The quarter's results paint a troubling picture for the diversified consumer products company. Revenue contraction of 20.28% sequentially and 36.69% year-on-year signals significant demand headwinds in the granite and quartz segments. Operating profit excluding other income collapsed to ₹1.80 crores from ₹3.35 crores in the previous quarter, reflecting severe margin compression. The company's PAT margin shrunk to a mere 0.83%, down from 1.87% in Q1 FY26, highlighting deteriorating profitability across the board.
With the stock down 40.62% over the past year and trading at ₹154.40—44.44% below its 52-week high of ₹277.90—investor sentiment remains decidedly bearish. The company's proprietary Mojo Score stands at a dismal 17 out of 100, firmly in "Strong Sell" territory, underscoring the confluence of weak fundamentals, negative financial trends, and bearish technical indicators.
Financial Performance: A Quarter of Severe Contraction
Pacific Industries' Q2 FY26 financial performance reveals deep-seated operational challenges. Net sales of ₹39.59 crores marked a sharp 20.28% sequential decline from ₹49.66 crores in Q1 FY26 and a concerning 36.69% year-on-year drop from ₹62.53 crores. This represents the weakest quarterly revenue performance in recent periods, raising questions about demand sustainability in the company's core granite and quartz manufacturing business.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Sep'25 | 39.59 | -20.28% | 0.33 | -64.52% | 4.55% | 0.83% |
| Jun'25 | 49.66 | -16.69% | 0.93 | -59.74% | 6.75% | 1.87% |
| Mar'25 | 59.61 | -5.71% | 2.31 | +75.00% | 5.70% | 3.88% |
| Dec'24 | 63.22 | +1.10% | 1.32 | -42.36% | 5.36% | 2.09% |
| Sep'24 | 62.53 | +5.82% | 2.29 | +32.37% | 3.04% | 3.66% |
| Jun'24 | 59.09 | -0.77% | 1.73 | -63.35% | 6.94% | 2.93% |
| Mar'24 | 59.55 | — | 4.72 | — | 8.97% | 7.93% |
The margin story is equally distressing. Operating profit excluding other income plummeted to ₹1.80 crores, yielding a margin of just 4.55%—down sharply from 6.75% in Q1 FY26 and significantly below the 8.97% achieved in Mar'24. This 220-basis-point sequential contraction reflects a combination of revenue deleverage and potential cost pressures. Gross profit margin declined to 7.00% from 7.37% in the previous quarter, suggesting pricing pressure or unfavourable product mix shifts.
Net profit of ₹0.33 crores translated to a wafer-thin PAT margin of 0.83%, down from 1.87% in Q1 FY26 and a stark contrast to the 7.93% margin achieved in Mar'24. The sequential profit decline of 64.52% far exceeded the 20.28% revenue drop, indicating significant operating deleverage. On a half-yearly basis (H1 FY26), the company reported combined net profit of just ₹1.26 crores on revenues of ₹89.25 crores, representing a 47.29% decline compared to H1 FY25.
Operational Challenges: Weak Returns Signal Structural Issues
The company's operational metrics reveal fundamental profitability challenges that extend beyond cyclical headwinds. Pacific Industries' average Return on Equity (ROE) stands at a meagre 2.34%, significantly below industry standards and reflecting poor capital efficiency. The latest ROE of 1.10% is even more concerning, indicating that the company is generating barely any returns for shareholders on their invested capital.
Average Return on Capital Employed (ROCE) of 1.12% paints an equally bleak picture, with the latest ROCE declining to just 0.57%. These anaemic returns suggest that the company struggles to generate adequate profits from its asset base, raising questions about competitive positioning and operational effectiveness. For context, healthy manufacturing businesses typically target ROE above 15% and ROCE above 12%.
Critical Concern: Profitability Crisis
Weak Capital Returns: With ROE at 2.34% and ROCE at 1.12%, Pacific Industries generates minimal returns on invested capital. The latest quarter's ROE of 1.10% and ROCE of 0.57% indicate deteriorating capital efficiency. These levels are far below acceptable thresholds and signal fundamental operational challenges in the granite and quartz manufacturing business.
Margin Compression: Operating margins have contracted from 8.97% in Mar'24 to just 4.55% in Q2 FY26, whilst PAT margins collapsed from 7.93% to 0.83% over the same period. This severe margin erosion reflects pricing pressure, cost inflation, or operational inefficiencies that management has failed to address effectively.
