Eveready Industries Q2 FY26: Sharp Quarterly Loss Raises Operational Concerns

The stock has faced significant headwinds in recent months, trading at ₹366.70 as of November 06, 2025, down 1.72% on the day and 22.83% below its 52-week high of ₹475.20. The sharp quarterly loss marks a concerning inflection point for a company that had demonstrated improving profitability trends through FY25, when it delivered a full-year profit of ₹82 crores on revenues of ₹1,344 crores.

The Q2 FY26 results reveal a troubling disconnect between top-line growth and bottom-line performance. Whilst net sales reached their highest quarterly level at ₹386.78 crores, growing 3.38% quarter-on-quarter and 6.67% year-on-year, the company's profitability collapsed under the weight of an extraordinary tax charge of ₹7.48 crores on a pre-tax loss of ₹0.43 crores—resulting in an inexplicable tax rate of negative 1,739.53%. This anomaly, combined with margin compression across operating metrics, has placed the company's near-term earnings trajectory under serious scrutiny.

Financial Performance: A Quarter of Troubling Contradictions

The Q2 FY26 quarter presents a perplexing picture of revenue resilience masking severe profitability challenges. Net sales in Q2 FY26 reached ₹386.78 crores, marking the highest quarterly revenue in the company's recent history and representing healthy growth of 3.38% quarter-on-quarter and 6.67% year-on-year. This top-line momentum, however, failed to translate into operational or bottom-line gains.

Operating profit (PBDIT excluding other income) stood at ₹49.10 crores in Q2 FY26, down 8.53% from ₹53.68 crores in Q1 FY26 and 2.78% lower year-on-year from ₹47.78 crores. The corresponding operating margin contracted to 12.69% from 14.35% in the previous quarter—a sequential decline of 165 basis points. Year-on-year, the margin also weakened by 49 basis points from 13.18% in Sep'24, suggesting persistent cost pressures that revenue growth has failed to offset.

The quarter's most alarming feature was the collapse in pre-tax profitability. Profit before tax turned negative at ₹0.43 crores, a dramatic reversal from ₹36.25 crores in Q1 FY26. This deterioration stemmed from three key factors: compressed operating margins, elevated interest costs of ₹4.92 crores (though down from ₹5.67 crores in Q1), and minimal other income of just ₹0.28 crores compared to ₹2.42 crores in the previous quarter.

The quality of earnings deteriorated sharply. Gross profit margin collapsed to just 1.75% in Q2 FY26 from 11.59% in Q1 FY26—a staggering decline of 984 basis points quarter-on-quarter. Year-on-year, the gross margin fell from 11.64% to 1.75%, indicating severe pricing pressure or input cost inflation that the company has been unable to manage effectively. The PAT margin turned deeply negative at -2.05% compared to a healthy 8.08% in the previous quarter.

The extraordinary tax charge of ₹7.48 crores on a pre-tax loss represents a critical accounting anomaly that requires explanation. This resulted in a reported net loss of ₹7.91 crores for Q2 FY26, compared to a profit of ₹30.23 crores in Q1 FY26 and ₹29.56 crores in the year-ago quarter. The tax rate of negative 1,739.53% is clearly unsustainable and likely reflects deferred tax adjustments or one-time provisions, but its impact on reported earnings is undeniable.

Operational Challenges: Cost Pressures Overwhelm Revenue Growth

The Q2 FY26 results expose fundamental operational inefficiencies that have intensified despite revenue expansion. Employee costs remained elevated at ₹45.55 crores, essentially flat quarter-on-quarter but up from ₹43.39 crores year-on-year. As a percentage of sales, employee costs rose to 11.78% in Q2 FY26 from 12.22% in Q1 FY26, indicating limited operating leverage despite higher revenues.

The company's return on capital employed (ROCE) for H1 FY26 fell to just 5.66%—the lowest level in recent periods according to financial trend analysis. This compares unfavourably to the full-year FY25 ROCE of 15.96% and the historical average of 17.72%. The sharp deterioration in ROCE signals that capital is being deployed less efficiently, with returns failing to compensate for the cost of capital.

Return on equity (ROE), whilst historically strong at an average of 37.47%, appears to have moderated significantly. The latest available annual ROE stands at 18.00% for FY25, down from the multi-year average. The half-yearly performance suggests further pressure on this metric, though interim ROE data is not available. High ROE has traditionally been a key strength for Eveready Industries, reflecting efficient use of shareholder capital, but the recent trajectory raises concerns about sustainability.

