The Hyderabad-based company, with a market capitalisation of ₹158.00 crores, saw its stock trading at ₹74.00 as of November 18, 2025, gaining 1.38% on the day. Following the quarterly results, the stock has demonstrated strong momentum, trading above all key moving averages and maintaining a bullish technical trend.
The quarter's performance marks a significant milestone for Narbada Gems, which has successfully navigated a challenging operating environment whilst maintaining strong profitability metrics. The company's ability to scale revenue whilst preserving margins demonstrates effective cost management and operational discipline.
Financial Performance: Revenue Acceleration Drives Profitability
Narbada Gems & Jewellery reported net sales of ₹26.30 crores in Q2 FY26, representing a robust 26.81% quarter-on-quarter increase from ₹20.74 crores in Q1 FY26. The year-on-year comparison reveals even more impressive growth, with revenues surging 41.02% from ₹18.65 crores in Q2 FY25. This sequential and annual expansion reflects strong demand dynamics and the company's enhanced market penetration.
Operating profit before depreciation, interest, and tax (PBDIT) excluding other income stood at ₹4.73 crores in Q2 FY26, up 20.05% from ₹3.94 crores in the previous quarter. The operating margin of 17.98% in Q2 FY26, whilst marginally lower than Q1 FY26's 19.00%, remains significantly healthier than the 3.81% recorded in Q2 FY25, demonstrating substantial operational improvement year-on-year.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | PAT Margin |
|---|---|---|---|---|
| Sep'25 | 26.30 | +26.81% | 3.00 | 11.41% |
| Jun'25 | 20.74 | -4.95% | 2.33 | 11.23% |
| Mar'25 | 21.82 | +1.44% | 0.78 | 3.57% |
| Dec'24 | 21.51 | +15.34% | 1.48 | 6.88% |
| Sep'24 | 18.65 | -20.30% | 0.07 | 0.38% |
| Jun'24 | 23.40 | +155.18% | 2.56 | 10.94% |
| Mar'24 | 9.17 | — | -2.34 | -25.52% |
Profit before tax in Q2 FY26 reached ₹4.01 crores, marking a 28.53% sequential increase from ₹3.12 crores in Q1 FY26. After accounting for tax expenses of ₹1.02 crores at an effective rate of 25.44%, net profit settled at ₹3.00 crores. The PAT margin of 11.41% represents a marginal improvement from 11.23% in the previous quarter and a dramatic recovery from the 0.38% recorded in Q2 FY25.
Interest costs remained relatively stable at ₹0.60 crores in Q2 FY26 compared to ₹0.55 crores in Q1 FY26, whilst depreciation held steady at ₹0.16 crores. Employee costs increased to ₹1.00 crore from ₹0.90 crores, reflecting the company's growth trajectory and potential workforce expansion to support business scaling.
Operational Excellence: Margin Expansion and Capital Efficiency
Narbada Gems' operational performance in H1 FY26 reveals encouraging trends in capital efficiency. The company achieved a return on capital employed (ROCE) of 14.20% on a half-yearly basis, marking the highest level in recent periods and significantly above the five-year average of 9.91%. This improvement demonstrates the management's ability to generate superior returns from the capital deployed in the business.
Return on equity (ROE) for the latest period stood at 13.92%, substantially higher than the five-year average of 8.70%. Whilst this remains below peer benchmarks, the upward trajectory indicates improving profitability and shareholder value creation. The company's ability to enhance ROE whilst maintaining moderate leverage positions it favourably for sustainable growth.
Key Operational Strengths
ROCE Improvement: Half-yearly ROCE of 14.20% represents the highest level achieved in recent quarters, reflecting enhanced capital efficiency and improved business economics. The company's ability to generate strong returns on capital employed whilst scaling operations demonstrates operational maturity.
Margin Resilience: Despite revenue volatility in prior quarters, the company has maintained PAT margins above 11% in Q1 and Q2 FY26, showcasing pricing power and effective cost management in a competitive industry.
The balance sheet presents a mixed picture. Shareholder funds increased to ₹54.53 crores as of March 2025 from ₹49.64 crores in March 2024, reflecting retained earnings and capital accumulation. Long-term debt remains minimal at ₹0.05 crores, indicating a conservative capital structure. However, current liabilities increased to ₹36.97 crores from ₹27.24 crores, driven by higher trade payables of ₹6.19 crores compared to ₹0.82 crores in the previous year.
