On a sequential basis, net profit declined 6.45% from ₹18.46 crores in Q1 FY26, whilst revenue contracted 14.21% quarter-on-quarter to ₹153.63 crores. The profit growth was largely driven by a substantial surge in other income, which jumped to ₹11.10 crores in Q2 FY26 from ₹7.44 crores a year ago—raising questions about the quality of earnings and operational efficiency.
The paper manufacturer, operating two facilities in Punjab's Ahmedgarh and Banah regions, has witnessed a volatile earnings trajectory over recent quarters. Whilst the year-on-year comparison appears favourable, the sequential decline and heavy reliance on non-operating income paint a more nuanced picture of the company's operational health.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin (Excl OI) | PAT Margin |
|---|---|---|---|---|---|---|
| Jun'25 | 153.63 | -14.21% | 17.27 | -6.45% | 10.34% | 11.24% |
| Mar'25 | 179.08 | +5.55% | 18.46 | +102.86% | 15.00% | 10.31% |
| Dec'24 | 169.66 | +28.07% | 9.10 | +0.33% | 9.39% | 5.36% |
| Sep'24 | 132.47 | -2.28% | 9.07 | -35.07% | 5.70% | 6.85% |
| Jun'24 | 135.56 | -19.08% | 13.97 | -6.26% | 11.62% | 10.31% |
| Mar'24 | 167.52 | -2.97% | 14.90 | -28.54% | 10.30% | 8.89% |
| Dec'23 | 172.65 | — | 20.85 | — | 10.06% | 12.08% |
Financial Performance: Other Income Drives Bottom Line
Shreyans Industries' Q2 FY26 results reveal a troubling disconnect between top-line momentum and operational efficiency. Revenue of ₹153.63 crores, whilst posting a respectable 13.33% year-on-year gain, contracted sharply by 14.21% from the preceding quarter's ₹179.08 crores. This sequential decline raises concerns about demand stability in the paper industry, particularly given the seasonal patterns typically observed in manufacturing sectors.
The operating profit excluding other income stood at ₹15.89 crores, translating to a margin of 10.34%—a significant deterioration from 11.62% in Q2 FY25 and a steep fall from 15.00% in Q1 FY26. This margin compression suggests rising input costs or pricing pressures that the company has been unable to pass through to customers. Employee costs increased to ₹20.51 crores from ₹19.01 crores year-on-year, reflecting inflationary pressures on the wage bill.
The critical factor propping up profitability was other income, which surged to ₹11.10 crores in Q2 FY26 from ₹7.44 crores in Q2 FY25—a 49.19% increase. This non-operating income contributed 41.14% of the total operating profit (PBDIT) of ₹26.99 crores, highlighting the precarious nature of earnings quality. When other income constitutes such a substantial portion of profitability, it raises red flags about the sustainability of core business operations.
On a half-yearly basis (H1 FY26), the company reported net sales of ₹332.71 crores and net profit of ₹35.73 crores, compared to ₹303.08 crores and ₹28.87 crores respectively in H1 FY25. This represents year-on-year growth of 9.78% in revenue and 23.76% in profit, though the sequential deterioration in Q2 FY26 tempers optimism about momentum carrying into the second half of the fiscal year.
Earnings Quality Concern
Other income of ₹11.10 crores contributed 41.14% of total operating profit in Q2 FY26, significantly inflating headline profitability. Core operating profit excluding other income stood at just ₹15.89 crores with a margin of 10.34%, down from 11.62% a year ago. This heavy reliance on non-operating income raises questions about the sustainability of earnings and masks underlying operational challenges in the paper manufacturing business.
Operational Challenges: Margin Pressure and ROE Dynamics
Shreyans Industries' return on equity (ROE) stands at 13.44% on an average basis and 12.64% for the latest period—a respectable figure that indicates reasonable capital efficiency. However, this metric must be contextualised against the company's minimal debt position. With a net debt-to-equity ratio of -0.46 (indicating a net cash position), the ROE of 12.64% suggests that the company's equity capital is not being deployed with optimal efficiency.
The company's return on capital employed (ROCE) paints a more encouraging picture at 21.04% on average and 22.10% for the latest period. This significantly higher ROCE compared to ROE reflects the company's conservative capital structure and minimal leverage. The EBIT-to-interest coverage ratio of 10.71 times demonstrates comfortable debt servicing capability, though with interest expenses of just ₹0.83 crores in Q2 FY26, debt is clearly not a material factor in the capital structure.
