Mercury EV-Tech Q3 FY26: Growth Momentum Stalls as Profitability Concerns Mount

The electric vehicle manufacturer's Q3 FY26 results paint a picture of operational volatility, with revenue contracting 25.64% quarter-on-quarter to ₹25.29 crores from ₹34.01 crores in Q2 FY26. Consolidated net profit declined even more sharply, falling 50.58% sequentially to ₹0.85 crores from ₹1.72 crores. This marks a significant reversal from the strong momentum witnessed in the first half of FY26, raising questions about demand sustainability and execution capabilities in a competitive and capital-intensive industry.

The company's nine-month FY26 performance shows net sales of ₹81.87 crores, representing 38.88% growth compared to the corresponding period last year. However, this growth appears increasingly back-loaded to the first two quarters, with Q3 witnessing a sharp deceleration. The operating profit margin excluding other income compressed to 7.51% in Q3 FY26 from 8.88% in Q2 FY26, indicating pressure on both top-line growth and cost management.

Financial Performance: Profitability Under Pressure

Mercury EV-Tech's financial performance in Q3 FY26 reveals significant sequential deterioration across key metrics. Net sales of ₹25.29 crores declined 25.64% quarter-on-quarter, falling well below the previous four-quarter average of ₹30.69 crores. This revenue contraction appears driven by lumpy order execution patterns typical of the commercial electric vehicle segment, where large fleet orders can create significant quarterly volatility.

The consolidated net profit of ₹0.85 crores in Q3 FY26 represents a sharp 50.58% decline from ₹1.72 crores in Q2 FY26. More concerning, the profit after tax for the latest six months (H2 FY26 partial) has contracted 55.61% compared to the corresponding period, indicating sustained pressure on profitability. The earnings per share for Q3 FY26 stood at just ₹0.05, marking the lowest quarterly EPS in recent periods and reflecting both lower absolute profits and an expanded equity base.

Operating margins have compressed significantly, with the operating profit margin excluding other income declining to 7.51% in Q3 FY26 from 8.88% in Q2 FY26 and 9.39% in Q1 FY26. This 139-basis-point sequential decline suggests deteriorating pricing power or rising input costs, both concerning trends for a company operating in a nascent and competitive sector. The PAT margin of 3.36% in Q3 FY26 compares unfavourably with 5.06% in Q2 FY26, indicating that margin pressures are flowing through to the bottom line.

On a full-year basis, FY25 results showed net sales of ₹89.00 crores with a net profit of ₹7.00 crores, translating to a PAT margin of 7.87%. However, the current run rate in FY26 suggests the company may struggle to maintain these profitability levels, particularly if revenue volatility persists and margin pressures continue.

Operational Challenges: Weak Returns and High Leverage

Mercury EV-Tech's operational metrics reveal structural challenges that extend beyond quarterly volatility. The company's return on equity stands at just 3.14%, significantly below the threshold for quality businesses and indicating poor capital efficiency. This weak ROE reflects the capital-intensive nature of automobile manufacturing combined with modest profitability, creating a challenging equation for shareholder value creation.

The return on capital employed of 2.98% is equally concerning, suggesting the company generates minimal returns on the total capital deployed in the business. For context, these returns are substantially below the cost of capital for most businesses, indicating value destruction rather than creation. The average ROCE over recent periods stands at 2.77%, confirming this is not merely a temporary phenomenon but a persistent operational challenge.

Balance sheet quality presents mixed signals. On the positive side, the company maintains low net debt to equity of 0.01, indicating minimal financial leverage and reduced solvency risk. However, the debt to EBITDA ratio of 10.42 times appears elevated, suggesting that whilst absolute debt levels are manageable, the company's cash generation capacity relative to debt obligations remains constrained. The EBIT to interest coverage ratio of 5.01 times provides adequate cushion but leaves limited room for deterioration.

Working capital management appears to be a significant cash drain, with cash flow from operations showing an outflow of ₹43.00 crores in FY25, primarily driven by a ₹53.00 crores increase in working capital. This suggests the company is tying up substantial capital in inventory and receivables, further straining its already weak return metrics. The negative operating cash flow was funded through ₹139.00 crores of financing activities and ₹90.00 crores deployed in investing activities, indicating heavy reliance on external capital to fund growth.

Industry Context: Navigating Electric Vehicle Transition

Mercury EV-Tech operates in India's nascent electric vehicle sector, which offers significant long-term growth potential but remains characterised by intense competition, evolving regulations, and substantial capital requirements. The company manufactures electric scooters, cars, buses, vintage cars, golf cars, and other electric vehicles, positioning itself across multiple segments within the EV ecosystem.

