The December quarter results stand in stark contrast to the company's performance earlier in FY26, when it had posted impressive sequential gains. After reporting ₹2.81 crores in Q2 FY26, the profit collapse in Q3 represents a near-complete erosion of quarterly earnings. This volatility pattern has become characteristic of Garnet International's financial performance, with the company swinging between profitability and losses across recent quarters.
The sharp revenue contraction to just ₹0.28 crores in Q3 FY26—down from ₹2.04 crores in the previous quarter—signals fundamental operational challenges. For a company with a market capitalisation of ₹123.70 crores, such dramatic quarterly fluctuations raise concerns about business model stability and revenue visibility. The stock has underperformed the Non-Banking Financial Company sector by 76.57% over the past year, with a 50.10% decline against the sector's 26.47% gain.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Cons. Net Profit (₹ Cr) | QoQ Change | Operating Margin |
|---|---|---|---|---|---|
| Dec'25 | 0.28 | -86.27% | 0.11 | -96.09% | 10.71% |
| Sep'25 | 2.04 | -4.23% | 2.81 | +117.83% | 86.27% |
| Jun'25 | 2.13 | +20.34% | 1.29 | +239.47% | 68.08% |
| Mar'25 | 1.77 | -38.11% | 0.38 | -300.00% | 10.73% |
| Dec'24 | 2.86 | +95.89% | -0.19 | -133.93% | 1.75% |
| Sep'24 | 1.46 | -44.70% | 0.56 | -27.27% | -7.53% |
| Jun'24 | 2.64 | — | 0.77 | — | 2.27% |
Financial Performance: Extreme Volatility Undermines Credibility
The Q3 FY26 results expose the fragility of Garnet International's financial performance. Net sales collapsed by 86.27% quarter-on-quarter to ₹0.28 crores, whilst consolidated net profit plummeted 96.09% to ₹0.11 crores. On a year-on-year basis, the deterioration is even more pronounced, with sales declining 90.21% and profits contracting 157.89% compared to December 2024.
Operating profit before depreciation, interest, tax and other income (PBDIT) stood at a mere ₹0.03 crores in Q3 FY26, marking the lowest level across recent quarters. The operating margin of 10.71%, whilst appearing reasonable in isolation, represents a dramatic compression from the 86.27% achieved in Q2 FY26. This extreme margin volatility—swinging from negative territory in some quarters to above 80% in others—suggests inconsistent revenue quality and uncertain cost structures.
The profit after tax margin of 35.71% in Q3 FY26, whilst seemingly healthy, masks the underlying revenue weakness. With absolute profit at just ₹0.11 crores on sales of ₹0.28 crores, the company's scale remains concerningly small for a listed entity. The tax rate of 0.00% across recent quarters raises questions about the nature of income and loss carry-forwards.
Looking at the nine-month performance for FY26 (April-December 2025), the company has generated consolidated net profit of ₹4.21 crores on sales of ₹4.45 crores. However, this aggregate masks the severe quarterly volatility, with Q3's collapse threatening to derail the full-year trajectory. The company's history shows a pattern of annual losses, including a ₹6.00 crore loss in FY25 and a ₹10.00 crore loss in FY20, interspersed with occasional profitable years.
Critical Concern: Revenue Sustainability
The 86.27% quarter-on-quarter revenue decline to just ₹0.28 crores raises fundamental questions about business continuity. For an NBFC, such extreme fluctuations typically indicate either project-based revenue recognition, one-off gains, or operational disruptions. The absence of consistent revenue generation across quarters undermines investor confidence in the business model's viability.
Operational Challenges: Weak Capital Efficiency Despite ROE Improvement
Garnet International's return on equity (ROE) of 10.26% for the latest period represents an improvement from the company's average ROE of 4.73% over recent years. Whilst the latest ROE indicates better capital efficiency than historical norms, it remains modest by industry standards and is achieved on a small equity base of ₹37.72 crores as of March 2025.
The company's balance sheet shows shareholder funds of ₹37.72 crores as of March 2025, comprising share capital of ₹19.64 crores and reserves of ₹9.25 crores. The reserves have declined from ₹12.36 crores in March 2023, reflecting the losses incurred in FY25. With negligible debt (average net debt to equity of 0.02), the company operates with minimal financial leverage, which limits both risk and return potential.
Current assets of ₹14.97 crores as of March 2025 include investments of ₹15.82 crores, suggesting that much of the company's asset base comprises financial investments rather than operating assets. Fixed assets stand at a minuscule ₹0.01 crores, indicating virtually no physical infrastructure. This asset composition is consistent with an investment-focused NBFC model, but raises questions about revenue-generating capabilities.
The cash flow statement for FY25 reveals concerning trends: negative operating cash flow of ₹2.00 crores, negative investing cash flow of ₹4.00 crores, and positive financing cash flow of ₹6.00 crores. This pattern—consuming cash in operations and investments whilst relying on financing activities—is unsustainable over the long term. The company's closing cash position remains at zero across multiple years, indicating tight liquidity management.
