The quarter's headline numbers reveal a company struggling to gain momentum. Net sales inched up 6.21% quarter-on-quarter to ₹68.96 crores but declined 1.34% year-on-year, underscoring the absence of meaningful top-line expansion. Operating margins remained compressed at 9.22%, marginally lower than Q1 FY26's 9.43%, whilst profit after tax margin stood at a meagre 1.74%—highlighting the company's ongoing battle with profitability in an intensely competitive market.
For a company with a five-year sales growth rate of negative 3.27% and operating profit declining at a compounded annual rate of 18.22%, the latest quarterly performance represents stabilisation rather than transformation. The broader context reveals a business that has been contracting rather than expanding, with annual revenues dropping from ₹325.00 crores in FY22 to ₹301.00 crores in FY24—a trend that demands careful scrutiny from investors considering fresh positions.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 68.96 | +6.21% | 1.20 | +48.15% | 1.74% |
| Jun'25 | 64.93 | -31.64% | 0.81 | -76.92% | 1.25% |
| Mar'25 | 94.98 | +19.56% | 3.51 | +183.06% | 3.70% |
| Dec'24 | 79.44 | +13.65% | 1.24 | -296.83% | 1.56% |
| Sep'24 | 69.90 | +16.71% | -0.63 | -85.14% | -0.90% |
| Jun'24 | 59.89 | -24.92% | -4.24 | -453.33% | -7.08% |
| Mar'24 | 79.77 | — | 1.20 | — | 1.50% |
Financial Performance: Fragile Profitability Recovery
Exxaro Tiles' Q2 FY26 performance demonstrates the company's ongoing struggle to establish consistent profitability. Net sales of ₹68.96 crores represented a modest 6.21% sequential improvement from Q1 FY26's ₹64.93 crores, yet remained 1.34% below the year-ago quarter's ₹69.90 crores. This stagnation in top-line growth is particularly concerning given the broader economic recovery and infrastructure push that should theoretically benefit building materials manufacturers.
Operating profit before depreciation, interest, tax, and other income stood at ₹6.36 crores in Q2 FY26, yielding an operating margin of 9.22%—down 21 basis points from the previous quarter's 9.43%. This marginal compression, whilst seemingly modest, reflects the company's limited pricing power and inability to leverage operating efficiencies even as volumes improve. The gross profit margin of 5.76% in Q2 FY26, though better than Q1 FY26's 5.38%, remains substantially below the 10%+ margins the company achieved in earlier periods such as Mar'25 (7.54%).
Interest costs remained elevated at ₹2.59 crores in Q2 FY26, consuming nearly 40% of operating profit and highlighting the company's debt burden. Whilst this represents a slight sequential decline from Q1 FY26's ₹2.67 crores, the interest coverage ratio of approximately 2.13 times (based on average EBIT to interest) signals limited financial flexibility. Depreciation charges of ₹2.41 crores further constrained profitability, leaving profit before tax at just ₹1.56 crores.
The quality of earnings remains questionable, with other income contributing a negligible ₹0.20 crores in Q2 FY26—down from ₹0.38 crores in the year-ago quarter. This suggests the company is not generating meaningful returns from surplus cash or investments, focusing instead on core operations that themselves are delivering underwhelming returns. The tax rate of 23.72% in Q2 FY26, whilst normalised compared to the anomalous 362.50% rate in Q2 FY25 (when the company reported losses), further compressed net profit to ₹1.20 crores.
Operational Challenges: Weak Capital Efficiency Persists
The fundamental weakness in Exxaro Tiles' business model becomes apparent when examining returns on capital. The company's return on equity stands at a dismal 1.30% on average and just 0.14% for the latest period—amongst the lowest in the building materials sector. This abysmal ROE indicates that the company is barely generating any returns for shareholders, with every ₹100 of shareholder equity producing just ₹1.30 of profit. For context, even mediocre businesses typically deliver ROEs in the 10-15% range, whilst quality franchises exceed 20%.
Return on capital employed fares marginally better at 5.29% on average and 3.62% for the latest period, but these figures remain woefully inadequate. With a debt-to-EBITDA ratio of 3.55 times and net debt-to-equity of 0.32, the company's leverage is moderate but concerning given the weak underlying profitability. Long-term debt stood at ₹15.88 crores as of Mar'25, down from ₹21.42 crores in Mar'24, suggesting some deleveraging efforts, yet the interest burden continues to weigh heavily on profitability.
