The Kolhapur-based company, which specialises in manufacturing castings for wind turbines and industrial applications, has seen its financial performance deteriorate across multiple parameters. Revenue for Q2 FY26 stood at ₹72.00 crores—the lowest quarterly figure in recent periods—whilst operating profit excluding other income contracted to ₹9.32 crores. The company's reliance on other income, which constituted 71.26% of profit before tax, raises questions about the sustainability of core operational profitability.
Whilst the stock has delivered exceptional long-term returns—up 536.47% over five years and 269.91% over three years—the recent quarterly performance suggests mounting operational challenges that warrant careful investor scrutiny.
Financial Performance: Sequential and Year-on-Year Deterioration
The second quarter of FY2026 marked a concerning inflection point for Synergy Green Industries. Net sales declined 13.83% sequentially from ₹83.56 crores in Q1 FY26 to ₹72.00 crores, whilst the year-on-year comparison revealed an even steeper 19.02% contraction from ₹88.91 crores in Q2 FY25. This represents the weakest quarterly revenue performance in the company's recent history.
| Metric | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 |
|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 72.00 | 83.56 | 97.47 | 97.12 | 88.91 |
| QoQ Change | ▼ 13.83% | ▼ 14.27% | ▲ 0.36% | ▲ 9.23% | — |
| Operating Profit (₹ Cr) | 9.32 | 11.33 | 14.87 | 13.93 | 13.12 |
| Operating Margin % | 12.94% | 13.56% | 15.26% | 14.34% | 14.76% |
| Net Profit (₹ Cr) | 2.36 | 3.38 | 3.84 | 5.95 | 4.16 |
| PAT Margin % | 3.28% | 4.04% | 3.94% | 6.13% | 4.68% |
Operating profit margin excluding other income compressed to 12.94% in Q2 FY26 from 13.56% in the preceding quarter and 14.76% in Q2 FY25. This margin erosion occurred despite employee costs remaining relatively stable at ₹7.79 crores. The deterioration appears driven by lower operating leverage as revenue declined, with fixed costs spread over a smaller revenue base.
Profitability metrics paint an even more troubling picture. Net profit of ₹2.36 crores represents a 45.5% decline compared to the average of the previous four quarters. The profit after tax margin contracted to 3.28%, down from 4.04% in Q1 FY26 and 4.68% in Q2 FY25. Interest costs continued their upward trajectory, reaching ₹4.70 crores in Q2 FY26 compared to ₹3.74 crores in Q2 FY25—a 25.67% year-on-year increase that reflects rising debt servicing burdens.
Operational Challenges: Weak Core Profitability and Rising Leverage
The most concerning aspect of Q2 FY26 results is the deterioration in core operational profitability. Operating profit to interest coverage dropped to just 1.98 times—the lowest level in recent quarters—indicating diminished capacity to service debt obligations from operating profits alone. This metric has consistently weakened from 3.51 times in Q2 FY25, highlighting the twin pressures of declining operating profits and rising interest costs.
Critical Operational Red Flags
Earnings Quality Concern: Other income of ₹2.38 crores constituted 71.26% of profit before tax in Q2 FY26, suggesting that core operations generated minimal profitability. Profit before tax excluding other income stood at just ₹0.96 crores—the lowest in recent quarters.
Interest Coverage Deterioration: With operating profit to interest at 1.98x, the company has limited cushion for any further operational weakness or interest rate increases.
The company's balance sheet reveals mounting leverage concerns. Long-term debt increased to ₹55.35 crores as of March 2025 from ₹31.69 crores a year earlier—a 74.68% increase. The debt-to-EBITDA ratio stands at an elevated 6.88 times, whilst net debt to equity averages 0.94, indicating moderate but rising financial leverage. Current liabilities surged to ₹173.33 crores from ₹117.22 crores year-on-year, driven partly by higher trade payables of ₹59.81 crores.
Return on capital employed (ROCE) for the half-year period (H1 FY26) declined to 13.14%—the lowest in recent periods—down from the historical average of 15.37%. This suggests diminishing efficiency in deploying capital to generate returns. The latest annual ROCE of 18.79% and ROE of 16.10% provide some comfort, but the trajectory appears concerning given the recent quarterly deterioration.
Industry Context: Underperforming the Castings & Forgings Sector
The castings and forgings industry has faced headwinds over the past year, with the sector declining 7.42%. However, Synergy Green Industries has significantly outperformed this benchmark with a one-year return of 40.10%—representing a 47.52 percentage point outperformance. This suggests that the company's recent operational challenges may be company-specific rather than sector-wide.
