The quarter's results painted a picture of deteriorating profitability despite topline expansion, with operating margins excluding other income collapsing to just 2.67% from 37.20% in the previous quarter. The company's heavy reliance on non-operating income, which constituted 149.34% of profit before tax, has emerged as a critical red flag for investors evaluating the sustainability of earnings.
The quarter's performance represents a stark deterioration from the previous quarter's robust showing. Whilst net sales jumped from ₹4.14 crores in Q1 FY26 to ₹9.37 crores in Q2 FY26, the company's ability to convert this revenue growth into sustainable profits remained questionable. On a year-on-year basis, revenue growth stood at an impressive 211.30%, but the quality of this growth remains under scrutiny given the collapse in operating profitability.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Cons. PAT (₹ Cr) | QoQ Growth | Op. Margin (Excl OI) |
|---|---|---|---|---|---|
| Sep'25 | 9.37 | +126.33% | 0.76 | -71.64% | 2.67% |
| Jun'25 | 4.14 | -13.21% | 2.68 | -86.10% | 37.20% |
| Mar'25 | 4.77 | +26.53% | 19.28 | +2436.84% | -43.40% |
| Dec'24 | 3.77 | +25.25% | 0.76 | -66.07% | 44.30% |
| 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 | — | 39.30% |
Financial Performance: Revenue Growth Masks Operational Weakness
Surana Telecom's Q2 FY26 results revealed a troubling disconnect between topline expansion and bottom-line performance. Net sales of ₹9.37 crores represented the highest quarterly revenue in recent quarters, yet the company posted a standalone net loss of ₹0.03 crores compared to a profit of ₹2.35 crores in Q1 FY26. The consolidated entity fared marginally better with a profit of ₹0.76 crores, but this still marked a severe 71.64% sequential decline.
The collapse in operating profitability proved particularly alarming. Operating profit excluding other income fell to just ₹0.25 crores from ₹1.54 crores in the previous quarter, translating to a margin of merely 2.67% versus 37.20% in Q1 FY26. This 34.53 percentage point margin compression suggests significant operational challenges, potentially driven by adverse product mix changes, pricing pressures, or escalating input costs that the company has been unable to pass through to customers.
Adding to concerns, the company's tax rate spiked dramatically to 60.47% in Q2 FY26 from 18.33% in the previous quarter, suggesting potential one-time adjustments or deferred tax provisions that further eroded profitability. Employee costs remained relatively stable at ₹0.74 crores, but depreciation of ₹1.69 crores continued to represent a significant charge against earnings, reflecting the capital-intensive nature of the business.
Critical Earnings Quality Issue
Other income of ₹1.83 crores represented 149.34% of profit before tax in Q2 FY26, raising serious questions about the sustainability and quality of reported earnings. This heavy reliance on non-operating income suggests that core business operations are struggling to generate adequate returns, with the company dependent on treasury income, asset sales, or other non-recurring items to report positive profits.
Return Profile: Weak Capital Efficiency Despite Balance Sheet Strength
Surana Telecom's return metrics paint a picture of inefficient capital deployment despite maintaining a relatively strong balance sheet. The latest return on equity stood at 14.51%, which appears respectable in isolation but masks significant volatility and deterioration in recent quarters. The average ROE over the assessment period was a weak 7.08%, well below industry standards and indicative of poor capital productivity.
More concerning is the company's return on capital employed, which averaged just 1.07% and turned negative at -4.41% in the latest period. This suggests that the company is destroying value rather than creating it, earning returns well below its cost of capital. For a company with minimal debt and a net cash position, such weak returns are particularly disappointing and point to fundamental operational inefficiencies or poor asset utilisation.
The company's balance sheet revealed shareholder funds of ₹156.39 crores as of March 2025, comprising share capital of ₹13.58 crores and reserves of ₹142.82 crores. Long-term debt stood at a manageable ₹6.43 crores, resulting in a negative net debt to equity ratio of -0.07, effectively making Surana Telecom a net cash company. However, this balance sheet strength has not translated into commensurate operational performance or shareholder returns.
Balance Sheet Highlights
Fixed assets declined from ₹60.67 crores in March 2024 to ₹48.43 crores in March 2025, suggesting asset disposals or accelerated depreciation. Current assets increased to ₹33.69 crores from ₹19.42 crores, potentially reflecting inventory build-up or receivables accumulation. The debtors turnover ratio deteriorated to a concerning 2.64 times on a half-yearly basis, indicating lengthening payment cycles and potential working capital stress.
