International Conveyors Q2 FY26: Sharp Quarterly Loss Masks Underlying Operational Strength

The headline loss, however, tells only part of the story. Core operational performance remained robust, with net sales surging 27.75% quarter-on-quarter to ₹45.30 crores and operating profit (excluding other income) reaching a record ₹10.81 crores with margins expanding to 23.86%. The loss stemmed entirely from a significant negative other income of ₹32.33 crores in Q2 FY26, a stark contrast to the positive ₹65.90 crores recorded in the previous quarter. This volatility in non-operating income has been a recurring feature, complicating the assessment of the company's true earnings power.

On a year-on-year basis, net sales growth of 47.22% demonstrates strong demand momentum in the conveyor belting segment, whilst the company has maintained disciplined cost management with employee costs declining to ₹2.77 crores from ₹5.05 crores a year ago. The divergence between operational excellence and reported profitability raises critical questions about sustainability and the nature of other income fluctuations.

Financial Performance: Operational Strength Obscured by Other Income Volatility

Dissecting the Q2 FY26 results reveals a company with improving core operations but significant earnings volatility driven by non-operating factors. Net sales of ₹45.30 crores represented a robust 27.75% sequential increase from Q1 FY26's ₹35.46 crores and an impressive 47.22% year-on-year growth from ₹30.77 crores in Q2 FY25. This acceleration in top-line momentum suggests strengthening demand in the conveyor belting market, potentially driven by increased mining activity and industrial expansion.

Operating profit before depreciation, interest, tax and other income (PBDIT excl OI) reached ₹10.81 crores in Q2 FY26, marking the highest level in recent quarters and translating to an operating margin of 23.86%. This represented a substantial improvement from Q1 FY26's 15.26% and Q2 FY25's 15.96%, demonstrating effective cost management and operational leverage. Employee costs declined to ₹2.77 crores from ₹5.05 crores year-on-year, reflecting improved productivity and potentially restructured operations.

However, the profit picture deteriorated sharply when accounting for other income. The company recorded negative other income of ₹32.33 crores in Q2 FY26, following positive other income of ₹65.90 crores in Q1 FY26. This ₹98.23 crore swing in non-operating income single-handedly transformed a strong operational quarter into a reported loss. Over the past eight quarters, other income has fluctuated wildly—from ₹1.47 crores to ₹65.90 crores—raising questions about the sustainability and predictability of earnings.

The tax credit of ₹7.19 crores (effective rate of 29.29% on negative PBT) provided some relief, but the net loss of ₹17.36 crores marked a dramatic reversal from Q1 FY26's profit of ₹52.07 crores. Interest costs rose to ₹2.64 crores from ₹2.18 crores year-on-year, though the company maintains minimal debt with a net debt-to-equity ratio of -0.55, indicating it is a net cash company.

Operational Excellence: Strong ROE and Margin Expansion

Despite the quarterly loss, International Conveyors demonstrates notable operational strengths that merit investor attention. The company's return on equity (ROE) of 25.35% for the latest period ranks amongst the highest in its peer group and significantly exceeds the average ROE of 16.05% over recent years. This elevated ROE reflects efficient capital deployment and the ability to generate substantial returns on shareholder funds, a critical metric for assessing management quality and business economics.

The operating margin expansion to 23.86% in Q2 FY26 from 15.26% in Q1 FY26 demonstrates improving operational leverage as the company scales. This margin level represents the highest achieved in at least seven quarters, suggesting that fixed costs are being spread over a larger revenue base whilst variable costs remain well-controlled. The company's ability to maintain such margins in a manufacturing business exposed to raw material price fluctuations speaks to pricing power and operational efficiency.

Balance sheet quality remains robust with shareholder funds of ₹361.80 crores as of March 2025, up from ₹272.95 crores a year earlier. The company maintains minimal long-term debt of just ₹0.03 crores and holds investments of ₹24.64 crores. Current assets of ₹466.46 crores comfortably exceed current liabilities of ₹118.20 crores, providing ample liquidity cushion. Operating cash flow generation has been positive, with ₹14.00 crores generated in FY25, though this represents a modest improvement from ₹12.00 crores in FY24.