Capital Efficiency Analysis
Whilst the latest ROE of 10.26% shows improvement, the five-year average of 4.73% reveals weak long-term capital productivity. For comparison, well-managed NBFCs typically generate ROE in the 15-20% range. The company's ROCE of 8.10% similarly lags industry benchmarks, indicating that even the limited capital employed is not generating adequate returns.
Industry Context: Underperformance in a Growing Sector
The NBFC sector has delivered 26.47% returns over the past year, benefiting from strong credit demand, improving asset quality, and favourable regulatory developments. However, Garnet International has dramatically underperformed this backdrop, declining 50.10% over the same period—a 76.57% underperformance versus its sector.
The company's micro-cap status (₹123.70 crores market capitalisation) places it at the extreme lower end of the listed NBFC universe. Most institutional investors avoid micro-caps due to liquidity constraints, governance concerns, and limited research coverage. This structural disadvantage contributes to the stock's volatility and valuation discount.
With zero institutional holdings—no foreign institutional investors (FIIs), mutual funds, or insurance companies hold positions—the stock lacks the stability that institutional participation typically provides. The shareholding pattern shows promoter holding at 49.75% as of December 2025, with the remaining 50.25% held by non-institutional investors. The marginal decline in promoter holding from 51.08% in September 2025 to 49.75% in December 2025 (a 1.33% reduction) may raise questions about promoter confidence.
| Quarter | Promoter % | QoQ Change | FII % | MF % | Non-Inst % |
|---|---|---|---|---|---|
| Dec'25 | 49.75% | -1.33% | 0.00% | 0.00% | 50.25% |
| Sep'25 | 51.08% | +1.95% | 0.00% | 0.00% | 48.92% |
| Jun'25 | 49.13% | -0.41% | 0.00% | 0.00% | 50.87% |
| Mar'25 | 49.54% | +0.24% | 0.00% | 0.00% | 50.46% |
| Dec'24 | 49.30% | — | 0.00% | 0.00% | 50.70% |
Peer Comparison: Valuation Premium Without Performance Justification
A comparison with NBFC peers reveals that Garnet International trades at a significant valuation premium despite inferior fundamentals. The company's price-to-earnings ratio of 29.06x substantially exceeds the peer average of approximately 12x, whilst its return on equity of 4.73% (five-year average) lags behind most comparable companies.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity |
|---|---|---|---|---|
| Garnet Intl. | 29.06 | 2.98 | 4.73 | 0.02 |
| Std. Capital Mkt | 1.62 | 0.38 | 2.95 | 8.91 |
| RSD Finance | 8.50 | 0.64 | 7.07 | 0.01 |
| KIFS Financial | 14.58 | 2.15 | 14.19 | 3.99 |
| PMC Fincorp | 11.92 | 0.72 | 6.05 | 0.26 |
| Assam Entrade | 25.61 | 1.73 | 3.43 | 0.03 |
The price-to-book value ratio of 2.98x for Garnet International significantly exceeds the peer group average of approximately 1.1x. This valuation premium appears unjustified given the company's weak ROE, inconsistent profitability, and lack of scale. KIFS Financial, for instance, trades at a P/BV of 2.15x but generates ROE of 14.19%—nearly three times Garnet International's five-year average.
The debt-to-equity ratio of 0.02 for Garnet International indicates minimal leverage, which is both a strength (low financial risk) and a weakness (limited ability to scale operations). Most NBFCs operate with higher leverage to generate adequate returns on equity, suggesting that Garnet International's business model may not be optimised for the NBFC sector's typical operating dynamics.
Valuation Analysis: Expensive Despite Recent Correction
At the current market price of ₹63.00, Garnet International carries a "Very Expensive" valuation grade according to proprietary metrics. The stock has corrected 55.08% from its 52-week high of ₹140.25, yet valuation multiples remain elevated relative to fundamentals and peer comparisons.
The P/E ratio of 29.06x exceeds the industry average P/E of 22x, despite Garnet International's inferior growth profile and profitability metrics. The five-year sales growth of -7.76% (a contraction) and average ROE of 4.73% do not justify a premium valuation. The PEG ratio of 2.15 indicates that investors are paying ₹2.15 for every unit of earnings growth—a rich multiple that typically requires strong, consistent growth trajectories.
The EV/EBITDA multiple of 36.37x and EV/Sales ratio of 14.26x further underscore the valuation stretch. These multiples are more characteristic of high-growth technology or consumer companies rather than a small, volatile NBFC with negative sales growth. The company has not paid dividends since August 2018 (₹0.50 per share), eliminating any yield support for the valuation.
The valuation grade history shows the stock has oscillated between "Expensive," "Very Expensive," and "Risky" categories over the past two years. The most recent change to "Very Expensive" occurred in June 2025, and the current price correction has not been sufficient to move the stock into a more attractive valuation category.
