Pacific Industries Q2 FY26: Profitability Collapses Amid Sharp Revenue Decline

The stock has been under severe pressure, declining 42.04% over the past year and trading at ₹166.80 as of November 18, 2025, down 5.76% on the day. The company's struggles reflect a combination of revenue headwinds, margin compression, and deteriorating operational efficiency. With the stock now trading 51.50% below its 52-week high of ₹343.95, investors are questioning whether Pacific Industries can regain its footing in the challenging diversified consumer products sector.

The company's performance in the first half of FY2026 paints a concerning picture, with net sales declining to ₹89.25 crores from ₹121.62 crores in H1 FY25, representing a contraction of 26.63%. More alarmingly, net profit for H1 FY26 stood at just ₹1.26 crores, down 68.66% from ₹4.02 crores in the corresponding period last year.

Financial Performance: Revenue Collapse Triggers Profitability Crisis

Pacific Industries' Q2 FY26 results reveal a company in deep distress. Net sales of ₹39.59 crores marked the lowest quarterly revenue in recent history, declining 20.28% quarter-on-quarter from ₹49.66 crores in Q1 FY26 and plunging 36.69% year-on-year from ₹62.53 crores in Q2 FY25. This sharp revenue contraction suggests severe demand challenges in the granite and quartz products market, potentially driven by slowdown in construction activity or loss of market share to competitors.

Operating profit before depreciation, interest, tax, and other income (PBDIT excl OI) stood at ₹1.80 crores in Q2 FY26, the lowest in the trailing seven quarters, representing an operating margin of just 4.55%. While this marked a marginal improvement from the 3.04% margin in Q2 FY25, it remained well below the company's historical performance. The gross profit margin contracted to 7.00% from 8.59% year-on-year, indicating either pricing pressure or unfavourable product mix shifts.

The PAT margin compression to 0.83% from 3.66% in Q2 FY25 highlights the severity of the profitability crisis. Net profit of ₹0.33 crores translates to an earnings per share (EPS) of just ₹0.48 for the quarter, the lowest in recent periods. The company's ability to generate meaningful returns for shareholders has been severely compromised, with the profit decline far outpacing the revenue contraction.

Employee costs remained relatively stable at ₹2.73 crores in Q2 FY26 compared to ₹3.39 crores in Q2 FY25, suggesting some cost control measures. However, the company's interest burden of ₹1.01 crores and depreciation charge of ₹2.41 crores consumed a significant portion of the operating profit, leaving little room for bottom-line profitability. The tax rate of 8.33% in Q2 FY26, while low, reflects the minimal profit before tax of ₹0.36 crores.

The Other Income Dependency: A Red Flag for Sustainability

A critical concern emerging from Pacific Industries' Q2 FY26 results is the company's heavy reliance on other income to prop up profitability. Other income of ₹1.98 crores in the quarter represented a staggering 550% of profit before tax (PBT) of ₹0.36 crores. This means that without other income—which typically includes investment income, foreign exchange gains, or one-time items—the company would have reported an operating loss at the PBT level.

This pattern is not new for Pacific Industries. In Q2 FY25, other income of ₹4.83 crores represented 164% of PBT, whilst in Q1 FY26, other income of ₹1.38 crores accounted for 108% of PBT. The consistent pattern of other income exceeding or approaching PBT suggests that the company's core granite and quartz manufacturing business is struggling to generate sustainable operating profits.

For the full year FY2025, other income of ₹16 crores on net sales of ₹190 crores represented 8.4% of revenue—an unusually high proportion that raises questions about the nature and sustainability of these income streams. Investors should be cautious about valuing the company based on reported net profit figures that are heavily dependent on non-operating income, as such earnings may not be recurring or predictable.

Balance Sheet Quality: Debt Concerns Amid Weak Cash Generation

Pacific Industries' balance sheet reveals a company with modest leverage but deteriorating cash flow generation. As of March 2025, the company had shareholder funds of ₹441.63 crores, comprising share capital of ₹6.89 crores and reserves of ₹434.74 crores. Long-term debt stood at ₹18.83 crores, up from ₹12.21 crores in March 2024, indicating increased borrowing despite weak operational performance.

The company's Return on Equity (ROE) averaged just 2.66% over recent periods, with the latest ROE at a dismal 1.73%. This indicates extremely poor capital efficiency, with the company generating minimal returns on shareholder equity. For context, an ROE below 10% is generally considered weak, and Pacific Industries' sub-3% ROE suggests the company is destroying shareholder value rather than creating it. The Return on Capital Employed (ROCE) averaged 1.05%, with the latest ROCE at just 0.68%, further confirming the company's inability to generate adequate returns on invested capital.