The balance sheet shows mixed signals. On the positive side, shareholder funds have grown to ₹441.63 crores as of Mar'25 from ₹433.66 crores in Mar'24, reflecting retained earnings accumulation. The company maintains a net cash position with average net debt to equity of -0.14, indicating zero net debt. However, the average debt to EBITDA ratio of 9.37 times appears elevated, suggesting that whilst the company has cash, its operating profit generation relative to any debt is weak.
Working capital management appears stressed, with cash flow from operations dropping to zero in FY25 from ₹36.00 crores in FY24. Changes in working capital absorbed ₹13.00 crores in FY25 compared to releasing ₹18.00 crores in FY24, indicating potential inventory build-up or receivables collection challenges. The company's EBIT to interest coverage ratio averaged just 1.06 times, leaving minimal cushion for debt servicing despite the overall low leverage.
Industry Context: Underperformance in Diversified Consumer Products
Pacific Industries operates in the diversified consumer products sector, specifically focused on granite tiles, slabs, and quartz products. The company was established in 1989 near Udaipur as a 100% Export Oriented Unit (EOU) in collaboration with SIGEP, Italy, with an installed capacity of 1.2 lakh square metres per annum of polished granite slabs. The business model encompasses export, manufacturing, and trading activities in granite and quartz products.
The company's stock performance has significantly lagged its sector. Over the past year, Pacific Industries declined 40.62% whilst the Diversified Consumer Products sector delivered positive returns of 17.51%, resulting in a massive underperformance of 58.13 percentage points. This stark divergence suggests company-specific challenges rather than sector-wide headwinds.
The stock's high beta of 1.50 indicates greater volatility than the broader market, amplifying both gains and losses. With a volatility of 50.01% over the past year, Pacific Industries exhibits significantly higher risk than the Sensex's 11.53% volatility. The risk-adjusted return of -0.81 over one year reflects poor performance even after accounting for the elevated risk profile.
Sector Positioning: Lagging Peers
Pacific Industries has dramatically underperformed its sector, declining 40.62% over the past year whilst the Diversified Consumer Products sector gained 17.51%. This 58.13 percentage point underperformance signals deep-seated company-specific issues. The stock's 50.01% volatility—more than four times the Sensex's 11.53%—reflects heightened uncertainty around the business outlook. Investors have clearly lost confidence in management's ability to navigate operational challenges.
Peer Comparison: Valuation Discount Reflects Quality Concerns
Comparing Pacific Industries to its diversified consumer products peers reveals why the market has assigned such a steep valuation discount. Whilst the company trades at a P/E ratio of 21.76x—seemingly reasonable—this multiple appears elevated when considered against its weak 2.34% ROE and deteriorating profitability trends.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Market Cap (₹ Cr) |
|---|---|---|---|---|---|
| Pacific Industries | 21.76 | 0.24 | 2.34% | -0.14 | 103 |
| Manoj Ceramic | 11.43 | 1.17 | 16.92% | 0.45 | — |
| Tokyo Plast Intl | 88.80 | 1.53 | 0.96% | 0.58 | — |
| COSCO (India) | NA (Loss Making) | 1.91 | 4.70% | 1.28 | — |
| Super Tannery | 9.62 | 0.69 | 6.59% | 0.49 | — |
The most glaring difference lies in profitability. Manoj Ceramic, a comparable player, generates ROE of 16.92%—more than seven times Pacific Industries' 2.34%. Super Tannery achieves 6.59% ROE—nearly three times higher. Even COSCO (India), despite being loss-making on a trailing basis, shows better operational metrics with 4.70% ROE. This profitability gap explains Pacific Industries' rock-bottom Price-to-Book ratio of 0.24x, the lowest among peers.
The 0.24x P/BV multiple implies the market values Pacific Industries at just 24% of its book value, reflecting severe scepticism about the company's ability to generate adequate returns on its ₹441.63 crores of shareholder funds. This deep discount to book value—whilst appearing optically cheap—actually signals a value trap where low multiples reflect justified concerns about capital destruction rather than genuine undervaluation.
Pacific Industries does maintain one advantage over peers: its net cash position (debt-to-equity of -0.14) provides financial flexibility. However, this balance sheet strength has failed to translate into operational performance or investor confidence. The company's 5-year sales CAGR of 14.59% and EBIT CAGR of 29.70% suggest historical growth, but recent quarterly trends indicate this momentum has stalled dramatically.
