The December quarter results present a tale of two narratives for Supreme Power Equipment. Whilst the company continues to deliver impressive year-on-year revenue expansion of 16.98%, reaching ₹35.83 crores in Q3 FY26, the sequential profit contraction has raised questions about operational efficiency and margin sustainability. The quarter-on-quarter revenue decline of 10.72% from September's ₹40.13 crores compounds concerns about business momentum heading into the final quarter of FY26.
What makes this performance particularly noteworthy is the sharp compression in operating margins. The company's operating profit margin (excluding other income) contracted significantly to 14.18% in Q3 FY26 from 18.66% in the previous quarter, a deterioration of 447 basis points that directly impacted bottom-line profitability. This margin pressure, coupled with reduced other income of ₹0.20 crores compared to ₹0.05 crores in Q2, resulted in the consolidated profit decline despite maintaining reasonable absolute revenue levels.
Financial Performance: Margin Pressure Overshadows Revenue Resilience
Supreme Power Equipment's Q3 FY26 financial performance reveals a company grappling with profitability challenges despite maintaining reasonable top-line momentum. Net sales of ₹35.83 crores in the December quarter, whilst down 10.72% sequentially from Q2 FY26's ₹40.13 crores, still represented a healthy 16.98% year-on-year growth over Q3 FY25's ₹29.11 crores. For the nine months ended December 2025, the company has generated cumulative revenue of ₹111.03 crores, marking a 37.15% increase over the corresponding period last year.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin |
|---|---|---|---|---|---|
| Dec'25 | 35.83 | -10.72% | 3.38 | -31.85% | 14.18% |
| Sep'25 | 40.13 | +14.43% | 4.96 | +11.46% | 18.66% |
| Jun'25 | 35.07 | +20.47% | 4.45 | +40.38% | 18.88% |
| Dec'24 | 29.11 | -4.96% | 3.17 | -15.01% | 10.48% |
| Sep'24 | 30.63 | +11.30% | 3.73 | +9.71% | 18.84% |
| Jun'24 | 27.52 | +16.12% | 3.40 | +16.44% | 21.08% |
| Dec'23 | 23.70 | — | 2.92 | — | 21.43% |
However, the profitability picture tells a more concerning story. Operating profit before depreciation, interest, and tax (excluding other income) fell to ₹5.08 crores in Q3 FY26 from ₹7.49 crores in Q2 FY26, a sequential decline of 32.18%. The operating margin compression from 18.66% to 14.18% suggests either adverse product mix shifts, increased raw material costs, or competitive pricing pressures. When compared to the December 2024 quarter's 10.48% operating margin, the current quarter shows improvement, but the sequential deterioration is worrying.
The profit after tax margin contracted to 9.66% in Q3 FY26 from 12.41% in Q2 FY26, reflecting the cascading impact of lower operating profitability. Employee costs remained relatively stable at ₹1.08 crores, whilst interest expenses declined significantly to ₹0.29 crores from ₹0.60 crores in the previous quarter, providing some relief. The effective tax rate increased to 27.86% from 25.74% in Q2 FY26, adding marginal pressure to net profitability.
Capital Efficiency: Healthy Returns Amidst Balance Sheet Expansion
Despite the quarterly profit setback, Supreme Power Equipment maintains respectable capital efficiency metrics that underscore the underlying quality of its business model. The company's average return on equity (ROE) stands at 19.53%, demonstrating effective utilisation of shareholder capital to generate profits. This healthy ROE, substantially above the cost of equity for most businesses, indicates that the company creates value for shareholders over the medium term, even as short-term profitability fluctuates.
The average return on capital employed (ROCE) of 20.67% further validates the company's operational efficiency. With ROCE exceeding ROE, Supreme Power Equipment demonstrates that it generates strong returns not just on equity but on the total capital deployed in the business, including debt. The latest ROCE of 17.49% and ROE of 18.25%, whilst marginally lower than historical averages, remain within acceptable ranges for a manufacturing enterprise in the electrical equipment sector.
