The results paint a troubling picture of operational distress at the Mumbai-based machinery manufacturer. Whilst net sales showed modest resilience with a 5.16% year-on-year increase to ₹134.60 crores, the company's ability to convert this revenue into profits has deteriorated dramatically. Operating profit before depreciation, interest, tax and other income (PBDIT excl OI) stood at ₹8.96 crores with a margin of just 6.66%, down sharply from 17.45% in the year-ago quarter—a margin compression exceeding 1,000 basis points.
Sequential trends offered little comfort. Whilst revenue rebounded 56.57% quarter-on-quarter from the dismal ₹85.97 crores reported in Q1 FY26, the company swung from a loss-making position (net loss of ₹7.61 crores in Q1) to barely break-even profitability. This recovery pattern suggests fundamental challenges in sustaining profitable operations rather than temporary headwinds.
Financial Performance: A Profitability Meltdown
The quarterly performance reveals severe operational stress across multiple metrics. On a year-on-year basis, Q2 FY26 saw net sales inch up 5.16% to ₹134.60 crores from ₹128.00 crores in Q2 FY25. However, this modest topline growth masked a complete erosion of profitability. Operating profit excluding other income collapsed 59.91% year-on-year to ₹8.96 crores from ₹22.34 crores, whilst the operating margin contracted from 17.45% to 6.66%.
| Quarter | Revenue (₹ Cr) | QoQ % | Net Profit (₹ Cr) | QoQ % | Op. Margin % | PAT Margin % |
|---|---|---|---|---|---|---|
| Sep'25 | 134.60 | +56.57% | 0.33 | -104.34% | 6.66% | 0.25% |
| Jun'25 | 85.97 | -38.39% | -7.61 | -170.27% | -3.43% | -8.85% |
| Mar'25 | 139.54 | +15.16% | 10.83 | +53.84% | 3.19% | 7.76% |
| Dec'24 | 121.17 | -5.34% | 7.04 | -42.90% | 11.58% | 5.81% |
| Sep'24 | 128.00 | +45.12% | 12.33 | +513.43% | 17.45% | 9.63% |
| Jun'24 | 88.20 | -47.49% | 2.01 | -89.40% | 5.82% | 2.28% |
| Mar'24 | 167.98 | — | 18.97 | — | 16.63% | 11.29% |
The profit before tax (PBT) position turned negative at ₹0.55 crores in Q2 FY26 compared to a healthy ₹16.28 crores in the corresponding quarter last year. The company recorded an unusual tax credit of ₹0.88 crores (effective tax rate of 160%), which prevented a net loss but resulted in a negligible net profit of ₹0.33 crores. The PAT margin compressed to a mere 0.25% from 9.63% a year earlier.
Cost pressures intensified across the board. Employee costs rose to ₹14.84 crores from ₹10.61 crores year-on-year, representing an increase of 39.87%. Depreciation charges surged 50.47% to ₹7.99 crores from ₹5.31 crores, whilst interest costs climbed 12.61% to ₹2.68 crores. These fixed cost increases against modest revenue growth created severe operating leverage challenges.
QoQ: +56.57%
YoY: +5.16%
QoQ: -104.34%
YoY: -97.32%
Operational Challenges: Margin Compression and Structural Concerns
The dramatic margin erosion points to fundamental operational challenges that extend beyond cyclical pressures. The company's operating profit margin (excluding other income) has declined consistently from 16.63% in March 2024 to 6.66% in September 2025, suggesting structural issues rather than temporary disruptions. This deterioration occurred despite the company operating in a niche segment of plastic extrusion machinery where it claims to be one of the largest players.
Critical Red Flags: Profitability Crisis
Severe Margin Compression: Operating margins have contracted by over 1,000 basis points year-on-year, falling from 17.45% to 6.66%. This represents the lowest quarterly margin in recent history, excluding the loss-making Q1 FY26.
Negative Operating Leverage: Despite revenue growth of 5.16% year-on-year, operating profit collapsed 59.91%, indicating severe cost control issues and negative operating leverage. Employee costs surged 39.87% whilst depreciation jumped 50.47%.
