The quarter's results paint a troubling picture of operational distress, with net sales plummeting 68.82% sequentially to just ₹1.06 crores from ₹3.40 crores in Q2 FY26. Year-on-year revenue declined 60.74% from ₹2.70 crores in Q3 FY25. This dramatic revenue collapse, combined with elevated employee costs of ₹0.90 crores, resulted in a negative operating margin of 95.28%, marking one of the weakest quarters in the company's recent history.
The company's stock has suffered significantly, declining 32.63% over the past year whilst the Sensex gained 9.85%, resulting in a negative alpha of 42.48 percentage points. Trading below all key moving averages—from the 5-day MA at ₹19.97 to the 200-day MA at ₹23.07—the technical outlook remains firmly bearish. The stock currently trades 35.94% below its 52-week high of ₹29.97, though marginally above the 52-week low of ₹18.00.
Financial Performance: A Quarter of Severe Deterioration
The third quarter of FY2026 exposed fundamental operational challenges at Khandwala Securities. Net sales of ₹1.06 crores represented the lowest quarterly revenue in recent years, falling dramatically from ₹3.40 crores in the previous quarter. This 68.82% sequential decline suggests significant disruption in the company's core institutional dealing and investment banking activities.
Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) turned sharply negative at ₹-1.01 crores, compared to a positive ₹0.26 crores in Q3 FY25. The operating margin excluding other income deteriorated to -95.28% from 9.63% a year earlier, indicating that core operations are consuming capital rather than generating returns. Employee costs remained elevated at ₹0.90 crores, representing 84.91% of total revenue—an unsustainable cost structure that highlights the severity of the revenue challenge.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | PAT Margin |
|---|---|---|---|---|---|
| Dec'25 | 1.06 | -68.82% | -0.49 | -304.17% | -46.23% |
| Sep'25 | 3.40 | +198.25% | 0.24 | -140.68% | 7.06% |
| Jun'25 | 1.14 | -3.39% | -0.59 | -71.22% | -51.75% |
| Mar'25 | 1.18 | -56.30% | -2.05 | -479.63% | -173.73% |
| Dec'24 | 2.70 | -14.01% | 0.54 | +125.00% | 20.00% |
| Sep'24 | 3.14 | +24.60% | 0.24 | -50.00% | 7.64% |
| Jun'24 | 2.52 | — | 0.48 | — | 19.05% |
Other income of ₹0.66 crores provided some cushion in Q3 FY26, but this could not offset the massive operating losses. The company reported a profit before tax of ₹-0.49 crores, with zero tax expense resulting in a net loss matching the PBT figure. The PAT margin stood at -46.23%, reflecting the company's inability to generate profitable operations at current revenue levels.
On a nine-month basis for FY2026, net sales totalled ₹5.60 crores, representing a 33.01% decline from the comparable period. The nine-month net loss stood at ₹0.84 crores, further underscoring the persistent nature of the company's operational challenges. This extended period of weakness suggests structural issues rather than temporary market volatility.
Critical Operational Warning
Revenue Sustainability Crisis: With Q3 FY26 revenue at just ₹1.06 crores and employee costs at ₹0.90 crores, the company's cost structure is fundamentally misaligned with its revenue-generating capacity. The negative operating margin of 95.28% indicates that for every rupee of revenue, the company is losing nearly one rupee on core operations before accounting for other expenses. This unsustainable position requires immediate corrective action through either significant cost reduction or dramatic revenue improvement.
Profitability Collapse: The ROE Story
Return on equity, a critical measure of capital efficiency, has deteriorated sharply to -6.52% in the latest quarter from an already weak average of 0.83% over recent years. This negative ROE indicates that the company is destroying shareholder value, with capital employed generating losses rather than returns. For a capital markets firm, where intellectual capital and relationship management drive value creation, such poor returns signal fundamental business model challenges.
The company's return on capital employed (ROCE) stands at -9.11%, further confirming the inefficient deployment of capital. With negligible debt (net debt to equity of 0.10), the poor returns cannot be attributed to financial leverage issues but rather reflect operational inefficiency and revenue generation problems. The combination of negative ROE and ROCE suggests that the company's core business activities are not creating economic value at current scale and cost levels.
