The quarter saw improved profitability metrics despite topline pressure, with PAT margin expanding to 5.09% from 7.14% in Q1 FY26. Year-on-year comparisons show revenue growth of 9.95%, whilst net profit surged 513.11% from ₹3.28 crores in Q2 FY25. The company's market capitalisation stands at ₹2,083 crores, positioning it as a small-cap player in the cement sector.
The cement manufacturer, with production facilities in Morak (Rajasthan) and Aligarh (Uttar Pradesh), has demonstrated resilience in a challenging operating environment characterised by volatile demand and pricing pressures. The company's ability to deliver profit growth despite revenue contraction highlights improved operational efficiency and cost management initiatives undertaken during the quarter.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 394.88 | 451.74 | 502.90 | 438.38 | 359.14 | 380.57 | 437.31 |
| QoQ Growth | -12.59% | -10.17% | +14.72% | +22.06% | -5.63% | -12.97% | — |
| Net Profit (₹ Cr) | 20.11 | 32.26 | 16.91 | 7.81 | 3.28 | 17.06 | 17.28 |
| Operating Margin % | 10.81% | 16.64% | 10.77% | 9.92% | 8.39% | 7.80% | 10.42% |
| PAT Margin % | 5.09% | 7.14% | 3.36% | 1.78% | 0.91% | 4.48% | 3.95% |
Financial Performance: Margin Expansion Amid Revenue Softness
Mangalam Cement's Q2 FY26 performance presents a tale of contrasting trends. Whilst net sales declined 12.59% sequentially to ₹394.88 crores from ₹451.74 crores in Q1 FY26, the company managed to improve its bottom line substantially. Net profit rose to ₹20.11 crores from ₹32.26 crores in the previous quarter, though this represents a 37.67% decline quarter-on-quarter. However, on a year-on-year basis, the profit trajectory remains robust, with a 513.11% surge from ₹3.28 crores in Q2 FY25.
The operating profit (PBDIT excluding other income) stood at ₹42.70 crores, translating to an operating margin of 10.81%, up 242 basis points year-on-year from 8.39% in Q2 FY25. This margin improvement, despite revenue pressure, indicates effective cost control measures and better realisation per tonne. The company's gross profit margin for the quarter came in at 9.29%, whilst PAT margin expanded to 5.09% from 0.91% in the corresponding quarter last year.
Employee costs remained relatively stable at ₹34.77 crores in Q2 FY26, down from ₹37.42 crores in Q1 FY26. Interest expenses declined marginally to ₹15.78 crores from ₹16.51 crores, whilst depreciation remained flat at ₹20.23 crores. The company reported a negative tax rate of -22.32% for the quarter, compared to 34.35% in Q1 FY26, which contributed significantly to the net profit improvement.
On a half-yearly basis (H1 FY26), Mangalam Cement reported net sales of ₹846.62 crores and net profit of ₹52.37 crores, compared to ₹739.71 crores in sales and ₹20.34 crores in profit during H1 FY25. This represents year-on-year growth of 14.46% in revenue and 157.48% in net profit for the first half of FY26.
Operational Challenges: Non-Operating Income Dependency Raises Concerns
A critical concern emerging from the quarterly results is the company's significant reliance on other income to bolster profitability. In Q2 FY26, other income stood at ₹9.75 crores, constituting 59.31% of profit before tax (PBT) of ₹16.44 crores. This heavy dependence on non-operating income raises questions about the sustainability of core operational profitability and suggests that the cement manufacturing business itself is generating relatively modest returns.
The profit before tax less other income (PBTOI) metric reveals the underlying operational reality. At ₹6.69 crores in Q2 FY26, this figure has fallen 49.80% compared to the previous four-quarter average, indicating deteriorating core business profitability. This trend is particularly concerning given that operating profit to interest coverage, whilst improved at 2.71 times, remains below comfortable levels for a capital-intensive manufacturing business.
⚠️ Key Operational Concern
Non-operating income dependency: Other income represents 59.31% of PBT in Q2 FY26, highlighting the company's struggle to generate robust profits from core cement operations. PBTOI has declined 49.80% versus the four-quarter average, signalling pressure on fundamental business economics.
The company's return on equity (ROE) stands at 7.07% for the latest period, below the industry average and indicating suboptimal capital efficiency. Return on capital employed (ROCE) at 6.44% further underscores the challenges in generating adequate returns from the capital deployed in the business. These metrics suggest that despite operational improvements in margins, the company faces structural challenges in achieving superior profitability.
Balance sheet metrics reveal a moderately leveraged position with long-term debt of ₹196.32 crores as of March 2025, down from ₹248.52 crores in the previous year. The debt-to-EBITDA ratio of 3.27 times indicates moderate debt levels, whilst net debt to equity of 0.44 suggests manageable leverage. However, the company's EBIT to interest coverage of 1.96 times remains weak, limiting financial flexibility.
