SEL Manufacturing Company Q2 FY26: Losses Deepen as Revenue Collapses 87.71%

The company's operational crisis has intensified dramatically in the latest quarter, with revenue collapsing to levels not seen in recent years. The sharp sequential decline of 87.71% in net sales signals severe disruptions in business operations, whilst the operating profit before depreciation, interest, and tax (excluding other income) remained deeply negative at ₹-6.12 crores, representing an operating margin of -51.82%. This deterioration from the already concerning -22.03% margin in Q1 FY26 underscores the company's inability to control costs relative to its shrinking revenue base.

Year-on-year comparisons paint an equally grim picture, with Q2 FY26 sales down 91.72% from ₹142.57 crores in Q2 FY25. The consolidated net loss of ₹27.93 crores, whilst showing a 54.64% sequential improvement from Q1's ₹61.58 crore loss, still represents a 38.21% deterioration from the ₹45.20 crore loss posted in Q2 FY25. The company's negative book value of ₹-17.02 per share reflects a balance sheet under severe stress, with shareholder funds standing at ₹-56.39 crores as of March 2024.

Financial Performance: A Structural Breakdown

The company's financial performance in Q2 FY26 reveals a business model under extreme duress. Net sales of ₹11.81 crores represent the lowest quarterly revenue in the available dataset, marking a catastrophic 87.71% sequential decline. On a year-on-year basis, sales contracted 91.72%, highlighting the severity of operational challenges facing the garments manufacturer. Employee costs of ₹1.39 crores, whilst down from ₹8.57 crores in Q1, remained disproportionately high relative to the revenue base.

The operating profit before depreciation, interest, and tax (excluding other income) stood at ₹-6.12 crores, translating to an operating margin of -51.82%. This represents a significant deterioration from the -22.03% margin in Q1 FY26 and underscores the company's inability to achieve even basic operational viability. Interest costs of ₹15.04 crores remained stubbornly elevated, whilst depreciation charges of ₹23.80 crores continued to weigh heavily on the income statement, reflecting the burden of historical capital investments that are no longer generating adequate returns.

The profit before tax of ₹-27.93 crores, combined with zero tax payments, resulted in a net loss matching the PBT figure. The company's PAT margin of -236.49% indicates that losses exceeded twice the revenue generated during the quarter. This represents one of the weakest quarterly performances in the company's recent history, with the loss-making trajectory showing no signs of meaningful reversal.

Operational Crisis: Negative Returns and Eroding Capital

SEL Manufacturing Company's operational metrics paint a picture of a business struggling with fundamental viability issues. The company's average return on capital employed (ROCE) stands at -14.23%, whilst the return on equity (ROE) is effectively zero, reflecting the negative book value situation. These metrics indicate that the company is destroying shareholder value rather than creating it, with capital employed generating negative returns consistently.

The balance sheet as of March 2024 reveals shareholder funds of ₹-56.39 crores, comprising share capital of ₹33.13 crores offset by reserves and surplus of ₹-89.52 crores. This negative net worth position indicates that accumulated losses have completely eroded the company's equity base. Long-term debt stood at ₹818.64 crores, though this has been declining from ₹895.50 crores in March 2023, suggesting some deleveraging efforts. Current liabilities of ₹292.22 crores include trade payables of ₹95.35 crores, indicating stretched working capital management.

Industry Context: Struggling in a Competitive Sector

The garments and apparels industry in India faces intense competition, with manufacturers competing on price, quality, and delivery timelines. SEL Manufacturing Company's performance stands in stark contrast to the broader sector dynamics, with the company significantly underperforming its peer group. The one-year return for SEL Manufacturing Company stands at -24.07%, compared to the garments and apparels sector return of -2.17%, representing an underperformance of 21.90 percentage points.

The company's operational challenges appear structural rather than cyclical, with the severe revenue contraction suggesting loss of market share, client attrition, or operational disruptions. The negative operating margins across multiple quarters indicate that the company is unable to compete effectively on cost, whilst the elevated debt burden limits financial flexibility to invest in modernisation or working capital.

Peer Comparison: Trailing the Industry

A comparison with peers in the garments and apparels sector highlights SEL Manufacturing Company's relative weakness across key financial metrics. Whilst the company's P/E ratio is not applicable due to sustained losses, its price-to-book value of -2.06 times reflects the negative equity situation. In contrast, peers such as Jasch Industries maintain a P/BV of 0.17 times with a ROE of 15.24%, whilst Surat Trade shows a P/BV of 0.60 times with ROE of 10.57%.

The stark contrast in return on equity is particularly telling, with SEL Manufacturing Company's 0.0% ROE (effectively negative given the book value situation) comparing unfavourably to the peer average of approximately 10%. The company's distorted debt-to-equity ratio of -16.61, resulting from negative equity, makes meaningful leverage comparisons impossible. What is clear, however, is that SEL Manufacturing Company operates with a fundamentally impaired capital structure that limits its ability to compete effectively.

