Nakoda Group Q3 FY26: Profit Turnaround Masks Persistent Revenue Weakness

The quarter's results present a paradox: whilst the company returned to profitability with net earnings growing 40.00% quarter-on-quarter from ₹0.25 crores in Q2 FY26, net sales plunged 27.99% sequentially to ₹10.65 crores. On a year-over-year basis, revenue declined 25.16%, highlighting persistent challenges in top-line generation. The profit turnaround was driven primarily by margin expansion rather than revenue growth, with operating margins improving to 10.14% from 7.03% in the previous quarter.

For the nine-month period ending December 2025, Nakoda Group's cumulative performance reveals the depth of its operational struggles. Total sales for the period stood at ₹32.36 crores, whilst net profit reached ₹0.76 crores, reflecting the company's ability to extract profitability from a shrinking revenue base through aggressive cost management.

Financial Performance: Margin Expansion Amidst Revenue Contraction

The Q3 FY26 quarter showcased Nakoda Group's ability to improve profitability despite a challenging revenue environment. Operating profit (PBDIT) excluding other income reached ₹1.08 crores, the highest in the trailing seven quarters, representing a 10.14% margin. This marked a significant improvement from the 7.03% margin in Q2 FY26 and a dramatic reversal from the negative margins witnessed in the previous fiscal year.

However, the revenue trajectory remains deeply concerning. Net sales of ₹10.65 crores in Q3 FY26 fell 27.99% quarter-on-quarter from ₹14.79 crores and declined 25.16% year-on-year from ₹14.23 crores. This persistent revenue weakness has been a defining characteristic of the company's recent performance, with quarterly sales exhibiting extreme volatility – ranging from a low of ₹6.92 crores in Q1 FY26 to a high of ₹14.79 crores in Q2 FY26.

The profit before tax stood at ₹0.47 crores in Q3 FY26, the highest in recent quarters, translating to a PAT margin of 3.29%. This represents a substantial improvement from the breakeven performance in Q4 FY24 and the losses incurred in the first half of FY25. Interest costs declined to ₹0.31 crores from ₹0.33 crores sequentially, whilst depreciation remained relatively stable at ₹0.29 crores.

On an annual basis, the company's struggles become even more apparent. FY25 closed with net sales of ₹46.00 crores, down 2.1% from ₹47.00 crores in FY24, marking the third consecutive year of declining revenues. The company posted a net loss of ₹3.00 crores in FY25, compared to a loss of ₹2.00 crores in FY24, reflecting deteriorating profitability despite modest revenue stability.

Operational Challenges: Weak Returns and High Leverage

Nakoda Group's operational efficiency metrics paint a troubling picture of capital productivity. The company's average return on equity (ROE) stands at just 4.79%, whilst the latest ROE has turned negative at -6.16%, indicating the company is destroying shareholder value. Average return on capital employed (ROCE) is equally anaemic at 3.27%, with the latest figure at -2.40%, suggesting the business generates insufficient returns relative to the capital deployed.

The company's five-year sales growth of 5.14% appears modest, but the operating profit (EBIT) growth tells a far more alarming story, with a five-year CAGR of -170.24%. This dramatic contraction in operating profitability highlights structural challenges in the business model that go beyond cyclical headwinds. The EBIT to interest coverage ratio averages just 0.52 times, indicating the company's operating profits are insufficient to cover interest obligations comfortably.

The balance sheet reveals a company with manageable but concerning leverage. As of March 2025, shareholder funds stood at ₹27.89 crores, up from ₹19.36 crores in the previous year, primarily due to a capital infusion that increased share capital from ₹12.73 crores to ₹15.72 crores. Long-term debt declined to ₹1.03 crores from ₹3.30 crores, a positive development. However, the average net debt to equity ratio of 0.39 and debt to EBITDA of 3.93 times suggest the company operates with financial constraints that limit strategic flexibility.

Industry Context: Underperformance in a Challenging FMCG Landscape

The broader FMCG sector has faced its own set of challenges, but Nakoda Group's underperformance stands out even within this difficult context. Over the past year, the stock has declined 30.67%, significantly underperforming the FMCG sector return of 3.81% by 34.48 percentage points. This underperformance extends across all meaningful timeframes, with the stock down 45.96% over two years compared to the Sensex's 17.42% gain, and down 54.19% over three years against the Sensex's 38.25% rise.

The company's volatility profile further compounds investor concerns. With a beta of 1.50, Nakoda Group's stock exhibits 50% greater volatility than the broader market, classifying it as a high-beta stock. The risk-adjusted return over the past year stands at -0.60, indicating investors have been penalised with negative returns despite taking on significantly higher risk (volatility of 50.77% compared to Sensex's 11.53%).