The Other Income Enigma: Understanding the Earnings Volatility

The most perplexing aspect of International Conveyors' financial profile is the extreme volatility in other income, which has become the dominant driver of reported profitability. In FY25, other income of ₹104.00 crores exceeded operating profit excluding other income of ₹21.00 crores by nearly five times. This pattern continued in FY24, where other income of ₹66.00 crores matched operating profit of ₹21.00 crores.

Quarterly fluctuations have been even more pronounced. Q1 FY26 saw positive other income of ₹65.90 crores, contributing to a stellar net profit of ₹52.07 crores. However, Q2 FY26's negative other income of ₹32.33 crores transformed what would have been a modest operating profit into a substantial loss. This pattern suggests that other income may include mark-to-market gains or losses on investments, one-time asset sales, or other non-recurring items.

For investors attempting to value the business, this volatility poses significant challenges. Traditional metrics like price-to-earnings ratios become less meaningful when earnings are dominated by unpredictable non-operating items. The current P/E ratio of 5.12x appears attractive on the surface, but this multiple is based on trailing twelve-month earnings heavily influenced by volatile other income. A more appropriate valuation approach would focus on core operating metrics and sustainable cash generation capacity.

Industry Leadership: How International Conveyors Compares to Peers

Within the industrial manufacturing sector, International Conveyors occupies a distinctive position characterised by strong profitability metrics but modest valuation multiples. The company's ROE of 16.05% (average) and 25.35% (latest) significantly exceeds most peers, with only Integra Engineering showing comparable returns at 21.20%. This superior capital efficiency reflects the company's ability to generate strong returns despite operating in a capital-intensive manufacturing sector.

Valuation metrics present an interesting contrast. International Conveyors trades at a P/E ratio of 5.12x, dramatically lower than peers such as Hercules Hoists (102.27x), Batliboi (77.57x), and Integra Engineering (37.92x). The price-to-book ratio of 1.58x also sits well below the peer average of approximately 3.2x, with only Gujarat Apollo Industries trading at a lower multiple of 1.22x. This valuation discount may reflect investor concerns about earnings quality and sustainability given the other income volatility.

The company's dividend yield of 0.83% aligns with industry norms, though the dividend payout ratio of just 5.18% suggests conservative capital allocation with significant retained earnings. Notably, International Conveyors maintains a net cash position with a debt-to-equity ratio of -0.55, contrasting with most peers who carry positive leverage. This conservative financial structure provides flexibility for growth investments or shareholder returns, though it may also indicate limited deployment opportunities.

Market capitalisation positioning reveals International Conveyors as a micro-cap company at ₹564.00 crores, ranking fourth amongst its peer group. This smaller scale may contribute to limited institutional interest (just 0.72% institutional holdings) and lower liquidity, though it also presents potential for significant re-rating if the company can demonstrate consistent earnings growth and improved transparency around other income components.

Valuation Analysis: Discount Justified by Earnings Quality Concerns

International Conveyors' valuation metrics present a paradox: attractive multiples on the surface, but significant questions about sustainability and earnings quality underneath. The P/E ratio of 5.12x compares favourably to the industry average of 32x, suggesting the stock trades at an 84% discount to sector peers. Similarly, the price-to-book ratio of 1.58x sits well below the peer average, whilst the EV/EBITDA multiple of 17.70x appears reasonable for a manufacturing business.

However, these traditional valuation metrics must be interpreted cautiously given the extraordinary volatility in other income. The trailing twelve-month earnings used to calculate the P/E ratio include significant non-operating gains that may not recur. If we focus solely on operating profit excluding other income, the company generated ₹21.00 crores in FY25 on a market capitalisation of ₹564.00 crores, implying an operating P/E of approximately 27x—far less attractive than the headline multiple.

The PEG ratio of 0.13x suggests the stock is significantly undervalued relative to growth prospects, as this metric divides the P/E ratio by the earnings growth rate. However, this calculation becomes problematic when earnings growth is driven primarily by volatile other income rather than sustainable operational improvements. The five-year sales growth of just 5.17% annually provides a more sobering perspective on the company's organic growth trajectory, though recent quarters have shown acceleration.

The current share price of ₹90.40 sits 20.91% below the 52-week high of ₹114.30 but 45.57% above the 52-week low of ₹62.10, suggesting the stock is trading in the middle of its recent range. The valuation grade of "Very Expensive" assigned by proprietary models appears contradictory to the low P/E multiple, likely reflecting concerns about earnings quality and sustainability rather than absolute valuation levels.

