Raj Oil Mills Q2 FY26: Modest Recovery Masks Deeper Structural Concerns

The company's recent financial trajectory shows improvement from deeply troubling historical performance. In Q2 FY26 (July-September 2025), Raj Oil Mills reported net sales of ₹40.24 crores and net profit of ₹1.53 crores—both representing record highs in available quarterly data. This marks a stark contrast to the losses recorded in earlier periods, including a devastating ₹11.65 crores loss in Q1 FY18 (June 2017) on sales of just ₹10.83 crores.

However, the company's historical data reveals a pattern of inconsistency that raises fundamental questions about business sustainability. The available financial records show significant volatility, with the company swinging between profitability and substantial losses. This erratic performance pattern, combined with a negative book value and weak return ratios, positions Raj Oil Mills as a high-risk proposition in the competitive edible oil sector.

Financial Performance: Fragile Recovery from Historical Losses

Raj Oil Mills' current financial performance must be viewed through the lens of its troubled history. The most recent quarter (Q2 FY26) represents the company's best performance in available records, with net sales reaching ₹40.24 crores and net profit of ₹1.53 crores, translating to a PAT margin of approximately 3.80%. The operating profit (PBDIT excluding other income) stood at ₹2.13 crores, marking the highest level recorded.

This performance contrasts sharply with historical data. In Q1 FY18 (June 2017), the company reported net sales of ₹10.83 crores with a catastrophic net loss of ₹11.65 crores—a PAT margin of negative 107.49%. The operating margin in that period was negative 17.44%, indicating severe operational inefficiencies. Even the preceding quarter (June 2016) showed losses of ₹2.67 crores on sales of ₹16.86 crores.

The annual data from December 2007 provides additional context. In FY07, the company generated sales of ₹239 crores with an operating margin of 13.40% and PAT margin of 7.50%, delivering net profit of ₹18 crores. This historical benchmark suggests the company once operated at significantly higher margins and scale, making the current performance—while improved—still far below past capabilities.

Operational Challenges: Structural Weaknesses Persist

The company's operational metrics reveal deep-seated structural challenges that recent improvements have not fully addressed. The most glaring issue is the negative book value, which occurs when a company's liabilities exceed its assets—a situation typically resulting from years of accumulated losses. This fundamental weakness manifests in the price-to-book ratio of negative 62.76x, an aberration that signals severe balance sheet impairment.

Capital efficiency metrics paint a concerning picture. The average ROCE of negative 5.35% indicates that historically, the company has destroyed value rather than created it. Whilst the latest ROCE of 5.51% shows improvement, it remains substantially below industry standards and peer performance. The average ROE is reported as 0.0%, reflecting the negative book value situation that makes traditional equity return calculations meaningless.

The company's debt position presents a mixed picture. With an average net debt-to-equity ratio of negative 12.23, Raj Oil Mills technically operates as a net cash company. However, this metric must be interpreted cautiously given the negative equity base. The debt-to-EBITDA ratio is classified as "Negative Net Debt," suggesting minimal borrowings, which at least eliminates leverage risk from the equation.

Growth metrics provide some optimism. The 5-year sales CAGR of 12.72% and 5-year EBIT CAGR of 16.47% suggest the company has expanded its top line and improved operational efficiency over the medium term. However, these growth rates must be viewed against the low base effect following the severe losses of 2017-2018.

Edible Oil Sector: Competitive Headwinds and Margin Pressures

Raj Oil Mills operates in India's highly competitive edible oil industry, characterised by thin margins, volatile raw material prices, and intense competition from both organised and unorganised players. The sector faces structural challenges including dependence on imported crude oils, fluctuating commodity prices, and price-sensitive consumer behaviour that limits pricing power.

The company's product portfolio includes sunflower oil, mustard oil, and groundnut oil—categories representing a large addressable market but also facing significant competition. The edible oil sector has witnessed consolidation, with larger players leveraging scale advantages to maintain margins whilst smaller players struggle with procurement costs and distribution reach.

