The company's performance presents a paradox that demands careful examination. Whilst the bottom line has expanded dramatically, the top line remains anaemic, raising questions about the sustainability and quality of earnings. For a company operating in the competitive NBFC space, such margin expansion coupled with revenue contraction is unusual and warrants deeper scrutiny from investors considering this micro-cap stock.
| Metric | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 2.04 | 2.13 | 1.77 | 2.86 | 1.46 | 2.64 |
| QoQ Growth | -4.23% | +20.34% | -38.11% | +95.89% | -44.70% | -86.58% |
| YoY Growth | +39.73% | -19.32% | -91.00% | — | — | — |
| Operating Margin % | 86.27% | 68.08% | 10.73% | 1.75% | -7.53% | 2.27% |
| Consolidated PAT (₹ Cr) | 2.81 | 1.29 | 0.38 | -0.19 | 0.56 | 0.77 |
| PAT Margin % | 137.25% | 60.56% | 22.03% | -6.64% | 38.36% | 29.17% |
Financial Performance: Margin Expansion Drives Profitability
In Q2 FY26, Garnet International posted net sales of ₹2.04 crores, a modest decline of 4.23% from the previous quarter's ₹2.13 crores but representing a 39.73% year-on-year improvement from ₹1.46 crores in Q2 FY25. The company's operating profit before depreciation, interest, and tax (excluding other income) surged to ₹1.76 crores, marking the highest quarterly level in the recent period and translating to an exceptional operating margin of 86.27%, up sharply from 68.08% in the preceding quarter.
The profit before tax reached ₹2.80 crores in Q2 FY26, more than doubling from ₹1.29 crores in Q1 FY26. With negligible tax incidence, the consolidated net profit settled at ₹2.81 crores, yielding an extraordinary PAT margin of 137.25%. This margin profile, whilst impressive on the surface, raises questions about the nature of the income streams, particularly given the absence of significant other income reported in the financials.
Examining the half-yearly performance for H1 FY26, the company generated consolidated net sales of ₹4.17 crores with a consolidated PAT of ₹4.10 crores. When compared to the full-year FY25 results, where annual sales stood at ₹8.00 crores with a PAT of near zero, the current trajectory shows improvement in profitability but persistent challenges in scaling revenue.
Operational Challenges: Revenue Volatility and Scale Concerns
The company's revenue trajectory reveals significant volatility, with quarterly sales swinging between ₹1.46 crores and ₹2.86 crores over the past six quarters. This inconsistency raises concerns about the predictability and sustainability of the business model. For an NBFC with investments in securities and real estate development, such revenue lumpiness suggests reliance on irregular income streams rather than steady recurring revenue.
The balance sheet as of March 2025 shows shareholder funds of ₹37.72 crores, comprising share capital of ₹19.64 crores and reserves of ₹9.25 crores. Investments stood at ₹15.82 crores, up from ₹13.89 crores in the previous year, indicating continued deployment of capital into securities. The company maintains a debt-free balance sheet with negligible long-term borrowings, which is a positive from a financial risk perspective.
Critical Concerns: Quality of Earnings
Weak Return on Equity: The company's average ROE over the past five years stands at just 2.67%, indicating extremely poor capital efficiency. Whilst the latest ROE has improved to 10.26%, this remains below acceptable standards for financial services companies.
Revenue Decline: Annual sales have collapsed from ₹59.00 crores in FY23 to ₹8.00 crores in FY25, representing a staggering 86.44% decline over two years. The 5-year sales growth rate stands at a negative 10.05%.
Margin Sustainability: The extraordinary 137.25% PAT margin in Q2 FY26 raises questions about one-time gains or accounting treatments that may not be repeatable in future quarters.
The Valuation Conundrum: Expensive Despite Poor Fundamentals
Garnet International trades at a price-to-earnings ratio of 46.50 times trailing twelve-month earnings, nearly double the NBFC sector average of 24 times. The price-to-book value multiple stands at 4.77 times, significantly higher than the company's historical return on equity would justify. The enterprise value to EBITDA multiple of 58.05 times reflects an extremely rich valuation for a company with such modest scale and inconsistent performance.
