The quarter's performance reveals a troubling disconnect between top-line growth and bottom-line delivery. Whilst net sales advanced 10.12% year-on-year to ₹367.24 crores, the company's profitability metrics deteriorated sharply. The profit after tax margin compressed to a mere 2.03% in Q3 FY26 from 3.93% in the corresponding quarter of the previous year, underscoring the erosion in earnings quality. The sequential comparison paints an even grimmer picture, with net profit swinging from a loss of ₹7.91 crores in Q2 FY26 to a marginal profit of ₹7.45 crores in Q3 FY26, representing a 194.18% quarter-on-quarter decline in absolute terms.
What makes this performance particularly concerning is the company's inability to translate revenue growth into meaningful profit expansion. Despite achieving double-digit sales growth, Eveready's operating profit margin (excluding other income) stood at 8.98% in Q3 FY26, marginally higher than the 8.76% recorded in Q3 FY25 but significantly lower than the 14.35% achieved in Q1 FY26. This margin compression suggests intensifying competitive pressures, rising input costs, or operational inefficiencies that management has struggled to address effectively.
| Metric | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 367.24 | 386.78 | 374.14 | 299.04 | 333.50 | 362.61 | 349.37 |
| QoQ Growth | -5.05% | +3.38% | +25.11% | -10.33% | -8.03% | +3.79% | — |
| YoY Growth | +10.12% | +6.67% | +7.09% | — | — | — | — |
| Net Profit (₹ Cr) | 7.45 | -7.91 | 30.23 | 10.42 | 13.10 | 29.56 | 29.36 |
| QoQ Growth | -194.18% | -126.17% | +190.12% | -20.46% | -55.68% | +0.68% | — |
| YoY Growth | -43.13% | -126.76% | +2.96% | — | — | — | — |
| Operating Margin % | 8.98% | 12.69% | 14.35% | 8.56% | 8.76% | 13.18% | 14.24% |
| PAT Margin % | 2.03% | -2.05% | 8.08% | 3.48% | 3.93% | 8.15% | 8.40% |
Financial Performance: Margin Erosion Overshadows Revenue Growth
Eveready's Q3 FY26 financial performance reveals a company grappling with profitability challenges despite maintaining revenue momentum. Net sales of ₹367.24 crores represented a 10.12% year-on-year increase from ₹333.50 crores in Q3 FY25, demonstrating the company's ability to grow its top line. However, this growth came at a significant cost to margins. The operating profit (PBDIT excluding other income) stood at ₹32.99 crores, translating to an operating margin of 8.98%, which whilst marginally higher than the 8.76% in Q3 FY25, represents a sharp sequential decline from the 12.69% achieved in Q2 FY26.
The profit before tax of ₹12.21 crores in Q3 FY26 marked a 23.33% decline from ₹15.93 crores in the year-ago quarter. More concerning is the tax expense of ₹4.76 crores, which carried an effective tax rate of 38.98%, significantly higher than the 17.77% in Q3 FY25. This elevated tax burden, combined with compressed operating margins, resulted in the net profit of ₹7.45 crores, down 43.13% year-on-year. The PAT margin of 2.03% represents one of the weakest quarterly performances in recent history, raising questions about the sustainability of current operations.
The company's cost structure reveals additional pressure points. Employee costs of ₹44.98 crores in Q3 FY26 remained relatively stable compared to ₹43.34 crores in Q3 FY25, representing approximately 12.25% of net sales. Interest expenses declined to ₹4.76 crores from ₹6.59 crores year-on-year, reflecting some improvement in the debt servicing burden. However, depreciation charges of ₹7.01 crores remained consistent with the ₹7.00 crores in the year-ago quarter, indicating stable capital expenditure levels.
Operational Challenges: Return Metrics Under Pressure
Eveready's return on equity (ROE) of 18.91% in the latest period, whilst still respectable, represents a decline from the average ROE of 29.79% over recent years. This deterioration in capital efficiency signals that the company is generating lower returns on shareholder funds, a concerning trend for equity investors. The return on capital employed (ROCE) of 15.61% similarly trails the historical average of 17.48%, indicating that the company's operational efficiency has weakened.
The balance sheet as of March 2025 shows shareholder funds of ₹461.11 crores, supported by reserves and surplus of ₹424.76 crores. Long-term debt stood at ₹157.45 crores, resulting in a debt-to-equity ratio of approximately 0.34, which remains manageable. However, the company's net debt to equity ratio of 0.74 (on average) suggests a more leveraged position when considering working capital requirements. Current liabilities of ₹439.84 crores, including trade payables of ₹205.77 crores, highlight the company's reliance on vendor credit to fund operations.
