The quarter's results reveal a tale of two narratives: impressive year-on-year momentum driven by strong sectoral tailwinds in industrial automation, offset by concerning sequential weakness that raises questions about order execution timing and revenue visibility. The stock has underperformed significantly, declining 19.46% over the past year whilst the Sensex gained 4.97%, resulting in a negative alpha of 24.43 percentage points.
Financial Performance: Quarterly Volatility Amid Growth
| Quarter | Revenue (₹ Cr) | QoQ % | Net Profit (₹ Cr) | QoQ % | OPM % |
|---|---|---|---|---|---|
| Jun'25 | 410.17 | -28.75% | 71.42 | -34.46% | 24.43% |
| Mar'25 | 575.68 | +28.07% | 108.97 | +35.81% | 30.86% |
| Dec'24 | 449.51 | +4.37% | 80.24 | +5.75% | 25.04% |
| Sep'24 | 430.67 | +19.02% | 75.88 | +49.02% | 24.75% |
| Jun'24 | 361.84 | -19.61% | 50.92 | -48.90% | 26.00% |
| Mar'24 | 450.13 | +19.11% | 99.64 | +107.41% | 29.73% |
| Dec'23 | 377.92 | — | 48.04 | — | 25.47% |
Jyoti CNC's Q2 FY26 revenue of ₹410.17 crores represents a 13.36% year-on-year increase but a stark 28.75% sequential decline from the exceptional Q1 FY26 performance. The company's revenue trajectory exhibits pronounced quarterly volatility, with Q1 FY26 recording an outlier performance of ₹575.68 crores—suggesting lumpy order execution patterns typical of capital goods manufacturers. Operating margins compressed to 24.43% in Q2 FY26 from 30.86% in the previous quarter, reflecting the impact of lower revenue absorption on fixed costs and potentially adverse product mix.
Net profit of ₹71.42 crores in Q2 FY26, whilst delivering healthy 40.26% YoY growth, fell 34.46% sequentially from ₹108.97 crores in Q1 FY26. The PAT margin of 17.41% remained reasonably robust but contracted 152 basis points quarter-on-quarter. Employee costs rose to ₹72.50 crores in Q2 FY26 from ₹57.04 crores in the year-ago quarter, reflecting capacity expansion and talent acquisition to support growth aspirations. Interest costs remained elevated at ₹12.18 crores, though significantly lower than the ₹20.70 crores recorded in Q1 FY24.
On a half-yearly basis (H1 FY26), the company reported revenues of ₹985.85 crores, representing 23.75% growth over H1 FY25. Net profit for H1 FY26 stood at ₹156.92 crores, up 23.75% year-on-year, demonstrating the underlying growth momentum despite quarterly fluctuations. The tax rate normalised to 25.82% in Q2 FY26 from the exceptionally low 7.41% in Q1 FY24, indicating more sustainable effective tax rates going forward.
Operational Challenges: Lumpy Execution and Margin Pressures
⚠️ Key Concern: Revenue Lumpiness
The sharp 28.75% sequential revenue decline in Q2 FY26 highlights the inherent volatility in capital equipment manufacturing. Whilst Q1 FY26's exceptional ₹575.68 crores revenue represented peak execution, Q2's normalisation to ₹410.17 crores raises questions about order book visibility and execution cadence. This pattern has persisted historically, with similar sequential declines observed in Jun'24 (-19.61%) and Jun'25 (-28.75%).
Jyoti CNC's return on equity (ROE) stood at 18.74% for the latest period, demonstrating strong capital efficiency and reflecting the company's ability to generate healthy returns on shareholder capital. This metric has improved substantially from the average ROE of 14.90% over the assessment period, indicating improving profitability trends. The company's return on capital employed (ROCE) of 22.08% for the latest period significantly outpaces the average ROCE of 14.41%, highlighting enhanced operational efficiency and better asset utilisation.
