Pan Electronics Q2 FY26: Deepening Losses Signal Structural Crisis

The September 2025 quarter marks a dramatic reversal from the brief respite witnessed in Q1 FY26, when the company posted a modest operating profit of ₹0.25 crores. That fleeting improvement has evaporated, replaced by operational haemorrhaging that raises fundamental questions about the company's viability. With sales plummeting to just ₹0.40 crores—barely sufficient to cover employee costs of ₹0.19 crores—Pan Electronics finds itself trapped in a vicious cycle of inadequate scale, chronic losses, and evaporating operational efficiency.

Financial Performance: A Quarter of Catastrophic Decline

Pan Electronics' Q2 FY26 results reveal a company in freefall. Net sales collapsed to ₹0.40 crores from ₹1.96 crores in Q1 FY26, representing a devastating 79.59% quarter-on-quarter contraction. On a year-on-year basis, revenues declined 38.46% from ₹0.65 crores in Q2 FY25. This represents the lowest quarterly sales figure in the recent trailing period, signalling severe demand destruction or operational disruption.

Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) turned sharply negative at ₹-0.21 crores, compared to a positive ₹0.25 crores in the preceding quarter. The operating margin deteriorated by a catastrophic 65.26 percentage points quarter-on-quarter, from +12.76% to -52.5%. This margin collapse reflects not just revenue weakness but also a fundamental inability to control costs at reduced scale.

Depreciation charges surged to ₹0.54 crores in Q2 FY26, more than doubling from ₹0.26 crores in Q1 FY26. This spike—representing 135% of quarterly revenues—suggests either accelerated asset write-downs or the burden of underutilised capacity. Interest costs remained modest at ₹0.06 crores, but even this minimal financial expense proved insurmountable given the operational losses. The company paid zero taxes, consistent with its loss-making status across all recent quarters.

The profit after tax (PAT) margin stood at a horrific -202.5% in Q2 FY26, meaning the company lost more than twice its revenue during the quarter. This compares to a PAT margin of -3.06% in Q1 FY26 and -160.0% in Q2 FY25. The quality of earnings is non-existent—there are no earnings to speak of, only mounting losses that threaten the company's capital base.

Operational Challenges: Chronic Losses and Negative Returns

Pan Electronics' operational metrics paint a picture of a business fundamentally unable to generate positive returns on invested capital. The company's average return on capital employed (ROCE) over recent periods stands at a dismal -26.83%, whilst return on equity (ROE) is effectively zero. More alarmingly, the company's book value has turned negative, rendering traditional ROE calculations meaningless and signalling that cumulative losses have wiped out shareholders' equity.

The balance sheet reveals a company with negative net debt to equity of -1.36, which ordinarily would be a strength indicating net cash. However, with a negative book value, this metric loses its positive interpretation—the company may have minimal debt, but it also has no equity cushion. The debt-to-EBITDA ratio is classified as "Negative Net Debt," but with EBITDA itself deeply negative, this provides no comfort. The average EBIT-to-interest coverage ratio stands at zero, confirming the company cannot service even minimal interest obligations from operations.

Employee costs of ₹0.19 crores in Q2 FY26 consumed 47.5% of the quarter's meagre revenues, highlighting the challenge of maintaining even a skeleton workforce at such low sales volumes. The company's sales-to-capital-employed ratio averages zero, indicating negligible asset productivity. With operating margins consistently negative across most quarters, Pan Electronics exhibits all the hallmarks of a business trapped below minimum viable scale—unable to spread fixed costs across sufficient revenue to achieve profitability.

The 5-year sales growth of 47.03% and EBIT growth of 7.00% might appear encouraging in isolation, but these figures mask extreme volatility and the company's current trajectory towards operational collapse. The recent quarterly performance suggests any historical growth has stalled or reversed entirely.

Industry Context: Manufacturing Headwinds Amplified by Company-Specific Weakness

Pan Electronics operates in the industrial manufacturing sector, specifically producing metallised polypropylene and polyester films for capacitors—a niche segment serving the electronics and electrical equipment industries. Whilst the broader industrial manufacturing sector has delivered a 1-year return of 1.95%, Pan Electronics has underperformed catastrophically with a -43.74% return, lagging the sector by 45.69 percentage points.

The company's troubles appear primarily company-specific rather than sector-wide. Competitors in the peer group, whilst facing their own challenges, have not exhibited the same degree of operational distress. The collapse in quarterly sales from ₹1.96 crores to ₹0.40 crores suggests either a major customer loss, production disruption, or severe demand weakness specific to Pan Electronics' product mix. The lack of disclosure around order books, capacity utilisation, or customer concentration leaves investors in the dark about the root causes of this revenue implosion.

Peer Comparison: A Stark Underperformer

When benchmarked against industrial manufacturing peers, Pan Electronics' financial weakness becomes even more apparent. The company's ROE of 0.0% compares unfavourably to Quality RO Industries' 15.03% and Harish Textile's 13.90%. Its negative price-to-book ratio of -0.56x stands in contrast to profitable peers trading at positive multiples. The inability to generate a meaningful P/E ratio due to persistent losses further isolates Pan Electronics from any valuation comparison with healthier competitors.