Market dynamics have been particularly challenging in recent years. Global palm oil and soybean oil price fluctuations directly impact input costs, whilst government policies on import duties and minimum support prices for oilseeds add regulatory complexity. The sector's gross margins typically range between 8-15% for organised players, with net margins of 3-5% considered respectable—benchmarks that contextualise Raj Oil Mills' current 3.80% PAT margin as barely adequate.

Peer Comparison: Lagging on Key Metrics

Comparative analysis against edible oil sector peers reveals Raj Oil Mills' fundamental underperformance across critical metrics. The peer group includes Ajanta Soya, Vijay Solvex, M K Proteins, Ambar Protein, and Ambo Agritec—companies operating in similar product categories but demonstrating superior financial health.

The peer comparison reveals several critical disparities. Raj Oil Mills' ROE of 0.0% (due to negative book value) contrasts starkly with peers averaging 12-18% returns on equity. This fundamental gap indicates that competitors generate meaningful returns for shareholders whilst Raj Oil Mills has yet to establish consistent profitability that rebuilds equity capital.

The P/E ratio of 31.14x appears moderate relative to Ambo Agritec's 53.68x but significantly higher than Ajanta Soya's 10.73x or Vijay Solvex's 14.38x. Given Raj Oil Mills' inferior fundamentals and lack of track record, this valuation multiple appears unjustified. The negative P/BV ratio of 62.76x versus peers' positive ratios (ranging from 0.74x to 3.51x) underscores the balance sheet impairment that distinguishes Raj Oil Mills unfavourably.

Market capitalisation rankings place Raj Oil Mills fifth amongst the peer group at ₹150 crores, reflecting limited institutional interest and market scepticism about the company's turnaround prospects. The absence of any FII, mutual fund, or insurance company holdings (0.00% institutional ownership) further evidences professional investors' avoidance of this high-risk situation.

Valuation Analysis: Risk Outweighs Recent Recovery

Raj Oil Mills' valuation metrics present a paradox—the stock trades at seemingly moderate multiples despite fundamental weaknesses that would typically command significant discounts. The P/E ratio of 31.14x is elevated considering the company's lack of consistent profitability track record and structural challenges. For context, the edible oil industry P/E average of 41x reflects stronger, more established players with proven business models.

The EV/EBITDA multiple of 23.59x and EV/EBIT of 31.29x appear reasonable in isolation but fail to account for earnings quality concerns. These multiples assume sustainability of recent profitability—an assumption not yet validated by sufficient historical evidence. The EV/Sales ratio of 1.44x suggests the market values the company at approximately 1.4 times annual revenue, a premium that seems generous given operational risks.

The proprietary Mojo Score of 44 out of 100 places Raj Oil Mills firmly in "SELL" territory (score range 30-50). This quantitative assessment incorporates valuation, quality, financial trends, and technical factors. The overall valuation grade of "RISKY" reflects the fundamental uncertainties surrounding the business, with the grading system having fluctuated between "Risky" and "Does Not Qualify" over the past three years—indicating persistent concerns about investment suitability.

Historical valuation context is limited by data availability, but the stock's 52-week range of ₹36.36 to ₹73.89 shows significant volatility. Currently trading at ₹51.10, the stock sits 30.84% below its 52-week high and 40.54% above its 52-week low—a mid-range position that offers neither compelling value nor momentum support.

Shareholding Pattern: Stable but Uninspiring

The shareholding structure of Raj Oil Mills has remained remarkably static over recent quarters, reflecting neither conviction buying nor significant selling pressure. Promoter holding has stayed constant at 75.00% across the last five quarters from September 2024 through September 2025, with zero sequential change in any period. This stability provides some comfort regarding management commitment but also raises questions about promoters' ability or willingness to infuse additional capital to strengthen the balance sheet.