Quality of Earnings Concern: The company avoided a net loss only due to an unusual tax credit of ₹0.88 crores. Without this benefit, Q2 would have recorded a net loss, continuing the trend from Q1 FY26.
Return on equity (ROE) metrics paint an equally concerning picture. The company's average ROE over recent years stands at 8.11%, well below the double-digit returns expected from a quality industrial manufacturer. The latest ROE has further deteriorated to 5.28%, indicating weak capital efficiency. Return on capital employed (ROCE) averaged 10.91% but has now fallen to just 4.77%, suggesting the company is generating returns below its cost of capital.
Balance sheet quality remains relatively stable with low leverage. Net debt to equity averaged 0.14 over recent years, and the company carries minimal long-term debt of ₹0.17 crores as of March 2025. However, current liabilities increased to ₹300.15 crores from ₹239.21 crores, driven by higher trade payables and other current liabilities, which could indicate working capital stress.
Industry Context: Manufacturing Headwinds Intensify
Kabra Extrusion operates in the industrial manufacturing segment, specifically focusing on plastic extrusion machinery for pipes and films. The company faces headwinds from a challenging demand environment in the capital goods sector. The broader Industrial Manufacturing sector has delivered negative returns of 26.35% over the past year, though Kabra's underperformance of 46.63% significantly exceeds this sectoral decline.
The company's revenue trajectory over recent years reveals cyclical vulnerability. After achieving peak annual sales of ₹670.00 crores in FY23, revenues declined 9.4% to ₹607.00 crores in FY24 and further contracted 21.6% to ₹476.00 crores in FY25. This represents a cumulative revenue decline of approximately 29% from the FY23 peak, indicating prolonged demand weakness rather than temporary disruption.
Long-Term Growth Concerns
Whilst the company achieved respectable 5-year sales CAGR of 16.49%, this growth has decelerated sharply in recent years. More concerning is the 5-year EBIT growth of just 7.13%, significantly lagging revenue growth and indicating sustained margin pressure. Operating profit (PBDIT excl OI) declined from ₹74.00 crores in FY23 to ₹49.00 crores in FY25, a contraction of 33.78% over two years.
Peer Comparison: Valuation Premium Without Performance Justification
A comparison with industrial manufacturing peers reveals Kabra Extrusion's valuation disconnect. The company trades at a price-to-earnings ratio of 56.83x based on trailing twelve months, substantially higher than most peers and the industry average of 35x. This premium appears unjustified given the company's weak profitability metrics and deteriorating financial performance.
| Company | P/E (TTM) | ROE % | P/BV | Div Yield % | Debt/Equity |
|---|---|---|---|---|---|
| Kabra Extrusion | 56.83 | 8.11% | 1.82 | 1.04% | 0.14 |
| Forbes Precision | 33.00 | 17.29% | 5.69 | 2.73% | -0.17 |
| Eimco Elecon | 25.25 | 4.92% | 2.52 | 0.30% | -0.04 |
| Gala Precision | 34.45 | 10.54% | 3.66 | — | -0.14 |
| Airfloa Rail | 34.23 | 11.56% | 8.07 | — | 0.00 |
| Integra Engineering | 40.51 | 20.82% | 8.77 | — | 0.38 |
Kabra's ROE of 8.11% ranks amongst the lowest in the peer group, with only Eimco Elecon posting a weaker 4.92%. In contrast, Integra Engineering delivers ROE of 20.82% whilst Forbes Precision achieves 17.29%. The company's price-to-book ratio of 1.82x appears modest compared to peers, but this reflects the market's recognition of inferior return profiles rather than value opportunity.
The dividend yield of 1.04% provides minimal income support, especially considering the sustainability questions raised by current profitability levels. The company declared a dividend of ₹2.50 per share with an ex-date of July 9, 2025, representing a payout ratio of 36.20%. However, with quarterly profits having collapsed to ₹0.33 crores, maintaining this dividend policy appears challenging without depleting reserves.