The broader automobile sector in India has faced headwinds, with the sector delivering a negative 13.40% return over the past year. Mercury EV-Tech has significantly underperformed this already weak sector benchmark, declining 48.93% over the same period—an underperformance of 35.53 percentage points. This substantial underperformance suggests company-specific challenges beyond broader sectoral trends.

The electric vehicle market in India remains in early stages of adoption, with government incentives, charging infrastructure development, and battery technology improvements serving as key enablers. However, the sector also faces challenges including high upfront costs, range anxiety, limited charging infrastructure, and intense competition from both established automobile manufacturers entering the EV space and new-age EV startups. Mercury EV-Tech's ability to differentiate its products and achieve scale will be critical to long-term success.

The company's revenue volatility—with quarterly sales ranging from ₹3.87 crores to ₹35.60 crores over the past seven quarters—suggests lumpy order patterns typical of commercial vehicle segments where large fleet orders can create significant period-to-period swings. This volatility makes financial planning challenging and increases execution risk.

Peer Comparison: Valuation Premium Without Performance

Mercury EV-Tech's valuation metrics reveal a significant premium relative to operational performance. The stock trades at a price-to-earnings ratio of 84.26 times trailing twelve-month earnings, substantially higher than several automobile sector peers and reflecting elevated investor expectations that current financials do not support.

The company's price-to-book value ratio of 2.65 times reflects a moderate premium to book value, suggesting investors are pricing in future growth expectations. However, with an ROE of just 3.36%, the company is generating returns below most investors' cost of capital, making the valuation premium difficult to justify on fundamental grounds. Whilst Mercury EV-Tech's ROE of 3.36% exceeds some loss-making peers, it remains substantially below the 5.16% delivered by Landmark Cars, which trades at a lower P/E multiple of 69.92 times.

The company's debt-to-equity ratio of 0.01 is amongst the lowest in the peer group, providing financial flexibility. However, this conservative leverage has not translated into superior returns, with the company's capital efficiency lagging peers despite lower financial risk. The EV/EBITDA multiple of 72.12 times and EV/Sales multiple of 6.07 times both suggest the stock is pricing in substantial future growth and margin expansion that current trends do not support.

Valuation Analysis: Premium Unjustified by Fundamentals

Mercury EV-Tech's current valuation appears disconnected from underlying business fundamentals. Trading at ₹37.14 with a market capitalisation of ₹705.56 crores, the stock commands a P/E ratio of 84.26 times, substantially higher than the automobile sector median P/E of 26 times. This represents a valuation premium of over 220% to the sector, which is difficult to justify given the company's weak return metrics, deteriorating profitability, and operational volatility.

The stock's book value per share stands at ₹10.10, implying the current market price of ₹37.14 represents a 267% premium to book value. Whilst growth companies often trade at premiums to book value, such multiples typically require sustained high returns on equity and strong growth visibility—neither of which Mercury EV-Tech currently demonstrates. The company's 3.14% ROE suggests it is destroying value at current book value, making the premium difficult to rationalise.

Historical valuation trends show the stock has consistently traded in the "Very Expensive" category since November 2022, with brief periods where it fell to "Does Not Qualify" status. The stock reached a 52-week high of ₹79.99 but has since declined 53.57% to current levels, suggesting previous valuations were even more stretched. The 52-week low of ₹29.95 represents just 19.35% downside from current levels, indicating limited valuation cushion.

Based on current earnings run rate and sector multiples, a fair value estimate for Mercury EV-Tech would be closer to ₹22-25 per share, implying 33-40% downside from current levels. This estimate assumes the company can stabilise margins at historical levels and resume modest growth, both of which remain uncertain given recent trends. Any further deterioration in profitability or market share losses could drive fair value even lower.

Shareholding Pattern: Stable Base with Limited Institutional Interest

Mercury EV-Tech's shareholding pattern reveals a stable promoter base but concerningly low institutional participation. Promoter holding has remained steady at 59.18% over the past five quarters, indicating strong promoter commitment and no dilution. Notably, there is zero promoter pledging, eliminating one potential source of concern for investors.

Foreign institutional investor holding has shown modest increase from 1.69% in December 2024 to 2.68% in December 2025, with a notable sequential jump of 78 basis points in the latest quarter. This increase to 2.68% represents participation from eight FII entities, suggesting some international interest despite the company's challenges. However, the absolute level of FII holding remains very low, indicating limited conviction from sophisticated international investors.

More concerning is the complete absence of domestic institutional investors. Mutual fund holding stands at zero across all periods, as does insurance company participation. Other domestic institutional investors hold a negligible 0.01%. This lack of institutional interest is a significant red flag, as professional fund managers with resources to conduct deep due diligence have chosen to avoid the stock entirely. The total institutional holding of just 2.69% is exceptionally low and suggests the investment community views the risk-reward profile unfavourably.