Current assets stood at ₹86.25 crores as of March 2025, up from ₹71.72 crores, providing adequate liquidity coverage. The debt-to-EBITDA ratio of 3.28 times and net debt-to-equity ratio of 0.49 indicate manageable leverage levels. The company's EBIT-to-interest coverage ratio of 4.80 times, whilst on the weaker side, provides a reasonable cushion for debt servicing obligations.
Industry Context: Navigating a Competitive Landscape
The gems and jewellery sector in India operates in a highly fragmented and competitive environment, characterised by evolving consumer preferences, fluctuating commodity prices, and increasing organised retail penetration. Narbada Gems' performance must be viewed against this backdrop of industry dynamics and competitive pressures.
The company's 41.02% year-on-year revenue growth in Q2 FY26 significantly outpaces the broader sector return of 22.36% over the past year, indicating market share gains and superior execution. The ability to scale revenues whilst maintaining double-digit PAT margins demonstrates operational resilience in a margin-sensitive industry.
Competitive Positioning
Narbada Gems has demonstrated superior growth momentum compared to sector peers, with revenue expansion of 41% YoY in Q2 FY26. The company's operating margin of 17.98% compares favourably against industry standards, reflecting effective procurement strategies and operational efficiency. However, the company's micro-cap status and limited institutional participation present liquidity constraints and valuation challenges relative to larger, more established players.
The company's five-year sales growth CAGR of 22.03% and EBIT growth CAGR of 35.01% underscore its ability to scale operations and improve profitability over the medium term. This growth trajectory, whilst impressive, comes with the inherent volatility typical of smaller capitalisation companies in cyclical industries.
Peer Comparison: Valuation and Performance Metrics
Comparing Narbada Gems with sector peers reveals a nuanced valuation picture. The company trades at a price-to-earnings ratio of 20.35 times, positioned between Ashapuri Gold (11.56x) and Manbro Industries (184.07x), suggesting moderate valuation relative to earnings. The price-to-book value of 2.83 times sits in the middle of the peer range, indicating neither significant premium nor discount to book value.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity |
|---|---|---|---|---|
| Narbada Gems | 20.35 | 2.83 | 8.70% | 0.49 |
| Manbro Industries | 184.07 | 8.16 | 18.39% | 0.00 |
| Ashapuri Gold | 11.56 | 1.27 | 5.37% | 0.00 |
| Ceenik Exports | NA (Loss Making) | 11.54 | 0.00% | 1.24 |
| Golkunda Diamond | 10.41 | 2.02 | 18.85% | 0.35 |
| Ausom Enterprise | 4.98 | 0.87 | 8.85% | -0.02 |
From a profitability perspective, Narbada Gems' ROE of 8.70% lags behind top performers like Golkunda Diamond (18.85%) and Manbro Industries (18.39%), but exceeds Ashapuri Gold (5.37%). This positioning suggests room for further operational improvements to close the gap with best-in-class peers.
The company's moderate debt-to-equity ratio of 0.49 provides financial flexibility compared to Ceenik Exports (1.24) whilst maintaining a more conservative capital structure than the debt-free peers. This balanced approach allows for growth investments whilst managing financial risk prudently.
Valuation Analysis: Attractive Entry Point at Current Levels
At the current market price of ₹74.00, Narbada Gems trades at a P/E ratio of 20.35 times trailing twelve-month earnings, representing a significant discount to the industry average P/E of 60 times. This valuation gap suggests the market has not fully recognised the company's recent operational improvements and growth trajectory.
The price-to-book value of 2.83 times, whilst above the 1x threshold typically associated with value stocks, remains reasonable given the company's improving ROE and growth profile. The EV-to-EBITDA multiple of 13.74 times and EV-to-sales ratio of 2.01 times indicate moderate valuation relative to enterprise value metrics.
The PEG ratio of 0.31 times stands out as particularly attractive, suggesting the stock trades at a significant discount to its growth rate. Conventional wisdom holds that PEG ratios below 1.0 indicate undervaluation relative to earnings growth prospects, making Narbada Gems compelling from a growth-adjusted valuation perspective.
