Hariyana Ship Breakers Q3 FY26: Dramatic Profit Surge Masks Fundamental Concerns

The stock responded positively to the results announcement, surging 7.05% to ₹113.05 on February 13, 2026, though it remains 24.00% below its 52-week high of ₹148.75. Despite the quarterly profit jump, fundamental concerns persist around the company's core operational performance, with minimal sales revenue and an alarming dependence on other income streams that contributed 88.65% of profit before tax during the quarter.

The quarterly results reveal a company that has essentially pivoted away from its traditional ship-breaking operations. Net sales stood at a meagre ₹2.20 crores in Q3 FY26, up 69.23% quarter-on-quarter from ₹1.30 crores but representing an insignificant revenue base for a company with a ₹65 crore market capitalisation. More concerning is the year-on-year comparison: the company reported zero sales in Q3 FY25, making the YoY growth metric meaningless in practical terms.

Financial Performance: A Mirage of Profitability

The Q3 FY26 results present a paradoxical picture. On the surface, consolidated net profit surged 203.11% quarter-on-quarter from ₹2.25 crores to ₹6.82 crores, whilst the year-on-year comparison shows an astronomical 1,523.81% increase. However, this growth is entirely driven by a spike in other income, which jumped to ₹7.42 crores in Q3 FY26 from ₹2.24 crores in Q2 FY26 and ₹2.04 crores in Q3 FY25.

The operating performance, whilst showing improvement in margins, remains weak in absolute terms. Operating profit (PBDIT excluding other income) stood at ₹1.80 crores with an impressive 81.82% margin, up from ₹0.87 crores and 66.92% margin in Q2 FY26. However, these margins are calculated on minuscule revenue, making them statistically impressive but practically insignificant. The company's profit before tax of ₹8.37 crores would collapse to just ₹0.95 crores if other income were excluded—a critical red flag for investors assessing earnings quality.

Interest costs declined to ₹0.45 crores from ₹0.62 crores quarter-on-quarter, indicating some improvement in the financial cost structure. Depreciation remained stable at ₹0.28 crores. The effective tax rate for Q3 FY26 stood at 18.52%, considerably lower than the 20.28% in Q2 FY26 and the 33.33% recorded in Q3 FY25, contributing marginally to the bottom-line improvement.

Operational Challenges: Dormant Core Business

The most alarming aspect of Hariyana Ship Breakers' performance is the near-complete absence of meaningful operational activity in its core ship-breaking business. The company recorded zero sales for the full financial year FY25 (ended March 2025), representing a 100% decline from the ₹148.00 crores achieved in FY24. This dramatic collapse in operations has fundamentally altered the nature of the business.

On a nine-month basis for FY26 (April-December 2025), the company has generated cumulative sales of just ₹3.50 crores (₹2.20 crores in Q3 + ₹1.30 crores in Q2 + ₹0.00 crores in Q1), a far cry from the ₹148.00 crores achieved in FY24. This represents a catastrophic 97.64% decline in operational scale, effectively rendering the company's ship-breaking infrastructure idle or severely underutilised.

The company's return on equity (ROE) stands at a meagre 3.28% on average, well below the peer group average of approximately 11% and significantly trailing quality benchmarks. This weak ROE reflects both the minimal operational scale and the capital-intensive nature of the ship-breaking business, which requires substantial fixed assets but is generating negligible returns. Return on capital employed (ROCE) is even more concerning at -0.67% on average, indicating that the company is destroying shareholder value rather than creating it.

Industry Context: Struggling in a Challenging Sector

Hariyana Ship Breakers operates in India's ship recycling industry, centred around Alang in Gujarat—the world's largest ship-breaking yard. The industry has faced significant challenges in recent years, including stricter environmental regulations, fluctuating scrap metal prices, and intense competition. The global shipping cycle, vessel supply dynamics, and steel demand significantly influence ship-breaking activity levels.

The company's inability to generate meaningful revenue over the past two years suggests it has struggled to secure vessel-breaking contracts or has chosen to remain largely inactive due to unfavourable market conditions. The aerospace and defence sector classification appears somewhat misleading, as the company's historical operations have been primarily focused on commercial ship recycling rather than defence-related activities.

Over a five-year period, Hariyana Ship Breakers has recorded a sales compound annual growth rate (CAGR) of -58.27%, one of the worst growth trajectories in the small-cap universe. This sustained revenue decline reflects structural challenges rather than cyclical headwinds, raising questions about the long-term viability of the business model in its current form.

Peer Comparison: Valuation Disconnect

Comparing Hariyana Ship Breakers to its peer group in the aerospace and defence sector reveals significant valuation and operational disparities. The company trades at a price-to-earnings (P/E) ratio of 18.61x based on trailing twelve-month earnings, which appears reasonable compared to the peer average of approximately 37x. However, this comparison is misleading given the vastly different earnings quality.

The most striking disparity lies in the price-to-book value ratio, where Hariyana Ship Breakers trades at just 0.47x compared to the peer average of approximately 5.70x. This deep discount to book value reflects the market's scepticism about the company's ability to generate returns from its asset base. With an ROE of 3.28%, significantly below the peer average of 11%, the market is effectively pricing in continued value destruction or minimal operational activity.

The company pays no dividends, unlike several peers who offer yields ranging from 0.12% to 0.55%. This absence of dividend distribution, combined with weak operational performance, provides no immediate return to shareholders beyond the hope of capital appreciation—a hope that appears increasingly misplaced given the fundamental trajectory.

