQ growth already slowing to 0.22%, further deceleration concerning
- Institutional Exit: Further reduction in FII holding from current 1.71% would pressure stock
- Break Below Support: Breach of ₹332 (52-week low) could trigger capitulation
- Working Capital Deterioration: Rising receivables or inventory days would strain cash flow
The Verdict: Operational Strength Insufficient to Overcome Valuation Concerns
Score: 43/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst operational metrics demonstrate strength, the "Very Expensive" valuation combined with bearish technical trends and below-average return on equity creates an unfavourable risk-reward profile. Consider waiting for a meaningful correction towards ₹350-370 levels or evidence of sustained ROE improvement above 15% before entering.
For Existing Holders: Consider reducing positions, particularly for those sitting on substantial gains from lower entry points. The 30.68% underperformance versus Sensex over the past year, combined with deteriorating technical momentum, suggests the path of least resistance remains downward. Book partial profits and reassess if the stock stabilises above the 200-day moving average of ₹462.60.
Fair Value Estimate: ₹350-370 (15-20% downside from current levels), based on normalised P/E of 10-11x applied to sustainable earnings, adjusted for below-average ROE and capital-intensive business model.
Rationale: Deep Industries demonstrates impressive operational execution with record margins and strong revenue growth, but these positives are more than offset by premium valuation that anticipates perfection, weak return on equity metrics that trail industry standards, and bearish technical setup with the stock trading below all major moving averages. The minimal institutional interest and high volatility add to the risk profile, making this unsuitable for most investors at current valuations.
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 is not indicative of future results, and all investments carry risk of loss.
