The quarter's financial performance reveals an alarming trend: whilst net sales grew 12.07% quarter-on-quarter to ₹160.68 crores, operating losses widened dramatically, with operating profit margin (excluding other income) plunging to -41.93% from -38.20% in Q2 FY26. Year-on-year, revenue declined 2.24%, signalling persistent challenges in the company's core business operations despite marginal sequential improvement.
The company's financial distress extends beyond quarterly fluctuations. On a nine-month basis for FY26 (April-December 2025), Shemaroo Entertainment accumulated consolidated losses of ₹146.50 crores on revenues of ₹443.58 crores. This represents a stark contrast to the company's historical performance: in FY20, the firm generated ₹30.00 crores in profit on sales of ₹513.00 crores, demonstrating a complete reversal in profitability trajectory over the past five years.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | YoY Growth | PAT Margin |
|---|---|---|---|---|---|
| Dec'25 | 160.68 | +12.07% | -55.43 | +52.41% | -34.16% |
| Sep'25 | 143.38 | +2.77% | -45.26 | +72.62% | -31.75% |
| Jun'25 | 139.52 | -31.70% | -45.81 | +165.57% | -32.79% |
| Mar'25 | 204.27 | +24.27% | -5.12 | — | -2.42% |
| Dec'24 | 164.37 | +1.43% | -36.37 | — | -22.22% |
| Sep'24 | 162.06 | +4.97% | -26.22 | — | -16.00% |
| Jun'24 | 154.39 | — | -17.25 | — | -11.05% |
Financial Performance: A Deepening Crisis
The Q3 FY26 results expose fundamental operational weaknesses. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) stood at -₹67.38 crores, the lowest quarterly figure on record, compared to -₹54.77 crores in Q2 FY26. This 23.02% sequential deterioration indicates accelerating operational challenges rather than temporary setbacks.
Revenue growth of 12.07% quarter-on-quarter appears superficial when contextualised against the 31.70% decline experienced in Q1 FY26. The company's inability to sustain consistent top-line growth whilst simultaneously managing costs has resulted in persistently negative operating leverage. Year-on-year revenue declined 2.24% in Q3, whilst the comparable quarter last year (Dec'24) itself recorded a loss of ₹36.37 crores—meaning the business has deteriorated further from an already weak base.
Employee costs rose to ₹36.00 crores in Q3 FY26 from ₹33.95 crores in Q2, representing a 6.04% sequential increase. With revenues growing 12.07% but employee expenses rising at half that rate, the problem lies elsewhere in the cost structure. Interest expenses remained elevated at ₹7.53 crores, up from ₹7.16 crores, reflecting the company's continued reliance on debt financing despite mounting losses.
The tax credit of ₹20.66 crores (effective tax rate of 27.35%) provided marginal relief, reducing the pre-tax loss of ₹75.55 crores to a post-tax loss of ₹54.89 crores on a standalone basis. However, this accounting benefit cannot obscure the fundamental issue: the company is burning cash at an unsustainable rate with no clear path to profitability.
⚠ Critical Operational Concern
Shemaroo Entertainment's operating profit to interest coverage ratio plunged to -8.95 times in Q3 FY26, the lowest on record. The company is generating insufficient operating income to cover even its interest obligations, raising serious questions about financial sustainability. With operating losses of ₹67.38 crores against interest expenses of ₹7.53 crores, the business model appears fundamentally broken at current scale.
The Return on Equity Crisis: Capital Destruction Accelerates
Perhaps the most damning metric is the company's return on equity (ROE), which collapsed to -34.74% on a trailing basis. This represents catastrophic capital destruction: for every ₹100 of shareholder equity, the company destroyed ₹34.74 in value over the past year. The five-year average ROE of merely 0.64% indicates this is not a temporary aberration but a sustained pattern of value destruction.
Return on capital employed (ROCE) paints an equally grim picture at -23.40% for the latest period, with a five-year average of -2.91%. The company's inability to generate positive returns on the capital deployed in its business fundamentally undermines any investment thesis. For context, even a risk-free government bond yields approximately 7% annually—making Shemaroo's negative returns particularly egregious from a capital allocation perspective.