Valuation Analysis: Premium Pricing for Deteriorating Fundamentals
Current valuation metrics suggest significant overvaluation relative to fundamentals. At a P/E ratio of 56.83x, Kabra Extrusion trades at a 62% premium to the industry average of 35x despite delivering inferior financial performance. The EV/EBITDA multiple of 23.94x and EV/EBIT multiple of 56.77x both appear elevated for a company experiencing margin compression and negative earnings growth.
The stock's valuation grade has oscillated between "Very Attractive" and "Fair" in recent months, currently assessed as "Fair" since September 29, 2025. However, this assessment appears generous given the fundamental deterioration. The company's enterprise value to sales ratio of 1.91x and EV to capital employed of 1.71x suggest the market continues to price in optimistic recovery scenarios that current trends do not support.
Fair value estimation proves challenging given the earnings volatility and margin uncertainty. Applying a more appropriate P/E multiple of 25x to normalised earnings of approximately ₹30-35 crores annually suggests a fair value range of ₹210-245 per share, implying limited upside from current levels of ₹240.15. Any further margin deterioration or revenue decline would necessitate significantly lower fair value estimates.
Shareholding Pattern: Institutional Exodus Continues
Shareholding trends reveal waning institutional confidence. Foreign Institutional Investor (FII) holdings have declined consistently over the past year, falling from 3.32% in September 2024 to just 0.37% in September 2025. This represents a dramatic reduction of nearly 89% in FII ownership, signalling institutional investors' concerns about the company's prospects.
| Quarter | Promoter % | FII % | MF % | Insurance % | Other DII % |
|---|---|---|---|---|---|
| Sep'25 | 60.50% | 0.37% | 0.01% | 0.00% | 0.64% |
| Jun'25 | 60.21% | 0.81% | 0.01% | 0.00% | 0.69% |
| Mar'25 | 60.24% | 1.46% | 0.01% | 0.00% | 0.69% |
| Dec'24 | 60.24% | 2.96% | 0.01% | 0.00% | 0.32% |
| Sep'24 | 60.24% | 3.32% | 0.01% | 0.00% | -0.00% |
Promoter holdings remained relatively stable at 60.50% in September 2025, marginally up from 60.24% a year earlier. Positively, there is no promoter pledging, indicating the promoter group maintains confidence despite operational challenges. However, the negligible mutual fund presence (0.01%) and absence of insurance company holdings underscore the lack of institutional support.
Non-institutional holdings increased to 38.48% from 36.43% year-on-year, suggesting retail investors may be catching the proverbial falling knife. The total institutional holding stands at a mere 1.02%, one of the lowest amongst listed industrial manufacturers, reflecting poor institutional appetite for the stock.
Stock Performance: Severe Wealth Destruction
The stock's performance has been disastrous across all meaningful timeframes. Over the past year, Kabra Extrusion declined 46.63% whilst the Sensex gained 3.65%, resulting in negative alpha of 50.28 percentage points. The underperformance has been even more pronounced over longer periods, with 3-year returns of negative 46.50% compared to Sensex gains of 36.69%.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.00% | -1.30% | -0.70% |
| 1 Month | -5.86% | +1.86% | -7.72% |
| 3 Months | -7.03% | +3.44% | -10.47% |
| 6 Months | -5.82% | +3.31% | -9.13% |
| YTD | -56.49% | +6.62% | -63.11% |
| 1 Year | -46.63% | +3.65% | -50.28% |
| 3 Years | -46.50% | +36.69% | -83.19% |
| 5 Years | +204.18% | +98.87% | +105.31% |
Year-to-date, the stock has crashed 56.49%, making it one of the worst performers in the industrial manufacturing space. The stock trades 59.16% below its 52-week high of ₹588.00 reached earlier in the year, though it sits marginally above its 52-week low of ₹234.15. Technical indicators uniformly point to continued weakness, with the stock trading below all key moving averages.
