SPML Infra Q3 FY26: Strong Profit Surge Masks Operational Concerns

The stock closed at ₹188.60 on February 13, 2026, down 3.21% on the day, reflecting broader market weakness and investor caution despite the strong quarterly profit print. Trading 41.37% below its 52-week high of ₹321.70 reached in mid-2025, SPML Infra's shares have underperformed the construction sector by 4.80 percentage points over the past year, delivering 8.99% returns compared to the sector's 13.79% gain.

The third quarter marked a turning point for SPML Infra's top-line momentum, with net sales reaching ₹229.76 crores—the highest quarterly revenue in at least two years. This represented a sequential acceleration of 20.84% from Q2 FY26's ₹190.14 crores and a solid year-on-year improvement of 22.30% from ₹187.86 crores in Q3 FY25. The revenue recovery is particularly noteworthy given the company's challenging FY25, which saw full-year sales contract 41.60% to ₹770.00 crores from ₹1,318.00 crores in FY24.

Financial Performance: Margin Expansion Drives Bottom-Line Growth

SPML Infra's Q3 FY26 performance was characterised by significant margin expansion across all profitability metrics. Operating profit before depreciation, interest, and tax (excluding other income) surged to ₹24.79 crores from ₹11.18 crores in Q2 FY26, pushing the operating margin to 10.79%—the highest level recorded in at least eight quarters and nearly double the 5.88% achieved in the previous quarter. This improvement suggests enhanced project execution efficiency and better cost management.

The company's profit after tax margin expanded to 8.85% in Q3 FY26 from 7.91% in Q2 FY26 and 5.29% in Q3 FY25, reflecting operational leverage benefits as revenue scaled up. On a nine-month basis for FY26 (April-December 2025), SPML Infra generated consolidated net profit of ₹47.50 crores on sales of ₹575.81 crores, representing a substantial turnaround from the full-year FY25 profit of ₹47.00 crores on sales of ₹770.00 crores.

However, the interest cost trajectory raises concerns about financial stability. Q3 FY26 interest expense jumped dramatically to ₹5.31 crores from just ₹0.40 crores in Q2 FY26, though it remained below the ₹9.20 crores paid in Q1 FY26. This volatility in interest costs suggests potential working capital pressures or refinancing activities. Employee costs remained relatively stable at ₹8.63 crores in Q3 FY26, up from ₹7.39 crores in Q2 FY26, indicating measured workforce expansion to support revenue growth.

Operational Challenges: Weak Return Ratios Signal Capital Inefficiency

Despite the impressive quarterly profit growth, SPML Infra continues to grapple with fundamental operational weaknesses that distinguish it from higher-quality construction peers. The company's return on equity (ROE) stands at just 6.12% on a trailing basis, with an average ROE of 2.31% over recent periods—significantly below the double-digit returns typically expected from well-managed construction companies. This indicates the company is generating minimal returns on shareholder capital, a critical concern for long-term value creation.

Return on capital employed (ROCE) presents an even more troubling picture at 3.42% currently and averaging just 0.61% over time. Such low ROCE figures suggest SPML Infra struggles to generate adequate returns from the total capital deployed in its business, whether equity or debt. The company's average EBIT-to-interest coverage ratio of 1.59 times indicates limited financial flexibility, with operating profits barely covering interest obligations.

On the balance sheet front, SPML Infra's shareholder funds strengthened to ₹770.14 crores as of March 2025 from ₹460.28 crores in March 2024, driven by retained earnings and capital restructuring. Long-term debt stood at ₹338.24 crores, up from ₹305.99 crores, while current liabilities decreased to ₹584.96 crores from ₹701.84 crores, suggesting improved working capital management. Fixed assets declined sharply to ₹6.13 crores from ₹41.60 crores, indicating asset monetisation or write-downs.

Industry Context: Construction Sector Recovery Provides Tailwinds

The Indian construction sector has witnessed renewed momentum in recent quarters, driven by robust government infrastructure spending and private sector capex revival. SPML Infra's Q3 FY26 revenue acceleration of 22.30% year-on-year aligns with this broader sectoral upturn, though the company continues to lag sector leaders in execution scale and profitability consistency.

The company's five-year sales growth stands at -4.91%, reflecting the challenging period between FY20 and FY25 when annual revenues declined from ₹1,706.00 crores to ₹770.00 crores. This contraction was driven by project delays, working capital constraints, and competitive pressures. However, the recent quarterly momentum suggests potential stabilisation, with nine-month FY26 revenues of ₹575.81 crores already approaching 75% of full-year FY25 levels.

Peer Comparison: Valuation Discount Reflects Quality Concerns

A comparative analysis with construction sector peers reveals SPML Infra's valuation discount is largely justified by its inferior return profile and financial metrics. At a price-to-earnings ratio of 30.45 times, the stock trades below the sector average of approximately 34 times, but this apparent discount is more than offset by the company's weak fundamentals.