Capital Efficiency Red Flag
Critical Concern: Exxaro Tiles' return on equity of 1.30% ranks amongst the poorest in the consumer products sector. The company's inability to generate meaningful returns on shareholder capital—despite operating in a stable, mature industry—raises serious questions about competitive positioning, operational efficiency, and management effectiveness. Investors must recognise that such weak returns on equity typically persist unless fundamental business model changes occur, which are rarely achieved by micro-cap companies lacking scale advantages.
Working capital management presents another area of concern. Current assets of ₹297.84 crores as of Mar'25 are offset by current liabilities of ₹187.97 crores, yielding a current ratio of approximately 1.58—adequate but not comfortable. Trade payables have increased from ₹57.67 crores in Mar'22 to ₹100.20 crores in Mar'25, suggesting the company may be stretching payment terms to suppliers, a common sign of cash flow stress. Cash flow from operations generated ₹23.00 crores in FY25, a significant improvement from ₹5.00 crores in FY24, yet this remains modest relative to the company's ₹431.00 crore market capitalisation.
The sales-to-capital-employed ratio of 0.83 times indicates inefficient asset utilisation, with the company generating less than one rupee of sales for every rupee of capital employed. This metric, combined with declining sales growth and compressed margins, paints a picture of a business struggling to compete effectively in a commoditised market where scale, brand strength, and distribution networks determine success—attributes that Exxaro Tiles appears to lack.
Industry Context: Swimming Against the Tide
The ceramic tiles industry in India has witnessed significant consolidation and competitive intensity over the past decade, with organised players expanding capacity and unorganised manufacturers facing margin pressures. Whilst the broader building materials sector has benefited from government infrastructure spending and real estate recovery, Exxaro Tiles' negative five-year sales growth of 3.27% suggests the company has been losing market share rather than participating in industry expansion.
The company's below-average quality grade reflects its poor long-term financial performance. With operating profits declining at an 18.22% compound annual rate over five years, Exxaro Tiles has moved in the opposite direction of industry trends. Larger peers have leveraged economies of scale, invested in brand building, and expanded distribution networks—investments that micro-cap players like Exxaro struggle to match given their limited financial resources and market presence.
Competitive Disadvantage
Exxaro Tiles operates in a sector increasingly dominated by large, well-capitalised players with strong brand recognition and extensive distribution networks. The company's micro-cap status (₹431.00 crore market capitalisation) limits its ability to invest in capacity expansion, marketing, and distribution—critical requirements for success in the building materials space. This structural disadvantage manifests in the company's inability to achieve pricing power, resulting in compressed margins and volatile quarterly performance.
The technical trend for Exxaro Tiles turned bullish on November 06, 2025, at ₹9.82, following a period of mildly bullish sentiment. However, technical momentum alone cannot overcome fundamental weaknesses. The stock trades above all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting near-term price strength, yet the underlying business performance does not support sustained upward momentum. Delivery volumes have surged, with a 322.91% increase over the trailing one-month period, indicating some investor interest, but this must be viewed cautiously given the stock's high beta of 1.50 and extreme volatility of 58.17%.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield |
|---|---|---|---|---|---|
| Exxaro Tiles | 78.11 | 1.53 | 1.30 | 0.32 | NA |
| Global Surfaces | NA (Loss Making) | 1.83 | 4.98 | 0.64 | NA |
| Swiss Military | 56.27 | — | — | — | NA |
| Mirza International | NA (Loss Making) | 0.93 | 7.04 | 0.05 | NA |
| Orient Bell | 99.26 | 1.36 | 4.35 | 0.04 | 0.17 |
| Anka India | NA (Loss Making) | 20.72 | 0.00 | -0.02 | NA |
Peer comparison reveals Exxaro Tiles' relative positioning within the diversified consumer products sector. The company's P/E ratio of 78.11 times appears elevated given its weak ROE of 1.30%—substantially lower than peers such as Mirza International (7.04% ROE) and Global Surfaces (4.98% ROE). Whilst Exxaro's price-to-book ratio of 1.53 times seems reasonable compared to the sector, this metric is misleading when the underlying book value generates minimal returns. Orient Bell, trading at a P/E of 99.26 times but delivering a 4.35% ROE, demonstrates that even within this challenged sector, Exxaro's returns stand out as particularly poor.
