Nagpur Power Q3 FY26: Profitability Returns Amid Operational Volatility

The stock closed at ₹152.00 on February 13, 2026, down 0.13% from the previous session, trading 12.62% below its 52-week high of ₹173.95. Despite quarterly profitability returning, the company's volatile earnings trajectory and weak fundamental metrics raise serious questions about the sustainability of this turnaround.

Financial Performance: Volatile Earnings Trajectory Continues

Nagpur Power's Q3 FY26 results reveal a company struggling with operational consistency despite top-line growth. Net sales surged 34.14% quarter-on-quarter to ₹20.63 crores, marking the highest quarterly revenue in the company's recent history. Year-on-year revenue growth stood at an impressive 42.67%, suggesting strong demand for the company's low ferro manganese products. However, the quality of this revenue growth remains questionable given the persistent margin volatility.

The company swung back to profitability with net profit of ₹0.46 crores in Q3 FY26, compared to a loss of ₹0.99 crores in Q2 FY26. Whilst this represents a sequential improvement, the year-on-year comparison paints a grimmer picture, with net profit declining 117.56% from ₹0.46 crores in Q3 FY25 to the current quarter's ₹0.46 crores. The PAT margin recovered to 2.23% from negative 6.44% in the preceding quarter, but remains well below the 11.15% achieved in Q4 FY25.

A particularly concerning aspect of Nagpur Power's financial performance is the complete absence of tax payments. In Q3 FY26, the company reported zero tax expense despite posting positive profit before tax of ₹0.46 crores. This pattern has persisted across multiple quarters, with the tax rate standing at 0.00% in Q3, Q2, and Q1 FY26. The only exception was Q4 FY25, when the company paid ₹0.30 crores in taxes on profit before tax of ₹2.24 crores, resulting in a 13.39% tax rate. The average tax ratio over the longer term stands at just 6.73%, significantly below normal corporate tax rates, suggesting the company may be carrying forward substantial losses or benefiting from tax exemptions.

Operating margins tell a story of severe operational challenges. The operating profit margin (excluding other income) stood at a meagre 0.53% in Q3 FY26, barely positive after being negative 0.91% in Q2 FY26. The company's inability to generate consistent operating profits from its core slag recovery business raises fundamental questions about the viability of its business model. Operating profit before depreciation, interest, tax, and other income stood at just ₹0.11 crores in Q3 FY26, representing a margin of 0.53% on sales of ₹20.63 crores.

Operational Challenges: Weak Returns and High Employee Costs

Nagpur Power's operational metrics paint a picture of a company struggling with capital efficiency and cost management. The company's return on equity (ROE) stands at a weak 3.24%, significantly below acceptable levels for a manufacturing business. This indicates that the company is generating minimal returns for its shareholders relative to the equity capital deployed. The average ROE over recent years stands at just 3.21%, highlighting that this is not a temporary issue but a structural problem with the business model.

The return on capital employed (ROCE) situation is even more concerning, with the latest figure at 0.32% and an average of negative 3.73%. A negative average ROCE indicates that the company has been destroying value rather than creating it, with earnings before interest and tax (EBIT) insufficient to justify the capital employed in the business. For a capital-intensive metals recovery operation, such poor returns on capital employed suggest either operational inefficiencies, pricing pressures, or fundamental issues with the business economics.

Employee costs have emerged as a significant burden on profitability. In Q3 FY26, employee costs stood at ₹7.73 crores, representing 37.47% of net sales of ₹20.63 crores. This ratio is extraordinarily high for a manufacturing operation and has been rising steadily. In Q2 FY26, employee costs of ₹7.53 crores represented 48.96% of sales, whilst in Q1 FY26, the ratio was 38.42%. For the full year FY25, employee costs of ₹20.00 crores represented 32.26% of sales of ₹62.00 crores. The escalating employee cost burden suggests either overstaffing, wage inflation, or inadequate revenue generation relative to the workforce size.

The balance sheet shows shareholder funds of ₹84.96 crores as of March 2025, with fixed assets of ₹55.83 crores and investments of ₹5.73 crores. The company maintains relatively low debt levels, with long-term debt of ₹3.03 crores, resulting in a debt-to-equity ratio of 0.04. Whilst the minimal debt is positive from a risk perspective, it also means the company cannot blame high interest costs for its poor profitability. The company is essentially a net cash company with an average net debt to equity of negative 0.02, yet still struggles to generate adequate returns.

