Hisar Metal Industries Q2 FY26: Profit Slumps 24% as Margin Pressures Mount

The quarter's performance reflects a challenging operating environment for the iron and steel products sector, with Hisar Metal facing headwinds from declining sales volumes and elevated interest costs. Revenue for Q2 FY26 stood at ₹59.70 crores, marking an 8.05% year-on-year decline and a 3.86% sequential drop from Q1 FY26's ₹62.10 crores. This represents the company's weakest quarterly revenue performance since December 2024.

Despite the topline contraction, the company managed to improve its operating margin (excluding other income) to 5.96% from 5.48% in the year-ago quarter, demonstrating some degree of cost management capability. However, this operational efficiency gain was insufficient to offset the impact of surging interest expenses, which climbed 20.89% year-on-year to ₹1.91 crores, severely constraining bottom-line profitability.

Financial Performance: Revenue Decline Pressures Profitability

Hisar Metal's Q2 FY26 financial performance reveals a company grappling with multiple headwinds. Net sales of ₹59.70 crores represented an 8.05% year-on-year decline, continuing a troubling pattern of topline weakness that has persisted through recent quarters. On a sequential basis, revenue contracted 3.86% from Q1 FY26, indicating deteriorating momentum within the current fiscal year.

The operating profit (excluding other income) stood at ₹3.56 crores, translating to a 5.96% margin—a modest improvement of 48 basis points year-on-year but significantly below the 8.15% achieved in Q4 FY25. This margin volatility underscores the company's struggle to maintain consistent operational efficiency amidst fluctuating raw material costs and competitive pressures in the stainless steel segment.

Interest expenses emerged as a critical pressure point, surging 20.89% year-on-year to ₹1.91 crores. This sharp increase in financing costs consumed a substantial portion of the operating profit, leaving profit before tax at ₹1.14 crores—down 24.00% from ₹1.50 crores in Q2 FY25. After accounting for tax at an effective rate of 25.44%, net profit settled at ₹0.85 crores, yielding a PAT margin of just 1.42%, down 30 basis points from the prior year.

On a half-yearly basis for H1 FY26, the company reported net sales of ₹121.80 crores, down 5.24% from ₹128.51 crores in H1 FY25. Net profit for the first half stood at ₹1.27 crores, representing a steep 35.71% decline from ₹1.98 crores in the corresponding period last year. This deterioration in profitability reflects both topline pressures and the compounding effect of higher interest costs on the company's financial performance.

Operational Challenges: Debt Burden Weighs on Returns

Beneath the quarterly numbers lies a more concerning structural challenge: Hisar Metal's elevated debt burden and its impact on capital efficiency. The company's return on equity (ROE) for the latest period stands at just 3.93%, a dramatic decline from the five-year average of 16.05%. This deterioration signals significant stress on shareholder value creation, with the company generating minimal returns on the capital deployed in the business.

Return on capital employed (ROCE) paints an equally troubling picture at 9.44% for the latest period, well below the five-year average of 14.17%. More critically, the half-yearly ROCE of 9.06% represents the lowest level in recent periods, indicating that the company's operational assets are generating increasingly inadequate returns relative to the capital invested.

The company's balance sheet reveals the root cause of these pressures. As of March 2025, Hisar Metal carried long-term debt of ₹20.91 crores alongside shareholder funds of ₹62.81 crores, resulting in a debt-to-equity ratio of 0.33. However, when considering total borrowings and working capital requirements, the net debt-to-equity ratio stands at a more elevated 1.06, indicating substantial leverage. The debt-to-EBITDA ratio of 3.99 times suggests the company would require nearly four years of current EBITDA to fully repay its debt obligations—a concerning metric for a micro-cap company operating in a cyclical sector.

Interest coverage remains a pressure point, with the company's EBIT-to-interest ratio averaging just 2.76 times over recent periods. This relatively thin coverage provides limited cushion against any further deterioration in operating performance or increase in borrowing costs. The surge in interest expenses to ₹1.91 crores in Q2 FY26—up 20.89% year-on-year—demonstrates the tangible impact of this debt burden on profitability.

