Hariyana Ship Breakers Q2 FY26: Profit Surge Masks Operational Weakness

The ₹71.00 crore market capitalisation micro-cap company continues to struggle with its core ship-breaking operations, having posted near-zero sales for most quarters over the past two years. Trading at ₹112.00 as of November 14, 2025, the stock has declined 12.26% over the past year, significantly underperforming the Sensex's 9.00% gain. With a proprietary Mojo Score of just 17 out of 100 and a "Strong Sell" rating, the company faces mounting questions about its operational viability and business model sustainability.

The September 2025 quarter results paint a picture of a company in operational limbo. Whilst consolidated net profit reached ₹2.25 crores—the highest quarterly figure in recent history—the underlying business fundamentals remain deeply concerning. Net sales of ₹1.30 crores represent a marginal improvement from the ₹0.00 crores posted in the previous quarter, but remain far below the company's historical operational scale when it generated ₹148.00 crores in annual sales during FY24.

Financial Performance: A Profit Mirage Built on Non-Operating Income

The Q2 FY26 financial performance reveals a stark disconnect between reported profitability and operational reality. Consolidated net profit of ₹2.25 crores surged 230.88% quarter-on-quarter from ₹0.68 crores in Q1 FY26, driven almost entirely by stable other income of ₹2.24 crores. However, this non-operating income constituted 79.72% of profit before tax—a red flag indicating the company is essentially surviving on investment income rather than its core ship-breaking business.

Operating profit excluding other income stood at ₹0.87 crores in Q2 FY26, marking the first positive operational quarter in over a year. The operating margin of 66.92% appears impressive on paper, but this metric is meaningless given the minuscule ₹1.30 crore revenue base. The company's PAT margin of 173.08% further underscores the absurdity of analysing traditional profitability metrics for a business with virtually no operational activity.

On an annual basis, the deterioration becomes even more apparent. Net sales collapsed 100.00% in FY25 to ₹0.00 crores from ₹148.00 crores in FY24, whilst the company posted a modest net profit of ₹2.00 crores—entirely attributable to ₹8.00 crores in other income offsetting a ₹1.00 crore operating loss. The five-year sales growth stands at a catastrophic -100.00%, highlighting the complete evaporation of the core business.

Operational Paralysis: The Ship-Breaking Business Lies Dormant

The most alarming aspect of Hariyana Ship Breakers' results is not what the numbers show, but what they reveal about the company's operational status. For six consecutive quarters from December 2024 through June 2025, the company reported zero net sales. Even the ₹1.30 crore revenue in Q2 FY26 represents a token amount compared to the ₹148.00 crore annual sales achieved in FY24, suggesting the company has effectively ceased meaningful ship-breaking operations.

Return on equity stands at a negligible 0.0% on an average basis and just 2.54% for the latest period—far below acceptable thresholds for capital efficiency. Return on capital employed fares even worse at -0.67% on average and -0.80% for the latest period, indicating the company is destroying shareholder value rather than creating it. These metrics underscore a fundamental problem: the capital deployed in the business is generating no meaningful operational returns.

The balance sheet reveals a company with ₹146.87 crores in shareholder funds as of March 2025, but fixed assets of just ₹8.52 crores and investments of ₹139.53 crores. This structure confirms the company has essentially transformed into an investment holding vehicle rather than an active ship-breaking operation. Current assets of ₹3.17 crores and current liabilities of ₹17.00 crores indicate a negative working capital position of ₹13.83 crores, though the low debt levels (virtually nil long-term debt) provide some financial cushion.

The Ship-Breaking Industry: Navigating Regulatory and Market Headwinds

Hariyana Ship Breakers operates in India's ship recycling industry, centred in Alang, Gujarat—the world's largest ship-breaking yard. The industry has faced significant headwinds in recent years, including stricter environmental regulations, fluctuating scrap steel prices, and reduced vessel availability as global shipping demand recovered post-pandemic. These sector-wide challenges have disproportionately impacted smaller players like Hariyana, which lacks the scale and financial resources of larger competitors.

The company's complete operational shutdown since late 2024 suggests it has been unable to secure ship-breaking contracts or has chosen to exit the business temporarily due to unfavourable economics. The ship-breaking business requires significant working capital to purchase vessels, and the company's negative working capital position may have constrained its ability to participate in vessel auctions. Additionally, environmental compliance costs have risen substantially, potentially making operations unviable for smaller players.

Whilst the company maintains investments of ₹139.53 crores—likely in marketable securities generating the ₹2.24 crores quarterly other income—this passive income strategy cannot substitute for an operational business. The aerospace and defence sector classification appears misaligned with the company's actual operations, which historically focused on ship dismantling and steel trading rather than defence manufacturing.

Valuation Analysis: Risky Classification Reflects Operational Uncertainty

At ₹112.00 per share, Hariyana Ship Breakers trades at a P/E ratio of 18.13x based on trailing twelve-month earnings—a seemingly reasonable multiple that masks the unsustainable nature of those earnings. With the vast majority of profits derived from non-operating income, this P/E ratio provides little insight into the company's true operational value. The price-to-book ratio of 0.46x suggests the market values the company at a 54% discount to its book value of ₹238.16 per share, reflecting deep scepticism about the realisable value of its assets and future earning potential.

