Raunaq International Q3 FY26: Quarterly Loss Deepens Despite Revenue Recovery

The quarter's performance presents a concerning dichotomy: whilst the company demonstrated strong revenue momentum on a half-yearly basis, the third quarter witnessed a dramatic collapse in profitability. The operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) plummeted to ₹-2.94 crores, translating to an operating margin of -269.72%. This stark deterioration from the previous quarter's already weak -107.30% margin signals severe execution challenges in the engineering contracting business.

The stock's technical positioning has turned decisively bearish, with the share price trading below all major moving averages—5-day (₹52.02), 20-day (₹53.24), 50-day (₹56.64), and 100-day (₹63.96). The company's proprietary Mojo Score stands at 32 out of 100, firmly in "SELL" territory, reflecting the confluence of operational struggles, deteriorating quarterly trends, and unfavourable technical momentum.

Financial Performance: Quarterly Collapse Overshadows Half-Yearly Gains

The third quarter of FY26 exposed critical weaknesses in Raunaq International's operational execution. Net sales for Q3 FY26 stood at ₹1.09 crores, representing a sequential decline of 20.44% from Q2 FY26's ₹1.37 crores and a year-on-year contraction of 74.11% from Q3 FY25's ₹4.21 crores. This revenue decline, whilst concerning in isolation, becomes alarming when viewed alongside the company's cost structure.

The consolidated net profit for Q3 FY26 deteriorated to ₹-3.08 crores, a sequential worsening of 422.03% from the previous quarter's loss of ₹0.59 crores. On a year-on-year basis, the loss improved by 68.31% compared to Q3 FY25's loss of ₹-9.72 crores, though this comparison offers limited comfort given the absolute magnitude of the current quarter's deficit. The profit after tax margin compressed to -282.57%, reflecting the company's inability to control costs relative to its shrinking revenue base.

Employee costs for the quarter declined to ₹0.28 crores from ₹0.43 crores in Q2 FY26, suggesting workforce adjustments in response to lower business volumes. However, this cost reduction proved insufficient to offset the revenue decline. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) reached its lowest point at ₹-2.94 crores, underscoring fundamental challenges in project execution and cost recovery.

A notable bright spot emerged from other income, which contributed ₹0.22 crores during the quarter. Whilst this figure declined from Q2 FY26's ₹0.37 crores, it provided some cushion against operational losses. Interest costs remained manageable at ₹0.05 crores, down from ₹0.09 crores in the previous quarter, reflecting the company's relatively low leverage profile with a debt-to-equity ratio of just 0.10.

Operational Challenges: The Margin Collapse Dilemma

The engineering contracting business model relies heavily on project execution efficiency, timely billing, and cost control. Raunaq International's Q3 FY26 results suggest severe disruptions across these critical operational levers. The company's gross profit margin deteriorated to -254.13%, indicating that direct project costs exceeded revenues by a substantial margin. This phenomenon typically occurs when projects face cost overruns, billing disputes, or recognition timing mismatches.

The balance sheet as of March 2021 (the most recent annual data available) showed shareholder funds of ₹13.54 crores against long-term debt of ₹5.07 crores, resulting in a conservative net debt-to-equity ratio of 0.10. Current assets of ₹14.95 crores exceeded current liabilities of ₹13.29 crores, providing a modest liquidity cushion. However, the significant presence of trade payables at ₹6.49 crores (nearly 49% of current liabilities) warrants monitoring for potential working capital stress.

The company's five-year sales growth of 19.24% and EBIT growth of 15.62% demonstrate historical expansion capability. However, these figures mask significant year-to-year volatility. Annual net sales declined 85.20% from ₹61.00 crores in FY20 to ₹9.00 crores in FY21, illustrating the lumpy nature of the engineering contracting business and the company's vulnerability to project pipeline gaps.

Asset Quality and Capital Efficiency: Mixed Signals

Return on capital employed (ROCE) presents a bifurcated picture. The half-yearly ROCE for H1 FY26 reached an impressive 23.52%, the highest on record according to the financial trend analysis. This metric suggests efficient capital utilisation when the company secures and executes projects successfully. However, the average ROCE over the past five years stands at -79.22%, reflecting the impact of loss-making periods that have destroyed shareholder value.

The company's debtors turnover ratio for H1 FY26 stood at 3.18 times, representing the highest level recorded. This improvement suggests better collections efficiency and reduced working capital locked in receivables. Fixed assets declined from ₹18.24 crores in FY20 to ₹3.66 crores in FY21, indicating asset disposals or depreciation that has reduced the capital intensity of the business. Investments stood at ₹3.86 crores as of FY21, providing some financial flexibility.

