Sandhar Technologies Q2 FY26: Stellar 83% Profit Surge Driven by Operational Excellence

The quarter's standout performance reflects Sandhar's ability to capitalise on improving automotive demand whilst managing operational complexities. The company's stock has responded positively to the strong fundamentals, delivering 34.11% returns over the past three months and substantially outperforming the Sensex by 29.19 percentage points during this period. However, the stock remains 9.11% below its 52-week high of ₹602.80, suggesting room for appreciation if the momentum sustains.

What makes this quarter particularly noteworthy is the combination of strong top-line growth and improved profitability margins at the PAT level, despite some pressure on operating margins. The company has also benefited from a significant contribution from other income, which stood at ₹37.29 crores in Q2 FY26 compared to ₹5.79 crores in the corresponding quarter last year.

Financial Performance: Strong Revenue Momentum Drives Bottom Line

Sandhar Technologies' Q2 FY26 financial performance represents a significant inflection point. Net sales of ₹1,270.37 crores mark the highest quarterly revenue in the company's history, driven by robust demand across its product portfolio. On a sequential basis, revenue expanded by 16.54% from Q1 FY26's ₹1,090.09 crores, whilst the year-on-year comparison shows an impressive 29.08% growth over Q2 FY25's ₹984.16 crores.

The revenue acceleration has translated into substantial profit growth. Consolidated net profit surged to ₹73.38 crores in Q2 FY26, representing an 83.36% YoY increase and a remarkable 161.98% sequential jump. This dramatic improvement in profitability was supported by improved PAT margins, which expanded to 5.78% from 4.07% in Q2 FY25, despite operating margins (excluding other income) contracting slightly to 9.29% from 10.04% in the year-ago period.

The margin dynamics reveal an interesting story. Whilst operating margins (excluding other income) declined by 75 basis points year-on-year, this was more than offset by lower depreciation as a percentage of sales and improved interest coverage. Depreciation stood at ₹43.69 crores (3.44% of sales) compared to ₹42.21 crores (4.29% of sales) in Q2 FY25, reflecting better asset utilisation. Interest costs remained relatively stable at ₹17.39 crores versus ₹13.75 crores in the year-ago quarter.

Employee costs increased to ₹157.55 crores from ₹133.10 crores YoY, reflecting wage inflation and possible headcount additions to support growth. As a percentage of sales, employee costs stood at 12.40% in Q2 FY26 versus 13.52% in Q2 FY25, indicating improving labour productivity alongside scale benefits.

On a half-yearly basis (H1 FY26), the company reported net sales of ₹2,360.46 crores with consolidated net profit of ₹101.39 crores. The quality of earnings remains solid, with operating cash flows historically strong, though working capital management will be crucial given the rapid revenue expansion.

Operational Excellence: Capital Efficiency Improving but ROE Remains a Focus Area

Sandhar Technologies has demonstrated improving capital efficiency, though return ratios remain an area requiring sustained attention. The company's Return on Capital Employed (ROCE) for H1 FY26 reached 13.29%, marking the highest level in recent periods and representing a significant improvement from historical averages of 8.97%. This improvement reflects better asset utilisation and operational leverage as the company scales.

However, Return on Equity (ROE) remains modest at 8.93% on an average basis, though the latest figure of 12.28% shows encouraging momentum. For context, this ROE trails the peer group average of approximately 16%, indicating that whilst Sandhar is moving in the right direction, there is considerable room for improvement in shareholder value creation. Higher ROE would signify better capital efficiency and enhanced profitability, which remains a key focus area for management.

From a balance sheet perspective, Sandhar maintains a moderate leverage profile with a debt-to-equity ratio of 0.74 times (average) and 0.81 times for H1 FY26. Long-term debt stood at ₹272.21 crores as of March 2025, down from ₹285.55 crores in March 2024, indicating gradual deleveraging. The company's debt-to-EBITDA ratio of 2.31 times suggests manageable debt levels, though interest coverage of 4.80 times (average EBIT to interest) is adequate but not exceptionally strong.

