The results paint a grim picture of a company in severe distress. Sparc Electrex, which deals in hardware and software solutions for office automation and electronic security systems, has seen its business model collapse over the past year. The company's transition from Sparc Systems Limited to Sparc Electrex Limited in January 2022 was meant to reflect new business activities, but operational execution has been disastrous. With shareholder funds of ₹17.11 crores against a market cap of just ₹6.00 crores, the market is pricing in significant value destruction ahead.
The stock closed at ₹5.97 on November 19, 2025, down 1.32% on the day, trading below all key moving averages and 66.27% below its 52-week high of ₹17.70. Institutional participation remains negligible at 0.21%, whilst promoter holding stands at 27.11% with no pledging—a rare silver lining in an otherwise bleak picture.
Financial Performance: Revenue Collapse and Margin Implosion
The quarterly financials reveal a business in freefall. In Q2 FY26, net sales stood at ₹0.13 crores, representing a catastrophic 90.30% year-on-year decline from ₹1.34 crores in Q2 FY24. On a sequential basis, revenue grew 30.00% from Q1 FY26's ₹0.10 crores, but this marginal improvement offers little comfort given the minuscule absolute numbers. The company's revenue trajectory shows consistent deterioration—from ₹4.17 crores in Mar'24 to ₹0.13 crores in Sep'25, a decline of over 96% in just 18 months.
| Quarter | Revenue (₹ Cr) | QoQ Change | YoY Change | Net Profit (₹ Cr) | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 0.13 | +30.00% | -90.30% | -0.05 | -346.15% |
| Jun'25 | 0.10 | -77.27% | -88.76% | -0.66 | -620.00% |
| Mar'25 | 0.44 | -55.56% | -89.45% | -1.64 | -368.18% |
| Dec'24 | 0.99 | -26.12% | N/A | 0.06 | 8.08% |
| Sep'24 | 1.34 | +50.56% | N/A | 0.02 | 3.73% |
| Jun'24 | 0.89 | -78.66% | N/A | 0.04 | 8.99% |
| Mar'24 | 4.17 | N/A | N/A | -0.08 | 8.63% |
Operating profit before depreciation, interest, and tax (excluding other income) stood at -₹0.45 crores in Q2 FY26, translating to an operating margin of -346.15%. This represents a marginal improvement from Q1 FY26's horrific -620.00% margin, but remains deeply unsustainable. The company recorded other income of ₹0.45 crores in Q2 FY26—ironically matching its operating loss—which prevented an even larger net loss. This dependency on other income to offset operational losses is a major red flag for investors.
Net profit margin deteriorated to -38.46% in Q2 FY26, compared to 1.49% in the same quarter last year. The company's inability to generate positive cash flows from operations is evident in its cash flow statement, which shows negative operating cash flow of ₹2.00 crores for FY25, funded entirely through financing activities. Interest costs, whilst modest at ₹0.04 crores in Q2 FY26, represent a significant burden relative to the company's minuscule revenue base.
Critical Financial Stress Indicators
Operating Leverage Crisis: With operating margins at -346.15%, the company is burning cash on every rupee of revenue generated. The business model appears fundamentally broken, with costs far exceeding revenues. The company's total expenditure of ₹5.00 crores in FY25 against revenues of just ₹3.00 crores highlights the severe cost-revenue mismatch.
Negative Return Profile: Return on Equity (ROE) stands at -13.38% (latest), whilst Return on Capital Employed (ROCE) is -8.22%, indicating value destruction for shareholders. The five-year average ROE of 4.50% masks recent deterioration.
Operational Challenges: Business Model Breakdown
Sparc Electrex's operational metrics reveal a company struggling with fundamental business viability. The company's sales to capital employed ratio averaged just 0.43 over recent years, indicating extremely poor asset utilisation. With fixed assets of ₹1.10 crores remaining stagnant since FY22, there's been no capital investment to drive growth or operational efficiency.
The company's employee costs of ₹0.02 crores in Q2 FY26 suggest a skeletal workforce, yet even this minimal cost structure cannot be supported by current revenue levels. The balance sheet shows current assets of ₹18.95 crores as of Mar'25, but with trade payables at ₹2.48 crores and other current liabilities at ₹1.40 crores, working capital management appears strained. The company's debt-to-EBITDA ratio averaged 0.28, but this metric is misleading given negative EBITDA in recent quarters.
Quality of Earnings: Dependency on Other Income
A critical concern is Sparc Electrex's reliance on other income to mask operational losses. In Q2 FY26, other income of ₹0.45 crores exactly offset the operating loss of ₹0.45 crores, preventing a larger net loss. This pattern is unsustainable and raises questions about the underlying business's ability to generate profits from core operations. With EBIT growth at -208.73% over five years, the operational deterioration is stark.
The company's cash flow statement for FY25 reveals the severity of the situation: operating cash flow was negative ₹2.00 crores, investing cash flow was nil, whilst financing cash flow was positive ₹2.00 crores. This means the company is entirely dependent on external financing to fund operations—a precarious position for any business, particularly one with negligible institutional support.
