Josts Engineering Q2 FY26: Profit Plummets 84% as Margins Collapse

The quarter marked a continuation of deteriorating financial performance that began in Q1 FY26, with the company now facing its most challenging period in recent years. Revenue declined both sequentially and on a year-on-year basis, whilst profit margins compressed sharply across all metrics. The company's proprietary advisory score stands at just 38 out of 100, firmly in "SELL" territory, reflecting concerns about near-term prospects despite historically good quality fundamentals.

Financial Performance: A Quarter of Sharp Deterioration

Josts Engineering's Q2 FY26 results reveal a company grappling with severe operational headwinds. Net sales for the quarter stood at ₹53.75 crores, declining 3.34% quarter-on-quarter from ₹55.61 crores in Q1 FY26 and falling 14.11% year-on-year from ₹62.58 crores in Q2 FY25. This marks the second consecutive quarter of revenue decline, with the company unable to sustain the momentum seen in Q4 FY25 when sales had reached ₹67.85 crores.

The profit picture proved even more alarming. Consolidated net profit of ₹0.81 crores in Q2 FY26, whilst showing a 153.13% sequential improvement from the disastrous ₹0.32 crores in Q1 FY26, remained 84.21% below the prior-year quarter. This dramatic year-on-year collapse reflects not just revenue pressure but significant margin compression across the business.

Operating profit before depreciation, interest, tax and other income (PBDIT excl OI) fell to ₹4.16 crores in Q2 FY26, yielding an operating margin of just 7.74%, down from 13.92% in the year-ago quarter. This 614 basis point margin erosion signals fundamental operational challenges. The PAT margin collapsed to 1.53% from 8.20% a year earlier, a staggering 667 basis point contraction that reflects both operational inefficiency and rising financial costs.

Interest expenses surged to ₹1.18 crores in Q2 FY26, more than doubling from ₹0.45 crores in Q2 FY25, whilst depreciation increased to ₹1.51 crores from ₹0.99 crores. Perhaps most concerning, the effective tax rate spiked to an extraordinary 56.84% in Q2 FY26, compared to 29.53% in the prior-year quarter, severely impacting bottom-line profitability despite the company's modest pre-tax profit of ₹1.90 crores.

Operational Challenges: Margin Compression and Rising Costs

The company's operational difficulties extend beyond top-line pressure. Employee costs remained elevated at ₹7.97 crores in Q2 FY26, essentially flat sequentially but representing a significant fixed cost burden on declining revenues. As a percentage of sales, employee costs increased to 14.83% from 12.70% in the prior-year quarter, indicating deteriorating operational leverage.

The balance sheet reveals a company that has taken on additional debt to navigate current challenges. Long-term debt increased to ₹3.38 crores as of March 2024 from ₹1.16 crores a year earlier, whilst the half-yearly debt-equity ratio stood at 0.18 times. Despite this relatively modest leverage, the sharp increase in interest costs to ₹4.13 crores for the nine-month period (an 81.94% surge) signals growing financial strain.

Working capital management has become a particular concern. The debtors turnover ratio fell to 2.70 times for the half-year period, the lowest on record, indicating slower collections and potential stress in the receivables book. Current assets stood at ₹89.44 crores as of March 2024, up from ₹66.86 crores a year earlier, whilst current liabilities increased to ₹60.48 crores from ₹51.10 crores, suggesting working capital intensity has increased significantly.

Industry Context: Underperformance in a Challenging Sector

Josts Engineering's struggles must be viewed against the backdrop of a difficult environment for industrial manufacturing companies. The sector itself has faced headwinds, with the broader industrial manufacturing index declining 10.70% over the past year. However, Josts' 43.30% decline significantly underperformed this sector benchmark by 32.60 percentage points, indicating company-specific challenges beyond general industry weakness.

The company operates in the material handling and engineered products space, holding agencies for American, British and European manufacturers of electrical and mechanical engineering equipment. This business model, established over the company's 119-year history, has historically provided stability through established relationships and technical expertise. However, the recent results suggest either weakening demand in end markets, competitive pressure on margins, or execution challenges in converting orders to profitable revenues.

Peer Comparison: Valuation Premium Without Performance

When compared to industrial manufacturing peers, Josts Engineering presents a mixed valuation picture. The company trades at a price-to-earnings (TTM) ratio of 30.80x, higher than most comparable companies and above the industry average of approximately 32x. This premium appears difficult to justify given the current performance trajectory.

The company's ROE of 16.18% (five-year average) appears reasonable but trails higher-quality peers like Kalyani Cast-Tec (32.48%) and TRF (38.83%). More concerningly, the latest annual ROE of 8.01% suggests the historical average overstates current profitability. The price-to-book ratio of 2.47x sits below the peer average, offering some valuation support, but this discount appears insufficient given the deteriorating fundamentals.