Valuation Disconnect
The company's PEG ratio of 3.45 indicates the stock is expensive relative to its growth prospects. With a 5-year EBIT growth rate of 17.94% but declining sales growth of negative 10.05%, the elevated valuation multiples appear unjustified. The stock has been classified as "Very Expensive" by valuation metrics, having changed to this category multiple times over the past 18 months.
| Valuation Metric | Garnet International | Sector Average | Assessment |
|---|---|---|---|
| P/E Ratio (TTM) | 46.50x | 24.00x | Premium |
| Price to Book Value | 4.77x | — | High |
| EV/EBITDA | 58.05x | — | Very High |
| PEG Ratio | 3.45x | — | Expensive |
Peer Comparison: Lagging on Key Metrics
When benchmarked against NBFC peers, Garnet International's fundamental weakness becomes evident. The company's ROE of 2.67% (average) trails significantly behind competitors like Arunjyoti Bio at 29.81% and Gamco Ltd at 18.28%. Even the latest ROE of 10.26% remains below industry standards for profitable NBFCs.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity |
|---|---|---|---|---|
| Garnet International | 46.50 | 4.77 | 2.67 | 0.08 |
| Arunjyoti Bio | NA (Loss Making) | 6.06 | 29.81 | 0.71 |
| Gamco Ltd | NA (Loss Making) | 2.11 | 18.28 | 2.00 |
| Innovassynth Investments | NA (Loss Making) | 5.33 | 0.0 | 0.00 |
| Mangalam Industrial | 169.04 | 7.17 | 1.38 | 0.00 |
The peer comparison reveals that whilst Garnet International maintains a debt-free balance sheet with a debt-to-equity ratio of just 0.08, its capital efficiency remains amongst the weakest in the peer group. The company's P/E multiple of 46.50 times appears reasonable only when compared to Mangalam Industrial's 169.04 times, but this comparison provides little comfort given both companies' weak ROE profiles.
Shareholding Pattern: Promoter Volatility Raises Red Flags
The shareholding pattern reveals concerning instability in promoter commitment. Promoter holding surged from 11.53% in June 2025 to 25.53% in September 2025, a sequential increase of 14.00 percentage points. However, this follows a dramatic decline from 49.54% in March 2025 to 11.53% in June 2025, representing a 38.01 percentage point reduction in just one quarter.
| Quarter | Promoter % | QoQ Change | FII % | MF % | Non-Institutional % |
|---|---|---|---|---|---|
| Sep'25 | 25.53 | +14.00 | 0.00 | 0.00 | 48.92 |
| Jun'25 | 11.53 | -38.01 | 0.00 | 0.00 | 50.87 |
| Mar'25 | 49.54 | +27.61 | 0.00 | 0.00 | 50.46 |
| Dec'24 | 21.93 | -0.03 | 0.00 | 0.00 | 50.70 |
| Sep'24 | 21.96 | — | 0.00 | 0.00 | 50.77 |
The wild swings in promoter holding—from 21.96% in September 2024 to 49.54% in March 2025, then collapsing to 11.53% in June 2025, and rebounding to 25.53% in September 2025—suggest significant uncertainty about the company's direction. The complete absence of institutional investors (zero FII, mutual fund, and insurance holdings) further underscores the lack of confidence from sophisticated investors.
Stock Performance: Severe Underperformance Across Timeframes
The stock's price performance paints a grim picture for recent investors. Trading at ₹101.60, Garnet International has declined 20.00% over the past year, significantly underperforming the Sensex's 9.50% gain and generating negative alpha of 29.50 percentage points. The year-to-date performance is even worse, with the stock down 39.88% compared to the Sensex's 8.72% gain, resulting in negative alpha of 48.60 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -3.38% | +1.69% | -5.07% |
| 1 Month | -13.24% | +1.19% | -14.43% |
| 3 Months | -21.21% | +5.40% | -26.61% |
| 6 Months | -17.80% | +3.18% | -20.98% |
| YTD | -39.88% | +8.72% | -48.60% |
| 1 Year | -20.00% | +9.50% | -29.50% |
| 2 Years | +101.19% | +29.12% | +72.07% |
| 3 Years | +148.71% | +37.57% | +111.14% |
The technical picture remains firmly bearish, with the stock trading below all key moving averages—5-day (₹104.45), 20-day (₹108.98), 50-day (₹115.88), 100-day (₹120.92), and 200-day (₹121.75). The current bearish trend began on October 1, 2025, at ₹118.90, and has persisted since. With a beta of 1.50, the stock exhibits higher volatility than the market, amplifying downside risk during market corrections.
