Nexome Capital Markets Q2 FY26: Profit Surge Masks Deeper Operational Concerns

The quarter's performance reveals a company struggling with fundamental operational challenges despite impressive year-on-year profit growth. Net sales plummeted 50.18% sequentially to ₹8.32 crores in Q2 FY26 from ₹16.70 crores in Q1 FY26, highlighting severe revenue inconsistency that has characterised Nexome's business model. This volatility stems from the company's merchant banking and securities trading operations, which remain highly dependent on market conditions and deal flow.

What makes the profit growth particularly noteworthy is the base effect—Q2 FY25 saw net profit of just ₹0.25 crores, making the 300.00% year-on-year comparison somewhat misleading. The sequential decline of 21.26% from Q1 FY26's ₹1.27 crores provides a more sobering assessment of the company's current trajectory. Operating margins excluding other income stood at 12.26% in Q2 FY26, an improvement from the negative margins witnessed in previous quarters, yet this recovery appears fragile given the company's historical pattern of margin volatility.

Financial Performance: Erratic Revenue Pattern Undermines Profitability

The second quarter of FY26 exposed the fundamental weakness in Nexome's business model—an inability to generate consistent revenue streams. Net sales of ₹8.32 crores in Q2 FY26, whilst up 31.23% year-on-year, fell dramatically below the previous four-quarter average, declining by 17.40%. This volatility has been a persistent feature, with quarterly sales swinging wildly between ₹6.34 crores and ₹16.70 crores over the past year.

Operating profit excluding other income reached ₹1.02 crores in Q2 FY26, translating to a 12.26% margin—a significant improvement from the negative margins of ₹0.35 crores (-5.52%) recorded in the year-ago quarter. However, this recovery remains tenuous, as the company has oscillated between positive and negative operating margins across recent quarters. The operating margin excluding other income ranged from -5.88% in Mar'25 to 12.26% in Sep'25, underscoring the unpredictable nature of the core business.

Profitability metrics tell a similarly mixed story. PAT margin expanded to 12.02% in Q2 FY26 from 3.94% in Q2 FY25, driven partly by improved operational efficiency and partly by favourable other income of ₹0.72 crores. Tax expenses consumed ₹0.35 crores at an effective rate of 26.12%, significantly lower than the 35.90% rate in the year-ago quarter. This tax benefit provided meaningful support to bottom-line growth, though it raises questions about sustainability.

Employee costs remained relatively stable at ₹1.21 crores in Q2 FY26, representing 14.54% of net sales. Depreciation charges increased to ₹0.30 crores from ₹0.16 crores year-on-year, reflecting recent capital expenditure. Interest expenses, whilst minimal at ₹0.09 crores, have been trending upward from near-zero levels in previous quarters, suggesting potential increases in borrowing costs ahead.

Operational Challenges: Weak Returns and Capital Inefficiency

The most damning indictment of Nexome's operational performance lies in its abysmal return on equity, which stood at just 0.95% in the latest quarter. This figure represents one of the weakest ROE metrics amongst NBFCs, signalling severe capital inefficiency and an inability to generate meaningful returns for shareholders. The average ROE over the past five years has been an equally disappointing 1.06%, placing Nexome in the bottom tier of financial services companies.

Return on capital employed (ROCE) painted an even bleaker picture at -1.48%, indicating that the company is actually destroying value with its deployed capital. This negative ROCE, combined with the anaemic ROE, suggests fundamental problems with the business model—either the company is operating in low-margin segments, facing intense competitive pressures, or suffering from poor capital allocation decisions.

The balance sheet reveals shareholder funds of ₹153.84 crores as of March 2025, up from ₹128.65 crores in the previous year, primarily driven by retained earnings and a modest increase in share capital. Investments stood at ₹116.41 crores, representing 75.68% of shareholder funds, suggesting a significant portion of capital is deployed in marketable securities rather than core lending or merchant banking operations. This asset allocation strategy may explain the weak operating returns.