Balance Sheet Considerations
Supreme Power Equipment's balance sheet as of March 2025 shows shareholder funds of ₹92.50 crores, comprising share capital of ₹24.99 crores and reserves of ₹67.51 crores. Long-term debt stood at ₹9.09 crores, up from ₹3.81 crores in March 2024, reflecting strategic borrowing to fund expansion. The debt-to-EBITDA ratio of 0.63 and net debt-to-equity ratio of 0.26 indicate conservative leverage, providing financial flexibility. Fixed assets increased to ₹14.61 crores from ₹7.41 crores, suggesting capital expenditure towards capacity enhancement.
The company's EBIT-to-interest coverage ratio of 6.15 times provides adequate cushion for debt servicing, though this metric warrants monitoring given the recent profit volatility. With zero promoter pledging and a clean balance sheet structure, Supreme Power Equipment maintains financial stability despite the operational challenges reflected in the latest quarterly numbers.
Electrical Equipment Sector: Navigating Competitive Intensity
Supreme Power Equipment operates in the "Other Electrical Equipment" segment, a diverse category encompassing manufacturers of specialised electrical components, power distribution systems, and industrial electrical solutions. The sector has witnessed moderate growth momentum, with the broader electrical equipment industry benefiting from infrastructure development, manufacturing expansion under government initiatives, and increasing electrification across sectors.
However, the segment remains highly fragmented and intensely competitive, with numerous small and mid-sized players vying for market share. Pricing pressure, raw material cost volatility (particularly copper and aluminium), and thin operating margins characterise the competitive landscape. Supreme Power Equipment's 42.30% five-year sales compound annual growth rate (CAGR) demonstrates its ability to gain market share, though sustaining this growth trajectory whilst maintaining profitability presents ongoing challenges.
Competitive Positioning
Supreme Power Equipment's average operating margin of 14.18% in Q3 FY26 positions it in the mid-range amongst peers in the electrical equipment space. Whilst the company has demonstrated strong revenue growth momentum, the recent margin compression highlights vulnerability to competitive pressures and cost inflation. The company's ability to differentiate through product quality, customer relationships, and operational efficiency will determine its capacity to defend and expand market share in an increasingly competitive environment.
Peer Comparison: Reasonable Valuation Amidst Mixed Fundamentals
Supreme Power Equipment's valuation and financial metrics present an interesting picture when compared against peers in the electrical equipment sector. The company trades at a price-to-earnings (P/E) ratio of 24.32 times trailing twelve-month earnings, significantly below the peer group average of approximately 57 times. This valuation discount reflects market concerns about profit volatility and growth sustainability, but also potentially presents value for investors willing to look past near-term challenges.
| Company | P/E (TTM) | ROE (%) | Price to Book | Debt to Equity | Div Yield |
|---|---|---|---|---|---|
| Supreme Power | 24.32 | 19.53% | 4.44 | 0.26 | — |
| Kirloskar Electric | 84.79 | 30.21% | 4.82 | 0.65 | — |
| Modison Metals | 13.66 | 10.65% | 2.25 | 0.36 | 3.82% |
| Focus Lighting | 90.02 | 18.04% | 3.14 | -0.04 | — |
| Saakshi Medtech | 73.45 | 4.80% | 3.31 | 0.21 | — |
Supreme Power Equipment's ROE of 19.53% positions it favourably against most peers, trailing only Kirloskar Electric's exceptional 30.21% but significantly outperforming Modison Metals (10.65%) and Saakshi Medtech (4.80%). This superior return on equity indicates more efficient capital allocation and profitability generation relative to shareholder funds, a key quality indicator that justifies some valuation premium.
The price-to-book ratio of 4.44 times sits in the middle of the peer range, higher than Modison Metals (2.25 times) but lower than Kirloskar Electric (4.82 times). Given the company's healthy ROE and growth trajectory, this P/BV multiple appears reasonable, though not compelling. The debt-to-equity ratio of 0.26 reflects conservative financial leverage, providing downside protection and flexibility for future growth investments.
