The quarter's results reveal a concerning pattern: whilst the company achieved 20.15% revenue growth year-on-year, reaching ₹7.81 crores, it continues to grapple with fundamental operational challenges. The stark reality is that Modi Rubber's operating profit before depreciation, interest, and tax (excluding other income) stood at negative ₹4.16 crores, highlighting persistent core business struggles despite top-line expansion.
The Modinagar-based tyre manufacturer, which operates a state-of-the-art facility at Modipuram with technical collaboration from German tyre major Continental Aktiengesellschaft, finds itself at a crossroads. Whilst it has demonstrated an ability to grow revenues—posting 31.8% sales growth in FY25—the company's inability to translate this into sustainable operating profitability remains a critical concern for investors evaluating the stock's investment merit.
Financial Performance: Revenue Growth Masks Operational Weakness
Modi Rubber's Q2 FY26 financial performance presents a paradox: robust top-line expansion coupled with deteriorating bottom-line metrics. Net sales for the quarter reached ₹7.81 crores, marking a 20.15% increase from ₹6.50 crores in Q2 FY25 and a sequential improvement of 10.00% from ₹7.10 crores in Q1 FY26. For the first half of FY26 (H1 FY26), cumulative sales stood at ₹14.91 crores, representing growth of 25.93% compared to the same period last year.
| Metric | Q2 FY26 | Q1 FY26 | Q2 FY25 | QoQ Change | YoY Change |
|---|---|---|---|---|---|
| Net Sales | ₹7.81 Cr | ₹7.10 Cr | ₹6.50 Cr | +10.00% | +20.15% |
| Operating Profit (Excl OI) | -₹4.16 Cr | -₹5.08 Cr | -₹3.91 Cr | Improved Loss | Worse Loss |
| Consolidated Net Profit | ₹4.56 Cr | ₹4.88 Cr | ₹6.32 Cr | -6.56% | -27.85% |
| Other Income | ₹3.27 Cr | ₹4.45 Cr | ₹5.08 Cr | -26.52% | -35.63% |
However, the encouraging revenue trajectory is undermined by persistent operational losses. The company's operating profit before depreciation, interest, and tax (excluding other income) remained deeply negative at ₹4.16 crores in Q2 FY26. Whilst this represents a marginal improvement from the ₹5.08 crores loss in Q1 FY26, it worsened compared to the ₹3.91 crores loss in Q2 FY25. This structural weakness in core operations indicates that the company is unable to generate positive cash flows from its manufacturing activities.
The consolidated net profit of ₹4.56 crores, whilst positive, is heavily dependent on other income of ₹3.27 crores, which constituted 71.71% of profit before tax. This reliance on non-operating income—rather than manufacturing operations—raises serious questions about earnings quality. Other income itself declined 26.52% quarter-on-quarter and 35.63% year-on-year, suggesting this support mechanism is weakening. For H1 FY26, the consolidated net profit stood at ₹9.44 crores, down 27.99% from the corresponding period last year.
Cost structure analysis reveals significant pressure points. Employee costs for Q2 FY26 stood at ₹4.35 crores, representing 55.7% of net sales—an unsustainably high proportion for a manufacturing enterprise. This ratio has remained elevated across quarters, with employee costs of ₹4.24 crores in Q1 FY26 (59.7% of sales) and ₹3.65 crores in Q2 FY25 (56.2% of sales). The company's inability to achieve operating leverage despite revenue growth suggests fundamental inefficiencies in its cost base.
Quarterly Trend Analysis: Persistent Operational Challenges
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹Cr) | 7.81 | 7.10 | 7.04 | 10.32 | 6.50 | 5.34 | 5.44 |
| QoQ Growth | +10.0% | +0.9% | -31.8% | +58.8% | +21.7% | -1.8% | — |
| Cons. Net Profit (₹Cr) | 4.56 | 4.88 | 1.16 | 6.19 | 6.32 | 6.79 | 3.16 |
| QoQ Growth | -6.6% | +320.7% | -81.3% | -2.1% | -6.9% | +114.9% | — |
| Operating Profit Excl OI (₹Cr) | -4.16 | -5.08 | -7.36 | -5.64 | -3.91 | -3.63 | -7.65 |
| Other Income (₹Cr) | 3.27 | 4.45 | 3.35 | 4.39 | 5.08 | 3.75 | 7.70 |
The quarterly trend table reveals a troubling pattern: Modi Rubber has recorded negative operating profit (excluding other income) in every single quarter over the past seven quarters. This consistent operational underperformance, even during periods of revenue growth, underscores deep-seated structural challenges in the company's manufacturing economics. The volatility in quarterly profit—swinging from ₹6.79 crores in Jun'24 to ₹1.16 crores in Mar'25—is largely driven by fluctuations in other income rather than operational improvements.
