Gilada Finance Q2 FY26: Modest Growth Amid Operational Stability

The company's stock price has responded positively to recent operational trends, trading at ₹14.47 as of November 19, 2025, representing a 3.36% single-day gain. Over the past month, shares have surged 16.51%, significantly outperforming the Sensex's 1.47% return during the same period, delivering an alpha of 15.04 percentage points. Trading above all key moving averages—from the 5-day (₹13.79) to the 200-day (₹12.09)—the stock exhibits bullish technical momentum, though it remains 24.44% below its three-year peak levels.

Founded in 1994 and currently managed by Mr. Rajgopal Gilada as Managing Director, Gilada Finance operates as part of the GITA Group, focusing primarily on lending activities across vehicle financing and mortgage segments. With a promoter holding of 58.77% and negligible institutional participation, the company represents a promoter-driven micro-cap play in India's fragmented NBFC landscape.

Financial Performance: Steady Top-Line, Margin Compression Concerns

In Q2 FY26, Gilada Finance reported net sales of ₹1.73 crores, up 3.59% quarter-on-quarter from ₹1.67 crores in Q1 FY26, and 8.12% higher year-on-year compared to ₹1.60 crores in Q2 FY25. This sequential improvement follows a 6.70% decline in the preceding quarter, suggesting stabilisation in the company's lending activities after a temporary setback. On a half-yearly basis (H1 FY26), total revenue reached ₹3.40 crores, representing flat growth compared to ₹3.27 crores in H1 FY25.

Net profit for Q2 FY26 stood at ₹0.57 crores, reflecting a 5.56% sequential increase from ₹0.54 crores in Q1 FY26 and a 3.64% year-on-year gain from ₹0.55 crores in Q2 FY25. The profit after tax (PAT) margin expanded 61 basis points quarter-on-quarter to 32.95%, recovering from 32.34% in the previous quarter, though it remains below the 34.38% margin recorded in the year-ago period. This margin compression, despite revenue growth, stems primarily from elevated interest expenses and higher employee costs.

Operating profit before depreciation, interest, and tax (PBDIT), excluding other income, reached ₹0.98 crores in Q2 FY26, declining 4.85% sequentially from ₹1.03 crores in Q1 FY26. The corresponding operating margin contracted sharply to 56.65% from 61.68% in the preceding quarter, indicating pressure on core operational efficiency. Year-on-year, however, the operating margin showed resilience, improving from 59.38% in Q2 FY25.

Interest expenses rose to ₹0.35 crores in Q2 FY26, up 6.06% sequentially from ₹0.33 crores in Q1 FY26, though flat year-on-year. This uptick in borrowing costs reflects the elevated interest rate environment impacting NBFCs' cost of funds. Employee costs increased 6.45% quarter-on-quarter to ₹0.33 crores from ₹0.31 crores, suggesting modest expansion in the workforce or salary adjustments.

Other income, a crucial contributor to NBFC profitability, surged to ₹0.14 crores in Q2 FY26 from just ₹0.04 crores in Q1 FY26, matching the ₹0.14 crores recorded in Q2 FY25. This 250% sequential jump in non-operating income provided critical support to bottom-line performance, offsetting some margin pressure from core operations. However, reliance on other income for profitability enhancement warrants scrutiny, as sustainable earnings should ideally derive from lending activities.

Operational Challenges: Weak ROE and Capital Efficiency Concerns

Gilada Finance's return on equity (ROE) stood at 8.52% in the latest quarter, marginally above the five-year average of 7.99%, but significantly below acceptable benchmarks for financial services companies. An ROE below 10% signals suboptimal capital efficiency, indicating the company generates relatively modest returns on shareholder equity. For context, well-managed NBFCs typically deliver ROE in the 12-18% range, highlighting Gilada Finance's underperformance in converting equity capital into profits.

The company's balance sheet as of March 2025 reveals shareholder funds of ₹24.00 crores, comprising equity capital of ₹7.02 crores and reserves of ₹16.97 crores. Current liabilities stood at ₹10.94 crores, down from ₹13.36 crores in the previous year, suggesting improved working capital management. Notably, Gilada Finance operates with zero long-term debt, maintaining a conservative capital structure with an average net debt-to-equity ratio of 0.38 over the past five years.

Fixed assets remained minimal at ₹0.13 crores as of March 2025, reflecting the asset-light nature of the lending business. Current assets totalled ₹0.75 crores, down significantly from ₹1.32 crores a year earlier, indicating either improved collection efficiency or reduced loan book size. The company reported no investments on its balance sheet, suggesting all available capital is deployed in lending operations or held as liquid assets.

