The quarter's standout feature was robust revenue growth, with net sales surging 19.96% quarter-on-quarter to ₹808.26 crores, marking the highest quarterly revenue in the company's recent history. This sequential acceleration represents a significant improvement from the marginal 1.17% decline witnessed in Q1 FY26, suggesting a strong demand recovery in the laminates and decorative surfaces market. On a year-on-year basis, revenues expanded 18.72%, demonstrating sustained momentum in the business.
However, profitability metrics present a more nuanced picture. Whilst the operating profit (PBDIT excluding other income) reached ₹104.39 crores with an impressive margin of 12.92%—the highest in seven quarters—the bottom line failed to match this operational excellence. The disconnect stems from rising interest costs and exceptional tax charges that eroded the gains from improved operations.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | YoY Growth | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 808.26 | +19.96% | 32.33 | -6.61% | 12.92% |
| Jun'25 | 673.79 | -1.17% | -15.36 | -175.78% | 6.54% |
| Mar'25 | 681.77 | +13.24% | 2.08 | -94.92% | 9.39% |
| Dec'24 | 602.04 | -11.57% | 12.71 | — | 10.55% |
| Sep'24 | 680.81 | +12.58% | 34.62 | — | 11.96% |
| Jun'24 | 604.71 | -3.11% | 20.27 | — | 10.59% |
| Mar'24 | 624.09 | — | 40.97 | — | 13.38% |
Financial Performance: Revenue Surge Fails to Translate to Profit Growth
Greenlam's Q2 FY26 financial performance reveals a company grappling with margin pressures despite strong topline expansion. The ₹808.26 crores in net sales represents a remarkable turnaround from the previous quarter's subdued performance, driven by improved demand across both domestic and export markets. The company's operating profit excluding other income reached ₹104.39 crores, translating to an operating margin of 12.92%, a substantial improvement from Q1 FY26's 6.54% margin.
However, the quality of earnings deteriorated significantly. Interest expenses surged to ₹23.99 crores in Q2 FY26, maintaining elevated levels compared to ₹15.53 crores in the corresponding quarter last year. This 54.50% year-on-year increase in interest costs reflects the company's aggressive capacity expansion programme and higher working capital requirements. For the first half of FY26, interest expenses totalled ₹49.88 crores, representing a 37.94% increase from the previous year's comparable period.
The tax burden proved particularly onerous, with the company booking ₹14.35 crores in tax expenses against a profit before tax of ₹46.12 crores, resulting in an effective tax rate of 31.11%. This represents a normalisation from Q1 FY26's anomalous negative tax rate, but remains elevated compared to historical averages. The PAT margin compressed to 3.93% from 5.06% in Q2 FY25, underscoring the profit conversion challenges despite operational improvements.
Employee costs rose to ₹153.72 crores in Q2 FY26, up 17.05% year-on-year, reflecting both inflationary pressures and headcount additions to support the expanded manufacturing footprint. Depreciation charges climbed to ₹35.50 crores from ₹26.81 crores in the year-ago quarter, a 32.41% increase attributable to the commissioning of new production facilities.
Margin Pressure Alert
Whilst operating margins improved to 12.92%, the PAT margin contracted sharply to 3.93% from 5.06% year-on-year. Rising interest costs (up 54.50% YoY) and elevated depreciation (up 32.41% YoY) are significantly eroding bottom-line profitability. The company's aggressive expansion strategy is creating near-term margin headwinds that require close monitoring.
Operational Challenges: Capital Intensity Strains Returns
Greenlam's operational metrics reveal a business in transition, with significant capital deployment yet to translate into commensurate returns. The company's return on equity (ROE) has deteriorated to 6.18% on a trailing basis, substantially below the five-year average of 12.23%. This decline reflects both the denominator effect of expanded equity capital (following the bonus issue that doubled shares outstanding from 12.76 crores to 25.51 crores) and compressed profitability.
