Hariom Pipe Industries Q2 FY26: Sharp Profit Decline Amid Volume Pressures

With a market capitalisation of ₹1,139.60 crores, Hariom Pipe's shares have declined 34.29% over the past year, significantly underperforming both the broader Sensex (up 8.46%) and the iron and steel products sector (up 17.52%). Trading at ₹368.00 as of November 14, the stock has retreated 38.15% from its 52-week high of ₹594.95, reflecting investor concerns about near-term earnings visibility.

The company's Q2 FY26 results reveal a confluence of pressures: volume contraction, margin compression, and rising financial costs. Whilst the half-yearly performance for H1 FY26 showed revenue growth of 21.20% to ₹796.83 crores compared to H1 FY25, the sequential deterioration in Q2 raises questions about demand sustainability and pricing power in an increasingly competitive steel pipe market.

Financial Performance: Volume Contraction Drives Sharp Profit Decline

Hariom Pipe's Q2 FY26 performance reflects a significant sequential deterioration across key metrics. Net sales of ₹335.87 crores represented a 27.14% decline from Q1 FY26's ₹460.96 crores, suggesting substantial volume pressures rather than pricing weakness. The year-on-year comparison shows modest growth of 6.87% over Q2 FY25's ₹314.28 crores, but this masks the concerning sequential trend that has emerged.

Operating profit (PBDIT excluding other income) stood at ₹42.72 crores in Q2 FY26, down 25.81% quarter-on-quarter, with operating margin declining to 12.72% from 12.49% in Q1. This marginal improvement in operating margin percentage, despite lower absolute profits, suggests that the company managed to partially offset volume declines through better cost management. However, profit before tax collapsed 55.62% sequentially to ₹14.29 crores, reflecting the impact of elevated interest costs of ₹13.27 crores (up 6.76% QoQ) and higher depreciation of ₹16.06 crores (up 12.07% QoQ).

The company's net profit margin compressed sharply to 3.10% in Q2 FY26 from 5.12% in Q1 FY26, marking the lowest profitability level in the trailing seven quarters. This margin erosion reflects the operational deleverage from lower volumes, as fixed costs including interest and depreciation consumed a larger proportion of revenues. The effective tax rate remained stable at 27.15%, consistent with historical averages.

On a half-yearly basis, H1 FY26 revenue of ₹796.83 crores grew 21.20% year-on-year, driven primarily by Q1's strong performance. However, the company's earnings quality deteriorated in Q2, with the operating profit to interest coverage ratio falling to 3.22 times—the lowest in recent quarters—raising concerns about financial flexibility amid elevated debt levels.

Operational Challenges: Weak Capital Efficiency and Rising Financial Burden

Hariom Pipe's operational metrics reveal underlying structural challenges that extend beyond cyclical demand weakness. The company's average return on equity of 11.78% and latest ROE of 10.91% remain below industry benchmarks, indicating suboptimal capital deployment. Whilst these returns are not alarmingly weak, they reflect moderate profitability that limits the company's ability to generate superior shareholder value, particularly when compared to the capital intensity of the steel pipe manufacturing business.

The company's return on capital employed (ROCE) averaged 14.77% over recent periods, with the latest reading at 13.55%. This modest level of capital efficiency, combined with an average EBIT to interest coverage of 4.42 times, suggests limited financial cushion. In Q2 FY26, this coverage deteriorated further to approximately 3.22 times, reflecting the dual pressures of lower operating profits and rising interest costs.

Balance sheet analysis reveals a debt-to-EBITDA ratio averaging 2.62 times and net debt to equity of 0.61, indicating moderate leverage. Long-term debt stood at ₹93.30 crores as of March 2025, down from ₹119.71 crores a year earlier, demonstrating debt reduction efforts. However, current liabilities surged to ₹518.85 crores from ₹286.57 crores, driven by a sharp increase in trade payables to ₹186.39 crores from ₹18.91 crores. This working capital pressure, reflected in negative operating cash flows of ₹100 crores in FY24, constrains financial flexibility.

The company's fixed assets increased to ₹422.81 crores in FY25 from ₹365.10 crores in FY24, suggesting ongoing capacity expansion. However, the sales to capital employed ratio of 1.38 times indicates that asset utilisation remains moderate. With current assets of ₹752.67 crores supporting operations, the company maintains adequate liquidity, though working capital management requires attention given the surge in payables.

Industry Context: Steel Pipe Sector Faces Demand Headwinds

The iron and steel products sector has delivered 17.52% returns over the past year, significantly outperforming Hariom Pipe's 34.29% decline. This underperformance suggests company-specific challenges rather than broad sectoral weakness. The steel pipe industry is experiencing mixed demand dynamics, with infrastructure and construction activity providing support, whilst industrial demand remains subdued amid economic uncertainties.

Hariom Pipe's 44.20% five-year sales CAGR demonstrates strong historical growth, positioning the company as a beneficiary of India's infrastructure development. However, the recent quarterly volatility—with Q2 FY26 revenue falling 8.9% below the previous four-quarter average—indicates challenges in sustaining this growth trajectory. The company's operating margin of 12.72% remains healthy compared to historical levels, but margin expansion has stalled amid competitive pressures and input cost volatility.

The steel pipe industry faces structural challenges including fragmented competition, limited pricing power, and vulnerability to raw material cost fluctuations. Hariom Pipe's relatively small scale (market cap of ₹1,139.60 crores) limits its ability to negotiate favourable terms with suppliers or customers, making it more susceptible to margin pressures than larger peers. The company's focus on value-added products and geographic diversification provides some competitive advantages, but execution remains critical.

