Maithan Alloys Q2 FY26: Volatile Other Income Masks Operational Weakness

The Kolkata-based manufacturer of ferro manganese, silico manganese, and ferro silicon faced a perfect storm in Q2 FY26. Whilst core operational metrics showed resilience with revenue growing 5.73% year-on-year to ₹490.82 crores, the company recorded an extraordinary negative other income of ₹153.46 crores compared to a positive ₹648.86 crores in Q1 FY26. This 802-crore swing in non-operating items transformed what would have been a modest operating profit of ₹32.12 crores into a substantial pre-tax loss of ₹141.23 crores.

The quarter's results highlight the company's susceptibility to volatile non-operating items, a recurring pattern that has characterized recent financial performance. Excluding other income, operating profit stood at ₹32.12 crores with a margin of 6.54%, down from 10.34% in Q1 FY26 but still positive. This operational profitability suggests that the core ferrous alloys business remains functional, albeit under pressure from subdued industry conditions and margin compression.

Financial Performance: Revenue Stability Amidst Margin Pressure

On a sequential basis, Q2 FY26 net sales declined 22.38% to ₹490.82 crores from ₹632.31 crores in Q1 FY26, reflecting typical seasonal variations in the ferrous alloys industry. However, the year-on-year comparison shows a modest 5.73% growth, indicating that demand conditions remain relatively stable compared to the previous year. For the first half of FY26, cumulative revenue stood at ₹1,123.13 crores, representing a robust 33.82% growth over the corresponding period last year.

The company's operating margin excluding other income compressed significantly to 6.54% in Q2 FY26 from 10.34% in the previous quarter and 10.61% in Q2 FY25. This 407-basis-point year-on-year contraction reflects intensifying pressure from raw material costs and subdued realisations in the ferrous alloys market. Operating profit before depreciation, interest, tax, and other income fell to ₹32.12 crores, down 50.87% quarter-on-quarter and 34.77% year-on-year.

Employee costs showed unusual volatility, rising to ₹26.16 crores in Q2 FY26 from ₹10.98 crores in Q1 FY26, though this follows a negative employee cost of ₹3.09 crores in Q4 FY25, suggesting accounting adjustments or one-time provisions. Interest expenses climbed to ₹13.97 crores, the highest in recent quarters, up 155.11% year-on-year, reflecting increased working capital requirements and higher debt levels despite the company's historically low leverage profile.

The tax credit of ₹22.21 crores (effective rate of 15.73% on a loss-making quarter) provided some relief, but was insufficient to prevent the net loss. The company's profit after tax margin collapsed to -24.65% in Q2 FY26 from 84.79% in Q1 FY26, illustrating the dramatic impact of volatile other income on reported profitability.

Operational Challenges: The Other Income Conundrum

The most striking feature of Maithan Alloys' recent financial performance is the extreme volatility in other income, which has swung wildly between large positives and negatives over the past six quarters. In Q2 FY26, the company recorded negative other income of ₹153.46 crores, a dramatic reversal from the positive ₹648.86 crores in Q1 FY26. This pattern of alternating large positive and negative other income entries suggests potential mark-to-market adjustments on investments, forex hedging impacts, or other non-operating items that are distorting reported earnings.

Stripping away this volatility reveals a more concerning picture of the underlying business. The operating profit to interest coverage ratio deteriorated to just 2.30 times in Q2 FY26, the lowest in recent history, down from 5.26 times in Q1 FY26. This sharp decline indicates that core operational cash generation is struggling to comfortably service even the modest debt burden, raising questions about financial flexibility during industry downturns.

The company's return on equity, whilst still respectable at 16.82% on a trailing basis, masks the recent deterioration. The latest quarter's loss would significantly drag down forward-looking ROE metrics. More concerning is the return on capital employed, which fell to just 6.68% in the latest period from an average of 41.29% historically, indicating a sharp decline in capital productivity.

Balance sheet quality remains a relative strength, with the company maintaining a net cash position (debt-to-equity of -0.39) and minimal long-term debt of ₹8.50 crores as of March 2025. However, current liabilities surged to ₹847.69 crores from ₹251.21 crores year-on-year, driven primarily by increased trade payables and other current liabilities, suggesting potential working capital stress.

