The Mumbai-based company, with a market capitalisation of ₹120.00 crores, has witnessed its stock price plummet 6.04% to ₹91.75 following the results announcement, trading near its 52-week low of ₹87.00. The stock has underperformed significantly across all timeframes, down 40.81% year-to-date whilst the Sensex gained 9.19%, representing a negative alpha of 50 percentage points.
This marks a concerning inflection point for a company that had shown promising recovery in FY25, when it posted annual net profit of ₹2.00 crores after a loss-making FY23. The current quarter's performance suggests that the recovery momentum has stalled, with both revenue and profitability metrics deteriorating sharply.
| Quarter | Net Sales (₹ Cr) | Operating Margin | Net Profit (₹ Cr) | PAT Margin |
|---|---|---|---|---|
| Sep'25 | 15.38 | -0.91% | -0.99 | -6.44% |
| Jun'25 | 15.64 | 2.88% | 0.39 | 2.49% |
| Mar'25 | 17.40 | 14.08% | 1.94 | 11.15% |
| Dec'24 | 14.46 | 0.69% | -2.62 | -18.12% |
| Sep'24 | 18.08 | 12.83% | 2.82 | 15.60% |
| Jun'24 | 12.23 | -15.78% | 0.61 | 4.99% |
| Mar'24 | 13.78 | -6.53% | -2.04 | -14.80% |
Financial Performance: Revenue Decline Coupled with Margin Collapse
Nagpur Power's Q2 FY26 results reveal a troubling deterioration across all financial parameters. Net sales declined 1.66% quarter-on-quarter to ₹15.38 crores from ₹15.64 crores in Q1 FY26, whilst the year-on-year comparison shows a steeper 14.93% decline from ₹18.08 crores in Q2 FY25. This revenue contraction comes despite the company's five-year sales growth rate of 18.62%, suggesting recent operational challenges have disrupted the long-term growth trajectory.
The most alarming aspect of the quarter was the complete collapse in operating profitability. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) turned negative at -₹0.14 crores, the lowest level recorded in the trailing eight quarters. This represents a dramatic reversal from the ₹0.45 crores operating profit in Q1 FY26 and ₹2.32 crores in Q2 FY25. The operating margin contracted to -0.91%, down from 2.88% in the previous quarter and 12.83% in the year-ago quarter.
Employee costs surged to ₹7.53 crores in Q2 FY26, up 25.29% quarter-on-quarter and 49.11% year-on-year, representing 48.96% of net sales compared to 38.42% in Q1 FY26. This disproportionate increase in staff expenses relative to revenue has been the primary driver of margin compression. The company's inability to align its cost structure with revenue realisation raises questions about operational efficiency and management's cost control measures.
Profit before tax plunged to -₹0.99 crores from ₹0.39 crores in Q1 FY26, with the company reporting zero tax expense. The PAT margin deteriorated to -6.44% from 2.49% in the previous quarter, marking one of the weakest profitability performances in recent history. The quality of earnings remains questionable, with the company heavily dependent on other income, which contributed ₹0.25 crores in Q2 FY26, down sharply from ₹0.94 crores in Q1 FY26.
Operational Challenges: Weak Return Ratios Signal Fundamental Issues
The underlying operational metrics paint a concerning picture of Nagpur Power's business fundamentals. The company's average return on equity (ROE) stands at a weak 3.21%, significantly below industry standards and indicating poor capital efficiency. Whilst the company operates with minimal debt (average net debt to equity of -0.02, making it a net cash company), the inability to generate adequate returns on shareholder capital raises serious questions about business viability.
The return on capital employed (ROCE) presents an even bleaker picture at -3.73% on average, with the latest figure at just 0.32%. This negative return suggests the company is destroying value rather than creating it, with earnings before interest and tax (EBIT) insufficient to justify the capital deployed in the business. The average EBIT to interest coverage ratio stands at a worrying -1.96 times, indicating the company's operating profits are insufficient to cover even its interest obligations over the assessment period.
Critical Operational Red Flags
Weak Capital Efficiency: With ROE at 3.21% and ROCE at -3.73%, Nagpur Power is generating minimal returns on invested capital. The company's average EBIT to interest coverage of -1.96x indicates operating profits have been insufficient to service debt obligations, despite the current low debt levels. Sales to capital employed ratio of just 0.43x suggests inefficient asset utilisation.
