The quarter's results paint a picture of a company grappling with severe operational challenges despite modest revenue growth. Whilst net sales improved 9.57% sequentially to ₹189.99 crores and posted a respectable 12.11% year-on-year gain, the company's ability to convert this topline growth into bottom-line profitability has deteriorated sharply. The operating profit margin excluding other income collapsed to 3.68%, marking the weakest performance in at least eight quarters and representing a dramatic fall from the 13.41% margin achieved in Q2 FY24.
This disconnect between revenue growth and profitability underscores fundamental issues in the company's cost structure and pricing power. The stock has underperformed its iron and steel products sector peers by a staggering 49.10% over the past year, reflecting investor concerns about the sustainability of the business model.
Financial Performance: Margin Compression Dominates Narrative
| Quarter | Net Sales (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Op. Margin % | PAT Margin % |
|---|---|---|---|---|---|---|
| Sep'25 | 189.99 | +9.57% | 10.99 | -26.73% | 3.68% | 5.52% |
| Jun'25 | 173.39 | -35.44% | 15.00 | +30.32% | 5.73% | 8.88% |
| Mar'25 | 268.56 | +42.93% | 11.51 | -10.08% | 5.44% | 4.27% |
| Dec'24 | 187.90 | +10.88% | 12.80 | -12.51% | 8.87% | 6.95% |
| Sep'24 | 169.47 | +61.20% | 14.63 | -14.14% | 5.19% | 8.87% |
| Jun'24 | 105.13 | -8.29% | 17.04 | +20.17% | 13.41% | 17.66% |
| Mar'24 | 114.63 | — | 14.18 | — | 16.95% | 13.19% |
The detailed quarterly analysis reveals a disturbing trend of margin deterioration despite revenue volatility. In Q2 FY26, net sales of ₹189.99 crores represented a modest 9.57% sequential increase from ₹173.39 crores in Q1 FY26, and a 12.11% year-on-year improvement from ₹169.47 crores. However, this topline growth failed to translate into proportionate profitability gains due to severe margin compression.
The operating profit before depreciation, interest, and tax (excluding other income) collapsed to just ₹7.00 crores in Q2 FY26, down sharply from ₹9.94 crores in the previous quarter. This translated into an operating margin of merely 3.68%, compared to 5.73% in Q1 FY26 and a robust 13.41% in Q2 FY24. The year-on-year margin contraction of 971 basis points is particularly alarming, suggesting either severe pricing pressure, escalating input costs, or operational inefficiencies that management has been unable to address.
The company's profit after tax margin similarly contracted to 5.52% in Q2 FY26 from 8.88% in the preceding quarter. Interestingly, the company generated ₹10.51 crores in other income during the quarter, down from ₹13.66 crores in Q1 FY26, which helped cushion the blow from weak operating performance. However, the heavy reliance on non-operating income—which constituted 68.07% of profit before tax—raises questions about the sustainability of reported earnings.
Operational Challenges: The Profitability Crisis
The root cause of Manaksia's profitability crisis lies in its deteriorating operational metrics. The company's gross profit margin declined to 8.85% in Q2 FY26 from 13.22% in Q1 FY26, indicating either compressed selling prices or elevated raw material costs. Employee costs rose to ₹9.15 crores from ₹8.12 crores sequentially, though this increase appears manageable relative to the revenue base.
More concerning is the company's return on capital employed (ROCE), which has plummeted to 14.36% in the latest period from an average of 44.41% over the longer term. This dramatic decline suggests that the company is generating significantly lower returns on the capital deployed in its business, a red flag for investors concerned about capital efficiency. The return on equity (ROE) of 8.28% in the latest period, down from a historical average of 12.48%, further underscores the deterioration in shareholder value creation. Whilst these ROE levels remain positive, they are concerning given the company's historical performance and suggest that management is struggling to maintain profitability on the equity base.
The balance sheet, however, remains a relative bright spot. Manaksia operates as a virtually debt-free company with net cash on its books, reflected in the negative net debt-to-equity ratio of -0.57. Shareholder funds stood at ₹572.21 crores as of March 2025, with negligible long-term debt. Current assets of ₹648.81 crores comfortably cover current liabilities of ₹103.22 crores, providing adequate liquidity cushion. This strong balance sheet provides management with financial flexibility to navigate the current operational challenges, though the question remains whether they can execute effectively.