The company's valuation grade has transitioned between "Attractive" and "Very Attractive" over recent months, currently assessed as "Attractive" as of the latest evaluation. With ROCE of 10.73% and an enterprise value-to-capital employed ratio of 2.23 times, the stock offers reasonable value for investors seeking exposure to the gems and jewellery sector.
Shareholding Pattern: Stable Promoter Base
The shareholding structure of Narbada Gems reflects a stable promoter-dominated ownership pattern. Promoter holding has remained constant at 74.99% across the last five quarters through September 2025, indicating strong management commitment and alignment with shareholder interests. The absence of any promoter pledging further reinforces confidence in the company's financial stability.
| Quarter | Promoter (%) | FII (%) | MF (%) | Non-Institutional (%) |
|---|---|---|---|---|
| Sep'25 | 74.99% | 0.00% | 0.00% | 25.01% |
| Jun'25 | 74.99% | 0.00% | 0.00% | 25.01% |
| Mar'25 | 74.99% | 0.00% | 0.00% | 25.01% |
| Dec'24 | 74.99% | 0.00% | 0.00% | 25.01% |
| Sep'24 | 74.99% | 0.00% | 0.00% | 25.01% |
The complete absence of foreign institutional investor (FII) and mutual fund holdings highlights the limited institutional participation in the stock. Whilst this presents liquidity challenges and potentially limits near-term price discovery, it also suggests significant upside potential should the company attract institutional attention through continued operational improvements and financial performance.
The non-institutional shareholding of 25.01% has remained stable, indicating a loyal retail investor base. The lack of meaningful quarter-on-quarter changes in shareholding pattern suggests investor confidence in the company's long-term prospects, though the absence of institutional buying may reflect concerns about company size, liquidity, or sector-specific risks.
Stock Performance: Outperformance Across Timeframes
Narbada Gems has delivered impressive returns across multiple timeframes, significantly outperforming the benchmark Sensex. Over the past year, the stock generated returns of 25.42% compared to the Sensex's 9.48%, resulting in an alpha of 15.94 percentage points. This outperformance demonstrates the market's recognition of the company's improving fundamentals and growth trajectory.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.14% | 0.96% | -0.82% |
| 1 Month | 5.79% | 0.86% | +4.93% |
| 3 Month | 22.92% | 4.18% | +18.74% |
| 6 Month | 32.19% | 2.85% | +29.34% |
| YTD | 15.05% | 8.36% | +6.69% |
| 1 Year | 25.42% | 9.48% | +15.94% |
| 2 Years | 38.50% | 28.69% | +9.81% |
| 3 Years | 16.90% | 37.31% | -20.41% |
The stock's recent momentum has been particularly strong, with six-month returns of 32.19% and three-month returns of 22.92%, both substantially ahead of the Sensex. This acceleration in performance coincides with the company's improved quarterly results and operational metrics, suggesting fundamentals-driven price appreciation.
From a technical perspective, the stock trades above all key moving averages, including the 5-day (₹73.56), 20-day (₹72.17), 50-day (₹71.24), 100-day (₹63.79), and 200-day (₹59.93) moving averages. This technical setup indicates strong momentum and positive market sentiment. The current trend classification of "Bullish" since November 10, 2025, reinforces the constructive technical outlook.
However, investors should note the stock's high volatility of 51.27% and beta of 1.50, indicating significantly higher price fluctuations compared to the broader market. Whilst this volatility has worked in favour of shareholders during the recent uptrend, it also presents downside risk during market corrections or company-specific challenges.
Investment Thesis: Growth at Reasonable Valuation
The investment case for Narbada Gems rests on several key pillars. The company has demonstrated consistent revenue growth, with a five-year sales CAGR of 22.03% and EBIT CAGR of 35.01%. The recent quarterly performance, particularly the 41.02% year-on-year revenue growth in Q2 FY26, validates the sustainability of this growth trajectory.
The company's improving capital efficiency, as evidenced by ROCE expansion to 14.20% in H1 FY26, suggests management's ability to deploy capital effectively and generate superior returns. The moderate debt levels and stable promoter holding provide financial stability and governance comfort.