The balance sheet reveals shareholder funds of ₹471.75 crores as of March 2025, down from ₹553.22 crores a year earlier—a 14.72% erosion in book value. With the stock trading at a price-to-book ratio of 0.70x, the market is valuing the company at a 30% discount to its stated book value, implying scepticism about the recoverability of assets or future earning power.
Balance Sheet Deterioration
Current assets declined from ₹959.04 crores in March 2024 to ₹772.51 crores in March 2025, a 19.45% reduction suggesting either asset write-downs or cash burn. Current liabilities decreased from ₹459.65 crores to ₹385.22 crores, but this primarily reflects reduced trade payables (down from ₹106.79 crores to ₹68.48 crores), potentially indicating strained supplier relationships or reduced business activity rather than improved financial health.
Debt Burden and Cash Flow Concerns
Whilst long-term debt declined from ₹13.27 crores in March 2024 to ₹7.39 crores in March 2025, the debt-to-equity ratio on a half-yearly basis reached 0.78 times—the highest level in recent quarters. This increase, despite absolute debt reduction, reflects the erosion of equity capital through sustained losses. The company's average net debt to equity over five years stands at 0.75, indicating persistent leverage even as profitability has evaporated.
Cash flow from operations generated ₹75.00 crores in FY25, primarily driven by a favourable ₹116.00 crores change in working capital rather than operational profitability. The company reported a pre-tax loss of ₹114.00 crores for FY25, meaning the positive operating cash flow stemmed from balance sheet adjustments (likely reduced inventory or receivables collection) rather than sustainable earnings generation.
Cash flow from financing activities showed an outflow of ₹72.00 crores in FY25, suggesting debt repayment or dividend distributions (though no dividends have been paid since September 2019). With minimal cash generation from core operations and continued capital requirements, the company's financial flexibility appears severely constrained.
| Year | Operating Cash Flow (₹ Cr) | Investing Cash Flow (₹ Cr) | Financing Cash Flow (₹ Cr) | Net Cash Flow (₹ Cr) |
|---|---|---|---|---|
| FY25 | 75.00 | -1.00 | -72.00 | 0.00 |
| FY24 | 25.00 | -7.00 | -18.00 | 0.00 |
| FY23 | -17.00 | -19.00 | 35.00 | 0.00 |
| FY22 | 44.00 | -2.00 | -40.00 | 0.00 |
| FY21 | 10.00 | 0.00 | -9.00 | 0.00 |
Industry Context: Structural Challenges in Media Distribution
Shemaroo Entertainment operates in India's media and entertainment sector, which has undergone seismic shifts with the rise of over-the-top (OTT) platforms and changing content consumption patterns. Traditional content distribution models face margin compression as streaming giants negotiate aggressively for content rights whilst simultaneously producing original content, reducing dependency on third-party distributors.
The company's five-year sales growth of 12.27% appears respectable in isolation, but masks the profitability collapse. Five-year EBIT growth of -320.32% reveals that revenue expansion came at the expense of profitability—a classic value-destructive growth pattern. This suggests Shemaroo may be competing in increasingly commoditised markets where scale advantages accrue to larger, better-capitalised competitors.
The media and entertainment sector delivered a one-year return of -28.53%, with Shemaroo underperforming even this weak benchmark by 3.49 percentage points. This sector-wide malaise reflects broader challenges including advertising slowdown, intense competition for eyeballs, and the capital-intensive nature of content acquisition and production.