Industry Context: Navigating Cement Sector Headwinds
The cement sector has faced challenging conditions characterised by demand volatility, pricing pressures, and rising input costs. Mangalam Cement's Q2 FY26 performance must be viewed against this backdrop of industry-wide headwinds. The sequential revenue decline of 12.59% reflects broader demand softness in key markets, particularly during the monsoon season when construction activity traditionally slows.
The company's five-year sales growth of 9.34% demonstrates reasonable topline expansion over the longer term, though EBIT growth has been negative at -0.35% over the same period. This divergence between revenue and operating profit growth highlights the margin compression that has plagued the cement industry due to competitive intensity and cost inflation. The company's manufacturing footprint in Rajasthan and Uttar Pradesh positions it to serve northern markets, though regional demand dynamics and competitive pressures remain significant factors.
Capacity Utilisation and Market Dynamics
Whilst specific capacity utilisation data is not disclosed, the sequential revenue decline suggests underutilised production capacity during Q2 FY26. The cement industry's cyclical nature, combined with regional oversupply in certain markets, continues to pressure pricing power. Mangalam Cement's ability to maintain and expand margins despite volume pressures indicates some pricing discipline and cost management success.
The company's cash flow from operations reached ₹187.63 crores for FY25, the highest level achieved, demonstrating improved working capital management. However, capital expenditure of ₹132.00 crores during the year indicates ongoing investment requirements to maintain competitiveness. Free cash flow generation remains constrained by the capital-intensive nature of the cement business.
Peer Comparison: Valuation Premium Difficult to Justify
Mangalam Cement trades at a significant premium to several peers on valuation multiples, raising questions about whether this premium is justified by operational performance. The company's price-to-earnings ratio of 35.16 times compares unfavourably with Orient Cement at 13.65 times and KCP at 12.78 times. Similarly, the price-to-book value of 2.49 times is substantially higher than most peers, with Orient Cement at 0.20 times and Sagar Cements at 0.17 times.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Mangalam Cement | 35.16 | 2.49 | 8.65% | 0.44 | 0.19% |
| Orient Cement | 13.65 | 0.20 | 10.07% | 0.00 | 0.25% |
| KCP | 12.78 | 1.69 | 12.07% | -0.28 | 0.12% |
| Heidelberg Cement | 33.24 | 0.33 | 11.18% | -0.24 | 3.71% |
| Prism Johnson | NA (Loss Making) | 4.87 | 4.00% | 0.66 | NA |
| Sagar Cements | NA (Loss Making) | 0.17 | 2.73% | 0.28 | NA |
The valuation premium appears particularly stretched when considering that Mangalam Cement's ROE of 8.65% lags behind peers such as KCP (12.07%), Orient Cement (10.07%), and Heidelberg Cement (11.18%). The company does maintain a relatively conservative balance sheet with debt-to-equity of 0.44, lower than some peers, which provides some justification for a modest valuation premium. However, the current multiple appears excessive given the operational challenges and modest return profile.
Dividend yield at 0.19% is amongst the lowest in the peer group, with the company paying ₹1.50 per share in its latest dividend. The low payout ratio of 9.15% suggests management is retaining most earnings, presumably for reinvestment, though the weak ROCE raises questions about capital allocation efficiency. Institutional holding stands at 13.02%, indicating limited conviction from sophisticated investors.
Valuation Analysis: Premium Pricing Not Supported by Fundamentals
Mangalam Cement's current valuation appears stretched relative to both historical norms and peer comparisons. The P/E ratio of 35.16 times represents a significant premium to the industry average P/E of 37 times, though this sector average is skewed by loss-making players. The company's EV/EBITDA multiple of 12.27 times and EV/EBIT of 20.28 times suggest limited margin of safety at current prices.
The stock's price-to-book value of 2.49 times implies the market is pricing in substantial future profitability improvements that are not yet evident in current performance metrics. With book value per share at ₹309.81 and the stock trading at ₹770.60, investors are paying nearly 2.5 times the accounting value of assets, a premium that appears difficult to justify given the 7.07% ROE.
The valuation grade has fluctuated between "Fair" and "Attractive" over recent months, most recently moving to "Fair" on September 25, 2025. This assessment appears generous given the operational challenges and modest return profile. The stock currently trades 24.74% below its 52-week high of ₹1,023.95, suggesting some correction has already occurred, though further downside risk remains if operational performance fails to improve.
Based on current earnings and assuming modest improvement in profitability metrics, a fair value estimate would place the stock closer to ₹650-700, implying 10-15% downside from current levels. This valuation assumes the company can sustain recent margin improvements and gradually improve return ratios, which remains uncertain given industry dynamics.
