Raj Oil Mills Q3 FY26: Profitability Concerns Deepen as Losses Mount Despite Revenue Growth

The company's recent financial trajectory presents a paradox: whilst revenue has demonstrated encouraging growth momentum with the latest six-month sales reaching ₹76.14 crores—representing a 24.74% increase—the underlying operational performance remains deeply concerning. The quarterly operating profit margin for Q3 FY26 hit its lowest point at just 4.60%, with PBDIT dropping to ₹1.65 crores, signalling persistent cost pressures and operational inefficiencies that continue to erode profitability.

Raj Oil Mills operates in the highly competitive edible oil sector, producing a diverse portfolio including sunflower oil, mustard oil, and groundnut oil. Originally established as a partnership firm in 1943 and subsequently incorporated in October 2001, the company was promoted by Shaukat S. Tharadra and acquired its running business in 2002. With an equity capital base of ₹29.98 crores and 3 crore shares outstanding, the company maintains a stable promoter holding of 75.00% with zero pledging—one of the few positive indicators in an otherwise challenging fundamental picture.

Financial Performance: Revenue Growth Masks Profitability Struggles

Analysing the available historical data reveals a company that has struggled consistently with profitability. In Q2 FY18 (June 2017), Raj Oil Mills reported net sales of ₹10.83 crores but posted a staggering net loss of ₹11.65 crores, translating to a catastrophic PAT margin of -107.49%. The operating margin stood at -17.44%, indicating fundamental operational challenges. Compared to the previous quarter (June 2016), when sales were higher at ₹16.86 crores but losses more contained at ₹2.67 crores, the June 2017 quarter showed a sequential revenue decline of 35.77% alongside a dramatic 336.33% increase in net losses.

Looking at the annual performance for FY2008 (December 2007), the company demonstrated significantly better operational health with net sales of ₹239.00 crores and a net profit of ₹18.00 crores, yielding a respectable PAT margin of 7.5% and operating margin of 13.4%. This historical snapshot suggests the company once operated profitably, making the subsequent deterioration all the more concerning for long-term investors.

More recently, the nine-month FY26 performance shows a return to profitability with PAT of ₹4.16 crores, whilst the latest six-month sales of ₹76.14 crores reflect robust 24.74% growth. However, the quarterly operating margin bottoming at 4.60% indicates that this revenue expansion has not translated into proportionate bottom-line improvement, suggesting significant cost inflation or pricing pressures within the edible oil value chain.

Operational Challenges: Capital Efficiency and Leverage Concerns

The company's operational metrics paint a troubling picture of capital efficiency and financial health. With an average return on equity (ROE) of 0.0% and an average return on capital employed (ROCE) of just 0.27%, Raj Oil Mills demonstrates extremely poor utilisation of shareholder capital and invested funds. These figures rank amongst the weakest in the edible oil sector and reflect fundamental operational inefficiencies that have persisted over multiple years.

The balance sheet reveals a highly leveraged capital structure with an average net debt to equity ratio of 29.68 times and a debt to EBITDA ratio of 7.73 times. This excessive leverage amplifies financial risk and constrains the company's ability to invest in growth initiatives or weather industry downturns. The average EBIT to interest coverage ratio stands at a concerning 0.0 times, indicating the company's operating profits are insufficient to comfortably service its debt obligations—a red flag for both equity and debt investors.

The five-year sales growth of 11.67% and EBIT growth of 16.67% suggest the company has achieved modest top-line expansion, but this growth has failed to translate into sustainable profitability or improved capital returns. The average sales to capital employed ratio of 0.0 times further underscores the inefficiency with which the company deploys its capital base, a structural weakness that requires fundamental operational restructuring to address.

Industry Context: Navigating a Competitive Edible Oil Landscape

The Indian edible oil industry operates within a highly fragmented and competitive environment characterised by volatile raw material prices, intense pricing pressure, and evolving consumer preferences. Raj Oil Mills competes against both large-scale organised players and numerous regional manufacturers, making differentiation and scale advantages critical for sustained profitability. The sector's performance over the past year has been robust, with the edible oil index delivering returns of 108.35%, highlighting the growth potential available to well-positioned players.

However, Raj Oil Mills has dramatically underperformed this sectoral momentum, posting a negative 11.23% return over the past year compared to the sector's 108.35% gain—an underperformance of 119.58 percentage points. This stark divergence suggests company-specific challenges rather than industry-wide headwinds, pointing to operational inefficiencies, poor product positioning, or inadequate distribution networks that have prevented the company from capturing its fair share of industry growth.

The company's micro-cap status with a market capitalisation of just ₹68.00 crores limits its access to capital markets and institutional investor interest, creating a liquidity constraint that further depresses valuations. With zero institutional holdings from foreign institutional investors (FIIs), mutual funds, or insurance companies, the stock lacks the support base that typically provides stability and research coverage for larger peers.

Peer Comparison: Valuation Premium Unjustified by Fundamentals

Relative to its edible oil sector peers, Raj Oil Mills presents a perplexing valuation profile. Whilst its P/E ratio of 12.76 times appears reasonable and below the peer average of approximately 24 times, the company's price-to-book value ratio of 68.50 times stands dramatically above peer averages of around 1.2 times. This extreme P/BV multiple is entirely unjustified given the company's 0.0% ROE, which ranks at the absolute bottom of its peer group.