"A company posting 137% PAT margins on declining revenues, with promoter holding swinging wildly and zero institutional interest, represents a speculative bet rather than an investment opportunity."
Investment Thesis: Multiple Red Flags Outweigh Positives
The investment thesis for Garnet International faces significant headwinds across multiple parameters. The company's proprietary Mojo score stands at a dismal 23 out of 100, firmly in "Strong Sell" territory. The quality assessment classifies the company as "Below Average" based on long-term financial performance, with the 5-year sales growth at negative 10.05% and average ROE of just 2.67%.
Key Strengths & Risk Factors
KEY STRENGTHS
- Debt-Free Balance Sheet: Zero long-term debt with debt-to-equity ratio of just 0.08, providing financial flexibility
- Improved Quarterly Profitability: Q2 FY26 consolidated PAT of ₹2.81 crores represents highest quarterly profit in recent history
- Operating Margin Expansion: Operating margin improved to 86.27% in Q2 FY26 from 68.08% in Q1 FY26
- Positive Short-Term Financial Trend: September 2025 quarter classified as "Positive" trend by financial metrics
- Strong Long-Term Returns: 3-year return of 148.71% and 5-year return of 290.02% show historical price appreciation
KEY CONCERNS
- Revenue Collapse: Sales declined from ₹59 crores in FY23 to ₹8 crores in FY25, an 86.44% drop over two years
- Extremely Weak ROE: Average ROE of 2.67% indicates severe capital inefficiency; latest ROE of 10.26% still below par
- Volatile Promoter Holding: Promoter stake swung from 49.54% to 11.53% to 25.53% over three quarters, signalling uncertainty
- Zero Institutional Interest: Complete absence of FII, mutual fund, and insurance holdings raises confidence concerns
- Expensive Valuation: P/E of 46.50x and PEG ratio of 3.45x unjustified by fundamentals; classified as "Very Expensive"
- Severe Underperformance: Stock down 39.88% YTD vs Sensex up 8.72%; negative alpha of 48.60 percentage points
- Bearish Technical Trend: Trading below all moving averages with strong bearish indicators across timeframes
Outlook: What Lies Ahead
POSITIVE CATALYSTS
- Sustained revenue growth above ₹3 crores per quarter for three consecutive quarters
- Stabilisation of promoter holding above 40% for two consecutive quarters
- Entry of institutional investors (FII/MF) with meaningful stakes above 2%
- ROE improvement above 15% on a sustained basis
- Clear disclosure on nature of income driving extraordinary margins
RED FLAGS TO MONITOR
- Further decline in quarterly revenues below ₹2 crores
- Additional volatility in promoter shareholding patterns
- Inability to sustain current margin levels in coming quarters
- Breakdown below ₹97 (52-week low) on increasing volumes
- Continued absence of institutional investor participation
The company's immediate challenge lies in demonstrating revenue sustainability whilst maintaining profitability. The extraordinary margin profile of Q2 FY26 requires validation through consistent performance over multiple quarters. Without meaningful revenue growth and institutional validation, the current stock price appears vulnerable to further downside.
The Verdict: Exit Opportunity for Existing Holders
Score: 23/100
For Fresh Investors: Avoid this micro-cap NBFC entirely. The combination of collapsing revenues, weak capital efficiency, volatile promoter holding, expensive valuation, and zero institutional interest creates an unfavourable risk-reward proposition. The recent profit surge appears unsustainable given the revenue trajectory and raises concerns about earnings quality.
For Existing Holders: Consider exiting positions on any technical bounce towards ₹108-110 levels. The 39.88% year-to-date decline reflects deteriorating fundamentals that show no signs of reversal. Promoter behaviour, characterised by wild swings in shareholding, suggests internal uncertainty about the company's prospects. The absence of institutional validation further undermines confidence.
Fair Value Estimate: ₹75-80 (26-31% downside from current levels), based on normalised earnings, peer P/E multiples adjusted for quality, and historical ROE trends. Current valuation at 46.50x P/E is unjustified for a company with 2.67% average ROE and declining revenues.
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. Investments in micro-cap stocks carry significant risks including liquidity risk, volatility, and potential for total capital loss.