Industry Context: Lagging in a Growing Sector
The computers, software, and consulting sector has delivered a -9.77% return over the past year, but Sparc Electrex's -54.39% return represents a massive 44.62 percentage point underperformance versus its sector. Whilst the broader IT services industry in India has faced headwinds from global economic uncertainty and reduced technology spending, Sparc Electrex's challenges appear company-specific rather than sector-wide.
The company's positioning in office automation and electronic security systems places it in a competitive market dominated by larger, better-capitalised players. With a micro-cap market capitalisation of just ₹6.00 crores, Sparc Electrex lacks the scale, resources, and market presence to compete effectively. The absence of any meaningful institutional holdings (just 0.21% from mutual funds) suggests professional investors have abandoned the stock.
| Period | Sparc Electrex Return | Sector Return | Sensex Return | Alpha vs Sensex |
|---|---|---|---|---|
| 1 Week | -6.86% | N/A | 0.63% | -7.49% |
| 1 Month | -2.61% | N/A | 1.25% | -3.86% |
| 3 Months | 0.17% | N/A | 4.11% | -3.94% |
| 6 Months | -36.29% | N/A | 3.59% | -39.88% |
| 1 Year | -54.39% | -9.77% | 9.57% | -63.96% |
| 2 Years | -73.53% | N/A | 29.19% | -102.72% |
| 3 Years | -69.50% | N/A | 37.85% | -107.35% |
Peer Comparison: Bottom of the Barrel
Within its peer group of micro-cap software and consulting companies, Sparc Electrex stands out for all the wrong reasons. All companies in the peer set, including Wherrelz IT, Objectone Information, Mahaveer Infoway, and Bharatiya Global, are loss-making with negative P/E ratios. However, Sparc Electrex's operational metrics suggest it faces the most severe challenges.
| Company | P/E Ratio | Price to Book | Market Cap (₹ Cr) |
|---|---|---|---|
| Sparc Electrex | NA (Loss Making) | 0.36x | 6.00 |
| Wherrelz IT | NA (Loss Making) | 6.92x | N/A |
| Objectone Information | NA (Loss Making) | 0.58x | N/A |
| Mahaveer Infoway | NA (Loss Making) | 1.64x | N/A |
| Bharatiya Global | NA (Loss Making) | 0.08x | N/A |
Sparc Electrex's price-to-book ratio of 0.36x indicates the market values the company at just 36% of its book value, reflecting deep scepticism about asset quality and future profitability. With the smallest market capitalisation in its peer group at ₹6.00 crores, the company ranks dead last, highlighting its precarious position in an already challenged sector.
Valuation Analysis: Value Trap, Not Value Opportunity
At first glance, Sparc Electrex's valuation metrics might appear attractive—trading at 0.36x book value and with an EV/Sales ratio of 3.73x. However, these metrics are misleading. The company is loss-making with a negative P/E ratio, negative EV/EBITDA of -2.37x, and negative EV/EBIT of -2.37x. These negative multiples reflect the company's inability to generate positive earnings or cash flows.
The stock's valuation grade has deteriorated from "Very Expensive" to "Expensive" to "Risky" over the past year, with the most recent downgrade to "Risky" occurring on June 2, 2025. This progression reflects the market's growing recognition of the company's structural challenges. The current price of ₹5.97 represents a 66.27% decline from the 52-week high of ₹17.70, but is still 8.55% above the 52-week low of ₹5.50—suggesting the stock could test new lows if operational trends don't reverse.
Valuation Reality Check
Book Value Disconnect: With a book value per share of ₹15.63 versus a market price of ₹5.97, the 62% discount to book value reflects the market's assessment that shareholder equity is likely to erode further through continued losses. The gap between book value and market value is a warning, not an opportunity.
No Dividend Support: The company pays no dividend and has a dividend payout ratio of 0.0%, offering no income support for investors willing to hold through the turnaround uncertainty.
Shareholding Pattern: Stable but Uninspiring
The shareholding pattern for Sparc Electrex has remained remarkably stable over the past five quarters, with promoter holding steady at 27.11% and no pledging of shares. Electrex International Private Limited holds 24.03%, whilst Shobha Anant Hegde holds 3.09%. This stability might ordinarily be viewed positively, but in the context of severe operational distress, it raises questions about promoter commitment to a turnaround.
| Quarter | Promoter % | FII % | Mutual Fund % | Non-Institutional % |
|---|---|---|---|---|
| Sep'25 | 27.11% | 0.00% | 0.21% | 72.68% |
| Jun'25 | 27.11% | 0.00% | 0.21% | 72.68% |
| Mar'25 | 27.11% | 0.00% | 0.21% | 72.68% |
| Dec'24 | 27.11% | 0.00% | 0.21% | 72.68% |
| Sep'24 | 27.11% | 0.00% | 0.21% | 72.68% |
Institutional participation is virtually non-existent, with just 0.21% held by mutual funds and zero holdings from FIIs, insurance companies, or other domestic institutional investors. The overwhelming 72.68% non-institutional holding suggests the shareholder base consists primarily of retail investors, many of whom may be trapped at higher levels. The complete absence of institutional interest is a significant red flag—professional investors with resources to conduct deep due diligence have clearly decided to avoid this stock.
