The stock traded at ₹259.70 on November 14, 2025, down 0.13% from the previous close, reflecting investor caution despite the sequential improvement. With the company trading at an elevated price-to-earnings ratio of 82x—nearly four times the NBFC sector average of 23x—the premium valuation appears difficult to justify given the erratic profitability trajectory and weak return on equity of just 1.48%.
The sequential profit recovery stems primarily from improved operational efficiency and margin expansion rather than fundamental business transformation. Net sales reached ₹2,064.22 crores in Q2 FY26, the highest quarterly figure on record, representing 10.90% sequential growth and 5.76% year-on-year expansion. However, the modest top-line growth contrasts sharply with the dramatic profit swing, suggesting that one-off factors or exceptional items may have influenced the bottom line.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Consolidated PAT (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 2,064.22 | +10.90% | 38.83 | +279.94% | 18.41% |
| Jun'25 | 1,861.38 | -8.23% | 10.22 | -89.68% | 3.03% |
| Mar'25 | 2,028.41 | +21.87% | 99.06 | -329.94% | 64.02% |
| Dec'24 | 1,664.43 | -14.73% | -43.08 | -183.93% | -26.66% |
| Sep'24 | 1,951.86 | +14.17% | 51.33 | +185.17% | 26.90% |
| Jun'24 | 1,709.54 | -7.88% | 18.00 | -85.62% | 10.91% |
| Mar'24 | 1,855.69 | — | 125.15 | — | 72.41% |
Financial Performance: Margin Recovery Drives Profit Rebound
The financial performance in Q2 FY26 reveals a company struggling with consistency despite sequential improvements. Operating profit before depreciation, interest, and tax (PBDIT) excluding other income surged to ₹60.88 crores from just ₹15.30 crores in Q1 FY26, translating to an operating margin of 24.40% compared to 5.70% in the previous quarter. This dramatic margin expansion of 1,858 basis points quarter-on-quarter represents the standout achievement of the period.
However, the year-on-year comparison paints a more sobering picture. Operating profit excluding other income declined from ₹75.92 crores in Q2 FY25, indicating that the company has yet to regain its profitability levels from the corresponding period last year. The profit before tax stood at ₹57.45 crores in Q2 FY26, recovering strongly from ₹5.73 crores in Q1 FY26 but still trailing the ₹67.44 crores reported in Q2 FY25.
Employee costs rose to ₹295.39 crores in Q2 FY26 from ₹254.35 crores in Q1 FY26, representing a 16.13% sequential increase that outpaced revenue growth. This suggests potential inefficiencies in workforce utilisation or strategic hiring initiatives that have yet to translate into proportionate revenue gains. Interest expenses increased marginally to ₹9.76 crores from ₹7.33 crores, whilst depreciation remained relatively stable at ₹12.14 crores.
The tax rate normalised to 20.05% in Q2 FY26 after an anomalous negative tax rate of 41.71% in Q1 FY26, indicating that the previous quarter likely benefited from tax credits or adjustments. The standalone net profit of ₹45.93 crores exceeded the consolidated figure of ₹38.83 crores, suggesting losses or adjustments at the subsidiary level that warrant closer scrutiny.
Quality of Earnings: Red Flags Demand Attention
The divergence between standalone and consolidated profits, coupled with wildly fluctuating margins across quarters, raises serious questions about earnings sustainability. The company's operating margin excluding other income has swung from negative 27.60% in Q4 FY25 to 98.34% in Q1 FY25 and back to 24.40% in Q2 FY26, indicating either structural business model challenges or significant one-off items distorting reported performance.
Operational Challenges: Weak ROE Signals Capital Efficiency Concerns
Religare Enterprises' return on equity remains alarmingly low at 1.48% on average, with the latest quarterly ROE improving to 4.98%—still far below acceptable standards for financial services companies. This weak capital efficiency indicates that the company generates minimal returns for shareholders relative to the equity capital deployed, a critical concern for a business operating in the capital-intensive NBFC sector.
The company's return on capital employed (ROCE) stands at 14.30%, significantly better than ROE but still modest considering the sector dynamics and risk profile. This disparity between ROCE and ROE typically suggests that the company relies more heavily on borrowed capital than equity, though Religare's debt-to-equity ratio of just 0.09 indicates minimal leverage. The low ROE despite minimal debt points to fundamental profitability challenges rather than capital structure issues.
⚠️ Capital Efficiency Warning
With ROE averaging just 1.48% and the latest quarterly figure at 4.98%, Religare Enterprises demonstrates poor capital utilisation. Investors should note that higher ROE indicates better capital efficiency—the company's persistently low ROE suggests it struggles to generate adequate returns on shareholder equity, making it a less attractive investment compared to peers with double-digit ROE figures.