Working capital management presents a mixed picture. The debtors turnover ratio for H1 FY26 declined to 5.31 times, the lowest in recent periods, suggesting slower collections or extended credit terms. This warrants close monitoring, as deteriorating working capital could strain cash flows despite strong reported profits. Current assets stood at ₹1,154.12 crores against current liabilities of ₹1,221.84 crores as of March 2025, indicating a slightly negative working capital position that requires careful management.

Industry Context: Riding the Auto Components Recovery Wave

Sandhar Technologies operates in the auto components and equipments sector, which has witnessed a robust recovery following the pandemic-induced disruptions. The Indian automotive industry has benefited from pent-up demand, improving consumer sentiment, and the ongoing shift towards premiumisation and electric vehicles—trends that favour diversified component suppliers like Sandhar.

The company's 5-year sales growth of 23.44% and EBIT growth of 43.26% significantly outpace industry averages, reflecting market share gains and successful product diversification. Sandhar supplies to major original equipment manufacturers (OEMs) across two-wheelers, passenger vehicles, and commercial vehicles, providing revenue diversification and reducing dependence on any single customer or segment.

The broader auto components sector has delivered 12.42% returns over the past year, outperforming Sandhar's 4.69% return by 7.73 percentage points. However, Sandhar's recent three-month performance of 34.11% suggests the market is beginning to recognise the company's improving fundamentals. The stock's beta of 1.35 indicates higher volatility than the market, typical for small-cap stocks in cyclical sectors.

Looking ahead, the Indian automotive sector's growth trajectory remains positive, supported by government initiatives promoting electric mobility, infrastructure development, and manufacturing under the Production Linked Incentive (PLI) scheme. Sandhar's diversified product portfolio and established OEM relationships position it well to capture this growth, though execution and margin management will be critical.

Peer Comparison: Valuation Discount Reflects Profitability Gap

A comparison with sector peers reveals Sandhar Technologies' relative positioning in terms of valuation, profitability, and capital structure. The company trades at a substantial discount on most valuation metrics, primarily reflecting its lower return on equity and moderate debt levels compared to peers.

Sandhar's P/E ratio of 19.15x is the second-lowest in the peer group, just above Steel Strips Wheels' 17.04x. This discount is justified by its ROE of 8.93%, which is the lowest among the comparison group except for JTEKT India's 9.71%. Peers like SJS Enterprises (17.22% ROE) and Jamna Auto Industries (20.96% ROE) command premium valuations due to superior capital efficiency.

The price-to-book ratio of 2.89x also reflects this profitability differential. Companies with higher ROE typically trade at higher P/BV multiples, as seen with SJS Enterprises at 8.29x and Lumax Industries at 5.62x. Sandhar's moderate P/BV suggests the market is pricing in improvement potential but remains cautious about execution risks.

On the positive side, Sandhar offers better value than several peers on an EV/EBITDA basis at 10.37x, and its debt-to-equity ratio of 0.74 is manageable, though higher than some peers with net cash positions. The dividend yield of 0.64% is modest, reflecting the company's need to retain capital for growth investments and deleveraging.

The valuation discount presents an opportunity for investors if Sandhar can sustain its recent improvement in ROCE and ROE. Closing the profitability gap with peers would likely result in multiple expansion, offering capital appreciation potential beyond earnings growth alone.

Valuation Analysis: Attractive Entry Point Despite Quality Concerns

At the current price of ₹547.90, Sandhar Technologies trades at a P/E ratio of 19.15x based on trailing twelve-month earnings, representing a 51% discount to the industry P/E of 39x. The company's valuation has been classified as "Attractive" by proprietary metrics, having oscillated between "Attractive" and "Very Attractive" over the past several months.

