Megri Soft Q2 FY26: Revenue Decline Persists Amid Margin Expansion

The stock closed at ₹94.98 on February 11, 2026, reflecting a modest gain of 1.04% from the previous session. However, the broader trend remains concerning, with the stock trading 46.14% below its 52-week high of ₹176.35 and languishing in bearish technical territory. The company's performance continues to lag significantly behind both the Sensex and its sector peers, with a one-year decline of 45.05% compared to the Sensex's 10.41% gain.

Financial Performance: Revenue Contraction Overshadows Margin Gains

In Q2 FY26, Megri Soft's net sales stood at ₹0.67 crores, marking a sequential decline of 6.94% from ₹0.72 crores in Q1 FY26 and a sharper year-on-year contraction of 33.00% from ₹1.00 crores in Q2 FY25. This persistent revenue erosion reflects the company's ongoing struggle to maintain its client base and secure new contracts in an increasingly competitive IT services landscape.

Despite the topline challenges, the company demonstrated improved cost management. Operating profit (PBDIT) excluding other income reached ₹0.22 crores with a margin of 32.84%, up from 30.56% in the previous quarter. This 228 basis points sequential margin expansion suggests better control over employee costs, which declined to ₹0.15 crores from ₹0.25 crores quarter-on-quarter, representing a 40.00% reduction.

Net profit after tax for Q2 FY26 came in at ₹0.15 crores, translating to a PAT margin of 22.39%, up from 19.44% in the previous quarter. Whilst the margin improvement is encouraging, the absolute profit figure remains constrained by the revenue decline. The company maintained a stable tax rate of 25.00%, consistent with the previous year's corresponding quarter.

Operational Challenges: Weak Return Metrics Signal Fundamental Concerns

Megri Soft's operational efficiency metrics paint a concerning picture of capital productivity. The company's average return on equity (ROE) stands at a mere 2.65%, significantly below industry standards and indicative of poor shareholder value creation. Similarly, the average return on capital employed (ROCE) of 3.08% suggests the company struggles to generate adequate returns from its deployed capital.

The balance sheet, whilst debt-free, reflects a company operating with minimal scale. Shareholder funds stood at ₹22.37 crores as of March 2025, comprising equity capital of ₹3.14 crores and reserves of ₹19.23 crores. Fixed assets totalled ₹7.94 crores, whilst investments increased to ₹6.01 crores from ₹5.39 crores in the previous year. Current assets of ₹2.82 crores provide adequate liquidity, though the company's ability to deploy this capital productively remains questionable.

Quality Assessment: Below Average Fundamentals Limit Investment Appeal

Megri Soft carries a "Below Average" quality grade, reflecting weak long-term financial performance across multiple dimensions. The company's five-year sales growth of 5.44% and EBIT growth of 7.71% demonstrate minimal business expansion, particularly concerning for a technology services provider operating in a rapidly growing sector.

On the positive side, the company maintains zero debt, with an average net debt-to-equity ratio of -0.07, indicating a net cash position. Additionally, there is no promoter pledging, with the promoter group holding a stable 74.99% stake. However, institutional holdings stand at zero, reflecting the lack of professional investor interest in the stock.

Peer Comparison: Underperformance Across Key Metrics

Megri Soft's peer comparison reveals significant underperformance on profitability metrics. With an ROE of just 2.65%, the company trails peers like IMEC Services (21.35%), Walchand People (11.68%), and Informed Technologies (11.50%) by substantial margins. Despite this weak fundamental performance, the stock trades at a premium P/E multiple of 54.24x, well above peers such as We Win (14.10x) and Walchand People (8.84x).

The valuation disconnect becomes even more apparent when examining the price-to-book ratio. At 1.32x, Megri Soft trades at a modest discount to peers like IMEC Services (1.62x) and Informed Technologies (1.49x), but the low ROE makes even this valuation appear expensive. The absence of dividend payments across the peer group reflects the capital-intensive nature and growth challenges facing small IT services providers.

Valuation Analysis: Expensive Multiples Unjustified by Fundamentals

Megri Soft's valuation metrics present a stark disconnect between market pricing and underlying fundamentals. The stock trades at a P/E ratio of 54.24x, more than double the industry average of 26x, despite delivering inferior returns on equity and stagnant revenue growth. This premium valuation appears entirely unjustified given the company's deteriorating operational performance.

The enterprise value multiples further underscore the expensive nature of the stock. At an EV/EBITDA of 28.34x and EV/Sales of 10.31x, Megri Soft commands valuations typically reserved for high-growth technology companies, which it clearly is not. The company's five-year sales growth of merely 5.44% hardly warrants such elevated multiples.

Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest

The shareholding pattern reveals complete absence of institutional participation, with zero holdings from foreign institutional investors, mutual funds, insurance companies, and other domestic institutional investors. The promoter group, led by Mohnesh Kohli (37.19%) and Mohnesh Kohli HUF (22.79%), maintains a stable 74.99% stake with no pledging, indicating promoter confidence but also limited liquidity for public shareholders.

The complete lack of institutional interest serves as a red flag, suggesting professional investors have thoroughly evaluated and rejected the investment proposition. In today's market, institutional participation often validates a company's fundamentals and growth prospects – its absence here speaks volumes about Megri Soft's investment appeal.

Stock Performance: Severe Underperformance Across All Timeframes

The stock's performance has been dismal across virtually all timeframes. Over the past year, Megri Soft has declined 45.05%, massively underperforming the Sensex's 10.41% gain by 55.46 percentage points. The three-year alpha of -50.17% demonstrates consistent value destruction relative to the broader market.

From a technical perspective, the stock entered bearish territory on February 1, 2026, at ₹94.14, and currently trades below all key moving averages – the 5-day (₹93.54), 20-day (₹96.68), 50-day (₹99.91), 100-day (₹100.06), and 200-day (₹108.42) moving averages. This technical breakdown reinforces the fundamental weakness, with both MACD and KST indicators flashing bearish signals on weekly and monthly charts.

Investment Thesis: Multiple Red Flags Outweigh Limited Positives

The investment case for Megri Soft is severely compromised by deteriorating fundamentals, expensive valuation, and weak technical positioning. The company's proprietary score stands at just 21 out of 100, firmly in "Strong Sell" territory, reflecting concerns across valuation, quality, financial trends, and technical indicators.

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