The company's cash flow statement for FY2025 shows concerning trends. Cash flow from operations was nil, compared to ₹36 crores in FY2024, indicating a sharp deterioration in the company's ability to convert profits into cash. Changes in working capital consumed ₹13 crores in FY2025, suggesting inefficient management of receivables, inventory, or payables. The company's investments increased to ₹125.56 crores in March 2025 from ₹67 crores in March 2024, though the nature and returns on these investments remain unclear.

Current liabilities increased to ₹120.26 crores in March 2025 from ₹99.98 crores in March 2024, with trade payables rising to ₹53.49 crores from ₹49.37 crores. Whilst the company maintains a positive net debt to equity ratio of -0.09 (indicating net cash position after accounting for investments), the weak cash generation from operations raises concerns about the sustainability of this position if operational performance does not improve.

Industry Context: Underperforming the Diversified Consumer Products Sector

Pacific Industries operates in the diversified consumer products sector, specifically focusing on granite tiles, slabs, and quartz products for the construction and interior design markets. The company's performance in Q2 FY26 stands in stark contrast to the broader sector dynamics, with Pacific Industries underperforming both its peers and the overall market significantly.

Over the past year, Pacific Industries' stock has declined 42.04%, whilst the diversified consumer products sector has declined just 0.29%, resulting in an underperformance of 41.75 percentage points. This suggests company-specific challenges rather than sector-wide headwinds. The granite and quartz products market is highly competitive, with players competing on quality, design, pricing, and distribution reach. Pacific Industries' revenue decline of 36.69% year-on-year in Q2 FY26 indicates the company is losing market share or facing product-specific demand challenges.

The peer comparison reveals Pacific Industries trading at a P/E ratio of 17.81x, which appears reasonable compared to peers like Tokyo Plast International (90.23x) and Regency Ceramics (87.37x). However, the company's P/BV ratio of 0.28x—significantly below book value—reflects market scepticism about the company's ability to generate adequate returns on its assets. With an ROE of just 2.66%, Pacific Industries ranks among the weakest performers in its peer group, with only Regency Ceramics (0.0%) and Zenith Exports (0.73%) posting lower ROE figures.

The company's market capitalisation of ₹114.97 crores positions it as a micro-cap player, ranking fourth among its peer group. This small size limits the company's ability to achieve economies of scale, invest in brand building, or weather prolonged downturns. The granite and quartz products market requires significant working capital for inventory and receivables management, and Pacific Industries' weak cash generation raises questions about its ability to compete effectively against larger, better-capitalised peers.

Valuation Analysis: Attractive Multiples Mask Fundamental Weakness

At the current price of ₹166.80, Pacific Industries trades at seemingly attractive valuation multiples. The P/E ratio of 17.81x compares favourably to the industry average P/E of 9x, though this premium appears unjustified given the company's weak fundamentals. More tellingly, the stock trades at just 0.28x book value, a steep 72% discount to book value of ₹241.25 per share, reflecting deep market scepticism about the company's ability to generate returns on its equity.

The company's enterprise value to EBITDA multiple of 6.79x appears reasonable, but the EV to EBIT multiple of 36.15x highlights the impact of high depreciation charges on profitability. The EV to sales ratio of 0.35x suggests the market is valuing the company at just 35% of its annual revenue, indicating expectations of continued weak margins and profitability.

The stock's valuation grade of "Very Attractive" must be viewed with extreme caution. Whilst the low P/BV ratio and reasonable P/E multiple might appear to offer value, these metrics reflect the market's accurate assessment of the company's poor fundamental quality. The 52-week price decline of 51.50% from ₹343.95 to the current ₹166.80 demonstrates that investors have been consistently de-rating the stock as operational performance has deteriorated.

The company's proprietary Mojo Score of just 17 out of 100, with a "Strong Sell" rating, reflects the combination of weak quality (Below Average grade), negative financial trend, bearish technical trend, and deteriorating fundamentals. Whilst the valuation appears attractive on surface metrics, the underlying business quality does not support even these depressed valuations, creating a classic "value trap" scenario where low multiples mask fundamental deterioration rather than representing genuine opportunity.