Stock Performance: Severe Underperformance Across Timeframes
The stock's price performance has been dismal across most meaningful timeframes. Over the past year, Garnet International has declined 50.10% whilst the Sensex gained 9.70%, resulting in negative alpha of 59.80%. The three-month performance shows a 38.78% decline against the Sensex's 1.49% drop, indicating accelerating weakness.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.43% | -0.91% | +0.48% |
| 1 Month | +40.09% | -0.32% | +40.41% |
| 3 Months | -38.78% | -1.49% | -37.29% |
| 6 Months | -51.14% | +3.36% | -54.50% |
| YTD | +20.46% | -2.25% | +22.71% |
| 1 Year | -50.10% | +9.70% | -59.80% |
| 3 Years | +0.72% | +35.85% | -35.13% |
| 5 Years | +98.11% | +59.88% | +38.23% |
The one-month return of 40.09% appears anomalous and likely reflects technical factors or low-volume trading rather than fundamental improvement. The year-to-date gain of 20.46% similarly masks the longer-term deterioration, as the stock remains 55.08% below its 52-week high.
The stock's beta of 1.50 indicates high volatility relative to the broader market, with 50% greater price swings than the Sensex. The risk-adjusted return of -0.92 over one year, combined with volatility of 54.58%, places the stock firmly in the "high risk, low return" category—an unattractive risk-reward profile for investors.
Technical indicators paint a bearish picture. The stock trades below all key moving averages—5-day (₹63.09), 20-day (₹64.50), 50-day (₹60.25), 100-day (₹82.45), and 200-day (₹102.80). The current trend is classified as "Mildly Bearish," having changed from "Bearish" on January 27, 2026. Weekly MACD shows "Mildly Bullish" signals, but monthly indicators remain bearish, suggesting no clear directional conviction.
Investment Thesis: Weak Fundamentals, Expensive Valuation
The investment case for Garnet International is challenged by multiple structural weaknesses. The company's quality grade of "Below Average" reflects long-term financial underperformance, with five-year sales growth of -7.76% and average ROE of 4.73%. The financial trend, whilst classified as "Positive" based on nine-month FY26 performance, is undermined by the Q3 collapse.
The proprietary Mojo Score of 34 out of 100 results in a "SELL" rating, reflecting the combination of expensive valuation, weak quality metrics, and bearish technical trends. The score history shows the stock has oscillated between "Strong Sell" and "Sell" categories, briefly touching "Hold" in January 2025 before reverting to "Sell."
Key Strengths & Risk Factors
KEY STRENGTHS
- Nine-month FY26 consolidated profit of ₹4.21 crores shows positive trajectory before Q3 collapse
- Latest ROE of 10.26% represents improvement from five-year average of 4.73%
- Minimal debt (0.02 debt-to-equity) eliminates financial leverage risk
- Strong balance sheet with shareholder funds of ₹37.72 crores provides stability
- Recent one-month price gain of 40.09% indicates potential technical bounce
KEY CONCERNS
- Q3 FY26 profit collapse of 96.09% QoQ raises serious sustainability questions
- Extreme revenue volatility with 86.27% QoQ decline to just ₹0.28 crores
- Five-year sales growth of -7.76% indicates structural revenue decline
- Valuation multiples (P/E 29.06x, P/BV 2.98x) unjustified by fundamentals
- Zero institutional holdings reflects lack of professional investor confidence
- Stock down 50.10% over past year with 76.57% sector underperformance
- High volatility (54.58%) with negative risk-adjusted returns
Outlook: What to Watch
POSITIVE CATALYSTS
- Q4 FY26 results showing revenue recovery and profit stabilisation
- Management commentary explaining Q3 revenue collapse and providing forward guidance
- Institutional investor participation signalling confidence in business model
- Consistent quarterly performance demonstrating sustainable revenue streams
- Improvement in ROE towards 15%+ levels characteristic of quality NBFCs
RED FLAGS
- Further quarterly profit decline or revenue contraction in Q4 FY26
- Additional reduction in promoter holding below current 49.75%
- Continued absence of institutional investor interest
- Break below 52-week low of ₹42.00 on high volumes
- Inability to explain Q3 performance or provide credible turnaround plan
The Verdict: Avoid This High-Risk Micro-Cap
Score: 34/100
For Fresh Investors: Avoid initiating positions. The combination of extreme quarterly volatility, negative sales growth, weak capital efficiency (4.73% average ROE), and expensive valuation (29.06x P/E, 2.98x P/BV) creates an unfavourable risk-reward profile. The 96% quarterly profit collapse in Q3 FY26 raises fundamental questions about business sustainability that must be resolved before considering investment.
For Existing Holders: Consider reducing exposure or exiting positions. The Q3 FY26 results undermine confidence in the company's ability to deliver consistent performance. With the stock trading 55% below its 52-week high yet still carrying "Very Expensive" valuation, downside risk remains substantial. The lack of institutional participation, weak long-term fundamentals, and bearish technical setup suggest limited near-term recovery prospects.
Fair Value Estimate: ₹45-50 (29% downside from current levels), based on peer P/BV multiples of 1.5-1.7x applied to book value of ₹12.86 per share, adjusted for below-average quality metrics.
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. Investing in micro-cap stocks involves substantial risk, including the potential loss of principal.