The balance sheet reveals shareholder funds of ₹2,515.82 crores as of March 2025, up from ₹2,343.14 crores in March 2024, reflecting retained earnings and modest equity issuance. Investments surged to ₹8,700.09 crores from ₹6,718.02 crores, indicating significant capital deployment that has yet to translate into proportionate profitability improvements. Current assets stood at ₹10,196.12 crores against current liabilities of ₹13,617.30 crores, resulting in negative working capital—a common characteristic for NBFCs but requiring careful monitoring.
Cash flow from operations remained robust at ₹1,571 crores for FY25, though investing activities consumed ₹1,184 crores, primarily for expanding the investment portfolio. The company maintained a closing cash balance of ₹302 crores, up from ₹200 crores in the previous year, providing adequate liquidity cushion for near-term obligations.
The Volatility Dilemma: Erratic Earnings Pattern Undermines Confidence
Perhaps the most concerning aspect of Religare's financial performance is the extreme volatility in quarterly results. Over the past seven quarters, consolidated net profit has swung from losses of ₹43.08 crores to gains of ₹125.15 crores, with no discernible pattern or consistency. This erratic performance makes it virtually impossible for investors to forecast future earnings with any degree of confidence, fundamentally undermining the investment case.
The company's financial trend is currently classified as "flat," downgraded from "very positive" in June 2025, reflecting the inconsistent trajectory. Whilst Q2 FY26 showed sequential improvement, the year-on-year decline and historical volatility suggest this recovery may prove temporary rather than sustainable. The nine-month cumulative profit for FY26 stands at ₹148.11 crores, but this figure masks significant quarterly fluctuations that complicate any meaningful analysis.
| Metric | FY25 | FY24 | FY23 | FY22 |
|---|---|---|---|---|
| Net Sales | ₹7,354 Cr | ₹6,234 Cr | ₹4,676 Cr | ₹3,223 Cr |
| YoY Growth | +18.0% | +33.3% | +45.1% | +29.6% |
| Operating Profit (Excl OI) | ₹325 Cr | ₹336 Cr | ₹479 Cr | ₹-376 Cr |
| Operating Margin % | 4.4% | 5.4% | 10.2% | -11.7% |
| PAT | ₹183 Cr | ₹347 Cr | ₹3,168 Cr | ₹-1,538 Cr |
| PAT Margin % | 2.5% | 5.6% | 67.8% | -47.7% |
The annual results show similarly dramatic swings, with FY23 reporting exceptional profits of ₹3,168 crores (likely driven by one-time gains) followed by a sharp normalisation to ₹347 crores in FY24 and further decline to ₹183 crores in FY25. Operating margins have compressed from 10.2% in FY23 to just 4.4% in FY25, indicating deteriorating core business profitability despite revenue growth.
Industry Leadership: Trailing Peers on Key Metrics
When benchmarked against NBFC sector peers, Religare Enterprises' valuation premium appears unjustified by fundamentals. The company trades at a price-to-earnings ratio of 81.78x, nearly four times the sector median and significantly above established players like IIFL Finance (27.16x), Capri Global (26.50x), and Five-Star Business Finance (17.12x).
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield |
|---|---|---|---|---|---|
| Religare Enterp. | 81.78x | 3.41x | 1.48% | 0.09x | NA |
| IIFL Finance | 27.16x | 1.80x | 14.17% | 4.53x | NA |
| Capri Global | 26.50x | 4.41x | 10.28% | 3.62x | 0.10% |
| Five-Star Bus.Fi | 17.12x | 2.78x | 16.02% | 1.23x | 0.31% |
| SBFC Finance | 30.50x | 3.49x | 10.77% | 1.80x | NA |
| Bengal & Assam | 11.68x | 0.87x | 13.30% | 0.06x | 0.68% |
More critically, Religare's return on equity of 1.48% lags dramatically behind peers, with Five-Star Business Finance delivering 16.02%, IIFL Finance at 14.17%, and Bengal & Assam at 13.30%. This underperformance on the most fundamental measure of profitability makes the valuation premium particularly difficult to rationalise. The company's price-to-book ratio of 3.41x also exceeds most peers, despite inferior returns on that book value.
The only area where Religare demonstrates relative strength is leverage, with a debt-to-equity ratio of just 0.09x compared to the highly leveraged capital structures of peers like IIFL Finance (4.53x) and Capri Global (3.62x). However, this conservative capital structure hasn't translated into superior returns, suggesting the company may be underutilising financial leverage or lacks sufficient profitable lending opportunities.
Valuation Analysis: Premium Pricing for Below-Average Performance
Religare Enterprises' current valuation grade stands at "expensive," with the company having oscillated between "fair," "expensive," and "very expensive" categories over the past six months. At a market capitalisation of ₹8,753 crores and current price of ₹259.70, the stock trades 18.82% below its 52-week high of ₹319.90 but remains 28.28% above its 52-week low of ₹202.45.