Valuation Analysis: Expensive Rating Limits Upside Potential
Supreme Power Equipment currently trades at ₹180.60, representing a 24.77% decline from its 52-week high of ₹240.05 reached earlier in the fiscal year. The stock's proprietary valuation assessment carries an "Expensive" rating, indicating that current market multiples embed optimistic growth expectations that may not fully account for recent operational challenges and profit volatility.
At a P/E ratio of 24.32 times, Supreme Power Equipment trades at a premium to its own historical averages and above the broader small-cap electrical equipment universe median. The EV/EBITDA multiple of 21.00 times and EV/Sales ratio of 3.30 times further confirm stretched valuation territory. Whilst the company's 42.30% five-year sales CAGR and 74.23% EBIT CAGR justify some premium, the recent profit decline and margin compression raise questions about the sustainability of these growth rates.
The PEG ratio of 0.74 suggests that the stock may not be egregiously overvalued relative to growth, as values below 1.0 traditionally indicate reasonable valuation. However, this metric assumes continuation of historical growth rates, which the latest quarterly performance calls into question. The 52-week price range of ₹100.00 to ₹240.05 illustrates the significant volatility in investor sentiment, with the current price sitting roughly in the middle of this range.
Shareholding Pattern: Stable Promoter Base, Declining Institutional Interest
Supreme Power Equipment's shareholding structure reveals a stable promoter base holding 57.16% equity as of September 2025, unchanged from March 2025 but marginally higher than the 56.56% held in earlier quarters. The promoter group, led by Vee Rajmohan (31.51%) and K V Pradeep Kumar (20.56%), demonstrates strong commitment to the business with zero pledging of shares, a positive indicator of financial stability and confidence in long-term prospects.
| Shareholder Category | Sep'25 | Mar'25 | Sep'24 | QoQ Change |
|---|---|---|---|---|
| Promoters | 57.16% | 57.16% | 56.56% | — |
| FII | 0.10% | 0.06% | 0.06% | +0.04% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | — |
| Insurance | 0.10% | 0.10% | 0.00% | — |
| Other DII | 0.00% | 2.74% | 9.49% | -2.74% |
| Non-Institutional | 42.64% | 39.94% | 33.89% | +2.70% |
However, institutional interest remains negligible, with total institutional holdings at a mere 0.20% as of the latest quarter. The complete absence of mutual fund participation and minimal foreign institutional investor (FII) presence of 0.10% signals lack of conviction from sophisticated investors. More concerning is the sequential decline in other domestic institutional investor (DII) holdings from 2.74% in March 2025 to 0.00% in September 2025, suggesting institutional exit or redemption.
The non-institutional shareholding has increased steadily from 33.89% in September 2024 to 42.64% in September 2025, indicating retail investor accumulation. Whilst broader retail participation can provide liquidity, the absence of institutional validation raises questions about information asymmetry and limits the stock's ability to attract larger capital pools. For a company with ₹450 crores market capitalisation, greater institutional participation would typically be expected at this stage of development.
Stock Performance: Underperformance Amidst High Volatility
Supreme Power Equipment's stock has delivered mixed returns across different time horizons, with recent momentum turning negative. Over the past week, the stock gained 10.16%, outperforming the Sensex's 2.94% return by 7.22 percentage points, reflecting a short-term technical bounce. However, this recent strength follows a difficult three-month period that saw the stock decline 8.72% whilst the Sensex gained 1.02%, resulting in negative alpha of 9.74 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +10.16% | +2.94% | +7.22% |
| 1 Month | +2.91% | +0.59% | +2.32% |
| 3 Months | -8.72% | +1.02% | -9.74% |
| 6 Months | -3.91% | +5.27% | -9.18% |
| YTD | -4.85% | -1.36% | -3.49% |
| 1 Year | +18.82% | +7.97% | +10.85% |
| 2 Years | +6.90% | +17.42% | -10.52% |
The one-year return of 18.82% appears respectable, outperforming the Sensex's 7.97% gain by 10.85 percentage points. However, this outperformance has eroded significantly in recent months, with the stock generating negative alpha over three-month, six-month, and two-year periods. The year-to-date decline of 4.85% versus the Sensex's 1.36% fall further illustrates deteriorating relative performance.
