Kalyan Capitals Q2 FY26: Profit Plunges 45% as Interest Costs Surge

The quarterly results paint a concerning picture for this Delhi-based NBFC, which operates in the investment and lending space. Whilst revenue showed resilience with a 27.72% year-on-year growth, the company's profitability was severely impacted by a dramatic surge in interest costs, which jumped to ₹6.17 crores in Q2 FY26 from ₹4.82 crores in the previous quarter—marking the highest interest expense in recent quarters. This 28.01% sequential increase in borrowing costs reflects the mounting pressure from the company's elevated debt levels, with a debt-to-equity ratio standing at a worrying 4.97 times on a half-yearly basis.

Financial Performance: Margin Compression Amid Revenue Growth

Kalyan Capitals' Q2 FY26 performance reveals a troubling disconnect between top-line expansion and bottom-line deterioration. Net sales of ₹8.57 crores declined marginally by 2.94% sequentially but grew 27.72% year-on-year, suggesting reasonable business momentum. However, the company's ability to convert this revenue into profits has been severely compromised.

The PAT margin compression from 27.41% in Q1 FY26 to 15.99% in Q2 FY26 represents a massive 1,142 basis points deterioration. This erosion stems primarily from the interest expense surge, which consumed 72.00% of operating profit in Q2 FY26, up from 58.00% in the previous quarter. The company's EBIT to interest coverage ratio has weakened considerably, averaging just 1.45 times over the long term—a level that signals limited financial flexibility and heightened vulnerability to interest rate movements.

On an annual basis, the company's performance has been volatile. FY25 saw net sales decline 16.10% to ₹26.00 crores from ₹31.00 crores in FY24, whilst profit after tax plummeted 57.14% to ₹3.00 crores from ₹7.00 crores. The PAT margin for FY25 stood at just 11.50%, significantly below the 22.60% achieved in FY24, highlighting the structural challenges facing the business model.

Operational Challenges: Debt Burden and Capital Efficiency Concerns

The most pressing concern for Kalyan Capitals is its precarious capital structure. The company's debt-to-equity ratio of 4.97 times on a half-yearly basis represents the highest level in recent periods, indicating aggressive leverage that leaves little room for error. This high debt burden translates directly into elevated interest costs, which have become the single largest drag on profitability.

Return on capital employed (ROCE) for H1 FY26 stands at just 7.90%—the lowest level recorded—whilst return on equity (ROE) has deteriorated to 5.03% on a latest twelve-month basis, down from an average of 8.41%. These metrics suggest that the company is generating inadequate returns on the capital deployed, raising questions about the sustainability and quality of the underlying business model. For context, the average ROCE over the long term is 10.73%, but the recent trajectory shows clear deterioration.

The balance sheet reveals concerning trends. Current liabilities have surged from ₹138.27 crores in FY24 to ₹198.30 crores in FY25, a 43.42% increase, whilst shareholder funds grew modestly from ₹46.99 crores to ₹49.48 crores. This widening gap between liabilities and equity underscores the mounting financial pressure. Current assets of ₹36.14 crores in FY25 provide limited cushion against the substantial current liabilities, pointing to potential liquidity challenges.

NBFC Sector Context: Underperformance Against Industry Peers

Kalyan Capitals operates in India's competitive non-banking financial services sector, which has seen robust growth driven by credit demand and financial inclusion initiatives. However, the company's performance stands in stark contrast to broader industry trends. Over the past year, the NBFC sector delivered returns of 15.95%, whilst Kalyan Capitals' stock plummeted 41.97%, resulting in an underperformance of 57.92 percentage points.

Compared to its peer group, Kalyan Capitals trades at a P/E multiple of 12.68 times, which appears reasonable relative to peers like Challani Capital (22.87x) but significantly higher than AD Manum Finance (4.70x). The price-to-book ratio of 0.89 times suggests the market values the company below its book value, reflecting concerns about asset quality and future profitability. Notably, Kalyan Capitals' debt-to-equity ratio of 3.23 times is substantially higher than most peers, with AD Manum Finance and Challani Capital maintaining conservative leverage at just 0.09 times.

The company's ROE of 8.41% is marginally higher than AD Manum Finance's 8.37% but significantly trails Challani Capital's 14.89%, indicating inferior capital efficiency. This peer comparison underscores that whilst valuation multiples may appear attractive on the surface, the underlying financial health and operational performance lag considerably behind better-capitalised competitors.

Valuation Analysis: Attractive Multiples Mask Fundamental Weakness

At the current market price of ₹8.09, Kalyan Capitals trades at what appears to be an attractive valuation on conventional metrics. The P/E ratio of 12.68 times compares favourably to the NBFC industry average of 29 times, representing a 56% discount. The price-to-book ratio of 0.89 times implies the stock trades below its book value of ₹6.33 per share, theoretically offering a margin of safety.