Shareholding Pattern: Promoter Accumulation Signals Confidence
The shareholding pattern reveals interesting dynamics, with promoter holding increasing steadily over recent quarters. Promoter stake rose to 40.00% in Q2 FY26 from 39.52% in Q1 FY26, marking the fourth consecutive quarter of promoter accumulation. This upward trend from 36.94% in Q3 FY25 to current levels suggests promoter confidence in the company's long-term prospects.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 |
|---|---|---|---|---|---|
| Promoter % | 40.00% | 39.52% | 39.52% | 37.81% | 36.94% |
| QoQ Change | +0.48% | 0.00% | +1.71% | +0.87% | — |
| FII % | 6.08% | 5.87% | 5.81% | 6.07% | 6.17% |
| Mutual Fund % | 4.21% | 4.21% | 4.21% | 4.00% | 3.88% |
| Other DII % | 2.74% | 2.88% | 0.77% | 0.79% | 0.90% |
| Non-Institutional % | 46.97% | 47.51% | 49.69% | 51.32% | 52.11% |
Foreign institutional investor (FII) holding has remained relatively stable around 6%, with a marginal increase to 6.08% in Q2 FY26 from 5.87% in the previous quarter. Mutual fund holding has been steady at 4.21% for the past three quarters, indicating neither accumulation nor distribution by domestic institutional investors. The notable change came in other DII holdings, which jumped to 2.88% in Q1 FY26 from 0.77% in Q4 FY25, though this declined slightly to 2.74% in Q2 FY26.
Non-institutional investors, comprising retail and other investors, hold 46.97% of the company, down from 52.11% in Q3 FY25. This declining retail participation, coupled with rising promoter holding, suggests a gradual shift in ownership structure. The absence of promoter pledging is a positive factor, indicating financial stability at the promoter level. Key promoters include Vidula Consultancy Services Limited (16.68%), Rambara Trading Private Limited (12.64%), and Aditya Birla Real Estate Limited (8.65%).
Stock Performance: Underperformance Reflects Fundamental Challenges
Mangalam Cement's stock has significantly underperformed both the broader market and its sector over the past year. The stock has declined 11.63% over the past 12 months, compared to the Sensex's gain of 4.62%, resulting in negative alpha of -16.25%. The cement sector itself delivered 4.85% returns during this period, meaning Mangalam underperformed its sector by 16.48 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.96% | -0.86% | -0.10% |
| 1 Month | +3.76% | +1.57% | +2.19% |
| 3 Months | +7.23% | +3.22% | +4.01% |
| 6 Months | +3.58% | +3.06% | +0.52% |
| YTD | -22.93% | +6.50% | -29.43% |
| 1 Year | -11.63% | +4.62% | -16.25% |
| 2 Years | +87.72% | +28.14% | +59.58% |
| 3 Years | +101.73% | +36.01% | +65.72% |
The year-to-date performance has been particularly disappointing, with the stock down 22.93% compared to the Sensex's 6.50% gain, resulting in negative alpha of -29.43%. This underperformance reflects concerns about the company's operational challenges, margin pressures, and modest return profile. However, longer-term returns paint a different picture, with the stock delivering 87.72% returns over two years and 101.73% over three years, substantially outperforming the Sensex.
Technical indicators present a mixed picture. The stock is currently in a sideways trend, having changed from mildly bearish on November 4, 2025. The stock trades above all key moving averages—5-day (₹764.14), 20-day (₹761.38), 50-day (₹748.28), 100-day (₹741.32), and 200-day (₹765.79)—suggesting technical strength in the near term. However, with a beta of 1.35, the stock exhibits higher volatility than the broader market, classified as a high-beta stock.
"Whilst near-term technical indicators suggest stabilisation, fundamental challenges including weak return ratios and non-operating income dependency raise questions about sustainable value creation."
The stock's risk-adjusted return of -0.35 over the past year, combined with volatility of 33.43%, places it in the "high risk, low return" category. This unfavourable risk-return profile suggests investors have not been adequately compensated for the volatility they have endured. Immediate support lies at the 52-week low of ₹640.00, whilst resistance is seen around the 20-day moving average area of ₹761.38.
Investment Thesis: Mixed Signals Across Key Parameters
The investment case for Mangalam Cement presents a complex picture with conflicting signals across different analytical dimensions. The company's Mojo score of 51 out of 100 translates to a "HOLD" rating, reflecting the balanced view that whilst the stock is not attractive enough for fresh purchases, existing holders need not exit immediately.
The valuation is assessed as "Fair," suggesting the stock is neither significantly overvalued nor undervalued at current levels, though our analysis indicates limited upside potential. Quality is graded as "Average," reflecting the company's moderate financial performance, weak return ratios, and structural challenges. The financial trend is marked as "Positive" based on recent quarterly improvements, though this assessment appears generous given the underlying concerns about non-operating income dependency.
