Delton Cables Q2 FY26: Strong Revenue Surge Masks Margin Pressures

The quarter's results present a mixed picture: whilst revenue growth has been exceptional, profitability metrics reveal underlying pressures. The company's stock, trading at ₹727.20 as of November 14, 2025, has declined 0.72% from its previous close, reflecting investor caution despite the sequential profit recovery. Over the past year, Delton Cables has delivered a modest 3.32% return, underperforming the Sensex's 9.00% gain by 5.68 percentage points, though the stock has generated extraordinary long-term returns of 2,303.97% over five years.

Financial Performance: Revenue Momentum Meets Margin Reality

Delton Cables' Q2 FY26 revenue performance stands as the quarter's most compelling highlight. Net sales surged to ₹241.34 crores, marking a substantial 54.38% sequential increase from ₹156.33 crores in Q1 FY26 and a healthy 37.97% year-on-year expansion from ₹174.92 crores. This represents the highest quarterly revenue in the company's recent history, driven by robust demand across its core infrastructure and industrial segments.

However, the margin narrative tells a more nuanced story. Operating profit (PBDIT excluding other income) reached ₹18.20 crores in Q2 FY26, yielding an operating margin of 7.54%, down 97 basis points sequentially from 8.51% in Q1 FY26, though improving 179 basis points year-on-year from 5.75%. The sequential margin compression suggests that the company's aggressive revenue growth has come at the cost of pricing power or operational efficiency.

Net profit margin stood at 2.61% in Q2 FY26, representing a 64 basis point sequential improvement from 1.97% but a significant 224 basis point year-on-year decline from 4.85%. The divergence between operating margin expansion and PAT margin contraction points directly to the company's mounting interest burden, which climbed to ₹9.07 crores in Q2 FY26 from ₹7.73 crores in the previous quarter—the highest interest cost in recent quarters.

The Debt Dilemma: Capital Intensity Weighing on Returns

Delton Cables' financial structure reveals a company operating under significant leverage pressures. The company's debt-to-EBITDA ratio averaged 4.80 over recent periods, whilst net debt to equity stood at 1.90—both metrics indicating elevated financial risk. Long-term debt increased to ₹12.44 crores as of March 2025 from ₹9.51 crores a year earlier, reflecting ongoing capital requirements to support the company's expansion.

The interest coverage ratio, measured by EBIT to interest, averaged just 1.38 times—a weak metric that signals limited cushion for debt servicing. In Q2 FY26, operating profit to interest improved to 2.01 times, the highest in recent quarters, yet this remains modest by industry standards and leaves little room for margin volatility or revenue setbacks.

Return on capital employed (ROCE) stood at 16.37% as of the latest measurement, showing improvement from the 11.79% average, whilst return on equity (ROE) reached 20.34%, up from the 6.59% average. These metrics demonstrate improving capital efficiency, though the elevated debt levels mean that equity returns are being amplified by leverage rather than pure operational excellence. The company's average sales to capital employed ratio of 1.70 times indicates moderate asset turnover efficiency.

Working capital management presents another area of concern. Cash flow from operations turned negative at ₹14.00 crores in FY25, driven by a ₹60.00 crore increase in working capital requirements. Trade payables surged to ₹140.84 crores from ₹77.04 crores, whilst current assets expanded to ₹364.66 crores from ₹232.61 crores—both reflecting the company's rapid revenue growth but also indicating potential cash conversion challenges.

Industry Context: Navigating Infrastructure Demand Cycles

The electrical equipment sector has witnessed mixed fortunes over the past year, with Delton Cables' 3.32% annual return outperforming the Other Electrical Equipment sector's negative 5.69% return by 9.01 percentage points. This relative outperformance reflects the company's successful positioning within infrastructure-linked segments, particularly power transmission, telecommunications infrastructure, and railway electrification projects.

India's ongoing infrastructure push, including the expansion of renewable energy transmission networks and railway modernisation programmes, has created favourable demand conditions for cable manufacturers. However, commodity price volatility—particularly for copper and aluminium—has pressured margins across the sector. Delton Cables' ability to maintain operating margins above 7% in this environment demonstrates some pricing power, though the sequential margin compression in Q2 FY26 suggests limitations.

The company's fixed assets more than doubled to ₹37.86 crores in FY25 from ₹17.61 crores in FY24, indicating significant capital expenditure to support growth. This expansion, whilst necessary for capturing market opportunities, has contributed to the elevated debt levels and interest burden that now constrain profitability.

Peer Comparison: Valuation Discount Reflects Quality Concerns

Delton Cables trades at a substantial discount to several electrical equipment peers, reflecting market concerns about its leverage profile and profitability consistency. The company's price-to-earnings ratio of 34.16 times compares favourably to Kirloskar Electric's 106.57 times and Permanent Magnet's 57.88 times, though it commands a premium to RMC Switchgears' 19.84 times.

More tellingly, Delton Cables' average ROE of 6.59% significantly trails peers such as Kirloskar Electric (30.21%), RMC Switchgears (11.57%), and Artemis Electrical (11.17%). This profitability gap explains the valuation discount and highlights the company's challenge in converting revenue growth into sustainable returns. The company's debt-to-equity ratio of 1.90 stands as the highest among listed peers except Spel Semiconductor, underscoring the balance sheet risk that concerns investors.

