The quarter's performance reveals a troubling disconnect between revenue expansion and profitability. Whilst the company achieved its highest-ever quarterly sales of ₹516.72 crores in Q2 FY26, marking an 11.12% sequential increase from Q1 FY26's ₹465.00 crores, the consolidated net profit slipped 5.14% quarter-on-quarter from ₹20.43 crores. This deterioration in earnings quality signals mounting operational pressures that demand immediate investor attention.
The stock has underperformed significantly over the past year, declining 11.72% compared to the Sensex's 4.79% gain, resulting in a negative alpha of 16.51 percentage points. Trading below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—the technical picture reinforces the fundamental concerns emerging from the latest quarterly results.
Financial Performance: Growth Without Profitability
KDDL Ltd's Q2 FY26 results present a paradox that warrants careful examination. The company's net sales of ₹516.72 crores represent impressive year-on-year growth of 30.37%, demonstrating strong demand for its watch manufacturing capabilities. On a sequential basis, revenue expanded 11.12% from Q1 FY26's ₹465.00 crores, maintaining positive momentum across consecutive quarters.
| Quarter | Net Sales (₹ Cr) | QoQ Change | YoY Change | Cons. Net Profit (₹ Cr) | QoQ Change | YoY Change | PAT Margin |
|---|---|---|---|---|---|---|---|
| Sep'25 | 516.72 | +11.12% | +30.37% | 19.38 | -5.14% | -21.09% | 6.32% |
| Jun'25 | 465.00 | +10.83% | +29.19% | 20.43 | +0.59% | +18.30% | 6.39% |
| Mar'25 | 419.58 | -11.11% | +20.70% | 20.31 | -37.45% | -20.57% | 7.52% |
| Dec'24 | 472.03 | +19.10% | — | 32.47 | +32.21% | — | 9.99% |
| Sep'24 | 396.34 | +10.12% | — | 24.56 | +42.21% | — | 8.98% |
| Jun'24 | 359.93 | +3.54% | — | 17.27 | -32.46% | — | 7.77% |
| Mar'24 | 347.61 | — | — | 25.57 | — | — | 10.01% |
However, beneath this revenue expansion lies a concerning erosion of profitability. The consolidated net profit of ₹19.38 crores in Q2 FY26 represents a sharp 21.09% decline from the year-ago quarter's ₹24.56 crores. More troubling is the sequential deterioration, with profits slipping 5.14% from Q1 FY26's ₹20.43 crores despite robust revenue growth during the same period.
The company's operating profit (PBDIT excluding other income) stood at ₹72.04 crores in Q2 FY26, translating to an operating margin of 13.94%. This represents a contraction of 198 basis points year-on-year from 15.92% in Q2 FY25, indicating deteriorating operational efficiency. The PAT margin compressed even more dramatically to 6.32% from 8.98% a year earlier, a decline of 266 basis points that signals mounting cost pressures across the business.
Employee costs surged to ₹64.70 crores in Q2 FY26, up 31.92% year-on-year from ₹49.06 crores, outpacing revenue growth and suggesting either wage inflation pressures or aggressive hiring. Interest expenses climbed to ₹10.13 crores from ₹7.43 crores a year earlier, reflecting increased debt servicing costs. Depreciation jumped 49.41% to ₹29.18 crores from ₹19.53 crores, likely stemming from recent capital expenditure programmes.
Operational Challenges: Margin Compression Under Scrutiny
The deterioration in KDDL Ltd's profitability metrics demands closer examination of its operational dynamics. The company's return on equity (ROE) of 10.35% trails peers and reflects suboptimal capital efficiency. This modest ROE, combined with contracting margins, raises questions about the sustainability of the current growth trajectory and the quality of earnings being generated.
Critical Concern: Profitability Under Pressure
Despite achieving record quarterly sales of ₹516.72 crores, KDDL Ltd's consolidated net profit declined 21.09% year-on-year to ₹19.38 crores. The operating margin (excluding other income) contracted 198 basis points to 13.94%, whilst PAT margin compressed 266 basis points to 6.32%. This deterioration signals structural cost pressures that revenue growth alone cannot overcome.
The company's balance sheet reveals a capital-intensive business model with fixed assets of ₹299.92 crores as of March 2025, up from ₹210.72 crores a year earlier—a 42.30% increase that explains the surge in depreciation charges. Current assets stood at ₹1,358.12 crores, representing an impressive 15.64% year-on-year growth, though this also ties up significant working capital.