Margin Volatility: Operating margins have swung wildly from 14.08% in Mar'25 to -0.91% in Sep'25, indicating lack of operational stability and pricing power in the ferrous metals market.
The balance sheet, whilst relatively clean with low debt levels, reveals limited growth in shareholder funds. Total equity stood at ₹84.96 crores as of March 2025, up marginally from ₹81.61 crores in March 2024. Long-term debt increased to ₹3.03 crores from ₹0.78 crores, though this remains manageable. Fixed assets remained stable at ₹55.83 crores, suggesting limited capacity expansion or modernisation initiatives.
The company's working capital management has deteriorated significantly, with cash flow from operations turning negative at -₹9.00 crores in FY25 compared to -₹3.00 crores in FY24. This negative operating cash flow, despite reporting positive net profit for FY25, indicates a concerning disconnect between accounting profits and actual cash generation. Changes in working capital consumed ₹12.00 crores in FY25, suggesting inventory build-up or receivables collection challenges.
Industry Context: Underperformance in a Strong Ferrous Metals Market
Nagpur Power's struggles are particularly stark when viewed against the broader ferrous metals sector performance. The Ferrous Metals industry delivered a robust 35.05% return over the past year, whilst Nagpur Power's stock declined 28.15%, resulting in an underperformance of 63.20 percentage points. This massive divergence suggests company-specific operational issues rather than sector-wide headwinds.
The company's business model, focused on slag recovery to produce low ferro manganese, operates in a niche segment of the ferrous metals value chain. However, management commentary in the company history notes that "there is no more re-usable waste of fine particles remaining in the manganese slag which was dumped at various places at the factory site which can be recovered." This suggests potential raw material constraints that may be limiting production capacity and contributing to the recent revenue decline.
Competitive Positioning Concerns
Nagpur Power's weak operational performance stands in sharp contrast to better-positioned peers in the ferrous metals space. With an ROE of just 3.21% compared to peer averages around 9%, and trading at a premium P/E multiple of 50.03x versus peer average of approximately 16x, the company's valuation appears disconnected from fundamentals. The lack of institutional interest (just 6.73% institutional holdings) and absence of mutual fund or FII participation further signals limited confidence in the company's prospects amongst professional investors.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity |
|---|---|---|---|---|
| Nagpur Power | 50.03 | 1.49 | 3.21% | -0.02 |
| Manaksia Steels | 23.19 | 1.38 | 8.02% | 0.17 |
| Scan Steels | 11.27 | 0.48 | 4.29% | 0.22 |
| Vaswani Industries | 13.57 | 1.14 | 6.49% | 1.61 |
| Indsil Hydro | NA (Loss Making) | 1.13 | 13.31% | 0.81 |
| Shyam Century | NA (Loss Making) | 0.69 | 12.57% | -0.50 |
The peer comparison reveals Nagpur Power trades at a significant valuation premium despite delivering inferior returns. The company's P/E ratio of 50.03x is more than double that of Manaksia Steels (23.19x) and nearly five times that of Scan Steels (11.27x), yet its ROE of 3.21% is substantially lower than most peers. This valuation-performance disconnect suggests the market has not yet fully repriced the stock to reflect deteriorating fundamentals.
Valuation Analysis: Premium Pricing for Subpar Performance
Nagpur Power's current valuation metrics appear expensive relative to both historical performance and peer comparisons. Trading at a P/E ratio of 50.03x based on trailing twelve-month earnings, the stock commands a significant premium despite weak profitability and negative operational trends. The price-to-book value ratio of 1.49x, whilst not excessive in absolute terms, appears unjustified given the company's inability to generate adequate returns on equity.
The company's proprietary quality assessment classifies it as "Below Average" quality, with the valuation grade marked as "Expensive." This combination of weak fundamentals and premium pricing creates an unfavourable risk-reward profile for investors. The stock has declined 46.36% from its 52-week high of ₹171.05, yet still trades 5.46% above its 52-week low of ₹87.00, suggesting further downside potential if operational performance does not improve.
The enterprise value to EBITDA multiple of 23.47x and EV to EBIT of 42.61x further underscore the expensive valuation. These elevated multiples are typically justified for high-growth, high-margin businesses with strong competitive positions—characteristics notably absent in Nagpur Power's current profile. The EV to sales ratio of 1.90x, whilst moderate, still appears rich given the company's negative operating margins and declining revenue trajectory.
