Somi Conveyor Beltings Q3 FY26: Revenue Collapse Triggers Sharp Decline

The quarter's performance reflects a troubling revenue contraction that has cascaded through the entire income statement. Net sales declined 24.85% quarter-on-quarter to ₹19.72 crores from ₹26.24 crores in Q1 FY26, whilst the year-on-year comparison reveals an even more concerning 42.15% decline from ₹34.09 crores in Q2 FY25. This represents the company's weakest quarterly revenue performance in recent history, raising serious questions about demand dynamics and competitive positioning in the industrial conveyor belt market.

Financial Performance: Margin Resilience Amid Revenue Collapse

Despite the sharp revenue decline in Q2 FY26, Somi Conveyor Beltings demonstrated surprising margin resilience. Operating profit excluding other income stood at ₹1.96 crores, translating to an operating margin of 9.94%, up 148 basis points quarter-on-quarter from 8.46% in Q1 FY26. However, this improvement pales in comparison to the 11.21% margin achieved in Q2 FY25, indicating that whilst cost management has been effective, the company has lost some operational efficiency year-on-year.

The profit trajectory tells a concerning story. Profit before tax contracted to ₹1.26 crores from ₹1.63 crores in the previous quarter, whilst net profit after tax fell to ₹0.86 crores. The PAT margin compressed marginally to 4.36% from 4.57% in Q1 FY26, though it remains well below the 6.92% achieved in the year-ago quarter. The effective tax rate increased sharply to 31.75% from 25.77% in Q1 FY26, adding further pressure to bottom-line profitability.

On a half-yearly basis for H1 FY26, the company reported net sales of ₹45.96 crores with net profit of ₹2.06 crores, reflecting the cumulative impact of weak demand conditions. Interest costs remained elevated at ₹0.46 crores in Q2 FY26, marginally lower than ₹0.52 crores in Q1 FY26, whilst depreciation held steady at ₹0.35 crores. Employee costs were well-contained at ₹1.07 crores, up just ₹0.02 crores quarter-on-quarter.

Operational Challenges: Weak Returns and Deteriorating Efficiency

The company's return metrics paint a concerning picture of operational performance. Return on equity (ROE) stands at a weak 5.26% on average, significantly below industry standards and reflecting poor capital efficiency. The latest ROE of 5.65% shows marginal improvement but remains inadequate for generating meaningful shareholder value. Return on capital employed (ROCE) averages 8.51%, with the latest figure at 8.94%, indicating that the company is struggling to generate adequate returns from its invested capital base.

Balance sheet analysis reveals a company with moderate leverage but concerning working capital dynamics. Shareholder funds stood at ₹76.54 crores as of March 2025, up from ₹71.05 crores in the previous year. Long-term debt remains modest at ₹1.19 crores, whilst current liabilities increased to ₹43.66 crores from ₹37.92 crores, driven primarily by higher trade payables of ₹18.11 crores. The debt-to-EBITDA ratio averages 2.56, indicating moderate debt levels, whilst net debt to equity remains low at 0.10.

The company's sales to capital employed ratio averages 0.95x, suggesting that for every rupee of capital employed, the company generates less than one rupee of sales—a clear indicator of inefficient asset utilisation. Fixed assets stood at ₹26.17 crores as of March 2025, with current assets at ₹88.86 crores. The cash flow statement for FY25 reveals troubling trends, with operating cash flow turning negative at ₹8.00 crores due to a massive ₹18.00 crore increase in working capital requirements.

Market Context: Severe Underperformance in Challenging Environment

Somi Conveyor Beltings operates in the industrial manufacturing sector, specifically in the niche market for customised conveyor belts used across mining, cement, steel, and logistics industries. The company's recent performance suggests it is facing significant headwinds, whether from reduced capital expenditure by industrial customers, increased competition, or company-specific execution challenges.

The stock's performance has been catastrophic over the past year, declining 45.98% whilst the Sensex gained 7.07%, resulting in a negative alpha of 53.05 percentage points. This massive underperformance extends across all recent timeframes: the stock is down 19.49% over one month versus the Sensex's 1.74% decline, down 36.89% over three months versus the Sensex's 0.32% gain, and down 32.30% over six months versus the Sensex's 3.77% gain.

The stock currently trades at ₹98.10, down from a 52-week high of ₹218.40 and just 15.41% above its 52-week low of ₹85.00. Technical indicators uniformly point to bearish sentiment, with the stock trading below all key moving averages—5-day (₹92.02), 20-day (₹104.30), 50-day (₹118.75), 100-day (₹131.99), and 200-day (₹147.13). The technical trend turned bearish on December 26, 2025, at ₹125.35, and has remained in downward trajectory since.

Compared to its peer group, Somi Conveyor Beltings trades at a premium P/E ratio of 26.03x despite delivering the lowest ROE of just 5.26%, significantly below the peer average of approximately 12%. The company's P/BV ratio of 1.47x is above the peer average, which appears unjustified given its weak profitability metrics. Peers like Atam Valves command higher valuations with a P/BV of 2.25x but justify this through a superior ROE of 21.29%. The valuation premium appears increasingly difficult to defend in light of deteriorating operational performance.

