The profit decline was primarily driven by a sharp normalisation in other income, which fell from ₹2.75 crores in Q1 FY2026 to just ₹0.09 crores in Q2 FY2026. However, the company demonstrated operational resilience with net sales rising 4.23% sequentially to ₹25.88 crores, marking a quarterly high, whilst maintaining operating margins above 15%. The divergence between operational performance and bottom-line results highlights the impact of non-recurring income fluctuations on this micro-cap manufacturer's earnings profile.
The quarter's performance presents a mixed picture for investors in this Gujarat-based industrial products manufacturer. Whilst operational metrics remained healthy with the highest quarterly sales and operating margins, the bottom line took a substantial hit due to the absence of exceptional other income that had bolstered Q1 FY2026 results. This volatility in non-operating income has become a recurring theme in Shilp Gravures' quarterly performance, complicating the assessment of underlying business health.
Financial Performance: Revenue Growth Offset by Income Volatility
Shilp Gravures' Q2 FY2026 revenue performance demonstrated encouraging momentum, with net sales reaching ₹25.88 crores, representing a 4.23% sequential increase and 7.74% year-on-year growth. This marked the seventh consecutive quarter of sales exceeding ₹21 crores, suggesting stabilisation in demand for the company's specialised engraving and embossing products. The company's ability to sustain revenue growth in a challenging industrial environment reflects its niche positioning in the copper roller engraving segment.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 25.88 | +4.23% | 1.77 | -52.16% | 15.30% |
| Jun'25 | 24.83 | +6.89% | 3.70 | -562.50% | 15.02% |
| Mar'25 | 23.23 | +8.15% | -0.80 | -56.52% | 3.31% |
| Dec'24 | 21.48 | -10.57% | -1.84 | -164.79% | 4.14% |
| Sep'24 | 24.02 | +5.44% | 2.84 | -18.62% | 10.41% |
| Jun'24 | 22.78 | +1.61% | 3.49 | +139.04% | 13.13% |
| Mar'24 | 22.42 | — | 1.46 | — | 11.06% |
Operating profit excluding other income reached ₹3.96 crores in Q2 FY2026, the highest quarterly figure in recent periods, translating to an operating margin of 15.30%. This represented a 28 basis point improvement quarter-on-quarter and a substantial 489 basis point expansion year-on-year, indicating improved operational efficiency and better cost management. The company's ability to expand operating margins whilst growing revenues suggests pricing power and operating leverage in its business model.
However, the dramatic swing in other income—from ₹2.75 crores in Q1 FY2026 to merely ₹0.09 crores in Q2 FY2026—severely impacted overall profitability. This ₹2.66 crore reduction in other income more than offset the operational gains, causing profit before tax to decline from ₹5.14 crores to ₹2.55 crores. The PAT margin consequently compressed from 14.90% in Q1 FY2026 to 6.84% in Q2 FY2026, despite the operational margin improvement. This volatility in non-operating income has been a persistent feature, with other income ranging from negative ₹0.95 crores in December 2024 to positive ₹2.75 crores in June 2025.
Employee costs in Q2 FY2026 stood at ₹8.07 crores, up marginally from ₹7.82 crores in the previous quarter, representing 31.18% of net sales. Interest costs remained negligible at ₹0.17 crores, reflecting the company's minimal debt burden. Depreciation was stable at ₹1.32 crores, consistent with the previous quarter. The effective tax rate for Q2 FY2026 was 30.98%, normalising from the 27.82% in Q1 FY2026 and significantly improved from the anomalous 42.03% negative tax rate in March 2025 when the company reported losses.
Operational Challenges: Inconsistent Earnings Quality
The most concerning aspect of Shilp Gravures' recent performance is the inconsistent quality of earnings, driven primarily by volatile other income. Over the past seven quarters, other income has swung wildly—from negative ₹0.95 crores in December 2024 to positive ₹2.75 crores in June 2025, and now down to ₹0.09 crores in September 2025. This volatility makes it difficult to assess the company's true earning power and raises questions about the sustainability of reported profits.
