The quarter's results reveal a company grappling with deteriorating core profitability despite maintaining revenue momentum. Net sales in Q3 FY26 reached ₹54.81 crores, marking a modest 3.67% quarter-on-quarter increase and a near-flat 0.04% year-on-year growth. However, beneath this stable revenue facade lies a troubling narrative: operating profit before depreciation, interest, and tax (excluding other income) plunged to ₹34.83 crores, representing the lowest quarterly figure in recent periods and translating to an operating margin of just 63.55%—a sharp 928 basis point contraction from the previous quarter's 72.84%.
What's particularly concerning is the company's growing reliance on non-operating income to shore up bottom-line performance. Other income surged dramatically to ₹4.06 crores in Q3 FY26, constituting a staggering 74.50% of profit before tax. This abnormal dependence on non-core income sources raises serious questions about the sustainability of earnings quality and suggests that the company's primary lending operations are facing significant headwinds.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Dec'25 | 54.81 | +3.67% | 3.75 | -0.27% | 6.84% |
| Sep'25 | 52.87 | -1.64% | 3.76 | -8.74% | 7.11% |
| Jun'25 | 53.75 | +1.99% | 4.12 | -10.24% | 7.67% |
| Mar'25 | 52.70 | -3.81% | 4.59 | -0.22% | 8.71% |
| Dec'24 | 54.79 | +0.92% | 4.60 | +28.86% | 8.40% |
| Sep'24 | 54.29 | +2.03% | 3.57 | -8.23% | 6.58% |
| Jun'24 | 53.21 | — | 3.89 | — | 7.31% |
Financial Performance: Margin Erosion Accelerates
The detailed financial analysis for Q3 FY26 paints a picture of mounting operational challenges. Net sales of ₹54.81 crores represented a marginal 3.67% sequential increase but remained essentially flat on a year-on-year basis at just 0.04% growth. This anaemic revenue expansion in a growing NBFC sector signals potential market share losses or deteriorating competitive positioning.
More alarmingly, employee costs surged to ₹9.51 crores in Q3 FY26, though this represented a decline from the ₹9.67 crores recorded in the year-ago quarter. The sequential increase from ₹7.95 crores in Q2 FY26, however, suggests potential inefficiencies in workforce utilisation or one-time provisions. Operating profit before depreciation, interest, and tax (excluding other income) contracted sharply to ₹34.83 crores, yielding an operating margin of 63.55%—the lowest in recent quarters and significantly below the 68.90% margin achieved in the year-ago period.
Interest expenses climbed to ₹31.85 crores in Q3 FY26 from ₹31.50 crores in the previous quarter, reflecting the company's elevated debt burden. With a debt-to-equity ratio of 5.45 times—the highest recorded in recent periods—Sakthi Finance operates with significant financial leverage that amplifies risks during periods of operational stress. Profit before tax stood at ₹5.45 crores, marginally down from ₹5.46 crores in Q2 FY26 but notably lower than the ₹6.01 crores achieved in the year-ago quarter.
The tax rate for Q3 FY26 was 31.19%, resulting in a tax outgo of ₹1.70 crores and leaving net profit at ₹3.75 crores. This represents the lowest quarterly profit in the recent period under review and marks an 18.48% year-on-year decline. The PAT margin compressed to 6.84%, down from 7.11% in the previous quarter and significantly below the 8.40% margin achieved in the year-ago quarter, highlighting the sustained pressure on profitability.
The Leverage Challenge: High Debt Amplifies Risk
Sakthi Finance's balance sheet reveals a company operating under considerable financial strain. The debt-to-equity ratio of 5.45 times stands as the highest recorded in recent history, indicating aggressive use of borrowed funds to support lending operations. For an NBFC, whilst leverage is inherent to the business model, such elevated ratios leave little margin for error and significantly amplify downside risks during periods of asset quality deterioration or funding cost increases.
The company's return on equity (ROE) of 7.35% for the latest period, whilst marginally above the five-year average of 6.25%, remains substantially below industry standards for well-managed NBFCs. This weak capital efficiency metric suggests that the company is not generating adequate returns to justify its risk profile, particularly concerning given the high leverage employed. The return on capital employed (ROCE) of 11.17% similarly reflects suboptimal utilisation of the total capital base.
