Rishabh Instruments Q2 FY26: Profit Surge Masks Margin Concerns

The September 2025 quarter marked a significant inflection point for the Nashik-based instrumentation company, which manufactures electrical measuring and testing instruments. While the 436.32% year-on-year profit growth appears extraordinary, it primarily reflects the low base effect from Q2 FY2025, when the company reported a consolidated net profit of just ₹4.13 crores. The sequential improvement of 12.44% from Q1 FY2026's ₹19.70 crores demonstrates more sustainable momentum, though investors should note that the company's profitability remains highly volatile across quarters.

Revenue growth, whilst positive, tells a more nuanced story. Net sales of ₹196.33 crores in Q2 FY2026 represent a modest 7.66% year-on-year increase and a 3.15% quarter-on-quarter gain. This marks the highest quarterly sales figure in the company's recent history, yet the growth trajectory has decelerated from the robust 12.39% year-on-year expansion witnessed in Q1 FY2026. The slowdown in revenue momentum warrants close monitoring, particularly given the capital-intensive nature of the electrical equipment industry and the company's need to generate adequate returns on its expanding asset base.

Financial Performance: Margin Expansion Drives Profitability

The standout feature of Q2 FY2026 results was the dramatic margin expansion across multiple profitability metrics. Operating profit margin (excluding other income) surged to 17.00% in Q2 FY2026, the highest quarterly level recorded by the company, compared to 14.93% in Q1 FY2026 and just 5.71% in the year-ago quarter. This 1,129 basis point year-on-year improvement in operating margins translated directly to the bottom line, with PAT margins expanding to 11.25% from 2.13% a year earlier.

Operating profit (PBDIT excluding other income) reached ₹33.37 crores in Q2 FY2026, marking a 220.46% year-on-year surge and a 17.45% sequential increase from Q1 FY2026's ₹28.41 crores. This operational leverage reflects improved cost management and better absorption of fixed costs, though investors should note that the company's absolute profitability remains modest relative to its ₹1,502 crore market capitalisation. Employee costs, which constitute a significant portion of operating expenses, stood at ₹55.04 crores in Q2 FY2026, representing 28.03% of net sales, a slight improvement from 29.99% in Q1 FY2026.

Other income contributed ₹4.92 crores in Q2 FY2026, up from ₹4.25 crores in the previous quarter and ₹3.04 crores a year ago. Whilst this represents a healthy non-operating income stream, it also highlights the company's reliance on financial income to bolster overall profitability. Interest expenses remained well-controlled at ₹1.09 crores, down from ₹1.18 crores in Q1 FY2026, reflecting the company's net cash position and minimal debt burden. Depreciation charges of ₹8.68 crores in Q2 FY2026, up from ₹7.51 crores sequentially, indicate ongoing capital expenditure to support business expansion.

The tax rate for Q2 FY2026 stood at 22.57%, significantly lower than the 30.52% rate in Q2 FY2025 and the 32.11% rate in Q4 FY2025. This favourable tax treatment contributed meaningfully to the net profit surge, though the variability in tax rates across quarters introduces an element of unpredictability to earnings forecasts. For the half-year period H1 FY2026 (April-September 2025), the company has delivered consolidated net profit of ₹41.85 crores on revenues of ₹386.66 crores, representing a substantial improvement from the prior year's performance.

Operational Challenges: Return on Equity Remains Deeply Concerning

Despite the impressive quarter-on-quarter profit growth, Rishabh Instruments continues to grapple with a fundamental challenge that undermines its investment appeal: anaemic return on equity. The company's latest ROE of just 3.69% ranks amongst the weakest in its peer group and falls far short of the cost of equity capital for a micro-cap stock in a cyclical industry. This dismal capital efficiency metric suggests that the company is destroying shareholder value even as it reports headline profit growth, a red flag that cannot be ignored by discerning investors.

The weak ROE becomes even more troubling when viewed against the company's expanding equity base. Shareholder funds have grown from ₹401.03 crores in March 2023 to ₹611.32 crores in March 2025, yet the company has struggled to generate commensurate returns on this capital. The five-year average ROE of 3.69% stands in stark contrast to the company's five-year average ROCE of 18.96%, indicating that whilst the business generates acceptable returns on total capital employed, equity shareholders are bearing the brunt of inefficient capital allocation decisions.