Quality of Earnings Concern
The reliance on other income (₹0.66 crores in Q3 FY26) to partially offset massive operating losses raises questions about earnings sustainability. With core operations generating losses of ₹1.01 crores before other income, the company's ability to achieve profitability depends heavily on non-operating income streams, which are typically less predictable and sustainable than revenue from core business activities.
Balance Sheet Strength Amidst Operational Weakness
Despite severe operational challenges, Khandwala Securities maintains a relatively clean balance sheet. Shareholder funds stood at ₹28.89 crores as of March 2025, comprising share capital of ₹15.25 crores and reserves of ₹13.64 crores. The company operates with zero long-term debt, providing financial flexibility to navigate the current downturn without immediate solvency concerns.
Fixed assets of ₹4.25 crores and minimal investments of ₹0.55 crores suggest a lean asset base appropriate for a services business. Current assets of ₹5.03 crores against current liabilities of ₹15.71 crores indicate a negative working capital position, though this is not unusual for brokerage firms where trade payables can be substantial. Trade payables of ₹11.39 crores represent the largest liability component.
Cash flow from operations turned positive at ₹4.00 crores for FY2025, though this was aided by favourable working capital movements. The company's closing cash position was minimal, highlighting the need for improved operational cash generation to fund ongoing activities and potential growth initiatives.
Capital Markets Sector: Underperformance Against Peers
The capital markets sector has delivered robust returns of 27.43% over the past year, making Khandwala Securities' 32.63% decline particularly stark. This 60.06 percentage point underperformance reflects company-specific challenges rather than sector-wide headwinds. Whilst peers have benefited from strong equity market activity and increased trading volumes, Khandwala Securities has failed to capitalise on favourable industry conditions.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity |
|---|---|---|---|---|
| Khandwala Securities | NA (Loss Making) | 1.03 | 0.83 | 0.10 |
| Transpact Enterprises | 557.08 | 5.57 | 0.00 | 0.05 |
| Joindre Capital | 10.48 | 0.78 | 8.25 | 0.20 |
| Sodhani Capital | 26.60 | 6.69 | 0.00 | 0.00 |
| Mefcom Capital | NA (Loss Making) | 2.48 | 12.84 | 0.52 |
| Gogia Capital | NA (Loss Making) | 1.78 | 0.00 | 0.00 |
Compared to peers, Khandwala Securities trades at a price-to-book value of 1.03x, below the peer average of approximately 3.50x. Whilst this might appear attractive on a relative basis, the discount is justified by the company's inferior profitability metrics. With an ROE of just 0.83% compared to peers like Mefcom Capital at 12.84% and Joindre Capital at 8.25%, investors are correctly assigning a lower valuation multiple to reflect weaker capital efficiency.
The company's market capitalisation of ₹31.00 crores positions it as the fifth-largest amongst its peer group, reflecting its micro-cap status and limited institutional following. The absence of any FII, mutual fund, or insurance company holdings underscores the lack of institutional confidence in the business model and growth prospects.
Valuation Analysis: Value Trap or Opportunity?
With the stock currently loss-making, traditional valuation metrics like P/E ratio are not applicable. The price-to-book value of 1.03x suggests the market is valuing the company near its book value of ₹18.94 per share. However, this apparent "value" must be assessed against the company's negative ROE and deteriorating operational performance.
The company's valuation grade has fluctuated between "Risky" and "Very Expensive" over recent months, currently standing at "Risky." This classification reflects the elevated uncertainty around future earnings and the company's ability to return to profitability. Enterprise value metrics paint an equally concerning picture, with EV/EBITDA at -14.05x and EV/EBIT at -11.40x—both negative due to operating losses.
Valuation Dashboard
P/E Ratio (TTM): NA (Loss Making)
Price to Book Value: 1.03x
EV/EBITDA: -14.05x
Current Grade: RISKY
52-Week Range: ₹18.00 - ₹29.97
The stock's 35.94% decline from its 52-week high of ₹29.97 reflects growing investor concern about the sustainability of the business model. Trading just 6.67% above the 52-week low of ₹18.00, there is minimal technical support, and the risk of further downside remains elevated until operational improvements materialise.