The peer comparison reveals Pan Electronics as one of three loss-making entities in the group, alongside Lippi Systems and Benara Bearings. However, Pan Electronics' negative book value distinguishes it as facing the most severe financial distress. Profitable peers like Quality RO Industries and Harish Textile demonstrate that operational success is achievable in the sector, making Pan Electronics' struggles appear more company-specific than industry-wide.

Valuation Analysis: Distressed Asset Trading Below Liquidation Value

Traditional valuation frameworks collapse when applied to Pan Electronics. With persistent losses, the company trades at a P/E ratio classified as "NA (Loss Making)." The price-to-book ratio of -0.56x indicates the market values the company at just 56% of its negative book value—a mathematical oddity that reflects investors pricing in total equity wipeout with some residual value in tangible assets.

Enterprise value metrics are equally distorted. An EV/EBITDA of -52.43x and EV/EBIT of -38.83x result from negative denominators, rendering these multiples meaningless for comparative purposes. The EV/Sales ratio of 8.93x appears elevated, but given the company's inability to convert sales into profits, this metric provides little insight. The EV/Capital Employed ratio of 5.34x suggests the market values the business at over five times its capital base, which seems generous given the chronic value destruction.

The company's overall valuation grade of "RISKY" from Mojo's proprietary system understates the severity of the situation. With no dividends, no earnings, and negative equity, Pan Electronics offers no discernible investment value at current levels. The stock's 52-week range of ₹36.00 to ₹78.25 shows it has lost 51.00% from its peak, now trading just 6.50% above its 52-week low—a level that may yet prove optimistic if operational deterioration continues.

Shareholding Pattern: Promoter-Dominated with Zero Institutional Interest

Pan Electronics' shareholding structure reveals a company entirely shunned by institutional investors. Promoters hold a commanding 70.67% stake, unchanged across the last five quarters, demonstrating unwavering control but also a lack of exit opportunities. Foreign institutional investors (FIIs), mutual funds, and insurance companies collectively hold 0.00%, whilst other domestic institutional investors maintain a token 0.08% position.

The complete absence of institutional participation speaks volumes about professional investors' assessment of Pan Electronics' prospects. No mutual funds, no FIIs, and negligible insurance or DII holdings indicate unanimous rejection by sophisticated capital allocators. The 29.25% public float, entirely unchanged for five quarters, suggests minimal trading activity and a shareholder base locked in losses with no viable exit.

Positively, there is zero promoter pledging, indicating promoters have not leveraged their holdings for borrowing—though this may reflect banks' unwillingness to accept the shares as collateral rather than promoter confidence. The static shareholding pattern across quarters suggests a frozen capital structure with no fresh capital inflows or strategic investor interest.

Stock Performance: Brutal Decline Across All Timeframes

Pan Electronics' stock performance reflects the company's operational distress with mathematical precision. Over the past year, the stock has plummeted 43.74%, underperforming the Sensex by a catastrophic 52.75 percentage points. The negative alpha is consistent across virtually all measured timeframes, indicating systematic value destruction regardless of market conditions.

The stock's technical profile has deteriorated sharply, with the current trend classified as "BEARISH" since January 2, 2026. Pan Electronics trades below all major moving averages—5-day (₹38.30), 20-day (₹39.64), 50-day (₹44.55), 100-day (₹50.50), and 200-day (₹54.52)—confirming sustained selling pressure. The MACD, RSI, Bollinger Bands, and KST indicators all flash bearish signals on both weekly and monthly timeframes.

With a beta of 1.50, Pan Electronics exhibits 50% higher volatility than the broader market, amplifying losses during downturns. The stock's volatility of 56.01% over the past year places it in the "HIGH RISK LOW RETURN" category—the worst possible quadrant for investors. The risk-adjusted return of -0.78 confirms that investors have been punished with losses far exceeding what the stock's risk profile might justify.

Investment Thesis: Multiple Red Flags Overwhelm Limited Positives

Pan Electronics' investment thesis, such as it exists, rests on three pillars: zero promoter pledging, minimal debt, and historical long-term sales growth of 47.03%. However, these positives are overwhelmed by a litany of structural concerns that render the company uninvestable at current fundamentals.

The company's quality grade of "Below Average" reflects weak long-term financial performance characterised by negative average ROCE of -26.83%, zero ROE, and negligible institutional ownership of just 0.08%. The financial trend is classified as "FLAT" for Q2 FY26, though this masks the quarter's catastrophic deterioration—the classification likely reflects the absence of sustained improvement rather than stability.

Mojo's proprietary scoring system assigns Pan Electronics an overall score of just 12 out of 100, firmly in "STRONG SELL" territory. This score has remained in the sell/strong sell range since April 2025, reflecting persistent fundamental weakness. The score breakdown reveals bearish technicals, flat financial performance, weak long-term fundamental strength due to negative book value, and a risky valuation profile.

Key Strengths & Risk Factors

Outlook: What to Watch

The outlook for Pan Electronics hinges entirely on management's ability to arrest the revenue collapse and restore positive operating margins. Without visibility into order books, customer pipelines, or capacity utilisation, investors must assume the worst-case scenario of continued deterioration. The company's survival depends on achieving scale sufficient to cover fixed costs—a threshold that appears increasingly distant given current trajectory.