Industry Context: Construction Sector Headwinds

The Indian construction and engineering contracting sector faces a complex operating environment characterised by intense competition, working capital pressures, and execution risks. Raunaq International operates in core infrastructure and industrial sectors including power, chemicals, hydrocarbons, metals, and automobiles. Whilst India's infrastructure push under various government initiatives provides long-term growth opportunities, small-cap players like Raunaq International face significant challenges in winning and executing large contracts profitably.

The company's micro-cap status (₹17.00 crores market capitalisation) limits its ability to bid for large projects that require substantial financial guarantees and execution capabilities. This constraint forces the company to target smaller contracts, which typically carry lower margins and higher competitive intensity. The lumpy revenue pattern—evidenced by quarterly sales ranging from ₹0.47 crores to ₹4.21 crores over the past two years—reflects this project-based business model's inherent volatility.

Competition from both larger, well-capitalised engineering firms and numerous smaller regional players compresses margins across the sector. The average operating margin (excluding other income) for Raunaq International over recent quarters has remained persistently negative, suggesting structural profitability challenges rather than temporary execution issues. The company's inability to achieve scale economies exacerbates these margin pressures.

Peer Comparison: Valuation Discount Reflects Fundamental Weakness

Within the construction sector peer group, Raunaq International presents a mixed valuation picture. The company trades at a price-to-earnings ratio of 6.52x based on trailing twelve-month earnings, significantly below the peer average of approximately 27x and the industry P/E of 34x. This valuation discount reflects market scepticism about earnings quality and sustainability given the recent loss-making quarters.

Raunaq International's return on equity of 5.29% (five-year average) exceeds most peers in the comparison set, with only Mewar Hi-Tech posting a superior ROE of 8.57%. This relative strength in capital efficiency during profitable periods represents a competitive advantage. However, the company's price-to-book ratio of 1.72x stands at the higher end of the peer group, suggesting the market prices in some premium for the company's asset base despite operational challenges.

The company's conservative debt-to-equity ratio of 0.10 ranks among the lowest in the peer set, providing financial stability that larger, more leveraged competitors lack. This balance sheet strength offers a crucial buffer during periods of operational stress and positions the company to pursue growth opportunities without significant dilution risk. However, low leverage also indicates limited access to or appetite for debt capital, which may constrain the company's ability to scale operations.

Valuation Analysis: Attractive Entry Point or Value Trap?

Raunaq International's current valuation metrics present a paradox common to distressed micro-cap stocks: seemingly attractive multiples that may reflect fundamental business challenges rather than genuine investment opportunities. The stock trades at a P/E ratio of 7x, substantially below the construction sector average of 34x and the broader market. The price-to-book ratio of 1.72x suggests the market values the company at a modest premium to its net asset value of ₹40.51 per share.

The enterprise value to EBITDA multiple of 17.28x appears elevated given the operational challenges, suggesting the market may be pricing in a recovery scenario that the recent quarterly results do not support. The EV to sales ratio of 0.51x indicates the company trades at roughly half of its annual revenue run rate, which could represent value if management can restore profitability. However, given the negative operating margins, this metric provides limited insight.

The proprietary valuation assessment grades the stock as "VERY ATTRACTIVE" from a pure valuation perspective, having moved to this category from "ATTRACTIVE" in July 2025. This grading reflects the significant discount to book value and earnings multiples. However, investors must weigh this valuation attractiveness against the deteriorating operational performance and lack of earnings visibility. The stock's valuation grade history shows frequent oscillations between "Very Attractive," "Attractive," and "Does Not Qualify," indicating borderline metrics that shift with quarterly results.

Shareholding Pattern: Stable Promoter Base, Negligible Institutional Interest

The shareholding structure of Raunaq International has remained remarkably stable over the past five quarters, with promoter holding steady at 52.28% and no sequential changes across any investor category. This stability suggests promoter confidence in the business despite operational challenges, as there has been no dilution or exit activity. Mr. Surinder Paul Kanwar holds the largest individual stake at 43.87%, with the remaining promoter holding distributed across group entities including Gulab Merchandise Private Limited (4.33%) and Vibrant Reality Infra Private Limited (3.48%).

The complete absence of foreign institutional investors (FIIs), mutual funds, and insurance companies signals a critical lack of institutional validation. Total institutional holdings stand at just 0.07%, comprised entirely of other domestic institutional investors. This negligible institutional presence reflects the company's micro-cap status, limited liquidity (only 205 shares traded on February 12, 2026), and operational uncertainty that makes the stock unsuitable for institutional mandates.

Non-institutional investors hold 47.65% of the equity, representing retail shareholders and smaller entities. The lack of any movement in this shareholding category over five quarters suggests limited trading activity and poor liquidity. Positively, there is no promoter pledging, eliminating concerns about forced selling or financial distress at the promoter level. However, the absence of institutional buying despite the low valuation multiples indicates sophisticated investors remain unconvinced about the company's turnaround prospects.

