With a market capitalisation of ₹284.96 crores, Surana Telecom operates in the power sector but faces significant headwinds in converting revenue growth into sustainable profitability. The company's Q2 performance reveals critical operational challenges, particularly the alarming collapse in operating margins and an unhealthy reliance on other income to prop up reported profits. The quarter's results underscore fundamental questions about business model sustainability and operational execution.
Quarterly Performance Trend: A Story of Deteriorating Fundamentals
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Consol. PAT (₹ Cr) | QoQ Growth | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 9.37 | +126.33% | 0.76 | -71.64% | 2.67% |
| Jun'25 | 4.14 | -13.21% | 2.68 | -86.10% | 37.2% |
| Mar'25 | 4.77 | +26.53% | 19.28 | +2436.84% | -43.4% |
| Dec'24 | 3.77 | +25.25% | 0.76 | -66.07% | 44.3% |
| Sep'24 | 3.01 | -31.28% | 2.24 | +26.55% | 25.25% |
| Jun'24 | 4.38 | -33.54% | 1.77 | -66.98% | 36.99% |
| Mar'24 | 6.59 | — | 5.36 | — | 39.3% |
Financial Performance: Revenue Growth Fails to Translate into Profitability
Surana Telecom's Q2 FY26 results present a paradox: robust revenue growth accompanied by collapsing profitability. Net sales of ₹9.37 crores marked a 126.33% quarter-on-quarter increase and represented the highest quarterly revenue in recent history. However, this top-line expansion came at a severe cost to margins. Operating profit excluding other income stood at a meagre ₹0.25 crores, translating to an operating margin of just 2.67%—a dramatic deterioration from 37.2% in Q1 FY26.
The company's standalone net profit turned negative at ₹0.03 crores, whilst consolidated profit managed to stay marginally positive at ₹0.76 crores, down 71.64% from the previous quarter. This divergence between standalone and consolidated figures warrants scrutiny. The profit after tax margin compressed to 1.81% in Q2 FY26 from 59.18% in the prior quarter, indicating severe operational inefficiencies or unfavourable cost structures accompanying the revenue expansion.
Interest costs remained modest at ₹0.16 crores, whilst depreciation stood at ₹1.69 crores. The tax rate of 60.47% in Q2 FY26 appears abnormally high, potentially reflecting adjustments or non-deductible expenses. Employee costs remained relatively stable at ₹0.74 crores, suggesting the margin compression stems primarily from other operational factors rather than wage inflation.
Critical Concern: Other Income Dependency
A glaring red flag emerges from the income statement: other income of ₹1.83 crores in Q2 FY26 constituted 425.58% of profit before tax. This means the company's reported profitability is entirely dependent on non-operating income, whilst core operations barely broke even. Such dependence on other income raises serious questions about the sustainability and quality of earnings. Without this extraordinary income, the company would have reported a significant operating loss.
Operational Challenges: Margin Collapse Signals Fundamental Issues
The precipitous decline in operating margins from 37.2% to 2.67% quarter-on-quarter represents one of the most concerning aspects of Q2 FY26 results. This 34.5 percentage point compression suggests either a dramatic shift in business mix towards lower-margin activities, severe cost overruns, or aggressive pricing to capture market share. The gross profit margin of 20.49% in Q2 FY26, whilst down from the exceptional 113.04% in Q1 FY26, still appears reasonable, indicating the margin pressure originates from operating expenses rather than gross profitability.
From a capital efficiency perspective, the company's latest return on equity of 15.38% appears healthy and represents a significant improvement over the average ROE of 6.61%. Higher ROE indicates better capital efficiency and profitability, suggesting the company is generating improved returns on shareholder equity. However, the average return on capital employed (ROCE) of just 1.84% remains concerningly weak, with the latest ROCE turning negative at -4.85%. This negative ROCE signals that the company is destroying value on deployed capital, a troubling indicator for long-term sustainability.
The balance sheet reveals a relatively healthy financial position with shareholder funds of ₹156.39 crores as of March 2025 and long-term debt of ₹6.43 crores, resulting in a net debt-to-equity ratio of -0.10, indicating the company is effectively a net cash entity. Current assets of ₹33.69 crores against current liabilities of ₹3.79 crores provide adequate liquidity. However, fixed assets have declined from ₹60.67 crores to ₹48.43 crores, potentially indicating asset sales or accelerated depreciation.
Cash Flow Concerns Mount
Operating cash flow for FY25 stood at just ₹3.00 crores, the lowest in recent years and significantly below the reported profit after tax of ₹23.00 crores for the same period. This substantial divergence between reported profits and operating cash generation raises questions about the quality of earnings and working capital management. The company's inability to convert accounting profits into actual cash flows represents a significant risk factor for investors.
Valuation Analysis: Risky Territory Despite Low P/E Multiple
Trading at a P/E ratio of 12x based on trailing twelve-month earnings, Surana Telecom appears superficially inexpensive compared to the industry average P/E of 45x. However, this apparent discount reflects legitimate concerns about earnings quality and sustainability. The price-to-book value of 1.86x suggests the market values the company at nearly twice its book value, despite operational challenges.