Cash flow dynamics for FY25 reveal operational cash generation of ₹2.00 crores, a significant improvement from negative ₹6.00 crores in FY24, when adverse working capital changes drained liquidity. Cash flow from financing activities was negative ₹3.00 crores in FY25, reflecting debt repayments or dividend distributions. The company ended FY25 with zero closing cash, compared to ₹3.00 crores in the previous year, suggesting tight liquidity management.

NBFC Landscape: Navigating Competitive Pressures

India's non-banking financial company sector has witnessed significant consolidation and regulatory tightening in recent years, with the Reserve Bank of India implementing stricter capital adequacy norms, governance standards, and asset quality requirements. Micro-cap NBFCs like Gilada Finance face intense competition from both larger, well-capitalised NBFCs with superior credit ratings and aggressive fintech lenders leveraging technology for customer acquisition and risk assessment.

The company's five-year sales growth of 15.69% and EBIT growth of 29.94% indicate reasonable historical expansion, though starting from a low base. However, institutional investors have shown no interest in Gilada Finance, with zero holdings from foreign institutional investors (FIIs), mutual funds, or insurance companies. This absence of institutional participation reflects concerns about the company's scale, liquidity, governance, or growth prospects, limiting access to cheaper capital sources available to larger peers.

The current quality assessment classifies Gilada Finance as "Below Average," a designation it has held since August 2025, based on long-term financial performance. While the company demonstrates healthy long-term growth, weak average ROE of 7.99% and negligible institutional interest constrain the quality rating. Prior to April 2023, the company did not qualify for quality assessment, suggesting recent improvements in disclosure standards or operational metrics.

Gilada Finance trades at a price-to-earnings ratio of 9.14x, significantly below the peer average of approximately 64x and the industry P/E of 23x. This valuation discount reflects the company's modest scale, weak profitability metrics, and lack of institutional interest. However, the P/E multiple of 9.14x appears reasonable given the 7.99% ROE, suggesting the market appropriately prices in the company's capital efficiency challenges.

The price-to-book value ratio of 0.78x indicates the stock trades at a 22% discount to book value, compared to peer averages around 0.60x. While this below-book valuation might appear attractive, it reflects justified concerns about the company's ability to generate returns above its cost of equity. With ROE at 8.52%, the company barely covers its cost of capital, warranting the valuation discount.

Valuation Analysis: Attractive Entry Point or Value Trap?

At the current market price of ₹14.47, Gilada Finance carries an enterprise value-to-EBITDA multiple of 7.15x and an EV-to-EBIT multiple of 7.27x, both appearing reasonable for a micro-cap NBFC. The EV-to-sales ratio of 4.21x and EV-to-capital employed ratio of 0.84x further suggest modest valuation levels. The PEG ratio of 0.44x indicates the stock trades at less than half its growth rate, typically considered attractive for growth investors.

However, valuation attractiveness must be weighed against fundamental quality and growth sustainability. The company's valuation grade has fluctuated significantly in recent months, moving from "Very Attractive" in March 2025 to "Very Expensive" in July 2025, before settling at "Attractive" in the current assessment. This volatility reflects the challenges in valuing micro-cap stocks with limited liquidity and inconsistent quarterly performance.

The stock trades 2.56% below its 52-week high of ₹14.85 and 55.59% above its 52-week low of ₹9.30, suggesting it has recovered substantially from recent lows but remains near peak levels. The sharp rally from the September 2025 low of ₹9.30 to the current ₹14.47 represents a 55% gain in just two months, raising questions about sustainability and potential near-term consolidation.

Gilada Finance has not paid dividends since March 2018, when it distributed ₹0.20 per share. The absence of dividend payouts over the past seven years suggests management prioritises capital retention for growth, though the weak ROE raises questions about effective capital deployment. For income-seeking investors, the lack of dividend yield represents a significant drawback.

Shareholding: Promoter-Dominated with Zero Institutional Interest

The shareholding pattern has remained remarkably stable over the past five quarters, with promoter holding constant at 58.77% and non-institutional shareholders holding the remaining 41.23%. Shankarlal Gilada & Sons Private Limited holds the largest stake at 28.85%, followed by individual promoter holdings distributed among family members including Rajashree Gilda (7.49%), Shankarlal Gilada (4.84%), and Managing Director Rajgopal Gilada (4.35%).

The complete absence of foreign institutional investors, mutual funds, insurance companies, and other domestic institutional investors signals limited institutional confidence in the company's growth prospects, governance standards, or financial performance. For micro-cap stocks, institutional participation often serves as a quality stamp and provides liquidity support, both of which are absent in Gilada Finance's case.

