Forbes & Company Q2 FY26: Revenue Slump Masks Profit Surge Driven by Non-Operating Income

The quarter's results reveal a troubling dichotomy: whilst profit margins expanded dramatically to 33.85%, this improvement was largely artificial, propped up by other income of ₹5.74 crores that constituted a staggering 68.50% of profit before tax. This dependency on non-operating sources raises fundamental questions about the quality and sustainability of earnings for a company that has struggled with operational consistency across its engineering, industrial automation, and consumer durables segments.

The sequential performance paints an equally concerning picture. Net sales declined 16.70% quarter-on-quarter from ₹22.45 crores in Q1 FY26, marking the lowest quarterly revenue figure in recent periods. However, consolidated net profit surged 30.25% sequentially, once again highlighting the disconnect between operational performance and bottom-line results. This pattern suggests that Forbes & Company's core business operations are experiencing significant headwinds, even as financial engineering and non-core income sources temporarily bolster profitability metrics.

Financial Performance: A Tale of Two Narratives

Forbes & Company's Q2 FY26 financial performance presents a stark contrast between headline profitability and underlying operational health. Net sales of ₹18.70 crores represent the lowest quarterly figure in the available dataset, declining 46.05% year-on-year from ₹34.66 crores in Q2 FY25. This dramatic revenue contraction signals either severe market share loss, product portfolio challenges, or broader demand weakness across the company's diversified business segments spanning engineering, industrial automation, and consumer durables.

Despite the revenue collapse, operating profit excluding other income improved to ₹2.87 crores with a margin of 15.35%, up from 12.15% in the year-ago quarter. This margin expansion, however, comes against a significantly smaller revenue base, raising questions about whether cost reductions are sustainable or merely reflect reduced business activity. Employee costs remained relatively stable at ₹4.13 crores, suggesting the company has not yet undertaken aggressive workforce rationalisation despite the revenue decline.

The real story emerges when examining the composition of profitability. Other income of ₹5.74 crores—nearly double the operating profit excluding other income—constituted 68.50% of the ₹8.38 crores profit before tax. This heavy reliance on non-operating sources fundamentally undermines the quality of earnings and suggests that the company's core business operations are struggling to generate sustainable returns. For a company with a 150-year heritage in engineering and manufacturing, this dependency on financial income rather than operational excellence represents a concerning strategic drift.

Operational Challenges: Structural Headwinds Mount

The operational landscape for Forbes & Company has deteriorated markedly, with the company facing structural challenges that extend beyond cyclical demand weakness. The 46.05% year-on-year revenue decline in Q2 FY26 is particularly alarming given that this represents the company's lowest quarterly sales figure in recent memory. This contraction is not merely a quarter-on-quarter blip but reflects a sustained deterioration, with sales declining 16.70% sequentially from Q1 FY26's already subdued ₹22.45 crores.

From a capital efficiency perspective, the company's return on equity (ROE) of 30.76% appears impressive on the surface, yet this metric is distorted by the company's minimal equity base and extraordinary one-time gains in prior periods. The average ROE of 1,352.67% over recent years reflects accounting anomalies rather than sustainable operational excellence. More concerning is the return on capital employed (ROCE) of just 15.52%, which whilst positive, lags behind many industrial peers and fails to adequately compensate for the business risks inherent in the company's diversified portfolio.

The balance sheet reveals a company in transition, with shareholder funds of ₹219.48 crores as of March 2025 and negligible debt, resulting in a net debt-to-equity ratio of -0.26. Whilst the debt-free status provides financial flexibility, the company's inability to deploy this capital productively into revenue-generating operations raises questions about management's strategic vision. Fixed assets of merely ₹2.76 crores as of March 2025 suggest limited ongoing investment in productive capacity, whilst investments of ₹185.56 crores indicate a shift towards financial asset holding rather than operational expansion.

Long-Term Performance: A Troubling Trajectory

Forbes & Company's longer-term financial trajectory reveals a company grappling with fundamental business model challenges. Over the past five years, net sales have declined at an annual rate of 40.36%, a catastrophic contraction that reflects either systematic market share loss, portfolio rationalisation, or structural industry headwinds. This sustained revenue decline stands in stark contrast to the 17.13% annual EBIT growth over the same period, once again highlighting the disconnect between operational performance and reported profitability driven by non-operating sources.

The company's operational metrics reveal concerning trends. Average EBIT to interest coverage of 4.98 times appears adequate but has been achieved primarily due to minimal debt rather than robust operational earnings. The average debt-to-EBITDA ratio of 7.58 is misleading given the company's current near-zero debt position, reflecting historical leverage that has since been eliminated. Average sales to capital employed of 3.12 times suggests moderate asset efficiency, but this metric is flattered by the company's minimal fixed asset base.

