The results paint a concerning picture of a company grappling with severe operational inefficiencies. While net sales climbed 21.78% quarter-on-quarter to ₹34.84 crores and registered 14.57% year-on-year growth, profitability metrics collapsed across the board. Operating profit before depreciation, interest, tax, and other income plummeted to a negative ₹4.95 crores, translating to an operating margin of -14.21%—a dramatic reversal from the 18.18% margin achieved in the year-ago quarter.
The stock has declined 0.61% in the most recent trading session, reflecting investor concerns about the company's deteriorating financial health. Over the past three months, shares have tumbled 25.24%, significantly underperforming the Sensex's 4.18% gain during the same period. Year-to-date, Kerala Ayurveda has lost 12.90% whilst the broader market advanced 8.36%, resulting in a negative alpha of 21.26 percentage points.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 34.84 | 28.61 | 31.32 | 31.13 | 30.41 | 27.47 | 32.03 |
| QoQ Growth (%) | +21.78% | -8.65% | +0.61% | +2.37% | +10.70% | -14.24% | — |
| Net Profit (₹ Cr) | -6.34 | 1.99 | -15.54 | -2.89 | 3.42 | 0.32 | 0.27 |
| YoY Growth (%) | -285.38% | +521.88% | -5855.56% | — | — | — | — |
| Operating Margin (%) | -14.21% | -14.65% | -32.38% | -3.82% | 18.18% | 2.91% | 17.02% |
| PAT Margin (%) | -18.25% | 7.10% | -49.07% | -8.67% | 12.00% | 1.67% | 1.65% |
Financial Performance: Margin Erosion Accelerates
The quarter's financial performance reveals a troubling deterioration in operational efficiency. Revenue in Q2 FY26 reached ₹34.84 crores, marking a 21.78% sequential increase from ₹28.61 crores in Q1 FY26 and a 14.57% year-on-year advance from ₹30.41 crores in Q2 FY25. However, this top-line growth failed to translate into profitability due to a sharp escalation in costs.
Employee costs surged to ₹15.84 crores in Q2 FY26, though marginally lower than Q1's ₹16.03 crores, representing a substantial 45.47% of net sales. This compares unfavourably to the 38.99% employee cost ratio in the year-ago quarter, when the company generated ₹11.86 crores in staff expenses against ₹30.41 crores in revenue. The elevated cost structure has severely compressed margins, with operating profit before other income plunging to a negative ₹4.95 crores from a positive ₹5.53 crores a year earlier.
Interest expenses more than tripled quarter-on-quarter to ₹2.58 crores from ₹0.82 crores, reflecting the company's mounting debt burden. Depreciation stood at ₹0.99 crores, down from ₹1.65 crores in the previous quarter. After accounting for other income of ₹1.70 crores, the company reported a pre-tax loss of ₹6.82 crores in Q2 FY26, compared to a pre-tax profit of ₹2.81 crores in Q1 FY26 and ₹3.48 crores in Q2 FY25.
On a half-yearly basis (H1 FY26), the company's performance remains deeply concerning. Net sales for the six months ending September 2025 totalled ₹63.45 crores, yet the company recorded a consolidated net loss of ₹4.35 crores, translating to a negative PAT margin of 6.86%. This compares unfavourably to the year-ago half-year period when the company likely operated near breakeven or modest profitability.
Operational Challenges: Weak Returns and High Leverage
Kerala Ayurveda's operational metrics reveal fundamental weaknesses in capital efficiency and profitability. The company's return on equity (ROE) has collapsed to a negative 154.79% in the latest period, a stark deterioration from the five-year average of 11.19%. Similarly, return on capital employed (ROCE) stands at a negative 13.00%, compared to the five-year average of 4.15%. These metrics underscore the company's inability to generate adequate returns on invested capital, a critical concern for long-term sustainability.
The balance sheet reflects mounting financial stress. As of March 2025, shareholder funds stood at just ₹9.49 crores, having declined sharply from ₹18.66 crores a year earlier due to accumulated losses. Long-term debt totalled ₹17.86 crores, whilst current liabilities ballooned to ₹87.97 crores, including trade payables of ₹5.79 crores. The debt-to-equity ratio has surged to an alarming 15.49 times on a half-yearly basis, indicating severe financial leverage that constrains operational flexibility.
Working capital management has deteriorated significantly. Current assets of ₹40.77 crores as of March 2025 are insufficient to cover current liabilities of ₹87.97 crores, resulting in negative working capital of ₹47.20 crores. This liquidity crunch is further evidenced by the company's cash position, which plummeted to ₹3.00 crores at the end of FY25 from ₹22.00 crores in FY24, representing a net cash outflow of ₹19.00 crores during the year.
