Revenue declined 33.26% year-on-year to ₹72.09 crores in Q2 FY26, whilst operating margins collapsed to a mere 1.98%, down from 27.11% in the year-ago quarter. The stock, currently trading at ₹323.00, has gained 20.07% over the past year but remains 21.20% below its 52-week high of ₹409.90, reflecting investor concerns about the company's deteriorating fundamentals.
The results underscore a challenging operating environment for the capital markets industry, with Emkay Global struggling to maintain profitability amidst subdued trading volumes and heightened competition. The company's earnings per share for the quarter stood at a meagre ₹0.18, the lowest in recent quarters, raising questions about the sustainability of its business model in the current market conditions.
Financial Performance: A Quarter of Deterioration
The Q2 FY26 results reveal a comprehensive breakdown across all key financial metrics. Revenue of ₹72.09 crores declined 1.21% sequentially from ₹72.97 crores in Q1 FY26, whilst the year-on-year comparison shows a sharp 33.26% contraction from ₹108.02 crores in Q2 FY25. This marks the fourth consecutive quarter of subdued top-line performance, with the company struggling to regain the momentum witnessed in Q2 FY25 when revenues peaked.
Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) collapsed to just ₹1.41 crores, representing a margin of 1.98%—a catastrophic decline from the 27.11% margin achieved in the year-ago quarter. The sequential deterioration was equally pronounced, with operating profit falling from ₹5.82 crores (8.03% margin) in Q1 FY26. This margin compression reflects both revenue pressure and inadequate cost management, with employee costs remaining elevated at ₹41.88 crores despite the revenue decline.
The quality of earnings deteriorated significantly, with other income of ₹4.99 crores constituting 1,559.38% of profit before tax—an alarming indicator that core operations generated virtually no profitability. Without this non-operating income cushion, the company would have reported substantial operating losses. The profit after tax margin compressed to just 0.42%, down from 24.06% in Q2 FY25 and 6.63% in Q1 FY26.
| Quarter | Revenue (₹ Cr) | Net Profit (₹ Cr) | Operating Margin | PAT Margin |
|---|---|---|---|---|
| Sep'25 | 72.09 | 0.46 | 1.98% | 0.42% |
| Jun'25 | 72.97 | 4.78 | 8.03% | 6.63% |
| Mar'25 | 71.04 | 8.49 | 0.16% | 11.96% |
| Dec'24 | 77.30 | 8.57 | 12.31% | 11.40% |
| Sep'24 | 108.02 | 25.91 | 27.11% | 24.06% |
| Jun'24 | 82.69 | 13.87 | 18.40% | 17.02% |
| Mar'24 | 90.98 | 10.56 | 14.28% | 11.53% |
Operational Challenges: Cost Structure Under Pressure
The company's operational difficulties stem from a fundamental mismatch between revenue generation and cost structure. Employee costs of ₹41.88 crores in Q2 FY26 remained stubbornly high, declining only marginally from ₹42.53 crores in Q1 FY26 and ₹48.72 crores in Q2 FY25. This represents 58.09% of total revenue, a ratio that is unsustainable given the current revenue trajectory. The inability to align the cost base with revenue realities suggests limited operational flexibility or delayed management response to deteriorating market conditions.
Interest costs increased to ₹2.80 crores from ₹2.44 crores sequentially, indicating rising debt servicing obligations despite weak profitability. Depreciation remained stable at ₹3.28 crores. The combination of elevated fixed costs, rising interest burden, and contracting revenues created a perfect storm that obliterated operating leverage, leaving the company with virtually no buffer for profitability.
⚠ Critical Operational Red Flags
Non-Operating Income Dependency: Other income constitutes 1,559.38% of profit before tax, indicating core operations are essentially unprofitable and the company is surviving on non-operating income.
Cost Rigidity: Employee costs at 58.09% of revenue demonstrate limited ability to flex the cost base in response to revenue pressures.
