EFC (I) Ltd Q2 FY26: Robust Growth Continues as Profit Surges 54% Despite Premium Valuation

The quarter's performance underscores EFC's successful transformation from a trading entity to a focused real estate player. Since changing its name from Amani Trading and Exports Limited in July 2022, the company has rapidly scaled its operations in office leasing, co-working spaces, and commercial property fit-outs, primarily operating from its Pune headquarters. The financial results demonstrate the company's ability to capitalise on India's expanding commercial real estate market, though questions about sustainability at current valuations persist.

With the stock trading at a price-to-earnings ratio of 21 times trailing twelve-month earnings—below the realty sector average of 34 times but at a steep price-to-book value of 5.66 times—EFC presents a complex investment proposition. The company's proprietary Mojo Score of 70 out of 100 suggests a "BUY" rating, yet the valuation grade remains "EXPENSIVE," creating a nuanced picture for investors weighing growth potential against premium pricing.

Financial Performance: Top-Line Momentum Drives Profitability

EFC's Q2 FY26 results showcase exceptional revenue momentum, with net sales reaching ₹254.59 crores—the highest quarterly figure in the company's history. The 15.92% sequential growth from Q1 FY26's ₹219.62 crores demonstrates sustained business expansion, whilst the 52.96% year-on-year surge from ₹166.44 crores highlights the company's ability to capture market share in India's buoyant commercial real estate sector. For the first half of FY26, revenue stood at ₹474.21 crores, representing a commanding 81.76% increase over H1 FY25's ₹268.49 crores.

Operating profit excluding other income reached ₹110.80 crores in Q2 FY26, marking the highest quarterly operating profit on record. However, the operating margin contracted to 43.52% from 46.56% in the previous quarter and 47.67% a year ago—a 303 basis points sequential decline and 415 basis points year-on-year compression. This margin erosion, whilst concerning, reflects higher employee costs (up to ₹12.66 crores from ₹10.91 crores QoQ) and increased operational expenses associated with rapid business scaling.

The company's profit before tax climbed to ₹75.58 crores in Q2 FY26, up 14.41% sequentially and 35.79% year-on-year. Notably, interest costs declined sharply to ₹6.47 crores from ₹11.56 crores in the previous quarter, suggesting improved debt management or refinancing benefits. The tax rate of 24.97% in Q2 FY26 was considerably lower than the previous quarter's 29.35%, contributing to the strong net profit growth. Consolidated net profit of ₹44.63 crores translates to earnings per share of ₹4.48, the highest quarterly EPS in company history.

Operational Excellence: Capital Efficiency Reaches New Heights

EFC's operational performance in Q2 FY26 demonstrates exceptional capital efficiency, with the company achieving a return on equity of 18.29% for H1 FY26—the highest in its operating history. This impressive ROE, significantly above the industry average, underscores management's ability to generate substantial returns on shareholder capital. The metric has shown consistent improvement from the five-year average of 17.13%, reflecting both operational leverage and improved business quality as the company matures.

The balance sheet reveals a company in rapid expansion mode. Total shareholder funds stood at ₹543.01 crores as of March 2025, with reserves and surplus of ₹523.10 crores—a testament to strong retained earnings. However, long-term debt increased to ₹210.89 crores from ₹111.73 crores in the previous year, pushing the debt-to-equity ratio to 0.39. Whilst this leverage remains manageable, the company's average net debt to equity of 1.36 over recent periods suggests aggressive growth funding through borrowings.

Operating cash flow generation turned decisively positive in FY25, reaching ₹133.68 crores—the highest annual operating cash flow on record—compared to just ₹10 crores in FY24. This dramatic improvement, despite negative working capital changes of ₹28 crores, demonstrates the underlying strength of the business model. The operating profit to interest coverage ratio reached an impressive 17.13 times in Q2 FY26, providing substantial cushion for debt servicing and indicating low financial risk despite the elevated leverage.

