First Custodian Fund Q2 FY26: Profitability Collapse Amid Revenue Drought

The September quarter results paint a stark picture of a company struggling to generate meaningful business activity. Net sales of ₹0.01 crores represent an alarming 75.00% year-on-year decline from ₹0.04 crores in Q2 FY25, whilst remaining flat quarter-on-quarter. This revenue drought reflects the company's diminishing presence in the securities brokerage space, where competition from discount brokers and digital platforms has intensified dramatically. The company's inability to scale operations or diversify revenue streams has left it vulnerable to market headwinds.

Following the results announcement, First Custodian Fund's shares have continued their downward trajectory, trading at ₹88.46 as of November 07, 2025, down 1.15% on the day. The stock has underperformed the broader market significantly, declining 26.95% over the past year whilst the Sensex gained 4.62%, resulting in a negative alpha of 31.57 percentage points. Year-to-date, the stock has plummeted 41.42% compared to the Sensex's 6.50% gain, reflecting deep investor scepticism about the company's business prospects.

Financial Performance: Anaemic Revenue Generation

The Q2 FY26 financial performance reveals a company in severe operational distress. Net sales of ₹0.01 crores remained stagnant quarter-on-quarter but collapsed 75.00% year-on-year, indicating a fundamental erosion of the company's brokerage and trading business. Employee costs of ₹0.05 crores remained elevated relative to the minuscule revenue base, consuming 500% of sales and highlighting unsustainable cost structures. Operating profit before depreciation, interest, and tax (PBDIT) stood at ₹0.05 crores, translating to an operating margin of 500.00%, though this metric is distorted by the extraordinarily low revenue base.

Net profit of ₹0.02 crores in Q2 FY26 represents a technical recovery from the ₹0.21 crores loss in Q1 FY26, but the year-on-year comparison tells a more troubling story—profits have crashed 95.92% from ₹0.49 crores in Q2 FY24. The PAT margin of 200.00% in Q2 FY26, whilst appearing robust on paper, reflects the accounting peculiarities of a business with negligible sales rather than genuine profitability. The company's inability to generate consistent, meaningful profits from its core brokerage operations raises serious questions about long-term viability.

The company's tax expense of nil in Q2 FY26 (0.00% effective tax rate) contrasts sharply with the 24.62% rate in Q2 FY24, suggesting the company may be carrying forward losses or benefitting from tax shields. However, this provides little comfort given the underlying business deterioration. Depreciation of ₹0.03 crores remains consistent, but represents a significant burden relative to the company's minimal revenue generation capacity.

Capital Efficiency: Weak Returns Signal Fundamental Issues

First Custodian Fund's capital efficiency metrics reveal a company struggling to generate adequate returns for shareholders. The latest return on equity (ROE) stands at a modest 5.74%, well below the five-year average of 7.72%, which itself is considerably weak for a financial services company. This anaemic ROE reflects the company's inability to profitably deploy its shareholder capital of ₹15.50 crores (as of March 2025), which has grown modestly from ₹13.91 crores in March 2024 primarily through retained earnings rather than operational excellence.

The company maintains a debt-free balance sheet with zero long-term debt, which ordinarily would be viewed favourably. However, in First Custodian's case, this reflects limited access to growth capital rather than prudent financial management. Current assets of ₹15.36 crores (March 2025) provide adequate liquidity, with current liabilities of just ₹1.04 crores resulting in a comfortable current ratio of approximately 14.8. Yet this strong liquidity position appears to be a consequence of business stagnation rather than strategic cash management, as the company struggles to deploy capital productively.

Business Model Under Pressure: Structural Decline in Brokerage

First Custodian Fund's core business model—securities brokerage and proprietary trading—faces existential challenges in the current market environment. The company's membership with the National Stock Exchange positions it to provide brokerage services, but the revenue trajectory suggests it has been unable to compete effectively against discount brokers like Zerodha, Groww, and Upstox, which have revolutionised the Indian brokerage industry with zero-commission equity delivery trading and technology-driven platforms.

The company's investment portfolio, whilst not separately disclosed in the quarterly results, appears to generate minimal income, as evidenced by other income of nil across recent quarters. This suggests limited success in proprietary trading activities, which historically formed a key revenue pillar for traditional brokerages. The employee cost of ₹0.05 crores per quarter indicates a small operational team, but even this modest cost base appears unsustainable given the revenue generation capacity.