Critical Concern: Non-Operating Income Dependency
Other income of ₹10.51 crores represented 68.07% of profit before tax in Q2 FY26. This heavy reliance on non-operating income masks weak core business performance. Operating profit excluding other income was just ₹7.00 crores, the lowest in eight quarters. Investors should be wary of earnings quality when such a large proportion of profits comes from sources outside the core business operations.
Cash Flow Concerns: Negative Operating Generation
Adding to the operational concerns is the company's cash flow profile. For the fiscal year ending March 2024, Manaksia generated ₹134.00 crores in operating cash flow, which appears healthy on the surface. However, this was driven primarily by favourable working capital changes of ₹156.00 crores rather than strong underlying profitability. The company then deployed ₹249.00 crores in investing activities, resulting in a net cash outflow of ₹130.00 crores for the year.
More troubling is the recent trend showing operating cash flow at negative ₹7.80 crores for the latest available period, marking the lowest level in the company's recent history. This suggests that the business is consuming rather than generating cash from operations, a concerning development that could pressure the balance sheet if sustained. The closing cash position declined to ₹65.00 crores in March 2024 from ₹196.00 crores in the previous year, reflecting this cash consumption.
Industry Context: Underperforming Sector Peers
Manaksia operates in the iron and steel products sector, which has delivered mixed results over the past year. Whilst the broader sector generated a return of 26.06% over the past 12 months, Manaksia's stock declined 23.04%, resulting in underperformance of 49.10 percentage points. This massive underperformance relative to peers suggests company-specific issues rather than sector-wide headwinds.
The company's challenges appear more acute than those faced by competitors, as evidenced by the sharp margin compression and profitability decline. Whilst some volatility in steel product pricing is normal given commodity price fluctuations, Manaksia's inability to maintain even modest margins suggests deeper structural issues in its business model or competitive positioning. The company's operations in Nigeria through subsidiaries producing galvanised steel, prepainted sheets, and other products may expose it to additional geopolitical and currency risks not faced by purely domestic players.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield |
|---|---|---|---|---|---|
| Manaksia | 8.35 | 0.69 | 12.48% | -0.57 | NA |
| Panchmahal Steel | NA (Loss Making) | 4.05 | 12.07% | 0.31 | 0.92% |
| Uni Abex Alloy | 18.73 | 4.59 | 25.42% | -0.37 | 1.06% |
| Suraj | 105.29 | 3.63 | 11.39% | 0.32 | 0.56% |
| India Homes | NA (Loss Making) | 17.92 | 0.0% | 2.00 | NA |
Compared to sector peers, Manaksia trades at a relatively modest price-to-earnings ratio of 8.35x, well below competitors like Suraj (105.29x) and Uni Abex Alloy (18.73x). The company's price-to-book value of 0.69x is also the lowest among peers, suggesting the market is ascribing minimal value to the company's assets beyond liquidation value. This deep discount reflects investor scepticism about management's ability to generate adequate returns on the asset base.
Manaksia's ROE of 12.48% is comparable to peers like Panchmahal Steel (12.07%) and Suraj (11.39%), though it lags significantly behind Uni Abex Alloy's impressive 25.42%. The company's debt-free status with negative debt-to-equity of -0.57 is a competitive advantage, though Uni Abex Alloy also maintains a net cash position. However, this balance sheet strength has not translated into superior stock performance, as investors remain focused on the deteriorating profitability trends.
Valuation Analysis: Attractive Multiples Mask Fundamental Concerns
At the current price of ₹66.75, Manaksia trades at a price-to-earnings ratio of 8.35x based on trailing twelve-month earnings, well below the industry average P/E of 10x. The stock's price-to-book value of 0.69x implies the market values the company at a 31% discount to its book value of ₹87.31 per share. On an enterprise value basis, the stock trades at just 2.12x EBITDA and 2.39x EBIT—multiples that appear optically cheap.
