The company's Q3 performance reflects a continuation of steady operational improvement, with net sales climbing to ₹307.89 crores from ₹299.69 crores in Q2 FY26, representing sequential growth of 2.74%. On a nine-month basis for FY2026 (April-December 2025), Kellton Tech has demonstrated consistent momentum with total revenue of ₹903.05 crores, positioning the company well for full-year targets. However, the stock's recent price action tells a more cautious tale, with shares trading at ₹18.13 as of February 12, 2026, significantly below the 52-week high of ₹33.10 reached earlier in the cycle.
Quarterly Performance Trajectory
| Quarter | Revenue (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Dec'25 | 307.89 | +2.74% | 25.41 | +5.52% | 8.25% |
| Sep'25 | 299.69 | +1.43% | 24.08 | +6.31% | 8.03% |
| Jun'25 | 295.47 | +3.19% | 22.65 | +17.97% | 7.67% |
| Mar'25 | 286.33 | +2.68% | 19.20 | -8.22% | 6.71% |
| Dec'24 | 278.87 | +3.02% | 20.92 | +6.41% | 7.50% |
| Sep'24 | 270.69 | +3.34% | 19.66 | -1.40% | 7.26% |
| Jun'24 | 261.93 | — | 19.94 | — | 7.61% |
Financial Performance: Margin Expansion Drives Profitability
Kellton Tech's Q3 FY26 financial performance demonstrates improving operational efficiency despite a challenging macroeconomic environment for IT services companies. The company's net sales of ₹307.89 crores in Q3 FY26 represent the highest quarterly revenue in recent history, reflecting sustained client engagement and successful project execution. Year-on-year revenue growth of 10.41% outpaces the company's five-year sales CAGR of 8.60%, indicating accelerating momentum in recent periods.
Operating profit (PBDIT excluding other income) reached ₹38.82 crores in Q3 FY26, marking a sequential increase of 6.15% from Q2's ₹36.57 crores. Operating margin improved to 12.61%, the highest level in the past seven quarters, up from 12.20% in Q2 FY26 and 12.18% in Q3 FY24. This 43 basis point year-on-year expansion reflects improved cost management and operational leverage as the company scales its business.
Net profit margin expanded to 8.25% in Q3 FY26 from 8.03% in Q2 FY26 and 7.50% in Q3 FY24, demonstrating the company's ability to translate top-line growth into bottom-line improvement. The absolute net profit of ₹25.41 crores represents a 21.46% year-on-year increase, significantly outpacing revenue growth and highlighting operating leverage in the business model.
Employee costs, the largest expense component for IT services firms, stood at ₹140.76 crores in Q3 FY26, up 1.90% sequentially from ₹138.14 crores in Q2 FY26. The employee cost to revenue ratio improved to 45.73% in Q3 from 46.10% in Q2, indicating better utilisation rates and productivity gains. Interest costs increased to ₹5.53 crores in Q3 FY26 from ₹5.02 crores in Q2 FY26, reflecting higher working capital requirements to support business growth, though the company maintains a comfortable interest coverage ratio of 7.28 times based on operating profit.
Quality of Earnings Assessment
Kellton Tech's earnings quality remains solid with operating profit growth of 14.26% year-on-year outpacing net profit growth of 21.46%, supported by improved operational efficiency. The tax rate of 16.19% in Q3 FY26 remains within the company's historical range of 14-18%, providing stability to net earnings. Cash flow from operations for FY25 stood at ₹5.00 crores, significantly lower than the ₹56.00 crores generated in FY24, primarily due to increased working capital deployment of ₹112.00 crores, which warrants monitoring in upcoming quarters.
Operational Excellence: Balancing Growth and Profitability
Kellton Tech's operational performance in Q3 FY26 reflects a company successfully navigating the delicate balance between growth acceleration and margin protection. The company's return on equity (ROE) of 12.11% for the latest period, whilst lower than the five-year average of 14.11%, remains respectable for a mid-sized IT services player. Higher ROE generally indicates better capital efficiency and profitability, and whilst Kellton Tech's current ROE has moderated from historical peaks, it still demonstrates reasonable returns on shareholder capital given the company's growth investments.
The company's return on capital employed (ROCE) stood at 15.20% in the latest period, down from the five-year average of 16.68%, reflecting increased capital deployment to support business expansion. The debt-to-equity ratio improved to 0.18 times on a half-yearly basis (H1 FY26), the lowest level in recent years, demonstrating prudent financial management and deleveraging efforts. Total debt stood at ₹51.91 crores as of March 2025, with a comfortable debt-to-EBITDA ratio of 0.81 times, well below the concerning threshold of 3.0 times.