Earnings Quality Concern
Critical Issue: Other income volatility has created significant earnings instability. In Q1 FY2026, other income of ₹2.75 crores contributed 53.37% of the total operating profit of ₹6.48 crores. The sharp decline to ₹0.09 crores in Q2 FY2026 demonstrates the unsustainable nature of previous quarter's profitability. Investors should focus on operating profit excluding other income (₹3.96 crores in Q2 FY2026) as a more reliable indicator of business performance.
From a capital efficiency perspective, Shilp Gravures' performance remains lacklustre. The latest return on equity (ROE) stood at just 3.72%, significantly below the company's five-year average of 9.68%. This weak ROE indicates that the company is generating minimal returns on shareholder capital, a concern for investors seeking efficient capital deployment. The five-year average ROE of 9.68% itself is below acceptable thresholds for quality industrial companies, typically expected to maintain ROE above 15%.
The return on capital employed (ROCE) paints an even more concerning picture, with the latest figure at a mere 2.64% compared to the five-year average of 10.09%. This suggests that the company is struggling to generate adequate returns from the total capital employed in the business, including both equity and debt. Whilst the company benefits from minimal debt (net debt to equity of -0.36, indicating a net cash position), the inability to generate strong returns on this capital raises questions about management's capital allocation decisions and the underlying profitability of the core business.
The balance sheet as of March 2025 shows shareholder funds of ₹99.12 crores, comprising share capital of ₹6.15 crores and reserves of ₹92.97 crores. Fixed assets stood at ₹53.08 crores, whilst current assets totalled ₹59.72 crores. The company maintained a debt-free status with zero long-term debt, providing financial flexibility. However, current liabilities of ₹11.47 crores, including trade payables of ₹9.02 crores, indicate normal working capital requirements for the business. The book value per share of ₹161.18 provides some valuation context against the current market price of ₹234.70.
Industry Context: Niche Player in Specialised Engraving
Shilp Gravures operates in the specialised industrial products segment, focusing on the manufacture of engraved copper rollers and embossing solutions. The company serves two primary markets: printing industry customers requiring gravured rollers and engraved screens, and glass manufacturers needing embossing rollers to create textured surfaces. This niche positioning provides some insulation from broader industrial cycles but also limits addressable market size and growth potential.
The company's five-year sales growth of 7.57% annually reflects the modest growth trajectory of its end markets. Whilst the printing industry has faced structural headwinds from digitisation, demand for specialised engraving solutions for packaging and decorative applications has remained relatively stable. The glass embossing segment represents a more promising growth avenue, driven by demand for textured architectural and automotive glass applications.
The company also operates a small energy generation segment through wind mills, contributing to other income. However, as demonstrated by recent quarters, this segment's contribution has been highly variable and unreliable. The company's strategic focus appears to remain on its core engraving and embossing business, where it has established technical capabilities and customer relationships over its 32-year operating history since incorporation in 1993.
Competitive Positioning
Shilp Gravures' competitive advantage lies in its technical expertise in copper roller engraving and embossing technology. However, the company's micro-cap status (₹142 crore market capitalisation) and limited institutional following suggest constrained resources for capacity expansion or technological upgrades. The absence of any FII, mutual fund, or insurance company holdings indicates limited institutional confidence in the company's growth prospects or governance standards. The 60.83% promoter holding provides management stability but also raises concerns about minority shareholder interests in a thinly traded stock.
Peer Comparison: Valuation Premium Without Performance Justification
Comparing Shilp Gravures with its industrial products peers reveals a valuation anomaly. Despite weak return ratios and inconsistent earnings, the company trades at a P/E ratio of 36.76x, significantly higher than peers like Century Extrusions (21.81x) and Cubex Tubings (18.86x). This valuation premium appears unjustified given the company's 9.68% average ROE, which lags behind Galaxy Bearings' 17.86% ROE.