Valuation Analysis: Premium Unjustified by Fundamentals

At the current price of ₹98.10, Somi Conveyor Beltings trades at a P/E ratio of 26.03x based on trailing twelve-month earnings, which appears expensive relative to the company's 5.26% ROE and weak growth trajectory. The price-to-book value of 1.47x suggests the market is valuing the company above its net asset value, despite questionable earnings quality and operational efficiency. The EV/EBITDA multiple of 13.43x and EV/Sales of 1.26x further indicate that the stock is not trading at distressed valuations, despite the fundamental challenges.

The company's valuation grade has fluctuated significantly over recent months, changing from "Attractive" to "Fair" on September 30, 2025, and experiencing multiple shifts between these categories. Currently assessed as "Fair," the valuation appears generous given the deteriorating financial performance. With a book value per share of ₹64.97, the stock trades at a 51% premium to book value, which seems difficult to justify given the weak return profile and negative earnings momentum.

The proprietary Mojo Score of 43 out of 100 places the stock firmly in "SELL" territory (30-50 range), with the recommendation to consider selling and look for exit opportunities. This score reflects the confluence of negative factors: bearish technical trend, poor long-term operating profit growth of just 6.65% annually over five years, and significant underperformance versus the broader market. The score has remained in the SELL category since early July 2025, with a brief respite in late June when it moved to HOLD before quickly reverting to SELL status.

Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest

The shareholding pattern reveals a stable promoter base but complete absence of institutional confidence. Promoter holding has remained unchanged at 59.09% across the last five quarters from December 2024 through December 2025, with no sequential changes. This stability provides some comfort regarding management commitment, though it also suggests limited liquidity and potential challenges in attracting new investors.

Foreign institutional investors (FIIs) exited completely in Q3 FY26, reducing their holding from 0.09% in September 2025 to zero in December 2025. Mutual funds, insurance companies, and other domestic institutional investors have maintained zero holdings throughout the period, reflecting a complete absence of institutional confidence. Non-institutional investors hold 40.91% of the equity, showing marginal fluctuations but no meaningful trend. The lack of institutional participation is particularly concerning, as it suggests sophisticated investors see limited value or are concerned about liquidity, governance, or growth prospects.

Promoter details reveal that Om Prakash Bhansali holds the largest stake at 37.50%, followed by Om Kumari Bhansali at 9.26%, Vimal Bhansali at 5.08%, and Gaurav Bhansali at 4.90%. Importantly, there is no promoter pledging, which removes one potential red flag. However, the complete absence of institutional investors—with zero mutual funds, negligible FII presence, and no insurance company holdings—speaks volumes about the investment community's assessment of the company's prospects.

Stock Performance: Catastrophic Decline Across All Timeframes

The stock's performance has been nothing short of disastrous across virtually all meaningful timeframes. Over the past year, Somi Conveyor Beltings declined 45.98% whilst the Sensex gained 7.07%, resulting in a negative alpha of 53.05 percentage points. The underperformance accelerates in shorter timeframes: over three months, the stock is down 36.89% versus the Sensex's 0.32% gain (negative alpha of 37.21 percentage points), and over six months, it has declined 32.30% versus the Sensex's 3.77% gain (negative alpha of 36.07 percentage points).

The only bright spot emerges in the longer-term view. Over three years, the stock has gained 161.25% versus the Sensex's 38.13% gain, generating positive alpha of 123.12 percentage points. Similarly, over five years, the stock has returned 184.35% versus the Sensex's 64.75%, with positive alpha of 119.60 percentage points. However, these longer-term gains appear to be rapidly eroding, with the two-year return now negative at -9.33% versus the Sensex's positive 15.78% return.

The risk-adjusted return profile is equally concerning. Over the past year, the stock generated a risk-adjusted return of -0.74 with volatility of 61.99%—classifying it as "HIGH RISK LOW RETURN." This compares unfavourably to the Sensex's risk-adjusted return of 0.61 with volatility of just 11.53%. The stock's beta of 1.05 indicates it generally moves in line with the market, though the current underperformance suggests company-specific factors are overwhelming broader market trends.

Investment Thesis: Limited Positives Overshadowed by Structural Concerns

The investment thesis for Somi Conveyor Beltings is overwhelmingly negative at current levels. The Mojo 4 Dots Analysis reveals mixed near-term drivers (positive quarterly financial trend but bearish technicals), average quality assessment, attractive valuation (though this appears to be a value trap), and an overall mixed assessment that leans decidedly negative when weighted by recent performance trends.

The company's quality grade of "Average" reflects its long-term financial performance, which includes healthy sales growth of 29.61% over five years but anaemic EBIT growth of just 6.65% over the same period. The weak EBIT-to-interest coverage of 3.24x provides limited cushion, whilst the average ROCE of 8.51% and ROE of 5.26% are simply inadequate for a manufacturing business. The positive factor is zero promoter pledging and low institutional holdings (0.00%), though the latter is more concerning than reassuring.

Outlook: What to Watch

The outlook for Somi Conveyor Beltings remains highly uncertain, with the balance of probabilities tilted towards continued underperformance unless the company can demonstrate sustainable revenue recovery and improved capital efficiency. Investors should closely monitor several key indicators in the coming quarters to assess whether the business is stabilising or continuing to deteriorate.

The company's ability to navigate the current downturn will depend critically on management's success in stabilising revenues, improving asset utilisation, and demonstrating that the recent quarterly weakness is cyclical rather than structural. Until clear evidence emerges of operational turnaround, investors are advised to maintain a cautious stance and consider reducing exposure on any technical bounces.