Valuation Analysis: Risky at Any Price

SEL Manufacturing Company's valuation metrics reflect the severe financial distress facing the business. With a P/E ratio classified as "NA (Loss Making)" due to sustained losses, traditional earnings-based valuation approaches are not applicable. The price-to-book value of -2.06 times indicates that the market values the company at twice its negative book value, a peculiar situation that reflects the distressed nature of the equity.

The EV-to-EBITDA ratio of -19.10 times and EV-to-EBIT of -7.00 times are both negative, reflecting the company's inability to generate positive operating profits. The EV-to-sales ratio of 2.81 times suggests the market is valuing the company at approximately three times its annual revenue, which appears generous given the sustained losses and negative cash generation. The company's overall valuation grade is classified as "RISKY," having held this designation since December 2021 with brief interruptions.

The stock currently trades at ₹34.17, down 4.98% on the day and significantly below its 52-week high of ₹54.66. However, even at current levels, the valuation appears untenable given the company's operational trajectory and balance sheet position. The lack of dividend payments (last dividend in February 2008) and zero dividend yield reflect the company's inability to return any capital to shareholders. With a dividend payout ratio of 0.0%, all focus remains on survival rather than shareholder returns.

Shareholding Pattern: Stable but Concerning

The shareholding pattern for SEL Manufacturing Company has remained remarkably stable over the past five quarters, with promoter holding steady at 36.00% throughout. This stability, however, should not be interpreted as a positive signal, given that 36.00% of shares are pledged, indicating that promoters may have limited financial flexibility. The absence of any change in promoter holding suggests neither confidence-building accumulation nor panic-driven selling.

Foreign institutional investor (FII) holding remains minimal at 0.13%, unchanged across quarters, whilst mutual fund holding stands at zero, reflecting the complete absence of interest from domestic institutional investors. Other domestic institutional investors (DII) have been gradually reducing their stake, declining from 12.78% in December 2024 to 11.54% in September 2025, a cumulative reduction of 1.24 percentage points. This steady exit by institutional investors signals waning confidence in the company's turnaround prospects.

Non-institutional holdings have increased marginally from 12.09% to 13.33% over the same period, suggesting some retail investor interest, though this appears to be more a function of institutional selling rather than active retail accumulation. The overall institutional holding of just 11.67% (combining FII and DII) is exceptionally low for a listed company, indicating that sophisticated investors have largely abandoned the stock.

Stock Performance: Severe Underperformance Across All Timeframes

SEL Manufacturing Company's stock performance has been dismal across virtually all timeframes, with the stock significantly underperforming both the Sensex benchmark and its sector peers. The one-day return of -4.98% compares unfavourably to the Sensex's +0.38% gain, resulting in negative alpha of -5.36%. Over the past week, the stock has declined 4.55% against the Sensex's -0.53% fall, indicating continued weakness.

Whilst the stock has shown some short-term resilience with one-month and three-month returns of +12.22% and +11.67% respectively, these gains appear to be technical bounces rather than fundamental improvements. The six-month return of -1.61% and year-to-date decline of -24.29% paint a more accurate picture of the underlying trend. The one-year return of -24.07% significantly underperforms the Sensex's +5.09% gain by 29.16 percentage points.

The longer-term performance is even more concerning, with two-year returns of -65.76% and three-year returns of -94.30%, representing catastrophic wealth destruction for investors. The stock's beta of 1.50 indicates high volatility relative to the market, whilst the negative risk-adjusted return of -0.45 over one year confirms that investors are not being compensated for the elevated risk. The stock's classification as "HIGH RISK LOW RETURN" accurately captures the investment proposition.

Investment Thesis: Multiple Red Flags

SEL Manufacturing Company's investment thesis is severely compromised by multiple structural weaknesses that show no signs of improvement. The company's proprietary Mojo score of 9 out of 100 places it firmly in "STRONG SELL" territory, with the score having remained in this range since August 2022. The overall advisory rating of "STRONG SELL" reflects the confluence of negative factors across valuation, quality, financial trends, and technical indicators.

The quality assessment of "BELOW AVERAGE" reflects the company's weak long-term financial performance, with five-year sales growth of -39.06% and average ROCE of -14.23%. The financial trend is classified as "NEGATIVE," driven by the latest six-month sales decline of 56.64% and the lowest quarterly PBT (excluding other income) of ₹-44.85 crores. The technical trend of "MILDLY BEARISH" adds to the negative outlook, with the stock trading below all key moving averages.

Key Strengths & Risk Factors

Outlook: What to Watch

The outlook for SEL Manufacturing Company remains deeply concerning, with the company facing an existential crisis. The dramatic 87.71% quarter-on-quarter revenue collapse in Q2 FY26 to just ₹11.81 crores suggests severe operational disruptions that go beyond normal business volatility. Without a credible turnaround plan, capital infusion, or strategic intervention, the company's ability to continue as a going concern must be questioned.

Investors should monitor the next quarter's results closely for any signs of revenue stabilisation. However, given the company's negative book value, sustained losses across multiple years, and deteriorating financial trends, the probability of a successful turnaround appears remote. The technical trend of "MILDLY BEARISH" and the stock's position below all major moving averages suggest continued downward pressure on the share price.