The company's geographical concentration in Kolkata, whilst providing a stable regional presence, limits its ability to scale nationally. Unlike larger peers with pan-India operations and digital platforms, First Custodian appears confined to a shrinking traditional brokerage model that appeals to a diminishing client base. The five-year sales compound annual growth rate (CAGR) of 21.15% masks recent deterioration, as quarterly trends show accelerating revenue decline.

Peer Comparison: Lagging on All Fronts

A comparison with peers in the NBFC space reveals First Custodian Fund's relative positioning, though direct comparisons are challenging given the company's unique business model and micro-cap status. The company trades at a price-to-earnings (P/E) ratio of 14.91x, below the industry average of 24x, reflecting the market's scepticism about growth prospects. The price-to-book value (P/BV) ratio of 0.86x suggests the market values the company below its book value, indicating concerns about asset quality or future profitability.

First Custodian's ROE of 7.72% exceeds that of peers like Modern Shares (1.74%) and Anjani Finance (5.87%), providing some relative comfort. However, this modest advantage is insufficient to offset concerns about revenue sustainability and business model viability. The company's dividend yield of 1.13%, based on a ₹1 per share dividend paid in September 2025, offers minimal income support to investors and reflects the company's limited cash generation capacity.

The company's market capitalisation of ₹14.00 crores positions it as the largest amongst its immediate peer group, though this reflects the extremely small scale of comparable companies rather than First Custodian's strength. The absence of institutional holdings (0.0% FII, mutual fund, and insurance holdings) signals that sophisticated investors have steered clear of this micro-cap financial services player, likely due to concerns about liquidity, governance, and growth prospects.

Valuation Analysis: Discount Reflects Fundamental Concerns

First Custodian Fund's current valuation metrics reflect the market's deep scepticism about the company's future prospects. Trading at ₹88.46 per share as of November 07, 2025, the stock has declined 48.58% from its 52-week high of ₹172.05, whilst sitting just 17.40% above its 52-week low of ₹75.35. This positioning near multi-year lows underscores the sustained selling pressure and lack of investor conviction.

The P/E ratio of 14.91x appears superficially attractive compared to the broader NBFC industry average of 24x, representing a 38% discount. However, this discount is well-justified given the company's deteriorating fundamentals, minimal revenue generation, and lack of visible growth catalysts. The P/BV ratio of 0.86x indicates the market values the company below its stated book value of ₹103.34 per share, suggesting investors question either the quality of assets on the balance sheet or the company's ability to generate economic returns from those assets.

The company's enterprise value metrics tell an unusual story, with negative EV/EBITDA (-0.30x), EV/EBIT (-0.33x), and EV/Sales (-0.20x) ratios. These negative values arise because the company's cash and equivalents exceed its market capitalisation, creating a negative enterprise value. Whilst this might appear attractive in a traditional value investing framework, it primarily reflects the market's view that the business operations have minimal intrinsic value, with the company worth less than its liquidation value.

The proprietary Mojo Score of 28/100 places First Custodian firmly in "Strong Sell" territory, reflecting concerns across multiple dimensions: deteriorating financial trends (flat quarterly performance), weak quality fundamentals (below-average grade with 7.72% average ROE), mildly bearish technical trends, and fair but uninspiring valuation. The valuation grade of "Attractive" reflects the discount to book value and low P/E ratio, but this alone cannot offset the fundamental and technical headwinds facing the company.

Shareholding Pattern: Stable but Uninspiring Base

First Custodian Fund's shareholding pattern reveals a stable but concentrated ownership structure that has remained unchanged for at least five quarters. Promoter holding stands at 52.57%, with no change quarter-on-quarter, indicating strong insider control but also limited market float. The promoter group is led by Sangharsh Finvest Pvt Ltd (24.98%), followed by individual promoters and promoter group entities holding smaller stakes.

The complete absence of institutional investors—zero FII holdings, zero mutual fund holdings, zero insurance company holdings—is a significant red flag. This institutional void reflects concerns about liquidity (average daily volume of just 521 shares), corporate governance in micro-cap companies, and the company's limited growth prospects. The 47.43% non-institutional holding represents primarily retail investors, many of whom may be locked into illiquid positions given the stock's poor trading volumes.

Importantly, there is no promoter pledging, which eliminates one potential risk factor. However, the stable shareholding pattern also indicates a lack of fresh capital inflows or investor interest. The unchanged holdings across quarters suggest the stock is largely ignored by the broader market, with limited buying or selling activity beyond sporadic retail trades.