Structural Challenges: Deteriorating Long-Term Fundamentals
Beyond the quarterly volatility, Surana Telecom faces deeper structural challenges that have manifested in consistently poor long-term performance metrics. The company's five-year sales growth stands at a negative 3.23%, indicating persistent revenue challenges and market share losses. More alarmingly, the five-year EBIT growth rate of -207.28% points to a fundamental deterioration in the company's ability to generate operating profits from its core business.
This structural decline is evident in the annual financials, where net sales fell from ₹29.00 crores in FY21 and FY22 to just ₹15.00 crores in FY25, representing a 40% year-on-year decline. Operating profit excluding other income collapsed from ₹19.00 crores in FY21 and FY22 to merely ₹2.00 crores in FY25, with margins compressing from 65.5% to 13.3%. This suggests either severe competitive pressures, loss of key contracts, or fundamental changes in the business environment that the company has struggled to navigate.
| Year | Net Sales (₹ Cr) | YoY Growth | Op. Profit Excl OI (₹ Cr) | Op. Margin (Excl OI) | PAT (₹ Cr) |
|---|---|---|---|---|---|
| FY25 | 15.00 | -40.0% | 2.00 | 13.3% | 23.00 |
| FY24 | 25.00 | -7.4% | 11.00 | 44.0% | 8.00 |
| FY23 | 27.00 | -6.9% | 8.00 | 29.6% | 4.00 |
| FY22 | 29.00 | 0.0% | 19.00 | 65.5% | 7.00 |
| FY21 | 29.00 | +3.6% | 19.00 | 65.5% | 3.00 |
The average EBIT to interest coverage ratio of -1.12 indicates that the company's operating profits have been insufficient to cover even minimal interest obligations, though the low absolute debt levels mitigate immediate solvency concerns. The sales to capital employed ratio of just 0.18 times suggests extremely poor asset turnover, indicating that the company requires ₹5.56 of capital employed to generate just ₹1 of sales—a highly inefficient capital structure.
Peer Comparison: Valuation Appears Reasonable but Quality Concerns Persist
When compared to peers in the power sector, Surana Telecom presents a mixed valuation picture. The company trades at a price-to-earnings ratio of 10.13 times, significantly below the industry average of 42 times and well below most direct peers. However, this apparent valuation discount reflects legitimate concerns about earnings quality, sustainability, and growth prospects rather than representing an attractive entry opportunity.
| Company | P/E (TTM) | P/BV | ROE % | Debt to Equity |
|---|---|---|---|---|
| Surana Telecom | 10.13 | 1.47 | 7.08 | -0.07 |
| Ujaas Energy | 773.71 | 26.79 | 15.23 | 0.06 |
| Solarworld Energy | 21.95 | 2.52 | 0.00 | 0.00 |
| Orient Green | 19.84 | 1.00 | 3.55 | 0.27 |
| Indowind Energy | 171.36 | 0.61 | 1.20 | 0.06 |
Surana Telecom's ROE of 7.08% positions it in the middle of the peer group, ahead of struggling players like Orient Green (3.55%) and Indowind Energy (1.20%), but well behind Ujaas Energy's 15.23%. The company's price-to-book ratio of 1.47 times suggests the market values the company modestly above its net asset value, though this premium appears difficult to justify given the weak operational performance and deteriorating trends.
The company's market capitalisation of ₹242.00 crores positions it firmly in micro-cap territory, ranking fourth among the peer group. This small size brings inherent liquidity risks and limited institutional interest, as evidenced by the minimal 0.14% institutional holding. The lack of meaningful institutional participation reflects concerns about governance, transparency, and business sustainability that are common among micro-cap companies.
Valuation Analysis: "Risky" Grade Reflects Fundamental Concerns
Surana Telecom's current valuation grade of "Risky" accurately captures the significant uncertainties surrounding the company's business model and earnings sustainability. The company has oscillated between "Very Expensive" and "Risky" valuations over the past two years, most recently transitioning to "Risky" from "Very Expensive" in November 2024. This classification reflects not just valuation multiples but also concerns about earnings quality, business visibility, and financial transparency.