The balance sheet reveals a company in expansion mode, with fixed assets increasing to ₹468.74 crores in FY25 from ₹322.31 crores in FY24, reflecting substantial capital expenditure on manufacturing capacity. Long-term debt stood at ₹102.56 crores as of March 2025, resulting in a modest debt-to-equity ratio. Current assets of ₹2,119.78 crores substantially exceed current liabilities of ₹984.75 crores, providing a comfortable liquidity cushion. However, the negative operating cash flow of ₹105.00 crores in FY25, driven by working capital expansion of ₹522.00 crores, signals aggressive growth investments that require monitoring.
Balance Sheet Strength
Shareholder funds expanded dramatically to ₹1,686.15 crores in FY25 from ₹1,364.63 crores in FY24, driven by retained earnings and equity capital of ₹45.48 crores. The debt-to-EBITDA ratio of 1.56 and net debt-to-equity ratio of 0.22 indicate a conservatively leveraged balance sheet. Book value per share stands at ₹74.15, though the stock trades at a substantial premium with a price-to-book ratio of 11.97x.
Industry Context: Capital Goods Cycle and Competitive Intensity
The industrial manufacturing sector in India has witnessed robust growth driven by government infrastructure spending, manufacturing capacity expansion under the Production Linked Incentive (PLI) schemes, and increasing automation adoption. Jyoti CNC operates in the CNC machine tools segment, catering to automotive, aerospace, defence, and general engineering sectors. The sector's inherent characteristics include long sales cycles, project-based revenue recognition, and significant working capital requirements, all of which contribute to quarterly earnings volatility.
The company's 5-year sales CAGR of 33.50% and EBIT CAGR of 72.75% demonstrate its ability to capitalise on favourable industry dynamics. However, the capital-intensive nature of the business, reflected in a sales-to-capital-employed ratio of 0.68x, necessitates continuous investment in manufacturing infrastructure and technology upgrades. The company's order book visibility and execution capabilities will be critical determinants of sustained growth momentum.
Peer Comparison: Premium Valuation Amid Mixed Fundamentals
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield |
|---|---|---|---|---|---|
| Jyoti CNC Auto. | 59.96 | 11.97 | 14.90% | 0.22 | — |
| Kaynes Tech | 110.25 | 14.70 | 9.21% | -0.05 | — |
| Honeywell Auto | 61.84 | 0.76 | 11.62% | -0.83 | 0.29% |
| LMW | 139.10 | 0.59 | 9.19% | -0.62 | 0.19% |
| Syrma SGS Tech. | 76.14 | 8.79 | 8.26% | 0.18 | 0.19% |
| Jupiter Wagons | 41.12 | 4.82 | 14.18% | -0.08 | 0.32% |
Jyoti CNC trades at a P/E multiple of 59.96x, below the peer average of approximately 86x but substantially above the industry P/E of 38x. The company's superior ROE of 14.90% compared to the peer average of approximately 10% partially justifies the valuation premium. However, the price-to-book ratio of 11.97x stands significantly elevated relative to peers such as Honeywell Auto (0.76x) and LMW (0.59x), reflecting market expectations of sustained high-growth performance.
The company's conservative leverage profile, with a debt-to-equity ratio of 0.22, compares favourably with peers and provides financial flexibility for growth investments. However, the absence of dividend distributions, unlike peers such as Jupiter Wagons (0.32% yield) and Honeywell Auto (0.29% yield), means shareholders rely entirely on capital appreciation for returns. With a market capitalisation of ₹20,676 crores, Jyoti CNC ranks third amongst its peer group, positioning it as a mid-sized player in the industrial manufacturing space.
Valuation Analysis: Expensive Multiples Demand Perfection
Jyoti CNC's valuation metrics uniformly signal expensive pricing, with the stock graded as "Very Expensive" in the proprietary valuation assessment. The P/E ratio of 59.96x demands sustained earnings growth to justify current levels, particularly given the quarterly volatility in financial performance. The EV/EBITDA multiple of 41.35x and EV/Sales ratio of 11.01x reflect aggressive market expectations embedded in the stock price.