Balance sheet quality presents a mixed picture. The company's debt-to-equity ratio for H1 FY26 stood at 3.92 times—the highest level in recent periods and significantly elevated from historical norms. Long-term debt increased to ₹157.45 crores as of March 2025 from ₹143.52 crores in March 2024, whilst shareholder funds grew to ₹461.11 crores from ₹386.71 crores. The rising leverage ratio indicates that debt growth has outpaced equity expansion, potentially limiting financial flexibility.

Interest coverage deteriorated meaningfully. The EBIT-to-interest ratio for Q2 FY26, whilst calculated at 9.98 times (the highest quarterly level), reflects the inclusion of other income and may overstate underlying coverage. On an operating profit basis, interest coverage would be considerably lower given the compressed operating margins. The five-year average EBIT-to-interest coverage of just 3.29 times is classified as weak, highlighting persistent challenges in servicing debt obligations from operating cash flows.

Industry Context: FMCG Headwinds and Competitive Pressures

Eveready Industries operates in India's highly competitive FMCG sector, specifically within the battery and lighting segments, where it faces pressure from both established players and emerging alternatives. The broader FMCG industry has experienced subdued demand conditions in recent quarters, with rural consumption remaining weak and urban demand moderating amid inflationary pressures.

The battery market in India has witnessed structural changes with the proliferation of rechargeable devices and declining demand for traditional dry-cell batteries. Simultaneously, the lighting segment has seen accelerated adoption of LED technology, compressing margins in conventional lighting products. These industry-level shifts require continuous product innovation and cost optimisation—areas where Eveready's recent performance suggests challenges.

The company's five-year sales growth of just 3.49% and EBIT growth of 3.13% significantly lag broader FMCG sector growth rates, which have averaged 8-10% annually over the same period. This underperformance indicates market share losses or exposure to declining product categories. The quality assessment notes that sales growth and EBIT growth are key negative factors limiting the company's overall quality grade.

Competitive intensity has increased with both organised players and regional brands vying for market share through aggressive pricing and distribution expansion. Eveready's ability to maintain pricing power appears compromised, as evidenced by the sharp gross margin compression in Q2 FY26. The company's brand equity, whilst strong, may not be sufficient to command premium pricing in increasingly commoditised product categories.

Peer Comparison: Valuation Premium Despite Operational Weakness

Eveready Industries' valuation metrics present an interesting contrast to operational performance. The stock trades at a price-to-earnings ratio of 30.38 times trailing twelve-month earnings, below the FMCG industry average P/E of 39 times but above several peers. However, this P/E multiple is calculated on FY25 full-year earnings of ₹82 crores and does not reflect the Q2 FY26 loss, which would render the trailing P/E meaningless.

Eveready Industries' price-to-book value of 5.92 times is broadly in line with FMCG peers like Bajaj Consumer (5.57 times) and Vadilal Industries (5.60 times), but significantly below Gopal Snacks (10.84 times). The elevated P/BV multiple has historically been justified by Eveready's superior return on equity of 37.47% (average), which far exceeds peer averages of around 18-20%. However, the deteriorating ROE trend and recent quarterly loss call this valuation premium into question.

The company's debt-to-equity ratio of 0.68 is higher than most peers, with only Parag Milk Foods (0.61) showing comparable leverage. Gopal Snacks (0.16) and Vadilal Industries (0.23) maintain significantly lower debt levels, whilst VST Industries and Bajaj Consumer operate with net cash positions (negative debt-to-equity). Eveready's higher leverage amplifies both upside potential and downside risk, making operational performance consistency critical.

Dividend yield of 0.40% is minimal and well below VST Industries' attractive 3.86% yield. The dividend payout ratio of 13.22% indicates conservative capital allocation, retaining most earnings for business reinvestment. However, with recent profitability challenges, dividend sustainability may come under scrutiny if losses persist.

Relative to peers, Eveready Industries trades at a moderate valuation on historical earnings but offers superior ROE metrics that are now under pressure. The stock's market capitalisation of ₹2,652 crores positions it as a small-cap player within the FMCG universe, ranked sixth among the peer group. The combination of operational challenges, elevated leverage, and deteriorating returns suggests the current valuation multiple may not be sustainable without near-term performance improvement.