Return on capital employed (ROCE) paints an even more concerning picture at 7.15% currently, compared to the five-year average of 12.80%. This metric, which measures the efficiency of capital deployment, suggests that the company's recent investments in new manufacturing facilities are yet to generate adequate returns. The ROCE formula—calculated as (EBIT minus other income) divided by (capital employed minus cash minus current investments)—highlights the challenge of deploying ₹1,747.53 crores in fixed assets effectively.
The company's balance sheet has expanded significantly, with fixed assets surging to ₹1,747.53 crores as of March 2025 from ₹984.30 crores a year earlier, representing a 77.54% increase. This aggressive capital expenditure programme, primarily focused on capacity expansion at existing locations and potential new facilities, has been funded through a combination of debt and internal accruals. Long-term debt escalated to ₹833.08 crores from ₹735.30 crores, whilst shareholder funds grew modestly to ₹1,126.89 crores.
The company's leverage metrics reflect this increased indebtedness. The average debt-to-EBITDA ratio stands at 2.71 times, indicating moderate debt levels relative to operating profitability. However, the net debt-to-equity ratio of 0.98 suggests that the company is operating with nearly equal amounts of debt and equity, a level that warrants careful monitoring given the current profitability pressures.
Capital Efficiency Concerns
Greenlam's aggressive expansion has resulted in a 77.54% surge in fixed assets to ₹1,747.53 crores, but returns on this capital remain subdued. With ROCE at just 7.15% and ROE at 6.18%—both significantly below their five-year averages—the company faces the critical challenge of ramping up utilisation and profitability at new facilities. The sales-to-capital-employed ratio of 1.34x indicates that the company generates ₹1.34 in revenue for every rupee of capital deployed, a metric that needs improvement to justify the current valuation premium.
Industry Context: Navigating a Challenging Sector Environment
The plywood boards and laminates sector has faced considerable headwinds over the past year, with the broader industry delivering a negative 25.00% return. Greenlam's relative outperformance—declining just 7.95%—positions it as a relative winner in a struggling sector. This 17.05 percentage point outperformance versus the sector benchmark suggests that the company is gaining market share or executing better than competitors, despite its own challenges.
The sector's difficulties stem from multiple factors: elevated raw material costs, particularly resin and decorative paper; subdued demand from the real estate and furniture sectors; and intense competition leading to pricing pressures. Greenlam's ability to expand revenues by 18.72% year-on-year in this environment speaks to either successful new product launches, geographic expansion, or market share gains from smaller, less efficient competitors.
The company's international presence through wholly owned subsidiaries in Singapore (Greenlam Asia Pacific Pte Ltd) and the United States (Greenlam America Inc) provides geographic diversification, though the contribution from these entities remains modest relative to the domestic business. The recent addition of Greenlam South Ltd as a domestic subsidiary suggests continued focus on expanding the manufacturing footprint across India to optimise logistics costs and serve regional markets more effectively.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Greenlam Industries | 195.35 | 5.90 | 12.23 | 0.98 | 0.15 |
| Century Plyboards | 82.04 | 7.03 | 15.65 | 0.65 | 0.13 |
| Greenply Industries | 44.25 | 0.43 | 11.96 | 0.22 | 0.17 |
| Greenpanel Industries | 24.48 | 2.65 | 14.10 | 0.04 | 0.11 |
| Stylam Industries | 28.79 | 5.33 | 21.30 | -0.02 | — |
| Rushil Decor | 35.91 | 1.17 | 9.88 | 0.41 | 0.39 |
Peer Comparison: Premium Valuation Without Commensurate Returns
Greenlam Industries commands a significant valuation premium over its sector peers, trading at a price-to-earnings ratio of 195.35 times trailing earnings—more than double Century Plyboards' 82.04 times and substantially higher than the peer group average of approximately 43 times. This premium appears unjustified given the company's return profile and growth trajectory.
The price-to-book ratio of 5.90 times places Greenlam at a premium to most peers except Century Plyboards (7.03 times), despite delivering an average ROE of 12.23% that lags Century Plyboards' 15.65% and Stylam Industries' impressive 21.30%. This disconnect between valuation multiples and return on equity represents a key concern for value-conscious investors.