Balance sheet strength remains a key competitive advantage for Kellton Tech. Shareholder funds increased to ₹535.30 crores in FY25 from ₹443.38 crores in FY24, bolstered by retained earnings of ₹79.00 crores for the year. Current assets of ₹682.70 crores significantly exceed current liabilities of ₹186.76 crores, providing a healthy current ratio of 3.66 times and ample liquidity to fund operations and growth initiatives. Cash and cash equivalents reached ₹67.29 crores on a half-yearly basis (H1 FY26), the highest level recorded, providing financial flexibility.
⚠️ Key Monitoring Point: Working Capital Pressure
Whilst Kellton Tech demonstrates strong revenue growth and margin expansion, the significant working capital outflow of ₹112.00 crores in FY25 (compared to ₹44.00 crores in FY24) requires close attention. This increased deployment, likely driven by higher receivables and inventory to support business scaling, compressed operating cash flow to just ₹5.00 crores from ₹56.00 crores year-on-year. Investors should monitor whether the company can improve cash conversion cycles and generate stronger operating cash flows in FY26 to support sustainable growth without excessive balance sheet strain.
Industry Context: IT Services Sector Headwinds
The Indian IT services sector has faced considerable headwinds over the past year, with macroeconomic uncertainty, client budget constraints, and delayed project decisions impacting growth trajectories across the industry. Kellton Tech's 10.41% year-on-year revenue growth in Q3 FY26, whilst commendable, comes against a backdrop where larger peers have reported more muted growth rates, reflecting cautious client spending particularly in discretionary digital transformation projects.
The company's focus on digital transformation, ERP implementations, and systems integration positions it well to capture opportunities as enterprises continue their technology modernisation journeys. However, the competitive intensity in the mid-tier IT services segment remains high, with numerous players vying for similar project mandates. Kellton Tech's ability to maintain double-digit revenue growth whilst expanding margins suggests effective differentiation and client relationship management.
Over the past year, Kellton Tech's stock has underperformed its sector benchmark by 10.91 percentage points, with the stock declining 33.66% compared to the Computers - Software & Consulting sector's 22.75% decline. This underperformance reflects both sector-wide pressures and company-specific concerns, including questions about the sustainability of growth rates and the company's ability to compete effectively against larger, more established players with greater scale and brand recognition.
Peer Comparison: Valuation Disconnect
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity |
|---|---|---|---|---|
| Kellton Tech | 11.02 | 1.33 | 14.11 | 0.09 |
| Aurum Proptech | NA (Loss Making) | 2.62 | 0.00 | 0.25 |
| Dynacons Systems | 15.23 | 4.41 | 30.56 | 0.33 |
| IZMO | 30.81 | 3.02 | 9.34 | -0.02 |
| Excelsoft Technologies | 31.37 | 2.92 | 0.00 | 0.00 |
| Innovana Thinklabs | 17.68 | 3.31 | 24.21 | 0.12 |
Kellton Tech trades at a significant valuation discount to its peer group, with a P/E ratio of 11.02 times compared to the peer average of approximately 24 times (excluding loss-making Aurum Proptech). The company's price-to-book ratio of 1.33 times stands well below the peer average of 3.30 times, suggesting the market assigns lower quality or growth expectations to Kellton Tech relative to comparable companies.
This valuation gap appears partially justified by Kellton Tech's lower ROE of 14.11% compared to stronger performers like Dynacons Systems (30.56% ROE) and Innovana Thinklabs (24.21% ROE). However, Kellton Tech's superior balance sheet strength, evidenced by its debt-to-equity ratio of just 0.09 times (lowest among peers), and consistent profitability provide downside protection that warrants consideration. The company's five-year sales CAGR of 8.60%, whilst moderate, demonstrates stability that some higher-multiple peers lack.
Valuation Analysis: Attractive Entry Point Despite Concerns
Kellton Tech's current valuation metrics present an intriguing proposition for value-oriented investors. At a P/E ratio of 11.02 times trailing twelve-month earnings, the stock trades at a 56% discount to the industry average P/E of 25 times, reflecting market scepticism about growth sustainability and competitive positioning. The price-to-book ratio of 1.33 times, whilst above book value, remains reasonable given the company's ROE profile and suggests limited downside risk from current levels.