Josts Engineering's minimal dividend yield of 0.46% provides little income support for investors, particularly when compared to peers like Fluidomat at 1.14%. The company paid a dividend of ₹1.25 per share, representing a modest 9.90% payout ratio, suggesting management retains most earnings for business reinvestment despite current challenges.

Valuation Analysis: Attractive Price Meets Negative Momentum

The proprietary valuation assessment grades Josts Engineering as "VERY ATTRACTIVE" based on historical metrics and current price levels. The stock trades at ₹269.50, having declined 51.68% from its 52-week high of ₹557.72 reached in mid-2025. This dramatic correction has brought valuation multiples down to levels that appear compelling on a historical basis.

However, valuation attractiveness must be weighed against deteriorating fundamentals. The EV/EBITDA multiple of 13.69x and EV/EBIT of 17.31x reflect trailing performance that may not be sustainable if current trends continue. The enterprise value to sales ratio of 1.34x appears reasonable for an industrial manufacturing company, but only if operating margins can recover from current depressed levels.

The valuation grade has fluctuated between "Attractive" and "Very Attractive" in recent months, most recently shifting to "Very Attractive" on October 13, 2025 as the stock price declined. This mechanical assessment based on historical metrics does not fully capture the risk of further earnings deterioration, which could make current multiples appear expensive rather than cheap.

Stock Performance: Severe Underperformance Across All Timeframes

Josts Engineering's stock performance tells a story of investor disappointment across multiple timeframes. Over the past year, the stock has declined 43.30%, dramatically underperforming the Sensex which gained 6.44% during the same period. This represents negative alpha of 49.74 percentage points, amongst the worst in the industrial manufacturing sector.

The technical picture reinforces this negative sentiment. The stock currently trades in a "BEARISH" trend that began on January 9, 2026, having transitioned from "Mildly Bearish" as the selling pressure intensified. All key moving averages—from the 5-day to the 200-day—sit above the current price, indicating sustained downward momentum. The stock trades 28.63% below its 200-day moving average of ₹377.69, a technical signal of deep distress.

The high beta of 1.50 means Josts Engineering is significantly more volatile than the broader market, amplifying both gains and losses. With a volatility of 52.56% over the past year, compared to the Sensex's 11.52%, the stock carries substantial risk. The risk-adjusted return of -0.82 classifies it as "HIGH RISK LOW RETURN", an unattractive combination for most investors.

Interestingly, longer-term returns paint a different picture. Over three years, the stock has delivered 174.35% returns with positive alpha of 137.41 percentage points, and five-year returns of 300.36% significantly outpaced the Sensex. This historical outperformance reflects the company's strong growth trajectory prior to the current downturn, but offers little comfort to investors who entered positions in the past two years.

Investment Thesis: Quality Foundation, Troubled Present

The investment thesis for Josts Engineering presents a classic value trap scenario: a company with historically good quality fundamentals now facing severe operational challenges that may persist longer than valuation metrics suggest is appropriate. The proprietary scoring system assigns an overall score of just 38 out of 100, firmly in "SELL" territory, reflecting the dominance of near-term negative factors over longer-term quality attributes.

On the positive side, the company maintains several structural strengths. It operates as a net cash company with an average net debt-to-equity ratio of -0.09, indicating more cash than debt on the balance sheet. The five-year average ROCE of 22.45% and ROE of 16.18% demonstrate historically strong capital efficiency. Sales growth of 18.12% CAGR over five years and EBIT growth of 16.20% reflect a business that successfully expanded for most of the past decade. Zero promoter pledging and a debt-to-EBITDA ratio of just 0.87 provide financial flexibility.

However, these historical strengths are overwhelmed by current weaknesses. The financial trend turned "NEGATIVE" in December 2025, with key metrics deteriorating sharply. Latest half-year ROCE of 12.76% and ROE declining to 8.01% annually represent significant erosion from historical averages. Profit after tax for the latest six months of ₹1.13 crores declined 59.97% year-on-year, whilst interest costs surged 81.94%. The debtors turnover ratio falling to 2.70 times signals collection challenges.

The technical picture reinforces caution. The bearish trend, confirmed across multiple timeframes with MACD, RSI, Bollinger Bands, and moving averages all pointing to continued weakness, suggests further downside risk before any stabilisation. The stock's failure to hold above even short-term moving averages indicates an absence of buying support at current levels.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

The trajectory for Josts Engineering over the next two to three quarters will determine whether the current downturn represents a cyclical trough or a more structural deterioration in business economics. Several factors warrant close monitoring by investors considering any position in the stock.

The company's next quarterly results in early 2026 will be critical. Investors should look for signs of revenue stabilisation, margin improvement, and normalisation of the tax rate from the anomalous 56.84% seen in Q2. Any positive management commentary on order inflows, particularly from international principals, would provide comfort about medium-term prospects.