Industry Context: Underperforming a Resilient Sector

Hisar Metal's struggles stand in stark contrast to the broader iron and steel products sector's performance. Over the past year, the company's stock has delivered a modest 4.19% return, significantly underperforming the sector's 19.17% gain—a delta of 14.98 percentage points. This underperformance reflects investor concerns about the company's ability to capitalise on favourable industry dynamics.

The Indian stainless steel industry has benefited from robust domestic demand driven by infrastructure development, automotive manufacturing, and consumer durables. However, Hisar Metal's niche focus on cold rolled stainless steel strips and pipes exposes it to specific competitive pressures and margin volatility that larger, more diversified peers can better absorb.

The company's sales-to-capital-employed ratio of 1.98 times suggests moderate asset turnover efficiency, but this metric has remained relatively stagnant, indicating limited improvement in operational leverage. With a five-year sales CAGR of 12.45% and EBIT CAGR of 10.77%, Hisar Metal has demonstrated reasonable growth over the longer term, but recent quarterly performance suggests this momentum is faltering.

Peer Comparison: Valuation Premium Without Performance Justification

A comparison with industry peers reveals a puzzling valuation dynamic. Hisar Metal trades at a price-to-earnings ratio of 39.91x—substantially higher than the sector average of approximately 29x and well above most direct competitors. This premium appears unjustified given the company's deteriorating financial metrics and underperformance relative to peers.

Hisar Metal's ROE of 16.05% (five-year average) appears respectable compared to peers like Maiden Forgings (11.70%) and Sharda Ispat (14.62%), but this metric masks the recent deterioration to just 3.93% in the latest period. The company's debt-to-equity ratio of 1.06 sits in the middle of the peer group, higher than Maiden Forgings (0.87) and Sharda Ispat (0.55) but lower than Riddhi Steel (1.96).

The price-to-book ratio of 1.57x aligns closely with peers like Maiden Forgings (1.60x) and Riddhi Steel (1.58x), but appears elevated when considering the company's weak recent profitability and declining return metrics. With a dividend yield of just 0.55% and a minimal payout ratio of 8.35%, Hisar Metal offers limited income appeal to compensate for its operational challenges.

Valuation Analysis: Premium Pricing for Subpar Performance

At the current price of ₹180.20, Hisar Metal commands a market capitalisation of ₹101 crores, placing it firmly in micro-cap territory. The company's valuation metrics present a contradictory picture: whilst the overall assessment suggests "attractive" valuation, a deeper analysis reveals concerning disconnects between price and fundamental performance.

The trailing P/E ratio of 39.91x represents a significant premium to the industry average of 14x, implying the market expects substantial earnings growth or quality improvements that recent results fail to support. The enterprise value-to-EBITDA multiple of 12.02x and EV-to-EBIT of 14.95x appear reasonable in isolation but become less compelling when considering the company's deteriorating margins and return profile.

The stock currently trades 26.75% below its 52-week high of ₹246.00, suggesting meaningful downside from peak valuations. However, it remains 12.98% above the 52-week low of ₹159.50, indicating the market has not fully repriced the stock to reflect deteriorating fundamentals. The book value per share of ₹116.32 implies the stock trades at a 54.95% premium to book value—a premium that appears increasingly difficult to justify given current ROE of just 3.93%.

Shareholding Pattern: Stable Promoter Base, Minimal Institutional Interest

The shareholding structure of Hisar Metal reveals a promoter-dominated ownership with minimal institutional participation. Promoter holding has remained stable at 61.21% across the last five quarters, demonstrating consistent commitment from the founding families led by M P Jindal and Abhi Ram Tayal. The absence of any pledged shares (0.0%) provides some comfort regarding financial stress at the promoter level.

However, the complete absence of institutional investors raises significant concerns. Foreign institutional investors (FIIs) exited their minimal 0.24% stake in Q2 FY26, whilst mutual funds, insurance companies, and other domestic institutional investors maintain zero exposure. This institutional void reflects the company's micro-cap status, limited liquidity (average daily volume of just 211 shares), and concerns about corporate governance and financial transparency that typically deter institutional participation.

