The dramatic deterioration in Q3 FY26 results reflects a sharp revenue contraction that overwhelmed the company's historically strong margin profile. Net sales collapsed to ₹5.91 crores, marking the lowest quarterly revenue in over two years and representing a 40.42% year-on-year decline. The sequential drop of 59.02% from Q2 FY26's ₹14.42 crores raises serious questions about business sustainability and demand visibility in the e-waste recycling sector.
The stock has been under severe pressure, declining 45.18% over the past year whilst the Sensex gained 7.18%, resulting in a negative alpha of 52.36 percentage points. Trading at ₹441.85, the shares are down 49.36% from their 52-week high of ₹872.50, with all major moving averages pointing downward. The company's proprietary Mojo Score stands at a dismal 21 out of 100, firmly in "Strong Sell" territory.
| Quarter | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 5.91 | 14.42 | 9.24 | 9.77 | 9.92 | 12.87 | 11.40 |
| QoQ Change | -59.02% | +56.06% | -5.42% | -1.51% | -22.92% | +12.89% | — |
| Cons. Net Profit (₹ Cr) | 1.97 | 5.73 | 7.80 | 2.08 | 4.89 | 8.03 | 7.99 |
| QoQ Change | -65.62% | -26.54% | +275.00% | -57.46% | -39.10% | +0.50% | — |
| Operating Margin % (Excl OI) | 59.56% | 49.86% | 54.76% | 71.24% | 66.73% | 71.56% | 71.84% |
| PAT Margin % | 34.69% | 38.83% | 87.55% | 22.52% | 47.78% | 63.56% | 71.49% |
Financial Performance: Revenue Collapse Overwhelms Margin Strength
The Q3 FY26 quarter exposed fundamental weaknesses in Eco Recycling's business model. Net sales of ₹5.91 crores represented the lowest quarterly revenue since at least June 2024, declining 40.42% year-on-year and 59.02% sequentially. This sharp contraction suggests either severe project execution delays or a fundamental deterioration in demand for e-waste recycling services.
Operating profit before depreciation, interest, and tax (excluding other income) fell to ₹3.52 crores, marking a 46.83% year-on-year decline despite maintaining a relatively healthy operating margin of 59.56%. The margin improvement from Q2's 49.86% provided limited comfort given the absolute revenue decline. Employee costs remained stable at ₹0.81 crores, but fixed cost absorption became increasingly challenging with falling revenues.
Other income contributed ₹1.14 crores in Q3 FY26, compared to negative other income of ₹0.46 crores in Q3 FY25, providing some cushion to operating performance. However, this non-operational income source cannot mask the underlying business challenges. The tax rate spiked dramatically to 51.54% in Q3 FY26 from 17.57% in Q3 FY25, further eroding net profitability. This abnormally high tax rate of 51.54% appears anomalous and warrants clarification from management.
The nine-month FY26 performance (April-December 2025) reveals cumulative challenges. Consolidated net profit for the period totalled ₹15.50 crores across the three quarters, showing significant volatility. The company posted ₹7.80 crores in Q1, ₹5.73 crores in Q2, and just ₹1.97 crores in Q3, indicating a disturbing downward trajectory rather than normal quarterly fluctuations.
Critical Concern: Revenue Sustainability
Q3 FY26 revenue of ₹5.91 crores represents a 59.02% sequential decline and marks the lowest quarterly sales in over two years. This sharp contraction raises serious questions about order book visibility, project execution capabilities, and the sustainability of the e-waste recycling business model. The company's financial trend has turned decisively negative, with earnings per share falling to just ₹1.02 in Q3 FY26.
Profitability Metrics: Strong Returns Mask Deteriorating Fundamentals
Despite the quarterly setback, Eco Recycling maintains respectable long-term profitability metrics. The company's average return on equity (ROE) stands at 22.57%, placing it amongst the better performers in the utilities sector. The latest ROE of 20.25% remains healthy, indicating efficient capital deployment when business conditions normalise. Average return on capital employed (ROCE) of 16.66% compares favourably to the company's weighted average cost of capital, though the latest ROCE has improved to 28.51%.
The balance sheet presents a mixed picture. Shareholder funds increased to ₹87.92 crores as of March 2025 from ₹65.83 crores in March 2024, driven by retained earnings. The company operates with zero long-term debt, having eliminated ₹10.62 crores of debt that existed in March 2022. This debt-free status provides financial flexibility but also raises questions about growth investment.