Critical Concern: Earnings Quality
Other Income Dependency: With other income of ₹3.27 crores representing 71.71% of Q2 FY26 profit before tax, the company's earnings are heavily reliant on non-operating sources. The core tyre manufacturing business continues to operate at a loss of ₹4.16 crores, raising fundamental questions about business viability and sustainability.
Trend Alert: Other income has declined sequentially from ₹4.45 crores in Q1 FY26, suggesting this support mechanism may be weakening at a time when operational performance shows no signs of improvement.
Operational Challenges: The Profitability Puzzle
Modi Rubber's operational metrics paint a picture of a company struggling with fundamental business economics. The average return on equity (ROE) of 3.14% and return on capital employed (ROCE) of negative 4.15% are stark indicators of poor capital efficiency. For context, a healthy manufacturing company typically targets ROE above 15%, making Modi Rubber's 3.14% ROE particularly concerning—it suggests the company is barely generating returns above risk-free rates despite deploying shareholder capital in a cyclical, capital-intensive business.
The company's balance sheet as of March 2025 shows shareholder funds of ₹687.50 crores, comprising share capital of ₹25.00 crores and reserves of ₹662.51 crores. Fixed assets stood at ₹247.21 crores, whilst investments totalled ₹349.10 crores. The positive aspect is minimal debt—long-term debt of just ₹3.03 crores translates to a net debt-to-equity ratio of negative 0.08, effectively making Modi Rubber a net cash company with closing cash of ₹8.00 crores as of FY25.
Balance Sheet Strength Amidst Operational Weakness
Whilst Modi Rubber struggles operationally, its balance sheet provides a cushion. With negligible debt (₹3.03 crores) and substantial investments (₹349.10 crores), the company maintains financial flexibility. However, the critical question remains: can management leverage these resources to turn around core operations, or will continued losses gradually erode this financial buffer?
The five-year financial trajectory reveals mixed signals. Sales have grown at a compound annual growth rate (CAGR) of 45.86% over five years, accelerating from ₹2.00 crores in FY21 to ₹29.00 crores in FY25. However, this impressive top-line expansion has not translated into profitability. The company reported net losses of ₹10.00 crores in FY25, ₹17.00 crores in FY24, and ₹15.00 crores in FY23. Operating profit excluding other income has remained consistently negative, ranging from ₹14.00 crores loss in FY21 to ₹20.00 crores loss in FY25.
Cash flow analysis highlights the operational strain. For FY25, cash flow from operations was negative ₹28.00 crores, worsening from negative ₹22.00 crores in FY24. The company has been funding operations through cash flow from investing activities (₹35.00 crores in FY25), likely through liquidation of investments or asset sales. This pattern—negative operating cash flows compensated by investment liquidation—is unsustainable in the long term and signals distress rather than growth.
Industry Context: Lagging Sector Performance
The tyres and rubber products industry in India has demonstrated resilience, with the sector delivering 7.55% returns over the past year. Modi Rubber's performance starkly underperforms this benchmark, posting a negative 3.01% return over the same period—an underperformance of 10.56 percentage points. This divergence suggests company-specific challenges rather than sector-wide headwinds.