Valuation Analysis: Attractive Multiple, Unattractive Business
Exxaro Tiles' current valuation presents a classic value trap scenario—statistically cheap multiples masking a fundamentally weak business. At ₹9.48, the stock trades at a P/E ratio of 78.11 times trailing twelve-month earnings, which appears expensive in absolute terms but must be viewed in context of the company's return from losses to marginal profitability. The price-to-book ratio of 1.53 times seems reasonable, trading at a modest premium to book value of ₹6.19 per share.
The enterprise value-to-EBITDA multiple of 17.86 times and EV-to-capital-employed ratio of 1.40 times suggest the market is pricing in modest expectations for the business. However, these multiples fail to account for the persistent deterioration in operating performance and the company's inability to generate adequate returns on invested capital. The PEG ratio of 0.22 appears attractive on the surface, but this metric is distorted by the negative historical growth rates and recent recovery from losses.
The stock's recent valuation grade history reveals frequent oscillations between "Attractive" and "Very Attractive" ratings, most recently changing to "Attractive" on November 03, 2025, from "Very Attractive" on October 29, 2025. These rapid changes reflect the stock's high volatility rather than fundamental improvement. The 52-week range of ₹5.22 to ₹11.59 demonstrates extreme price swings, with the current price of ₹9.48 sitting 18.21% below the high and 81.61% above the low.
From a fair value perspective, estimating appropriate valuation for Exxaro Tiles proves challenging given the inconsistent earnings trajectory. Applying a conservative 15x P/E multiple to normalised annual earnings of approximately ₹6.00 crores (based on recent quarterly run-rate) yields a market capitalisation of ₹90.00 crores, or roughly ₹2.00 per share—79% below the current price of ₹9.48. Even generous assumptions about margin improvement and revenue growth struggle to justify current valuations, suggesting the stock is priced for a turnaround that may never materialise.
Shareholding Pattern: Promoters Stable, Institutions Exiting
The shareholding pattern for Exxaro Tiles reveals a stable promoter base maintaining 42.07% stake consistently across the last five quarters, with no sequential changes. This unwavering promoter holding provides some comfort regarding management commitment, though it also reflects limited liquidity and the challenges of exiting positions in micro-cap stocks. Key promoters include Dineshbhai Ramanlal Patel (16.88%), Kirankumar Bhikhalal Patel (10.51%), and Patel Mukeshkumar B (7.01%), amongst others.
| Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 42.07% | 42.07% | 42.07% | 42.07% | 0.00% |
| FII | 4.02% | 4.52% | 4.57% | 5.12% | -0.50% |
| 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 | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Non-Institutional | 53.91% | 53.41% | 53.37% | 52.81% | +0.50% |
More concerning is the steady decline in foreign institutional investor holdings, dropping from 5.51% in Sep'24 to 4.02% in Sep'25—a cumulative reduction of 149 basis points over five quarters. The most recent quarter saw FII holdings decline by 50 basis points from 4.52% to 4.02%, suggesting sophisticated investors are reducing exposure to the stock. The complete absence of mutual fund and insurance company holdings (0.00% across all periods) is particularly telling, indicating that domestic institutional investors see no merit in the investment case.
Non-institutional holdings have correspondingly increased from 52.42% in Sep'24 to 53.91% in Sep'25, rising by 50 basis points in the most recent quarter alone. This shift from institutional to retail ownership typically signals declining investment quality, as retail investors often lack the resources to conduct thorough due diligence and may be attracted by superficial metrics or momentum rather than fundamental value. The presence of just three FIIs with minimal aggregate holdings further underscores the lack of institutional confidence in Exxaro Tiles' prospects.
