Mercury EV-Tech Q2 FY26: Strong Revenue Growth Masks Margin Pressures and Valuation Concerns

The results present a mixed picture for the electric vehicle pioneer. Whilst revenue growth remains robust—driven by increased demand for electric scooters, cars, and buses—profitability metrics reveal concerning trends. The company's PAT margin contracted to 5.41% in Q2 FY26 from 7.22% in Q1 FY26, suggesting rising operational challenges despite volume expansion. With a quality grade of "Average" and a proprietary Mojo Score of just 36 out of 100, Mercury EV-Tech faces significant headwinds in an increasingly competitive electric mobility landscape.

Financial Performance: Revenue Surge Amidst Margin Compression

Mercury EV-Tech's Q2 FY26 performance showcases the company's ability to scale operations rapidly, with net sales reaching ₹34.01 crores—a remarkable 74.59% year-on-year increase and 50.69% sequential improvement. This impressive top-line expansion reflects growing traction in the electric vehicle segment, particularly in commercial applications such as electric buses and golf cars. However, the revenue growth story is tempered by significant margin pressures that warrant close scrutiny.

The company's operating profit before depreciation, interest, and tax (PBDIT) excluding other income stood at ₹3.02 crores in Q2 FY26, translating to an operating margin of 8.88%—marginally lower than the 9.39% recorded in Q1 FY26. More concerning is the sequential decline in PAT margin from 7.22% to 5.41%, suggesting that cost pressures are intensifying faster than revenue growth. Employee costs rose to ₹3.11 crores in Q2 FY26 from ₹3.33 crores in the previous quarter, indicating ongoing investments in human capital to support expansion.

On a half-yearly basis (H1 FY26), Mercury EV-Tech reported consolidated net profit of ₹2.99 crores on revenues of ₹56.58 crores, representing substantial year-on-year improvements. The company's depreciation charge jumped significantly to ₹1.22 crores in Q2 FY26 from ₹0.30 crores in Q1 FY26, reflecting increased capital expenditure and asset additions to support manufacturing capacity expansion. Interest costs remained modest at ₹0.08 crores, highlighting the company's relatively low leverage profile.

Operational Challenges: Weak Returns and Capital Efficiency Concerns

Beneath the headline revenue growth lies a more troubling operational reality. Mercury EV-Tech's return on equity (ROE) stands at a meagre 2.73%, significantly below industry standards and indicative of poor capital efficiency. For a company operating in a capital-intensive sector like electric vehicle manufacturing, such weak returns raise questions about the sustainability of the business model and the ability to generate shareholder value over the long term.

The company's return on capital employed (ROCE) paints an equally concerning picture at just 2.77%, suggesting that the capital deployed in the business is generating minimal returns. This is particularly problematic given the substantial investments required to scale electric vehicle production. The five-year sales growth of 125.97% demonstrates strong top-line momentum, but the inability to translate this into robust profitability metrics highlights fundamental operational inefficiencies.

Balance sheet analysis reveals a mixed picture. As of March 2024, the company maintained shareholder funds of ₹80.69 crores against long-term debt of ₹53.53 crores, resulting in a debt-to-equity ratio of 0.66x. Whilst not alarming, the debt levels have increased substantially from ₹22.78 crores in March 2023, reflecting aggressive capacity expansion. Fixed assets stood at ₹36.54 crores, whilst current assets totalled ₹69.01 crores, providing adequate liquidity to support near-term operations.

The Valuation Conundrum: Premium Pricing Meets Weak Fundamentals

Mercury EV-Tech's valuation metrics present a stark disconnect between market pricing and fundamental performance. Trading at a price-to-earnings ratio of 82.97x, the stock commands a significant premium to the automobile sector average of 32x. This elevated multiple appears unjustified given the company's weak profitability metrics and operational challenges. The price-to-book value ratio of 2.61x, whilst lower than some peers, still represents a premium for a business generating sub-3% returns on equity.

The enterprise value multiples tell a similar story. At 71.02x EV/EBITDA and 87.00x EV/EBIT, Mercury EV-Tech is priced for perfection—expecting substantial margin expansion and profitability improvements that have yet to materialise. The EV/Sales ratio of 5.98x suggests investors are paying nearly six times revenues for a business with single-digit operating margins. This valuation structure leaves little room for disappointment and explains the stock's classification as "Very Expensive" by quality assessment metrics.

The one bright spot in the valuation framework is the PEG ratio of 0.45x, which suggests the stock may be reasonably priced relative to its growth trajectory. However, this metric assumes the company can sustain its current growth rates whilst improving profitability—a challenging proposition given the competitive dynamics in the electric vehicle sector. The stock's current price of ₹38.52 represents a 63.35% decline from its 52-week high of ₹105.10, reflecting growing investor scepticism about the valuation premium.