Valuation Analysis: Value Trap Rather Than Value Opportunity
Pacific Industries' valuation metrics present a classic value trap scenario—superficially cheap multiples that mask deteriorating fundamentals. At a P/E ratio of 21.76x, the stock trades at a significant premium to peers like Manoj Ceramic (11.43x) and Super Tannery (9.62x), despite generating far weaker returns. The industry average P/E of 10x suggests Pacific Industries trades at more than double the sector multiple, an unjustifiable premium given its operational challenges.
The Price-to-Book ratio of 0.24x appears extraordinarily cheap, trading at just 24% of book value per share of ₹249.34. However, this discount reflects rational market assessment of the company's inability to generate adequate returns on equity. With ROE of just 2.34%, the company destroys shareholder value—each rupee of book value generates only 2.34 paise of annual profit, well below the cost of capital.
The EV/EBITDA multiple of 3.83x and EV/Sales of 0.22x appear attractive on the surface, but these metrics must be viewed in context of sharply declining profitability. EBITDA has contracted significantly in recent quarters, making historical multiples less relevant. The EV/EBIT ratio of 20.87x is elevated, reflecting the company's weak operating profit generation.
The valuation grade has fluctuated between "Very Attractive" and "Fair" over recent months, currently sitting at "Very Attractive." However, this assessment appears driven by mechanical multiple compression rather than improved fundamentals. The stock's 44.44% decline from its 52-week high of ₹277.90 to the current ₹154.40 has created valuation optically cheap metrics, but the underlying business quality has deteriorated in parallel.
Shareholding Pattern: Stable Promoter Base, Minimal Institutional Interest
Pacific Industries' shareholding pattern reveals stable promoter commitment but negligible institutional participation, a telling sign of limited confidence from sophisticated investors. Promoter holding has remained rock-solid at 71.60% across the last five quarters, with zero change in stake. This unwavering commitment provides some comfort regarding long-term alignment, though it also means minimal float for public investors.
| Quarter | Promoter % | FII % | Mutual Fund % | Insurance % | Other DII % | Non-Institutional % |
|---|---|---|---|---|---|---|
| Dec'25 | 71.60% | 0.00% | 0.02% | 0.00% | 0.05% | 28.33% |
| Sep'25 | 71.60% | 0.00% | 0.02% | 0.00% | 0.05% | 28.33% |
| Jun'25 | 71.60% | 0.00% | 0.02% | 0.00% | 0.05% | 28.33% |
| Mar'25 | 71.60% | 0.00% | 0.02% | 0.00% | 0.05% | 28.33% |
| Dec'24 | 71.60% | 0.00% | 0.02% | 0.00% | 0.05% | 28.33% |
The concerning aspect is the near-total absence of institutional investors. Foreign Institutional Investors (FIIs) hold 0.00%, whilst Mutual Funds own a minuscule 0.02% stake. Insurance companies have zero exposure, and other Domestic Institutional Investors (DIIs) hold just 0.05%. Total institutional holding of merely 0.07% signals that professional money managers see limited merit in the investment case.
This institutional void is particularly telling for a company with a ₹103 crore market capitalisation. Whilst micro-cap stocks naturally attract less institutional attention, the complete absence suggests active avoidance rather than passive neglect. The promoter group is led by Geeta Devi Agarwal (14.52%), Grandlife Healthcare Pvt Ltd (11.60%), and Rahul Marbles Private Limited (11.40%), with no promoter pledging—a positive indicator of financial health at the ownership level.
The 28.33% non-institutional holding has remained static, indicating neither retail accumulation nor distribution. This stagnant float suggests a lack of trading interest and limited liquidity, which can amplify volatility in either direction. The absence of institutional buying despite the stock's 40.62% one-year decline reinforces concerns about fundamental quality.