The non-institutional shareholding of 38.13% comprises largely retail investors, who may lack the resources to conduct thorough analysis and are often more susceptible to volatility. The slight decline in non-institutional holding from 38.91% to 38.13% in the latest quarter mirrors the increase in FII holding, suggesting some retail investors may have exited to institutional buyers.

Stock Performance: Significant Wealth Destruction

Mercury EV-Tech's stock performance has been dismal across most timeframes, with significant wealth destruction for investors who entered at higher levels. The stock currently trades at ₹37.14, down 5.23% on February 13, 2026, and has declined 53.57% from its 52-week high of ₹79.99. The one-year return of negative 48.93% compares unfavourably with the Sensex return of positive 8.83%, resulting in a negative alpha of 57.76 percentage points.

The two-year return of negative 59.11% represents severe wealth destruction, with the stock underperforming the Sensex by 74.91 percentage points over this period. Investors who purchased shares two years ago have lost nearly 60% of their capital, whilst the broader market delivered positive returns. The three-year return of positive 95.47% provides some consolation for very long-term holders, though this reflects gains from much lower base levels rather than sustainable business performance.

Recent performance shows mixed signals. The one-month return of positive 14.14% suggests some short-term recovery, though this follows steep declines and remains well below historical highs. The year-to-date return of just 0.35% indicates the stock has essentially moved sideways in 2026, whilst broader market weakness has created a modest relative outperformance.

The stock's risk-adjusted return of negative 0.98 over the past year, combined with volatility of 50.08%, places it firmly in the "high risk, low return" category. The beta of 1.34 indicates the stock is 34% more volatile than the broader market, amplifying both gains and losses. With a negative Sharpe ratio, investors are not being compensated for the elevated risk they are assuming.

Technical indicators paint a bearish picture. The stock trades below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—indicating sustained downward momentum. The overall technical trend is classified as "mildly bearish," with weekly MACD showing mildly bullish signals but monthly indicators remaining bearish. The stock faces immediate resistance at the 20-day moving average level of ₹37.14, with major resistance at ₹40.52 (100-day moving average) and strong resistance at ₹48.04 (200-day moving average).

Investment Thesis: Multiple Red Flags Outweigh Growth Narrative

Mercury EV-Tech's investment thesis presents significant challenges across multiple dimensions. The proprietary Mojo Score of 36 out of 100 places the stock firmly in "Sell" territory, reflecting weak fundamentals, expensive valuation, negative financial trends, and bearish technical momentum. The score has declined from 52 (Hold) in April 2025 to 47 (Sell) in May 2025 and further to the current 36, indicating sustained deterioration.

The company's quality assessment of "Average" reflects mixed fundamentals. Positive factors include healthy long-term sales growth of 125.97% over five years and zero promoter pledging. However, these are offset by weak return metrics (3.14% ROE, 2.98% ROCE), high debt-to-EBITDA ratio of 10.42 times, and concerningly low institutional holdings of just 2.69%. The average quality grade indicates the company lacks the financial strength and operational excellence typically associated with quality compounders.

The financial trend classification of "Negative" reflects deteriorating recent performance. Whilst nine-month sales have grown 38.88% year-on-year, profit after tax for the latest six months has contracted 55.61%. Quarterly sales of ₹25.29 crores have fallen 17.70% below the previous four-quarter average, and earnings per share in Q3 FY26 reached the lowest level in recent quarters. These trends suggest the business is losing momentum rather than building it.

The valuation grade of "Very Expensive" is perhaps the most concerning aspect. With an 84x P/E ratio, 2.65x price-to-book, and 72.12x EV/EBITDA, the stock prices in substantial future growth and margin expansion that current trends do not support. The company would need to dramatically improve profitability and returns to justify current valuations, which appears unlikely given recent trajectory and competitive dynamics.

Key Strengths & Risk Factors

Outlook: Critical Monitoring Points Ahead

Mercury EV-Tech faces a critical juncture where execution missteps could lead to further value destruction whilst successful navigation of current challenges could stabilise the business. Investors should closely monitor several key parameters over the coming quarters to assess whether the company can reverse recent negative trends.

The company's ability to stabilise quarterly revenue and margins will be the most critical near-term indicator. If Q4 FY26 shows continued sequential decline or further margin compression, it would confirm that recent weakness represents a structural challenge rather than temporary volatility. Conversely, a strong Q4 performance could suggest the Q3 decline was an aberration related to order timing.

Longer term, Mercury EV-Tech must demonstrate it can generate adequate returns on capital and positive cash flows to justify continued investor interest. The current combination of weak returns, negative cash generation, and expensive valuation creates a challenging investment proposition that requires significant operational improvement to reverse.