However, these seemingly attractive multiples must be viewed in the context of deteriorating fundamentals. The company's valuation grade has fluctuated between "Very Attractive" and "Attractive" over recent months, with the current assessment at "Very Attractive." Yet this favourable valuation assessment reflects the sharp price decline rather than improving business quality. The stock has fallen 45.12% from its 52-week high of ₹14.74, whilst trading 20.75% above its 52-week low of ₹6.70.

The enterprise value to EBITDA multiple of 8.06 times and EV to sales of 6.85 times suggest modest valuations, but investors must question whether these metrics adequately capture the risks associated with the elevated leverage, declining margins, and inconsistent profitability. The absence of dividend payments (dividend yield: NA) further limits the investment appeal, as shareholders cannot rely on income distributions whilst waiting for potential capital appreciation.

Shareholding Pattern: Promoter Consolidation Amid Institutional Absence

The shareholding pattern reveals a dramatic shift in promoter ownership, with promoter holding surging from 4.82% in March 2025 to 67.61% in June 2025—an increase of 62.79 percentage points. This substantial consolidation has remained stable at 67.61% through September 2025, suggesting promoters have significantly increased their stake in the company.

Whilst increased promoter holding can signal confidence in the business, the complete absence of institutional investors—zero FII, mutual fund, insurance, and other DII holdings—raises red flags. Institutional investors typically conduct rigorous due diligence, and their absence suggests limited confidence in the company's prospects or concerns about governance, transparency, or business sustainability. The non-institutional shareholding has remained stable around 32.39%, representing primarily retail investors.

Positively, there is no promoter pledging, which eliminates one potential risk factor. However, the lack of institutional validation combined with the micro-cap status (₹45.00 crores market capitalisation) contributes to limited liquidity and heightened volatility. The average daily trading volume of 23,860 shares indicates thin trading, which can lead to sharp price movements on relatively small order flows.

Stock Performance: Severe Underperformance Across All Timeframes

Kalyan Capitals' stock performance has been dismal across virtually all timeframes, significantly underperforming both the benchmark Sensex and its NBFC sector peers. The stock closed at ₹8.09 on November 18, 2025, down 2.29% on the day, and has been in a persistent downtrend.

The negative alpha across all periods is particularly concerning. Over one year, the stock has delivered a negative alpha of 51.45%, meaning it has underperformed the Sensex by this magnitude. The three-year alpha of -100.03% indicates the stock has effectively destroyed shareholder value whilst the broader market rallied strongly. Year-to-date, the stock is down 36.85% compared to the Sensex's gain of 8.36%, representing an underperformance of 45.21 percentage points.

The stock's beta of 1.50 classifies it as a high-beta security, meaning it exhibits 50% more volatility than the market. However, this higher volatility has translated into amplified losses rather than gains. The risk-adjusted return over one year stands at -0.88, with volatility of 47.74%—far exceeding the Sensex's volatility of 12.26%. This places Kalyan Capitals firmly in the "HIGH RISK LOW RETURN" category, an unfavourable combination for investors.

Technical indicators paint a uniformly bearish picture. The stock trades below all key moving averages—5-day (₹8.47), 20-day (₹8.76), 50-day (₹8.85), 100-day (₹9.09), and 200-day (₹9.28)—signalling persistent selling pressure. The MACD, RSI (on weekly), Bollinger Bands, and KST indicators all flash bearish signals. The overall technical trend is classified as "BEARISH" as of October 29, 2025, having deteriorated from "Mildly Bearish" earlier. Immediate support lies at the 52-week low of ₹6.70, whilst resistance is clustered around the moving average levels.

Investment Thesis: Quality Concerns Overshadow Valuation Appeal

The investment case for Kalyan Capitals rests on several conflicting factors. On the positive side, the company has demonstrated healthy long-term sales growth with a five-year CAGR of 49.57% and EBIT growth of 58.49%. The valuation appears attractive with a P/E of 12.68 times and P/BV of 0.89 times, both trading at significant discounts to historical levels and industry averages. There is no promoter pledging, eliminating one governance risk.

However, these positives are overwhelmed by significant concerns. The company's quality grade is "Below Average," reflecting weak long-term financial performance. Average ROCE of 10.73% and ROE of 8.41% indicate poor capital efficiency. The EBIT to interest coverage ratio of just 1.45 times leaves minimal cushion for servicing debt obligations. The debt-to-EBITDA ratio of 7.66 times and net debt-to-equity of 3.23 times signal excessive leverage.

The financial trend is classified as "Flat" for Q2 FY26, with recent quarters showing the highest interest expenses and debt-equity ratio on record, alongside the lowest ROCE. The complete absence of institutional holdings (0.0%) suggests sophisticated investors see limited value. The proprietary Mojo Score of just 26 out of 100 places the stock firmly in "STRONG SELL" territory, with the recommendation to "Strongly consider selling."

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