The company's valuation grade stands at "Risky," having fluctuated between "Very Expensive" and "Risky" over the past two years. This volatility in valuation assessment reflects the inconsistent financial performance and uncertain earnings trajectory. With an EV/EBITDA multiple of 144.58x and a negative EV/EBIT of -41.88x, traditional valuation metrics paint a concerning picture. The EV/Sales ratio of 17.51x appears elevated for a company with deteriorating margins and questionable earnings quality.
The stock currently trades at ₹20.99, down 28.41% from its 52-week high of ₹29.32 and up 35.42% from its 52-week low of ₹15.50. This positioning in the middle of its annual range suggests the market remains uncertain about the company's direction. The absence of dividend payments (no dividend since September 2015) further limits the investment appeal for income-focused investors.
Peer Comparison: Relative Positioning in a Challenged Sector
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield |
|---|---|---|---|---|---|
| Surana Telecom | 11.65x | 1.86x | 6.61% | -0.10 | NA |
| Solarworld Energy | 2.98x | 8.33x | 0.0% | 0.00 | NA |
| Orient Green | 29.20x | 0.14x | 2.70% | -0.03 | NA |
| Waaree Technologies | NA (Loss Making) | -141.34x | 0.85% | -8.22 | NA |
| Indowind Energy | 100.33x | 0.70x | 0.72% | 0.02 | NA |
| Globus Power | NA (Loss Making) | 18.84x | 0.0% | 0.00 | NA |
Within its peer group, Surana Telecom demonstrates superior return on equity at 6.61% compared to most competitors, several of which report near-zero or negative ROE. The company's P/E multiple of 11.65x sits in the middle of the range, appearing reasonable compared to Indowind Energy's 100.33x but higher than Solarworld Energy's 2.98x. The negative debt-to-equity ratio of -0.10 represents a competitive advantage, indicating net cash status whilst peers like Waaree Technologies carry significant debt burdens.
However, this relative outperformance must be contextualised within a challenged sector where several companies are loss-making or barely profitable. Being the "best house in a bad neighbourhood" offers limited comfort when the entire sector faces structural headwinds. With a market capitalisation of ₹284.96 crores, Surana Telecom ranks third in its peer group, suggesting modest scale compared to industry leaders.
Shareholding Pattern: Promoter Confidence Builds Gradually
| Quarter | Promoter | Change | FII | MF | DII | Non-Inst |
|---|---|---|---|---|---|---|
| Sep'25 | 71.18% | +0.25% | 0.06% | 0.04% | 0.10% | 28.62% |
| Jun'25 | 70.93% | +0.76% | 0.05% | 0.04% | 0.10% | 28.88% |
| Mar'25 | 70.17% | +0.54% | 0.04% | 0.04% | 0.09% | 29.66% |
| Dec'24 | 69.63% | — | 0.05% | 0.04% | 0.09% | 30.19% |
| Sep'24 | 69.63% | — | 0.04% | 0.04% | 0.09% | 30.20% |
Promoter holding has increased steadily over the past year, rising from 69.63% in September 2024 to 71.18% in September 2025. This 1.55 percentage point increase signals growing promoter confidence and commitment to the business. The sequential increases of 0.25%, 0.76%, and 0.54% over the last three quarters demonstrate consistent accumulation. Importantly, there is zero promoter pledging, eliminating concerns about financial stress or forced selling.
However, institutional participation remains negligible, with FII holdings at just 0.06%, mutual fund holdings at 0.04%, and other DII holdings at 0.10%. Total institutional ownership of merely 0.20% reflects minimal conviction from professional investors. This absence of institutional interest likely stems from concerns about the company's small size, liquidity constraints, and inconsistent financial performance. The high promoter holding of over 71% further limits the public float, potentially deterring institutional investors.
Stock Performance: Volatility Dominates Returns Profile
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.24% | -0.46% | -1.78% |
| 1 Month | -4.89% | +1.33% | -6.22% |
| 3 Months | +16.55% | +4.68% | +11.87% |
| 6 Months | +17.92% | +5.21% | +12.71% |
| YTD | -10.30% | +6.98% | -17.28% |
| 1 Year | -5.71% | +5.17% | -10.88% |
| 2 Years | +85.59% | +28.80% | +56.79% |
| 3 Years | +92.39% | +37.92% | +54.47% |
| 5 Years | +443.78% | +93.16% | +350.62% |
Surana Telecom's stock performance exhibits extreme volatility, with dramatic divergences across timeframes. Over longer periods, the stock has delivered exceptional returns—443.78% over five years and 92.39% over three years—substantially outperforming the Sensex. This outperformance generated positive alpha of 350.62% and 54.47% respectively, rewarding long-term holders handsomely.