Shareholding Pattern: Stable Promoter Base, No Institutional Interest
Promoter holding has remained largely stable at 48.30% as of December 2025, with a marginal 0.03% sequential increase from September 2025. Over the past year, promoter stake has increased from 48.15% to 48.30%, demonstrating continued commitment despite operational challenges. The Khandwala family, through various entities including Jayantilal Khandwala & Sons Pvt. Ltd. (11.36%), Bentley Investments Pvt Ltd (9.45%), and individual family members, maintains control of the company.
| Quarter | Promoter % | Change | FII % | MF % | Non-Inst % |
|---|---|---|---|---|---|
| Dec'25 | 48.30% | +0.03% | 0.00% | 0.00% | 51.70% |
| Sep'25 | 48.27% | 0.00% | 0.00% | 0.00% | 51.73% |
| Jun'25 | 48.27% | +0.02% | 0.00% | 0.00% | 51.73% |
| Mar'25 | 48.25% | +0.10% | 0.00% | 0.00% | 51.75% |
| Dec'24 | 48.15% | — | 0.00% | 0.00% | 51.85% |
The complete absence of foreign institutional investors (FIIs), mutual funds, and insurance companies signals a lack of institutional confidence in the company's prospects. With zero institutional holdings, the stock lacks the support that typically provides stability and liquidity. The remaining 51.70% is held by non-institutional investors, primarily retail shareholders who may have limited ability to influence corporate governance or strategic direction.
Positively, there is no promoter pledging, eliminating concerns about forced selling in adverse market conditions. However, the lack of institutional participation limits the stock's appeal to sophisticated investors who conduct thorough due diligence before committing capital.
Stock Performance: Persistent Underperformance Across All Timeframes
Khandwala Securities has delivered negative returns across virtually all meaningful timeframes, significantly underperforming both the Sensex and its sector. The stock's one-year return of -32.63% compares unfavourably to the Sensex's 9.85% gain, resulting in a negative alpha of 42.48 percentage points. This persistent underperformance reflects fundamental business challenges rather than temporary market volatility.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +1.05% | +0.43% | +0.62% |
| 1 Month | -0.57% | -0.24% | -0.33% |
| 3 Months | -11.76% | -0.94% | -10.82% |
| 6 Months | -28.97% | +4.29% | -33.26% |
| YTD | -4.95% | -1.81% | -3.14% |
| 1 Year | -32.63% | +9.85% | -42.48% |
| 2 Years | -31.21% | +17.73% | -48.94% |
| 3 Years | -39.72% | +37.89% | -77.61% |
The three-year performance is particularly concerning, with the stock declining 39.72% whilst the Sensex surged 37.89%, resulting in a staggering 77.61 percentage point negative alpha. This extended period of underperformance suggests structural issues within the business that management has been unable to address effectively.
From a risk-adjusted perspective, the stock exhibits high volatility of 74.03% compared to the Sensex's 11.44%, yet delivers negative returns. The risk-adjusted return of -0.44 places it in the "HIGH RISK LOW RETURN" category—the worst possible combination for investors. The stock's beta of 1.27 indicates it is more volatile than the broader market, amplifying losses during downturns without providing commensurate gains during rallies.
Technical Analysis: Firmly Bearish with Limited Support
The technical outlook for Khandwala Securities remains decidedly bearish, with the trend officially changing to "Bearish" on February 11, 2026, at ₹21.18. The stock trades below all key moving averages, including the 5-day MA (₹19.97), 20-day MA (₹20.21), 50-day MA (₹21.34), 100-day MA (₹22.66), and 200-day MA (₹23.07), indicating sustained selling pressure and lack of buyer interest.
Technical indicators across weekly and monthly timeframes paint a uniformly negative picture. The MACD shows bearish signals on both weekly and monthly charts, whilst the KST (Know Sure Thing) indicator also confirms bearish momentum. Bollinger Bands indicate mildly bearish conditions, suggesting the stock is trading near the lower band with limited upside momentum. The On-Balance Volume (OBV) shows mildly bearish trends, reflecting weak accumulation patterns.