Commercial Real Estate Dynamics: Riding the Office Space Wave

EFC operates in India's commercial real estate sector, which has witnessed robust demand driven by the return-to-office trend, expansion of global capability centres, and the growing co-working space phenomenon. The company's dual focus on traditional office leasing and managed office spaces positions it to capture multiple growth vectors within the sector. With operations centred in Pune—one of India's fastest-growing commercial hubs—EFC benefits from strong underlying demand fundamentals.

The company's revenue trajectory reflects the sector's momentum, with five-year sales growth of 285.97% vastly outpacing most peers. This exceptional growth rate, whilst partially reflecting a low base, nonetheless demonstrates EFC's ability to scale rapidly in a competitive market. The operating profit growth of 371.03% over the same period indicates improving operational leverage as the business matures.

However, the sector faces headwinds from rising interest rates, potential oversupply in certain micro-markets, and the ongoing evolution of hybrid work models. EFC's margin compression in recent quarters—from 56.14% in March 2024 to 43.52% in September 2025—suggests intensifying competition or changing business mix. The company's ability to maintain profitability whilst scaling will be crucial for sustaining investor confidence.

Peer Comparison: Competitive Valuation with Superior Returns

EFC's valuation presents an interesting contrast within the realty peer group. At a P/E ratio of 20.81 times, the stock trades at a significant discount to peers like Kolte Patil Developers (57.29 times) and AGI Infra (42.77 times), whilst commanding a premium to Arkade (19.63 times). This relatively moderate earnings multiple, combined with the company's superior ROE of 17.13%, suggests reasonable valuation on a price-to-earnings-to-growth basis, reflected in the attractive PEG ratio of 0.31.

However, the price-to-book value of 5.66 times sits in the middle of the peer range, below National Standard's 12.31 times and AGI Infra's 10.48 times, but significantly above Raymond's 0.96 times and Arkade's 3.25 times. This P/BV multiple appears justified by EFC's superior ROE—higher than most peers except Raymond (34.53%) and AGI Infra (24.19%)—demonstrating that the company generates above-average returns on its equity base.

The debt-to-equity comparison reveals EFC as amongst the more leveraged players in the group at 1.36, higher than most peers but still within manageable limits. This leverage, combined with the company's strong interest coverage, suggests management is comfortable using debt to fund growth. The lack of dividend yield across the peer group, including EFC, indicates these companies are in growth mode, preferring to reinvest profits rather than distribute cash to shareholders.

Valuation Analysis: Premium Pricing Tests Growth Narrative

EFC's current valuation presents a complex picture for investors. The stock trades at ₹301.65, approximately 19.28% below its 52-week high of ₹373.70 reached earlier this year, but a substantial 76.04% above its 52-week low of ₹171.35. This positioning suggests the market has moderated its enthusiasm from peak levels whilst maintaining conviction in the long-term growth story.

The company's valuation grade of "EXPENSIVE" reflects stretched multiples relative to historical norms and peer averages. The enterprise value to EBITDA multiple of 9.19 times and EV to sales of 4.42 times indicate premium pricing, particularly for a small-cap real estate company. However, the attractive PEG ratio of 0.31—well below the ideal threshold of 1.0—suggests the growth rate more than justifies current multiples.

Technical indicators paint a mixed picture. The stock recently shifted to "MILDLY BULLISH" on November 12, 2025, after periods of sideways movement. However, most moving averages show the stock trading below key levels, with the current price beneath the 5-day (₹293.56), 20-day (₹296.53), 50-day (₹306.95), 100-day (₹317.34), and 200-day (₹291.75) moving averages. This suggests near-term technical weakness despite the recent trend change.

Shareholding Pattern: Stable Promoter Base with Institutional Interest

EFC's shareholding structure reveals a stable promoter base holding 45.46% as of September 2025, unchanged from the previous quarter. The promoter group, led by Umesh Kumar Sahay (23.26%) and Abhishek Narbaria (20.57%), has maintained consistent holdings over recent quarters, with minimal fluctuation. Importantly, there is zero promoter pledging—a positive indicator of financial stability and confidence in the business.