Stock Performance: Short-Term Momentum, Long-Term Decline
Exxaro Tiles' stock price performance presents a study in contrasts between recent momentum and longer-term value destruction. Over the past week, the stock surged 27.59%, dramatically outperforming the Sensex's 0.86% decline and generating positive alpha of 28.45 percentage points. This sharp rally continued over one month (16.32% return vs Sensex's 1.57%) and three months (23.76% vs Sensex's 3.22%), suggesting technical buying interest or short-covering rather than fundamental improvement.
| Period | Stock Return | Sensex Return | Alpha | Outperformance |
|---|---|---|---|---|
| 1 Week | +27.59% | -0.86% | +28.45% | ✓ |
| 1 Month | +16.32% | +1.57% | +14.75% | ✓ |
| 3 Months | +23.76% | +3.22% | +20.54% | ✓ |
| 6 Months | +59.06% | +3.06% | +56.00% | ✓ |
| YTD | +7.73% | +6.50% | +1.23% | ✓ |
| 1 Year | +4.58% | +4.62% | -0.04% | ✗ |
| 2 Years | -28.40% | +28.14% | -56.54% | ✗ |
| 3 Years | -26.94% | +36.01% | -62.95% | ✗ |
| 4 Years | -36.78% | +38.54% | -75.32% | ✗ |
However, extending the time horizon reveals the stock's true character. Over two years, Exxaro Tiles has declined 28.40% whilst the Sensex gained 28.14%—a negative alpha of 56.54 percentage points. The three-year picture is similarly bleak, with the stock down 26.94% versus the Sensex's 36.01% gain (negative alpha of 62.95 percentage points), and the four-year return of negative 36.78% compares dismally to the Sensex's 38.54% gain (negative alpha of 75.32 percentage points).
The stock's risk-adjusted return of 0.08 over one year, combined with extreme volatility of 58.17%, places it firmly in the "high risk, medium return" category. The Sharpe ratio, whilst positive, is significantly lower than the Sensex's risk-adjusted return of 0.37, indicating that investors are not being adequately compensated for the elevated risk. The stock's beta of 1.50 confirms its high-beta classification, meaning it tends to move 50% more than the broader market in either direction—amplifying both gains and losses.
Sector comparison provides additional context: Exxaro Tiles' one-year return of 4.58% outperformed the diversified consumer products sector's negative 9.77% return by 14.35 percentage points. However, this relative outperformance reflects sector-wide weakness rather than company-specific strength, and investors should not interpret it as evidence of improving fundamentals or sustainable competitive advantages.
Investment Thesis: Near-Term Positivity Cannot Overcome Structural Weaknesses
Exxaro Tiles' investment thesis rests on a fragile foundation of recent momentum contradicted by persistent fundamental deterioration. The company's proprietary Mojo Score of 57 out of 100, yielding a "HOLD" rating, reflects this tension between positive near-term financial trends and below-average quality. The score improved from 34 (SELL) on October 14, 2025, primarily due to the quarterly financial trend turning positive and technical indicators shifting to bullish.
The Mojo 4 Dots analysis reveals mixed signals across key parameters. Near-term drivers appear positive, with the quarterly financial trend rated as "Positive" following higher profit after tax of ₹2.01 crores over the latest six months, and technical indicators turning "Bullish" on November 06, 2025. However, the quality assessment remains firmly "Below Average," reflecting weak long-term fundamental strength characterised by negative 18.22% compound annual growth in operating profits over five years.
Valuation is assessed as "Attractive" at current levels, with the stock trading at an enterprise value-to-capital-employed ratio of 1.40 times and a ROCE of 3.62%—metrics that appear reasonable on the surface. Yet this attractiveness is illusory, as the underlying business generates inadequate returns on invested capital and faces structural challenges in a competitive, commoditised market. The overall assessment of "Positive" seems generous given the fundamental weaknesses, and likely reflects the scoring system's heavy weighting towards recent momentum rather than sustainable competitive advantages.
"Exxaro Tiles exemplifies the classic value trap—statistically cheap multiples and recent momentum masking a business model that consistently destroys shareholder value through inadequate returns on capital and persistent margin compression."
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Recent Profit Recovery: Net profit of ₹2.01 crores over the latest six months represents improvement from prior losses, demonstrating operational stabilisation.
- Stable Promoter Holdings: Consistent 42.07% promoter stake with zero pledging indicates management confidence and alignment with minority shareholders.
- Moderate Leverage: Net debt-to-equity ratio of 0.32 and declining long-term debt from ₹21.42 crores to ₹15.88 crores shows some deleveraging progress.