Cash flow generation has been erratic, with operating cash flow of -₹11 crores in FY25 indicating that the company consumed cash from operations despite reporting accounting profits. This negative operating cash flow, combined with the heavy reliance on other income, reinforces concerns about the quality and sustainability of reported earnings. The company's closing cash position of ₹14 crores as of March 2025, down from ₹19 crores a year earlier, suggests ongoing cash consumption despite the debt-free balance sheet.

Industry Context: Electronics & Appliances Sector Dynamics

Forbes & Company operates within the electronics and appliances sector, a space that has experienced mixed fortunes over the past year. The broader sector declined 27.09% over the past 12 months, with Forbes & Company underperforming this already weak benchmark by an additional 12.92 percentage points, delivering a dismal -40.01% return. This underperformance relative to sector peers suggests company-specific challenges beyond broader industry headwinds.

The company's diversified portfolio spanning engineering products, industrial automation solutions, consumer durables (water and air products), and even chemical tankers positions it across multiple end markets with varying demand dynamics. However, this diversification has not insulated Forbes from the severe revenue contraction witnessed in recent quarters. The consumer durables segment, traditionally a stable cash generator, appears to be facing intense competition from larger, better-capitalised players with stronger brand equity and distribution networks.

Within the industrial automation and engineering segments, Forbes faces competition from both multinational corporations with superior technology and domestic players with aggressive pricing strategies. The company's minimal fixed asset base of ₹2.76 crores suggests limited ongoing investment in manufacturing capabilities, potentially indicating a strategic shift away from asset-intensive operations towards trading or distribution models. This transition, if indeed underway, would fundamentally alter the company's competitive positioning and margin profile.

Peer Comparison: Valuation Disconnect

Forbes & Company's valuation metrics present an intriguing puzzle when compared against electronics and appliances sector peers. Trading at a price-to-earnings ratio of 7.21 times, Forbes appears significantly cheaper than the sector average of approximately 113 times (excluding loss-making companies). However, this apparent discount likely reflects investor scepticism about earnings quality and sustainability rather than representing a genuine value opportunity.

The company's price-to-book ratio of 2.20 times compares favourably to peers like CWD Limited at 20.52 times or MIRC Electronics at 7.58 times, yet this metric must be interpreted cautiously given Forbes' minimal tangible asset base. The company's book value is inflated by investments and reserves rather than productive operating assets, limiting the relevance of price-to-book as a valuation anchor. The reported ROE of 1,352.67% vastly exceeds peers but is clearly distorted by accounting anomalies and one-time gains rather than reflecting sustainable operational excellence.

Forbes & Company's negative debt-to-equity ratio of -0.26 indicates a net cash position, matching or exceeding most sector peers who similarly maintain conservative balance sheets. However, unlike peers who may be deploying this financial flexibility for growth investments, Forbes appears to be holding cash and investments without commensurate revenue generation. This capital allocation inefficiency represents a significant concern for value-oriented investors seeking companies that productively deploy shareholder capital.

Valuation Analysis: Cheap for a Reason

Forbes & Company's current valuation of ₹375.00 per share, representing a market capitalisation of ₹484 crores, appears optically cheap on traditional metrics but warrants significant caution. The trailing twelve-month P/E ratio of 7 times sits well below the industry average of 34 times, suggesting either a significant value opportunity or, more likely, justified scepticism about earnings quality and sustainability. Given the company's heavy reliance on non-operating income and sustained revenue decline, the discount appears rational rather than anomalous.

The stock's price-to-book ratio of 2.20 times implies the market values the company at more than double its stated book value of ₹170.41 per share. However, this premium is questionable given the composition of the balance sheet, which is dominated by investments (₹185.56 crores) rather than productive operating assets (fixed assets of only ₹2.76 crores). The enterprise value-to-EBITDA multiple of 18.42 times appears elevated relative to the P/E ratio, reflecting the impact of the company's net cash position in reducing enterprise value below market capitalisation.

From a dividend perspective, Forbes & Company offers no yield, with the last dividend of ₹65 per share paid in August 2022—more than three years ago. This absence of shareholder returns, combined with negative operating cash flow and declining revenues, raises questions about management's capital allocation priorities and commitment to returning value to minority shareholders. The PEG ratio of 0.01 appears extraordinarily attractive but is rendered meaningless by the distorted growth metrics driven by one-time gains rather than sustainable operational improvements.