The PEG ratio of 0.47x appears attractive on a growth-adjusted basis, considering the company's 5-year sales CAGR of 33.50%. However, this metric assumes linear growth extrapolation, which may prove optimistic given the lumpy revenue patterns and sequential quarterly declines. The price-to-book ratio of 11.97x implies the market values the company's intangible assets—including brand, customer relationships, and technical expertise—at a significant premium to tangible book value.
At the current price of ₹909.15, the stock trades 39.46% below its 52-week high of ₹1,501.65 and 21.19% above its 52-week low of ₹750.20. The substantial correction from peak levels reflects reassessment of growth expectations and valuation normalization. However, even after the correction, the valuation remains stretched relative to historical norms and peer comparisons, limiting margin of safety for fresh investors.
Shareholding Pattern: Institutional Confidence Building
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 4.11% | 4.11% | 4.11% | 0.00% |
| FII | 9.92% | 7.45% | 7.20% | +2.47% |
| Mutual Funds | 11.78% | 10.20% | 10.35% | +1.58% |
| Insurance | 1.12% | 0.12% | 0.06% | +1.00% |
| Non-Institutional | 14.63% | 19.67% | 19.83% | -5.04% |
The shareholding pattern reveals growing institutional confidence, with combined FII and mutual fund holdings increasing to 21.70% in September 2025 from 17.55% in March 2025. Foreign institutional investors raised their stake by 247 basis points sequentially to 9.92%, whilst domestic mutual funds added 158 basis points to reach 11.78%. Insurance companies significantly increased exposure by 100 basis points to 1.12%, indicating broader institutional participation.
The promoter holding of 4.11% remains unusually low for an Indian manufacturing company, with key promoters including Parakramsinh Ghanshyamsinh Jadeja (26.91%), Jyoti International LLP (16.16%), and Anilkumar Bhikhabhai Virani (14.45%) holding stakes outside the promoter category classification. Non-institutional holdings declined by 504 basis points to 14.63%, suggesting retail profit-booking amid valuation concerns and stock price volatility. The pledged shares at 4.11% of total equity warrant monitoring, though the absolute quantum remains modest.
Stock Performance: Significant Underperformance Across Timeframes
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +3.54% | -0.64% | +4.18% |
| 1 Month | -5.91% | +1.14% | -7.05% |
| 3 Months | -4.46% | +4.48% | -8.94% |
| 6 Months | -20.03% | +5.01% | -25.04% |
| YTD | -32.61% | +6.78% | -39.39% |
| 1 Year | -19.46% | +4.97% | -24.43% |
Jyoti CNC's stock has delivered disappointing returns across most timeframes, with particularly severe underperformance in the year-to-date period (-32.61%) and six-month period (-20.03%). The stock has generated negative alpha of 39.39 percentage points year-to-date and 24.43 percentage points over one year, significantly trailing both the Sensex and the industrial manufacturing sector (-6.39% over one year).
The stock's beta of 1.35 indicates higher volatility than the broader market, with annualised volatility of 48.68% compared to the Sensex's 12.35%. This high-beta, high-volatility profile has worked against investors during the recent market correction. The risk-adjusted return of -0.40 over one year, compared to the Sensex's +0.40, highlights the unfavourable risk-reward trade-off. Recent technical indicators show the stock in a "Mildly Bearish" trend, trading below all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), with immediate resistance at ₹907.42 (20-day MA) and support at ₹750.20 (52-week low).
"At 60x earnings and 12x book value, Jyoti CNC demands flawless execution and sustained growth—a tall order given quarterly revenue volatility and margin pressures."
Investment Thesis: Quality Business, Expensive Valuation
Jyoti CNC exhibits characteristics of a fundamentally sound business operating in a favourable industry environment, as evidenced by its "Good" quality grade based on long-term financial performance. The company's 5-year sales CAGR of 33.50%, improving return ratios (ROE of 18.74%, ROCE of 22.08%), and conservative leverage profile (debt-to-equity of 0.22) underscore operational strengths. Institutional holdings of 22.82% reflect professional investor confidence in the long-term opportunity.