Valuation Analysis: Value Trap Territory

At a current market price of ₹113.05, Hariyana Ship Breakers presents what appears superficially to be an attractive valuation. Trading at 0.47x book value against a book value per share of ₹238.16, the stock trades at an 80% discount to its stated net asset value. However, this discount exists for valid reasons and likely represents a value trap rather than a genuine opportunity.

The company's enterprise value to EBITDA multiple of -85.60x and EV to EBIT of -65.34x are negative and essentially meaningless, reflecting the distorted capital structure where investments exceed operating asset value. The EV to sales ratio of 65.84x is astronomically high, indicating that the market capitalisation bears no reasonable relationship to the company's revenue-generating capacity.

The proprietary Mojo Score of 23 out of 100 places the stock firmly in "Strong Sell" territory, reflecting the combination of weak fundamentals, deteriorating operational trends, and unfavourable technical positioning. The valuation grade has been classified as "Risky" since November 2024, having deteriorated from "Fair" in October 2024 as the operational challenges became more apparent.

Fair value estimation is particularly challenging given the minimal operational activity. If one were to value the company purely on its investment portfolio of ₹139.53 crores (as of March 2025) and apply a holding company discount of 30-40%, the implied fair value would be approximately ₹135-157 per share. However, this assumes the investments are marked to market accurately and ignores the ongoing cash burn from maintaining dormant operations.

Shareholding Pattern: Stable but Uninspiring

The shareholding pattern of Hariyana Ship Breakers has remained remarkably stable over the past five quarters, with promoter holding steady at 74.95% and no institutional participation whatsoever. This absence of foreign institutional investors (FIIs), mutual funds, and insurance companies signals a complete lack of institutional interest in the stock—a significant red flag for potential investors.

The promoter group, led by the Reniwal family, maintains a dominant 74.95% stake with no pledging—a positive indicator of promoter confidence and financial stability. However, the complete absence of institutional investors and the static shareholding pattern suggest limited liquidity and negligible market interest in the stock. The remaining 25.05% is held by non-institutional investors, likely retail shareholders who may be trapped in an illiquid position.

The lack of any sequential change in shareholding across all categories over five consecutive quarters indicates minimal trading activity and reflects the stock's status as a forgotten micro-cap with limited market participation. This illiquidity poses additional risks for investors seeking to exit positions.

Stock Performance: Underperformance Despite Recent Rally

Hariyana Ship Breakers' stock performance presents a mixed picture across different timeframes. The recent 7.05% single-day gain following the Q3 results pushed the stock to ₹113.05, but this rally must be viewed in the context of longer-term underperformance. Over the past year, the stock has declined 2.12%, significantly underperforming the Sensex which gained 8.52% during the same period, resulting in a negative alpha of 10.64 percentage points.

The near-term performance has been relatively strong, with the stock gaining 10.19% over the past week and 4.58% over the past month, outperforming the Sensex in both periods. However, this recent strength appears to be driven by low-volume speculation rather than fundamental improvement. The stock's year-to-date return of 4.87% marginally outperforms the Sensex's -3.04% decline, but this provides little comfort given the underlying operational deterioration.

On a longer-term basis, the three-year return of 64.56% and five-year return of 170.13% significantly outperform the Sensex, generating positive alpha of 27.83 and 109.83 percentage points respectively. However, these historical returns largely reflect the period when the company was operationally active in ship-breaking, making them irrelevant for assessing current investment merit.

The stock's beta of 1.12 indicates higher volatility than the market, with annualised volatility of 49.04%—more than four times the Sensex's 11.53% volatility. This high-beta, high-volatility profile combined with negative risk-adjusted returns (Sharpe ratio) classifies the stock as "High Risk Low Return"—the worst possible risk-return combination for investors.

Investment Thesis: Multiple Warning Signals

The investment case for Hariyana Ship Breakers is fundamentally challenged across all key parameters. The proprietary Mojo 4 Dots framework, which evaluates near-term drivers, quality, valuation, and overall assessment, paints a concerning picture. Whilst the quarterly financial trend has turned positive (driven entirely by other income), the technical trend remains mildly bearish, creating a "Mixed" near-term outlook.

The quality assessment is unequivocally negative, with the company graded as "Below Average" based on long-term financial performance. The five-year sales CAGR of -58.27% ranks amongst the worst in the micro-cap universe, whilst average ROCE of -0.67% and ROE of 3.28% indicate sustained value destruction. The absence of institutional holdings (0.0%) and zero dividend payout further underscore the quality concerns.

The valuation assessment of "Risky" reflects the disconnect between the stock's market price and its operational reality. Whilst trading at 0.47x book value appears cheap, this discount exists because the market recognises that the book value is unlikely to generate meaningful returns. The technical trend classification of "Mildly Bearish" since October 2025 suggests continued downward pressure, with the stock trading below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day).

Key Strengths & Risk Factors

Outlook: What Lies Ahead

The outlook for Hariyana Ship Breakers remains deeply concerning. For the company to justify any investment case, it must demonstrate a credible path to reviving ship-breaking operations or clearly articulate an alternative business strategy. The current trajectory—minimal operations subsidised by investment income—is not sustainable and provides no visibility on future growth or value creation.

The ship-breaking industry itself faces structural challenges, including environmental compliance costs, competition from international yards, and cyclical demand patterns. Without clear evidence that Hariyana Ship Breakers can navigate these challenges and return to meaningful operational activity, the investment thesis remains fundamentally flawed.