Stock Performance: Relentless Downtrend
Sparc Electrex's stock performance has been dismal across all timeframes. The stock is trading below all key moving averages—5-day MA of ₹6.47, 20-day MA of ₹6.40, 50-day MA of ₹6.35, 100-day MA of ₹6.51, and 200-day MA of ₹8.13. This technical picture suggests strong bearish momentum with no signs of reversal.
Over the past year, the stock has delivered a -54.39% return versus the Sensex's 9.57% gain, resulting in negative alpha of -63.96 percentage points. The two-year return of -73.53% and three-year return of -69.50% demonstrate sustained value destruction. Even the five-year return of 151.67%, whilst positive, significantly underperforms the Sensex's 94.96% gain when adjusted for the much higher risk profile.
"With a beta of 1.50, volatility of 48.01%, and negative risk-adjusted returns of -1.13, Sparc Electrex exemplifies a high-risk, low-return proposition that investors should avoid."
The stock's risk-adjusted return profile is particularly concerning. With a volatility of 48.01%—nearly four times the Sensex's 12.25%—and a negative Sharpe ratio, investors are taking on extreme risk without any compensation. The high beta of 1.50 means the stock tends to move 50% more than the market, amplifying losses during downturns.
Key Strengths & Risk Factors
✅ Key Strengths
- No Promoter Pledging: Promoters haven't pledged shares, suggesting some confidence in long-term prospects
- Stable Shareholding: Promoter holding steady at 27.11% with no dilution over past five quarters
- Asset Base: Book value of ₹15.63 per share versus market price of ₹5.97 provides theoretical downside cushion
- Debt-Free Operations: Long-term debt of just ₹0.86 crores limits financial leverage risk
- Established Presence: Company founded in 1989 with three decades of operational history
⚠️ Key Concerns
- Revenue Collapse: 90.30% YoY decline in Q2 FY26 revenue to just ₹0.13 crores indicates business model failure
- Negative Operating Margins: -346.15% operating margin reflects severe cost-revenue mismatch
- Consecutive Losses: Three straight quarters of losses with no turnaround visibility
- Negative Returns: ROE of -13.38% and ROCE of -8.22% signal value destruction
- Zero Institutional Interest: Just 0.21% institutional holding suggests professional investors have abandoned stock
- Cash Burn: Negative operating cash flow of ₹2.00 crores in FY25 funded entirely by financing
- Micro-Cap Liquidity: ₹6.00 crores market cap with average daily volume of just 15,136 shares limits exit options
Outlook: What to Watch
Positive Catalysts
- Revenue stabilisation above ₹1.00 crore per quarter
- Return to positive operating margins (above 5%)
- New client wins or contract announcements
- Capital infusion or strategic partnership
Red Flags
- Further revenue decline below ₹0.10 crores per quarter
- Continued dependence on other income to offset losses
- Any increase in debt levels or promoter pledging
- Stock breaking below 52-week low of ₹5.50
- Promoter stake reduction or exit by remaining mutual fund
For Sparc Electrex to stage a meaningful turnaround, it needs to demonstrate revenue stabilisation, cost rationalisation, and a clear path to profitability. The company's survival depends on securing new business, improving operational efficiency, and potentially raising capital to fund a restructuring. However, given the severity of current challenges and the absence of any positive catalysts, the probability of a successful turnaround appears low.
Investors should monitor quarterly results closely, particularly revenue trends and operating margins. Any further deterioration in these metrics would signal an accelerating crisis. The company's ability to maintain its current asset base without further erosion will be critical, as will any changes in the shareholding pattern that might indicate promoter or institutional sentiment.
The Verdict: A Micro-Cap in Crisis Mode
Score: 18/100
For Fresh Investors: Avoid entirely. The company faces severe operational challenges with no clear turnaround path. The 90.30% revenue decline, negative operating margins of -346.15%, and three consecutive loss-making quarters indicate a business model in crisis. The micro-cap market capitalisation of ₹6.00 crores and negligible institutional interest (0.21%) create significant liquidity risk and limit exit options.
For Existing Holders: Exit on any price bounce. The stock has declined 54.39% over the past year and shows no signs of stabilisation. With the company burning cash, dependent on other income to offset operational losses, and trading at 66% below its 52-week high, the risk of further value destruction is high. The absence of dividends means holders receive no income whilst waiting for an uncertain turnaround.
Fair Value Estimate: ₹3.50-4.00 (35-40% downside risk from current levels of ₹5.97). This estimate assumes continued losses and further erosion of book value. A successful turnaround could justify higher valuations, but current fundamentals don't support even the current price.
Rationale: Sparc Electrex receives a Strong Sell rating due to catastrophic operational deterioration, unsustainable business model, and absence of any turnaround catalysts. The company's revenue has collapsed 90% year-on-year whilst operating margins remain deeply negative. With negligible institutional support, high volatility (48.01%), and negative risk-adjusted returns, this micro-cap represents a value trap rather than a value opportunity. Only a dramatic operational turnaround—which appears unlikely given current trends—would justify reconsideration.
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 substantial risk of loss and may not be suitable for all investors.