Current assets collapsed to just ₹2.53 crores in FY25 from ₹93.80 crores in FY24, a dramatic 97.30% decline that raises questions about working capital management and liquidity. Simultaneously, current liabilities increased to ₹14.58 crores from ₹6.99 crores, creating a negative working capital position that could constrain operational flexibility. The company maintains zero long-term debt, which whilst positive from a leverage perspective, also suggests limited access to growth capital.

The Valuation Paradox: Expensive Multiples for Mediocre Returns

Perhaps the most perplexing aspect of Nexome's investment case is its elevated valuation despite weak fundamentals. The stock trades at a price-to-earnings ratio of 35.88x based on trailing twelve-month earnings, significantly above the industry average P/E of 24x. This premium valuation appears entirely unjustified given the company's 1.06% average ROE and negative ROCE.

The price-to-book ratio of 0.49x offers a more reasonable perspective, suggesting the market values the company at roughly half its book value of ₹258.10 per share. However, this discount is appropriate given the poor returns on equity—investors are essentially pricing in the expectation that the company will continue to destroy shareholder value. The EV-to-EBITDA multiple of 76.55x appears distorted due to the company's minimal EBITDA generation.

The company's valuation grade has deteriorated to "Very Expensive" as of November 2025, having oscillated between "Fair" and "Very Expensive" throughout the year. This classification reflects the disconnect between price and fundamental value. With no dividend yield (the last dividend of ₹1 per share was paid in September 2018), investors receive no income return whilst waiting for potential capital appreciation.

The stock currently trades at ₹127.00, down 24.38% from its 52-week high of ₹167.95 but still up 120.03% from its 52-week low of ₹57.72. This wide trading range reflects the market's uncertainty about the company's prospects and the speculative nature of the stock. The lack of institutional interest—with 0.00% FII, mutual fund, and insurance holdings—further underscores the investment community's scepticism about the company's quality and growth prospects.

Peer Comparison: Lagging on Every Critical Metric

When benchmarked against NBFC peers, Nexome Capital Markets' underperformance becomes starkly evident. The company's 1.06% ROE pales in comparison to peer averages of approximately 11%, with companies like Morgan Ventures achieving 18.78% and Kreon Finnancial posting 10.90%. This 10-percentage-point gap in returns on equity translates to dramatically different wealth creation potential for shareholders.

The price-to-book comparison reveals that Nexome trades at a 0.49x multiple, significantly below the peer average of approximately 2.10x. Whilst this might initially appear attractive, the discount is entirely justified by the company's inferior returns. Morgan Ventures, despite trading at a higher P/BV of 0.81x, generates ROE of 18.78%—nearly 18 times higher than Nexome's 1.06%. This demonstrates that valuation multiples must always be assessed in the context of underlying profitability and growth.

From a leverage perspective, Nexome maintains a conservative debt-to-equity ratio of 0.02, amongst the lowest in the peer group. Whilst this minimal leverage reduces financial risk, it also suggests the company may be underutilising its balance sheet capacity. NBFCs typically operate with moderate leverage to enhance returns on equity, and Nexome's reluctance to employ debt may be contributing to its anaemic ROE figures.

Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest

The shareholding structure of Nexome Capital Markets has remained remarkably stable over recent quarters, with promoter holding steady at 52.14% as of September 2025. This follows a minor 2.72 percentage point reduction in December 2024, when promoter stake declined from 54.86% to 52.14%. The promoter group comprises several entities including Progressive Star Finance Private Limited (20.18%), Stewart Investment And Financial Private Limited (14.33%), and Mackertich Consultancy Services Private Limited (9.48%).

The complete absence of institutional investors—foreign institutional investors, mutual funds, and insurance companies all hold 0.00%—represents a significant red flag. Institutional investors typically conduct rigorous due diligence before committing capital, and their complete avoidance of Nexome suggests serious concerns about the company's business model, corporate governance, or growth prospects. The non-institutional shareholding of 47.86% consists primarily of retail investors and non-promoter entities.