The balance sheet reveals another dimension of the capital efficiency problem. Fixed assets have expanded from ₹219.21 crores in March 2023 to ₹310.57 crores in March 2025, representing substantial capital investment. However, the company's sales-to-capital-employed ratio of just 1.06x indicates that it requires nearly ₹1 of capital employed to generate ₹1 of annual sales—a relatively capital-intensive business model that demands superior operating margins to deliver acceptable returns. Current assets stood at ₹527.34 crores as of March 2025, up from ₹409.77 crores two years prior, suggesting growing working capital requirements that further strain return metrics.

Long-term debt increased notably to ₹72.39 crores in March 2025 from ₹15.23 crores a year earlier, though the company maintains a net cash position with ₹90.00 crores of closing cash as of March 2025. The debt-to-EBITDA ratio of 1.66x remains manageable, and the EBIT-to-interest coverage of 9.18x provides adequate cushion. However, the decision to increase leverage whilst delivering sub-par equity returns raises questions about the return profile of incremental capital investments. Trade payables of ₹81.38 crores and other current liabilities of ₹63.04 crores as of March 2025 complete a balance sheet that, whilst not alarming, offers little comfort to equity investors seeking superior returns.

Industry Context: Navigating a Challenging Electrical Equipment Landscape

Rishabh Instruments operates in the Other Electrical Equipment segment, a diverse and fragmented industry encompassing manufacturers of electrical measuring instruments, testing equipment, and related products. The sector has faced headwinds in recent years, with the broader Other Electrical Equipment index delivering a negative 1.17% return over the past year, underscoring the challenging operating environment. Against this backdrop, Rishabh Instruments' 16.57% one-year stock return represents significant outperformance of 17.74 percentage points versus its sector, though this relative strength must be viewed in context of the stock's premium valuation.

The company's competitive positioning within this landscape remains ambiguous. Whilst the recent margin expansion demonstrates operational improvement, the five-year EBIT growth rate of negative 12.88% reveals a troubling long-term trend of declining operating profitability. This contraction in earnings power over a multi-year period stands in stark contrast to the recent quarterly improvements and suggests that the current margin levels may not be sustainable without significant changes to the business model or market conditions.

Market consensus expectations for the company remain difficult to gauge given limited analyst coverage typical for micro-cap stocks. However, the stock's technical indicators present a mixed picture: whilst the overall trend is classified as "mildly bullish" as of November 11, 2025, multiple weekly indicators including MACD, KST, Dow Theory, and OBV show mildly bearish or bearish signals. This technical divergence mirrors the fundamental tension between impressive recent quarterly results and concerning long-term profitability trends.

Peer Comparison: Valuation Premium Without Performance Justification

A comparative analysis with industry peers reveals the challenging valuation dynamics facing Rishabh Instruments. Whilst the company trades at a P/E ratio of 38.91x, which appears reasonable relative to some peers, its fundamental metrics lag significantly behind competitors across critical dimensions. The company's 3.69% ROE pales in comparison to peers such as Yash Highvoltage Electric (14.51%), RIR Power Electronics (14.14%), and Mangal Electricals (25.51%), all of whom demonstrate superior capital efficiency.

The peer comparison highlights a critical disconnect: Rishabh Instruments trades at a price-to-book ratio of 2.46x despite generating returns on that book value of less than 4%. In contrast, Mangal Electricals commands a P/BV ratio of just 2.19x whilst delivering an ROE of 25.51%—nearly seven times higher than Rishabh's return metric. This valuation anomaly suggests that the market may be pricing in expectations of dramatic ROE improvement that have yet to materialise in the company's historical performance.