⚠️ Profitability Concerns
The company's PAT margin of 2.03% in Q3 FY26 represents a significant deterioration from 8.40% in Q1 FY24, indicating sustained margin pressure. The elevated tax rate of 38.98% in Q3 FY26 compared to historical averages of 16-18% suggests potential one-time adjustments or changes in tax treatment that warrant closer scrutiny from investors.
The Growth Paradox: Top-Line Expansion Without Bottom-Line Conversion
Eveready's performance over the past year presents a paradoxical situation: consistent revenue growth coupled with deteriorating profitability. For the full year FY25, the company posted net sales of ₹1,344 crores, representing a modest 2.30% growth from ₹1,314 crores in FY24. However, the annual net profit of ₹82 crores in FY25 showed a healthier 24.24% increase from ₹66 crores in FY24, suggesting that the recent quarterly weakness may be a more recent phenomenon.
The five-year financial trajectory reveals deeper structural challenges. Sales have grown at a compound annual rate of just 3.42% over the past five years, whilst operating profit (EBIT) has actually contracted at a rate of 3.50% annually. This negative EBIT growth, combined with anaemic revenue expansion, points to a business model under strain. The company's operating margin (excluding other income) of 11.30% in FY25 showed improvement from 10.70% in FY24, but the quarterly data suggests this improvement has not sustained into FY26.
Cash flow generation provides some solace. The company generated ₹129 crores in operating cash flow during FY25, down from ₹153 crores in FY24 but still representing healthy cash generation relative to reported profits. However, capital expenditure of ₹95 crores in FY25 consumed a significant portion of this cash, leaving limited free cash flow for debt reduction or shareholder returns.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Eveready Inds. | 27.87 | 5.27 | 29.79% | 0.74 | 0.44% |
| Gopal Snacks | 105.39 | 8.60 | 5.83% | 0.15 | 0.20% |
| Heritage Foods | 21.23 | 3.32 | 14.70% | -0.12 | 0.67% |
| Vadilal Inds. | 24.84 | 4.25 | 21.17% | 0.08 | 0.45% |
| Parag Milk Foods | 22.54 | 2.51 | 6.88% | 0.44 | — |
| Prataap Snacks | NA (Loss Making) | 3.79 | 3.54% | 0.09 | 0.05% |
Compared to FMCG peers, Eveready demonstrates superior return on equity at 29.79%, significantly outpacing the peer average of approximately 10%. This higher ROE reflects better capital efficiency and profitability relative to its peer group. However, the company trades at a price-to-book value of 5.27x, which is higher than most peers except Gopal Snacks, suggesting that the market has historically valued Eveready's brand equity and market position at a premium. The P/E ratio of 27.87x appears reasonable compared to Gopal Snacks' 105.39x but is higher than Heritage Foods (21.23x) and Parag Milk Foods (22.54x).
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current market price of ₹342.90, Eveready Industries trades at a P/E ratio of 27.87x, below the industry average of 30x. The price-to-book value of 5.27x suggests the stock commands a premium to its book value of ₹63.44 per share, reflecting the market's recognition of the company's intangible assets, particularly its well-established brand franchise. The enterprise value multiples paint a mixed picture: EV/EBITDA of 18.03x and EV/EBIT of 22.14x appear reasonable for a branded FMCG player, whilst the EV/Sales ratio of 2.04x indicates moderate revenue valuation.
The stock's valuation grade has been classified as "Very Attractive" since October 2025, having been upgraded from "Attractive" in September 2025. This assessment reflects the significant correction from the 52-week high of ₹475.20, with the stock currently trading 27.84% below that peak. The dividend yield of 0.44% based on the latest dividend of ₹1.50 per share appears modest, with a payout ratio of just 13.22%, suggesting the company retains most earnings for reinvestment rather than shareholder distribution.
However, the PEG ratio of 1.50 suggests the stock may not be as attractively valued as the headline P/E ratio implies. With five-year sales growth of just 3.42% and EBIT growth of negative 3.50%, the company's growth profile does not justify a premium valuation. The current price of ₹342.90 represents a 25.70% premium to the 52-week low of ₹272.80, indicating that investors who bought at the bottom have already realised substantial gains.