Margin Collapse: Operating margin of 1.98% represents a 25.13 percentage point decline year-on-year, signalling severe competitive or structural challenges.
The return on equity, whilst showing a strong latest reading of 20.65%, masks the underlying deterioration in quarterly performance. The five-year average ROE of 12.37% reflects moderate capital efficiency, but the recent quarter's near-zero profitability raises questions about the sustainability of historical returns. Higher ROE typically indicates better capital efficiency and profitability, but in this case, the strong ROE figure is built on historical performance rather than current operational reality.
Industry Context: Capital Markets Under Pressure
The capital markets industry has faced headwinds in recent quarters, with subdued retail participation and volatile market conditions impacting brokerage revenues. Emkay Global's 20.07% one-year stock return marginally outperformed the Capital Markets sector return of 18.22%, but this masks the significant underperformance in recent months. The stock's year-to-date return of just 2.47% lags the Sensex's 7.62% gain, reflecting investor concerns about the company's deteriorating fundamentals.
The company's high beta of 1.50 indicates greater volatility than the broader market, with the stock classified as "HIGH RISK HIGH RETURN". This volatility has been evident in the dramatic price movements, with the stock trading 99.94% above its 52-week low of ₹161.55 but still 21.20% below its 52-week high. The recent bullish technical trend, which emerged on October 14, 2025, has provided some support, but fundamental concerns remain paramount.
Market Positioning: Struggling Amidst Sector Weakness
Emkay Global's challenges reflect broader industry headwinds, but the magnitude of its profit decline suggests company-specific issues beyond sector trends. Whilst peers have also faced pressure, the 98.22% year-on-year profit decline stands out as particularly severe, indicating potential market share losses or structural cost disadvantages.
Peer Comparison: Valuation Discount Reflects Concerns
When compared against capital markets peers, Emkay Global trades at a significant discount on most valuation metrics, reflecting market concerns about its deteriorating fundamentals and growth prospects. The company's P/E ratio of 16.84x appears reasonable compared to the industry average of 23x, but this discount is justified given the weak ROE of 12.37% versus peer averages around 25%.
| Company | P/E (TTM) | P/BV | ROE % | Div Yield |
|---|---|---|---|---|
| Emkay Global | 16.84 | 2.65 | 12.37% | 1.27% |
| Dolat Algotech | 7.69 | 1.40 | 26.31% | 0.31% |
| Wealth First Por | 32.44 | 9.40 | 34.91% | 1.06% |
| 5Paisa Capital | 20.57 | 0.16 | 6.90% | 0.00% |
| Adit.Birla Money | 16.17 | 0.34 | 31.06% | 0.00% |
The price-to-book ratio of 2.65x sits in the middle of the peer range but appears elevated given the weak profitability trends. The dividend yield of 1.27% offers some income support, with the company maintaining its ₹1.50 per share dividend despite the profit decline. However, the sustainability of this dividend is questionable if profitability remains under pressure.
Valuation Analysis: Attractive Rating Masks Fundamental Weakness
Emkay Global's current valuation grade of "ATTRACTIVE" appears incongruous with its deteriorating fundamentals. Whilst the stock trades at a P/E of 16.84x—below the industry average of 23x—this discount reflects justified concerns about earnings quality and growth sustainability. The PEG ratio of 16.84 indicates the stock is expensive relative to its growth prospects, despite the low P/E multiple.
The EV/EBITDA multiple of 6.34x and EV/Sales of 0.86x appear reasonable on the surface, but these metrics are distorted by the recent collapse in operating profitability. The negative EV/Capital Employed ratio of -1.29x suggests balance sheet complexities that warrant closer scrutiny. At the current market capitalisation of ₹801.00 crores, the company is classified as a micro-cap, which adds liquidity and volatility risks for investors.