The Indian tyre industry has benefited from robust automobile demand, infrastructure development, and replacement market growth. Original equipment manufacturers (OEMs) and aftermarket segments have both shown strength, with premiumisation trends supporting margin expansion for well-positioned players. Modi Rubber's technical collaboration with Continental Aktiengesellschaft should theoretically provide technological advantages, yet the company has been unable to capitalise on favourable industry dynamics.
| Company | Market Cap | P/E (TTM) | P/BV | ROE % | Div Yield |
|---|---|---|---|---|---|
| Modi Rubber | ₹293 Cr | 18.05x | 0.44x | 3.14% | — |
| JK Tyre & Industries | Large Cap | 23.14x | 2.60x | 13.69% | 0.65% |
| TVS Srichakra | Mid Cap | 123.94x | 2.96x | 7.27% | 0.38% |
| Goodyear India | Mid Cap | 51.15x | 3.70x | 16.15% | 2.60% |
| Tolins Tyres | Small Cap | 17.81x | 1.90x | 10.68% | — |
| Indag Rubber | Small Cap | 54.22x | 1.43x | 4.87% | 2.62% |
The peer comparison reveals Modi Rubber's significant valuation discount. Trading at 0.44x price-to-book value versus a peer average of approximately 2.5x, and with an ROE of 3.14% compared to peer average of around 11%, the market is clearly pricing in operational concerns. The relatively modest P/E ratio of 18.05x—lower than most peers—reflects scepticism about earnings sustainability given the heavy reliance on other income.
Valuation Analysis: Discount Reflects Operational Reality
Modi Rubber's valuation metrics reflect the market's assessment of its operational challenges. At the current price of ₹120.75, the stock trades at a P/E (TTM) of 18.05x and price-to-book value of 0.44x. The substantial discount to book value—the stock trades at 56% below its book value of ₹217.79 per share—signals investor concern about the company's ability to generate adequate returns on its asset base.
The enterprise value metrics present unusual readings: EV/EBITDA of negative 11.20x and EV/EBIT of negative 9.45x are consequences of the company's negative operating profits. The EV/Sales ratio of 7.72x appears elevated, but this must be contextualised against the company's operational losses. The valuation assessment categorises the stock as "RISKY," a grade it has held since February 2021, with brief interruptions.
The stock's 52-week range of ₹87.25 to ₹163.90 indicates significant volatility. Currently trading 26.33% below its 52-week high and 38.40% above its 52-week low, the stock occupies a middle ground in its recent trading range. However, technical indicators suggest caution—the stock trades below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, indicating persistent downward pressure despite recent gains.
Shareholding Pattern: Stable Promoter Base with Limited Institutional Interest
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter Holding | 62.20% | 62.69% | 62.69% | 62.69% | -0.49% |
| FII Holding | 0.00% | 0.01% | 2.00% | 0.02% | -0.01% |
| Mutual Fund Holding | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Other DII Holdings | 1.99% | 2.01% | 0.01% | 2.01% | -0.02% |
| Non-Institutional | 35.80% | 35.29% | 35.29% | 35.27% | +0.51% |
Promoter holding stood at 62.20% as of September 2025, declining marginally by 0.49% from the previous quarter. Key promoter entities include Mod Fashions And Securities Private Limited (47.58%), Witta International Inc (10.12%), and M/s Modi Industries Ltd (3.17%). Importantly, there is no promoter pledging, which eliminates concerns about financial distress at the promoter level.
The shareholding pattern reveals minimal institutional participation—a telling indicator of investment community sentiment. Foreign institutional investor (FII) holding is virtually nil at 0.00%, having declined from 2.00% in March 2025. Mutual fund holding remains at zero, and other domestic institutional investor (DII) holdings are negligible at 1.99%. This absence of institutional interest reflects concerns about the company's operational performance and earnings quality. Non-institutional investors constitute 35.80%, indicating primarily retail participation.
Stock Performance: Underperformance Across Timeframes
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +2.81% | +1.69% | +1.12% |
| 1 Month | -2.35% | +1.19% | -3.54% |
| 3 Months | +2.77% | +5.40% | -2.63% |
| 6 Months | -9.79% | +3.18% | -12.97% |
| Year-to-Date | -1.83% | +8.72% | -10.55% |
| 1 Year | -3.01% | +9.50% | -12.51% |
| 2 Years | +27.15% | +29.12% | -1.97% |
| 3 Years | +70.31% | +37.57% | +32.74% |
| 5 Years | +261.53% | +93.28% | +168.25% |
Modi Rubber's stock performance presents a tale of two narratives. Over longer timeframes—three and five years—the stock has delivered impressive returns of 70.31% and 261.53% respectively, significantly outperforming the Sensex with alpha of 32.74% and 168.25%. This historical outperformance likely reflects recovery from distressed levels and sector tailwinds during the post-pandemic period.