Shareholding Pattern: Stable Promoter Base, Limited Institutional Interest
Eveready's shareholding pattern as of December 2025 reveals a stable ownership structure with promoter holding at 43.20%, unchanged from the previous quarter. The promoter group, led by entities such as M B Finmart Private Limited (11.81%), Puran Associates Private Limited (11.56%), and Vic Enterprises Private Limited (11.55%), maintains a steady commitment to the business. The absence of any pledged shares from major promoters provides comfort regarding financial stress at the promoter level, though the overall pledge of 5.32% of total shares warrants monitoring.
| Category | Dec'25 | Sep'25 | Jun'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 43.20% | 43.20% | 43.19% | 0.00% |
| FII | 5.05% | 5.21% | 4.95% | -0.16% |
| Mutual Funds | 2.65% | 2.61% | 2.44% | +0.04% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 0.10% | 0.09% | 0.06% | +0.01% |
| Non-Institutional | 48.99% | 48.89% | 49.35% | +0.10% |
Foreign institutional investor (FII) holdings declined marginally to 5.05% in December 2025 from 5.21% in September 2025, representing a 0.16% sequential reduction. This modest outflow suggests limited international investor interest in the stock at current levels. Mutual fund holdings showed a slight uptick to 2.65% from 2.61%, indicating marginal accumulation by domestic fund managers. However, the total institutional holding of just 7.80% (combining FIIs, mutual funds, and other DIIs) remains exceptionally low for a company of Eveready's vintage and brand recognition.
The absence of insurance company holdings is particularly noteworthy, as insurance firms typically invest in stable, dividend-paying companies with predictable cash flows. The non-institutional category, comprising retail and high-net-worth individuals, accounts for 48.99% of the shareholding, suggesting that the stock is predominantly held by individual investors rather than sophisticated institutional players. This ownership structure could contribute to higher volatility and limited research coverage.
Stock Performance: Persistent Underperformance Against Benchmarks
Eveready's stock performance over the past year paints a picture of consistent underperformance relative to broader market indices. Over a one-year period, the stock has declined 1.73%, whilst the Sensex has advanced 6.44%, resulting in a negative alpha of 8.17%. This underperformance extends across longer timeframes: over three years, the stock has gained just 3.02% compared to the Sensex's 36.94% rally, representing a staggering negative alpha of 33.92%. The five-year returns of 62.28% appear more respectable but still trail the Sensex's 64.22% gain.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | +3.81% | -0.60% | +4.41% |
| 1 Week | +3.80% | +0.91% | +2.89% |
| 1 Month | +3.03% | -2.49% | +5.52% |
| 3 Months | -8.09% | -0.17% | -7.92% |
| 6 Months | -13.95% | +3.23% | -17.18% |
| YTD | +4.02% | -2.24% | +6.26% |
| 1 Year | -1.73% | +6.44% | -8.17% |
| 3 Years | +3.02% | +36.94% | -33.92% |
| 5 Years | +62.28% | +64.22% | -1.94% |
The stock's risk-adjusted returns present an unfavourable profile. With a one-year volatility of 38.31% compared to the Sensex's 11.52%, Eveready exhibits significantly higher price fluctuations. The risk-adjusted return of negative 0.05 for the stock, compared to the Sensex's positive 0.56, classifies Eveready as a "HIGH RISK LOW RETURN" investment. The adjusted beta of 1.35 indicates that the stock is 35% more volatile than the broader market, amplifying both gains and losses relative to benchmark movements.
Recent price action shows some positive momentum, with the stock gaining 3.81% on February 05, 2026, outperforming the Sensex's 0.60% decline on the same day. Year-to-date returns of 4.02% also surpass the Sensex's 2.24% decline, suggesting potential short-term relative strength. However, the three-month and six-month returns of negative 8.09% and negative 13.95%, respectively, indicate that this recent bounce may be a temporary reprieve rather than a sustained trend reversal.
Investment Thesis: Navigating the Quality-Valuation Trade-Off
Eveready Industries presents a complex investment proposition characterised by attractive valuation metrics offset by concerning operational trends and weak technical momentum. The company's overall quality grade of "Average" reflects its mixed long-term financial performance, with strong return on equity of 29.79% balanced against negative five-year EBIT growth of 3.50%. The proprietary Mojo Score of 42 out of 100 places the stock firmly in "SELL" territory, with the recommendation to "Consider selling" and "Look for exit opportunities".
The financial trend for Q3 FY26 is classified as "Flat", with the only positive factor being profit before tax less other income growth of 35.76% to ₹21.22 crores. However, this single positive metric is overshadowed by margin compression, elevated tax rates, and sequential profit decline. The technical trend turned "Mildly Bearish" on February 04, 2026, at ₹332.55, reflecting weakening price momentum despite the recent one-day bounce.