The complete absence of institutional investors—zero FII, mutual fund, insurance company, or other DII holdings—represents a significant red flag. Professional investors conduct rigorous due diligence and typically avoid companies with fundamental weaknesses, governance concerns, or uncertain business prospects. The 0.00% institutional holding across all categories signals that sophisticated market participants have found insufficient merit to establish positions.

The promoter group comprises several entities and individuals, with Mukhi Industries Limited holding the largest stake at 37.50%, followed by Rubberwala Housing Infrastructure Ltd at 10.01%. Individual promoters including Parvez Shafee Ahmed Shaikh, Humayun Ahmed Shafi Ahmed Shaikh, and Tabrez Shafiahmed Shaikh each hold 7.70%. Positively, there is zero promoter pledging, eliminating concerns about forced selling or financial distress amongst controlling shareholders.

The remaining 25.00% non-institutional holding represents retail and smaller investors, a base that has remained unchanged. This stability could indicate either patient long-term holders or alternatively, a lack of liquidity and trading interest. The absence of any meaningful institutional accumulation despite recent operational improvements suggests professional investors remain unconvinced about the sustainability of the turnaround.

Stock Performance: Underperformance Across Timeframes

Raj Oil Mills' stock performance reveals a pattern of significant underperformance relative to both benchmark indices and sector peers across most meaningful timeframes. The recent 1-day gain of 1.25% following results announcement reflects modest positive reaction, but broader performance metrics paint a concerning picture of investor scepticism and value destruction.

The 1-year return of 1.98% significantly underperforms the Sensex's 4.62% gain, generating negative alpha of 2.64%. More alarmingly, the stock has delivered negative 1.73% YTD return against the Sensex's positive 6.50%, representing 8.23 percentage points of underperformance. This pattern extends across longer timeframes, with the 2-year return of 7.87% lagging the Sensex's 28.14% by over 20 percentage points, and the 3-year return showing an absolute loss of 12.57% against the Sensex's 36.01% gain.

Sector comparison reveals even more dramatic underperformance. The edible oil sector has delivered 166.57% returns over the past year, whilst Raj Oil Mills managed just 1.98%—an underperformance of 164.59 percentage points. This massive gap indicates that whilst the broader edible oil sector has benefited from favourable market conditions and investor interest, Raj Oil Mills has failed to participate in the rally due to company-specific concerns.

Recent shorter-term performance shows mixed signals. The 3-month return of 7.83% and 6-month return of 14.04% both generated positive alpha against the Sensex, suggesting some tactical buying interest. However, the 1-month decline of 9.86% against the Sensex's 1.57% gain indicates this momentum has not sustained, with the stock giving back recent gains.

Investment Thesis: Multiple Red Flags Outweigh Recovery Signs

The investment case for Raj Oil Mills rests on a precarious foundation of recent operational improvements set against a backdrop of fundamental weaknesses and structural concerns. The proprietary Mojo assessment framework evaluates four critical dimensions, revealing a company that fails to meet acceptable standards on multiple fronts.

The valuation grade of "RISKY" reflects multiple concerns including negative book value, weak return ratios, and unproven earnings sustainability. The quality grade of "BELOW AVERAGE" incorporates the company's inconsistent operational history, absence of institutional holdings, and inferior metrics relative to peers. These two critical dimensions—valuation and quality—both flash warning signals that should give investors pause.

The financial trend assessment of "POSITIVE" acknowledges recent improvements, with Q2 FY26 representing record highs for revenue and profitability. The technical trend of "MILDLY BULLISH" suggests short-term price support, though the recent change from "Mildly Bearish" on October 31, 2025 indicates fragile momentum. These positive near-term indicators, however, are insufficient to overcome the fundamental weaknesses embedded in the business.

The overall Mojo Score of 44 out of 100 firmly places the stock in "SELL" territory, with the scoring methodology explicitly recommending investors "consider selling" and "look for exit opportunities." This quantitative assessment aligns with qualitative analysis of the company's risk profile and limited upside potential given current valuations.

Key Strengths & Risk Factors

Outlook: Critical Monitoring Points