Cash Flow Concerns: Negative Operating Cash Generation

One of the most alarming aspects of Nagpur Power's financial performance is its inability to generate positive cash flows from operations. For FY25, the company reported negative operating cash flow of ₹9.00 crores, despite reporting positive profit before tax of ₹3.00 crores. This disconnect between accounting profits and cash generation is a major red flag, suggesting that reported profits may not translate into actual cash available to the business.

The primary culprit appears to be working capital management. Changes in working capital consumed ₹12.00 crores in FY25, indicating that the company is locking up increasing amounts of cash in receivables, inventory, or other current assets. This pattern of negative operating cash flow is not new—the company reported negative ₹3.00 crores in operating cash flow in FY24 and negative ₹3.00 crores in FY20. Only in FY23 and FY22 did the company manage to generate positive operating cash flows of ₹2.00 crores each year.

To fund operations and meet obligations, the company has been relying on financing activities. In FY25, cash flow from financing activities was positive ₹8.00 crores, suggesting the company raised additional capital or debt to fund the negative operating cash flow. This is an unsustainable pattern that cannot continue indefinitely. A business that consistently burns cash from operations whilst relying on external financing is heading towards a liquidity crisis.

Industry Context: Underperformance in a Strong Sector

The ferrous metals sector has been experiencing robust performance, with the Ferrous Metals index delivering returns of 71.87% over the past year. Against this favourable backdrop, Nagpur Power's underperformance becomes even more glaring. The stock has delivered returns of just 18.66% over the same period, underperforming the sector by a substantial 53.21 percentage points.

This significant underperformance suggests that the company is failing to capitalise on favourable industry dynamics. Whilst peers in the ferrous metals space have benefited from strong demand, improved realisations, and operational leverage, Nagpur Power has been held back by its operational inefficiencies, margin pressures, and inconsistent earnings. The company's inability to participate meaningfully in the sector's growth story is a clear indication of company-specific problems rather than industry headwinds.

The slag recovery business, which forms the core of Nagpur Power's operations, involves processing manganese slag to produce low ferro manganese. The company's historical documents note 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 limitations in the availability of raw material for the slag recovery process, which could constrain future growth and explain the operational challenges.

Peer Comparison: Lagging on Key Metrics

A comparison with peers in the ferrous metals sector reveals Nagpur Power's competitive weaknesses across multiple dimensions. The company's ROE of 3.21% is significantly lower than most peers, with Neetu Yoshi reporting an impressive 36.93%, Manaksia Steels at 8.02%, and Vaswani Industries at 6.49%. Even Scan Steels, with an ROE of 4.29%, outperforms Nagpur Power on this critical profitability metric.

The price-to-book value ratio of 2.34x appears expensive given the weak ROE. Typically, high P/BV ratios are justified when companies generate superior returns on equity, as investors are willing to pay a premium for businesses that create value. However, with an ROE of just 3.21%, Nagpur Power's P/BV of 2.34x suggests the stock is overvalued relative to its earnings power. For context, Manaksia Steels trades at a P/BV of 1.31x with an ROE of 8.02%, whilst Scan Steels trades at just 0.43x book value with an ROE of 4.29%.

The company's market capitalisation of ₹199.00 crores ranks it fourth amongst the peer group, positioning it as a micro-cap player in the ferrous metals space. This small size limits liquidity and institutional participation, contributing to higher volatility and limited analyst coverage.

Valuation Analysis: Expensive Despite Weak Fundamentals

Nagpur Power's valuation metrics present a concerning picture of a stock trading at expensive levels despite weak fundamental performance. The company currently trades at a P/E ratio that is not applicable due to loss-making status on a trailing twelve-month basis. The inability to generate consistent profits makes traditional earnings-based valuation metrics unreliable for assessing the stock's fair value.

The price-to-book value of 2.34x appears unjustified given the company's poor returns on equity. With an ROE of 3.21%, the stock should theoretically trade below book value rather than at a significant premium. The current P/BV suggests the market is pricing in expectations of a dramatic turnaround in profitability, which seems optimistic given the company's track record and structural challenges.

The EV/EBITDA multiple of 68.99x is extraordinarily high, reflecting the company's minimal EBITDA generation relative to its enterprise value. This metric further confirms that the stock is trading at expensive valuations. The EV/Sales ratio of 3.14x also appears elevated for a low-margin manufacturing business struggling with profitability. The valuation assessment categorises the stock as "EXPENSIVE," with this classification in place since June 17, 2025.