Delton Cables' price-to-book ratio of 6.95 times sits in the middle of the peer range, suggesting the market recognises some asset quality and growth potential, though not to the extent of Spel Semiconductor's 63.86 times (driven by semiconductor sector premiums) or RMC Switchgears' 10.34 times. The company's minimal dividend yield of 0.28%, with a payout ratio of just 8.43%, reflects management's preference for reinvesting profits into growth rather than returning cash to shareholders.

Valuation Analysis: Fair Pricing with Limited Upside Visibility

At the current price of ₹727.20, Delton Cables trades at a P/E ratio of 34.16 times trailing twelve-month earnings, representing a discount to the Other Electrical Equipment sector's average P/E of 45 times. The company's EV/EBITDA multiple of 13.65 times and EV/EBIT of 15.07 times appear reasonable given the growth trajectory, though elevated compared to historical averages reflecting the company's improved scale.

The company's PEG ratio of 0.45 suggests attractive valuation relative to growth, with the five-year sales CAGR of 44.68% significantly outpacing the current P/E multiple. However, this metric must be interpreted cautiously given the recent profit volatility and margin pressures. The stock's enterprise value to capital employed ratio of 3.05 times indicates that the market values the company's asset base at a reasonable premium, though the elevated debt levels mean that equity holders bear significant leverage risk.

Delton Cables' valuation grade recently moved to "Fair" from "Attractive," reflecting the stock's appreciation from its 52-week low of ₹564.50. The current price sits 47.11% below the 52-week high of ₹1,375.00, indicating substantial downside from peak valuations. This volatility—with the stock demonstrating 57.18% annual volatility—positions Delton as a high-risk, moderate-return proposition rather than a stable compounder.

Shareholding Pattern: Promoter-Dominated with Minimal Institutional Interest

Delton Cables maintains a highly concentrated ownership structure, with promoter holding stable at 73.04% as of September 2025. The promoter group, led by the Gupta family through various entities including Vishranti Trading Enterprises Ltd. (32.54%) and Vijendra Kumar Gupta (9.35%), has maintained consistent ownership with minimal changes over recent quarters.

The complete absence of foreign institutional investor (FII) and mutual fund (MF) holdings represents a significant concern. Institutional holding stands at a negligible 0.06%, indicating that professional investors have shown no interest in the stock despite its growth trajectory. This lack of institutional participation limits liquidity and suggests that sophisticated investors may harbour concerns about the company's financial structure, corporate governance, or long-term sustainability.

The minor uptick in DII holdings from 0.02% to 0.06% in Q2 FY26 provides little comfort, as the absolute magnitude remains trivial. Non-institutional investors hold 26.90% of the company, representing retail and high-net-worth individuals who may have less rigorous analytical frameworks than institutional investors. Importantly, promoters have pledged zero shares, eliminating one potential red flag around financial distress or liquidity concerns at the promoter level.

Stock Performance: Long-Term Outperformance, Recent Consolidation

Delton Cables' stock performance presents a tale of two timeframes. Over extended periods, the stock has delivered exceptional returns: 2,303.97% over five years, 1,151.64% over three years, and 273.02% over two years—dramatically outperforming the Sensex's 93.78%, 37.22%, and 30.23% returns respectively. This extraordinary wealth creation reflects the company's successful transformation from a small-scale manufacturer to a more substantial industry player.

However, recent performance has been considerably more modest. The stock's year-to-date return of negative 31.00% significantly underperforms the Sensex's 8.22% gain, indicating substantial profit-booking or concern about near-term prospects. The one-year return of 3.32% trails the market by 5.68 percentage points, whilst six-month performance of 22.09% shows recovery momentum with 18.12 percentage points of alpha generation.

Technical indicators present a mixed picture. The stock recently turned "Mildly Bullish" from "Sideways" on November 12, 2025, at ₹728.00, though this follows a period of bearish sentiment. The stock trades below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, indicating weak momentum across multiple timeframes. With a beta of 1.50, Delton Cables demonstrates 50% more volatility than the broader market, classifying it as a high-beta stock suitable only for risk-tolerant investors.

Investment Thesis: Growth Story Constrained by Leverage

Delton Cables presents a complex investment proposition characterised by strong revenue growth offset by profitability challenges and balance sheet constraints. The company's proprietary Mojo Score of 70 out of 100 yields a "BUY" rating, though this must be interpreted within the context of the company's micro-cap status and elevated risk profile.

The bull case centres on the company's demonstrated ability to capture market share in infrastructure-linked segments, with revenue growing at 44.68% annually over five years. The improving ROCE of 16.37% and ROE of 20.34% suggest that recent investments are beginning to generate returns, whilst the absence of promoter pledging indicates confidence at the ownership level. The company's exposure to secular growth themes—power transmission expansion, telecommunications infrastructure, and railway electrification—provides a favourable demand backdrop.

However, the bear case cannot be ignored. The debt-to-EBITDA ratio of 4.80 and interest coverage of just 1.38 times leave minimal margin for error. Any revenue setback or margin compression could quickly strain debt servicing capacity. The complete absence of institutional investors raises questions about corporate governance, financial transparency, or business model sustainability. Operating margins have shown volatility, declining sequentially in Q2 FY26 despite strong revenue growth, suggesting potential pricing pressure or operational inefficiencies.

Key Strengths & Risk Factors

Outlook: What to Watch