Hariom Pipe's peer comparison reveals mixed competitive positioning. The company's ROE of 11.78% exceeds most peers except Rama Steel Tubes (12.37%), indicating relatively better capital efficiency. However, its P/E ratio of 18.43x, whilst reasonable in absolute terms, offers limited valuation discount given the earnings volatility. The price-to-book ratio of 2.01x appears attractive compared to peers trading at significantly higher multiples, though this partly reflects concerns about earnings sustainability.

Valuation Analysis: Attractive Entry Point or Value Trap?

At the current price of ₹368.00, Hariom Pipe trades at a P/E ratio of 18.43x based on trailing twelve-month earnings, representing a 36% discount to the industry average P/E of 29x. The price-to-book ratio of 2.01x appears reasonable given the company's modest ROE, though it offers limited margin of safety. The EV/EBITDA multiple of 7.96x and EV/Sales of 1.00x suggest moderate valuation levels, but the PEG ratio of 4.17 indicates the stock is expensive relative to its growth prospects.

The stock's valuation grade has oscillated between "Very Attractive" and "Attractive" over recent months, currently rated as "Very Attractive" since October 27, 2025. This assessment reflects the 38.15% decline from 52-week highs, which has brought valuations to compelling levels from a historical perspective. However, the deteriorating financial trend and negative technical momentum suggest this valuation discount may be justified by near-term earnings risks.

The company's dividend policy remains underdeveloped, with a minimal payout ratio of 3.05% and latest dividend of ₹0.60 per share. This conservative approach to shareholder returns reflects management's focus on reinvestment for growth, though it limits the stock's appeal to income-focused investors. The absence of promoter pledging (0.0% pledged shares) provides comfort regarding corporate governance, whilst institutional holdings of 9.68% remain modest.

Shareholding Pattern: Stable Promoter Base, Limited Institutional Interest

Hariom Pipe's shareholding pattern demonstrates stability in promoter holding at 57.26% over the past three quarters, with no sequential change since March 2025. This stable promoter stake, combined with zero pledging, signals confidence in the business's long-term prospects despite near-term challenges. The promoter group, led by Rupesh Kumar Gupta (14.45%), Sailesh Gupta (10.39%), and Rakesh Kumar Gupta (6.43%), maintains significant skin in the game.

Foreign institutional investor (FII) holdings declined marginally to 9.53% in September 2025 from 9.59% in June, reflecting modest selling pressure. More concerning is the reduction in mutual fund holdings from 0.19% to 0.08%, suggesting domestic institutional investors are reducing exposure amid earnings concerns. The presence of 11 FIIs and only one mutual fund highlights limited institutional interest in this micro-cap stock.

Non-institutional holdings increased slightly to 33.05%, indicating retail investor interest remains intact despite the stock's poor recent performance. However, the low overall institutional participation (9.68% combined) limits liquidity and increases volatility, as evidenced by the stock's high beta of 1.50 and volatility of 49.04%.

Stock Performance: Severe Underperformance Across All Timeframes

Hariom Pipe's stock performance has deteriorated sharply across all timeframes, with the shares declining 34.29% over the past year compared to the Sensex's 8.46% gain—a negative alpha of 42.75 percentage points. The underperformance has accelerated in recent months, with the stock falling 19.01% over one month (versus Sensex up 2.58%) and 23.92% over three months (versus Sensex up 4.40%).

The stock's technical position has weakened considerably, with the current trend classified as "Mildly Bearish" since November 3, 2025. The shares trade below all key moving averages—5-day (₹412.45), 20-day (₹447.06), 50-day (₹476.85), 100-day (₹465.62), and 200-day (₹427.90)—indicating persistent selling pressure. MACD signals remain bearish on both weekly and monthly timeframes, whilst Bollinger Bands suggest the stock is in oversold territory.

The risk-adjusted return analysis reveals concerning metrics: with a negative risk-adjusted return of -0.70 over one year and volatility of 49.04%, the stock falls into the "HIGH RISK LOW RETURN" category. This contrasts sharply with the Sensex's positive risk-adjusted return of 0.69 and volatility of just 12.26%. The stock's beta of 1.50 indicates it is 50% more volatile than the broader market, amplifying both upside and downside moves.

Investment Thesis: Quality Concerns Outweigh Valuation Appeal

Hariom Pipe's investment thesis rests on a foundation of strong historical growth (44.20% five-year sales CAGR) and currently attractive valuation multiples. However, this positive backdrop is overshadowed by deteriorating near-term fundamentals, weak capital efficiency, and negative momentum across financial and technical parameters.

The company's quality grade of "Average" reflects moderate return ratios (ROE of 11.78%, ROCE of 14.77%) and weak interest coverage (4.42x average, 3.22x in Q2 FY26). Whilst the balance sheet shows manageable leverage (debt-to-equity of 0.61), the surge in working capital requirements and negative operating cash flows in FY24 raise concerns about financial flexibility.

The negative financial trend, driven by Q2 FY26's sharp profit decline and deteriorating interest coverage, suggests earnings visibility remains poor in the near term. Combined with mildly bearish technical indicators and the stock's high volatility (49.04%), the risk-reward profile appears unfavourable despite attractive valuation multiples.

Key Strengths & Risk Factors

Outlook: What to Watch

The near-term outlook for Hariom Pipe hinges on Q3 FY26 performance, which will determine whether Q2's sharp decline was an aberration or the start of a sustained downturn. Key monitoring points include sequential revenue trends, interest coverage ratios, working capital management, and institutional shareholding patterns. The company's ability to navigate current headwinds whilst maintaining operating margins will be critical to restoring investor confidence.