However, recent performance tells a different story. The stock has declined 5.71% over the past year, underperforming the Sensex by 10.88 percentage points. Year-to-date returns stand at -10.30%, against the Sensex's 6.98% gain, resulting in negative alpha of -17.28%. Near-term momentum appears weak, with losses of 4.89% over one month and 2.24% over one week. The three-month and six-month returns of 16.55% and 17.92% respectively suggest some recovery from recent lows, but sustainability remains questionable.
With a beta of 1.50, Surana Telecom exhibits 50% higher volatility than the broader market, amplifying both gains and losses. The stock's volatility of 53.84% over the past year categorises it as high-risk, with a negative risk-adjusted return of -0.11 and a negative Sharpe ratio. This risk profile suits only aggressive investors with high tolerance for volatility and potential for significant capital erosion.
"Exceptional long-term returns mask concerning recent deterioration, with earnings quality issues and operational challenges threatening future performance sustainability."
Investment Thesis: Multiple Red Flags Outweigh Limited Positives
The investment case for Surana Telecom rests on several concerning pillars. The company's Mojo Score of 39 out of 100 places it firmly in "SELL" territory, with the rating unchanged since September 2025. This score reflects weak long-term fundamental strength, evidenced by a -212.69% CAGR in operating profits over the past five years—a catastrophic decline indicating systematic value destruction.
The quality assessment grades the company as "Below Average," highlighting structural weaknesses in the business model. Whilst the near-term financial trend is classified as "Positive" and technicals show "Mildly Bullish" signals, these represent tactical considerations that pale against strategic concerns. The valuation grade of "Risky" appropriately captures the uncertainty surrounding earnings sustainability and quality.
The company's financial profile reveals several troubling metrics: five-year sales growth of -10.69% indicates shrinking market presence, whilst the catastrophic -212.69% EBIT growth demonstrates accelerating operational deterioration. Average EBIT-to-interest coverage of -0.83x signals the company cannot even cover interest expenses from operating profits. Average ROCE of 1.84% and ROE of 6.61% fall well below acceptable thresholds for value creation.
Key Strengths & Risk Factors: An Unbalanced Equation
Key Strengths
- Net cash company with negative debt-to-equity of -0.10, providing financial flexibility
- Zero promoter pledging eliminates financial stress concerns
- Steadily increasing promoter holding from 69.63% to 71.18% signals confidence
- Latest ROE of 15.38% shows improved capital efficiency
- Strong long-term stock returns with 443.78% gain over five years
- Low P/E of 12x versus industry average of 45x suggests valuation discount
- Adequate liquidity with current ratio above 8x
Key Concerns
- Other income constitutes 425.58% of PBT, indicating unsustainable earnings quality
- Operating margin collapsed from 37.2% to 2.67% quarter-on-quarter
- Consolidated profit down 71.64% QoQ and 66.07% YoY despite revenue growth
- Negative ROCE of -4.85% signals value destruction on deployed capital
- Operating cash flow of ₹3.00 crores vastly below reported PAT of ₹23.00 crores
- Five-year EBIT growth of -212.69% shows systematic operational failure
- Minimal institutional holding of 0.20% reflects professional investor scepticism
- High beta of 1.50 and volatility of 53.84% creates significant downside risk
- No dividend payments since 2015 eliminates income component
Outlook: What to Watch as Concerns Mount
Positive Catalysts
- Sustained revenue growth with improving operating margins
- Reduction in other income dependency below 50% of PBT
- Operating cash flow converging with reported profits
- ROCE turning consistently positive above 8%
- Institutional investor participation increasing above 2%
Red Flags to Monitor
- Further deterioration in operating margins below 5%
- Continued reliance on other income exceeding 200% of PBT
- Operating cash flow remaining below 50% of reported PAT
- ROCE staying negative for consecutive quarters
- Promoter holding increases through preferential allotments at discount
- Any emergence of promoter pledging
The Verdict: Avoid This Value Trap
Score: 39/100
For Fresh Investors: Stay away. The superficially attractive P/E multiple of 12x masks fundamental deterioration in business quality. Earnings heavily dependent on other income, collapsing operating margins, and negative cash flow generation make this a classic value trap. The five-year operating profit CAGR of -212.69% demonstrates systematic value destruction that cannot be ignored.
For Existing Holders: Consider exiting on any near-term strength. Whilst the stock has delivered exceptional long-term returns, the trajectory has clearly reversed. Recent quarterly results reveal accelerating deterioration in core operations. The disconnect between revenue growth and profitability, combined with concerning earnings quality, suggests limited upside and significant downside risk. Use any technical bounce to reduce exposure.
Fair Value Estimate: ₹16.50 (21.39% downside from current levels)
The company's fundamental challenges—unsustainable earnings composition, margin collapse, negative ROCE, and poor cash generation—outweigh tactical positives like net cash status and promoter confidence. Until management demonstrates ability to convert revenue growth into sustainable operating profits and cash flows, the risk-reward remains unfavourable. The "SELL" rating reflects genuine concerns about business model viability rather than temporary cyclical weakness.
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.