| Company | P/E (TTM) | Price to Book | ROE (%) | Debt to Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Shilp Gravures | 36.76 | 1.45 | 9.68 | -0.36 | 0.90 |
| Galaxy Bearings | 39.81 | 2.27 | 17.86 | -0.09 | — |
| Century Extrusions | 21.81 | 2.59 | 9.29 | 0.39 | — |
| Sampann Utpadan | 36.69 | 17.21 | 0.00 | 10.42 | — |
| Baroda Extrusion | 32.71 | 7.98 | 6.10 | 0.27 | — |
| Cubex Tubings | 18.86 | 1.73 | 4.95 | 0.42 | — |
The one area where Shilp Gravures demonstrates relative strength is its price-to-book ratio of 1.45x, which is lower than most peers except Cubex Tubings (1.73x). This suggests the stock may not be egregiously overvalued on a book value basis. However, the company's ROE of 9.68% means it is generating returns only marginally above its cost of equity, making even a 1.45x P/BV multiple questionable. The company's net cash position (debt to equity of -0.36) is a positive differentiator, providing financial stability that several leveraged peers lack.
Shilp Gravures ranks fifth by market capitalisation among the peer group at ₹142 crores, reflecting its micro-cap status. The company's dividend yield of 0.90% (based on the latest dividend of ₹2.10 per share with an ex-date of August 29, 2025) provides some income to shareholders, though this is modest compared to the total return expectations from equities. The dividend payout ratio of 34.78% suggests a balanced approach to capital allocation between rewarding shareholders and retaining capital for business needs.
Valuation Analysis: Expensive Relative to Fundamentals
At the current market price of ₹234.70, Shilp Gravures trades at a trailing twelve-month P/E ratio of 36.76x, representing a premium to the industrial products sector average P/E of 34x. This valuation appears stretched given the company's weak return ratios, inconsistent earnings quality, and modest growth trajectory. The company's proprietary valuation grade has oscillated between "Fair" and "Expensive" over recent months, currently standing at "Fair" as of September 17, 2025, following a decline from the 52-week high of ₹393.65.
The enterprise value to EBITDA multiple of 13.61x and EV to EBIT multiple of 44.02x further underscore the valuation stretch. The elevated EV/EBIT multiple reflects the impact of depreciation on reported EBIT, suggesting capital intensity in the business. The EV to sales ratio of 1.15x indicates that investors are paying ₹1.15 for every rupee of sales, which appears reasonable for an industrial products manufacturer but must be viewed in context of the company's low operating margins and return ratios.
The stock's 40.38% decline from its 52-week high of ₹393.65 to the current price of ₹234.70 reflects a significant correction, bringing valuations closer to reasonable levels. However, even after this correction, the stock trades at a 39.00% premium to its 52-week low of ₹168.85, suggesting limited downside protection. The year-to-date decline of 30.77% contrasts sharply with the Sensex's 8.25% gain, highlighting significant underperformance and negative investor sentiment towards the stock.
"With a P/E ratio of 37x and ROE below 10%, Shilp Gravures trades at a valuation that assumes growth and profitability improvements that current fundamentals do not support."
Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest
The shareholding pattern of Shilp Gravures has remained remarkably stable over recent quarters, with promoter holding steady at 60.83% as of September 2025. The promoter group, led by Aikyam Sampati Management LLP (60.75%) and Pranav Chandrakant Bhalara (0.08%), has maintained consistent ownership with only marginal fluctuations. The slight 0.01% increase in promoter holding from March 2025 to June 2025 indicates no significant buying or selling activity by the controlling shareholders.
| Quarter | Promoter (%) | FII (%) | Mutual Funds (%) | Insurance (%) | Non-Institutional (%) |
|---|---|---|---|---|---|
| Sep'25 | 60.83 | 0.00 | 0.00 | 0.00 | 39.17 |
| Jun'25 | 60.83 | 0.00 | 0.00 | 0.00 | 39.17 |
| Mar'25 | 60.82 | 0.00 | 0.00 | 0.00 | 39.18 |
| Dec'24 | 60.82 | 0.00 | 0.00 | 0.00 | 39.18 |
| Sep'24 | 60.82 | 0.00 | 0.00 | 0.00 | 39.18 |
The most striking aspect of the shareholding pattern is the complete absence of institutional investors. Foreign institutional investors (FIIs), mutual funds, insurance companies, and other domestic institutional investors (DIIs) collectively hold 0.00% of the company's equity. This lack of institutional participation is a significant red flag, suggesting that professional fund managers have not found the company's fundamentals, growth prospects, or governance standards attractive enough to warrant investment.