The company's enterprise value-to-EBITDA multiple of 7.56 times appears attractive relative to historical norms and peer valuations, particularly considering the improved margin trajectory demonstrated in recent quarters. With an EV-to-sales ratio of 0.88 times, Kellton Tech trades below the 1.0 times threshold often associated with fairly valued IT services companies, potentially offering upside as operational improvements gain market recognition.
The proprietary valuation assessment grades Kellton Tech as "Very Attractive," a rating that has oscillated between "Attractive" and "Very Attractive" over the past several months, reflecting the stock's volatility and changing market perceptions. At the current price of ₹18.13, the stock trades 45.23% below its 52-week high of ₹33.10, presenting a meaningful recovery opportunity if the company can sustain its growth momentum and margin expansion trajectory.
Shareholding Pattern: Promoter Reduction Raises Questions
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 37.67% | 38.70% | 40.78% | 40.82% | -1.03% |
| FII | 1.21% | 1.17% | 1.27% | 1.06% | +0.04% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Non-Institutional | 61.11% | 60.34% | 57.95% | 58.11% | +0.77% |
Kellton Tech's shareholding pattern reveals a concerning trend of consistent promoter stake reduction over recent quarters. Promoter holding declined to 37.67% in December 2025 from 40.82% in March 2025, representing a cumulative reduction of 3.15 percentage points over three quarters. The most recent quarter saw promoter holding drop by 1.03 percentage points from 38.70% to 37.67%, continuing the downward trajectory that began in June 2025.
This promoter selling, whilst not necessarily indicative of fundamental deterioration, raises questions about promoter confidence in near-term prospects and may weigh on investor sentiment. The reduction has been absorbed primarily by non-institutional investors, whose stake increased to 61.11% in December 2025 from 58.11% in March 2025, suggesting retail and high-net-worth individual interest in the stock at current valuations.
Institutional participation remains notably absent, with mutual funds holding zero stake and foreign institutional investors maintaining a minimal 1.21% position. The lack of institutional ownership, combined with 14.37% of promoter shares pledged, presents both a risk (limited institutional support during market stress) and an opportunity (potential for significant re-rating if institutions build positions based on improving fundamentals).
Stock Performance: Technical Weakness Overshadows Fundamentals
| Period | Kellton Tech Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +13.45% | +0.43% | +13.02% |
| 1 Month | +6.33% | -0.24% | +6.57% |
| 3 Months | -14.44% | -0.94% | -13.50% |
| 6 Months | -27.97% | +4.29% | -32.26% |
| 1 Year | -33.66% | +9.85% | -43.51% |
| 2 Years | -7.74% | +17.73% | -25.47% |
| 3 Years | +63.19% | +37.89% | +25.30% |
Kellton Tech's stock performance presents a tale of two timeframes. Over the past week, the stock surged 13.45%, significantly outperforming the Sensex's 0.43% gain and generating positive alpha of 13.02 percentage points. This recent momentum, with the stock gaining 6.33% over the past month, suggests emerging recognition of the company's improving fundamentals and attractive valuation.
However, zooming out reveals considerable pain for shareholders over medium-term horizons. The stock has declined 33.66% over the past year, underperforming the Sensex by 43.51 percentage points and the broader IT services sector by 10.91 percentage points. Over six months, the stock has fallen 27.97% compared to the Sensex's 4.29% gain, resulting in negative alpha of 32.26 percentage points.
The technical picture remains challenging, with the stock classified as "Mildly Bearish" and trading below all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day). The stock's high beta of 1.28 indicates greater volatility than the broader market, contributing to the sharp drawdowns during periods of market stress. However, at ₹18.13, the stock trades just 24.43% above its 52-week low of ₹14.57, suggesting much of the negative sentiment may already be reflected in the price.
Investment Thesis: Value Opportunity With Execution Risks
The investment thesis for Kellton Tech rests on a fundamental disconnect between the company's improving operational performance and its depressed stock valuation. The company's Q3 FY26 results demonstrate accelerating profit growth, margin expansion, and consistent revenue momentum—all positive indicators that suggest the business trajectory remains intact despite sector headwinds.
At 11 times trailing earnings and 1.33 times book value, the stock offers a margin of safety that compensates for execution risks and sector uncertainty. The company's strong balance sheet, with minimal debt and improving cash position, provides financial flexibility to navigate challenging periods and invest in growth initiatives. The five-year CAGR of 8.60% in sales, whilst not spectacular, demonstrates business stability and steady market share gains.