Greenlam's debt-to-equity ratio of 0.98 positions it in the middle of the peer group, more leveraged than Greenply Industries (0.22) and Greenpanel Industries (0.04), but less than Century Plyboards (0.65). However, the company's ability to service this debt depends critically on improving profitability and returns, which have been under pressure.
The dividend yield of 0.15% ranks amongst the lowest in the peer group, with only Greenpanel Industries offering a marginally lower yield at 0.11%. This reflects both the company's capital-intensive growth phase and the modest dividend payout ratio of 15.21%, suggesting management is prioritising reinvestment over shareholder distributions.
"Greenlam's 195x P/E multiple demands exceptional growth and returns—neither of which are currently materialising, raising serious questions about valuation sustainability."
Valuation Analysis: Elevated Multiples Difficult to Justify
Greenlam Industries' current valuation metrics present a challenging picture for prospective investors. The trailing P/E ratio of 195.35 times stands at a staggering premium to the industry average of 36 times, implying that the market is pricing in extraordinary growth or a significant near-term recovery in profitability. However, the company's recent performance and five-year EBIT growth of just 5.53% annually fail to support such optimistic expectations.
The EV-to-EBITDA multiple of 30.63 times and EV-to-EBIT of 59.39 times similarly reflect rich valuations. These multiples suggest the market is valuing the company's expanded capacity and potential for margin recovery, but the current trajectory provides limited evidence of imminent improvement. The EV-to-sales ratio of 2.94 times appears more reasonable, though still elevated for a manufacturing business operating in a competitive, commoditised sector.
The company's price-to-book ratio of 5.90 times implies that investors are paying nearly six times the accounting value of net assets. For this premium to be justified, Greenlam would need to demonstrate sustainable ROEs significantly above its cost of equity. With current ROE at just 6.18%, the company is actually destroying value at current return levels, making the valuation premium particularly difficult to rationalise.
The stock's recent valuation grade history shows volatility, oscillating between "Fair" and "Attractive" over the past two months before settling at "Fair" as of September 29, 2025. This instability in valuation assessment reflects the market's uncertainty about the company's near-term prospects and the sustainability of its margin recovery.
Shareholding Pattern: Stable Promoter Base, Declining Institutional Interest
Greenlam's shareholding structure has remained remarkably stable over recent quarters, with promoter holding steady at 50.98% across the past five quarters. This consistent stake, held primarily through SM Greenlam Investments Private Limited (37.78%) and Saurabh Mittal (9.13%), provides governance stability and demonstrates promoter confidence in the long-term prospects. The complete absence of promoter pledging is a positive indicator, suggesting the promoters are not under financial stress.
However, institutional investor behaviour reveals a more cautious stance. Mutual fund holdings have declined sequentially from 13.03% in March 2025 to 11.89% in September 2025, a reduction of 114 basis points over two quarters. This steady divestment by domestic institutional investors—who typically conduct thorough fundamental analysis—raises questions about their conviction in the company's near-term prospects.
Foreign institutional investor (FII) holdings have remained minimal and stable at 1.74%, suggesting limited interest from international investors. The modest institutional ownership of 16.33% in aggregate indicates that the stock lacks strong institutional backing, which can contribute to higher volatility and limited liquidity during market stress.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter Holding | 50.98% | 50.98% | 50.98% | 0.00% |
| FII Holding | 1.74% | 1.74% | 1.76% | 0.00% |
| Mutual Fund Holding | 11.89% | 12.45% | 13.03% | -0.56% |
| Other DII Holdings | 2.71% | 2.70% | 2.70% | +0.01% |
| Non-Institutional | 32.68% | 32.12% | 31.52% | +0.56% |
The increase in non-institutional holdings from 31.52% to 32.68% over the past two quarters suggests that retail investors are accumulating shares as mutual funds reduce exposure. This shift in ownership composition towards less sophisticated investors could contribute to increased price volatility and potentially irrational pricing in the near term.