The price-to-earnings ratio of 82x represents a significant premium to both the NBFC sector average of 23x and the broader market. This valuation appears unsustainable given the company's weak ROE, volatile earnings, and deteriorating margins. The price-to-book ratio of 3.41x means investors pay ₹3.41 for every rupee of book value, despite the company generating returns of less than 5% on that book value.
The EV/EBITDA multiple of 31.82x and EV/EBIT of 41.38x also suggest expensive valuation relative to earnings generation capacity. The PEG ratio of 0.46x appears attractive on the surface, but this metric can be misleading given the company's erratic earnings trajectory and questionable sustainability of recent growth rates.
Notably, Religare has not paid dividends since March 2010, depriving shareholders of any income return on their investment. This absence of dividend payments, combined with volatile capital appreciation potential, makes the risk-reward equation particularly unfavourable for income-focused investors.
Shareholding Pattern: Promoter Re-entry Signals Confidence, But Institutional Caution Persists
The shareholding pattern reveals significant structural changes over recent quarters. Promoter holding stood at 25.83% as of September 2025, having re-entered the capital structure in March 2025 with a 25.67% stake after being completely absent in December 2024 and September 2024. This promoter re-entry represents a notable development, potentially signalling confidence in the company's turnaround prospects.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 25.83% | 25.83% | 25.67% | 0.00% | Stable |
| FII | 7.80% | 8.10% | 8.25% | 8.04% | -0.30% |
| Mutual Funds | 7.14% | 8.18% | 7.92% | 9.28% | -1.04% |
| Insurance | 0.91% | 0.89% | 0.89% | 0.89% | +0.02% |
| Other DII | 2.22% | 2.55% | 2.95% | 2.97% | -0.33% |
| Non-Institutional | 56.10% | 54.45% | 54.32% | 78.82% | +1.65% |
However, institutional investors appear less convinced. Foreign institutional investors reduced their stake from 8.10% to 7.80% in Q2 FY26, whilst mutual funds cut holdings more aggressively from 8.18% to 7.14%—a reduction of 104 basis points in a single quarter. This institutional selling pressure suggests professional investors harbour concerns about the company's prospects despite the sequential profit recovery.
The total institutional holding of just 18.08% remains relatively low for a company of this size, indicating limited institutional confidence. Non-institutional investors dominate the shareholder base at 56.10%, having increased their stake by 165 basis points in Q2 FY26. This retail-heavy shareholding structure can contribute to higher stock price volatility and potentially less sophisticated capital allocation oversight.
Stock Performance: Underperforming Benchmarks Across Most Timeframes
Religare Enterprises' stock has delivered mixed returns across different time horizons, with particularly weak performance over shorter periods. The stock gained just 0.50% over the past week compared to the Sensex's 1.62% return, resulting in negative alpha of 1.12%. The one-month return of 0.89% also lagged the Sensex's 3.09% gain, with alpha of negative 2.20%.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.50% | 1.62% | -1.12% |
| 1 Month | 0.89% | 3.09% | -2.20% |
| 3 Months | 1.23% | 4.92% | -3.69% |
| 6 Months | 20.82% | 3.97% | +16.85% |
| YTD | -5.51% | 8.22% | -13.73% |
| 1 Year | 6.50% | 9.00% | -2.50% |
| 3 Years | 50.38% | 37.22% | +13.16% |
| 5 Years | 392.32% | 93.78% | +298.54% |
The six-month performance stands out positively, with the stock delivering 20.82% returns against the Sensex's 3.97%, generating alpha of 16.85%. However, year-to-date performance remains negative at 5.51% compared to the Sensex's 8.22% gain, resulting in underperformance of 13.73 percentage points.
Longer-term returns appear impressive, with three-year gains of 50.38% (alpha: +13.16%) and five-year returns of 392.32% (alpha: +298.54%). However, these figures should be interpreted cautiously, as they likely reflect recovery from severely depressed levels following the company's historical financial distress rather than sustainable value creation.
The stock's beta of 1.35 indicates higher volatility than the broader market, with annualised volatility of 39.72% compared to the Sensex's 12.26%. This high volatility, combined with inconsistent returns, places the stock in the "high risk medium return" category—an unfavourable risk-reward profile for most investors.
"Religare's elevated valuation multiple of 82x earnings appears increasingly disconnected from fundamental performance, with weak ROE of 1.48% and persistent earnings volatility undermining the premium pricing."
Investment Thesis: Limited Appeal Despite Sequential Recovery
The investment thesis for Religare Enterprises rests on several pillars, some supportive and others concerning. The company's Mojo score of 52 out of 100 places it firmly in "hold" territory, reflecting the balanced but ultimately cautious assessment of its prospects.