However, recent performance tells a different story. Over the past year, the stock has declined 3.01% whilst the Sensex gained 9.50%, resulting in negative alpha of 12.51%. Year-to-date returns stand at negative 1.83% versus Sensex gains of 8.72%. The six-month performance is particularly weak, with the stock down 9.79% against a Sensex gain of 3.18%—a negative alpha of 12.97%. This recent underperformance aligns with deteriorating operational metrics and weakening earnings quality.
The stock exhibits high volatility with a beta of 1.50, making it 50% more volatile than the broader market. With annualised volatility of 62.36% and a negative risk-adjusted return of -0.05 over the past year, Modi Rubber falls into the "HIGH RISK LOW RETURN" category—an unfavourable risk-reward profile for investors. The Sharpe ratio is negative, indicating returns below the risk-free rate after adjusting for volatility.
"Whilst Modi Rubber has delivered exceptional long-term returns, recent operational deterioration and persistent losses in core manufacturing operations raise fundamental questions about the sustainability of the business model."
Investment Thesis: Quality Concerns Overshadow Growth
Modi Rubber's investment thesis is fundamentally challenged by the disconnect between revenue growth and operational profitability. The company carries a "BELOW AVERAGE" quality grade, reflecting weak long-term financial performance characterised by negative average ROCE of 4.15% and meagre average ROE of 3.14%. The financial trend assessment is "FLAT," with the latest quarter showing marginal improvements in some metrics but persistent core weaknesses.
The proprietary Mojo Score stands at 40 out of 100, placing the stock in "SELL" territory (score range 30-50). This score improved from 33 in October 2025, primarily due to technical momentum rather than fundamental improvements. Key factors limiting the score include flat financial performance, weak long-term fundamental strength with operating losses, and consistent market underperformance over the past year.
Technical analysis shows a "MILDLY BULLISH" trend on weekly timeframes, with MACD and Bollinger Bands indicating positive momentum. However, the stock trades below all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting the recent bounce may be temporary. Monthly technical indicators show a "MILDLY BEARISH" bias, indicating medium-term headwinds persist.
Key Strengths & Risk Factors
Key Strengths
- Debt-Free Balance Sheet: With minimal long-term debt of ₹3.03 crores and net cash position, the company has financial flexibility to navigate challenges without debt servicing pressures.
- Strong Revenue Growth Trajectory: Five-year sales CAGR of 45.86% demonstrates the company's ability to expand market presence and scale operations significantly.
- Technical Collaboration: Partnership with Continental Aktiengesellschaft provides access to advanced tyre technology and manufacturing processes, potentially supporting future product development.
- Zero Promoter Pledging: Absence of pledged shares eliminates concerns about financial distress at the promoter level and potential forced selling.
- Substantial Investment Portfolio: Investments of ₹349.10 crores provide a financial buffer and potential source of liquidity if needed for operational turnaround initiatives.
- Long-term Stock Performance: Five-year returns of 261.53% demonstrate the stock's ability to deliver substantial gains during favourable periods.
- Established Manufacturing Infrastructure: State-of-the-art plant at Modipuram represents significant capital investment and positions the company to capitalise on improved capacity utilisation.
Key Concerns
- Persistent Operating Losses: Core manufacturing operations have generated negative operating profit (excluding other income) consistently across all recent quarters, indicating fundamental business model challenges.
- Weak Earnings Quality: Heavy dependence on other income (71.71% of PBT in Q2 FY26) rather than manufacturing operations raises serious sustainability concerns about reported profits.
- Deteriorating Profitability: Consolidated net profit declined 27.85% YoY and 6.56% QoQ despite revenue growth, suggesting worsening operational efficiency.
- Poor Return Metrics: Average ROE of 3.14% and negative ROCE of 4.15% indicate extremely weak capital efficiency—far below acceptable thresholds for manufacturing companies.