However, these seemingly attractive valuations must be viewed through the lens of deteriorating fundamentals. The company's EV-to-sales ratio of 0.12x and EV-to-capital employed of 0.34x reflect investor concerns about the sustainability of current profitability levels. With operating margins at multi-quarter lows and earnings quality questionable due to high non-operating income contribution, the low multiples may represent a value trap rather than a genuine opportunity.
The valuation grade has fluctuated between "Attractive" and "Fair" over the past year, currently sitting at "Attractive" as of October 2025. However, this assessment is based primarily on the low absolute multiples rather than a positive outlook on earnings growth. The stock has traded in a 52-week range of ₹54.59 to ₹97.95, currently sitting 31.85% below its 52-week high and 22.28% above its 52-week low.
Shareholding: Stable Promoter Base, Minimal Institutional Interest
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter Holding | 74.93% | 74.93% | 74.93% | 0.00% |
| FII Holding | 0.95% | 0.95% | 1.10% | 0.00% |
| Mutual Fund | 0.00% | 0.00% | 0.00% | 0.00% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 0.21% | 0.21% | 0.21% | 0.00% |
| Non-Institutional | 23.91% | 23.91% | 23.76% | 0.00% |
The shareholding pattern reveals a stable promoter base holding 74.93% of equity, with no changes over the past three quarters. The promoter group, led by the Agrawal family with Varun Agrawal (18.88%), Vineet Agrawal (12.38%), and Suresh Kumar Agrawal (9.43%) as key stakeholders, maintains strong control. Importantly, there is zero promoter pledging, which removes one potential concern for investors.
However, the near-total absence of institutional investors is telling. Foreign institutional investors hold a negligible 0.95%, down from 1.35% a year ago, whilst mutual funds and insurance companies have zero exposure to the stock. Total institutional holdings stand at just 1.16%, reflecting the lack of confidence from sophisticated investors. This minimal institutional participation suggests that professional fund managers see limited upside potential or are concerned about the company's prospects. The non-institutional and retail investor base of 23.91% bears the bulk of the free float, which can lead to higher volatility and lower liquidity.
Stock Performance: Severe Underperformance Across All Timeframes
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +2.19% | +1.69% | +0.50% |
| 1 Month | +1.63% | +1.19% | +0.44% |
| 3 Month | -3.80% | +5.40% | -9.20% |
| 6 Month | -6.34% | +3.18% | -9.52% |
| YTD | -19.69% | +8.72% | -28.41% |
| 1 Year | -23.04% | +9.50% | -32.54% |
| 2 Years | -50.19% | +29.12% | -79.31% |
| 3 Years | -18.65% | +37.57% | -56.22% |
The stock's performance has been dismal across virtually all timeframes. Whilst showing modest gains of 2.19% over the past week and 1.63% over the past month, these short-term upticks pale in comparison to the severe medium and long-term underperformance. Over three months, the stock declined 3.80% whilst the Sensex gained 5.40%, resulting in negative alpha of 9.20 percentage points. The six-month performance shows a similar pattern with a 6.34% decline against the Sensex's 3.18% gain.
The year-to-date decline of 19.69% and one-year loss of 23.04% are particularly concerning, especially when contrasted with the Sensex's gains of 8.72% and 9.50% respectively. This translates to negative alpha of 28.41 percentage points year-to-date and 32.54 percentage points over one year. The two-year performance is even more catastrophic, with the stock down 50.19% whilst the Sensex rallied 29.12%, resulting in a staggering 79.31 percentage points of underperformance.
From a technical perspective, the stock is in a confirmed bearish trend since September 2025, trading below all key moving averages. The stock sits below its 5-day (₹65.52), 20-day (₹66.55), 50-day (₹67.91), 100-day (₹70.73), and 200-day (₹70.05) moving averages. Technical indicators including MACD, RSI, and Bollinger Bands are flashing bearish signals across weekly and monthly timeframes. The stock's beta of 1.50 indicates it is 50% more volatile than the market, amplifying losses during downtrends.
Investment Thesis: Multiple Red Flags Outweigh Balance Sheet Strength
The investment case for Manaksia presents a challenging picture. On the positive side, the company maintains a debt-free balance sheet with net cash position, providing financial flexibility. The stock trades at optically cheap valuations with a P/E of 8.35x and P/BV of 0.69x, well below book value. The promoter holding remains stable at 74.93% with zero pledging, indicating management confidence. The company's five-year sales growth, whilst modest at 0.61% annually, has been positive.