From a balance sheet strength perspective, Rishabh Instruments does benefit from its net cash position, reflected in the negative 0.16 debt-to-equity ratio. This conservative financial structure provides flexibility for future investments and insulates the company from interest rate risk. However, this balance sheet strength has not translated into superior shareholder returns, raising questions about whether management possesses the capital allocation discipline to deploy this financial capacity productively. The company's third-place ranking by market capitalisation within its peer group at ₹1,502 crores positions it as a meaningful player, yet one without the scale advantages of larger competitors.

Valuation Analysis: Premium Pricing for Uncertain Prospects

The valuation metrics paint an unambiguous picture: Rishabh Instruments trades at levels categorised as "Very Expensive" by multiple measures. The P/E ratio of 38.91x, whilst not extreme in isolation, becomes concerning when paired with the company's modest growth profile and weak return metrics. The PEG ratio of 4.57x indicates that investors are paying ₹4.57 for every unit of earnings growth—a premium that appears difficult to justify given the company's five-year EBIT contraction of 12.88% annually.

The EV/EBITDA multiple of 20.24x and EV/EBIT multiple of 34.72x further underscore the valuation premium. These enterprise value multiples suggest that the market is discounting significant future margin expansion and earnings growth that may prove challenging to achieve given historical performance. The EV-to-sales ratio of 1.89x implies that investors value the company at nearly twice its annual revenue, a multiple typically reserved for high-growth, high-margin businesses—characteristics that do not align with Rishabh Instruments' profile.

The valuation grade history reveals persistent concerns about pricing levels. The stock has oscillated between "Expensive" and "Very Expensive" classifications since May 2024, most recently transitioning to "Very Expensive" on August 18, 2025. This sustained premium valuation has persisted despite the fundamental challenges outlined earlier, suggesting that recent operational improvements may have created excessive optimism amongst investors. The current price of ₹390.50 represents a 20.14% discount from the 52-week high of ₹489.00 but remains 94.71% above the 52-week low of ₹200.55, indicating significant price volatility.

The absence of dividend payments (dividend yield: NA) means that investors rely entirely on capital appreciation for returns, amplifying the importance of sustainable earnings growth. The company's book value per share of ₹159.14 provides a tangible asset backing, though the modest ROE suggests that this book value is not being deployed efficiently. Fair value estimation becomes challenging given the inconsistent profitability track record, but a conservative analysis suggests that the current price may be discounting overly optimistic assumptions about margin sustainability and ROE improvement.

Shareholding Pattern: Institutional Caution Amid Promoter Stability

The shareholding structure reveals a stable promoter base alongside cautious institutional participation. Promoter holding stood at 69.81% as of September 2025, unchanged from June 2025 but marginally lower than the 70.15% holding in March 2025. This high promoter stake provides alignment of interests with minority shareholders, though the gradual reduction of 35 basis points over two quarters warrants monitoring. The absence of any pledged shares amongst promoter holdings offers reassurance about financial stability at the ownership level.

More concerning is the trend in institutional holdings. Mutual fund participation has declined steadily from 13.20% in September 2024 to 11.60% in September 2025, representing a 160 basis point reduction over the past year. The sequential decline of 82 basis points from June 2025 to September 2025 suggests that professional investors are reducing exposure despite the strong quarterly results. This institutional selling pressure contradicts the positive earnings narrative and may reflect concerns about valuation sustainability or fundamental business quality.

Foreign institutional investor (FII) holdings remain minimal at 0.35% as of September 2025, though they have increased from 0.05% in the previous quarter. Insurance company participation remains absent at 0.00%, whilst other domestic institutional investors (DIIs) hold a marginal 0.41% stake. The total institutional holding of just 12.36% is notably low for a listed company, potentially reflecting limited liquidity and research coverage typical of micro-cap stocks. Non-institutional investors, comprising retail and other categories, hold 17.83% as of September 2025, up from 17.71% in the previous quarter.

Stock Performance: Volatility Amid Recent Gains

The stock's price performance presents a study in contrasts across different time horizons. Over the past six months, Rishabh Instruments has delivered a robust 42.52% return, dramatically outperforming the Sensex's 3.97% gain by a remarkable 38.55 percentage points of alpha. This surge has propelled the stock from levels around ₹274 in mid-May 2025 to the current ₹390.50, though it remains well below the ₹489.00 peak reached earlier in the year.