At the current price of ₹17.52, the stock trades 40.25% below its 52-week high of ₹29.32, suggesting significant value destruction over the past year. The stock's book value per share of ₹11.42 provides a theoretical downside floor, though in practice, liquidation values for micro-cap companies often fall well below book value due to asset quality concerns and realisation challenges.
The extraordinarily high EV/EBITDA multiple of 163.29 times reflects the company's minimal EBITDA generation relative to its enterprise value, making traditional valuation metrics largely meaningless. The negative EV/EBIT ratio of -34.13 times further underscores the challenges in valuing a company with inconsistent and deteriorating operating profits. These distorted multiples suggest that investors should focus primarily on asset value and balance sheet strength rather than earnings-based valuation approaches.
Shareholding Dynamics: Steady Promoter Accumulation Amid Retail Exit
The shareholding pattern reveals a steady accumulation by promoters alongside a gradual exodus by non-institutional investors. Promoter holding increased from 69.63% in December 2024 to 71.51% in December 2025, with consistent sequential increases of 0.33% to 0.76% each quarter. This promoter buying could signal confidence in the company's prospects or alternatively represent efforts to support the stock price and maintain control.
| Quarter | Promoter % | QoQ Change | FII % | MF % | Non-Institutional % |
|---|---|---|---|---|---|
| Dec'25 | 71.51 | +0.33 | 0.00 | 0.04 | 28.36 |
| Sep'25 | 71.18 | +0.25 | 0.06 | 0.04 | 28.62 |
| Jun'25 | 70.93 | +0.76 | 0.05 | 0.04 | 28.88 |
| Mar'25 | 70.17 | +0.54 | 0.04 | 0.04 | 29.66 |
| Dec'24 | 69.63 | — | 0.05 | 0.04 | 30.19 |
Foreign institutional investor presence has virtually disappeared, declining from 0.06% in September 2025 to 0.00% in December 2025, whilst mutual fund holdings have remained flat at a minimal 0.04%. The absence of institutional interest reflects concerns about liquidity, governance, and business visibility that typically deter professional investors from micro-cap stocks. Non-institutional holdings declined from 30.19% to 28.36% over the year, suggesting retail investors are gradually reducing exposure.
Positively, there is no promoter pledging, which eliminates one potential risk factor common among stressed micro-cap companies. The promoter group includes multiple family members and related entities, with the largest individual holding being Mangilal Narender Surana at 18.21%, followed by Devendra Surana at 14.64%. This diversified promoter structure reduces key-person risk but also raises questions about unified strategic direction.
Stock Performance: Severe Underperformance Across All Timeframes
Surana Telecom's stock performance has been dismal across most relevant timeframes, with the stock underperforming both the Sensex and its sectoral peers. Over the past year, the stock declined 16.77% whilst the Sensex gained 7.07%, resulting in a negative alpha of 23.84 percentage points. The power sector index fell 7.47%, meaning Surana Telecom underperformed even its struggling sector by 9.30 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.23% | +1.59% | -3.82% |
| 1 Month | -11.69% | -1.74% | -9.95% |
| 3 Months | -16.17% | +0.32% | -16.49% |
| 6 Months | -3.68% | +3.77% | -7.45% |
| YTD | -13.10% | -1.92% | -11.18% |
| 1 Year | -16.77% | +7.07% | -23.84% |
| 2 Years | -6.71% | +15.78% | -22.49% |
| 3 Years | +58.70% | +38.13% | +20.57% |
| 5 Years | +263.49% | +64.75% | +198.74% |
The stock's risk-adjusted return over one year stood at a concerning -0.31, with volatility of 54.73% classifying it as a "HIGH RISK LOW RETURN" investment. The negative Sharpe ratio indicates that investors have been penalised rather than rewarded for taking on the stock's substantial volatility. The stock's beta of 1.50 suggests it is 50% more volatile than the broader market, amplifying both upside and downside movements.
From a technical perspective, the stock remains in a bearish trend that commenced on January 20, 2026, at ₹17.93. The stock trades below all key moving averages—5-day (₹17.82), 20-day (₹18.26), 50-day (₹19.29), 100-day (₹20.48), and 200-day (₹19.98)—indicating sustained selling pressure. Technical indicators including MACD, Bollinger Bands, and KST all flash bearish signals, whilst delivery volumes have declined 32.17% over the past month, suggesting weakening conviction among buyers.