Balance sheet quality remains robust, with shareholder funds of ₹426.43 crores as of March 2025, up from ₹382.96 crores a year earlier. Long-term debt stood at a modest ₹8.17 crores, whilst current assets of ₹339.00 crores comfortably exceeded current liabilities of ₹130.09 crores, providing a healthy working capital cushion. Fixed assets increased to ₹234.21 crores from ₹217.25 crores, reflecting ongoing capital expenditure.
The company's cash flow profile reveals operational strength despite recent quarterly volatility. Operating cash flow for FY25 stood at ₹44.00 crores, down from ₹78.00 crores in FY24, reflecting working capital pressures. Investing cash flow of ₹44.00 crores in FY25 indicates continued capital investment, though this was entirely funded by internal accruals given the minimal financing cash flow.
Key Operational Strengths
Net Cash Position: The company maintains a net debt-to-equity ratio of -0.46, indicating it holds more cash than debt—a rare position that provides financial flexibility and insulates against interest rate risks.
Strong ROCE: Return on capital employed of 22.10% demonstrates efficient utilisation of operating capital, significantly outpacing the cost of capital and indicating competitive advantages in the paper manufacturing segment.
Zero Promoter Pledging: With no pledged shares, promoter confidence remains intact, eliminating concerns about forced selling or financial distress at the ownership level.
Industry Context: Paper Sector Headwinds
The Indian paper industry has faced structural challenges over the past two years, with demand fluctuations driven by digitisation trends, raw material cost volatility, and competitive pressures. Shreyans Industries' 5-year sales growth of just 6.61% annually reflects these sector-wide headwinds, significantly underperforming broader industrial growth rates.
Over the past year, the stock has underperformed its sector by 11.26 percentage points, declining 15.62% compared to the Paper, Forest & Jute Products sector's decline of 4.36%. This relative weakness suggests company-specific challenges beyond broader industry trends. The sharp 9.99% single-day decline following the Q2 results indicates that investors remain sceptical about the company's ability to deliver sustainable operational improvements.
Technical indicators paint a bearish picture, with the stock trading below all key moving averages—5-day (₹218.34), 20-day (₹222.41), 50-day (₹227.67), 100-day (₹228.95), and 200-day (₹211.13). The MACD, RSI, and Bollinger Bands all signal mildly bearish to bearish trends on weekly and monthly timeframes. The stock's beta of 1.50 indicates high volatility relative to the market, amplifying downside risks in a bearish trend.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield |
|---|---|---|---|---|---|
| Shreyans Inds. | 5.52 | 0.70 | 13.44% | -0.46 | 2.32% |
| Orient Paper | NA (Loss Making) | 0.34 | 1.39% | 0.15 | NA% |
| Ludlow Jute | 37.28 | 0.23 | 1.85% | 0.55 | NA% |
| Ruchira Papers | 5.64 | 0.84 | 11.33% | 0.18 | 3.80% |
| Genus Paper | 135.53 | 0.75 | 1.62% | 0.72 | NA% |
Relative to peers in the paper sector, Shreyans Industries stands out with superior ROE of 13.44% compared to the peer average of approximately 3.2%. This profitability advantage partially justifies the stock's valuation premium. However, the company's P/E ratio of 5.52 times remains at a significant discount to Genus Paper's 135.53 times, though this comparison is distorted by Genus's minimal profitability. Against the more comparable Ruchira Papers (P/E of 5.64), Shreyans trades at a slight discount despite similar ROE profiles.
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current market price of ₹193.65, Shreyans Industries trades at a P/E ratio of 5.52 times trailing twelve-month earnings—a substantial discount to the industry average P/E of 16 times. The price-to-book value ratio of 0.70 times suggests the market values the company's equity at a 30% discount to book value of ₹308.46 per share, indicating either deep value or concerns about asset quality and earning power.
The company's enterprise value-to-EBITDA multiple of 1.51 times and EV-to-EBIT of 1.98 times represent exceptionally low valuations by historical standards. These compressed multiples reflect market scepticism about the sustainability of recent profitability levels and concerns about the quality of earnings given the heavy reliance on other income.