KDDL Ltd's debt profile shows long-term borrowings of ₹95.12 crores as of March 2025, up from ₹71.55 crores in March 2024. However, the company maintains a net cash position with an average net debt-to-equity ratio of -0.07, indicating cash holdings exceed total debt. This financial flexibility provides a cushion, though the rising interest burden of ₹10.13 crores in Q2 FY26 suggests increasing reliance on borrowed funds to finance expansion.
The company's return on capital employed (ROCE) of 18.13% on average demonstrates reasonable capital productivity, though the latest ROCE of 20.45% suggests recent improvements. The EBIT-to-interest coverage ratio averaged 4.43 times, which is adequate but not robust, particularly given the rising interest expenses observed in recent quarters.
Industry Context: Navigating a Challenging Sector
KDDL Ltd operates within the gems, jewellery, and watches sector, which has faced headwinds over the past year. The sector delivered a negative return of 24.43% over the trailing twelve months, though KDDL Ltd outperformed this benchmark by 12.71 percentage points with its own decline of 11.72%. This relative outperformance offers scant comfort to investors who have watched the stock drift lower from its 52-week high of ₹3,350.00 to the current level of ₹2,496.55, a decline of 25.48%.
The watch manufacturing industry faces several structural challenges, including intense competition from smartwatch manufacturers, changing consumer preferences, and pricing pressures from international brands. KDDL Ltd's ability to maintain 30%+ revenue growth in this environment demonstrates strong market positioning, though the margin compression suggests this growth may be coming at the cost of profitability.
Sector Positioning: Relative Strength Amid Weakness
Whilst KDDL Ltd's stock declined 11.72% over the past year, this significantly outperformed the gems, jewellery, and watches sector's 24.43% decline. The company's ability to generate 30%+ revenue growth demonstrates competitive strength, though margin pressures remain a critical concern that could limit future returns if not addressed.
Peer Comparison: Valuation in Context
Examining KDDL Ltd's valuation relative to industry peers provides important perspective on its current market positioning. The company trades at a price-to-earnings (P/E) ratio of 32.88 times trailing twelve-month earnings, below the sector average but still commanding a premium valuation given its recent profit decline.
| Company | P/E (TTM) | Dividend Yield | ROE | Debt to Equity | Price to Book |
|---|---|---|---|---|---|
| KDDL Ltd | 32.88x | 0.20% | 10.35% | -0.07 | 3.51x |
| Rajesh Exports | 71.28x | — | 5.64% | -0.06 | 0.33x |
| Vaibhav Global | 24.08x | 2.83% | 11.68% | -0.06 | 0.30x |
| Goldiam International | 30.96x | 0.55% | 15.58% | -0.35 | 5.38x |
| Timex Group | 68.96x | — | 32.12% | 0.40 | 46.04x |
| D.P. Abhushan | 22.54x | — | 23.05% | 0.37 | 0.67x |
KDDL Ltd's ROE of 10.35% lags most comparable peers, with Timex Group (32.12%), D.P. Abhushan (23.05%), and Goldiam International (15.58%) all demonstrating superior capital efficiency. This lower ROE, combined with deteriorating margins, justifies a valuation discount rather than the premium P/E multiple the stock currently commands.
The company's price-to-book ratio of 3.51 times appears reasonable compared to Timex Group's astronomical 46.04 times but significantly higher than Vaibhav Global (0.30x) and Rajesh Exports (0.33x). KDDL Ltd's dividend yield of 0.20% is minimal, offering little income support for investors enduring the recent price decline.
Valuation Analysis: Premium Without Justification
At the current price of ₹2,496.55, KDDL Ltd trades at a P/E ratio of 32.88 times, which appears expensive given the company's deteriorating profit trajectory. The PEG ratio of 8.55 suggests the stock is significantly overvalued relative to its growth prospects, as any PEG ratio above 2.0 typically indicates an expensive valuation.
The company's enterprise value-to-EBITDA multiple of 11.50 times and EV-to-EBIT of 17.54 times reflect market expectations of sustained profitability growth. However, with Q2 FY26 profits declining 21.09% year-on-year and margins compressing across the board, these multiples appear difficult to justify on fundamental grounds.