Investment Thesis: Multiple Red Flags Outweigh Limited Positives
Surana Telecom's investment proposition is severely compromised by a combination of deteriorating fundamentals, questionable earnings quality, and persistent underperformance. The company's Mojo score of just 17 out of 100, resulting in a "STRONG SELL" rating, reflects the confluence of negative factors across valuation, quality, financial trends, and technical indicators.
The "Below Average" quality grade stems from the company's negative five-year sales growth of 3.23%, catastrophic five-year EBIT growth of -207.28%, and weak average returns on equity (7.08%) and capital employed (1.07%). The average EBIT to interest coverage of -1.12 indicates operating profits have been insufficient to cover even minimal interest costs, though the company's net cash position mitigates immediate solvency risks.
Key Strengths
- Net Cash Position: Negative net debt to equity of -0.07 provides financial flexibility
- Zero Pledging: No promoter pledging eliminates one key risk factor
- Promoter Commitment: Steady promoter buying over past year signals confidence
- Strong Balance Sheet: Shareholder funds of ₹156.39 crores provide downside cushion
- Valuation Discount: P/E of 10x well below industry average of 42x
Key Concerns
- Earnings Quality Crisis: Other income at 149.34% of PBT raises sustainability concerns
- Margin Collapse: Operating margin fell from 37.20% to 2.67% in one quarter
- Structural Decline: Five-year sales growth of -3.23%, EBIT growth of -207.28%
- Weak Returns: Latest ROCE of -4.41% indicates value destruction
- No Institutional Support: Just 0.14% institutional holding reflects concerns
- Technical Weakness: Bearish trend, below all moving averages
- High Volatility: 54.73% volatility with negative risk-adjusted returns
Outlook: Critical Monitoring Points for Potential Turnaround
For investors monitoring Surana Telecom, several key indicators will determine whether the company can arrest its decline or whether further deterioration lies ahead. The sustainability of revenue growth without corresponding margin improvement will be critical to watch in coming quarters. Any sustained recovery in operating margins above 20% would signal genuine operational improvement rather than revenue growth driven by low-margin business.
Positive Catalysts
- Sustained operating margin recovery above 20% levels
- Reduction in other income dependency below 50% of PBT
- Stabilisation of quarterly revenue above ₹8-10 crore range
- Improvement in debtors turnover ratio above 4 times
- Entry of institutional investors or mutual funds
Red Flags to Watch
- Further decline in operating margins below 5%
- Continued reliance on other income above 100% of PBT
- Sequential revenue decline in Q3 FY26
- Any emergence of promoter pledging
- Further deterioration in working capital metrics
- Stock breaking below ₹15.50 support (52-week low)
The company's ability to reduce its dependence on non-operating income will be crucial. A sustainable business model should generate the majority of profits from core operations, not from treasury income or asset sales. Any quarter where other income exceeds 50% of profit before tax should be viewed as a warning sign of continued operational weakness.
The Verdict: Avoid Until Operational Clarity Emerges
Score: 17/100
For Fresh Investors: Avoid initiating positions. The combination of deteriorating operating margins, questionable earnings quality with 149% other income dependency, and structural revenue decline of 3.23% over five years presents excessive risk. The "Risky" valuation grade and "Below Average" quality assessment reflect fundamental concerns that outweigh any apparent valuation discount. Wait for at least three consecutive quarters of operating margin improvement above 20% and other income falling below 50% of PBT before considering entry.
For Existing Holders: Consider exiting positions on any technical bounce towards ₹18.50-19.00 levels. The bearish technical trend, negative alpha of 23.84% over one year, and high volatility of 54.73% make this a poor risk-reward proposition. The company's inability to convert revenue growth into sustainable profits, evidenced by the 71.64% sequential profit decline despite 126.33% revenue growth, suggests fundamental operational challenges that may persist. Only investors with very high risk tolerance and long investment horizons should consider holding.
Fair Value Estimate: ₹13.50-14.50 (23% downside risk from current levels), based on 1.2x P/BV multiple applied to book value of ₹11.42, reflecting below-average quality and weak return profile. Downside protected by net cash position, but limited upside visibility until operational metrics stabilise.
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 risks including liquidity risk, volatility, and potential loss of capital.