The company does not pay dividends, offering no income cushion to investors during this period of operational weakness. With zero dividend yield and a payout ratio of 0%, shareholders are entirely dependent on capital appreciation, which appears unlikely given current trends. The lack of dividend distribution also suggests management's lack of confidence in sustainable cash generation.
Shareholding Pattern: Stable Promoter Base but Negligible Institutional Interest
The shareholding structure of Nagpur Power has remained remarkably stable over the past five quarters, with promoter holding steady at 61.23%. Zeppelin Investments Private Limited holds the largest stake at 43.08%, with the Khandelwal family members holding additional stakes. The absence of any promoter pledging (0% pledged shares) is a positive indicator, suggesting promoters are not facing financial stress requiring share collateralisation.
| Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 61.23% | 61.23% | 61.23% | 61.23% | 0.00% |
| FII | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Insurance | 6.64% | 6.64% | 6.64% | 6.76% | 0.00% |
| Other DII | 0.09% | 0.09% | 0.09% | 0.09% | 0.00% |
| Non-Institutional | 32.04% | 32.04% | 32.04% | 31.93% | 0.00% |
However, the complete absence of foreign institutional investors (FIIs) and mutual funds is a significant red flag. Total institutional holdings stand at just 6.73%, comprised primarily of 6.64% insurance holdings and a negligible 0.09% from other domestic institutional investors. This lack of institutional participation suggests professional investors have conducted due diligence and chosen to avoid the stock, likely due to concerns about operational performance, governance, or growth prospects.
The non-institutional shareholding of 32.04% represents primarily retail investors, who may lack the resources and expertise to conduct thorough fundamental analysis. Insurance holdings remained flat at 6.64% in the most recent quarter after declining marginally from 6.76% in December 2024, indicating no fresh institutional interest despite the stock's significant price decline.
Stock Performance: Severe Underperformance Across All Timeframes
Nagpur Power's stock performance has been dismal across virtually all measurement periods, with particularly severe underperformance in recent months. The stock declined 6.04% on the day following results announcement, closing at ₹91.75 compared to the previous close of ₹97.65. This sharp single-day decline reflects investor disappointment with the quarterly results and concerns about the company's near-term prospects.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -3.12% | +1.00% | -4.12% |
| 1 Month | -7.56% | +1.14% | -8.70% |
| 3 Months | -11.35% | +4.23% | -15.58% |
| 6 Months | -26.60% | +5.10% | -31.70% |
| YTD | -40.81% | +9.19% | -50.00% |
| 1 Year | -28.15% | +9.98% | -38.13% |
| 2 Years | -11.78% | +29.96% | -41.74% |
| 3 Years | +19.16% | +38.37% | -19.21% |
Over the past year, the stock has declined 28.15% whilst the Sensex gained 9.98%, resulting in a negative alpha of 38.13 percentage points. The year-to-date performance is even more concerning, with the stock down 40.81% compared to the Sensex's 9.19% gain, representing a negative alpha of 50 percentage points. This severe underperformance has persisted across the six-month (-26.60% vs Sensex +5.10%), three-month (-11.35% vs Sensex +4.23%), and one-month (-7.56% vs Sensex +1.14%) timeframes.
The stock's risk profile is categorised as "HIGH RISK LOW RETURN," with an adjusted beta of 1.50 indicating significantly higher volatility than the broader market. The stock's volatility stands at 58.49% compared to the Sensex's 12.26%, nearly five times more volatile. The risk-adjusted return of -0.48 over the past year compares unfavourably to the Sensex's risk-adjusted return of 0.81, highlighting the poor risk-reward profile.
From a technical perspective, the stock remains in a "Mildly Bearish" trend as of November 10, 2025, having changed from a "Bearish" trend. The stock trades below all key moving averages—5-day (₹97.14), 20-day (₹99.30), 50-day (₹100.00), 100-day (₹106.20), and 200-day (₹113.25)—indicating sustained downward momentum. Technical indicators show mixed signals, with MACD mildly bullish on weekly charts but mildly bearish on monthly charts, whilst Bollinger Bands remain bearish across both timeframes.