KDDL Ltd's valuation grade has oscillated between "Fair" and "Expensive" over recent months, most recently classified as "Fair" since October 13, 2025. However, the deteriorating financial performance suggests even a "Fair" valuation may be optimistic. The stock's distance from its 52-week high of ₹3,350.00 represents a 25.48% decline, whilst it trades 21.87% above its 52-week low of ₹2,048.60.
Shareholding Pattern: Stable Promoter Base, Declining FII Interest
KDDL Ltd's shareholding structure reveals a stable promoter base holding 50.43% of equity, unchanged over the past five quarters. This consistent promoter holding, with zero pledging of shares, provides governance comfort and signals long-term commitment from the founding family.
| Quarter | Promoter | FII | Mutual Funds | Insurance | Other DII | Non-Institutional |
|---|---|---|---|---|---|---|
| Sep'25 | 50.43% | 8.30% | 0.00% | 0.00% | 1.84% | 39.44% |
| Jun'25 | 50.43% | 8.39% | 0.00% | 0.00% | 2.17% | 39.01% |
| Mar'25 | 50.43% | 8.75% | 0.00% | 0.00% | 2.22% | 38.60% |
| Dec'24 | 50.43% | 9.33% | 0.00% | 0.00% | 1.82% | 38.42% |
| Sep'24 | 50.43% | 9.68% | 0.00% | 0.00% | 1.60% | 38.29% |
However, foreign institutional investor (FII) holdings have declined steadily from 9.68% in September 2024 to 8.30% in September 2025, representing a cumulative reduction of 138 basis points. The sequential decline of 9 basis points from June to September 2025 suggests continued selling pressure from overseas investors, likely responding to the deteriorating profit trends.
The complete absence of mutual fund and insurance company holdings is notable and concerning. Institutional investors typically conduct rigorous due diligence, and their absence suggests limited conviction in the company's prospects amongst sophisticated market participants. Other domestic institutional investor (DII) holdings declined from 2.17% to 1.84% between June and September 2025, reinforcing the pattern of institutional exit.
Non-institutional holdings have risen from 38.29% to 39.44% over the past year, suggesting retail investors have been accumulating shares even as institutional investors reduce positions. This divergence between retail and institutional sentiment often precedes further price weakness, as retail investors typically lack the resources and analytical capabilities of institutional counterparts.
Stock Performance: Underperformance Across Timeframes
KDDL Ltd's stock performance paints a picture of recent weakness despite strong long-term returns. The stock has declined 11.72% over the past year, significantly underperforming the Sensex's 4.79% gain and resulting in a negative alpha of 16.51 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -1.90% | -0.19% | -1.71% |
| 1 Month | -7.28% | +0.97% | -8.25% |
| 3 Months | -2.24% | +3.35% | -5.59% |
| 6 Months | -0.37% | +4.84% | -5.21% |
| Year-to-Date | -19.29% | +6.61% | -25.90% |
| 1 Year | -11.72% | +4.79% | -16.51% |
| 2 Years | -1.58% | +28.34% | -29.92% |
| 3 Years | +160.18% | +34.80% | +125.38% |
| 5 Years | +1,511.20% | +91.09% | +1,420.11% |
The year-to-date performance is particularly concerning, with the stock down 19.29% compared to the Sensex's 6.61% gain, representing a negative alpha of 25.90 percentage points. This underperformance has accelerated in recent months, with the stock declining 7.28% over the past month whilst the Sensex gained 0.97%.
However, longer-term returns remain impressive, with the stock delivering 160.18% returns over three years and an extraordinary 1,511.20% over five years. This historical performance reflects the company's successful transformation from near-bankruptcy in earlier decades to becoming a profitable watch manufacturer. Nevertheless, recent momentum has clearly reversed, and past performance provides no guarantee of future returns.
The stock exhibits high volatility with a beta of 1.35, indicating it moves 35% more than the broader market. This high beta, combined with negative returns, places KDDL Ltd in the unfavourable "high risk, low return" category. The stock trades below all key moving averages—5-day (₹2,562.97), 20-day (₹2,546.60), 50-day (₹2,538.15), 100-day (₹2,618.52), and 200-day (₹2,658.27)—confirming the bearish technical trend.
"KDDL Ltd's ability to grow revenue by 30% whilst profits decline 21% reveals a business model under strain, where top-line expansion comes at an unsustainable cost to margins and profitability."
