The company's financial distress is evident across all metrics. Operating profit before depreciation, interest, and tax (excluding other income) plummeted 78.22% quarter-on-quarter to merely ₹0.22 crores, translating to an anaemic operating margin of just 3.22% compared to 11.01% in Q1 FY26. Year-on-year, revenue declined 24.11% whilst losses remained stubbornly high at ₹7.95 crores versus ₹7.68 crores in the same quarter last year.
What makes the situation particularly alarming is the company's crippling debt burden. Interest expenses of ₹9.32 crores in Q2 FY26 exceeded the quarter's entire revenue of ₹6.83 crores, highlighting an unsustainable capital structure. With long-term debt standing at ₹350.00 crores against shareholder funds of negative ₹14.10 crores as of March 2025, the company faces severe solvency concerns.
Financial Performance: A Downward Spiral
The quarterly trend reveals a company in severe operational distress. Net sales have declined consistently from ₹13.00 crores in March 2024 to just ₹6.83 crores in September 2025, representing a 47.46% collapse over six quarters. Operating margins (excluding other income) have deteriorated sharply from 18.85% in March 2024 to 3.22% currently, indicating fundamental challenges in the business model.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Operating Profit (₹ Cr) | Op. Margin % | Net Loss (₹ Cr) |
|---|---|---|---|---|---|
| Sep'25 | 6.83 | -25.52% | 0.22 | 3.22% | -7.95 |
| Jun'25 | 9.17 | -19.06% | 1.01 | 11.01% | -8.11 |
| Mar'25 | 11.33 | -8.85% | 1.81 | 15.98% | -6.64 |
| Dec'24 | 12.43 | +38.11% | 1.96 | 15.77% | -6.96 |
| Sep'24 | 9.00 | -20.84% | 1.40 | 15.56% | -7.68 |
| Jun'24 | 11.37 | -12.54% | 1.85 | 16.27% | -7.33 |
| Mar'24 | 13.00 | — | 2.45 | 18.85% | -7.20 |
The company's profitability metrics paint a grim picture. PAT margin stands at negative 116.40% in Q2 FY26, meaning the company loses ₹1.16 for every rupee of sales. Gross profit margin is deeply negative at -101.17%, indicating that even before accounting for operating expenses, the company is haemorrhaging cash. The operating profit to interest coverage ratio has collapsed to a mere 0.02 times, the lowest on record, signalling an inability to service debt from operations.
On an annual basis, the company reported net sales of ₹44.00 crores for FY25, down 6.40% from ₹47.00 crores in FY24. The net loss for FY25 stood at ₹28.00 crores, slightly better than the ₹32.00 crores loss in FY24. However, this marginal improvement offers little comfort given the scale of operational challenges and mounting debt burden.
Operational Distress: Debt Burden Crushing the Business
The company's capital structure represents a textbook case of financial distress. With shareholder funds of negative ₹14.10 crores as of March 2025, the company has completely eroded its equity base. This deterioration from positive ₹92.18 crores in March 2024 reflects the severe losses incurred during FY25. Reserves and surplus have plunged from negative ₹55.34 crores to negative ₹161.62 crores, indicating cumulative losses that far exceed the paid-up capital of ₹147.52 crores.
Critical Red Flag: Negative Book Value
Shareholder Equity Wiped Out: The company's book value per share stands at negative ₹-0.96, meaning shareholders have no residual claim on assets after accounting for liabilities. This represents complete equity erosion and raises serious questions about the company's ability to continue as a going concern.
Debt Burden: Long-term debt of ₹350.00 crores against minimal operational cash generation creates an unsustainable situation. Interest expenses alone exceed quarterly revenues, making debt servicing impossible from operations.
The company's operational efficiency metrics have deteriorated sharply. The debtors turnover ratio for H1 FY26 stands at just 5.55 times, the lowest on record, indicating significant challenges in collecting receivables. Operating cash flow for FY25 was merely ₹9.00 crores, the lowest in recent years, whilst interest obligations remained at ₹36.00 crores annually. This mismatch between cash generation and debt servicing requirements highlights the severity of the liquidity crisis.
Fixed assets of ₹340.60 crores as of March 2025 represent the bulk of the company's asset base, but with capacity utilisation concerns and declining sales, these assets are generating inadequate returns. Current assets of just ₹25.85 crores against current liabilities of ₹89.11 crores indicate severe working capital stress, with a current ratio well below healthy levels.
Industry Context: Structural Challenges in Newsprint Sector
The newsprint industry in India faces structural headwinds from the ongoing shift towards digital media consumption. Print media circulation has been declining steadily, reducing demand for newsprint. Shree Rama Newsprint's 1.5 lakh tonnes annual capacity is struggling to find adequate offtake, as evidenced by the sharp revenue decline. The company's positioning as the largest private sector player in Indian newsprint offers little advantage when the entire sector faces secular decline.