Peer Comparison: Lagging on All Metrics
Comparative analysis against media and entertainment peers reveals Shemaroo's relative weakness across key financial metrics. With an ROE of 0.64% (five-year average), the company significantly trails peers like Zee Media (6.50%) and Vashu Bhagnani (5.96%). Even UFO Moviez, trading at a modest 10.86x P/E ratio, generates a 2.57% ROE—nearly four times Shemaroo's profitability.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Dividend Yield |
|---|---|---|---|---|---|
| Shemaroo Entert. | NA (Loss Making) | 0.70 | 0.64 | 0.75 | NA |
| Zee Media | NA (Loss Making) | 2.45 | 6.50 | 0.51 | NA |
| Vashu Bhagnani | 128.14 | 2.40 | 5.96 | 0.10 | NA |
| UFO Moviez | 10.86 | 0.98 | 2.57 | -0.11 | NA |
| Cineline India | 30.96 | — | — | — | — |
| GTT Data | NA (Loss Making) | 2.85 | 0.00 | 0.13 | NA |
Shemaroo's price-to-book ratio of 0.70x, whilst appearing "cheap," actually reflects fundamental quality concerns. Peers with stronger operating performance command higher P/BV multiples: Zee Media trades at 2.45x book value despite also reporting losses, suggesting the market perceives better asset quality or turnaround potential. Vashu Bhagnani, with a 5.96% ROE, trades at 2.40x book value—more than three times Shemaroo's multiple.
The debt-to-equity comparison reveals Shemaroo's 0.75 ratio sits in the middle of the peer group, neither exceptionally leveraged nor conservatively financed. However, leverage becomes particularly problematic when combined with negative profitability, as the company must service debt obligations without generating positive operating cash flow from its core business.
Valuation Analysis: Deep Discount Reflects Fundamental Concerns
Shemaroo Entertainment's valuation metrics paint a picture of a company priced for distress. The stock trades at 0.70x book value, a 30% discount to stated net worth, implying the market questions either the realisable value of assets or the sustainability of the business model. Enterprise value to EBITDA of -3.69x and EV to EBIT of -3.55x are mathematically negative due to losses, rendering traditional valuation frameworks inapplicable.
The company's valuation grade deteriorated from "Attractive" to "Risky" on May 27, 2024, at a stock price significantly higher than current levels. This downgrade preceded the subsequent 38.94% decline from the 52-week high, suggesting the market has increasingly recognised the fundamental deterioration in business quality.
At ₹98.10 per share with a market capitalisation of ₹273.00 crores, Shemaroo ranks as a micro-cap company—the smallest size category. This classification brings additional risks including limited liquidity (average daily volume of just 102 shares on January 29, 2026), wider bid-ask spreads, and reduced institutional coverage. The company's classification as a "high beta" stock (beta of 1.50) indicates 50% greater volatility than the broader market, amplifying downside risk during market corrections.
The absence of dividends since September 2019 eliminates any income component to total returns, forcing investors to rely solely on capital appreciation—a challenging proposition given the 32.02% one-year decline and 57.11% two-year loss. The stock's position 38.94% below its 52-week high, whilst only 10.91% above its 52-week low of ₹88.45, suggests limited downside cushion if operational performance continues deteriorating.
Shareholding Pattern: Stable Promoter Base, Absent Institutional Support
Promoter holding remains steady at 65.54% as of December 2025, unchanged over the past three quarters. This stability provides some governance comfort, as promoters maintain skin in the game despite the company's financial struggles. Key promoters include Raman Hirji Maroo (14.70%), Atul Hirji Maru (14.70%), and Buddhichand Hirji Maroo (10.19%), indicating concentrated family control.
| Quarter | Promoter % | FII % | MF % | Insurance % | Non-Inst % |
|---|---|---|---|---|---|
| Dec'25 | 65.54 | 0.00 | 0.00 | 0.00 | 34.46 |
| Sep'25 | 65.54 | 0.00 | 0.00 | 0.00 | 34.46 |
| Jun'25 | 65.54 | 0.00 | 0.00 | 0.00 | 34.46 |
| Mar'25 | 65.54 | 0.03 | 0.00 | 0.00 | 34.42 |
| Dec'24 | 65.57 | 0.01 | 0.00 | 0.00 | 34.43 |
The complete absence of mutual fund, insurance, and meaningful foreign institutional investor (FII) holdings signals institutional disinterest. FII holding declined from 0.03% in March 2025 to 0.00% by June 2025, representing a complete exit by the minimal foreign investors who held positions. Zero mutual fund holdings indicate domestic institutional investors have also avoided the stock, likely due to the combination of micro-cap status, persistent losses, and deteriorating fundamentals.