Shareholding Pattern: Concentrated Ownership Limits Liquidity

Forbes & Company's shareholding structure is dominated by promoter ownership, with the Shapoorji Pallonji Group maintaining a commanding 98.25% stake through Shapoorji Pallonji And Company Private Limited (72.56%) and Forbes Campbell Finance Limited (1.29%). This extraordinarily high promoter holding has remained unchanged across the past five quarters, indicating no dilution or stake sales despite the company's operational challenges.

The minimal public float of just 1.75% severely constrains liquidity, with only negligible institutional participation. Foreign institutional investors hold 8.24% (though this likely overlaps with the reported public float given the 98.25% promoter stake), whilst mutual funds and insurance companies have zero exposure. Other domestic institutional investors maintain a token 1.04% position. This institutional absence reflects the company's micro-cap status, limited liquidity, and questionable earnings quality—factors that render it unsuitable for most institutional mandates.

The reported pledging of 98.25% of shares raises significant governance concerns, though the exact beneficiary and terms of this pledge remain unclear from available disclosures. Such extensive pledging by promoters typically signals either financial distress or complex group-level financing arrangements. For minority shareholders, this concentration of ownership and extensive pledging creates additional risks beyond the company's operational challenges, as any stress at the promoter group level could potentially impact the company's strategic direction or asset base.

Stock Performance: Sustained Underperformance Across Timeframes

Forbes & Company's stock price performance has been dismal across most relevant timeframes, with the shares declining 40.01% over the past year against the Sensex's 4.62% gain—a negative alpha of 44.63 percentage points. The stock currently trades at ₹375.00, down 41.11% from its 52-week high of ₹636.80 reached less than a year ago, though it remains 41.86% above the 52-week low of ₹264.35. This wide trading range reflects extreme volatility and investor uncertainty about the company's prospects.

Year-to-date performance shows a decline of 20.20% against the Sensex's 6.50% gain, underperforming the benchmark by 26.70 percentage points. Over shorter timeframes, the stock has shown marginal resilience, gaining 2.67% over one month (outperforming the Sensex by 1.10 percentage points) and 0.36% over one week. However, the three-month performance reveals an 11.49% decline, underperforming the Sensex by 14.71 percentage points, indicating that the recent modest gains represent a technical bounce rather than a sustained recovery.

The longer-term picture presents a more complex narrative. Over three years, Forbes has delivered 39.68% returns, marginally outperforming the Sensex's 36.01% by 3.67 percentage points. The five-year returns appear extraordinary at 813.57%, vastly exceeding the Sensex's 98.64%, but this performance is heavily distorted by the company's extremely depressed base price five years ago following a period of severe operational distress. These historical returns provide little guidance for future performance given the fundamental changes in the company's business profile and ongoing operational challenges.

From a technical perspective, the stock exhibits a high beta of 1.50, indicating significantly greater volatility than the broader market. The risk-adjusted return over one year stands at -0.96, with volatility of 41.47%—more than three times the Sensex's 12.39% volatility. This high-risk, negative-return profile classifies Forbes & Company as a "HIGH RISK LOW RETURN" investment, unsuitable for risk-averse investors seeking stable capital appreciation or income generation.

Investment Thesis: Multiple Red Flags Outweigh Valuation Appeal

Forbes & Company's investment thesis is fundamentally challenged by multiple structural weaknesses that overshadow any apparent valuation appeal. The company's Mojo score of 40 out of 100, resulting in a "SELL" rating, reflects the confluence of negative factors across key investment parameters. The financial trend is classified as "FLAT" despite quarterly profit growth, recognising that this improvement is driven by non-operating income rather than core business strength. The technical trend remains "MILDLY BEARISH," with the stock trading below all major moving averages and showing no signs of sustained momentum recovery.

The quality assessment of "AVERAGE" understates the severity of operational challenges, with the 5-year sales decline of 40.36% annually representing catastrophic business erosion. Whilst the company benefits from a debt-free balance sheet and net cash position, this financial flexibility has not translated into productive growth investments or shareholder returns. The average ROCE of 5.00% is inadequate, barely covering the cost of capital and failing to justify the business risks inherent in the company's operations.

Valuation metrics, whilst appearing cheap on headline multiples, reflect justified scepticism rather than opportunity. The P/E ratio of 7 times is depressed by earnings quality concerns, with 68.50% of Q2 FY26 profit before tax derived from other income. The lack of dividend payments since August 2022, combined with negative operating cash flow, raises serious questions about management's commitment to minority shareholder value creation. The extensive promoter pledging of 98.25% adds governance risks that compound operational concerns.

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