Critical Concern: Earnings Quality Deterioration
The most alarming aspect of Q3 FY26 results is the extraordinary reliance on other income, which constituted 74.50% of profit before tax. This abnormal ratio suggests that core lending operations generated minimal profitability, with non-operating income providing the bulk of reported earnings. Such dependence on non-core income sources is unsustainable and raises serious red flags about the underlying health of the loan book and the company's ability to generate consistent, quality earnings from its primary business activities.
Cash and cash equivalents stood at ₹191.33 crores on a half-yearly basis, representing the highest level in recent periods. Whilst this provides some liquidity cushion, the elevated cash holdings relative to the company's market capitalisation of ₹192.18 crores raise questions about capital deployment efficiency and whether funds are being productively utilised in lending operations or sitting idle due to risk aversion or lack of viable lending opportunities.
Competitive Positioning: Lagging Behind Peers
When benchmarked against industry peers in the NBFC space, Sakthi Finance's relative positioning reveals significant competitive disadvantages. With an ROE of 6.25%, the company generates returns well below what investors typically expect from financial services companies, particularly those operating with leverage ratios exceeding 5 times. The price-to-book value ratio of 0.83 times reflects the market's scepticism about the company's ability to generate value, with the stock trading at a discount to book value—a clear indication that investors perceive the book value as overstated or at risk of impairment.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Sakthi Finance | 11.30 | 0.83 | 6.25 | 5.45 | 2.07 |
| Last Mile Enter. | 11.43 | 0.59 | 5.13 | 0.11 | 0.31 |
| Akme Fintrade | 5.70 | 0.53 | 8.50 | 0.96 | — |
| Landmarc Leisur. | NA (Loss Making) | 7.28 | 0.00 | 0.13 | — |
| Som Datt Finance | NA (Loss Making) | 2.55 | 0.00 | 0.00 | — |
The peer comparison reveals Sakthi Finance's dramatically higher leverage profile compared to competitors. Whilst the company's debt-to-equity ratio stands at 5.45 times, peers like Last Mile Enterprises and Landmarc Leisure operate with significantly lower leverage at 0.11 times and 0.13 times respectively. This disparity suggests that Sakthi Finance either operates in riskier lending segments requiring higher capital intensity or faces funding constraints that necessitate aggressive use of debt.
The P/E ratio of 11.30 times appears reasonable on the surface, particularly when compared to the industry average of 23 times. However, this valuation discount reflects market concerns about earnings quality, growth sustainability, and elevated leverage risks rather than representing an attractive entry opportunity. The dividend yield of 2.07%, whilst higher than most peers, provides limited comfort given the deteriorating profitability trends and potential need to conserve capital to support the balance sheet.
Valuation Analysis: Discount Justified by Fundamentals
At the current market price of ₹29.70, Sakthi Finance trades at a P/E ratio of 11.30 times trailing twelve-month earnings, representing a significant discount to the NBFC industry average of 23 times. However, this valuation gap appears fully justified by the company's weak fundamentals rather than representing an attractive entry point for value investors. The price-to-book ratio of 0.83 times signals that the market values the company's net assets below their stated book value, typically an indication of concerns about asset quality or future profitability.
The stock's valuation grade has fluctuated considerably in recent months, currently standing at "Fair" after transitioning through "Very Expensive," "Expensive," and "Attractive" ratings between October 6 and October 15, 2025. This volatility in valuation assessment reflects the stock's sharp price decline rather than fundamental improvements, with the current "Fair" rating suggesting that the dramatic sell-off has brought valuations more in line with the company's challenged operating performance.
The enterprise value-to-EBITDA multiple of 8.34 times and EV-to-EBIT of 8.68 times appear modest in absolute terms but must be viewed in the context of deteriorating margins and questionable earnings quality. The PEG ratio of 1.64 suggests the stock is not excessively expensive relative to its growth rate, though with five-year sales growth of just 4.69% and EBIT growth of 4.44%, the underlying growth trajectory remains anaemic and well below sector averages.
From a 52-week perspective, the stock currently trades at ₹29.70, just 0.85% above its 52-week low of ₹29.45 and a staggering 48.79% below its 52-week high of ₹58.00. This dramatic decline reflects sustained selling pressure and deteriorating investor sentiment, with the stock finding little support even at these depressed levels. The technical setup suggests further downside risk remains if operating fundamentals continue to deteriorate.