Key Strengths & Risk Factors
KEY STRENGTHS
- Strong Brand Equity: Eveready commands significant brand recognition in the battery and flashlight segments, built over decades of market presence
- Superior ROE: Return on equity of 29.79% significantly outpaces FMCG peer average, demonstrating efficient capital utilisation
- Attractive Valuation: P/E of 27.87x below industry average of 30x, with stock trading 27.84% below 52-week high
- Stable Promoter Holding: Consistent 43.20% promoter stake with no recent selling, indicating management confidence
- Manageable Debt Levels: Debt-to-equity of 0.74 remains within acceptable limits for the FMCG sector
- Positive Cash Generation: Operating cash flow of ₹129 crores in FY25 demonstrates ability to convert profits into cash
- Market Leadership Position: Dominant player in organised battery segment with established distribution network
KEY CONCERNS
- Severe Margin Compression: PAT margin collapsed to 2.03% in Q3 FY26 from 8.40% in Q1 FY24, indicating structural profitability issues
- Negative EBIT Growth: Five-year operating profit decline of 3.50% annually signals deteriorating operational performance
- Elevated Tax Burden: Tax rate of 38.98% in Q3 FY26 well above historical 16-18% range raises questions about sustainability
- Limited Institutional Interest: Total institutional holding of just 7.80% reflects lack of confidence from sophisticated investors
- Persistent Underperformance: Negative alpha of 33.92% over three years demonstrates consistent lagging versus benchmarks
- High Volatility Profile: Beta of 1.35 and volatility of 38.31% classify stock as high-risk investment
- Weak Growth Trajectory: Five-year sales CAGR of just 3.42% barely above inflation, limiting earnings expansion potential
Outlook: What to Watch
POSITIVE CATALYSTS
- Margin Recovery: Return to double-digit operating margins would significantly improve earnings quality
- Tax Normalisation: Reduction in effective tax rate to historical 16-18% range could boost net profit by 20%+
- Volume Growth: Market share gains in battery segment during festive seasons could drive revenue acceleration
- Product Innovation: Launch of higher-margin premium products could improve overall profitability mix
- Institutional Accumulation: Increased FII/MF buying would provide price support and reduce volatility
RED FLAGS
- Continued Margin Erosion: Further compression below 8% operating margin would signal competitive pricing pressures
- Sequential Profit Decline: Another quarter of QoQ profit decline would confirm negative earnings trajectory
- FII Selling: Sustained reduction in foreign holding below 4% would indicate loss of international investor confidence
- Debt Increase: Rise in debt-to-equity above 1.0x would raise concerns about financial leverage
- Market Share Loss: Erosion of leadership position to competitors in core battery segment would threaten long-term viability
The path forward for Eveready requires decisive management action to address margin pressures and reignite earnings growth. The company must balance the need to defend market share through competitive pricing with the imperative to protect profitability. Cost optimisation initiatives, product mix improvement towards higher-margin offerings, and potential diversification into adjacent categories could provide growth avenues. However, the execution risks remain substantial, particularly given the company's track record of inconsistent quarterly performance.
For investors, the key monitoring points include quarterly margin trends, tax rate normalisation, and any signs of institutional accumulation. The stock's technical setup remains fragile, trading below all major moving averages and exhibiting a "Mildly Bearish" trend. A decisive break above the 200-day moving average of ₹356.94 would be required to signal a meaningful trend reversal, whilst a fall below the 52-week low of ₹272.80 could trigger further selling pressure.
The Verdict: Avoid Fresh Positions, Existing Holders Consider Exit
Score: 42/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst the valuation appears attractive on headline metrics, the deteriorating profitability trend, negative earnings momentum, and weak technical setup present substantial downside risks. The company's inability to convert revenue growth into profit expansion raises fundamental concerns about business model sustainability. Wait for concrete evidence of margin stabilisation and at least two consecutive quarters of sequential profit improvement before considering entry.
For Existing Holders: Consider reducing positions on any rallies towards ₹360-370 levels. The stock's persistent underperformance versus benchmarks, combined with flat financial trends and mildly bearish technical indicators, suggests limited near-term upside potential. The low institutional holding and high volatility profile make this a challenging hold for risk-averse investors. Those with long-term conviction may retain core holdings but should closely monitor quarterly results for signs of operational turnaround.
Fair Value Estimate: ₹310-320 (9.35% downside from current levels), based on normalised earnings and peer-comparable P/E multiples of 24-25x adjusted for quality and growth concerns.
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. Past performance is not indicative of future results. The author and publisher are not responsible for any investment losses incurred based on information presented in this article.