However, the two-year return paints a starkly different picture. Over this longer horizon, the stock has delivered a negative 25.84% return, underperforming the Sensex's positive 30.23% gain by a devastating 56.07 percentage points. This longer-term underperformance reflects the fundamental challenges discussed earlier and serves as a sobering reminder that recent quarterly improvements may not represent a sustainable turnaround. The stock's beta of 1.50 indicates it is 50% more volatile than the broader market, amplifying both gains and losses.

Risk-adjusted return metrics further illuminate the investment challenge. Over the past year, the stock's absolute return of 16.57% translates to a risk-adjusted return of just 0.29, compared to the Sensex's superior risk-adjusted return of 0.73. This disparity stems from the stock's exceptionally high volatility of 56.70%, nearly five times the Sensex's 12.26% volatility. The classification as "High Risk Medium Return" accurately captures the unfavourable risk-reward profile—investors are accepting outsized volatility without commensurate compensation through superior returns.

Technical indicators present a mixed outlook. The overall trend is classified as "mildly bullish" as of November 11, 2025, having transitioned from a sideways trend. However, multiple weekly indicators including MACD (mildly bearish), KST (mildly bearish), Dow Theory (mildly bearish), and OBV (mildly bearish) suggest weakening momentum. The stock trades below all key moving averages—5-day (₹375.91), 20-day (₹388.13), 50-day (₹406.37), 100-day (₹362.62), and 200-day (₹310.72)—though the proximity to these levels indicates a consolidation phase rather than a clear directional bias.

Investment Thesis: Quality Concerns Outweigh Cyclical Improvements

The proprietary Mojo Score of 62 out of 100, corresponding to a "HOLD" rating, encapsulates the conflicting signals emanating from Rishabh Instruments. The score reflects positive near-term drivers—the quarterly financial trend is classified as "Positive" and technicals show "Mildly Bullish" momentum—but these favourable short-term factors are substantially offset by concerning medium and long-term parameters. The quality grade of "Average" and valuation assessment of "Very Expensive" create significant headwinds to sustained outperformance.

The bull case rests primarily on operational momentum. The company has achieved its highest-ever quarterly operating margins, demonstrating improved cost management and operating leverage. The balance sheet remains healthy with a net cash position, providing financial flexibility. The stable promoter holding of nearly 70% ensures alignment of interests, and the absence of pledged shares eliminates a key risk factor. For investors with a high-risk tolerance, the recent margin expansion could represent the early stages of a sustainable turnaround if management can maintain these profitability levels whilst accelerating revenue growth.

However, the bear case presents more compelling arguments. The fundamental flaw in the investment thesis is the persistently weak ROE of 3.69%, which fails to meet even minimal hurdle rates for equity capital. The five-year EBIT contraction of 12.88% annually contradicts the narrative of a growth company and suggests that recent margin improvements may be cyclical rather than structural. The PEG ratio of 4.57x indicates that investors are paying an excessive premium for uncertain growth prospects. Declining mutual fund holdings signal that professional investors are reducing exposure despite positive quarterly results, potentially reflecting concerns not visible in headline numbers.

Key Strengths & Risk Factors

Outlook: Critical Monitoring Points for Investors

The forward outlook for Rishabh Instruments hinges critically on management's ability to sustain the recent margin improvements whilst addressing the structural ROE challenge. Investors should closely monitor whether the 17.00% operating margin achieved in Q2 FY2026 represents a new sustainable baseline or a cyclical peak that will revert to lower historical levels. The company's capital allocation decisions over the coming quarters will be equally important—specifically, whether management can deploy the balance sheet's cash resources in projects that generate returns exceeding the cost of equity capital.

The broader electrical equipment sector's performance will also influence Rishabh Instruments' trajectory. Any revival in industrial capital expenditure or government infrastructure spending could provide a tailwind for instrumentation demand. Conversely, continued sector weakness or intensifying competition could pressure both volumes and margins. The company's ability to differentiate its products and maintain pricing power in a fragmented market will be critical to sustaining profitability improvements.