Critical Red Flags
Unsustainable Leverage: With a debt-to-equity ratio of 15.49 times and negative working capital of ₹47.20 crores, Kerala Ayurveda faces acute financial distress. The company's EBIT-to-interest coverage ratio of just 0.07 times indicates it is generating insufficient operating profits to service debt obligations, raising serious concerns about solvency.
Deteriorating Quality: The company's quality grade has been downgraded to "Below Average" based on weak long-term financial performance. Average ROCE of 4.15% and ROE of 11.19% over five years reflect poor capital efficiency, whilst the debt-to-EBITDA ratio of 17.13 times signals excessive leverage relative to earnings generation capacity.
Industry Context: Struggling in a Growing Sector
Kerala Ayurveda operates in the pharmaceuticals and biotechnology sector, which has delivered a one-year return of 4.46%. However, the company has significantly outperformed this benchmark with a 35.78% one-year return, suggesting that earlier investor enthusiasm has not been matched by operational execution. The stock's three-year return of 379.75% and five-year return of 708.82% reflect substantial historical gains, but recent quarters indicate this momentum has reversed sharply.
The company's competitive positioning within the Ayurvedic segment is challenged by operational inefficiencies. Whilst the broader pharmaceutical sector benefits from growing health consciousness and demand for traditional medicine, Kerala Ayurveda's inability to control costs and maintain margins raises questions about its business model sustainability. The company's employee cost ratio of 45.47% in Q2 FY26 is significantly elevated compared to industry norms, suggesting overstaffing or inefficient labour deployment.
Market consensus on the company's prospects appears increasingly cautious. The stock trades at a price-to-book value of 49.23 times, an extraordinarily high multiple that is difficult to justify given the current loss-making status and negative ROE. With no institutional holdings to speak of (just 0.04%) and minimal mutual fund interest (0.02%), the company lacks the support of sophisticated investors who typically provide stability during turbulent periods.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Debt-to-Equity |
|---|---|---|---|---|
| Kerala Ayurveda | NA (Loss Making) | 49.23 | 11.19 | 7.09 |
| Jenburkt Pharma | 16.64 | 3.00 | 18.99 | -0.04 |
| Albert David | NA (Loss Making) | 1.18 | 11.69 | -0.62 |
| Everest Organics | 65.86 | 6.01 | 5.58 | 0.67 |
| Amanta Healthcare | 45.34 | — | — | — |
Valuation Analysis: Premium Unjustified by Fundamentals
Kerala Ayurveda's valuation metrics present a stark disconnect between market pricing and fundamental reality. Trading at ₹385.00 per share with a market capitalisation of ₹470.00 crores, the stock commands a price-to-book value of 49.23 times—among the highest in its peer group and the broader pharmaceutical sector. This represents a substantial premium that is difficult to rationalise given the company's loss-making status and deteriorating financial trends.
The company's P/E ratio is not applicable due to negative earnings, a situation that has persisted through recent quarters. With no dividend yield and a dividend payout ratio of zero, the stock offers no income component to offset capital risk. Enterprise value metrics are equally concerning: EV-to-EBITDA stands at -26.11 times and EV-to-EBIT at -20.75 times, both negative due to the company's operating losses. The EV-to-sales multiple of 4.24 times appears elevated for a company struggling with profitability.
The stock's valuation grade has been classified as "Risky" since May 2025, having previously oscillated between "Expensive" and "Very Expensive" throughout 2024. This assessment reflects the substantial downside risk embedded in the current share price. With the stock trading 38.40% below its 52-week high of ₹625.00 but still 35.78% above its 52-week low of ₹283.55, investors face considerable uncertainty about the appropriate valuation level.
Fair Value Assessment
Based on the company's negative earnings, weak balance sheet, and deteriorating operational metrics, the current market price of ₹385.00 appears significantly overvalued. A more appropriate valuation would be closer to book value of ₹7.89 per share, implying potential downside of over 95%. However, given the company's asset base and potential for operational turnaround, a fair value estimate of ₹150-200 per share (representing 19-25 times book value) appears more reasonable, still implying 48-61% downside from current levels.