The stock's 52-week range of ₹161.55 to ₹409.90 illustrates the significant volatility, with the current price of ₹323.00 positioned closer to the midpoint. The valuation grade has oscillated between "Attractive" and "Fair" multiple times in recent weeks, reflecting market uncertainty about the appropriate valuation level given the conflicting signals from historical performance and current deterioration.
Shareholding Pattern: Promoter Stake Declining
The shareholding pattern reveals a gradual decline in promoter holdings over recent quarters, falling from 73.89% in September 2024 to 71.68% in September 2025. Whilst this 2.21 percentage point reduction over four quarters is not dramatic, the consistent downward trend warrants attention. The most recent quarter saw promoter holding decline by 0.35 percentage points from 72.03% to 71.68%, continuing the pattern of gradual divestment.
| Quarter | Promoter % | QoQ Change | FII % | Non-Inst % |
|---|---|---|---|---|
| Sep'25 | 71.68% | -0.35% | 0.88% | 27.41% |
| Jun'25 | 72.03% | -0.32% | 0.86% | 27.11% |
| Mar'25 | 72.35% | -1.02% | 0.82% | 26.73% |
| Dec'24 | 73.37% | -0.52% | 0.83% | 25.71% |
| Sep'24 | 73.89% | — | 0.77% | 25.33% |
Institutional participation remains minimal, with FII holdings at just 0.88% and mutual fund holdings at zero. The absence of institutional support reflects concerns about liquidity, corporate governance, or growth prospects. Non-institutional holdings have increased from 25.33% to 27.41% over the past year, absorbing the stake sold by promoters, but this shift towards retail investors increases volatility risk.
The promoter group is led by Krishna Kumar Karwa (19.22%), Emkay Corporate Services Private Limited (18.95%), and Prakash Kacholia (18.55%). Positively, there is no promoter pledging, which eliminates one potential risk factor. However, the gradual reduction in promoter stake, whilst not alarming in absolute terms, raises questions about confidence in the company's near-term prospects.
Stock Performance: Strong Long-Term Gains Mask Recent Weakness
Emkay Global's stock performance presents a tale of two timelines. Over longer periods, the stock has delivered exceptional returns, with a five-year gain of 415.97% significantly outperforming the Sensex's 112.28% return, generating an alpha of 303.69 percentage points. The three-year return of 305.78% and two-year return of 216.45% similarly demonstrate strong historical performance.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +0.14% | -0.14% | +0.28% |
| 1 Month | +0.36% | +3.84% | -3.48% |
| 3 Month | +35.49% | +3.58% | +31.91% |
| 6 Month | +57.56% | +4.80% | +52.76% |
| YTD | +2.47% | +7.62% | -5.15% |
| 1 Year | +20.07% | +5.92% | +14.15% |
| 3 Years | +305.78% | +38.43% | +267.35% |
| 5 Years | +415.97% | +112.28% | +303.69% |
However, shorter-term performance reveals growing concerns. The year-to-date return of just 2.47% lags the Sensex by 5.15 percentage points, whilst the one-month return of 0.36% significantly underperforms the market's 3.84% gain. The three-month and six-month returns of 35.49% and 57.56% respectively show strong momentum, but these gains occurred before the recent quarterly results revealed the extent of the profit deterioration.
Technical indicators present a mixed picture. The stock is classified as "BULLISH" overall, with the trend turning bullish on October 14, 2025 at ₹313.70. However, the stock trades below its 20-day moving average of ₹324.37, suggesting near-term resistance. The high beta of 1.50 and volatility of 54.61% underscore the elevated risk profile, with the risk-adjusted return of 0.37 trailing the Sensex's 0.47 despite the higher absolute returns.
Investment Thesis: Quality Concerns Override Valuation Appeal
The investment case for Emkay Global presents significant challenges despite the "ATTRACTIVE" valuation grade. The proprietary Mojo Score of 40 out of 100 places the stock firmly in "SELL" territory, with the recommendation to "consider selling" and "look for exit opportunities". This assessment reflects the confluence of negative factors that outweigh any valuation appeal.