However, these positives are overwhelmed by significant concerns. The company is experiencing severe margin compression, with operating margins collapsing to 3.68% from historical levels above 13%. Profitability has declined sharply, with net profit down 24.88% year-on-year despite revenue growth. The heavy reliance on non-operating income (68.07% of PBT) raises serious questions about earnings quality. Operating cash flow has turned negative at ₹7.80 crores, suggesting the business is consuming rather than generating cash.
The stock has massively underperformed both the Sensex and its sector peers, down 23.04% over one year versus a 26.06% sector gain. Technical indicators are uniformly bearish, and the stock trades below all moving averages. Institutional investors have virtually zero exposure, with total institutional holdings at just 1.16%. The financial trend is classified as "Negative," and the proprietary Mojo Score of 26/100 results in a "STRONG SELL" rating.
"Whilst Manaksia's debt-free balance sheet and low valuations may appear attractive on the surface, the severe margin compression, deteriorating profitability, and negative operating cash flow suggest deeper structural issues that cheap multiples alone cannot overcome."
Key Strengths & Risk Factors
KEY STRENGTHS
- Debt-Free Balance Sheet: Net cash position with negative debt-to-equity of -0.57 provides financial flexibility
- Attractive Valuations: P/E of 8.35x and P/BV of 0.69x represent significant discounts to peers and book value
- Stable Promoter Base: 74.93% promoter holding with zero pledging demonstrates management commitment
- Adequate Liquidity: Current assets of ₹648.81 crores comfortably cover current liabilities of ₹103.22 crores
- Diversified Operations: Presence in Nigeria with multiple product lines provides geographic diversification
KEY CONCERNS
- Severe Margin Erosion: Operating margin collapsed to 3.68% from 13.41% year-on-year, the weakest in eight quarters
- Profitability Decline: Net profit down 24.88% YoY despite 12.11% revenue growth indicates operational issues
- Poor Earnings Quality: Non-operating income represents 68.07% of PBT, masking weak core business performance
- Negative Cash Flow: Operating cash flow at negative ₹7.80 crores suggests business is consuming cash
- Minimal Institutional Interest: Just 1.16% institutional holdings reflects lack of confidence from sophisticated investors
- Massive Underperformance: Stock down 23.04% over one year vs sector gain of 26.06%, underperforming by 49.10%
- Bearish Technical Trend: Trading below all moving averages with uniformly negative technical indicators
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained improvement in operating margins above 8% for two consecutive quarters
- Return to positive operating cash flow generation
- Reduction in other income dependency to below 30% of PBT
- Institutional investor participation increasing above 5%
- Stabilisation of profitability with PAT margins above 7%
RED FLAGS TO MONITOR
- Further decline in operating margins below 3%
- Continued negative operating cash flow in subsequent quarters
- Increasing reliance on non-operating income above 70% of PBT
- Promoter stake reduction or any pledging of shares
- Additional institutional investor exits reducing FII holdings below 0.5%
- Break below 52-week low of ₹54.59
The Verdict: Structural Challenges Outweigh Valuation Appeal
Score: 26/100
For Fresh Investors: Avoid initiating positions. The severe margin compression, deteriorating profitability, and negative operating cash flow suggest deeper structural issues that low valuations alone cannot overcome. The stock's massive underperformance relative to both the market and sector peers reflects legitimate concerns about the business model's sustainability.
For Existing Holders: Strongly consider exiting positions. Whilst the debt-free balance sheet provides some cushion, the trajectory of operational metrics is deeply concerning. The company has failed to demonstrate any improvement over recent quarters, and the bearish technical trend suggests further downside risk. Unless management can demonstrate concrete steps to restore margins and profitability, holding through this deterioration is not advisable.
Fair Value Estimate: ₹55.00 (17.6% downside from current levels) based on sustained 4x P/E multiple on normalised earnings of ₹9 crores quarterly run rate, reflecting the elevated risk profile and poor operational trends.
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 risk of loss.