Industry Context: Navigating a Crowded Electric Vehicle Landscape

Mercury EV-Tech operates in India's rapidly evolving electric vehicle sector, which has seen significant government policy support through the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme and state-level subsidies. The company's focus on commercial electric vehicles—including buses, golf cars, and vintage cars—positions it in a niche segment with potentially lower competition than the crowded two-wheeler electric vehicle market.

However, the broader automobile sector in India has faced headwinds, with the sector delivering a negative 20.81% return over the past year. Mercury EV-Tech has significantly underperformed this benchmark, posting a 61.86% decline—an underperformance of 41.05 percentage points. This suggests company-specific challenges beyond sectoral trends, likely related to execution issues, margin pressures, and valuation concerns that have prompted investors to reassess their positions.

Peer Comparison: Valuation Premium Without Performance Justification

Comparing Mercury EV-Tech with automobile sector peers reveals a valuation premium that appears difficult to justify based on fundamental metrics. The company's P/E ratio of 82.97x significantly exceeds most comparable firms, whilst its ROE of 2.73% lags behind peers like Landmark Cars (5.16%) and Indo Farm Equipment (4.39%). This combination of premium valuation and subpar profitability creates an unfavourable risk-reward profile for investors.

Mercury EV-Tech's price-to-book ratio of 2.61x appears reasonable compared to Landmark Cars' 4.01x, but this comparison is misleading given the substantial difference in ROE. Landmark Cars generates nearly double the return on equity (5.16% vs 2.73%), justifying a higher P/BV multiple. Similarly, Indo Farm Equipment trades at a lower P/E of 46.37x whilst delivering superior ROE of 4.39%, suggesting Mercury EV-Tech's valuation premium is not supported by relative performance metrics.

Shareholding Pattern: Stable Promoter Base with Minimal Institutional Interest

Mercury EV-Tech's shareholding structure reflects a stable promoter base controlling 59.18% of equity, unchanged over the past five quarters. This consistent promoter holding provides governance stability and alignment of interests with minority shareholders. Notably, there is zero promoter pledging, eliminating concerns about financial stress or potential forced selling that could pressure the stock.

However, the shareholding pattern reveals a concerning absence of institutional confidence. Foreign institutional investors hold a mere 1.90% stake, whilst mutual fund and insurance company holdings are effectively zero. This lack of institutional participation signals that sophisticated investors have not found the company's fundamentals or valuation compelling enough to establish meaningful positions. The total institutional holding of just 1.91% is remarkably low for a listed company, suggesting limited research coverage and liquidity constraints.

Stock Performance: Severe Underperformance Across All Timeframes

Mercury EV-Tech's stock price performance has been dismal across virtually all meaningful timeframes, with the sole exception being its long-term 10-year return. Trading at ₹38.52 as of November 18, 2025, the stock has declined 61.86% over the past year compared to the Sensex's 9.48% gain—a negative alpha of 71.34 percentage points. This severe underperformance reflects deteriorating investor sentiment and growing concerns about the company's ability to deliver on growth expectations.

The technical picture is equally bleak. Mercury EV-Tech is trading below all key moving averages—5-day (₹41.36), 20-day (₹42.72), 50-day (₹45.99), 100-day (₹49.07), and 200-day (₹57.06)—indicating sustained downward momentum. The stock recently changed to a "Bearish" trend on November 13, 2025, at ₹41.94, with technical indicators including MACD, Bollinger Bands, and moving averages all flashing bearish signals. The current price of ₹38.52 sits precariously close to the 52-week low of ₹37.77, suggesting limited downside cushion.

Investment Thesis: Growth Without Profitability Creates Unsustainable Narrative

Mercury EV-Tech's investment thesis rests on the company's positioning in India's nascent electric vehicle market and its impressive revenue growth trajectory. The 125.97% five-year sales compound annual growth rate demonstrates strong market acceptance and operational execution on the top-line front. The company's focus on commercial electric vehicles and niche applications provides differentiation from crowded consumer segments, potentially offering better pricing power and customer stickiness.

However, this growth narrative is fundamentally undermined by the company's inability to convert revenue expansion into sustainable profitability. With ROE at 2.73% and ROCE at 2.77%, Mercury EV-Tech is essentially destroying shareholder value—generating returns well below the cost of capital. The average quality grade and "Very Expensive" valuation classification further weaken the investment case, suggesting limited margin of safety for investors.

Key Strengths & Risk Factors

Outlook: Critical Juncture Requiring Margin Improvement

Mercury EV-Tech stands at a critical juncture where continued revenue growth must be accompanied by meaningful margin expansion to justify its premium valuation. The company's ability to improve operating leverage, control costs, and enhance capital efficiency will determine whether the current stock price represents an attractive entry point or a value trap. The electric vehicle sector's long-term growth prospects remain intact, but execution challenges and competitive pressures create significant near-term uncertainties.