Immediate support lies at ₹18.00, representing the 52-week low and a critical psychological level. A breach below this level could trigger further selling and potentially push the stock into new multi-year lows. Resistance is encountered at ₹20.21 (20-day MA), with stronger resistance at ₹22.66 (100-day MA) and ₹23.07 (200-day MA). Any meaningful recovery would require the stock to reclaim these moving averages, which appears unlikely given current fundamental challenges.
Investment Thesis: Multiple Red Flags Outweigh Limited Positives
The investment case for Khandwala Securities is severely challenged by multiple fundamental and technical weaknesses. The company's overall score of 12 out of 100 places it firmly in the "STRONG SELL" category, reflecting deep-seated operational and financial concerns. The proprietary assessment considers valuation (Risky), quality grade (Below Average), financial trend (Flat), and technical trend (Bearish)—all pointing towards an unfavourable risk-reward profile.
The company's quality grade of "Below Average" reflects weak long-term financial performance despite reasonable sales growth of 23.51% over five years. The average ROE of just 0.83% and current negative ROE of -6.52% indicate poor capital efficiency and value destruction. The absence of institutional holdings (0.0%) further underscores the lack of confidence from sophisticated investors who conduct thorough due diligence.
Key Strengths ✓
- Zero long-term debt provides financial flexibility
- Stable promoter holding at 48.30% with no pledging
- Long operating history dating back to 1993
- Positive operating cash flow of ₹4.00 crores in FY25
- Low debt-to-equity ratio of 0.10
Key Concerns ⚠
- Severe revenue decline of 60.74% YoY in Q3 FY26
- Negative operating margin of -95.28% indicating unsustainable cost structure
- Net loss of ₹0.49 crores vs profit of ₹0.54 crores YoY
- Negative ROE of -6.52% destroying shareholder value
- Complete absence of institutional investor interest
- Stock down 32.63% over one year vs Sensex up 9.85%
- High volatility (74.03%) with negative returns
- Trading below all key moving averages with bearish technicals
Outlook: What Lies Ahead for Khandwala Securities
The outlook for Khandwala Securities remains challenging, with multiple headwinds requiring urgent management attention. The company must demonstrate its ability to stabilise revenue, reduce its cost base to align with current business volumes, and return to profitability before investor confidence can be restored. The capital markets sector's strong performance makes the company's struggles even more conspicuous, suggesting company-specific issues rather than sector-wide challenges.
Positive Catalysts ▲
- Significant cost restructuring to align with revenue levels
- New business wins or client acquisitions in institutional dealing
- Return to positive operating margins
- Sustained revenue growth for 2-3 consecutive quarters
- Entry of institutional investors signalling confidence
Red Flags ▼
- Further revenue decline in Q4 FY26 or FY27
- Continued negative operating margins
- Erosion of shareholder funds due to persistent losses
- Stock breaking below ₹18.00 support level
- Promoter stake reduction or pledging
- Inability to generate positive operating cash flow
For the company to stage a meaningful recovery, management must articulate a clear turnaround strategy addressing the revenue collapse and cost structure misalignment. Until concrete evidence of operational improvement emerges—through sustained revenue growth, margin expansion, and return to profitability—the investment case remains severely compromised. The absence of any institutional backing suggests sophisticated investors see limited near-term prospects for improvement.
The Verdict: Avoid Until Turnaround Evidence Emerges
Score: 12/100
For Fresh Investors: Avoid initiating positions. The combination of severe revenue decline, negative operating margins, value-destructive ROE, and bearish technical trends creates an unfavourable risk-reward profile. Wait for at least 2-3 quarters of sustained operational improvement before considering entry.
For Existing Holders: Consider exiting positions to limit further downside. The stock has declined 32.63% over the past year with limited signs of stabilisation. With the company operating at a loss and trading below all key moving averages, the path to recovery appears extended and uncertain.
Fair Value Estimate: Given current losses and negative ROE, establishing a fair value is challenging. Based on book value of ₹18.94 and applying a 0.70x discount for poor profitability, estimated fair value: ₹13.00-15.00 (32-22% downside from current price of ₹19.20). Substantial operational improvement required to justify even book value.
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, and all investments carry inherent risks including the potential loss of principal.