Investment Thesis: Mixed Signals Demand Caution
KDDL Ltd's investment case presents conflicting signals that warrant careful consideration. The company's Mojo Score of 37 out of 100 places it firmly in "SELL" territory, reflecting concerns across multiple dimensions of the investment framework.
The company's quality assessment reveals an "Average" grade, supported by healthy long-term sales growth of 25.98% over five years and zero promoter pledging. The net cash position (net debt-to-equity of -0.07) provides financial flexibility, though the average ROE of 10.35% and EBIT-to-interest coverage of 4.43 times indicate modest profitability and limited debt servicing capacity.
The financial trend classification of "Flat" for Q2 FY26 masks underlying deterioration. Whilst net sales reached a record ₹516.72 crores, consolidated net profit declined 21.09% year-on-year, operating cash flow turned negative at ₹-4.26 crores annually, and earnings per share fell to ₹15.76. These negative factors outweigh the positive revenue momentum.
Technical indicators uniformly point to weakness, with the stock in a "Mildly Bearish" trend since late October 2025. Trading below all moving averages and exhibiting negative momentum across weekly and monthly MACD, Bollinger Bands, and KST indicators, the technical picture offers no support for contrarian accumulation.
Key Strengths & Risk Factors
KEY STRENGTHS
- Revenue Momentum: Achieved record quarterly sales of ₹516.72 crores with 30.37% YoY growth
- Net Cash Position: Maintains net debt-to-equity of -0.07, providing financial flexibility
- Zero Pledging: No promoter shares pledged, indicating governance strength
- Stable Promoters: Consistent 50.43% promoter holding demonstrates long-term commitment
- Long-term Growth: 5-year sales CAGR of 25.98% reflects sustained business expansion
- Sector Outperformance: Stock declined 11.72% vs sector's 24.43% fall over past year
- Historical Returns: Delivered 1,511% returns over five years for long-term holders
KEY CONCERNS
- Profit Decline: Consolidated net profit fell 21.09% YoY despite strong revenue growth
- Margin Compression: Operating margin contracted 198 bps, PAT margin down 266 bps YoY
- Weak ROE: 10.35% ROE trails peers and indicates suboptimal capital efficiency
- Negative Cash Flow: Operating cash flow turned negative at ₹-4.26 crores annually
- Institutional Exit: FII holdings declined from 9.68% to 8.30% over past year
- Zero MF/Insurance: Complete absence of mutual fund and insurance holdings
- High Valuation: PEG ratio of 8.55 indicates expensive valuation relative to growth
- Technical Weakness: Trading below all moving averages with bearish indicators
- YTD Decline: Stock down 19.29% year-to-date vs Sensex's 6.61% gain
Outlook: What to Watch
POSITIVE CATALYSTS
- Margin stabilisation or expansion in upcoming quarters
- Return to positive operating cash flow generation
- Improvement in ROE towards 15%+ levels
- Institutional investor re-entry (FII/MF accumulation)
- Sustained revenue growth above 25% with improving profitability
RED FLAGS
- Further margin compression in Q3 FY26
- Continued decline in quarterly profits
- Additional FII/DII stake reductions
- Rising debt levels eroding net cash position
- Failure to improve operating cash flow
The coming quarters will prove critical for KDDL Ltd. Investors should monitor whether the company can stabilise margins whilst maintaining revenue momentum, or whether the current profit decline represents the beginning of a more serious deterioration in business fundamentals. Management commentary on cost control initiatives and demand trends will provide important signals.
The Verdict: Avoid Until Profitability Stabilises
Score: 37/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of declining profits, compressing margins, institutional exit, and bearish technical trends presents too many red flags. Wait for evidence of margin stabilisation and a return to profit growth before considering entry.
For Existing Holders: Consider reducing exposure on any technical bounce towards the ₹2,550-₹2,600 zone (20-day and 50-day moving averages). The deteriorating fundamentals, particularly the 21% profit decline despite 30% revenue growth, signal structural issues that may take several quarters to resolve. Protect capital by booking partial profits.
Fair Value Estimate: ₹2,200 (12% downside from current levels), based on 28x P/E applied to normalised earnings, reflecting margin compression risks and institutional selling pressure.
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. Stock market investments carry inherent risks, including the potential loss of principal.