From a risk perspective, Supreme Power Equipment exhibits high volatility with a beta of 1.50, indicating the stock moves 50% more than the broader market. The annualised volatility of 46.10% places it in the "High Risk High Return" category, substantially above the Sensex's 11.53% volatility. Whilst the one-year risk-adjusted return of 0.41 remains positive, it trails the Sensex's risk-adjusted return of 0.69, suggesting investors are not being adequately compensated for the additional risk undertaken.
Technical Analysis: Bearish Trend Signals Caution
Supreme Power Equipment's technical picture has deteriorated markedly, with the stock entering a bearish trend on February 3, 2026, at ₹182.05. The current price of ₹180.60 trades below all key moving averages, including the 5-day (₹175.99), 20-day (₹163.61), 50-day (₹186.49), 100-day (₹198.84), and 200-day (₹190.10) moving averages, a configuration that typically signals sustained downward momentum.
Multiple technical indicators flash bearish signals. The weekly MACD (Moving Average Convergence Divergence) shows bearish divergence, whilst Bollinger Bands indicate mildly bearish conditions on both weekly and monthly timeframes. The KST (Know Sure Thing) momentum oscillator has turned bearish, and the On-Balance Volume (OBV) shows no clear trend weekly but mildly bearish monthly, suggesting selling pressure or lack of buying conviction.
The stock faces immediate resistance at the 20-day moving average zone of ₹163.61, with major resistance at the 100-day moving average of ₹198.84 and strong resistance at the 200-day moving average of ₹190.10. The 52-week low of ₹100.00 provides downside support, though the stock would need to decline significantly from current levels to test that floor. The 52-week high of ₹240.05 remains a distant target, requiring a 32.92% rally from current levels.
Investment Thesis: Quality Business Facing Execution Challenges
Supreme Power Equipment presents a complex investment proposition characterised by strong long-term growth credentials tempered by recent operational challenges and expensive valuation. The company's five-year sales CAGR of 42.30% and EBIT CAGR of 74.23% demonstrate its ability to scale operations and capture market share in a competitive industry. The healthy ROE of 19.53% and ROCE of 20.67% underscore efficient capital allocation and value creation for shareholders over the medium term.
However, several factors constrain the investment case at current valuations. The sharp 31.85% quarter-on-quarter profit decline in Q3 FY26, driven primarily by margin compression, raises concerns about near-term earnings visibility and operational execution. The operating margin contraction from 18.66% to 14.18% suggests either adverse industry dynamics, input cost pressures, or company-specific challenges that management must address urgently.
The "Expensive" valuation rating, with the stock trading at 24.32 times earnings and 4.44 times book value, leaves limited margin of safety for investors. Combined with the bearish technical trend and flat short-term financial performance, the risk-reward profile appears unfavourable for fresh capital deployment at current levels. The absence of institutional participation and minimal dividend yield further limit the stock's attractiveness.