From a valuation perspective, the P/E ratio of 20.35 times represents a significant discount to the industry average of 60 times, whilst the PEG ratio of 0.31 indicates the stock trades at a substantial discount to its growth rate. These metrics suggest potential for valuation re-rating as the company continues to deliver on operational and financial performance.
"With revenue growth of 41% year-on-year, improving margins, and attractive valuation metrics, Narbada Gems presents a compelling case for investors seeking exposure to India's gems and jewellery sector at reasonable valuations."
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Strong Revenue Growth: 41.02% YoY revenue expansion in Q2 FY26 demonstrates robust demand and market share gains
- Improving Capital Efficiency: ROCE of 14.20% in H1 FY26 marks the highest level in recent periods
- Healthy Margins: Operating margin of 17.98% and PAT margin of 11.41% reflect pricing power and cost discipline
- Conservative Leverage: Net debt-to-equity of 0.49 and minimal long-term debt provide financial flexibility
- Stable Promoter Base: 74.99% promoter holding with zero pledging indicates strong management commitment
- Attractive Valuation: P/E of 20.35x at significant discount to industry average of 60x; PEG ratio of 0.31x suggests undervaluation
- Strong Stock Momentum: 25.42% returns over past year with bullish technical setup above all moving averages
⚠ KEY CONCERNS
- Micro-Cap Liquidity: Market cap of ₹158 crores limits institutional participation and trading liquidity
- Below-Peer ROE: ROE of 8.70% lags behind top performers like Golkunda Diamond (18.85%) and Manbro Industries (18.39%)
- Zero Institutional Holdings: Complete absence of FII and mutual fund participation raises concerns about institutional confidence
- High Volatility: Stock volatility of 51.27% and beta of 1.50 indicate significant price fluctuation risk
- Working Capital Pressure: Increasing current liabilities and trade payables suggest potential working capital management challenges
- Quarterly Volatility: Historical revenue and profit fluctuations indicate business cyclicality and execution risks
- Limited Track Record: Recent operational turnaround requires validation through sustained performance over multiple quarters
Outlook: What to Watch in Coming Quarters
POSITIVE CATALYSTS
- Sustained Revenue Growth: Continuation of 20%+ quarterly revenue growth would validate market share gains
- Margin Expansion: Operating margins moving towards 20% would demonstrate improved operational leverage
- ROCE Improvement: Further enhancement of ROCE above 15% would strengthen investment case
- Institutional Interest: Entry of mutual funds or FIIs would improve liquidity and valuation re-rating
- Working Capital Efficiency: Improvement in debtor turnover and cash conversion cycle
RED FLAGS
- Revenue Deceleration: Sequential decline in quarterly revenues would raise concerns about demand sustainability
- Margin Compression: Operating margins falling below 15% would indicate pricing pressure or cost inflation
- Rising Debt Levels: Increase in debt-to-equity above 0.75 would strain financial flexibility
- Promoter Pledging: Any pledging of promoter shares would be a significant negative signal
- Working Capital Deterioration: Further increase in payables or inventory build-up without revenue support
The Verdict: Buy for Growth-Oriented Investors
Score: 77/100
For Fresh Investors: Narbada Gems presents an attractive entry opportunity for growth-oriented investors willing to accept higher volatility. The combination of strong revenue growth, improving profitability metrics, and attractive valuation creates a compelling risk-reward profile. Consider accumulating on dips with a 12-18 month investment horizon.
For Existing Holders: Continue holding with conviction. The recent quarterly results validate the operational turnaround thesis. The stock's technical strength and improving fundamentals support further upside potential. Consider averaging up on strength if the company sustains revenue growth above 25% annually.
Fair Value Estimate: ₹88-92 (19-24% upside from current levels of ₹74.00)
Rationale: The BUY rating is predicated on robust revenue growth of 41% YoY, expanding ROCE to 14.20%, attractive valuation at 20.35x P/E (significant discount to industry average of 60x), and strong technical momentum. The improving capital efficiency and stable promoter base provide confidence in management execution. However, investors must acknowledge the micro-cap liquidity constraints, high volatility, and absence of institutional participation as key risks requiring monitoring.
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. Investments in micro-cap stocks carry higher risks including liquidity constraints, volatility, and potential for significant capital loss.