Shareholding Pattern: Promoter Accumulation Amidst Losses
Promoter shareholding has increased notably over recent quarters, rising from 13.36% in March 2025 to 23.56% by September 2025. This 10.20 percentage point increase occurred in two tranches: a 7.33 percentage point jump in Q1 FY26 and a further 2.87 percentage point rise in Q2 FY26. Whilst promoter accumulation typically signals confidence, the timing—coinciding with mounting losses—raises questions about the motivations behind these purchases.
Non-institutional shareholding has similarly surged from 41.38% in March 2025 to 66.82% by September 2025, an increase of 25.44 percentage points. This dramatic shift suggests retail investor interest, though it may also reflect forced selling by institutional holders or conversion of debt to equity. Institutional participation remains negligible, with mutual funds holding just 0.02%, insurance companies absent entirely, and other domestic institutional investors at 0.01%.
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter Holding | 23.56% | 20.69% | 13.36% | +2.87% |
| Mutual Funds | 0.02% | 0.02% | 0.02% | 0.00% |
| FII Holding | 0.00% | 0.00% | 0.00% | 0.00% |
| Non-Institutional | 66.82% | 62.13% | 41.38% | +4.69% |
Notably, 23.56% of shares are pledged, indicating that promoters have encumbered their holdings to secure financing—a red flag that suggests financial stress at the promoter level. The combination of rising promoter holdings, negligible institutional interest, and substantial share pledging paints a picture of a company struggling to attract sophisticated capital whilst insiders attempt to maintain control through leveraged positions.
Stock Performance: Short-Term Pain, Long-Term Gains Fading
Kerala Ayurveda's stock performance presents a tale of two narratives. Over longer timeframes, the stock has delivered extraordinary returns: 379.75% over three years, 433.98% over four years, and 708.82% over five years. These gains have substantially outpaced the Sensex's 37.31%, 41.98%, and 91.65% returns over the same periods, generating alpha of 342.44, 392.00, and 617.17 percentage points respectively.
However, recent performance has deteriorated sharply. Over the past three months, the stock has declined 25.24% whilst the Sensex gained 4.18%, resulting in a negative alpha of 29.42 percentage points. The six-month return of -9.41% compares unfavourably to the Sensex's 2.85% gain, and the year-to-date loss of 12.90% contrasts starkly with the benchmark's 8.36% advance. Only the one-year return of 35.78% remains positive, though this too has begun to erode as operational challenges mount.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.84% | 0.96% | -0.12% |
| 1 Month | -10.48% | 0.86% | -11.34% |
| 3 Months | -25.24% | 4.18% | -29.42% |
| 6 Months | -9.41% | 2.85% | -12.26% |
| Year-to-Date | -12.90% | 8.36% | -21.26% |
| 1 Year | 35.78% | 9.48% | +26.30% |
| 3 Years | 379.75% | 37.31% | +342.44% |
Technical indicators suggest continued weakness. The stock trades below all key moving averages: 5-day (₹387.21), 20-day (₹411.00), 50-day (₹442.36), 100-day (₹489.63), and 200-day (₹438.12). This alignment of moving averages in descending order typically signals a sustained downtrend. With a beta of 1.50, the stock exhibits high volatility, amplifying market movements—a characteristic that increases risk during periods of operational distress.
Investment Thesis: Fundamental Weakness Dominates
Kerala Ayurveda's investment thesis has deteriorated significantly as operational challenges overwhelm any long-term growth potential. The company's proprietary Mojo Score stands at just 9 out of 100, firmly in "Strong Sell" territory, having declined from 31 in early August 2025. This score reflects the convergence of multiple negative factors: bearish technical trends, negative financial momentum, below-average quality metrics, and risky valuation.
The financial trend assessment has been downgraded to "Negative" as of Q2 FY26, driven by collapsing profitability, deteriorating return ratios, and mounting leverage. Profit before tax less other income fell 64.60% versus the previous four-quarter average, whilst net profit declined 94.80% over the same period. The debt-to-equity ratio reached its highest level at 15.49 times on a half-yearly basis, whilst ROCE plummeted to -15.13%—its lowest recorded level.
Quality metrics underscore long-term fundamental weakness. The company's five-year EBIT growth rate of -251.28% reflects sustained deterioration in operating profitability. Average EBIT-to-interest coverage of just 0.07 times indicates the company generates insufficient operating earnings to service debt obligations—a critical solvency concern. The debt-to-EBITDA ratio of 17.13 times is extraordinarily elevated, signalling that the company would require over 17 years of current EBITDA to repay outstanding debt.
Key Strengths & Risk Factors
KEY STRENGTHS
- Revenue Growth Momentum: Net sales grew 14.57% year-on-year in Q2 FY26, demonstrating continued demand for Ayurvedic products despite operational challenges.