Raw material costs, particularly for waste paper and pulp, remain volatile and have pressured margins. The company's inability to pass through cost increases to customers, combined with weak pricing power in a declining market, has resulted in negative gross margins. The captive power generation unit, whilst providing some operational flexibility, cannot offset the fundamental challenges facing the core business.
Sector Dynamics
The paper and forest products sector in India returned just 0.87% over the past year, significantly underperforming broader market indices. Shree Rama Newsprint's 67.15% return over the same period, whilst seemingly impressive, comes from a very low base and doesn't reflect improving fundamentals. The stock remains highly volatile with a beta of 1.50, indicating significantly higher risk than the broader market.
Peer Comparison: Weakest Link in the Chain
When compared to peers in the paper, forest, and jute products sector, Shree Rama Newsprint stands out for all the wrong reasons. The company's negative book value and loss-making status contrast sharply with profitable peers. Whilst companies like Pakka Limited and Emami Paper Mills Limited generate healthy returns on equity of 16.23% and 9.36% respectively, Shree Rama Newsprint reports zero ROE due to negative equity.
| Company | P/E Ratio | P/BV | ROE % | Debt/Equity | Div Yield |
|---|---|---|---|---|---|
| Shree Rama Newsprint | NA (Loss Making) | -30.55 | 0.00% | -25.57 | NA |
| Pakka Ltd | 62.74 | 1.24 | 16.23% | 0.31 | NA |
| Emami Paper Mills | 31.03 | 0.99 | 9.36% | 1.37 | 1.69% |
| Cheviot Company | 12.22 | 0.99 | 11.53% | -0.07 | 0.44% |
| Gloster Ltd | 74.03 | 0.63 | 3.40% | 0.51 | 3.22% |
| Orient Paper | NA (Loss Making) | 0.35 | 1.39% | 0.15 | NA |
The comparison reveals Shree Rama Newsprint's inferior position across all key metrics. Whilst peers maintain positive book values and generate returns for shareholders, Shree Rama Newsprint has destroyed shareholder value completely. The company's debt-to-equity ratio of -25.57 (due to negative equity) makes traditional leverage metrics meaningless, but the underlying reality is clear: the company is overleveraged and unable to generate adequate returns on invested capital.
Valuation Analysis: Value Trap, Not Value Buy
The stock's valuation metrics are distorted by the company's loss-making status and negative book value. Trading at ₹29.10 with a market capitalisation of ₹422.00 crores, the stock appears "cheap" on an absolute price basis, but this masks the fundamental deterioration in the business. The P/E ratio is not applicable given consistent losses, whilst the negative price-to-book value of -30.55x reflects the complete erosion of shareholder equity.
The company's enterprise value to EBITDA multiple of 128.04x and EV to sales of 18.87x appear elevated, but these metrics are rendered meaningless by the minimal EBITDA generation and declining sales base. With an EV to capital employed ratio of 2.28x, the market is valuing the company's asset base at more than twice its book value, despite those assets generating negative returns.
The stock's classification as "RISKY" by valuation assessment is appropriate. The 67.15% one-year return masks the fundamental deterioration and should not be interpreted as a positive signal. This return comes from a very low base following severe price declines, and the stock remains 35.61% below its 52-week high of ₹45.19. The recent price action reflects speculative trading rather than fundamental improvement.
Shareholding Pattern: Stable but Concerning
The shareholding pattern reveals a promoter-dominated structure with Riddhi Siddhi Gluco Biols Limited holding 74.76% stake consistently across recent quarters. This stable promoter holding provides some governance stability, but raises questions about the promoters' willingness or ability to infuse fresh capital to address the company's severe financial distress.
| Quarter | Promoter % | FII % | MF % | DII % | Public % |
|---|---|---|---|---|---|
| Sep'25 | 74.76% | 0.42% | 0.03% | 1.55% | 23.24% |
| Jun'25 | 74.76% | 0.04% | 0.03% | 1.55% | 23.61% |
| Mar'25 | 74.76% | 0.04% | 0.03% | 1.55% | 23.61% |
| Dec'24 | 74.76% | 0.04% | 0.03% | 1.55% | 23.61% |
Institutional holdings remain minimal at just 2.00%, with foreign institutional investors holding merely 0.42% and mutual funds holding 0.03%. The sharp increase in FII holding from 0.04% to 0.42% in Q2 FY26 represents a marginal uptick in absolute terms but doesn't signal institutional conviction. The low institutional participation reflects the company's fundamental challenges and limited investment appeal. With no promoter pledging, at least there are no immediate concerns about forced selling, but this offers little comfort given the broader financial distress.