Shareholding Pattern: Stable but Uninspiring
The shareholding structure of Sakthi Finance has remained remarkably stable over the past five quarters, with promoter holding steady at 67.02% across all reported periods. This consistency provides some governance comfort, indicating that the founding group maintains conviction in the business despite operational challenges. However, the complete absence of institutional participation—with zero holdings from foreign institutional investors, mutual funds, and insurance companies—represents a significant red flag.
| Quarter | Promoter | FII | Mutual Funds | Insurance | Other DII | Non-Inst |
|---|---|---|---|---|---|---|
| Dec'25 | 67.02% | 0.00% | 0.00% | 0.00% | 0.00% | 32.98% |
| Sep'25 | 67.02% | 0.00% | 0.00% | 0.00% | 0.00% | 32.98% |
| Jun'25 | 67.02% | 0.00% | 0.00% | 0.00% | 0.00% | 32.98% |
| Mar'25 | 67.02% | 0.00% | 0.00% | 0.00% | 0.00% | 32.98% |
| Dec'24 | 67.02% | 0.00% | 0.00% | 0.00% | 0.00% | 32.98% |
The lack of institutional interest is particularly concerning for a financial services company, as sophisticated investors typically conduct rigorous due diligence on asset quality, underwriting standards, and management capability before committing capital. The complete absence of any institutional holders—whether domestic or foreign—suggests that professional investors have either evaluated and rejected the investment opportunity or remain unaware of the company due to its micro-cap status and limited visibility.
The non-institutional shareholding of 32.98% has similarly remained static, indicating neither accumulation nor distribution by retail investors. This stagnation in shareholding dynamics, combined with the absence of institutional participation, contributes to poor liquidity in the stock. The average daily trading volume of just 174 shares on February 13, 2026, underscores the extremely thin float and difficulty investors would face in building or exiting meaningful positions.
Stock Performance: Severe Underperformance Across All Timeframes
The stock price performance of Sakthi Finance has been nothing short of disastrous across virtually all meaningful time periods, with the company dramatically underperforming both the broader market and its NBFC sector peers. Over the past one year, the stock has plummeted 42.87%, whilst the Sensex gained 8.82%, resulting in a negative alpha of 51.69 percentage points. This catastrophic underperformance reflects sustained selling pressure and deteriorating investor confidence in the company's prospects.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.80% | -0.87% | +0.07% |
| 1 Month | -21.84% | -0.93% | -20.91% |
| 3 Month | -29.25% | -1.93% | -27.32% |
| 6 Month | -37.49% | +2.87% | -40.36% |
| YTD | -24.81% | -2.78% | -22.03% |
| 1 Year | -42.87% | +8.82% | -51.69% |
| 2 Years | -64.97% | +15.79% | -80.76% |
| 3 Years | -1.98% | +37.10% | -39.08% |
The damage extends across all shorter timeframes as well, with the stock declining 21.84% over the past month (versus Sensex decline of 0.93%), 29.25% over three months, and 37.49% over six months. Year-to-date performance shows a 24.81% decline, significantly worse than the Sensex's 2.78% drop. Even the one-week performance, whilst marginally better than the market, provides no solace given the sustained downtrend.
Perhaps most concerning is the two-year performance, where the stock has collapsed 64.97% whilst the Sensex gained 15.79%, representing a negative alpha of 80.76 percentage points. This sustained underperformance across multiple time horizons indicates deep-seated structural issues rather than temporary setbacks. The stock's comparison against the NBFC sector is equally damning, with the sector delivering 23.77% returns over the past year whilst Sakthi Finance declined 42.87%—an underperformance of 66.64 percentage points.
Technical Analysis: Bearish Trend with Limited Support
The technical picture for Sakthi Finance remains decidedly bearish, with the stock entrenched in a downtrend since January 8, 2026, when it changed to "Bearish" from "Mildly Bearish" at ₹39.40. All key technical indicators flash warning signals, with MACD bearish on both weekly and monthly timeframes, Bollinger Bands indicating bearish momentum, moving averages showing sustained weakness, and KST oscillator firmly in bearish territory. Only the RSI shows a bullish signal on the monthly chart, though this contrarian indicator provides little comfort given the overwhelming bearish consensus across other metrics.
The stock currently trades below all major moving averages, a classic sign of technical weakness. At ₹29.70, the stock sits below its 5-day moving average of ₹30.36, 20-day MA of ₹32.79, 50-day MA of ₹35.62, 100-day MA of ₹39.35, and 200-day MA of ₹43.68. This alignment of moving averages in descending order creates significant overhead resistance and suggests that any recovery attempt will face multiple resistance zones that could cap upside.