SPML Infra's ROE of 2.31% stands in stark contrast to peers like Garuda Construction (22.24%) and M & B Engineering (23.54%), which generate substantially higher returns on shareholder capital. The company's price-to-book ratio of 1.86 times appears reasonable compared to the peer average of approximately 2.80 times, but this reflects the market's recognition of weak earnings quality rather than attractive valuation.

The debt-to-equity ratio of 0.23 times positions SPML Infra favourably against more leveraged peers like Simplex Infra (1.75 times), suggesting conservative balance sheet management. However, the company's inability to generate strong returns despite moderate leverage underscores fundamental operational inefficiencies that financial engineering cannot resolve.

Valuation Analysis: Fair Pricing Offers Limited Upside

At the current price of ₹188.60, SPML Infra trades at a P/E ratio of 30.45 times trailing twelve-month earnings, below the construction sector average of 38 times but above the company's historical valuation range during periods of operational stress. The stock's price-to-book ratio of 1.86 times compares to a book value per share of ₹94.91, suggesting a modest premium to net asset value.

The company's enterprise value-to-EBITDA multiple of 48.86 times appears elevated, reflecting the market's focus on near-term earnings momentum rather than sustainable profitability. With an EV-to-sales ratio of 2.34 times, the valuation implies investors are pricing in continued margin expansion—an optimistic assumption given the company's historical volatility.

The proprietary Mojo Score of 34 out of 100 places SPML Infra in "SELL" territory, reflecting the combination of weak quality metrics, mildly bearish technical trend, and mixed near-term drivers. The valuation grade of "Fair" suggests the stock is neither significantly overvalued nor attractively priced at current levels, offering limited margin of safety for new investors.

Shareholding Pattern: Promoter Accumulation Amid Institutional Exit

The shareholding structure reveals interesting dynamics in investor sentiment towards SPML Infra. Promoter holdings increased to 38.33% as of January 2026 from 37.79% in December 2025 and 35.12% in September 2025, indicating consistent promoter confidence and accumulation over recent quarters. This 3.21 percentage point increase over five months suggests insiders view current valuations as attractive relative to the company's prospects.

However, the complete absence of mutual fund and insurance company holdings signals institutional scepticism about the company's investment merits. Foreign institutional investors (FIIs) exited entirely by January 2026, down from 0.34% in October 2025, reflecting concerns about governance, scale, or growth sustainability. The Other DII category maintained steady holdings around 15.55%, providing some institutional stability.

Non-institutional holdings declined to 46.13% from 49.55% over five months, suggesting retail investors have been trimming positions despite the recent operational improvement. The promoter group is led by Zoom Industrial Services Ltd (18.89%) and SPML India Limited (8.00%), with promoter pledging data unavailable—a transparency gap that merits caution.

Stock Performance: Volatility Dominates Long-Term Returns

SPML Infra's stock price performance presents a study in extreme volatility, with spectacular multi-year gains offset by sharp corrections. Over five years, the stock has delivered an extraordinary 1,198.90% return, vastly outperforming the Sensex's 60.66% gain and generating alpha of 1,138.24 percentage points. The three-year return of 619.85% further underscores the stock's capacity for dramatic appreciation from deeply depressed levels.

However, recent performance tells a more sobering story. The stock has declined 33.19% over six months, underperforming the Sensex by 36.01 percentage points, and fallen 9.65% over three months against the market's 1.97% decline. Trading with a beta of 1.35, SPML Infra exhibits significantly higher volatility than the broader market, with annualised volatility of 54.33% compared to the Sensex's 11.46%.

The stock's risk-adjusted return of 0.17 over one year compares unfavourably to the Sensex's 0.76, indicating investors are not being adequately compensated for the elevated risk. Currently trading 41.37% below its 52-week high of ₹321.70 but 37.66% above its 52-week low of ₹137.00, the stock occupies a middle ground that offers neither compelling value nor momentum.

Investment Thesis: Tactical Recovery Play with Structural Concerns

The investment case for SPML Infra rests on three pillars: near-term operational momentum, balance sheet deleveraging, and promoter confidence. The company's Q3 FY26 results demonstrate improved execution capabilities, with revenue and margins trending positively after years of contraction. The debt-to-equity ratio of 0.44 times and improving working capital position suggest financial stress is moderating.

However, these positives are overshadowed by fundamental weaknesses that limit long-term value creation potential. The company's ROE of 6.12% and ROCE of 3.42% place it among the weakest performers in the construction sector, indicating structural inefficiencies in capital allocation and project execution. The absence of institutional investor interest—zero mutual fund and insurance holdings—speaks volumes about professional investors' assessment of the company's prospects.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

The key monitoring point for SPML Infra is whether the Q3 FY26 performance represents a sustainable inflection point or merely a cyclical uptick. Investors should track order inflow announcements, project execution timelines, and working capital metrics closely. The company's ability to attract institutional investor interest will serve as a crucial validation of its turnaround narrative.