Stock Performance: Severe Underperformance Across All Timeframes
Pacific Industries' stock performance has been dismal across virtually every timeframe, with the company dramatically underperforming both the Sensex and its sector. Over the past year, the stock plummeted 40.62% whilst the Sensex gained 7.07%, resulting in a negative alpha of 47.69 percentage points. This massive underperformance reflects sustained investor pessimism about the company's prospects.
| Period | Pacific Industries Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | +8.01% | +0.32% | +7.69% |
| 1 Week | +9.66% | +1.59% | +8.07% |
| 1 Month | +3.76% | -1.74% | +5.50% |
| 3 Months | -12.27% | +0.32% | -12.59% |
| 6 Months | -26.63% | +3.77% | -30.40% |
| YTD | +3.80% | -1.92% | +5.72% |
| 1 Year | -40.62% | +7.07% | -47.69% |
| 2 Years | -21.00% | +15.78% | -36.78% |
| 3 Years | -22.86% | +38.13% | -60.99% |
The recent bounce—up 8.01% on the results day and 9.66% over the past week—appears to be a technical rebound from oversold levels rather than a fundamental reversal. The stock remains deeply in negative territory over three months (-12.27%), six months (-26.63%), and one year (-40.62%). Even over longer periods, performance remains poor: down 21.00% over two years and down 22.86% over three years, both periods during which the Sensex posted strong double-digit gains.
The technical picture is unambiguously bearish. The stock trades below all major moving averages: 5-day MA (₹142.24), 20-day MA (₹144.95), 50-day MA (₹156.29), 100-day MA (₹169.50), and 200-day MA (₹190.49). This alignment of moving averages in descending order is a classic bearish signal indicating sustained downward momentum. The overall technical trend classification of "Bearish" has been in place since December 22, 2025.
Key technical indicators uniformly signal weakness. MACD shows bearish signals on both weekly and monthly timeframes, whilst KST (Know Sure Thing) also indicates bearish momentum across both periods. Bollinger Bands suggest "Mildly Bearish" conditions on both weekly and monthly charts. Only RSI provides a "Bullish" signal on the monthly timeframe, though this may simply reflect oversold conditions rather than genuine strength.
The stock's immediate support lies at ₹133.10 (the 52-week low), just 13.80% below current levels, providing minimal downside cushion. Resistance is layered at ₹144.95 (20-day MA), ₹156.29 (50-day MA), ₹169.50 (100-day MA), and ₹190.49 (200-day MA), with the 52-week high of ₹277.90 representing a distant target 80% above current levels.
Investment Thesis: Confluence of Negative Factors
Pacific Industries' investment case is undermined by a troubling confluence of weak fundamentals, deteriorating financial trends, bearish technical signals, and minimal institutional interest. The company's Mojo Score of 17 out of 100 places it firmly in "Strong Sell" territory, with the rating having deteriorated from "Sell" (score of 20) in May 2025 and "Hold" (score of 64) in August 2024.
The quality assessment of "Below Average" reflects the company's weak long-term financial performance, particularly the anaemic 2.34% average ROE. Whilst the company maintains zero net debt and has demonstrated 14.59% sales CAGR over five years, these positives are overwhelmed by deteriorating profitability. The financial trend classification of "Negative" as of December 2025 highlights worsening operational metrics, with quarterly net sales at their lowest levels and operating profit to interest coverage hitting multi-quarter lows.
The "Very Attractive" valuation grade appears misleading when considered against quality concerns. Yes, the stock trades at 0.24x book value and 3.83x EV/EBITDA, but these depressed multiples reflect rational market assessment of a business generating inadequate returns. This is a classic value trap where cheap valuations persist because the underlying business quality is poor, not because the market has temporarily mispriced a good company.
Key Strengths & Risk Factors
KEY STRENGTHS
- Zero Net Debt Position: Net debt-to-equity of -0.14 indicates the company is a net cash entity, providing financial flexibility and eliminating solvency concerns in the near term.
- Stable Promoter Holding: Consistent 71.60% promoter stake with zero pledging demonstrates ownership commitment and alignment with minority shareholders.
- Historical Growth Track Record: Five-year sales CAGR of 14.59% and EBIT CAGR of 29.70% show the company has delivered growth over the longer term, though momentum has stalled recently.
- Established Market Presence: Operating since 1989 with Export Oriented Unit status and Italian technical collaboration provides some competitive moat in granite and quartz manufacturing.
- Reasonable Tax Efficiency: Average tax ratio of 15.83% is below statutory rates, suggesting effective tax planning and utilisation of available incentives.
KEY CONCERNS
- Severe Profitability Weakness: ROE of 2.34% and ROCE of 1.12% are far below acceptable levels, indicating the business barely generates returns above the risk-free rate on invested capital.