The EV/EBITDA multiple of 10.37x appears reasonable for a company growing revenues at 23.44% annually and EBIT at 43.26%. The PEG ratio of 0.59x suggests the stock is undervalued relative to its growth profile, with any reading below 1.0 typically indicating potential upside. However, this must be balanced against concerns about earnings quality given the high other income contribution and moderate return ratios.

The price-to-book value of 2.89x is reasonable given the improving ROCE of 10.74% (latest period), though it remains below the cost of equity for most investors. The stock trades 9.11% below its 52-week high of ₹602.80 and 66.53% above its 52-week low of ₹329.00, suggesting it is in the middle of its recent trading range with room for appreciation if fundamentals continue improving.

From a technical perspective, the stock has been in a bullish trend since early November 2025, with most indicators—including MACD, Bollinger Bands, and On-Balance Volume—signalling positive momentum on both weekly and monthly timeframes. The stock trades above all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), indicating strong technical support.

Considering the combination of attractive valuation multiples, improving operational performance, and positive technical momentum, Sandhar Technologies appears to offer a reasonable risk-reward proposition at current levels. However, investors must weigh this against concerns about earnings quality, moderate return ratios, and the cyclical nature of the auto components business.

Shareholding Pattern: Stable Promoter Holding with Growing Mutual Fund Interest

Sandhar Technologies' shareholding pattern reflects stability at the promoter level and gradually increasing institutional participation, particularly from mutual funds. The promoter holding has remained steady at 70.38% across the last five quarters, indicating strong management confidence and no dilution concerns.

Mutual fund holding has shown a gradual upward trend, increasing from 15.57% in December 2024 to 15.85% in September 2025. The sequential increase of 10 basis points from June to September 2025 suggests growing institutional confidence in the company's prospects. With eight mutual funds holding stakes, the company enjoys reasonable institutional coverage, though this remains moderate compared to larger peers.

Foreign Institutional Investor (FII) participation remains minimal at 0.66%, down from 0.90% in September 2024. The declining FII interest could reflect concerns about company size, liquidity, or profitability metrics. However, 38 FIIs holding stakes indicates some international investor interest, albeit at low levels.

Notably, insurance companies have zero holding in Sandhar Technologies, which is unusual for a listed company of this size and could indicate that the stock does not meet certain quality or liquidity thresholds for insurance portfolios. The absence of insurance participation is a negative signal regarding institutional perception of the company's quality.

Promoter Jayant Davar holds 50.56% directly, with additional holdings through family trusts and related entities bringing total promoter stake to 70.38%. Crucially, there is no promoter pledging, which eliminates concerns about forced selling or governance issues related to pledged shares. This zero pledging is a significant positive for minority shareholders.

The modest institutional holding of 16.52% (mutual funds plus FIIs plus insurance) suggests the stock remains under-owned by institutions, which could present an opportunity if the company's improving fundamentals attract greater institutional attention. Increased institutional buying could provide support for the stock price and reduce volatility over time.

Stock Performance: Recent Outperformance After Prolonged Underperformance

Sandhar Technologies' stock performance presents a tale of two distinct periods: significant long-term outperformance and recent near-term underperformance, with a sharp reversal in the past three months. The stock has delivered exceptional returns over longer timeframes whilst struggling over the past year.

The stock's three-year return of 138.06% versus the Sensex's 37.22% represents remarkable outperformance of 100.84 percentage points, reflecting the company's successful navigation of the post-pandemic recovery and operational improvements. Similarly, the five-year return of 136.06% beats the Sensex by 42.28 percentage points, validating the long-term investment case.

However, the one-year return of just 4.69% versus the Sensex's 9.00% shows recent underperformance of 4.31 percentage points. This weakness extended through most of 2025, with the year-to-date return of 7.31% marginally trailing the Sensex's 8.22%. The underperformance likely reflected concerns about margin pressure, elevated debt levels, and moderate return ratios.