The company's quality grade stands at "average," upgraded from "below average" prior to November 2024, reflecting improvements in long-term financial performance. The five-year sales growth of 26.59% and EBIT growth of 26.73% demonstrate the company's ability to expand its business, though these growth rates have not translated into consistent profitability or attractive returns on equity.
Technical indicators show a "mildly bullish" trend since September 17, 2025, with the stock trading above most key moving averages. However, MACD signals remain mixed, with bullish weekly readings but mildly bearish monthly indicators. The KST oscillator shows mildly bearish signals across both weekly and monthly timeframes, suggesting momentum may be waning.
Key Strengths & Risk Factors
✅ KEY STRENGTHS
- Strong Revenue Growth: Consistent top-line expansion with 18.0% YoY growth in FY25 and five-year CAGR of 26.59%
- Sequential Profit Recovery: Consolidated net profit surged 279.94% QoQ to ₹38.83 crores in Q2 FY26
- Conservative Leverage: Debt-to-equity ratio of just 0.09x provides financial flexibility and low default risk
- Promoter Re-entry: Promoters acquired 25.83% stake, signalling confidence in turnaround prospects
- Robust Operating Cash Flow: Generated ₹1,571 crores in FY25, supporting liquidity and growth investments
- Improving Quality Grade: Upgraded from "below average" to "average" reflecting long-term performance gains
- Diversified Financial Services: Presence across multiple verticals provides revenue diversification
⚠️ KEY CONCERNS
- Weak Return on Equity: ROE of just 1.48% indicates poor capital efficiency and shareholder value creation
- Extreme Earnings Volatility: Quarterly profits swinging from losses to gains with no consistent pattern
- YoY Profit Decline: Consolidated net profit down 24.35% YoY despite sequential recovery
- Expensive Valuation: P/E of 82x (vs sector 23x) unjustified by fundamentals
- Institutional Selling: FIIs and mutual funds reducing stakes, with MF holdings down 104 bps in Q2
- Margin Compression: Operating margins declined from 10.2% in FY23 to 4.4% in FY25
- No Dividend Since 2010: Zero income return for shareholders over 15 years
- High Volatility: Stock volatility of 39.72% with beta of 1.35 indicates elevated risk
- Sector Underperformance: One-year return of 6.50% trails NBFC sector's 25.11%
Outlook: What to Watch in Coming Quarters
🟢 POSITIVE CATALYSTS
- Sustained margin improvement beyond 20% for three consecutive quarters
- ROE improvement to double digits (above 10%) indicating better capital efficiency
- Consistent QoQ profit growth without extreme volatility
- Institutional buying resumption, particularly from mutual funds
- Initiation of dividend payments signalling earnings confidence
🔴 RED FLAGS
- Return to quarterly losses or sharp profit declines in Q3 FY26
- Further institutional selling pressure, especially by FIIs
- Operating margins falling below 15% indicating unsustainable Q2 recovery
- Continued divergence between standalone and consolidated profits
- Promoter stake reduction or pledging of shares
The path forward for Religare Enterprises hinges on demonstrating consistency in profitability and improving return on equity to acceptable levels. The company must prove that Q2 FY26's margin expansion represents sustainable operational improvements rather than temporary factors. Investors should closely monitor whether the promoter re-entry translates into strategic initiatives that enhance shareholder value or merely represents financial engineering.
The NBFC sector faces headwinds from rising interest rates and potential asset quality concerns, making operational excellence and risk management paramount. Religare's ability to navigate these challenges whilst improving capital efficiency will determine whether the current valuation premium can be justified or whether a significant correction becomes inevitable.
The Verdict: Cautious Stance Warranted Despite Sequential Gains
Score: 52/100
For Fresh Investors: Avoid initiating positions at current valuations. The combination of expensive pricing (P/E: 82x), weak ROE (1.48%), and persistent earnings volatility creates an unfavourable risk-reward equation. Wait for sustained profitability improvements and valuation correction before considering entry.
For Existing Holders: Maintain positions but avoid adding at current levels. Monitor quarterly results closely for consistency in margins and profitability. Consider reducing exposure if Q3 FY26 shows deterioration or if institutional selling accelerates. Set a mental stop-loss around ₹230 (10% downside protection).
Fair Value Estimate: ₹185-200 (25-29% downside from current levels), implying P/E of approximately 55-60x—still premium but more justified given growth prospects
Rationale: Whilst Q2 FY26 showed encouraging sequential recovery with profits surging 279.94% QoQ, the year-on-year decline of 24.35% and historical earnings volatility undermine confidence in sustainability. The elevated valuation of 82x earnings appears increasingly disconnected from fundamentals, with ROE of just 1.48% far below acceptable standards. Institutional investors' cautious stance, evidenced by continued stake reductions, reinforces concerns about near-term prospects. The hold rating reflects balanced risks and rewards, but the margin of safety appears inadequate for fresh capital deployment.
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.