Industry Context: Navigating a Challenging Ferrous Metals Landscape

The ferrous metals industry in India has faced headwinds throughout 2025, with subdued demand from the steel sector and volatile raw material prices compressing margins across the value chain. Maithan Alloys, as a manufacturer of bulk ferro alloys, is particularly exposed to these cyclical dynamics. The company's 5.73% year-on-year revenue growth in Q2 FY26, whilst positive, significantly lags the broader ferrous metals sector, which delivered 42.29% returns over the past year.

The company's competitive positioning remains solid, holding the second-largest market capitalisation of ₹3,042 crores in the ferrous metals sector. However, its operational performance has diverged sharply from peers, with Maithan underperforming the sector by 45.29 percentage points over the past year. This underperformance reflects both company-specific challenges and the impact of volatile non-operating items on investor sentiment.

Looking at longer-term trends, Maithan's 5-year sales growth of 6.15% and negative 5-year EBIT growth of -2.65% highlight the structural challenges facing the business. The company has struggled to translate revenue growth into sustained profit expansion, with operating margins remaining under pressure throughout the cycle. This contrasts with the 35.80% operating margin achieved in FY22 during the industry's peak, illustrating the magnitude of margin compression over recent years.

Peer Comparison: Valuation Disconnect Reflects Quality Concerns

Within the ferrous metals peer group, Maithan Alloys trades at a significant valuation discount, with a price-to-earnings ratio of 6.85x compared to the peer average of approximately 22x. The company's price-to-book value of 0.81x also sits well below peers such as Jai Balaji Industries (3.69x) and Indian Metals (2.93x), reflecting market scepticism about the sustainability of returns and asset quality.

Interestingly, Maithan's return on equity of 19.79% (on an average basis) compares favourably with most peers, exceeded only by Jai Balaji Industries at 23.78%. This suggests that when the business performs normally, it generates respectable returns on shareholder capital. The company's net cash position (negative debt-to-equity of -0.39) also stands out positively, matched only by Indian Metals amongst the peer group.

The valuation discount appears to reflect concerns about earnings sustainability and quality rather than fundamental business characteristics. The market is essentially pricing in significant uncertainty about Maithan's ability to deliver consistent profitability, given the volatile other income pattern and declining operational margins. The 1.53% dividend yield, whilst modest, at least provides some income return to shareholders during this period of earnings uncertainty.

Valuation Analysis: Attractive Entry Point or Value Trap?

At the current price of ₹1,047.60, Maithan Alloys trades at a trailing P/E ratio of 7.0x, well below both the industry average of 10x and the broader peer group average of approximately 22x. The price-to-book value of 0.81x implies the market values the company's assets at a 19% discount to book value, suggesting either asset quality concerns or expectations of below-cost-of-capital returns going forwards.

The company's enterprise value to EBITDA of 7.86x and EV to EBIT of 8.94x appear reasonable on the surface, but these metrics are heavily influenced by the volatile other income component. Stripping this out to focus on core operating EBITDA would likely result in significantly higher multiples, given the compressed 6.54% operating margin in Q2 FY26.

The stock's technical positioning has deteriorated, with the price trading below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), indicating weak momentum. The recent shift to a "sideways" technical trend from "mildly bullish" on November 14 reflects growing investor caution. The stock has declined 5.45% in the past day, 3.25% over one week, and 5.04% over one month, underperforming the Sensex across all timeframes.

From a longer-term perspective, the stock has delivered exceptional returns over 10 years (1,171.36%) and respectable 5-year returns (101.09%), significantly outperforming the Sensex. However, recent performance has been lacklustre, with the stock down 3.00% over the past year compared to a 9.00% gain in the Sensex, and underperforming the ferrous metals sector by 45.29 percentage points.

Shareholding Pattern: Stable Promoter Base, Minimal Institutional Interest

The shareholding pattern reveals a highly promoter-dominated structure with minimal institutional participation. Promoter holding stood at 74.97% as of September 2025, virtually unchanged from 74.96% in June 2025 and 74.99% a year ago. This stable, high promoter ownership provides management continuity and alignment of interests, though it also limits free float and liquidity for investors.