Stock Performance: Underperformance Across Most Timeframes
Greenlam Industries' stock performance has been decidedly lacklustre over the past year, declining 7.95% compared to the Sensex's 4.62% gain, resulting in negative alpha of 12.57 percentage points. This underperformance reflects the market's growing concerns about the company's profitability trajectory and return on invested capital.
The year-to-date performance is particularly concerning, with the stock down 9.75% whilst the Sensex has advanced 6.50%, creating a 16.25 percentage point performance gap. This suggests that the weakness is not merely a function of broader market conditions but rather company-specific concerns about earnings quality and growth sustainability.
On a more positive note, the stock has demonstrated relative strength over shorter timeframes. The three-month return of 14.85% compares favourably to the Sensex's 3.22% gain, generating positive alpha of 11.63 percentage points. Similarly, the six-month return of 17.59% versus the Sensex's 3.06% indicates improving sentiment, possibly driven by expectations of margin recovery as new capacity ramps up.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -1.72% | -0.86% | -0.86% |
| 1 Month | +5.16% | +1.57% | +3.59% |
| 3 Months | +14.85% | +3.22% | +11.63% |
| 6 Months | +17.59% | +3.06% | +14.53% |
| Year-to-Date | -9.75% | +6.50% | -16.25% |
| 1 Year | -7.95% | +4.62% | -12.57% |
| 2 Years | -7.59% | +28.14% | -35.73% |
| 3 Years | +61.88% | +36.01% | +25.87% |
| 5 Years | +243.61% | +98.64% | +144.97% |
The longer-term performance remains impressive, with five-year returns of 243.61% substantially outpacing the Sensex's 98.64% gain. This historical outperformance reflects the company's successful expansion during the previous cycle and its ability to capitalise on the housing boom. However, the recent two-year underperformance of 35.73 percentage points versus the Sensex suggests that the investment case has deteriorated significantly.
The stock's high beta of 1.35 indicates elevated volatility, with price movements typically 35% more pronounced than the broader market. Combined with the current volatility of 44.13%—more than three times the Sensex's 12.35%—this makes Greenlam a high-risk proposition unsuitable for conservative investors.
Investment Thesis: Quality Concerns Overshadow Growth Potential
Greenlam Industries presents a complex investment proposition characterised by strong revenue growth but deteriorating profitability and returns. The company's Mojo Score of 47 out of 100, resulting in a "SELL" rating, reflects significant concerns across multiple parameters that outweigh the positive aspects of the business.
The quality assessment of "AVERAGE" highlights the company's moderate financial health. Whilst the five-year sales growth of 17.23% demonstrates robust topline expansion, the EBIT growth of just 5.53% annually reveals margin compression and profitability challenges. The average ROCE of 12.80% and ROE of 12.23%, whilst not disastrous, fall short of levels that would justify the current valuation premium.
The financial trend is classified as "NEGATIVE" for Q2 FY26, driven by the year-on-year decline in net profit despite record revenues. The 37.94% surge in interest expenses over the past six months and the persistent pressure on PAT margins underscore the challenges the company faces in translating operational improvements into bottom-line growth.
From a technical perspective, the stock exhibits a "MILDLY BULLISH" trend as of November 3, 2025, having recently shifted from a bullish stance. The stock trades above its 20-day, 50-day, 100-day, and 200-day moving averages, suggesting positive momentum. However, weekly MACD remains bullish whilst monthly indicators show mildly bearish signals, creating a mixed technical picture that offers limited conviction for entry.
Key Strengths & Risk Factors
Key Strengths
- Market Leadership: Established brand with strong distribution network across India and growing international presence through subsidiaries in Singapore and the United States.
- Revenue Momentum: Q2 FY26 revenues of ₹808.26 crores represent the highest quarterly sales in company history, with 18.72% year-on-year growth demonstrating market share gains.