The stock's 52-week range of ₹80.16 to ₹173.95 shows significant volatility, with the current price of ₹152.00 positioned 89.62% above the low and 12.62% below the high. This volatility reflects the uncertainty surrounding the company's earnings trajectory and operational performance. The beta of 1.50 confirms that the stock is more volatile than the broader market, amplifying both gains and losses.

Shareholding Pattern: Stable but Minimal Institutional Interest

The shareholding pattern of Nagpur Power reveals a stable promoter base with minimal institutional participation, which is typical for micro-cap companies with weak fundamentals. Promoter holding has remained constant at 61.23% across the last five quarters, indicating strong promoter commitment but also limited fresh capital inflow from institutional investors.

Foreign institutional investors (FIIs) and mutual funds have zero exposure to the stock, reflecting the lack of institutional interest in this micro-cap company. Insurance companies hold 6.64% of the equity, which has remained stable over recent quarters after a minor reduction from 6.76% in December 2024. Other domestic institutional investors hold a negligible 0.09%. Total institutional holding stands at just 6.73%, significantly below levels seen in quality mid-cap and large-cap companies.

The absence of mutual fund and FII participation is telling. Institutional investors typically avoid companies with weak fundamentals, inconsistent earnings, poor corporate governance, or limited liquidity. The fact that no mutual fund schemes hold positions in Nagpur Power suggests that professional fund managers do not find the risk-reward profile attractive. The promoter group is led by Zeppelin Investment Private Limited with 43.08%, followed by individual promoters from the Khandelwal family. Positively, there is no promoter pledging, indicating the promoters are not using their shares as collateral for loans.

Stock Performance: Volatility Amidst Long-Term Gains

Nagpur Power's stock performance has been characterised by extreme volatility, with impressive long-term returns masking significant short-term fluctuations. Over the past five years, the stock has delivered returns of 458.82%, vastly outperforming the Sensex return of 60.30% by 398.52 percentage points. This exceptional long-term performance suggests that early investors who bought at much lower levels have been handsomely rewarded, but the sustainability of such returns is questionable given current fundamentals.

Recent performance has been mixed. The stock delivered spectacular returns of 60.51% over the past three months, significantly outperforming the Sensex's negative 2.19% return during the same period. However, this surge appears to be losing momentum. Over the past month, the stock has declined 5.65%, underperforming the Sensex's decline of 1.20%. Year-to-date returns stand at negative 4.92%, marginally worse than the Sensex's decline of 3.04%.

The stock's beta of 1.50 indicates it is 50% more volatile than the broader market, amplifying both gains and losses. This high beta, combined with the company's weak fundamentals, makes the stock particularly risky for investors with lower risk tolerance. The risk-adjusted return of 0.30 over the past year, compared to the Sensex's risk-adjusted return of 0.74, suggests that investors are not being adequately compensated for the additional volatility they are taking on.

Technical indicators present a mixed picture. The overall technical trend is classified as "BULLISH" as of January 22, 2026, when the trend changed from sideways at ₹155.95. The MACD indicator shows bullish signals on both weekly and monthly timeframes, whilst Bollinger Bands indicate mildly bullish to bullish conditions. However, the RSI shows a bearish reading on the weekly timeframe, suggesting potential overbought conditions or weakening momentum.

Investment Thesis: Fundamental Weaknesses Outweigh Technical Strength

The investment thesis for Nagpur Power is severely challenged by fundamental weaknesses that overshadow any technical or short-term momentum. The company's proprietary Mojo Score stands at 46 out of 100, with an advisory rating of "SELL." This score reflects the confluence of negative factors: flat financial performance in the recent quarter, weak long-term fundamental strength with an average ROE of 3.21%, expensive valuation, and below-average quality grade.

The quality assessment categorises Nagpur Power as "BELOW AVERAGE," noting that it is a "below average quality company basis long term financial performance." Key quality concerns include weak profitability metrics (average ROCE of negative 3.73% and average ROE of 3.21%), high debt to EBITDA ratio of 4.65 (despite low absolute debt levels), and minimal institutional holdings of just 6.73%. The positive aspects—zero promoter pledging and healthy long-term sales growth of 17.89%—are insufficient to offset these fundamental weaknesses.

The financial trend is classified as "FLAT" as of December 2025, with net sales reaching a quarterly high but profitability remaining volatile. The valuation grade of "EXPENSIVE" since June 2025 suggests the stock is overvalued relative to its earnings power and growth prospects. The technical trend, whilst currently bullish, cannot compensate for the underlying fundamental deterioration.

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