However, the investment case faces significant headwinds from expensive valuation metrics, quarterly earnings volatility, and weak technical momentum. The "Very Expensive" valuation grade, combined with a "Flat" financial trend in the most recent quarter and "Mildly Bearish" technical trend, creates an unfavourable risk-reward equation at current levels. The proprietary Mojo Score of 42/100 and "SELL" rating reflect these mixed signals, with the score having declined from 54 (HOLD) in July 2025.
Key Strengths & Risk Factors
KEY STRENGTHS
- Strong 5-year sales CAGR of 33.50% demonstrates market share gains and execution capability
- Improving return ratios with ROE of 18.74% and ROCE of 22.08% indicating enhanced profitability
- Conservative leverage with debt-to-equity of 0.22 and debt-to-EBITDA of 1.56 provides financial flexibility
- Growing institutional participation with FII and MF holdings increasing to 21.70%
- Healthy PAT margins of 17.41% despite capital-intensive business model
- Strong balance sheet with current ratio above 2x and shareholder funds of ₹1,686 crores
- Positioned to benefit from India's manufacturing and automation growth themes
KEY CONCERNS
- Severe quarterly revenue volatility with 28.75% QoQ decline in Q2 FY26 raising visibility concerns
- Expensive valuation with P/E of 60x, P/BV of 12x, and EV/EBITDA of 41x demanding perfection
- Sharp margin compression with operating margins falling 635 bps QoQ to 24.43%
- Negative operating cash flow of ₹105 crores in FY25 due to aggressive working capital expansion
- Stock down 32.61% YTD and 19.46% over one year with consistent underperformance
- High volatility (48.68%) and elevated beta (1.35) increasing downside risk
- Unusually low promoter holding of 4.11% with 4.11% pledged shares
Outlook: What to Watch
POSITIVE CATALYSTS
- Order book announcements and execution visibility improvements
- Sequential margin recovery and operating leverage benefits
- Further institutional buying and analyst coverage expansion
- Government infrastructure spending and PLI scheme benefits
- Capacity utilisation improvements and revenue normalisation
RED FLAGS
- Continued quarterly revenue volatility and execution delays
- Further margin compression below 20% PAT margin threshold
- Sustained negative operating cash flows straining liquidity
- Valuation de-rating if growth expectations disappoint
- Promoter stake dilution or increase in pledged shares
The near-term outlook hinges on management's ability to demonstrate consistent execution and revenue visibility. Investors should monitor order inflow announcements, quarterly revenue patterns, and margin trajectory closely. The company's participation in upcoming investor conferences and management commentary on order book status will be critical for sentiment. Any signs of sustained margin recovery or revenue stabilisation could trigger a re-rating, whilst continued volatility may lead to further valuation compression.
The Verdict: Expensive Valuation Outweighs Growth Potential
Score: 42/100
For Fresh Investors: Avoid initiating positions at current valuation levels. The combination of expensive multiples (60x P/E, 12x P/BV), quarterly earnings volatility, and weak technical momentum creates an unfavourable risk-reward equation. Wait for substantial correction or evidence of sustained execution improvement before considering entry.
For Existing Holders: Consider reducing exposure and booking profits, particularly if holding from lower levels. The 32.61% YTD decline has eroded gains, but current valuation remains stretched. Use any technical bounce towards ₹950-₹1,000 levels to lighten positions. Long-term believers may hold a core position but should reassess if the stock breaks below ₹850.
Fair Value Estimate: ₹750-₹800 (12-17% downside from current levels), based on 45-50x P/E on FY26 estimated earnings of ₹16-17 per share, assuming normalised quarterly performance and margin stabilisation.
Rationale: Whilst Jyoti CNC demonstrates strong long-term growth credentials and improving return ratios, the current valuation leaves minimal margin of safety. The 28.75% sequential revenue decline in Q2 FY26, combined with margin compression and negative operating cash flows, raises near-term execution concerns. The stock's consistent underperformance (negative 24.43% alpha over one year) and bearish technical setup further justify a cautious stance. Quality businesses deserve premium valuations, but at 60x earnings with visible quarterly volatility, the risk-reward trade-off favours waiting for a better entry point.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. The stock market involves risk, and investors may lose part or all of their invested capital.