Shareholding: Steady Promoter Accumulation Amid Low Institutional Interest

The shareholding pattern reveals a promoter-dominated structure with gradually increasing promoter stake and minimal institutional participation. Promoter holdings have risen consistently from 68.60% in September 2024 to 70.07% in September 2025, with sequential increases of 0.09% in Q2 FY26 and 0.84% in Q1 FY26. This steady accumulation signals confidence from the controlling shareholders, led by I G E (India) Private Limited with 50.02% and Surbhit Dabriwala with 12.75%.

Institutional participation remains negligible, with foreign institutional investors (FII) holding just 0.19% and mutual funds maintaining zero exposure. Other domestic institutional investors (DII) made a modest entry in Q2 FY26 with 0.53% holdings, representing the first institutional interest in recent quarters. The absence of mutual fund and insurance company holdings reflects the company's micro-cap status, limited liquidity, and concerns about earnings predictability that make it unsuitable for most institutional mandates.

Non-institutional holdings have declined from 31.38% to 29.21% over the past year, with the reduction primarily absorbed by increasing promoter stake. The absence of pledged shares is a positive indicator of financial health amongst promoters, suggesting no liquidity constraints or forced selling risk. However, the low institutional participation limits potential for significant re-rating and may contribute to higher volatility and lower liquidity in the stock.

Stock Performance: Underperformance Following Strong Long-Term Returns

International Conveyors' stock performance presents a tale of two timeframes: exceptional long-term returns offset by recent underperformance. Over five years, the stock has delivered returns of 207.48%, dramatically outpacing the Sensex's 93.78% gain and generating alpha of 113.70 percentage points. This remarkable performance reflects the company's transformation from a struggling manufacturer to a more profitable enterprise, though sustainability remains questionable.

Recent performance, however, has been lacklustre. The stock has declined 4.04% in the past day, 4.30% over one week, and 6.74% over one month, consistently underperforming the Sensex across these shorter timeframes. Year-to-date returns of 7.89% marginally trail the Sensex's 8.22% gain, whilst the one-year return of 6.07% lags the broader market's 9.00% advance. This recent underperformance coincides with increased earnings volatility and the negative financial trend classification assigned in September 2025.

Technical indicators paint a mixed picture. The stock currently trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting weak near-term momentum. The overall technical trend is classified as "Mildly Bullish," having been downgraded from "Bullish" on October 24, 2025. Delivery volumes have increased significantly, with recent delivery percentage of 49.70% exceeding the five-day average, indicating genuine investor interest rather than speculative trading.

The stock's high beta of 1.50 indicates significantly greater volatility than the broader market, with annualised volatility of 40.98% compared to the Sensex's 12.26%. This elevated risk profile reflects the company's micro-cap status, limited liquidity, and earnings volatility. The risk-adjusted return of 0.15 over one year compares unfavourably to the Sensex's 0.73, suggesting investors are not being adequately compensated for the additional risk undertaken.

Investment Thesis: Quality Business Obscured by Earnings Opacity

The investment case for International Conveyors rests on a fundamental tension between improving operational metrics and persistent earnings quality concerns. The company's core conveyor belting business demonstrates genuine strength: accelerating revenue growth (47.22% YoY in Q2 FY26), expanding operating margins (23.86%, highest in recent quarters), strong return on equity (25.35%), and a fortress balance sheet with net cash position. These attributes suggest a business with competitive advantages and improving operational execution.

However, the extreme volatility in other income—which has ranged from -₹32.33 crores to +₹65.90 crores across recent quarters—fundamentally undermines confidence in reported earnings and makes valuation exercises highly uncertain. This opacity regarding non-operating income sources and sustainability represents a critical weakness that prevents the stock from commanding a premium valuation despite strong operational metrics. Until management provides greater transparency or other income stabilises, investors face significant uncertainty about true earnings power.

The proprietary Mojo score of 44/100 (SELL category) reflects these mixed signals, weighing strong operational metrics against earnings quality concerns and negative financial trend. The score has declined from 71 (BUY) in June 2025 to the current SELL rating, primarily driven by the Q2 FY26 loss and continued other income volatility. For risk-tolerant investors who can look through near-term earnings noise, the operational improvements and attractive valuation multiples may present opportunity, but significant uncertainty remains.

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