Investment Thesis: Weak Fundamentals, Expensive Valuation, Bearish Technicals
The investment case for Nagpur Power has deteriorated significantly following the Q2 FY26 results, with the company's proprietary Mojo Score standing at just 14 out of 100, firmly in "STRONG SELL" territory. This low score reflects the confluence of negative factors across all key investment parameters: valuation, quality, financial trends, and technical indicators.
The valuation grade of "Expensive" is particularly concerning given the company's operational challenges. Trading at 50.03x trailing earnings whilst reporting losses in the most recent quarter and delivering weak returns on capital creates a fundamental disconnect. The quality assessment of "Below Average" reflects the company's inability to generate adequate returns, with ROE of 3.21% and negative average ROCE of -3.73% indicating value destruction rather than creation.
The financial trend classification as "Negative" is based on multiple deteriorating metrics in Q2 FY26: quarterly PAT declining 256.5% versus the previous four-quarter average, net sales falling 6.2%, and operating profit turning negative. The company's short-term financial trajectory shows no signs of improvement, with the most recent quarter representing the weakest operational performance in recent history.
"With operating margins turning negative, employee costs surging, and revenue declining, Nagpur Power faces fundamental operational challenges that premium valuation multiples cannot justify."
Key Strengths & Risk Factors
Key Strengths
- Clean Balance Sheet: Net cash company with debt-to-equity of -0.02, providing financial flexibility
- Zero Promoter Pledging: No pledged shares indicating promoter confidence and financial stability
- Long-term Growth Track Record: Five-year sales CAGR of 18.62% and EBIT CAGR of 19.76%
- Stable Promoter Holding: Consistent 61.23% promoter stake over past five quarters
- Niche Market Position: Specialised slag recovery process for low ferro manganese production
Key Concerns
- Negative Operating Margins: Q2 operating margin at -0.91%, indicating fundamental profitability issues
- Surging Employee Costs: Staff expenses up 49% YoY, consuming 49% of sales
- Weak Capital Returns: ROE of 3.21% and ROCE of -3.73% signal poor capital efficiency
- Negative Cash Flow: Operating cash flow of -₹9.00 crores in FY25 despite positive accounting profit
- Zero Institutional Interest: No FII or mutual fund holdings, just 6.73% total institutional ownership
- Revenue Volatility: Quarterly sales swinging from ₹12.23 crores to ₹18.08 crores, indicating unstable demand
- Raw Material Constraints: Management notes depletion of recoverable slag, potentially limiting future production
Outlook: What to Watch
Positive Catalysts
- Successful cost restructuring, particularly employee expenses
- Return to positive operating margins in Q3 FY26
- Revenue stabilisation above ₹16-17 crores quarterly
- Improvement in working capital management and operating cash flow
- Any institutional investor interest or stake building
Red Flags to Monitor
- Continued quarterly losses or further margin deterioration
- Revenue declining below ₹15 crores per quarter
- Any increase in debt levels or promoter pledging
- Further decline in insurance company holdings
- Inability to address raw material availability concerns
The Verdict: Operational Crisis Warrants Exit
Score: 14/100
For Fresh Investors: Avoid completely. The combination of negative operating margins, weak capital returns, expensive valuation, and deteriorating financial trends creates an unfavourable risk-reward profile. Wait for sustained operational improvement and margin recovery before considering entry.
For Existing Holders: Consider exiting positions. The Q2 FY26 results represent a significant deterioration in business fundamentals, with operating margins turning negative and employee costs spiralling. The stock trades at premium valuations (P/E 50x) despite weak fundamentals, providing an opportunity to exit before further value erosion. Any bounce towards ₹100-105 levels should be used to reduce exposure.
Fair Value Estimate: ₹65-70 (29-24% downside from current levels), based on book value of ₹64.88 with minimal premium justified given negative operational trends and weak return ratios.
Nagpur Power's Q2 FY26 results expose fundamental operational weaknesses that premium valuation multiples cannot justify. With operating margins turning negative, employee costs surging disproportionately, and capital returns remaining weak, the company faces a difficult path to recovery. The complete absence of institutional investor interest and severe underperformance versus both the Sensex and sector peers underscore the challenging investment case. Until the company demonstrates sustained margin improvement, cost control, and revenue stability, investors should avoid this high-risk, low-return proposition.
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 author and publisher are not responsible for any investment decisions made based on the information provided in this article.