- Sharp Revenue Contraction: Q2 FY26 sales of ₹39.59 crores declined 20.28% QoQ and 36.69% YoY, signalling significant demand headwinds or market share loss in core business segments.
- Collapsing Margins: Operating margin contracted from 8.97% to 4.55% and PAT margin from 7.93% to 0.83% over recent quarters, reflecting severe pricing pressure or cost inflation.
- Zero Institutional Interest: Total institutional holding of just 0.07% with no FII exposure indicates sophisticated investors see limited merit in the investment case.
- Negative Financial Trend: Company classified in "Negative" financial trend with multiple quarterly metrics at multi-period lows, including sales, PBDIT, and operating profit to interest coverage.
- Bearish Technical Setup: Stock trading below all moving averages with bearish MACD, KST, and Bollinger Band signals across weekly and monthly timeframes indicates sustained downward momentum.
- Massive Underperformance: One-year decline of 40.62% versus Sensex gain of 7.07% and sector gain of 17.51% reflects company-specific issues beyond market or sector trends.
Outlook: What Lies Ahead
POSITIVE CATALYSTS
- Sustained revenue stabilisation above ₹50 crores quarterly with positive sequential growth for at least two consecutive quarters
- Operating margin recovery above 7% with clear path to historical 8-9% levels through cost management or pricing power
- ROE improvement above 8% and ROCE above 10%, demonstrating enhanced capital efficiency and operational turnaround
- Institutional investor accumulation with mutual fund or FII stake rising above 1%, signalling professional investor confidence
- Successful new product launches or capacity expansion driving revenue diversification and margin enhancement
RED FLAGS TO MONITOR
- Further revenue decline below ₹35 crores quarterly or sustained negative QoQ growth for three consecutive quarters
- Operating margin falling below 4% or PAT margin turning negative, indicating fundamental business model stress
- ROE declining below 1% or ROCE turning negative, signalling capital destruction and potential asset impairment
- Promoter stake reduction or any pledging of shares, indicating potential financial stress at ownership level
- Working capital deterioration with operating cash flow remaining negative for multiple quarters
- Stock breaking below ₹133 (52-week low) with increased volumes, indicating potential capitulation and further downside
The outlook for Pacific Industries remains challenging in the near to medium term. The company faces significant headwinds in its core granite and quartz business, evidenced by the 36.69% year-on-year revenue decline in Q2 FY26. Without visible catalysts for demand recovery or margin expansion, the path to improved profitability appears unclear. Management's ability to arrest the revenue decline and restore margins to historical levels will be critical in determining whether the current distress represents a cyclical trough or structural deterioration.
The complete absence of institutional interest suggests sophisticated investors remain unconvinced about the turnaround story. For the investment case to improve materially, the company would need to demonstrate sustained operational improvement—specifically, revenue stabilisation, margin recovery above 7%, and ROE improvement toward double digits. Until such evidence emerges, the stock is likely to remain under pressure despite appearing optically cheap on valuation multiples.
The Verdict: Avoid This Value Trap
Score: 17/100
For Fresh Investors: Avoid initiating any position. The confluence of deteriorating fundamentals (85.59% YoY profit decline), weak capital returns (2.34% ROE), negative financial trends, and bearish technical setup presents an unattractive risk-reward profile. The 0.24x P/BV multiple appears cheap but reflects justified concerns about a business barely generating returns above the risk-free rate. Wait for sustained evidence of operational turnaround—specifically, revenue stabilisation, margin recovery above 7%, and ROE improvement toward double digits—before considering entry.
For Existing Holders: Consider exiting on any technical bounce toward ₹165-170 levels (50-day MA resistance). The company's Mojo Score of 17/100 in "Strong Sell" territory, combined with "Below Average" quality grade and "Negative" financial trend, suggests limited near-term upside potential. The 40.62% one-year decline may extend further if quarterly results continue deteriorating. Only investors with extremely high risk tolerance and multi-year investment horizons might consider holding through the downturn, but even then, opportunity cost considerations favour redeployment into higher-quality businesses.
Fair Value Estimate: ₹120-130 (22-18% downside from current levels), based on 0.20x P/BV multiple reflecting continued weak ROE and uncertain turnaround prospects. The 52-week low of ₹133.10 provides minimal downside cushion, suggesting further weakness is possible if operational metrics continue deteriorating.
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. The views expressed are based on information available as of the publication date and are subject to change.