- Operating Margin Recovery: Operating margin improved to 12.92% in Q2 FY26, the best performance in seven quarters, indicating better cost management and pricing power.
- Stable Promoter Base: Consistent 50.98% promoter holding with zero pledging demonstrates long-term commitment and financial stability of the founding family.
- Capacity Expansion: Significant fixed asset additions (₹1,747.53 crores) position the company to capitalise on future demand recovery and market consolidation.
- Sector Outperformance: Despite challenges, Greenlam has outperformed the plywood and laminates sector by 17.05 percentage points over the past year.
- Long-term Track Record: Five-year returns of 243.61% versus Sensex's 98.64% demonstrate historical value creation capability during favourable cycles.
Key Concerns
- Deteriorating Profitability: Net profit declined 6.61% year-on-year in Q2 FY26 despite 18.72% revenue growth, indicating severe margin pressure and profit conversion challenges.
- Weak Returns on Capital: Current ROE of 6.18% and ROCE of 7.15% are substantially below five-year averages and cost of capital, indicating value destruction at current return levels.
- Rising Interest Burden: Interest expenses surged 54.50% year-on-year, with H1 FY26 interest costs up 37.94%, significantly eroding profitability and cash flows.
- Excessive Valuation: P/E ratio of 195.35 times represents a 5.4x premium to industry average of 36 times, unjustified given deteriorating returns and modest growth.
- Institutional Exodus: Mutual fund holdings declined from 13.03% to 11.89% over two quarters, signalling waning confidence from sophisticated investors.
- Negative Financial Trend: Company's financial trend classified as "NEGATIVE" with Mojo Score of just 47/100, reflecting concerns about earnings quality and sustainability.
- High Volatility Risk: Beta of 1.35 and volatility of 44.13% make this a high-risk stock with pronounced price swings, unsuitable for conservative portfolios.
Outlook: Monitoring Points for Potential Turnaround
Positive Catalysts
- Capacity Utilisation: Improvement in utilisation rates at new facilities could drive operating leverage and margin expansion.
- Interest Rate Cycle: Potential easing in interest rates would reduce the debt servicing burden and improve profitability.
- Real Estate Recovery: Sustained upturn in housing and commercial construction would boost demand for laminates and decorative surfaces.
- Export Growth: Successful penetration of international markets through overseas subsidiaries could diversify revenue streams and improve margins.
- Product Innovation: Launch of premium, high-margin products could improve mix and pricing power.
Red Flags
- Further Margin Compression: If operating margins decline below 10% in coming quarters, it would signal serious competitive or cost pressures.
- Continued Profit Decline: Sequential or year-on-year profit declines in Q3 FY26 would confirm deteriorating fundamentals.
- Increasing Debt Levels: Further debt additions without commensurate EBITDA growth would strain financial flexibility.
- Promoter Stake Reduction: Any decline in the 50.98% promoter holding would signal loss of confidence in long-term prospects.
- ROE Below 5%: Sustained ROE below 5% would indicate severe capital efficiency problems requiring strategic reassessment.
The Verdict: Avoid Until Returns Improve
Score: 47/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of deteriorating returns on capital (ROE 6.18%, ROCE 7.15%), elevated valuation multiples (P/E 195x, P/BV 5.9x), and negative financial trend creates an unfavourable risk-reward profile. Wait for sustained improvement in profitability metrics and return ratios before considering entry.
For Existing Holders: Consider reducing exposure on any near-term strength. Whilst the company's long-term track record and market position provide some comfort, the current trajectory of declining profits despite revenue growth, rising interest burden, and institutional selling suggest limited upside potential. Use any rallies towards ₹280-290 levels to book partial profits and reallocate to higher-quality opportunities.
Fair Value Estimate: ₹195-210 (25-30% downside from current levels) based on normalised earnings and peer-relative valuation multiples. Current valuation assumes a return to historical profitability levels that appears increasingly unlikely in the near term given structural margin pressures.
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, and all investments carry risk of loss.