Stock Performance: Severe Underperformance Across Timeframes

First Custodian Fund's stock performance presents a tale of two distinct periods: strong long-term gains followed by recent severe underperformance. Over a 10-year horizon, the stock has delivered an impressive 789.05% return, vastly outperforming the Sensex's 216.83% gain with a positive alpha of 572.22 percentage points. The five-year return of 185.35% also significantly exceeds the Sensex's 98.64% gain, generating 86.71 percentage points of alpha.

However, recent performance tells a dramatically different story. The stock has underperformed across all short- to medium-term timeframes, with particularly severe losses in the year-to-date period (-41.42% vs Sensex +6.50%). The six-month return of -24.81% against the Sensex's +3.06% gain represents a negative alpha of 27.87 percentage points. Even on a one-week basis, the stock has declined 1.11% compared to the Sensex's 0.86% fall.

The stock's volatility of 55.78% over the past year, compared to the Sensex's 12.35%, classifies it as a high-risk investment. The beta of 1.50 indicates the stock moves 50% more than the broader market, amplifying both gains and losses. With a negative risk-adjusted return of -0.48 and a negative Sharpe ratio, First Custodian falls squarely into the "high risk, low return" category—the worst quadrant for investors.

Technical Analysis: Mildly Bearish Trend with Limited Support

From a technical perspective, First Custodian Fund's chart presents a mildly bearish picture with the stock trading below all major moving averages. The current price of ₹88.46 sits below the 5-day moving average (₹88.27), 20-day moving average (₹87.70), 50-day moving average (₹90.63), 100-day moving average (₹97.84), and 200-day moving average (₹115.46). This alignment of moving averages in descending order confirms the prevailing downtrend.

The technical trend classification of "Mildly Bearish" (as of October 27, 2025) represents a marginal improvement from the previous "Bearish" classification, suggesting some stabilisation in selling pressure. However, the weekly MACD indicator shows mildly bullish signals, whilst the monthly MACD remains mildly bearish, indicating conflicting short-term and medium-term momentum. Both weekly and monthly Bollinger Bands indicate bearish trends, with the stock trading near the lower bands.

Key technical levels provide limited support. The immediate support lies at the 52-week low of ₹75.35, approximately 14.8% below current levels. Immediate resistance appears at the 20-day moving average area of ₹87.70, which the stock is struggling to reclaim. Major resistance exists at the 100-day moving average of ₹97.84 (10.6% above current price), whilst strong resistance sits at the 200-day moving average of ₹115.46 (30.5% above current price). The 52-week high of ₹172.05 represents a distant target, 94.5% above current levels.

Delivery volumes have shown a 42.94% increase over the past month, with recent delivery percentages of 65.18% on November 06, 2025, though this is below the five-day average of 81.74%. The declining average delivery volumes from 490.05 shares (previous month) to 279.60 shares (trailing month) reflect reduced investor interest and deteriorating liquidity, making the stock increasingly difficult to trade in meaningful size.

Investment Thesis: Limited Upside, Significant Downside Risks

The investment case for First Custodian Fund is fundamentally challenged across multiple dimensions. The company's proprietary Mojo Score of 28/100 reflects weak performance across four key parameters: valuation (attractive but for good reason), quality (below average with 7.72% average ROE), financial trend (flat recent performance), and technical trend (mildly bearish). This combination creates a highly unattractive risk-reward profile.

The quality assessment of "Below Average" reflects long-term financial performance that fails to meet acceptable standards for financial services companies. The five-year sales CAGR of 21.15% and EBIT CAGR of 16.54% appear superficially attractive, but recent quarterly trends reveal accelerating deterioration. The average ROE of 7.72% barely exceeds the risk-free rate, indicating the company generates minimal economic value for shareholders. The complete absence of institutional holdings (0.0%) signals that sophisticated investors have concluded the risk-reward profile is unattractive.

The company's "Flat" financial trend designation for Q2 FY26 masks underlying weakness. Whilst the quarter saw a technical return to profitability after Q1 FY26's loss, the year-on-year comparisons reveal severe deterioration: net sales down 75.00%, net profit down 95.92%. The company's inability to generate meaningful revenue from its brokerage and trading operations suggests a business model in terminal decline, facing structural headwinds from industry disruption.

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