Fixed assets expanded significantly to ₹53.89 crores in March 2025 from ₹34.05 crores in March 2024, suggesting ongoing capacity additions. However, current assets of ₹43.23 crores and current liabilities of ₹14.06 crores provide a comfortable current ratio of approximately 3.1 times, ensuring adequate liquidity. The company's net debt-to-equity ratio of -0.14 indicates a net cash position, a positive factor in uncertain times.
Cash Flow Analysis: Operating Challenges Emerge
The annual cash flow statement for FY25 reveals underlying stress. Operating cash flow of ₹16.00 crores was generated from profit before tax of ₹31.00 crores, but working capital changes consumed ₹6.00 crores. This working capital absorption suggests either extended receivable periods or inventory build-up, both concerning in a contracting revenue environment.
Investing activities consumed ₹14.00 crores in FY25, primarily directed towards fixed asset expansion. Whilst capacity additions are necessary for long-term growth, the timing appears questionable given the subsequent revenue deterioration in FY26. Financing activities were minimal at negative ₹1.00 crore, reflecting the debt-free nature of operations. The company closed FY25 with ₹2.00 crores in cash, up from ₹1.00 crore in FY24.
| Cash Flow Category | Mar'25 | Mar'24 | Mar'23 | Mar'22 |
|---|---|---|---|---|
| Profit Before Tax (₹ Cr) | 31.00 | 22.00 | 6.00 | 14.00 |
| Operating Cash Flow (₹ Cr) | 16.00 | -2.00 | 16.00 | 0.00 |
| Investing Cash Flow (₹ Cr) | -14.00 | 3.00 | -24.00 | 8.00 |
| Financing Cash Flow (₹ Cr) | -1.00 | 0.00 | 0.00 | 0.00 |
| Net Cash Change (₹ Cr) | 1.00 | 0.00 | -8.00 | 8.00 |
Industry Positioning: Underperforming Utilities Peers
Within the "Other Utilities" sector, Eco Recycling's performance has been notably weak. The company's one-year stock return of negative 45.18% significantly underperformed the sector average decline of 24.11%, resulting in an underperformance of 21.07 percentage points. This suggests company-specific challenges beyond broader sector headwinds.
The e-waste recycling industry in India faces regulatory tailwinds from extended producer responsibility (EPR) mandates, yet Eco Recycling appears unable to capitalise on these structural opportunities. The sharp revenue decline in Q3 FY26 raises questions about competitive positioning, client retention, and the company's ability to secure new contracts in an evolving regulatory landscape.
| Company | P/E (TTM) | P/BV | ROE % | Debt to Equity | Div Yield |
|---|---|---|---|---|---|
| Eco Recycling | 41.59 | 8.42 | 22.57% | -0.14 | NA |
| ION Exchange | 27.39 | 4.11 | 22.36% | 0.02 | NA |
| Enviro Infra | 15.32 | 2.79 | 18.19% | -0.11 | NA |
| EMS | 11.36 | 1.78 | 17.53% | 0.03 | 0.45% |
| Antony Waste | 24.74 | 2.31 | 13.30% | 0.54 | NA |
| Rajesh Power | 16.58 | 4.63 | 34.05% | 0.07 | 0.12% |
Eco Recycling trades at a price-to-earnings ratio of 41.59 times trailing twelve-month earnings, representing a substantial premium to sector peers averaging around 19 times. The company's price-to-book ratio of 8.42 times is nearly three times the peer average of approximately 3.1 times. This valuation premium appears increasingly unjustified given the deteriorating financial performance and negative earnings momentum.
Whilst Eco Recycling's ROE of 22.57% matches or exceeds most peers, the company's negative debt-to-equity ratio (indicating net cash) is shared by Enviro Infra. However, Enviro Infra trades at a far more reasonable P/E of 15.32 times and P/BV of 2.79 times, highlighting Eco Recycling's excessive valuation.
Valuation Analysis: Expensive Multiples Unjustified by Fundamentals
Trading at ₹441.85 with a market capitalisation of ₹886.00 crores, Eco Recycling's valuation metrics flash warning signals across the board. The P/E ratio of 41.59 times compares unfavourably to the industry average of 26 times, representing a 60% premium. The price-to-book ratio of 8.42 times suggests the market is pricing in significant future growth that current trends do not support.