The quality grade of "BELOW AVERAGE" reflects long-term financial performance concerns, with the average ROE of 12.37% significantly lagging peer averages around 25%. The financial trend is classified as "NEGATIVE", driven by the profit collapse, lowest quarterly EPS of ₹0.18, and the alarming dependence on non-operating income. The excessive PEG ratio of 16.84 suggests the stock is expensive relative to growth prospects, despite the low P/E multiple.
"When a company's other income constitutes 1,559% of its profit before tax, it's not running a business—it's surviving on financial engineering. Core operations must demonstrate sustainable profitability for any investment thesis to hold merit."
Key Strengths & Risk Factors
✓ Key Strengths
- Strong Long-Term Track Record: Five-year returns of 415.97% demonstrate historical value creation capability
- Attractive Valuation: P/E of 16.84x below industry average of 23x provides valuation cushion
- No Promoter Pledging: Clean promoter holding structure eliminates one risk factor
- Dividend Support: 1.27% dividend yield offers some income component
- Bullish Technical Trend: Recent technical turnaround provides momentum support
- High Promoter Holding: 71.68% promoter stake demonstrates alignment, though declining
⚠ Key Concerns
- Profit Collapse: 98.22% YoY decline in net profit to ₹0.46 crores represents near-total earnings erosion
- Revenue Pressure: 33.26% YoY revenue decline indicates market share losses or structural headwinds
- Margin Destruction: Operating margin of 1.98% down from 27.11% YoY signals severe operational challenges
- Non-Operating Income Dependency: Other income at 1,559% of PBT indicates core unprofitability
- Cost Rigidity: Employee costs at 58% of revenue demonstrate limited operational flexibility
- Weak ROE: Average ROE of 12.37% significantly lags peer averages around 25%
- High Volatility: Beta of 1.50 and volatility of 54.61% create elevated risk profile
Outlook: What to Watch
Positive Catalysts
- Revenue stabilisation above ₹80 crores quarterly run rate
- Operating margin recovery above 15% threshold
- Reduction in employee cost ratio below 50% of revenue
- Market share gains in core brokerage or advisory segments
- Institutional investor interest and stake building
Red Flags to Monitor
- Further revenue decline below ₹70 crores quarterly
- Operating margins remaining below 5% for multiple quarters
- Continued promoter stake reduction beyond 70%
- Dividend cut signalling cash flow pressures
- Increased debt levels to fund operations
The path forward for Emkay Global requires urgent operational restructuring to align costs with revenue realities and strategic initiatives to arrest market share losses. Without decisive management action, the company risks entering a negative spiral where declining profitability constrains investment in growth initiatives, further weakening competitive positioning. The next two quarters will be critical in determining whether Q2 FY26 represents a temporary trough or the beginning of a prolonged downturn.
The Verdict: Avoid Until Operational Stability Returns
Score: 40/100
For Fresh Investors: Avoid initiating positions. The 98.22% profit collapse, margin destruction, and negative financial trend present unacceptable risk-reward dynamics. Whilst the valuation appears attractive on historical metrics, the deteriorating fundamentals suggest further downside potential. Wait for at least two consecutive quarters of operational improvement before considering entry.
For Existing Holders: Consider reducing exposure or exiting positions, particularly if holding gains from earlier entry points. The current quarter's results reveal structural challenges that may take multiple quarters to resolve. The dividend yield of 1.27% provides limited compensation for the fundamental risks. Use any technical rallies as exit opportunities rather than reasons to hold.
Fair Value Estimate: ₹260-280 (19.53% downside from current levels), based on normalised earnings of ₹10-12 crores quarterly and a 15x-17x P/E multiple. Current price of ₹323.00 appears elevated given near-term earnings trajectory and quality concerns.
⚠️ 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.