Positively, promoters have not pledged any shares, indicating financial stability and confidence in the business. The stable 58.77% promoter holding over multiple quarters suggests no equity dilution or exit intentions, providing some comfort regarding long-term commitment to the business.

Stock Performance: Recent Momentum Masks Long-Term Underperformance

Gilada Finance shares have delivered strong short-term returns, gaining 6.79% over the past week, 16.51% over one month, and 21.70% over three months, significantly outperforming the Sensex across all these timeframes. The one-month alpha of 15.04 percentage points and three-month alpha of 17.36 percentage points highlight the stock's recent outperformance, likely driven by improved quarterly results and positive technical momentum.

However, medium-term performance reveals concerning trends. Over two years, the stock gained just 8.23% compared to the Sensex's 29.47% return, resulting in negative alpha of 21.24 percentage points. The three-year performance is particularly troubling, with the stock declining 24.44% while the Sensex surged 38.15%, generating negative alpha of 62.59 percentage points. This underperformance reflects the challenges faced by micro-cap NBFCs during the post-pandemic period of regulatory tightening and funding cost increases.

Long-term returns paint a more positive picture, with five-year gains of 163.09% (alpha: +67.71%) and ten-year returns of 433.46% (alpha: +203.82%), demonstrating the stock's ability to deliver substantial wealth creation over extended periods despite near-term volatility. These long-term returns likely reflect the company's evolution from a smaller base and the general tailwinds enjoyed by NBFCs during India's credit expansion phase.

The stock's beta of 1.50 indicates 50% higher volatility than the broader market, classifying it as a high-beta, high-risk investment. With annualised volatility of 46.29% over the past year compared to the Sensex's 12.25%, Gilada Finance exhibits significant price swings that may not suit risk-averse investors. The risk-adjusted return of 0.25 over one year, substantially below the Sensex's 0.80, suggests the stock's returns do not adequately compensate for the elevated risk undertaken.

Technical Analysis: Bullish Momentum with Overbought Concerns

From a technical perspective, Gilada Finance entered a "Bullish" trend on November 3, 2025 at ₹12.87, upgrading from "Mildly Bullish" status. The stock trades above all key moving averages, with the current price of ₹14.47 positioned 4.93% above the 5-day moving average, 10.79% above the 20-day moving average, and 19.63% above the 200-day moving average. This alignment of moving averages in ascending order typically signals strong upward momentum.

Multiple technical indicators flash bullish signals, including MACD (weekly and monthly), Bollinger Bands (weekly and monthly), and KST (weekly and monthly). The Dow Theory indicator shows "Mildly Bullish" on both weekly and monthly timeframes, while RSI provides no clear signal, suggesting the stock may be approaching overbought territory after the recent sharp rally.

Delivery volumes have surged, with trailing one-month average delivery volume of 12.40 thousand shares representing 92.79% of total volume, up 95.8% from the previous month's average of 6.34 thousand shares (78.06% delivery). This 95.8% increase in delivery-based trading suggests genuine investor interest rather than speculative activity, providing some confidence in the sustainability of recent price gains.

Investment Thesis: Attractive Valuation Meets Execution Concerns

The investment case for Gilada Finance rests on three pillars: attractive valuation metrics, stable promoter ownership, and recent operational improvements. Trading at 9.14x trailing earnings and 0.78x book value with a PEG ratio of 0.44x, the stock appears undervalued relative to historical growth rates and peer multiples. The valuation discount partly reflects the company's micro-cap status and limited liquidity, potentially offering value for patient investors willing to accept higher risk.

However, significant concerns temper enthusiasm. The company's below-average quality grade, driven by weak ROE of 7.99%, flat financial trend in recent quarters, and complete absence of institutional investors, raises questions about long-term value creation potential. With quarterly net profit of just ₹0.57 crores and negligible scale advantages, Gilada Finance faces structural challenges in competing with larger, better-capitalised NBFCs.

The proprietary Mojo Score of 51 out of 100 places the stock in "HOLD" territory, reflecting the mixed signals across valuation, quality, financial trends, and technical indicators. The score improved from 34 (Sell rating) in October 2025 to the current 51, primarily driven by improved technical momentum and stable quarterly results, though fundamental concerns persist.

Key Strengths & Risk Factors

Outlook: What to Watch

Investors should monitor quarterly results for signs of sustained revenue growth, margin improvement, and ROE enhancement. The company's ability to attract institutional investors, expand its loan book profitably, and navigate the competitive NBFC landscape will determine whether the current valuation discount represents a genuine opportunity or a justified reflection of structural limitations.