Shareholding Pattern: Stable Promoter Holdings Amid Institutional Apathy

Pacific Industries' shareholding pattern reveals a stable ownership structure dominated by promoters, but with minimal institutional participation—a red flag for micro-cap companies seeking credibility and liquidity. Promoter holding has remained steady at 71.60% across the last five quarters, with no change in sequential holdings. This stability suggests promoter confidence in the business, though it could also indicate limited exit options given the company's poor performance and low trading volumes.

The near-complete absence of institutional investors is particularly concerning. Foreign Institutional Investors (FIIs) hold 0.00%, whilst mutual funds hold a negligible 0.02% stake, with just four mutual fund schemes invested. Insurance companies have zero exposure, and other domestic institutional investors (DIIs) hold a minimal 0.05%. Total institutional holding stands at a paltry 0.07%, indicating that professional investors have largely shunned the stock.

This institutional apathy is telling. Institutional investors typically conduct thorough due diligence and have access to management, and their absence suggests they view the company's prospects unfavourably. The 28.33% non-institutional holding represents primarily retail investors, who may lack the resources or expertise to properly evaluate the company's deteriorating fundamentals. Positively, there is no promoter pledging, eliminating one potential risk factor, though this provides little comfort given the operational challenges.

Stock Performance: Severe Underperformance Across All Timeframes

Pacific Industries' stock performance has been abysmal across virtually all timeframes, with the stock underperforming both the Sensex and its sector peers by wide margins. The stock currently trades at ₹166.80, down 5.76% on November 18, 2025, and has declined 42.04% over the past year compared to the Sensex's 9.74% gain, resulting in a negative alpha of 51.78 percentage points.

The year-to-date decline of 46.01% against the Sensex's 8.62% gain represents a negative alpha of 54.63 percentage points, highlighting the severity of the underperformance. Over three years, the stock has declined 33.43% whilst the Sensex has gained 37.64%, resulting in a negative alpha of 71.07 percentage points. The stock's beta of 1.50 indicates it is 50% more volatile than the market, amplifying losses during downturns whilst providing little upside during market rallies.

From a technical perspective, the stock is in a confirmed bearish trend, trading below all key moving averages. The stock is below its 5-day MA (₹178.10), 20-day MA (₹180.71), 50-day MA (₹184.70), 100-day MA (₹197.70), and 200-day MA (₹208.45). Technical indicators across weekly and monthly timeframes show bearish signals, with MACD bearish on both timeframes, Bollinger Bands indicating bearish momentum, and moving averages in bearish alignment.

The stock's risk-adjusted return over the past year stands at -0.85, with volatility of 49.18%—four times higher than the Sensex's 12.26% volatility. This places Pacific Industries in the "High Risk Low Return" category, the worst possible combination for investors. The stock's 52-week low of ₹160.00, reached recently, represents immediate support, though given the deteriorating fundamentals, further downside cannot be ruled out.

Investment Thesis: Multiple Red Flags Justify Cautious Stance

Pacific Industries' investment thesis is severely challenged by a confluence of negative factors across valuation, quality, financial trends, and technical indicators. The company's Mojo Score of 17 out of 100 with a "Strong Sell" rating reflects the comprehensive weakness across all key parameters that investors typically evaluate.

The "Very Attractive" valuation grade, whilst superficially positive, masks the reality that the company is trading at low multiples for good reason—its fundamental quality is poor and deteriorating. The Below Average quality grade reflects weak ROE of 2.66%, weak ROCE of 1.05%, high debt to EBITDA of 9.42x, and minimal institutional participation. The negative financial trend, confirmed for Q2 FY26, highlights declining revenues, contracting margins, and collapsing profitability.

Outlook: What to Watch for Signs of Recovery or Further Deterioration

For Pacific Industries to stage a meaningful recovery, several critical factors would need to improve substantially. Investors and analysts should monitor these key catalysts and red flags to gauge whether the company can reverse its downward trajectory or whether further deterioration lies ahead.

The outlook for Q3 FY26 and beyond remains highly uncertain. The granite and quartz products market is cyclical and dependent on construction activity, real estate demand, and consumer spending on home improvement. If the broader economic environment remains challenging or if Pacific Industries continues to lose market share, further deterioration in financial performance is likely. The company's weak competitive position, minimal institutional support, and poor track record of capital allocation suggest that a turnaround, whilst possible, faces significant headwinds.

Investors should demand clear evidence of operational improvement—specifically, sustained revenue growth, margin expansion from core operations (not other income), and positive cash flow generation—before considering any investment in Pacific Industries. The current financial trajectory, if continued, could lead to further value destruction and potentially raise questions about the company's long-term viability in an increasingly competitive market.