Peers such as Prime Industries (ROE: 13.35%) and Vijay Solvex (ROE: 9.05%) demonstrate significantly superior capital efficiency whilst trading at far lower P/BV multiples of 2.23 times and 0.47 times respectively. The debt profile comparison is equally unfavourable, with Raj Oil Mills carrying a debt-to-equity ratio of 29.68 times compared to near-negligible leverage at Vijay Solvex (0.01x) and Prime Industries (0.03x). This combination of weak returns and high leverage trading at a valuation premium defies fundamental investment logic and suggests the market has yet to fully price in the company's structural weaknesses.

Valuation Analysis: Attractive Multiples Cannot Offset Fundamental Risks

At the current price of ₹45.63, Raj Oil Mills trades at a P/E (TTM) of 12.76 times, which appears superficially attractive compared to broader market multiples. The EV/EBITDA ratio of 12.18 times and EV/EBIT of 15.78 times suggest moderate valuation levels, whilst the EV/Sales ratio of 0.72 times indicates the market values the company's revenue stream at less than one times annual sales—typically a sign of distressed or low-quality businesses.

However, the astronomical price-to-book value of 68.50 times reveals the true valuation concern. This metric suggests investors are paying ₹68.50 for every rupee of book value—an extraordinarily high premium that would only be justified by exceptional return on equity and growth prospects. Given Raj Oil Mills' 0.0% average ROE and inconsistent profitability history, this P/BV multiple represents a significant valuation anomaly and downside risk.

The PEG ratio of 0.02 suggests the stock might be undervalued relative to its growth rate, but this metric must be interpreted cautiously given the company's erratic earnings history and questionable earnings quality. The proprietary valuation assessment classifies the stock as "RISKY" with a history of fluctuating between "Risky" and "Does Not Qualify" categories since April 2022, reflecting the market's ongoing struggle to appropriately value a company with such volatile fundamentals.

Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest

The shareholding pattern for Raj Oil Mills has remained completely static over the past five quarters, with promoter holdings locked at 75.00% and non-institutional investors holding the remaining 25.00%. Notably, there is zero participation from foreign institutional investors, mutual funds, insurance companies, or other domestic institutional investors—a telling sign of the stock's lack of institutional appeal.

The absence of any institutional interest reflects several factors: the company's micro-cap status, poor liquidity (average daily volume of just 572 shares), weak financial performance, and high leverage. Institutional investors typically avoid companies with such fundamental challenges due to governance concerns, limited growth visibility, and difficulty in building meaningful positions without moving the market. The stable promoter holding with zero pledging provides some comfort regarding ownership stability, but the complete absence of institutional validation remains a significant red flag.

Stock Performance: Persistent Underperformance Across Timeframes

The stock's performance record reveals consistent and severe underperformance relative to both market benchmarks and its own sector. Over the past year, Raj Oil Mills has declined 11.23% whilst the Sensex gained 10.18%, generating negative alpha of 21.41 percentage points. This underperformance extends across virtually all meaningful timeframes, with three-year returns of -11.31% compared to Sensex gains of 38.30%—a staggering 49.61 percentage point underperformance.

The stock's risk-adjusted returns paint an even grimmer picture. With a one-year absolute return of -11.23%, volatility of 56.44%, and a negative Sharpe ratio, the stock falls squarely into the "HIGH RISK LOW RETURN" category—the worst possible quadrant for investors. The adjusted beta of 1.50 indicates the stock is 50% more volatile than the broader market, amplifying downside risk during market corrections whilst failing to capture proportionate upside during rallies.

Technical indicators uniformly point to weakness, with the stock currently in a "MILDLY BEARISH" trend as of February 11, 2026. The stock trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), indicating persistent downward momentum. MACD signals remain bearish on both weekly and monthly timeframes, whilst Bollinger Bands suggest continued mild bearishness. The stock sits 38.25% below its 52-week high of ₹73.89, with immediate support at the 52-week low of ₹36.36.

Investment Thesis: Mixed Signals Dominated by Structural Weaknesses

The investment case for Raj Oil Mills presents a complex mosaic of conflicting signals. On the positive side, the company has achieved a "POSITIVE" short-term financial trend as of December 2025, driven by 24.74% revenue growth in the latest six months and a return to profitability with nine-month PAT of ₹4.16 crores. The valuation appears "ATTRACTIVE" at current levels based on traditional metrics, and the company benefits from a stable promoter base with zero pledging.

However, these positives are overwhelmed by fundamental structural weaknesses. The company's quality grade remains "BELOW AVERAGE," reflecting weak long-term financial performance characterised by 0.0% average ROE, excessive leverage (29.68x debt-to-equity), and poor capital efficiency. The technical trend remains "MILDLY BEARISH" with the stock trading below all major moving averages and showing persistent downward momentum. The overall proprietary score of 34 out of 100 places the stock firmly in "SELL" territory, with the assessment noting that "with high debt (Debt-Equity Ratio at 29.68 times)—the company has a weak long-term fundamental strength."

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