The non-institutional shareholding increased marginally to 38.79% from 38.55% in the previous quarter, absorbing the FII exit. This retail-dominated shareholder base increases volatility risk and limits access to growth capital, as institutional investors typically provide both stability and credibility that can facilitate future fundraising.

Stock Performance: Decade of Gains Masks Recent Weakness

Hisar Metal's stock performance presents a bifurcated picture: exceptional long-term returns overshadowed by concerning recent underperformance. Over the past decade, the stock has delivered extraordinary returns of 939.62%, vastly outperforming the Sensex's 231.39% gain—an alpha of 708.23 percentage points. This remarkable performance reflects the company's successful navigation of the commodity super-cycle and expansion during favourable industry conditions.

However, recent performance tells a starkly different story. Year-to-date, the stock has declined 15.99%, underperforming the Sensex's 8.62% gain by 24.61 percentage points. This negative momentum has accelerated across all shorter timeframes: down 9.29% over six months (vs. Sensex +4.59%), down 3.20% over three months (vs. Sensex +5.38%), and down 1.42% over one month (vs. Sensex +3.09%).

The stock's risk profile has deteriorated significantly, with one-year volatility of 40.98%—more than three times the Sensex's 12.33% volatility. The adjusted beta of 1.50 confirms the stock's high-beta characteristics, amplifying both gains and losses relative to the broader market. The risk-adjusted return of just 0.10 over the past year places the stock in the "high risk, low return" category—an unfavourable combination for risk-conscious investors.

Technical indicators paint a bearish picture, with the stock trading below all key moving averages: 5-day (₹180.10), 20-day (₹179.57), 50-day (₹184.05), 100-day (₹190.63), and 200-day (₹193.91). The overall technical trend is classified as "mildly bearish," with multiple indicators including MACD, Bollinger Bands, and KST signalling negative momentum on both weekly and monthly timeframes.

Investment Thesis: Quality Concerns Outweigh Valuation Appeal

The investment thesis for Hisar Metal Industries rests on shaky foundations. Whilst the company operates in a structurally attractive sector and has delivered exceptional long-term returns, current fundamentals and near-term outlook present significant challenges that outweigh any perceived valuation appeal.

The company's quality grade of "Average" reflects long-term financial performance that has been acceptable but unspectacular. The five-year sales CAGR of 12.45% and EBIT CAGR of 10.77% demonstrate reasonable growth, but recent quarterly results suggest this trajectory is unsustainable. The average ROCE of 14.17% and ROE of 16.05% appear adequate on the surface, but the latest period metrics (ROCE: 9.44%, ROE: 3.93%) reveal a concerning deterioration in capital efficiency.

The financial trend classification of "Negative" for Q2 FY26 underscores immediate concerns. Key negative factors include the 45.72% decline in nine-month profit, 64.79% surge in interest expenses, and the lowest ROCE in recent periods at 9.06% on a half-yearly basis. These metrics point to a business under significant stress, struggling with both operational efficiency and financial leverage.

From a technical perspective, the "mildly bearish" trend and positioning below all major moving averages suggest limited near-term upside potential. The stock's high volatility (40.98%) and elevated beta (1.50) amplify downside risk, particularly concerning for a company with deteriorating fundamentals.

Key Strengths & Risk Factors

Outlook: Critical Juncture Demands Operational Turnaround

Hisar Metal Industries stands at a critical juncture. The company must demonstrate its ability to reverse deteriorating financial trends, manage its debt burden more effectively, and restore profitability margins to sustainable levels. The immediate priority should be stabilising revenue growth whilst improving operating efficiency to offset elevated interest costs.

The path forward requires management to prioritise deleveraging, potentially through asset optimisation or improved working capital management. Without meaningful improvement in return metrics and profitability trends over the next 2-3 quarters, the investment case will remain challenged regardless of perceived valuation appeal.