The non-institutional shareholding of 39.17% comprises retail investors and non-institutional entities. The stability in this holding percentage indicates neither significant accumulation nor distribution by retail investors. The absence of pledged shares by promoters is a positive, indicating that the controlling shareholders have not leveraged their holdings for personal borrowings, reducing governance risks associated with potential margin calls or forced selling.
Stock Performance: Long-Term Outperformance Masks Recent Weakness
Shilp Gravures' stock price performance presents a tale of two timeframes. Over longer periods—three years (113.07% return), four years (113.07% return), and five years (253.20% return)—the stock has significantly outperformed the Sensex, generating alpha of 76.19%, 73.69%, and 158.49% respectively. This historical outperformance reflects the stock's recovery from depressed levels and periods of strong operational performance.
| Period | Stock Return | Sensex Return | Alpha | Performance |
|---|---|---|---|---|
| 1 Week | -2.19% | 1.53% | -3.72% | Underperformed |
| 1 Month | -10.28% | 2.75% | -13.03% | Underperformed |
| 3 Months | 1.45% | 5.02% | -3.57% | Underperformed |
| 6 Months | -20.03% | 4.24% | -24.27% | Underperformed |
| YTD | -30.77% | 8.25% | -39.02% | Underperformed |
| 1 Year | 29.67% | 8.88% | +20.79% | Outperformed |
| 3 Years | 113.07% | 36.88% | +76.19% | Outperformed |
| 5 Years | 253.20% | 94.71% | +158.49% | Outperformed |
However, recent performance has been markedly weak. The stock has underperformed across all shorter timeframes—one week (-2.19% vs Sensex +1.53%), one month (-10.28% vs Sensex +2.75%), three months (1.45% vs Sensex +5.02%), and six months (-20.03% vs Sensex +4.24%). The year-to-date decline of 30.77% against the Sensex's 8.25% gain represents a severe underperformance of 39.02%, reflecting deteriorating investor sentiment and concerns about near-term earnings quality.
The stock's one-year return of 29.67% versus the industrial products sector's -23.70% return demonstrates significant outperformance of 53.37% relative to its peer group. This suggests that whilst the stock has faced headwinds in recent months, it has fared better than the broader industrial products sector over the past year. However, this relative outperformance must be viewed cautiously given the sector's own weak performance.
From a technical perspective, the stock currently trades below all key moving averages—5-day (₹237.24), 20-day (₹248.01), 50-day (₹255.03), 100-day (₹247.68), and 200-day (₹255.19)—indicating a bearish technical setup. The overall technical trend is classified as "Mildly Bullish" as of November 12, 2025, following a recent change from "Mildly Bearish," suggesting some stabilisation after the sharp decline. The stock's high beta of 1.50 indicates significantly higher volatility than the broader market, with a volatility measure of 62.10% compared to the Sensex's 12.33%, categorising it as a high-risk, high-return investment.
Investment Thesis: Quality Concerns Outweigh Valuation Comfort
The investment case for Shilp Gravures rests on several pillars, each requiring careful evaluation. The company's debt-free balance sheet and net cash position provide financial stability and flexibility, a significant positive in an environment where many micro-caps struggle with leverage. The consistent dividend payment (0.90% yield) demonstrates some commitment to shareholder returns, though the modest yield offers limited income attraction.
However, significant concerns overshadow these positives. The company's average quality grade reflects weak return ratios (ROE of 9.68%, ROCE of 10.09%), inconsistent earnings due to volatile other income, and modest growth (5-year sales CAGR of 7.57%). The complete absence of institutional investors raises questions about governance, disclosure quality, and growth visibility. The micro-cap status limits liquidity, with only 306 shares traded on November 13, 2025, making entry and exit challenging for even small investors.
The current proprietary score of 61/100 with a "HOLD" rating reflects these mixed signals. The rating has fluctuated between "Strong Sell" (score 28-31) in July-August 2025 and "Hold" (score 50-61) currently, indicating high uncertainty about the company's prospects. The key strengths cited—highest quarterly sales and operating margin—are offset by concerns about poor long-term growth and earnings quality issues.