Valuation Analysis: Very Attractive Rating Masks Fundamental Concerns

Eveready Industries carries a "Very Attractive" valuation grade, upgraded from "Attractive" on October 01, 2025. This assessment is based on favourable enterprise value multiples relative to capital employed and historical ROCE levels. The EV-to-capital employed ratio of 3.93 times, combined with historical ROCE of around 16-18%, suggests the market is pricing in modest expectations for capital returns.

However, the valuation framework relies heavily on normalised earnings and historical profitability metrics that may no longer reflect current operating realities. The trailing P/E of 30.38 times is calculated on FY25 annual earnings of ₹82 crores, which translates to approximately ₹11.32 earnings per share on a base of 72.34 million shares. With Q2 FY26 reporting a loss of ₹7.91 crores, the annualised run-rate would be deeply negative, rendering traditional P/E analysis meaningless in the near term.

The EV-to-EBITDA multiple of 19.33 times and EV-to-sales of 2.21 times appear reasonable for an FMCG player, but these metrics are backward-looking. With operating margins compressing sharply in Q2 FY26, forward EBITDA estimates would need significant downward revision, potentially pushing EV-to-EBITDA multiples into expensive territory.

The price-to-book value of 5.92 times implies the market expects returns on equity to remain elevated. However, with ROE declining from historical averages of 37.47% to 18.00% in FY25 and likely lower in FY26 based on H1 performance, the P/BV premium appears increasingly difficult to justify. A normalised ROE of 15-18% would typically support a P/BV multiple of 3-4 times for a moderately growing FMCG company, suggesting 30-40% downside risk to book value if profitability normalises at lower levels.

The stock's 52-week range of ₹272.80 to ₹475.20 reflects significant volatility, with the current price of ₹366.70 sitting 22.83% below the peak and 34.42% above the trough. The wide trading range indicates investor uncertainty about the company's earnings trajectory and fair value. Technical indicators show the stock trading below all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting negative momentum.

Shareholding Pattern: Minimal Promoter Holding Raises Governance Questions

Eveready Industries' shareholding structure is highly unusual for an Indian listed company, with promoter holding at a negligible 0.01% as of September 2025. This represents a dramatic decline from 5.32% in June 2025, when promoter stake briefly increased before reverting to minimal levels. The near-zero promoter holding is a significant red flag, indicating limited skin in the game and potential governance concerns.

Institutional holdings remain modest, with foreign institutional investors (FIIs) holding 5.21% as of September 2025, up from 3.92% a year ago. This gradual increase of 129 basis points year-on-year suggests growing international interest, though the absolute level remains low. Mutual fund holdings stand at 2.61%, up marginally from 2.56% in September 2024, indicating limited domestic institutional conviction.

The absence of insurance company holdings (0.00% across all quarters) and minimal other domestic institutional investor (DII) participation (0.09%) is notable. Combined institutional ownership of just 7.91% is exceptionally low for a company of Eveready's market capitalisation and brand recognition, suggesting institutional investors perceive significant risks or limited growth potential.

Non-institutional holdings dominate at 48.89%, comprising retail investors and non-institutional entities. This high proportion of non-institutional ownership typically correlates with higher volatility and lower liquidity, as retail investors tend to react more emotionally to quarterly results and news flow.

The promoter group, despite minimal equity ownership, includes entities associated with the B M Khaitan family and the Williamson Magor Group. Key promoter entities listed include M B Finmart Private Limited (11.81% of promoter holding), Puran Associates Private Limited (11.56%), and Vic Enterprises Private Limited (11.55%). However, the aggregate promoter holding of 0.01% suggests these entities may have divested significant stakes or the classification may have changed.

Stock Performance: Consistent Underperformance Reflects Fundamental Weakness

Eveready Industries' stock has delivered disappointing returns across most timeframes, significantly underperforming both the Sensex benchmark and the broader FMCG sector. Over the past year, the stock declined 9.52% compared to the Sensex's 4.04% gain, resulting in negative alpha of 13.56 percentage points. This underperformance has persisted across multiple timeframes, highlighting sustained investor scepticism.

The six-month return of 19.66% represents the only bright spot in recent performance, with the stock outperforming the Sensex by 15.96 percentage points during this period. However, this gain has been entirely eroded in recent months, with the stock down 11.70% over the past three months whilst the Sensex gained 3.82%. The sharp reversal suggests the earlier rally was not supported by improving fundamentals and may have been driven by temporary sentiment or technical factors.