Stock Performance: Severe Underperformance Across Timeframes

Raunaq International's stock price performance tells a story of sustained value destruction in recent periods, contrasted with strong long-term gains. The shares have declined 4.41% on the day of the results announcement, trading at ₹48.75 against the previous close of ₹51.00. This decline extends a broader bearish trend that began on February 5, 2026, when the technical trend shifted from "Mildly Bearish" to "Bearish" at ₹52.00.

The near-term performance has been disastrous. Over the past week, the stock has fallen 6.25% whilst the Sensex gained 0.43%, resulting in negative alpha of -6.68%. The one-month decline of 11.20% and three-month fall of 24.42% accelerate into a six-month collapse of 38.33%, during which period the Sensex rose 4.29%. This 42.62% negative alpha over six months represents severe underperformance that reflects both company-specific operational issues and broader risk-off sentiment towards micro-cap stocks.

The stock currently trades at ₹48.75, dangerously close to its 52-week low of ₹48.64 and 50.66% below its 52-week high of ₹98.80 reached earlier in the fiscal year. This precipitous decline from the peak underscores the market's reassessment of the company's prospects as quarterly results deteriorated. The stock trades below all major moving averages, with the 5-day moving average at ₹52.02, 20-day at ₹53.24, 50-day at ₹56.64, and 100-day at ₹63.96, creating multiple resistance levels that will challenge any recovery attempt.

Contrasting sharply with recent weakness, the long-term returns remain impressive. Over three years, the stock has delivered 116.67% returns against the Sensex's 37.89%, generating positive alpha of 78.78%. The five-year return of 129.95% versus the Sensex's 62.34% demonstrates the stock's historical ability to create wealth during favourable business cycles. However, the ten-year return of -54.23% against the Sensex's 264.02% return reveals the company's inability to sustain performance through multiple business cycles.

Investment Thesis: Mojo 4 Dots Framework Analysis

The proprietary Mojo 4 Dots analytical framework evaluates stocks across four critical dimensions: near-term drivers, quality, valuation, and overall assessment. Raunaq International's profile reveals significant divergence across these parameters, creating a complex investment decision matrix.

Near-Term Drivers (Mixed): The quarterly financial trend receives a "Positive" rating based on the strong half-yearly revenue growth of 128.46% and record-high ROCE of 23.52% for H1 FY26. The nine-month PAT of ₹1.22 crores and highest-ever debtors turnover ratio of 3.18 times represent genuine operational improvements. However, these positives are completely offset by the bearish technical trend, with the stock trading below all moving averages and exhibiting negative momentum across all short-term timeframes.

Quality (Below Average): The company's quality grade of "Below Average" reflects weak long-term financial performance characterised by operating losses, negative average ROCE of -79.22%, and inconsistent profitability. Whilst the five-year sales CAGR of 19.24% demonstrates growth capability, the average EBIT-to-interest coverage of -3.91x indicates insufficient operational earnings to service debt obligations comfortably. The absence of institutional holdings (just 0.07%) and zero dividend payout further underscore quality concerns.

Valuation (Very Attractive): From a pure valuation perspective, the stock appears compelling. Trading at 7x trailing earnings versus a sector average of 34x and 1.72x book value against a book value per share of ₹40.51, the stock prices in significant pessimism. The "Very Attractive" valuation grade suggests substantial upside potential if the company can stabilise operations and return to consistent profitability. However, investors must question whether this discount represents opportunity or reflects deserved scepticism about earnings quality.

Overall Assessment (Mixed): The conflicting signals—positive financial trend, very attractive valuation, but below-average quality and bearish technicals—result in a "Mixed" overall assessment. The Mojo Score of 32 out of 100 places the stock firmly in "SELL" territory, down from a "HOLD" rating in December 2025. This deterioration reflects the market's growing concerns about the sustainability of the half-yearly improvements given the Q3 FY26 quarterly loss.

Key Strengths & Risk Factors

Outlook: What Lies Ahead for Raunaq International

The investment outlook for Raunaq International hinges on management's ability to address the severe operational challenges exposed in Q3 FY26 whilst building on the half-yearly momentum demonstrated in H1 FY26. The engineering contracting business requires consistent project pipeline visibility, disciplined execution, and effective cost management—areas where the company has struggled historically.

The company's financial trend analysis currently shows a "Positive" rating despite the quarterly setback, based primarily on the strong half-yearly metrics. However, this positive trend faces imminent risk of downgrade if Q4 FY26 results fail to show improvement. Management's ability to articulate a clear path to profitability and demonstrate project execution capabilities will be critical for investor confidence.

From a technical perspective, the stock needs to reclaim the 20-day moving average at ₹53.24 and subsequently the 50-day moving average at ₹56.64 to signal any meaningful reversal of the bearish trend. Until these levels are convincingly breached with volume support, the path of least resistance remains downward. The proximity to the 52-week low creates a precarious situation where any further negative news could trigger capitulation selling.