The company's enterprise value-to-EBITDA multiple of 32.45 times and EV-to-EBIT of 33.92 times are elevated by any standard. The EV-to-sales ratio of 19.33 times appears particularly stretched for a company experiencing revenue contraction. The valuation grade of "Very Expensive" has been in place since June 2021, yet the stock has failed to grow into its valuation.
The stock's 52-week range of ₹416.20 to ₹872.50 illustrates the dramatic value destruction over the past year. Trading just 6.16% above the 52-week low and 49.36% below the high, technical indicators uniformly point to continued weakness. The absence of dividend yield (last dividend of ₹1 per share paid in August 2022) removes any income component from the investment case.
Shareholding Pattern: Promoter Stability Amidst Institutional Exit
Promoter holding has remained rock-solid at 73.35% across the past five quarters, indicating continued confidence from the founding team led by Brijkishor Kishangopal Soni and associated entities. Ecoreco Ventures Private Limited holds 52.19%, with individual promoters and family entities accounting for the remainder. Crucially, there is zero promoter pledging, eliminating concerns about forced selling or financial stress at the promoter level.
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 |
|---|---|---|---|---|---|
| Promoter | 73.35% | 73.35% | 73.35% | 73.35% | 73.35% |
| FII | 0.72% | 0.91% | 0.93% | 1.12% | 1.14% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 0.14% | 0.14% | 0.18% | 0.12% | 0.03% |
| Non-Institutional | 25.80% | 25.61% | 25.55% | 25.41% | 25.49% |
However, institutional participation remains negligible and declining. Foreign institutional investor (FII) holdings have fallen from 1.14% in December 2024 to just 0.72% in December 2025, representing a steady exodus over four consecutive quarters. Mutual fund and insurance company holdings are completely absent, whilst other domestic institutional investors hold a mere 0.14%. This lack of institutional interest is a significant red flag, suggesting sophisticated investors see limited value or growth prospects.
The non-institutional category (retail and high-net-worth individuals) has marginally increased from 25.41% to 25.80% over the past year, but this provides little comfort. The absence of mutual fund participation despite India's booming mutual fund industry speaks volumes about professional fund managers' assessment of the company's investment merit.
Stock Performance: Severe Underperformance Across Timeframes
Eco Recycling's stock performance has been catastrophic across most relevant timeframes. The one-year return of negative 45.18% compares dismally to the Sensex's positive 7.18% return, resulting in a negative alpha of 52.36 percentage points. The three-month decline of 26.05% against the Sensex's 2.53% fall demonstrates accelerating underperformance as quarterly results deteriorated.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.34% | +0.90% | -3.24% |
| 1 Month | -0.79% | -2.84% | +2.05% |
| 3 Months | -26.05% | -2.53% | -23.52% |
| 6 Months | -24.95% | +0.97% | -25.92% |
| 1 Year | -45.18% | +7.18% | -52.36% |
| 3 Years | +222.17% | +38.27% | +183.90% |
| 5 Years | +1059.71% | +77.74% | +981.97% |
The longer-term picture presents a stark contrast. Three-year returns of 222.17% and five-year returns of 1059.71% demonstrate the stock's historical strength, massively outperforming the Sensex. However, these gains were achieved from a much lower base and during a period of operational excellence that has now reversed. Early investors who captured the multi-year rally are now watching gains evaporate rapidly.
Technical indicators uniformly signal caution. The stock trades below all key moving averages – 5-day (₹443.90), 20-day (₹460.38), 50-day (₹466.60), 100-day (₹527.83), and 200-day (₹571.23). The overall technical trend is classified as "Bearish," having deteriorated from "Mildly Bearish" in early October 2025. MACD, RSI, Bollinger Bands, and KST indicators all point to continued weakness.
With a beta of 1.16, Eco Recycling is more volatile than the broader market, amplifying both gains and losses. The stock's volatility of 46.50% over the past year is exceptionally high, resulting in a negative Sharpe ratio and classification as "High Risk Low Return" – the worst possible combination for investors.
Investment Thesis: Quality Concerns Outweigh Historical Strengths
Eco Recycling's investment thesis has deteriorated significantly. The company maintains an "Average" quality grade based on long-term financial performance, but this assessment increasingly appears backward-looking. Five-year sales growth of 34.83% and EBIT growth of 92.55% reflect historical success that current trends are reversing.
The company's positive attributes include zero debt, no promoter pledging, and strong historical return ratios (average ROE of 22.57% and ROCE of 16.66%). The latest ROCE of 28.51% suggests improving capital efficiency, but this metric is distorted by the small capital base and may not reflect sustainable operational performance.