- Long-Term Stock Performance: Five-year return of 708.82% significantly outpaced the Sensex's 91.65% gain, reflecting historical investor confidence.
- Diversified Business Model: Operations span manufacturing, research, academies, clinics, hospitals, and wellness resorts, providing multiple revenue streams.
- Promoter Commitment: Shareholding increased from 13.36% to 23.56% over six months, signalling insider confidence despite current losses.
- Sector Tailwinds: Growing consumer preference for Ayurvedic and natural healthcare products supports long-term market opportunity.
KEY CONCERNS
- Severe Profitability Crisis: Net loss of ₹6.34 crores in Q2 FY26 represents a 418.59% quarter-on-quarter deterioration, with negative PAT margin of 18.25%.
- Margin Collapse: Operating margin plunged to -14.21% from +18.18% year-on-year, indicating fundamental cost structure problems.
- Excessive Leverage: Debt-to-equity ratio of 15.49 times and debt-to-EBITDA of 17.13 times pose acute solvency risks.
- Negative Working Capital: Current liabilities of ₹87.97 crores exceed current assets of ₹40.77 crores by ₹47.20 crores, creating severe liquidity pressure.
- Weak Interest Coverage: EBIT-to-interest ratio of 0.07 times indicates insufficient operating profit to service debt obligations.
- Negligible Institutional Support: Just 0.04% institutional holdings and 23.56% pledged shares signal lack of confidence from sophisticated investors.
- Elevated Employee Costs: Employee expenses of 45.47% of sales in Q2 FY26 reflect operational inefficiency and overstaffing.
Outlook: Critical Monitoring Points
POSITIVE CATALYSTS
- Cost Restructuring: Successful reduction in employee cost ratio below 35% of sales would significantly improve operating margins.
- Debt Refinancing: Negotiating lower interest rates or extending maturities could reduce financial burden and improve cash flow.
- Working Capital Improvement: Better inventory management and receivables collection could ease liquidity constraints.
- Revenue Acceleration: Sustained quarterly revenue growth above 20% could provide scale benefits and operating leverage.
RED FLAGS TO WATCH
- Further Margin Deterioration: Operating margins remaining negative for three consecutive quarters would signal structural unviability.
- Debt Default Risk: Inability to service interest payments or refinance maturing debt could trigger insolvency proceedings.
- Continued Cash Burn: Operating cash flow remaining negative in H2 FY26 would deplete remaining liquidity reserves.
- Promoter Share Sales: Reduction in promoter holdings after recent accumulation would indicate loss of confidence.
- Credit Rating Downgrade: Any negative action by rating agencies would increase borrowing costs and restrict access to capital.
"With operating margins in negative territory, debt-to-equity exceeding 15 times, and cash reserves depleted to ₹3 crores, Kerala Ayurveda faces a critical juncture where operational restructuring and capital infusion are no longer optional—they are essential for survival."
The path forward for Kerala Ayurveda requires immediate and decisive action. Management must prioritise cost rationalisation, particularly in employee expenses, whilst simultaneously addressing the unsustainable debt burden through refinancing or equity dilution. Without swift corrective measures, the company risks further deterioration that could threaten its viability as a going concern. Investors should closely monitor Q3 FY26 results for signs of stabilisation or continued decline.
The Verdict: Fundamental Distress Warrants Exit
Score: 9/100
For Fresh Investors: Avoid initiation entirely. The combination of mounting losses, collapsing margins, extreme leverage, and negative working capital creates unacceptable risk. The stock's valuation at 49.23 times book value is indefensible given current fundamentals, implying substantial downside potential of 50-95% to reach fair value.
For Existing Holders: Exit positions at current levels to preserve capital. The Q2 FY26 results demonstrate accelerating deterioration across all key metrics—profitability, leverage, liquidity, and returns. With debt-to-equity at 15.49 times and EBIT-to-interest coverage at 0.07 times, solvency concerns override any turnaround potential. The 23.56% pledged shares further elevate risk of forced selling if promoters face margin calls.
Fair Value Estimate: ₹150-200 per share (48-61% downside from ₹385.00), based on 19-25 times book value of ₹7.89. Even this estimate assumes successful operational turnaround, which appears increasingly unlikely without significant capital infusion and management restructuring.
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. The analysis presented is based on publicly available information as of November 20, 2025, and may not reflect subsequent developments. Past performance is not indicative of future results. Investing in securities involves risk of loss, including potential loss of principal.