The company's valuation grade has deteriorated from "Fair" to "Risky" over the past year, with the most recent downgrade occurring in November 2024. This classification appropriately reflects the operational paralysis and uncertain business outlook. Enterprise value metrics paint an even grimmer picture: EV/EBITDA of -83.78x and EV/EBIT of -63.95x are essentially meaningless given the negative operating performance, whilst EV/Sales of 64.44x on minimal revenue highlights the disconnect between market capitalisation and operational scale.

The stock has declined 28.21% from its 52-week high of ₹156.00, reached before the extent of operational difficulties became apparent, and currently trades just 23.08% above its 52-week low of ₹91.00. The absence of dividend payments (last dividend of ₹3.50 per share paid in September 2013) eliminates any income component for investors, leaving capital appreciation as the sole potential return—a prospect that appears remote given current operational realities.

Shareholding: Stable Promoter Base Amidst Operational Turmoil

The shareholding pattern reveals remarkable stability despite the operational challenges. Promoter holding has remained constant at 74.95% across the last five quarters, with the Reniwal family maintaining their controlling stake. Rajeev Shantisarup Reniwal holds the largest individual stake at 24.96%, followed by Rakesh Shantisarup Reniwal at 13.92% and family holding company Shantisarup Reniwal & Sons at 10.14%. Positively, there is zero promoter pledging, indicating the family has not leveraged their shareholding for external borrowing.

However, the complete absence of institutional participation raises concerns about professional investor confidence. Foreign institutional investor (FII) holdings, mutual fund holdings, insurance company holdings, and other domestic institutional investor (DII) holdings all stand at 0.00%—a stark vote of no confidence from sophisticated market participants. The remaining 25.05% is held by non-institutional investors, likely comprising retail shareholders and high-net-worth individuals who may lack the resources to conduct thorough due diligence.

Stock Performance: Consistent Underperformance Across Timeframes

The stock's price performance reflects the deteriorating operational fundamentals. Over the past year, Hariyana Ship Breakers has declined 12.26%, generating negative alpha of -21.26% versus the Sensex's 9.00% gain. The underperformance extends across most timeframes: year-to-date returns of -11.57% lag the Sensex by -19.79%, whilst six-month returns of -7.36% trail the benchmark by -11.33%. Even the three-month performance of -0.36% underperforms the Sensex's 4.92% gain by -5.28%.

The only bright spot emerges in longer-term returns, where the stock has delivered 68.04% over three years (versus Sensex's 37.22%) and a remarkable 254.43% over five years (versus Sensex's 93.78%). However, these historical gains primarily reflect the period when the company maintained active ship-breaking operations and generated meaningful revenue. The recent performance deterioration coincides precisely with the operational shutdown, suggesting historical returns offer little guidance for future prospects.

From a technical perspective, the stock trades in a bearish trend that commenced on November 3, 2025, at ₹114.95. The stock currently sits below all key moving averages—5-day (₹111.93), 20-day (₹114.31), 50-day (₹115.43), 100-day (₹116.72), and 200-day (₹116.37)—indicating sustained selling pressure. Technical indicators including MACD (bearish weekly and monthly), Bollinger Bands (bearish), and KST (mixed signals) provide no support for near-term price recovery. With a high beta of 1.50, the stock exhibits 50% greater volatility than the broader market, amplifying downside risk during market corrections.

Investment Thesis: Multiple Red Flags Justify Cautious Stance

The investment thesis for Hariyana Ship Breakers centres on a fundamental question: is this a temporary operational hiatus or a permanent business decline? The evidence overwhelmingly suggests the latter. The company has effectively ceased ship-breaking operations for over a year, with sales collapsing from ₹148.00 crores in FY24 to virtually nothing in FY25 and minimal activity in Q2 FY26. The transformation into an investment holding company generating passive income cannot justify the current market capitalisation or provide a sustainable growth pathway.

The quality assessment paints a damning picture. The company "does not qualify" as a quality investment based on long-term financial performance, with a quality grade history showing deterioration from "Below Average" to "Does Not Qualify" in August 2025. Key quality metrics are universally weak: five-year sales growth of -100.00%, average ROCE of -0.67%, average ROE of 0.0%, and EBIT to interest coverage of just -0.09x. The sole positive is the absence of promoter pledging and low leverage, but these defensive attributes cannot compensate for operational failure.

The Mojo Score of 17 out of 100 with a "Strong Sell" rating reflects the confluence of negative factors: bearish technical trend, "Does Not Qualify" quality grade, risky valuation, and mixed financial trend (positive only due to the recent profit spike driven by non-operating income). The rating system's four-dot analysis shows mixed near-term drivers (positive quarterly financial trend offset by bearish technicals), below-average quality, risky valuation, and an overall mixed assessment that tilts decidedly negative when weighted appropriately.

Key Strengths & Risk Factors

Outlook: What to Watch Going Forward

The fundamental challenge facing Hariyana Ship Breakers is existential: without operational revival, the company's current market capitalisation of ₹71.00 crores appears difficult to justify. The investment portfolio of ₹139.53 crores generating ₹2.24 crores quarterly (approximately ₹9.00 crores annually) implies a yield of roughly 6.45%—reasonable for a fixed-income portfolio but insufficient to support equity valuations. At current prices, investors are essentially buying an illiquid investment fund at 0.46x book value, hoping for either operational revival or asset monetisation.

The ship-breaking industry's structural challenges—including stringent environmental regulations, volatile commodity prices, and intense competition—make a successful operational turnaround increasingly unlikely for a micro-cap player with limited financial resources. The company's silence on future plans, absence of management commentary on the operational shutdown, and lack of strategic announcements all point to a business in limbo rather than one executing a turnaround strategy.