Critical weaknesses include the "Very Expensive" valuation grade that has persisted for nearly five years, a "Negative" financial trend as of December 2025, and a "Bearish" technical trend. The combination of deteriorating fundamentals and premium valuation creates a particularly unattractive risk-reward profile.
Key Strengths
- Zero Debt Structure: Net debt-to-equity of -0.14 indicates net cash position, providing financial flexibility
- Strong Historical ROE: Average ROE of 22.57% demonstrates efficient capital deployment over time
- No Promoter Pledging: 73.35% promoter holding with zero pledging indicates promoter confidence
- Healthy Margins: Operating margin of 59.56% (excluding other income) remains respectable despite challenges
- Long-term Growth Track Record: Five-year sales CAGR of 34.83% and EBIT growth of 92.55%
- Regulatory Tailwinds: EPR mandates for e-waste create structural growth opportunity in the sector
- Asset-Light Model: High margins suggest capital-efficient business model when operating normally
Key Concerns
- Revenue Collapse: Q3 FY26 sales of ₹5.91 crores down 59% QoQ and 40% YoY – lowest in two years
- Profit Deterioration: Consolidated net profit fell 66% QoQ and 60% YoY to just ₹1.97 crores
- Excessive Valuation: P/E of 41.6x and P/BV of 8.4x unjustified by deteriorating fundamentals
- Institutional Exodus: FII holdings declined from 1.14% to 0.72%; zero mutual fund or insurance participation
- Negative Financial Trend: Multiple metrics at multi-quarter lows including sales, PBDIT, and EPS
- Technical Breakdown: Trading below all moving averages with bearish indicators across timeframes
- High Volatility: Beta of 1.16 and volatility of 46.50% create amplified downside risk
Outlook: What to Watch for Recovery or Further Deterioration
The path forward for Eco Recycling hinges on several critical factors. Investors should closely monitor Q4 FY26 results for signs of revenue stabilisation or continued decline. Management commentary on order book, project pipeline, and client retention will be crucial in assessing whether Q3's collapse was an aberration or the beginning of a sustained downturn.
Positive Catalysts
- Revenue Stabilisation: Q4 FY26 sales returning to ₹10+ crore levels would signal temporary setback
- New Contract Wins: Announcement of significant EPR or corporate e-waste recycling contracts
- Margin Sustainability: Maintaining 60%+ operating margins even with revenue recovery
- Institutional Interest: Mutual fund or FII buying indicating professional validation
- Valuation Correction: Stock price decline to 20-25x P/E range creating entry opportunity
Red Flags to Monitor
- Continued Revenue Decline: Q4 FY26 sales below ₹8 crores would confirm structural issues
- Margin Compression: Operating margins falling below 50% indicating pricing pressure or cost inflation
- Working Capital Deterioration: Rising debtors or inventory suggesting collection or execution problems
- Further Institutional Exit: FII holdings dropping below 0.50% or promoter stake reduction
- Guidance Disappointment: Management unable to articulate clear recovery path or visibility
The e-waste recycling sector in India benefits from regulatory support and growing environmental consciousness, but Eco Recycling's ability to capitalise on these tailwinds has come into serious question. The company's micro-cap status (₹886 crore market capitalisation) limits institutional participation and creates liquidity concerns for larger investors.
The abnormally high tax rate of 51.54% in Q3 FY26 requires explanation. If this represents one-time adjustments, the underlying profitability may be less dire than reported. Conversely, if this tax rate persists, it would further erode already compressed net margins. Investors should seek clarity on tax normalisation in coming quarters.
The Verdict: Deteriorating Fundamentals Meet Excessive Valuation
Score: 21/100
For Fresh Investors: Avoid initiation at current levels. The combination of collapsing revenues (down 59% QoQ), deteriorating profits (down 66% QoQ), and excessive valuation (41.6x P/E) creates an unfavourable risk-reward profile. Wait for sustained revenue stabilisation and meaningful valuation correction before considering entry.
For Existing Holders: Consider reducing exposure or exiting positions. The negative financial trend, bearish technical setup, and institutional exodus suggest further downside risk. The stock's 45% decline over the past year may continue until fundamentals stabilise and valuation becomes reasonable.
Fair Value Estimate: ₹280-320 (37% downside from current levels) based on normalised earnings of ₹15-17 crores and a more appropriate 20-22x P/E multiple for a micro-cap with execution risks.
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.