- Positive Operating Cash Flow: Cash flow from operations of ₹23.00 crores in FY25 improved significantly from ₹5.00 crores in FY24.
- Technical Momentum: Stock trading above all major moving averages with bullish technical trend since November 06, 2025, attracting short-term traders.
- Attractive Valuation Multiples: EV-to-capital-employed ratio of 1.40 times appears reasonable relative to assets deployed in the business.
⚠️ KEY CONCERNS
- Abysmal Returns on Capital: ROE of 1.30% and ROCE of 5.29% rank amongst the poorest in the sector, indicating fundamental business model weakness.
- Persistent Revenue Decline: Five-year sales growth of negative 3.27% demonstrates market share loss in a growing industry.
- Collapsing Operating Profits: EBIT declining at 18.22% CAGR over five years reflects deteriorating competitive position and margin compression.
- Institutional Exodus: FII holdings declining from 5.51% to 4.02%, with zero mutual fund or insurance company participation, signals lack of institutional confidence.
- Extreme Volatility: Stock volatility of 58.17% and beta of 1.50 create substantial downside risk during market corrections.
- Weak Interest Coverage: EBIT-to-interest ratio of 2.13 times provides minimal cushion for earnings volatility or rising interest rates.
- Micro-Cap Liquidity Risk: Market capitalisation of just ₹431.00 crores limits institutional participation and creates execution challenges for larger investors.
Outlook: What to Watch
POSITIVE CATALYSTS
- ✓ Sustained Margin Improvement: Consistent operating margins above 10% for three consecutive quarters would signal genuine operational turnaround.
- ✓ Revenue Growth Acceleration: Achieving positive YoY sales growth for four consecutive quarters would indicate market share stabilisation.
- ✓ Institutional Buying: Fresh mutual fund or insurance company participation would validate improving fundamentals.
- ✓ Debt Reduction: Further deleveraging to bring debt-to-EBITDA below 2.0 times would improve financial flexibility.
- ✓ ROE Improvement: Return on equity rising above 10% would demonstrate capital efficiency improvement.
RED FLAGS
- ✗ Margin Compression: Operating margins falling below 8% would confirm inability to compete effectively.
- ✗ Revenue Decline Resumption: Return to negative YoY sales growth would indicate temporary nature of recent stabilisation.
- ✗ Continued FII Selling: Further reduction in institutional holdings below 3% would signal deteriorating confidence.
- ✗ Promoter Pledging: Any pledging of promoter shares would raise serious governance and financial stress concerns.
- ✗ Working Capital Deterioration: Rising payables or declining current ratio would indicate cash flow stress.
The Verdict: Avoid Fresh Positions Despite Attractive Multiples
Score: 57/100
For Fresh Investors: Exxaro Tiles represents a classic value trap that should be avoided despite seemingly attractive valuation multiples. The company's abysmal return on equity of 1.30%, persistent revenue decline, and collapsing operating profits (down 18.22% CAGR over five years) indicate fundamental business model weaknesses that recent quarterly improvements cannot overcome. The absence of institutional investor participation and ongoing FII selling provide clear signals that sophisticated investors see no merit in the investment case. Fresh capital is better deployed in companies with sustainable competitive advantages and consistent capital efficiency.
For Existing Holders: Current shareholders should maintain positions cautiously whilst closely monitoring the next 2-3 quarters for evidence of sustained margin improvement and revenue growth acceleration. The recent profit recovery and positive technical momentum provide short-term support, but any resumption of margin compression or revenue decline should trigger immediate exit. Set a stop-loss at ₹7.50 (approximately 21% below current levels) to protect against downside risk given the stock's extreme volatility. Consider reducing exposure on any rallies above ₹10.50 to lock in gains from recent momentum.
Fair Value Estimate: ₹6.00 (37% downside from current price of ₹9.48)
Rationale: Applying a conservative 15x P/E multiple to normalised annual earnings of ₹6.00 crores yields fair value substantially below current trading levels. The stock's recent outperformance reflects technical momentum and sector-relative strength rather than fundamental improvement, creating an unsustainable valuation premium that is likely to compress as the initial enthusiasm fades and investors refocus on the company's structural challenges and inadequate returns on capital.
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, and all investments carry risk of loss.