Non-institutional holdings of 34.46% represent retail investors and smaller market participants. This shareholder composition—dominated by promoters and retail investors with no institutional support—creates liquidity challenges and limits the stock's ability to attract sophisticated capital that could potentially fund a turnaround strategy.
Positively, there is zero promoter pledging, eliminating concerns about forced selling or financial distress at the promoter level. However, this silver lining does little to offset the fundamental business challenges reflected in the financial statements.
Stock Performance: Severe Underperformance Across All Timeframes
Shemaroo Entertainment's stock price performance has been catastrophic across virtually all meaningful timeframes. The one-year return of -32.02% compares unfavourably to the Sensex's +7.88% gain, resulting in negative alpha of -39.90 percentage points. This massive underperformance indicates company-specific issues far beyond general market movements.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -1.51% | +0.31% | -1.82% |
| 1 Month | -9.33% | -2.51% | -6.82% |
| 3 Months | -14.62% | -2.86% | -11.76% |
| 6 Months | -16.79% | +1.51% | -18.30% |
| YTD | -9.75% | -3.11% | -6.64% |
| 1 Year | -32.02% | +7.88% | -39.90% |
| 2 Years | -57.11% | +14.77% | -71.88% |
| 3 Years | -21.86% | +39.16% | -61.02% |
The two-year return of -57.11% represents more than a halving of shareholder wealth, with negative alpha of -71.88 percentage points versus the Sensex. Even the five-year return of +41.25%, whilst positive in absolute terms, dramatically underperforms the Sensex's +78.38% gain by -37.13 percentage points. The ten-year return of -69.57% versus the Sensex's +231.98% gain illustrates a decade of sustained value destruction.
Technical indicators uniformly point to continued weakness. The stock trades below all key moving averages: 5-day (₹98.67), 20-day (₹103.82), 50-day (₹107.08), 100-day (₹110.14), and 200-day (₹113.12). This alignment of moving averages in descending order—with the stock below all of them—represents a textbook bearish configuration signalling strong downward momentum.
The overall technical trend classification of "Bearish" as of January 16, 2026, reinforces the fundamental deterioration. MACD indicators show bearish signals on both weekly and monthly timeframes, whilst Bollinger Bands indicate mildly bearish to bearish conditions. The KST oscillator and Dow Theory both signal bearish trends, creating a technical consensus that aligns with deteriorating fundamentals.
"With a risk-adjusted return of -0.67 over one year, volatility of 47.95%, and classification as 'High Risk Low Return,' Shemaroo Entertainment exemplifies the worst combination for investors: significant downside risk with no compensating upside potential."
Investment Thesis: Multiple Red Flags, No Catalysts
The proprietary Mojo Score of 3 out of 100 with a "Strong Sell" rating reflects the confluence of negative factors across all key investment parameters. This score places the company in the bottom 3% of rated securities, indicating extreme caution is warranted. The rating downgraded from "Sell" to "Strong Sell" on October 19, 2024, at ₹171.50—since which the stock has declined an additional 42.81% to current levels.
The quality grade of "Below Average" reflects long-term financial performance characterised by negative ROCE (-2.91% average), minimal ROE (0.64% average), and five-year EBIT growth of -320.32%. Whilst the company achieved 12.27% sales CAGR over five years, this revenue growth came at the expense of profitability—a value-destructive pattern that has eroded shareholder wealth.
The financial trend classification of "Negative" since July 2025 highlights deteriorating quarterly performance across multiple metrics: lowest operating profit margin (-41.93%), lowest ROCE on a half-yearly basis (-21.42%), highest debt-to-equity ratio (0.78x), and lowest EPS (₹-20.29) on record. These metrics collectively indicate accelerating financial distress rather than stabilisation or improvement.