Key Strengths & Risk Factors
KEY STRENGTHS
- Impressive Long-Term Growth: Five-year sales CAGR of 42.30% and EBIT CAGR of 74.23% demonstrate strong market share gains and operational scaling ability
- Healthy Capital Efficiency: Average ROE of 19.53% and ROCE of 20.67% indicate effective capital allocation and value creation for shareholders
- Conservative Leverage: Debt-to-EBITDA ratio of 0.63 and net debt-to-equity of 0.26 provide financial flexibility and downside protection
- Zero Promoter Pledging: Clean shareholding structure with 57.16% promoter holding and no pledged shares signals financial stability
- Strong EBIT Coverage: EBIT-to-interest ratio of 6.15 times ensures comfortable debt servicing capacity
- Reasonable P/E Multiple: Trading at 24.32 times earnings, below peer group average of 57 times, offering relative valuation comfort
KEY CONCERNS
- Sharp Profit Decline: 31.85% QoQ drop in consolidated net profit to ₹3.38 crores raises questions about earnings sustainability and operational execution
- Margin Compression: Operating margin contracted 447 basis points QoQ to 14.18%, indicating pricing pressures or cost management challenges
- Sequential Revenue Decline: 10.72% QoQ sales drop from ₹40.13 crores to ₹35.83 crores suggests weakening business momentum
- Expensive Valuation: "Expensive" rating with elevated multiples leaves limited margin of safety for execution missteps
- Negligible Institutional Holding: Only 0.20% institutional ownership and zero mutual fund presence indicates lack of sophisticated investor validation
- Bearish Technical Trend: Stock trading below all major moving averages with multiple bearish technical indicators signalling downward momentum
- High Volatility: Beta of 1.50 and annualised volatility of 46.10% expose investors to significant price swings
Outlook: Critical Juncture Demands Margin Recovery
Supreme Power Equipment stands at a critical juncture where management's ability to arrest margin deterioration and restore profitability growth will determine the investment thesis going forward. The December quarter's weak performance cannot be dismissed as a one-off aberration; rather, it necessitates careful monitoring of the March quarter results to assess whether this represents a temporary blip or the beginning of a sustained downturn in operational performance.
POSITIVE CATALYSTS
- Margin recovery in Q4 FY26 back towards 18-20% levels would restore confidence in operational execution
- Sequential revenue growth resumption demonstrating sustained demand momentum and order book strength
- Capacity utilisation improvement following recent capital expenditure on fixed assets
- Institutional investor entry providing validation and improving liquidity profile
- Successful navigation of raw material cost pressures through pricing power or operational efficiency
RED FLAGS TO MONITOR
- Further sequential profit decline or margin compression in Q4 FY26 would confirm deteriorating fundamentals
- Full-year FY26 profit growth falling below 10% despite strong revenue expansion
- Continued absence of institutional participation or further DII exits signalling lack of confidence
- Breakdown below ₹150 levels technically, testing 52-week low support of ₹100
- Working capital deterioration or cash flow stress impacting financial flexibility
The electrical equipment sector's growth prospects remain intact, supported by infrastructure development, manufacturing expansion, and increasing electrification. However, Supreme Power Equipment must demonstrate its ability to translate sector tailwinds into consistent profitability growth whilst defending margins against competitive and cost pressures. The company's track record of strong long-term growth provides some comfort, but recent execution challenges warrant a cautious stance until operational improvements materialise.
The Verdict: Avoid Fresh Positions Until Operational Clarity Emerges
Score: 31/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of expensive valuation (24.32x P/E), recent profit decline, margin compression, and bearish technical trend creates an unfavourable risk-reward profile. Wait for operational improvement evidence through Q4 FY26 results or a meaningful valuation correction towards ₹140-150 levels before considering entry.
For Existing Holders: Consider reducing exposure or booking profits, particularly if holding from lower levels. The 31.85% QoQ profit decline and 447 bps margin compression represent material deterioration that warrants reassessment of the investment thesis. Maintain trailing stop-loss discipline and monitor Q4 FY26 results closely for signs of recovery. Only long-term holders with high risk tolerance should maintain positions, accepting potential near-term volatility.
Fair Value Estimate: ₹145-155 (19-22% downside from current levels) based on 18-20x P/E on normalised earnings of ₹7.50-8.00 per share, assuming margin recovery and sustained revenue growth. Current valuation embeds optimistic assumptions that recent performance does not justify.
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 does not guarantee future results, and all investments carry risk of loss.