Peer Comparison: Valuation Premium Unjustified by Fundamentals

When benchmarked against FMCG peers, Nakoda Group's valuation appears inconsistent with its operational performance. The company's price-to-book value of 1.44 times is higher than several peers, including NHC Foods (0.61x), Warren Tea (0.54x), and Healthy Life (1.35x), despite Nakoda's inferior return on equity of 4.79%.

The company's loss-making status on a trailing twelve-month basis renders traditional P/E ratio comparisons meaningless. However, the premium P/BV multiple appears unjustified given Nakoda's ROE of 4.79% trails peers like NHC Foods (8.53%) and Healthy Life (9.49%). With a market capitalisation of ₹47.00 crores, Nakoda ranks fifth amongst its peer group, reflecting its micro-cap status and limited institutional interest.

Valuation Analysis: Risky Territory with Limited Upside

Nakoda Group's valuation has been classified as "Risky" since May 2024, reflecting the deteriorating fundamental picture and elevated downside risks. The EV/EBITDA multiple of 60.25 times appears extremely stretched, particularly given the company's inconsistent profitability and negative operating profit trends. The negative EV/EBIT of -54.77 times underscores the company's inability to generate sustainable operating profits.

The company's book value per share stands at ₹14.51, implying the current market price of ₹26.99 trades at a 86% premium to book value. For a company with negative ROE and deteriorating fundamentals, this premium appears difficult to justify. The absence of dividends (last dividend of ₹0.10 per share paid in September 2023) further reduces the investment case for income-focused investors.

The stock's journey from "Fair" to "Expensive" to "Risky" valuation grades over the past 18 months reflects the market's growing scepticism about the company's prospects. With the current price 37.29% below the 52-week high, the stock has experienced significant value erosion, yet fundamental improvements remain elusive.

Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest

The shareholding pattern reveals a stable promoter holding of 56.40% that has remained unchanged over the past five quarters, suggesting confidence from the founding family. However, the complete absence of meaningful institutional participation – with FII holdings at 0.00%, mutual fund holdings at 0.00%, and insurance holdings at 0.00% – signals a lack of conviction from professional investors.

The marginal FII presence of 0.05% in September 2025, which subsequently reduced to zero by December 2025, represents the only institutional activity in recent quarters. This exit, though minimal in absolute terms, symbolises the broader institutional aversion to the stock. The non-institutional shareholding of 43.60% comprises retail investors who bear the brunt of the stock's volatility and underperformance.

Promoter pledging data remains unavailable, adding another layer of opacity to the governance and financial health assessment. The promoter group is led by Pravin Navalchand Choudhary (29.75%), Pooja Choudhary (15.16%), Manju Pravin Choudhary (6.44%), and Jayesh Choudhary (5.05%).

Stock Performance: Consistent Underperformance Across All Timeframes

Nakoda Group's stock performance has been consistently disappointing across all meaningful investment horizons. The one-day return of 1.47% on February 09, 2026, provided little solace to long-term investors who have witnessed systematic value destruction. Over the past week, the stock declined 0.41% whilst the Sensex gained 2.94%, resulting in negative alpha of -3.35%.

The magnitude of underperformance becomes increasingly severe over longer timeframes. The three-year alpha of -92.44% represents one of the worst relative performance records in the small-cap FMCG space. The stock has delivered negative absolute returns across one-year (-30.67%), two-year (-45.96%), and three-year (-54.19%) periods, whilst the Sensex posted positive returns of 7.97%, 17.42%, and 38.25% respectively over the same periods.

The year-to-date performance of -11.68% compares unfavourably to the Sensex's -1.36% decline, indicating the stock has amplified market weakness. The five-year return of 39.92%, whilst positive in absolute terms, significantly trails the Sensex's 63.78% gain, resulting in negative alpha of -23.86%.

Investment Thesis: Multiple Red Flags Outweigh Tactical Recovery

The proprietary Mojo score of 17 out of 100 places Nakoda Group firmly in "Strong Sell" territory, reflecting the confluence of negative factors across valuation, quality, financial trends, and technical indicators. The overall assessment reveals "mixed" signals at best, with the recent quarterly profit recovery insufficient to offset deep-seated structural concerns.

The quality assessment of "Below Average" stems from the company's weak five-year EBIT growth of -170.24%, inadequate EBIT to interest coverage of 0.52 times, and below-par return ratios (ROCE of 3.27%, ROE of 4.79%). The financial trend classification of "Flat" acknowledges the recent quarterly profit but notes the persistent revenue weakness that has seen sales fall 14.7% below the previous four-quarter average.

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