Year-to-date, the stock has declined 6.60% compared to the Sensex's 7.02% gain, resulting in negative alpha of 13.62 percentage points. This underperformance is consistent with the broader FMCG sector, which declined 2.23% over the past year. However, Eveready's 9.52% decline significantly exceeds the sector's underperformance, indicating company-specific challenges beyond industry-wide headwinds.

Over longer timeframes, the stock's performance has been mixed. The five-year return of 170.23% significantly outpaced the Sensex's 99.61% gain, generating positive alpha of 70.62 percentage points. This strong historical performance reflects the company's recovery from its FY21 loss of ₹307 crores and subsequent profitability improvement through FY25. However, the recent deterioration suggests this positive trend may be reversing.

The stock's beta of 1.35 indicates it is 35% more volatile than the broader market, amplifying both gains and losses. With a volatility of 38.60% over the past year compared to the Sensex's 12.45%, the stock carries significantly higher risk. The risk-adjusted return of -0.25 for the one-year period (compared to the Sensex's 0.32) places it in the "high risk, low return" category—an unattractive risk-reward profile for most investors.

Technical indicators paint a bearish picture. The stock trades below all key moving averages, including the 5-day (₹380.42), 20-day (₹375.57), 50-day (₹405.57), 100-day (₹389.20), and 200-day (₹354.09) moving averages. The overall technical trend is classified as "Mildly Bullish," upgraded from "Sideways" on October 20, 2025, but the price action suggests limited conviction in this trend reversal.

Investment Thesis: Mixed Signals Across Key Parameters

The investment case for Eveready Industries presents conflicting signals across the four critical assessment parameters. The Mojo score of 67 out of 100 places the stock in "HOLD" territory, downgraded from "BUY" on September 15, 2025, reflecting the deteriorating near-term outlook following Q2 FY26 results.

Near-Term Drivers (Neutral to Negative): The quarterly financial trend is classified as "Flat," downgraded from "Positive" in previous quarters. The Q2 FY26 loss of ₹7.91 crores, combined with margin compression across all profitability metrics, represents a significant setback. Technical indicators show a "Mildly Bullish" trend, but the stock's position below all moving averages and consistent underperformance against benchmarks suggests limited near-term upside momentum.

Quality (Average): The company's quality grade of "Average" reflects a mix of strengths and weaknesses. Key positives include a historically high return on equity of 37.47% (average) and established brand recognition in the battery and lighting segments. However, these are offset by poor long-term growth (sales CAGR of 3.49%, EBIT CAGR of 3.13% over five years), weak interest coverage (3.29 times average EBIT to interest), and elevated debt levels (debt-to-EBITDA of 2.55 times). Institutional holdings of just 7.91% and near-zero promoter stake further detract from quality perception.

Valuation (Very Attractive): The "Very Attractive" valuation grade represents the strongest positive in the investment thesis. With an EV-to-capital employed ratio of 3.93 times and historical ROCE of 15-18%, the valuation appears undemanding. However, this assessment is based on historical profitability levels that may not be sustainable given recent performance. The trailing P/E of 30.38 times, calculated on FY25 earnings, does not reflect the Q2 FY26 loss and would be significantly higher (or meaningless) if current quarterly run-rates persist.

Overall Assessment (Cautious): The combination of attractive valuation, average quality, flat financial trends, and weak technical momentum creates a cautious outlook. The stock may appeal to value investors willing to bet on a margin recovery and earnings normalisation, but the near-term risks are substantial. The lack of promoter skin in the game, minimal institutional conviction, and deteriorating operational metrics suggest patience is warranted before committing fresh capital.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

The coming quarters will be critical in determining whether Q2 FY26 represents a one-time aberration or the beginning of a more prolonged earnings downturn. Management commentary on the drivers of margin compression, the nature of the tax charge, and actions being taken to restore profitability will be closely scrutinised. Investors should monitor Q3 FY26 results (expected in January 2026) for signs of stabilisation or further deterioration.

Key metrics to watch include: (1) gross profit margin recovery towards 10%+ levels, (2) operating margin stabilisation above 12%, (3) return to net profitability with normalised tax rates, (4) debt-to-equity ratio trajectory, and (5) any changes in promoter or institutional shareholding patterns. The company's ability to navigate competitive pressures whilst maintaining pricing power will determine whether the current "Very Attractive" valuation represents genuine opportunity or a value trap.