Foreign institutional investors hold a modest 3.84% stake, showing a marginal decline of 0.07% in Q2 FY26 from 3.91% in the previous quarter. Whilst FII participation remains relatively low at 22 institutions, the year-on-year comparison shows slight reduction from 4.23% in June 2025, suggesting some profit-booking at elevated valuations. Mutual fund holdings stand at 1.64%, with only one mutual fund holding a position—indicating limited domestic institutional conviction.

The most notable trend is the steady increase in other domestic institutional investor (DII) holdings, which climbed to 5.07% in September 2025 from 4.30% in August and 3.56% in June—a cumulative increase of 151 basis points over two quarters. This rising DII participation, even as FII holdings edge lower, suggests domestic institutions view the stock favourably. Non-institutional holdings decreased to 43.99% from 45.18%, reflecting the shift toward institutional ownership.

Stock Performance: Long-Term Outperformance Masks Near-Term Weakness

EFC's stock performance presents a tale of two timeframes. Over longer horizons, the returns are nothing short of spectacular—the stock has delivered 12.80% over one year, 109.19% over two years, and an astonishing 20,350.85% over ten years. This long-term performance vastly outpaces the Sensex, generating alpha of 3.64% over one year, 78.58% over two years, and a staggering 20,119.69% over ten years.

However, near-term performance reveals mounting pressure. The stock declined 8.99% over three months, significantly underperforming the Sensex's 5.30% gain—a negative alpha of 14.29 percentage points. The one-month return of negative 0.64% versus the Sensex's positive 3.02% further underscores recent weakness. Even the year-to-date return of just 1.60% trails the Sensex's 8.54% gain by 6.94 percentage points.

The stock's beta of 1.35 indicates high volatility relative to the market, classified as a "high beta" stock with 56.75% annualised volatility. The risk-adjusted return of 0.23 over one year, whilst positive, is considerably lower than the Sensex's 0.74, suggesting investors are taking on substantially more risk for marginally higher absolute returns. This high-risk, medium-return profile may explain recent profit-booking and the stock's distance from its 52-week high.

Investment Thesis: Growth Story Meets Valuation Reality

EFC's investment proposition rests on several compelling pillars. The company has demonstrated exceptional execution capability, scaling revenue at a five-year compound annual growth rate of 285.97% whilst maintaining healthy profitability. The shift from trading operations to focused real estate services has created a more defensible business model with recurring revenue characteristics from long-term lease agreements and managed office contracts.

The financial quality metrics support the growth narrative. Operating cash flow turned decisively positive at ₹133.68 crores in FY25, indicating genuine earnings quality rather than accounting profits. The return on equity of 18.29% for H1 FY26 ranks amongst the best in the sector, demonstrating superior capital allocation. The operating profit to interest coverage of 17.13 times provides substantial financial flexibility for continued expansion.

However, several concerns temper enthusiasm. The "EXPENSIVE" valuation grade reflects stretched multiples, with the stock trading at 5.66 times book value despite margin compression from 56.14% to 43.52% over recent quarters. The high beta of 1.35 and volatility of 56.75% make this unsuitable for risk-averse investors. Limited institutional participation—just 10.55% combined holdings—suggests professional investors remain cautious. The company's quality grade of "AVERAGE" indicates room for improvement in financial metrics relative to best-in-class operators.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

The Verdict: Selective Buy for Growth-Oriented Investors

EFC (I) Limited represents a compelling growth story in India's expanding commercial real estate sector, with exceptional revenue momentum, improving capital efficiency, and strong cash generation validating the business model transformation. The Q2 FY26 results—featuring 54.27% YoY profit growth and record-high ROE of 18.29%—demonstrate continued operational excellence. However, margin compression from 56.14% to 43.52%, premium valuation multiples, and high volatility profile create a nuanced risk-reward proposition.

The investment case rests on management's ability to stabilise margins above 45% whilst maintaining revenue growth momentum. The reasonable P/E multiple of 20.81 times and attractive PEG ratio of 0.31 suggest current valuations can be justified if execution continues. However, limited institutional participation and the "EXPENSIVE" valuation grade indicate professional investors remain cautious, warranting selectivity in position sizing.