Immediate support lies at the 52-week low of ₹29.45, just 0.85% below current levels, whilst the first meaningful resistance emerges at the 20-day moving average of ₹32.79—representing a 10.4% rally from current levels. Major resistance at the 100-day MA of ₹39.35 would require a 32.5% surge, whilst the 200-day MA at ₹43.68 stands 47.1% above current prices. The 52-week high of ₹58.00 appears a distant target, requiring a 95.3% rally to reclaim.
Investment Thesis: Multiple Red Flags Outweigh Limited Positives
The investment thesis for Sakthi Finance is overwhelmingly negative, with the company's proprietary Mojo Score of just 17 out of 100 placing it firmly in "Strong Sell" territory. This score reflects the confluence of negative factors across all key investment parameters: bearish technical trends, negative financial trends, below-average quality metrics, and deteriorating fundamentals. The score has remained in distressed territory for an extended period, having transitioned from "Sell" to "Strong Sell" on January 7, 2025.
The company's quality assessment reveals fundamental weaknesses that explain the sustained underperformance. With a five-year sales growth rate of just 4.69% and EBIT growth of 4.44%, Sakthi Finance has failed to deliver meaningful expansion in a sector that has seen robust growth for well-managed players. The average ROE of 6.25% falls well short of the double-digit returns typically expected from financial services companies, particularly those employing significant leverage.
The debt-to-equity ratio of 5.45 times represents the highest level in recent history and creates substantial financial risk, particularly concerning given the deteriorating operating margins and questionable earnings quality. The complete absence of institutional holdings (0.00%) suggests that sophisticated investors have evaluated and rejected the opportunity, a damning indictment of the company's investment merit.
Key Strengths & Risk Factors
KEY STRENGTHS
- Stable Promoter Holding: Consistent 67.02% promoter stake demonstrates management commitment and governance stability
- Modest Valuation: P/E of 11.30x trades at discount to industry average of 23x, reflecting market concerns
- Dividend Yield: 2.07% yield provides some income support, though sustainability questionable
- Established Presence: 71-year operating history since 1955 in commercial vehicle financing segment
- Liquidity Position: Cash holdings of ₹191.33 crores provide short-term cushion for operations
KEY CONCERNS
- Deteriorating Profitability: Net profit down 18.48% YoY with PAT margin compressing to 6.84%
- Earnings Quality Crisis: Other income constitutes 74.50% of PBT, indicating core business weakness
- Excessive Leverage: Debt-to-equity of 5.45x creates significant financial risk and limits flexibility
- Weak Returns: ROE of 6.25% and ROCE of 11.17% well below industry standards
- Zero Institutional Interest: Complete absence of FII, MF, and insurance holdings signals quality concerns
- Margin Compression: Operating margin declined to 63.55%, down 928 bps QoQ
- Catastrophic Stock Performance: Down 42.87% in one year, 64.97% over two years
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained improvement in core operating margins above 70%
- Reduction in dependency on other income to below 20% of PBT
- Deleveraging to bring debt-to-equity below 4.0x
- Institutional investor participation or stake acquisition
- Consistent quarterly profit growth above 15% YoY
RED FLAGS TO MONITOR
- Further deterioration in operating margins below 60%
- Continued reliance on other income exceeding 50% of PBT
- Any increase in debt-to-equity ratio beyond 5.5x
- Quarterly net profit declining below ₹3.50 crores
- Promoter stake reduction or pledging of shares
- Stock breaking below 52-week low of ₹29.45
The Verdict: Exit Recommended
Score: 17/100
For Fresh Investors: Avoid initiating any position. The combination of deteriorating profitability, excessive leverage, questionable earnings quality with 74.50% of PBT from other income, and complete absence of institutional interest creates an unfavourable risk-reward profile. The bearish technical setup with the stock near 52-week lows offers no margin of safety.
For Existing Holders: Consider exiting positions at current levels despite the significant losses already incurred. The fundamental deterioration shows no signs of stabilisation, with operating margins compressing sharply and core business profitability under severe pressure. The negative financial trend, below-average quality metrics (ROE of just 6.25%), and elevated leverage (debt-to-equity of 5.45x) suggest further downside risk remains.
Fair Value Estimate: ₹25.00 (15.8% downside from current price), reflecting continued earnings pressure and structural challenges in the business model.
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. Past performance is not indicative of future results, and all investments carry risk of loss.