- High Cost Structure: Employee costs of 55.7% of sales in Q2 FY26 represent an unsustainably high proportion, limiting operating leverage potential.
- Negative Operating Cash Flows: Cash flow from operations of negative ₹28.00 crores in FY25 signals the business is consuming rather than generating cash, funded through investment liquidation.
- Minimal Institutional Participation: Near-zero holdings by FIIs (0.00%) and mutual funds (0.00%) reflect institutional investor concerns about business quality and sustainability.
- Recent Market Underperformance: One-year return of negative 3.01% versus Sensex gain of 9.50% indicates loss of investor confidence and negative momentum.
- High Volatility Profile: Beta of 1.50 and volatility of 62.36% create significant risk for investors, with negative risk-adjusted returns.
Outlook: What to Watch
Positive Catalysts
- Operating Profit Turnaround: Achievement of positive operating profit (excluding other income) for two consecutive quarters would signal genuine operational improvement.
- Cost Rationalisation: Reduction in employee cost-to-sales ratio below 40% would indicate improved operational efficiency and better cost management.
- Sustained Revenue Growth: Continuation of 20%+ quarterly revenue growth coupled with margin expansion would demonstrate scalability of the business model.
- Institutional Investor Interest: Entry of mutual funds or FIIs into the shareholding pattern would signal improved confidence in the turnaround story.
- Positive Operating Cash Flow: Generation of positive cash flow from operations for a full fiscal year would validate business sustainability.
Red Flags
- Continued Operating Losses: Persistence of negative operating profit (excluding other income) beyond two more quarters would confirm structural unviability.
- Declining Other Income: Further sequential decline in other income without corresponding improvement in core operations would threaten overall profitability.
- Promoter Stake Reduction: Any material decline in promoter holding below 60% could signal loss of confidence by controlling shareholders.
- Cash Burn Acceleration: Worsening negative operating cash flows requiring increased investment liquidation would indicate escalating financial stress.
- Revenue Growth Stagnation: Flattening or decline in quarterly revenue growth would eliminate the primary positive narrative supporting the stock.
The Verdict: Operational Reality Overrides Growth Narrative
Score: 40/100
For Fresh Investors: Avoid initiating positions. Whilst the company demonstrates revenue growth and maintains a debt-free balance sheet, persistent operating losses, weak return metrics (ROE 3.14%, negative ROCE), and heavy dependence on non-operating income (71.71% of PBT) create fundamental concerns about business viability. The combination of deteriorating profitability despite top-line growth, negative operating cash flows, and minimal institutional participation suggests significant execution and business model risks that outweigh potential upside.
For Existing Holders: Consider reducing exposure or exiting positions. The stock's recent underperformance (negative 3.01% versus Sensex gain of 9.50% over one year) reflects market recognition of operational challenges. With high volatility (beta 1.50), negative risk-adjusted returns, and no clear path to operational profitability, the risk-reward profile remains unfavourable. Existing holders should reassess whether capital could be better deployed in companies with sustainable earnings and stronger operational metrics.
Fair Value Estimate: Given persistent operating losses, weak capital efficiency metrics, and earnings quality concerns, the current price of ₹120.75 appears fairly valued relative to operational reality. The 56% discount to book value of ₹217.79 reflects appropriate scepticism about the company's ability to generate adequate returns on its asset base. Any sustained operational turnaround with positive operating profits would justify re-evaluation, but current fundamentals do not support material upside from present levels.
Rationale: The SELL rating is driven by fundamental operational concerns that overshadow superficial positives. Whilst Modi Rubber has achieved impressive revenue growth (20.15% YoY in Q2 FY26) and maintains a clean balance sheet, the core tyre manufacturing business remains loss-making with negative operating profit of ₹4.16 crores. The deterioration in consolidated net profit (down 27.85% YoY) despite revenue expansion, combined with heavy reliance on other income, indicates a business struggling with basic profitability. Poor return metrics (ROE 3.14%, negative ROCE 4.15%), negative operating cash flows, and absence of institutional investor confidence collectively paint a picture of a company facing structural rather than cyclical challenges. Until the company demonstrates sustained operational profitability and positive cash generation from core manufacturing activities, the investment case remains weak despite technical momentum and historical stock performance.
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.