Foreign institutional investor holding increased marginally to 1.41% in September 2025 from 1.38% in June 2025, representing 40 FII accounts. However, the complete absence of mutual fund holdings (0.00%) and insurance company holdings (0.00%) is notable and concerning. This lack of domestic institutional interest suggests that professional fund managers remain unconvinced about the company's investment merits, likely due to the earnings volatility and structural margin pressures discussed earlier.

Other domestic institutional investors reduced their stake from 0.17% to 0.07% during the quarter, further evidence of waning institutional confidence. The non-institutional shareholding of 23.55% consists primarily of retail and high-net-worth individual investors who may have less rigorous analytical frameworks than institutional investors.

Positively, there is zero promoter pledging, indicating that the promoter group has no immediate liquidity constraints and retains full confidence in the business. The promoter group is led by the Agarwalla family, with Subhas Chandra Agarwalla and Sheela Devi Agarwalla each holding 25.64%, and Siddhartha Shankar Agarwalla holding 16.80%.

Stock Performance: Consistent Underperformance Across Timeframes

Maithan Alloys' stock performance has been disappointing across most recent timeframes, with the stock consistently underperforming both the Sensex benchmark and the broader ferrous metals sector. Over the past year, the stock declined 3.00% compared to a 9.00% gain in the Sensex, generating negative alpha of -12.00 percentage points.

The stock's risk-adjusted returns paint an even more concerning picture. With an absolute 1-year return of -3.00% and volatility of 35.73%, the stock generated a negative risk-adjusted return of -0.08 compared to the Sensex's positive 0.73. This places Maithan firmly in the "high risk, low return" category, an unattractive combination for most investors.

The stock's beta of 1.35 indicates it is 35% more volatile than the broader market, amplifying both gains and losses. During the recent market downturn, this high beta has worked against shareholders, with the stock declining 5.45% on November 14 whilst the Sensex gained 0.10%. The stock trades below all key moving averages, with technical indicators showing a mix of bearish and neutral signals across weekly and monthly timeframes.

Longer-term performance provides some consolation, with 5-year returns of 101.09% slightly outpacing the Sensex's 93.78% gain, and exceptional 10-year returns of 1,171.36% crushing the benchmark's 230.19%. However, these historical gains offer little comfort to investors who have held the stock over the past 1-3 years, during which period it has consistently underperformed.

Investment Thesis: Attractive Valuation Undermined by Quality Concerns

The investment case for Maithan Alloys presents a classic value versus quality dilemma. On one hand, the stock trades at historically low valuations with a P/E of 7.0x and P/BV of 0.81x, well below both historical averages and peer group multiples. The company maintains a strong balance sheet with net cash and zero promoter pledging, whilst generating respectable average returns on equity of 19.79%.

However, these superficially attractive characteristics are undermined by deteriorating fundamentals and earnings quality concerns. The company's Mojo Score of 37/100 places it firmly in "SELL" territory, reflecting a combination of negative financial trends, average quality grade, sideways technical momentum, and only partially compensating attractive valuation.

The near-term drivers present a mixed picture. Quarterly financial trends are decidedly negative, with Q2 FY26 marking the second loss-making quarter in the past four. Technical indicators show sideways momentum with bearish undertones, as the stock trades below all moving averages and exhibits weak relative strength. These near-term headwinds significantly constrain upside potential despite the attractive valuation.

The quality assessment of "average" reflects the company's historical track record of profitability and strong balance sheet, but this is increasingly at odds with recent operational performance. The 5-year sales growth of just 6.15% and negative EBIT growth of -2.65% indicate that the company has struggled to grow profitably through the cycle. The dramatic swings in other income further complicate quality assessment and reduce visibility into normalised earning power.

Key Strengths and Risk Factors

Outlook: What to Watch in Coming Quarters

The coming quarters will be critical in determining whether Q2 FY26 represents a temporary aberration or the beginning of a more sustained downturn. Investors should closely monitor the trajectory of operating margins excluding other income, as this provides the clearest view of underlying business health. A return to double-digit operating margins would be encouraging, whilst continued compression below 6% would validate concerns about structural profitability challenges.

The sustainability of the company's balance sheet strength also warrants attention. Whilst currently in a net cash position, prolonged losses or working capital stress could force the company to draw down cash reserves or increase borrowings. The sharp rise in current liabilities to ₹847.69 crores suggests potential working capital pressures that merit monitoring.