Key Strengths & Risk Factors
Key Strengths
- Stable Promoter Holding: 65.54% promoter stake with zero pledging provides governance stability and aligned interests
- Long-Term Revenue Growth: 12.27% five-year sales CAGR demonstrates ability to grow top line despite challenges
- Working Capital Management: Generated ₹116.00 crores from working capital changes in FY25, improving cash position
- Debt Reduction: Long-term debt declined from ₹13.27 crores to ₹7.39 crores, reducing fixed obligations
- Established Brand: Decades-long presence in content distribution with recognised brand equity in Indian entertainment
Key Concerns
- Catastrophic Profitability: ROE of -34.74% and ROCE of -23.40% represent severe capital destruction
- Widening Operating Losses: Operating margin of -41.93% in Q3 FY26, the worst on record, indicates broken business model
- Sustained Loss-Making: Accumulated losses of ₹146.50 crores in first nine months of FY26 with no turnaround visible
- Zero Institutional Support: Complete absence of mutual fund, FII, and insurance holdings signals institutional rejection
- Severe Stock Underperformance: -32.02% one-year return with -39.90 percentage points of negative alpha versus Sensex
- High Volatility: Beta of 1.50 and volatility of 47.95% create disproportionate downside risk
- Liquidity Concerns: Micro-cap status with minimal trading volume (102 shares on Jan 29) limits exit options
- Negative Operating Leverage: Revenue growth accompanied by margin compression indicates unfavourable cost structure
Outlook: What to Watch
Potential Positive Catalysts
- Significant cost restructuring programme that addresses the -41.93% operating margin
- Strategic partnerships or content deals that improve revenue quality and margins
- Management commentary outlining credible path to profitability with specific milestones
- Stabilisation of quarterly losses followed by sequential improvement in operating metrics
- Entry of institutional investors or strategic investors providing both capital and operational expertise
Critical Red Flags
- Further deterioration in operating margins beyond -41.93% indicating accelerating business model failure
- Inability to generate positive operating cash flow from core business in upcoming quarters
- Additional equity dilution or debt raising at distressed valuations to fund ongoing losses
- Continued absence of institutional investor interest despite stock price declines
- Quarterly losses exceeding ₹60 crores, indicating no stabilisation in sight
- Breach of debt covenants or inability to service interest obligations from operations
For the company to stage any meaningful recovery, management must demonstrate concrete actions to stem operating losses within the next two quarters. Absent a radical restructuring of the cost base or transformative revenue initiatives, the current trajectory points towards continued value destruction. Investors should monitor Q4 FY26 results (due by May 2026) for any signs of stabilisation, though the consistent quarterly deterioration since June 2024 suggests this is unlikely.
The Verdict: Exit Recommended for All Investors
Score: 3/100
For Fresh Investors: Avoid entirely. The combination of mounting operating losses (-41.93% margin), catastrophic returns on capital (ROE of -34.74%, ROCE of -23.40%), zero institutional support, and bearish technical setup creates an exceptionally unfavourable risk-reward profile. With no visible path to profitability and accelerating quarterly deterioration, capital preservation dictates staying away.
For Existing Holders: Exit positions at current levels despite the 32.02% one-year decline. Whilst the stock trades 38.94% below its 52-week high, the fundamental deterioration suggests further downside risk. The Q3 FY26 results confirm the business model is broken at current scale, with operating losses widening rather than stabilising. The complete absence of institutional investors and negative financial trend since July 2025 indicate the market has correctly identified the severity of operational challenges. Holding in hopes of a turnaround exposes investors to continued capital destruction with minimal probability of recovery.
Fair Value Estimate: Not applicable. With sustained operating losses, negative returns on capital, and no credible path to profitability, traditional valuation frameworks break down. The current price-to-book ratio of 0.70x may imply downside to ₹70-75 per share (representing 0.50-0.55x book value) if losses persist through FY26, suggesting 20-28% additional downside risk from current levels of ₹98.10.
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.