Stock Performance: Volatility Masking Deterioration
The stock's price performance over the past year presents a misleading picture. Whilst the one-year return of 67.15% appears impressive, this comes from a severely depressed base and doesn't reflect improving fundamentals. The stock has generated significant alpha of 58.59% versus the Sensex, but this outperformance is driven by speculative trading and volatility rather than business improvement.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 2.79% | 1.20% | +1.59% |
| 1 Month | -3.80% | 2.67% | -6.47% |
| 3 Months | -7.97% | 4.49% | -12.46% |
| 6 Months | -22.25% | 3.55% | -25.80% |
| YTD | 60.42% | 7.78% | +52.64% |
| 1 Year | 67.15% | 8.56% | +58.59% |
| 2 Years | 89.70% | 29.70% | +60.00% |
| 3 Years | 84.18% | 36.67% | +47.51% |
More concerning is the recent trend. Over the past six months, the stock has declined 22.25%, underperforming the Sensex by 25.80%. The three-month return of -7.97% and one-month decline of -3.80% indicate deteriorating momentum. The stock trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), confirming the bearish technical trend.
With a volatility of 55.93% over the past year compared to Sensex volatility of 12.26%, the stock exhibits significantly higher risk. The beta of 1.50 indicates the stock is 50% more volatile than the market, making it unsuitable for risk-averse investors. The risk-adjusted return of 1.20, whilst positive, doesn't compensate for the fundamental risks and business deterioration.
Investment Thesis: Multiple Red Flags
The investment case for Shree Rama Newsprint is severely compromised by multiple critical factors. The company's proprietary Mojo score of 9 out of 100 with a "STRONG SELL" rating reflects the comprehensive assessment of financial health, quality, valuation, and technical trends. Each of the four key parameters—valuation, quality, financial trend, and technical trend—paints a concerning picture.
The quality assessment of "BELOW AVERAGE" is supported by weak operational metrics. Five-year sales growth of -32.64% indicates secular decline in the business. Average ROCE of -1.46% demonstrates the company's inability to generate adequate returns on invested capital. The EBIT to interest coverage ratio of -0.44x highlights the unsustainable debt burden. With debt to EBITDA of 6.68x, the company is overleveraged relative to its cash generation capacity.
"With interest expenses exceeding quarterly revenues and shareholder equity completely eroded, Shree Rama Newsprint faces an existential crisis that requires immediate and drastic restructuring."
Key Strengths & Risk Factors
Limited Positives
- No Promoter Pledging: Zero pledged shares indicate promoters aren't facing immediate liquidity pressures, though this offers limited comfort.
- Stable Promoter Base: Consistent 74.76% promoter holding provides governance stability, though capital infusion remains uncertain.
- Integrated Operations: Captive power generation provides some operational flexibility and cost control.
- Established Capacity: 1.5 lakh tonnes annual capacity represents significant infrastructure, though underutilised.
- Sector Position: Largest private sector player in Indian newsprint, though in a declining sector.
Critical Concerns
- Negative Book Value: Shareholder equity of negative ₹14.10 crores represents complete equity erosion—a severe red flag.
- Unsustainable Debt: Interest expenses of ₹9.32 crores exceed quarterly revenue of ₹6.83 crores—impossible to service from operations.
- Collapsing Revenue: Sales declined 25.52% QoQ and 24.11% YoY, with no signs of stabilisation.
- Negative Margins: PAT margin of -116.40% and gross margin of -101.17% indicate fundamental business model failure.
- Secular Decline: Newsprint sector faces structural headwinds from digital media shift.
- Minimal Cash Generation: Operating cash flow of just ₹9.00 crores annually against ₹36.00 crores interest burden.
- Working Capital Stress: Current ratio well below 1.0x indicates severe liquidity concerns.
- No Institutional Support: Just 2.00% institutional holdings reflect lack of investor confidence.
Outlook: What to Watch
Potential Positive Catalysts
- Debt Restructuring: Successful negotiation with lenders to reduce interest burden could provide breathing room.
- Strategic Sale: Asset sale or strategic investor entry might unlock value.
- Capacity Rationalisation: Shutting underutilised capacity could improve margins.
- Product Diversification: Shift to higher-margin paper grades could improve profitability.
Red Flags to Monitor
- Further Revenue Decline: Continued sales erosion would accelerate financial distress.
- Debt Default: Inability to service debt could trigger insolvency proceedings.
- Negative Cash Flow: Operating cash flow turning negative would eliminate any remaining flexibility.
- Promoter Exit Signals: Any reduction in promoter holding would signal loss of confidence.
- Credit Rating Downgrade: Further deterioration in credit ratings could restrict refinancing options.
The Verdict: Avoid This Value Trap
Score: 9/100
For Fresh Investors: Avoid completely. The company faces existential challenges with negative book value, unsustainable debt burden, and collapsing revenues. The business model is fundamentally broken, operating in a structurally declining sector with no clear path to profitability. Interest expenses exceeding revenues make this an uninvestable proposition.
For Existing Holders: Exit at the earliest opportunity. The 67% one-year return masks severe fundamental deterioration. With shareholder equity completely eroded and mounting losses, there is significant risk of further value destruction. Any price recovery should be used as an exit opportunity rather than a reason to hold.
Fair Value Estimate: Not applicable given negative book value and absence of sustainable earnings. Current price of ₹29.10 appears to reflect speculative positioning rather than fundamental value.
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.