The dividend yield of 2.32% provides modest income support, with the latest dividend of ₹3.00 per share declared in August 2025. However, the low dividend payout ratio of 13.66% suggests either conservative distribution policies or management's lack of confidence in sustainable cash generation to support higher payouts.
The stock's 52-week range of ₹165.00 to ₹270.00 shows significant volatility, with the current price 28.28% below the high and 17.36% above the low. This positioning in the lower half of the annual range, combined with bearish technical indicators, suggests limited near-term upside potential without a fundamental catalyst.
"With operating margins compressing and other income masking core business weakness, Shreyans Industries faces a credibility challenge—attractive valuations alone cannot overcome deteriorating operational fundamentals."
Shareholding Pattern: Stable but Low Institutional Interest
The shareholding structure of Shreyans Industries reveals a stable promoter base controlling 50.50% as of September 2025, with minimal change over recent quarters. Promoter holding has remained virtually unchanged, declining marginally by 0.03 percentage points from 50.53% in June 2025. The absence of promoter pledging (0.0% pledged shares) provides comfort regarding financial stability at the ownership level.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 50.50% | 50.53% | 50.53% | -0.03% |
| FII | 0.24% | 0.24% | 0.28% | 0.00% |
| Mutual Funds | 0.01% | 0.01% | 0.01% | 0.00% |
| Other DII | 0.17% | 0.17% | 0.17% | 0.00% |
| Non-Institutional | 49.09% | 49.06% | 49.02% | +0.03% |
However, institutional participation remains concerningly low, with total institutional holdings at just 0.41%. Foreign institutional investors hold a mere 0.24%, mutual funds 0.01%, and other domestic institutional investors 0.17%. This minimal institutional presence suggests limited research coverage, poor liquidity, and lack of confidence from sophisticated investors who typically conduct rigorous due diligence.
The non-institutional shareholding of 49.09% indicates retail investor dominance, which can contribute to higher volatility and susceptibility to sentiment-driven price swings. The marginal increase in non-institutional holding by 0.03 percentage points in Q2 FY26 suggests some retail buying interest, though this has not translated into sustained price appreciation given the stock's recent decline.
Stock Performance: Prolonged Underperformance
Shreyans Industries' stock performance over the past year has been deeply disappointing, declining 15.62% compared to the Sensex's gain of 5.50%—resulting in negative alpha of 21.12 percentage points. The underperformance has accelerated in recent months, with the stock falling 13.61% over the past month versus the Sensex's 1.66% gain, and declining 11.98% over the past week against the Sensex's 0.49% rise.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -11.98% | +0.49% | -12.47% |
| 1 Month | -13.61% | +1.66% | -15.27% |
| 3 Months | -12.00% | +4.05% | -16.05% |
| 6 Months | +12.59% | +5.56% | +7.03% |
| YTD | -15.20% | +7.34% | -22.54% |
| 1 Year | -15.62% | +5.50% | -21.12% |
| 2 Years | -30.27% | +29.22% | -59.49% |
| 3 Years | +26.12% | +35.73% | -9.61% |
| 5 Years | +178.03% | +92.39% | +85.64% |
The 6-month return of 12.59% versus the Sensex's 5.56% gain represents a brief period of outperformance, generating positive alpha of 7.03 percentage points. However, this momentum has completely reversed in recent months, with the stock entering a sustained downtrend. Year-to-date, the stock has declined 15.20% against the Sensex's 7.34% gain, reflecting broad-based selling pressure.
Over longer timeframes, the picture is mixed. The 2-year return of -30.27% significantly underperforms the Sensex's 29.22% gain, whilst the 5-year return of 178.03% substantially outperforms the Sensex's 92.39% gain. This divergence suggests that earlier periods of strong performance have given way to recent operational and market challenges that have eroded investor confidence.
The stock's risk-adjusted return of -0.35 over the past year, combined with volatility of 44.71%, places it firmly in the "high risk, low return" category. With a beta of 1.50, the stock amplifies market movements, making it particularly vulnerable during market downturns whilst providing limited upside capture during rallies.
Investment Thesis: Quality Concerns Override Valuation Appeal
The investment case for Shreyans Industries presents a classic value trap scenario—superficially attractive valuations masking fundamental deterioration. The company's Mojo score of 41 out of 100 and "SELL" rating reflect this challenging positioning across multiple dimensions.