Positively, there is no promoter pledging, indicating that the promoter group has not encumbered their shares for borrowing purposes. This eliminates one potential risk factor, as pledged shares can lead to forced selling during market downturns. However, the lack of institutional validation and the concentration of non-promoter holding amongst retail investors raises liquidity concerns and limits the stock's appeal to serious long-term investors.

Stock Performance: Volatility Defines the Trading Pattern

Nexome Capital Markets has delivered exceptional long-term returns despite its weak fundamentals, with the stock generating 543.04% returns over ten years compared to the Sensex's 214.31%—an alpha of 328.73 percentage points. However, this performance appears driven more by speculative trading and low base effects rather than fundamental business improvement. The stock's five-year return of 368.63% significantly outpaced the Sensex's 105.48%, generating alpha of 263.15 percentage points.

The recent six-month performance has been particularly strong, with the stock surging 44.76% compared to the Sensex's 3.67% gain. Year-to-date returns stand at 37.86%, significantly outperforming the benchmark's 6.81% advance. However, this outperformance must be viewed in the context of the stock's extreme volatility—with a beta of 1.50 and volatility of 66.80%, Nexome exhibits price swings far exceeding market averages.

The risk-adjusted return of 0.54 over one year, whilst positive, indicates that investors are assuming substantial volatility risk for the returns achieved. The stock's high beta classification means it tends to amplify market movements, rising more during bull phases but potentially falling harder during corrections. Trading volumes remain thin at just 519 shares on the latest trading day, contributing to price volatility and making it difficult for investors to enter or exit positions without impacting the market price.

Technical indicators present a mixed picture. The stock currently trades below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, suggesting short-term weakness despite the longer-term uptrend. The overall technical trend is classified as "Mildly Bullish" as of October 2025, having shifted from "Bullish" in the previous assessment. MACD shows mildly bearish signals on the weekly timeframe but bullish on monthly charts, whilst Bollinger Bands indicate bullish positioning on both timeframes.

Investment Thesis: Speculative Play Lacking Fundamental Support

The investment case for Nexome Capital Markets rests on shaky foundations. The company's proprietary Mojo score of 43 out of 100 places it firmly in "SELL" territory, reflecting the combination of weak fundamentals, expensive valuation, and operational challenges. The quality assessment of "Below Average" accurately captures the company's inability to generate adequate returns on capital or demonstrate consistent operational performance.

The Mojo 4 Dots analysis reveals a company with positive near-term drivers—the quarterly financial trend turned "Positive" in September 2025, and technicals remain "Mildly Bullish"—but these short-term positives are overwhelmed by structural weaknesses. The "Below Average" quality grade and "Very Expensive" valuation create a toxic combination that severely limits upside potential whilst maintaining significant downside risk.

The five-year sales growth of -3.39% underscores the company's inability to expand its revenue base, whilst the marginally positive EBIT growth of 36.51% appears impressive only because it's calculated from extremely low or negative base levels. The company's average ROE of 1.06% over five years represents one of the weakest profitability metrics in the financial services sector, signalling fundamental problems with the business model that are unlikely to resolve quickly.

Key Strengths & Risk Factors

Outlook: What Lies Ahead

The forward outlook for Nexome Capital Markets remains clouded by structural challenges that appear unlikely to resolve in the near term. The company's merchant banking and securities trading business model has consistently failed to generate adequate returns on capital, and there are no clear catalysts visible that would fundamentally alter this trajectory. The recent quarter's profit growth, whilst impressive on a year-on-year basis, stemmed largely from a low base and favourable other income rather than sustainable operational improvements.

The company's quality grade of "Below Average" and proprietary score of 43/100 reflect deep-seated operational challenges that typically require years to address. Without a clear strategic pivot, significant management changes, or entry into more profitable business segments, Nexome appears destined to remain a value-destroying entity that fails to justify its market capitalisation. The lack of institutional interest serves as a market validation of these concerns—sophisticated investors have evaluated and rejected the investment opportunity.