Key Strengths & Risk Factors
KEY STRENGTHS
- Debt-Free Balance Sheet: Zero long-term debt and net cash position of ₹4 crores provides financial flexibility and reduces solvency risk
- Operating Margin Expansion: Q2 FY2026 operating margin of 15.30% represents highest level in recent quarters, up 489 bps YoY
- Consistent Revenue Growth: Seven consecutive quarters of sales above ₹21 crores with Q2 FY2026 marking quarterly high of ₹25.88 crores
- Niche Market Position: Specialised expertise in copper roller engraving and glass embossing provides some competitive moat
- No Promoter Pledging: Zero pledged shares indicates promoter confidence and reduces governance risks
- Dividend Track Record: Consistent dividend payer with 34.78% payout ratio demonstrates shareholder-friendly approach
- Long-term Outperformance: 253.20% return over five years significantly outpaces Sensex's 94.71% gain
KEY CONCERNS
- Earnings Quality Issues: Highly volatile other income (₹2.75 crores in Q1 to ₹0.09 crores in Q2) creates unsustainable profit patterns
- Weak Return Ratios: ROE of 3.72% (latest) and ROCE of 2.64% indicate poor capital efficiency and value creation
- Zero Institutional Holdings: Complete absence of FII, mutual fund, and insurance holdings signals lack of professional investor confidence
- Limited Growth Trajectory: Five-year sales CAGR of 7.57% reflects modest growth in addressable markets
- Micro-Cap Liquidity Constraints: ₹142 crore market cap with minimal daily volumes (306 shares on Nov 13) limits tradability
- Recent Sharp Underperformance: YTD decline of 30.77% vs Sensex gain of 8.25% represents 39.02% underperformance
- High Volatility: Beta of 1.50 and volatility of 62.10% makes stock unsuitable for risk-averse investors
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained Operating Margin: Ability to maintain 15%+ operating margins for multiple quarters would validate operational improvements
- Consistent Other Income: Stabilisation of other income at reasonable levels would improve earnings predictability
- Institutional Entry: Any mutual fund or insurance company initiating position would signal improved confidence
- ROE Improvement: Expansion of ROE above 12-15% would indicate better capital efficiency
- Order Book Visibility: Disclosure of strong order pipeline would provide revenue visibility
RED FLAGS TO MONITOR
- Further Other Income Volatility: Continued wild swings in non-operating income would confirm unsustainable earnings
- Operating Margin Compression: Decline below 12% would indicate competitive pressures or cost management issues
- Promoter Selling: Any reduction in 60.83% promoter holding would signal lack of confidence
- Working Capital Deterioration: Significant increase in receivables or inventory days would indicate collection or demand issues
- Continued Stock Underperformance: Further price decline below ₹200 would test 52-week low support
The Verdict: Quality Concerns Warrant Caution
Score: 61/100
For Fresh Investors: Avoid initiating positions. The combination of weak return ratios (ROE 3.72%, ROCE 2.64%), volatile earnings quality driven by inconsistent other income, complete absence of institutional holdings, and limited liquidity makes this an unsuitable investment for most investors. The 36.76x P/E multiple is not justified by fundamentals. Wait for sustained improvement in operational metrics and earnings consistency before considering entry.
For Existing Holders: Hold positions but monitor closely. The debt-free balance sheet and recent operating margin expansion provide some comfort, but the sharp 52% QoQ profit decline in Q2 FY2026 highlights earnings fragility. Set a stop-loss at ₹200 (15% below current levels). Consider partial profit booking if the stock rebounds to ₹280-300 levels. Exit completely if ROE fails to improve above 8% over the next two quarters or if other income volatility persists.
Fair Value Estimate: ₹190-210 (19% downside from current levels), based on 25-28x P/E multiple applied to normalised earnings excluding volatile other income, with a 1.2-1.3x P/BV multiple given weak ROE profile.
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. Investments in micro-cap stocks carry significant risks including liquidity constraints, high volatility, and potential for substantial capital loss.