Technical indicators show a "Sideways" trend, suggesting the stock is in a consolidation phase following recent volatility. This technical neutrality, combined with fundamental concerns, argues for a cautious approach. The company's strengths include highest operating cash flow of ₹187.63 crores and improved operating profit to interest coverage of 4.55 times. However, these positives are offset by poor long-term EBIT growth of -0.35% annually over five years.
Key Strengths & Risk Factors
✅ KEY STRENGTHS
- Strong Q2 profit recovery: Net profit of ₹20.11 crores represents 513.11% YoY growth, demonstrating operational resilience
- Margin expansion: Operating margin improved to 10.81% from 8.39% YoY, indicating better cost management
- Promoter confidence: Consistent promoter accumulation to 40.00% from 36.94% over four quarters signals long-term confidence
- Robust cash generation: Operating cash flow of ₹187.63 crores (FY25) at highest level, supporting financial stability
- Conservative leverage: Net debt to equity of 0.44 and declining debt levels provide financial flexibility
- No pledging: Zero promoter pledging indicates financial stability at promoter level
- Established brand presence: 'Mangalam' and 'Birla Uttam' brands backed by B.K. Birla Group heritage
⚠️ KEY CONCERNS
- Revenue contraction: Q2 sales declined 12.59% QoQ to ₹394.88 crores, indicating demand weakness
- Non-operating income dependency: Other income constitutes 59.31% of PBT, raising sustainability concerns
- Weak return ratios: ROE of 7.07% and ROCE of 6.44% well below acceptable thresholds for capital-intensive business
- Poor long-term profitability: Five-year EBIT growth of -0.35% indicates structural margin challenges
- Stretched valuation: P/E of 35.16x and P/BV of 2.49x appear excessive given operational performance
- Weak interest coverage: EBIT to interest of 1.96 times limits financial flexibility
- High volatility: Beta of 1.35 and volatility of 33.43% indicate elevated price risk
Outlook: What to Watch in Coming Quarters
📈 POSITIVE CATALYSTS
- Sustained margin improvement: Ability to maintain operating margins above 10% in subsequent quarters
- Revenue recovery: Sequential topline growth resumption in Q3/Q4 FY26 driven by seasonal demand pickup
- Core profitability enhancement: Reduction in other income dependency with PBTOI improvement
- Infrastructure spending: Government infrastructure push benefiting cement demand in northern markets
- Capacity optimisation: Better capacity utilisation improving operational leverage
🚩 RED FLAGS
- Continued revenue decline: Further sequential topline contraction would signal structural demand issues
- Margin compression: Any reversal in margin trends due to input cost inflation or pricing pressure
- Rising debt levels: Increase in leverage ratios or deterioration in interest coverage
- ROE/ROCE stagnation: Failure to improve return ratios above 10% threshold
- Institutional exit: Reduction in FII or mutual fund holdings indicating waning confidence
The path forward for Mangalam Cement hinges on its ability to demonstrate sustainable profitability improvements driven by core operations rather than non-operating income. Management's focus should be on enhancing capacity utilisation, improving pricing power, and driving operational efficiencies to lift return ratios. The cement sector's cyclical nature means demand recovery in coming quarters could provide tailwinds, though competitive intensity remains a persistent challenge.
Investors should closely monitor quarterly revenue trends, margin sustainability, and most importantly, the trajectory of core operating profitability (PBTOI). Any improvement in return ratios towards double digits would support the current valuation, whilst continued weakness would necessitate re-rating. The company's strong balance sheet and promoter backing provide downside protection, but upside potential appears limited without fundamental operational improvements.
The Verdict: Hold for Existing Investors, Avoid Fresh Entry
Score: 51/100
For Fresh Investors: Not recommended for fresh purchases at current levels. The stock trades at stretched valuations (P/E 35.16x, P/BV 2.49x) that are difficult to justify given weak return ratios (ROE 7.07%, ROCE 6.44%) and high dependence on non-operating income. Better entry opportunities may emerge on further correction towards ₹650-700 levels, which would offer more attractive risk-reward.
For Existing Holders: Continue to hold with a cautious stance. Whilst near-term operational improvements are encouraging, fundamental challenges including poor long-term profitability growth and modest return profile warrant close monitoring. Consider partial profit-booking if the stock approaches ₹850-900 levels. Re-evaluate holdings if core operating profitability (PBTOI) fails to show sustained improvement over the next two quarters.
Fair Value Estimate: ₹675 (12% downside from current price of ₹770.60)
Rationale: The HOLD rating reflects a balanced assessment of improving near-term financial trends offset by structural concerns about profitability quality, weak return ratios, and stretched valuation multiples. Promoter confidence and strong cash generation provide downside support, but limited upside potential and operational uncertainties argue against fresh accumulation at current levels.
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 November 08, 2025, and are subject to change.