However, several factors temper enthusiasm. The absence of institutional ownership suggests sophisticated investors remain unconvinced about the company's competitive positioning or growth prospects. Promoter stake reduction over consecutive quarters raises questions about insider confidence, even if selling may be for personal liquidity reasons rather than business concerns. The company's moderate ROE of 14.11%, whilst acceptable, lags stronger peers and limits the premium the market will assign to the stock.
Key Strengths & Risk Factors
✓ Key Strengths
- Attractive Valuation: Trading at 11x P/E and 1.33x P/BV, representing 56% discount to industry average with limited downside risk
- Margin Expansion: Operating margin reached 12.61% in Q3 FY26, highest in seven quarters, demonstrating operational leverage
- Strong Balance Sheet: Debt-to-equity of 0.09x and debt-to-EBITDA of 0.81x provide financial flexibility and downside protection
- Consistent Growth: 10.41% YoY revenue growth and 21.46% YoY profit growth in Q3 FY26 show business momentum
- Improving Cash Position: Cash and equivalents reached ₹67.29 crores in H1 FY26, highest recorded level
- Positive Financial Trend: Quarterly financial trend rated "Positive" with highest quarterly revenue and profit
- Recovery Potential: Stock down 45% from 52-week high offers significant upside if fundamentals gain recognition
⚠ Key Concerns
- Promoter Selling: Stake declined from 40.82% to 37.67% over three quarters, raising confidence questions
- Zero Institutional Ownership: No mutual fund or insurance holdings indicates limited institutional conviction
- Technical Weakness: "Mildly Bearish" trend, trading below all moving averages with high beta of 1.28
- Working Capital Pressure: ₹112 crore working capital outflow in FY25 compressed operating cash flow to ₹5 crores
- Moderate ROE: 14.11% ROE lags stronger peers (Dynacons 30.56%, Innovana 24.21%), limiting re-rating potential
- Sector Underperformance: Stock down 33.66% over past year, underperforming sector by 10.91 percentage points
- Modest Long-term Growth: Five-year sales CAGR of 8.60% below high-growth IT services companies
Outlook: What to Watch
Positive Catalysts
- Sustained Margin Expansion: Operating margins holding above 12.5% for multiple quarters would validate operational improvements
- Institutional Entry: Mutual fund or FII buying would signal growing confidence and provide price support
- Cash Flow Normalisation: Operating cash flow recovery to ₹40-50 crore range would ease working capital concerns
- Promoter Stabilisation: Halt in promoter stake reduction would remove overhang and improve sentiment
- Technical Turnaround: Break above 20-day MA (₹16.05) and 50-day MA (₹17.42) would confirm trend reversal
Red Flags
- Revenue Growth Deceleration: QoQ growth falling below 2% would signal demand weakness
- Margin Contraction: Operating margin declining below 12% would indicate pricing or cost pressures
- Continued Promoter Selling: Further stake reduction below 35% would raise serious governance concerns
- Working Capital Deterioration: Debtor days increasing beyond current levels would strain cash flows
- Technical Breakdown: Break below 52-week low of ₹14.57 would trigger further selling pressure
The Verdict: Cautious Accumulation for Value Investors
Score: 51/100
For Fresh Investors: Kellton Tech presents a compelling value opportunity at current levels, trading at significant discounts to peers and historical valuations. However, the combination of promoter selling, absence of institutional ownership, and technical weakness suggests a cautious, staggered approach. Consider building positions in tranches with initial allocation at current levels and adding on further weakness or confirmation of trend reversal. Suitable for patient, value-oriented investors with 18-24 month investment horizons who can withstand near-term volatility.
For Existing Holders: Continue holding positions with a view towards 18-24 month recovery. The improving operational performance, margin expansion, and attractive valuation provide downside protection. Use any rallies towards ₹22-24 levels to reassess position sizing. Monitor quarterly results closely for sustained margin improvement and cash flow normalisation. Consider trimming positions if promoter stake falls below 35% or if operating margins contract below 12% for consecutive quarters.
Fair Value Estimate: ₹24-26 per share (32-43% upside from current levels), based on 14-15x FY26 estimated earnings of ₹1.70-1.75 per share, assuming sustained margin improvement and revenue growth of 10-12%.
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 views expressed are based on data available as of February 13, 2026, and are subject to change based on market conditions and company developments.