Whilst the valuation appears attractive at 5.52 times earnings and 0.70 times book value, the quality grade of "Good" is undermined by a "Negative" financial trend. Operating margins excluding other income have compressed to 10.34% from 11.62% a year ago, whilst the heavy reliance on non-operating income (41.14% of total operating profit) raises serious questions about earnings sustainability.
The technical trend of "Mildly Bearish" with the stock trading below all key moving averages suggests continued near-term pressure. The combination of deteriorating fundamentals and negative technical momentum creates a hostile environment for capital appreciation.
Key Strengths
- Net Cash Position: Debt-to-equity of -0.46 provides financial flexibility and eliminates refinancing risks
- Strong ROCE: Return on capital employed of 22.10% demonstrates efficient capital utilisation
- Zero Promoter Pledging: No pledged shares indicates promoter financial stability
- Attractive Valuation Multiples: P/E of 5.52x and P/BV of 0.70x offer significant discount to intrinsic value
- Dividend Support: 2.32% dividend yield provides income cushion during price weakness
- Superior ROE vs Peers: 13.44% ROE significantly outpaces sector average of 3.2%
Key Concerns
- Earnings Quality Issues: 41.14% of operating profit from other income raises sustainability concerns
- Margin Compression: Operating margin declined to 10.34% from 11.62% year-on-year
- Revenue Volatility: Sequential revenue decline of 14.21% indicates demand instability
- Minimal Institutional Interest: Just 0.41% institutional holding suggests lack of sophisticated investor confidence
- Poor Growth Profile: 5-year sales growth of 6.61% significantly lags industrial growth rates
- Bearish Technical Setup: Stock below all moving averages with negative momentum indicators
- High Volatility: Beta of 1.50 amplifies downside risk during market corrections
Outlook: What to Watch
Positive Catalysts
- Margin Recovery: Stabilisation of raw material costs could restore operating margins above 12%
- Revenue Momentum: Sustained QoQ revenue growth for 2-3 quarters would rebuild confidence
- Reduced Other Income Dependency: Core operating profit growth outpacing other income
- Institutional Accumulation: Increase in FII/MF holdings signalling renewed interest
Red Flags
- Further Margin Erosion: Operating margins falling below 10% would signal structural profitability challenges
- Continued Revenue Decline: Another quarter of sequential revenue contraction
- Rising Other Income Dependency: Other income exceeding 50% of operating profit
- Technical Breakdown: Breach of ₹165 (52-week low) would trigger accelerated selling
- Promoter Stake Reduction: Any decline in promoter holding below 50%
The path forward for Shreyans Industries hinges on demonstrating operational improvements rather than relying on non-operating income. Investors should monitor quarterly margin trends, revenue stability, and the composition of profitability. A return to consistent double-digit operating margins (excluding other income) and sequential revenue growth would be necessary conditions for re-rating the stock.
The paper industry's structural challenges—digitisation, raw material volatility, competitive intensity—require companies to demonstrate pricing power and operational excellence. Shreyans has yet to convincingly establish either attribute in recent quarters. Until the company can deliver sustainable margin expansion and reduce dependence on other income, the investment case remains challenged despite attractive headline valuations.
The Verdict: Avoid Until Operational Turnaround Materialises
Score: 41/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst valuations appear attractive on headline metrics (P/E of 5.52x, P/BV of 0.70x), the deteriorating operational performance, margin compression, and heavy reliance on other income create a classic value trap scenario. The negative financial trend, bearish technical setup, and minimal institutional interest suggest further downside risk. Wait for at least two consecutive quarters of margin improvement and reduced other income dependency before considering entry.
For Existing Holders: Consider reducing positions on any technical bounce towards ₹210-₹215 levels. The 9.99% single-day decline following Q2 results reflects market scepticism about earnings quality and sustainability. With the stock trading below all moving averages and technical indicators signalling continued weakness, the path of least resistance remains downward. Only long-term investors with high risk tolerance and conviction in management's ability to execute an operational turnaround should maintain holdings.
Fair Value Estimate: ₹175-₹185 (10% downside from current levels), based on sustainable core operating earnings excluding volatile other income, and applying a 6-7x P/E multiple to normalised earnings power.
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. The views expressed are those of the author and do not necessarily reflect the views of the publication.