The 5-year returns of 204.18% provide historical context, showing the stock delivered strong gains during the post-pandemic recovery phase. However, this performance has completely reversed over the past two years, with 2-year returns standing at negative 45.52%. The stock's beta of 1.50 indicates high volatility, amplifying both gains and losses relative to the broader market.
Investment Thesis: Multiple Red Flags Dominate
The investment case for Kabra Extrusion has deteriorated significantly across all key parameters. The company's proprietary Mojo score stands at just 26 out of 100, firmly in "STRONG SELL" territory. This score reflects the convergence of negative factors: bearish technical trend, negative financial trend, average quality grade, and fair but deteriorating valuation.
The quality assessment of "Average" appears generous given recent performance. Whilst the company benefits from no promoter pledging and a relatively clean balance sheet, the weak ROE of 8.11% and deteriorating ROCE of 4.77% indicate poor capital allocation and operational efficiency. The 5-year EBIT growth of just 7.13% significantly lags the 16.49% sales CAGR, highlighting sustained margin pressure.
"With operating margins collapsing from 17.45% to 6.66% year-on-year and quarterly profits evaporating to a negligible ₹0.33 crores, Kabra Extrusion faces a profitability crisis that demands urgent management action—yet visibility on recovery remains absent."
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Market Position: Established player in plastic extrusion machinery with specialisation in pipes and films
- Balance Sheet: Low leverage with debt-to-equity of 0.14 and minimal long-term debt of ₹0.17 crores
- No Pledging: Zero promoter pledging indicates promoter confidence and financial stability
- Dividend Track Record: Consistent dividend payer with 36.20% payout ratio, though sustainability questionable
- Historical Growth: Delivered 16.49% sales CAGR over 5 years, though momentum has reversed
KEY CONCERNS ⚠
- Profitability Collapse: Net profit crashed 97.32% YoY to ₹0.33 crores; operating margins fell from 17.45% to 6.66%
- Negative Operating Leverage: Fixed costs surging whilst revenues stagnate; employee costs up 39.87% YoY
- Cyclical Vulnerability: Revenue declined 29% from FY23 peak; prolonged demand weakness evident
- Weak Returns: ROE of 8.11% and ROCE of 4.77% indicate poor capital efficiency and below-cost-of-capital returns
- Institutional Exodus: FII holdings collapsed 89% from 3.32% to 0.37%; total institutional holding just 1.02%
- Valuation Premium: P/E of 56.83x (62% premium to industry) unjustified by fundamentals
- Technical Weakness: Stock in confirmed bearish trend; trading below all moving averages; down 46.63% in past year
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained margin recovery above 12% for two consecutive quarters
- Revenue growth returning to double digits with order book visibility
- Operating leverage improvement with cost rationalisation initiatives
- Return of institutional investor interest with FII holdings stabilising
- Capital allocation improvements driving ROE above 12%
RED FLAGS TO MONITOR
- Further margin compression below 6% indicating structural issues
- Quarterly losses in upcoming periods signalling deeper crisis
- Working capital deterioration with rising payables and inventory
- Dividend cut indicating cash flow stress and earnings sustainability concerns
- Continued institutional selling pressure and retail capitulation
The Verdict: Exit Recommended on Fundamental Deterioration
Score: 26/100
For Fresh Investors: Avoid completely. The company faces a profitability crisis with operating margins collapsing from 17.45% to 6.66% and quarterly profits evaporating to ₹0.33 crores. Negative operating leverage, institutional exodus (FII holdings down 89%), and unjustified valuation premium (P/E of 56.83x vs industry 35x) present significant downside risks. Wait for sustained margin recovery and earnings stabilisation before considering entry.
For Existing Holders: Consider exiting on any relief rallies. The stock has destroyed 46.63% of value over the past year and shows no signs of stabilisation. With weak ROE of 8.11%, ROCE below cost of capital at 4.77%, and financial trends turning negative, the risk-reward profile remains unfavourable. The bearish technical trend and continued underperformance suggest further downside likely.
Fair Value Estimate: ₹210-230 (12-15% downside from current ₹240.15), contingent on margin recovery and earnings stabilisation which remain uncertain.
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.