The dramatic reversal in the past three months, with returns of 34.11% significantly outpacing the Sensex's 4.92%, suggests the market is beginning to recognise the improving operational trajectory. The six-month return of 30.92% versus 3.97% for the Sensex further confirms this positive momentum shift. This recent outperformance coincides with the company's strong Q1 and Q2 FY26 results, indicating that fundamentals are driving the stock price recovery.

From a technical standpoint, the stock exhibits high volatility with a beta of 1.35, meaning it tends to move 35% more than the market in either direction. The risk-adjusted return of 0.11 over the past year (versus 0.73 for the Sensex) reflects this elevated volatility of 44.28% compared to the Sensex's 12.26%. The stock is classified as "High Risk Medium Return," appropriate for investors with higher risk tolerance.

Compared to its sector, Sandhar has underperformed the Auto Components & Equipments index by 7.73 percentage points over the past year (4.69% versus 12.42%). This sector underperformance, combined with the Sensex underperformance, suggests company-specific concerns have weighed on sentiment. However, the recent sharp reversal indicates these concerns may be dissipating as operational improvements become evident.

Investment Thesis: Turnaround Story with Execution Risks

Sandhar Technologies presents a compelling turnaround investment thesis predicated on improving operational metrics, attractive valuation, and positive momentum. The company's proprietary Mojo Score of 71 out of 100 places it in "BUY" territory, reflecting a balanced assessment across four key dimensions.

The investment case rests on several pillars. First, valuation remains attractive at a P/E of 19.15x versus the industry's 39x, offering a margin of safety. Second, the company has demonstrated strong revenue growth momentum, with Q2 FY26 sales reaching an all-time high and growing 29.08% year-on-year. Third, profitability metrics are improving, with ROCE reaching 13.29% in H1 FY26 and PAT margins expanding to 5.78% in Q2 FY26.

The bull case centres on sustained operational improvement translating into higher return ratios. If Sandhar can maintain its recent ROCE improvement and drive ROE towards peer levels of 15-20%, the valuation gap would narrow substantially. The company's diversified customer base, established OEM relationships, and exposure to growing automotive segments provide revenue visibility. Additionally, the zero promoter pledging and stable shareholding pattern eliminate governance concerns.

However, the bear case highlights several risks. The elevated contribution of other income to profitability (38.97% of PBT in Q2 FY26) raises sustainability concerns. The deteriorating debtors turnover ratio suggests potential working capital pressures. ROE of 8.93% remains well below peers, indicating capital efficiency challenges. The moderate debt-to-EBITDA ratio of 2.31 times limits financial flexibility. Finally, the company's small-cap status and high beta of 1.35 mean elevated volatility and liquidity risks.

The quality assessment of "Average" reflects these mixed signals. Whilst the company demonstrates healthy long-term growth (23.44% sales CAGR, 43.26% EBIT CAGR), the weak interest coverage of 4.80 times and moderate leverage temper the overall quality profile. The absence of insurance holdings in the shareholding pattern further suggests institutional investors perceive quality concerns.

Key Strengths & Risk Factors

Outlook: What to Watch

The forward outlook for Sandhar Technologies hinges on management's ability to sustain the recent operational momentum whilst addressing quality concerns. The company operates in a favourable industry environment with strong automotive demand, but must demonstrate that Q2 FY26's exceptional performance represents a new baseline rather than a temporary spike.

Key monitoring points include the sustainability of revenue growth, trajectory of operating margins, normalisation of other income, working capital management, and progression of return ratios. Investors should track quarterly results closely to assess whether the company is genuinely improving capital efficiency or merely benefiting from cyclical tailwinds.

The stock's recent technical strength and improving delivery volumes suggest growing investor confidence, but the high beta and volatility mean the stock could face sharp corrections if execution falters. The absence of insurance holdings and minimal FII interest indicate institutional scepticism that would need to be overcome through consistent performance.