The wind energy segment, which forms a significant portion of Synergy Green's revenue through turbine castings, has experienced cyclical demand patterns. The company's revenue concentration in this segment exposes it to the vagaries of renewable energy policy, subsidy regimes, and capacity addition cycles. The sequential revenue decline may reflect a temporary lull in wind turbine orders or execution delays.
Manufacturing Sector Dynamics
The castings industry operates with high fixed costs and requires consistent capacity utilisation to maintain margins. Synergy Green's margin compression in Q2 FY26 appears linked to lower revenue realisation, with fixed costs remaining sticky. The company's ability to restore volumes and improve capacity utilisation will be critical for margin recovery in subsequent quarters.
Peer Comparison: Valuation Premium Despite Weaker Fundamentals
A comparison with listed peers in the castings and forgings space reveals that Synergy Green Industries trades at a significant valuation premium despite exhibiting weaker profitability metrics.
| Company | P/E (TTM) | P/BV | ROE % | Div Yield % | Mkt Cap (₹ Cr) |
|---|---|---|---|---|---|
| Synergy Green | 50.93 | 8.20 | 11.34% | 0.18% | 851 |
| Happy Forgings | 36.15 | 5.01 | 14.49% | 0.29% | — |
| Balu Forge | 30.58 | 6.58 | 18.65% | 0.02% | — |
| Steelcast | 24.47 | 6.05 | 24.87% | 0.88% | — |
| Amic Forging | 51.93 | 18.44 | 29.56% | — | — |
| Nelcast | 25.89 | 1.72 | 5.96% | 0.46% | — |
Synergy Green's price-to-earnings ratio of 50.93 times sits well above the peer average of approximately 34 times, whilst its return on equity of 11.34% lags behind most competitors. Happy Forgings, Balu Forge, Steelcast, and Amic Forging all demonstrate superior ROE ranging from 14.49% to 29.56%. The company's price-to-book value of 8.20 times also exceeds the peer average of roughly 7.6 times.
This valuation premium appears difficult to justify given the weaker profitability profile and deteriorating financial trends. Investors appear to be pricing in expectations of a turnaround or future growth that has yet to materialise in recent quarterly results. The dividend yield of 0.18% provides minimal income support, with the company maintaining a conservative 9.20% dividend payout ratio.
Valuation Analysis: Premium Pricing with Limited Margin of Safety
At the current market price of ₹541.00, Synergy Green Industries commands a market capitalisation of ₹851.00 crores. The stock trades at elevated multiples across various valuation parameters, raising questions about the sustainability of current pricing given recent operational performance.
The enterprise value to EBITDA multiple of 18.48 times and EV to EBIT of 24.66 times suggest the market is pricing in robust future growth. However, the PEG ratio of 1.64 indicates that the stock may not be egregiously overvalued relative to its five-year sales growth of 13.51% and EBIT growth of 24.21%. The price-to-book value of 8.20 times compares to a book value per share of ₹69.27, implying significant goodwill in the market price.
The stock has corrected 14.45% from its 52-week high of ₹632.35 but remains 57.27% above its 52-week low of ₹344.00. This positioning suggests the market has partially discounted recent operational challenges but continues to maintain a premium valuation relative to fundamentals. The valuation grade has oscillated between "Attractive" and "Fair" in recent months, currently classified as "Attractive" as of September 10, 2025—though this assessment may warrant revision following Q2 FY26 results.
Shareholding Pattern: Stable Promoter Base with Minimal Institutional Interest
The shareholding structure reveals a tightly held company with minimal institutional participation, which may contribute to liquidity constraints and volatility.
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 69.39% | 69.84% | 69.81% | ▼ 0.45% |
| FII | 0.42% | 0.60% | 0.21% | ▼ 0.18% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | — |
| Insurance | 0.00% | 0.00% | 0.00% | — |
| Non-Institutional | 30.19% | 29.56% | 29.97% | ▲ 0.63% |
Promoter holding stands at 69.39% as of September 2025, declining marginally by 0.45% from the previous quarter. The promoter group, led by S B Reshellers Private Limited (34.81%) and the Shirgaokar family, maintains a commanding stake with zero pledging—a positive indicator of confidence and financial stability. However, the absence of mutual fund and insurance company holdings, coupled with minimal FII participation of just 0.42%, suggests limited institutional validation of the investment thesis.
The sequential decline in FII holding from 0.60% to 0.42% and the corresponding increase in non-institutional holding from 29.56% to 30.19% indicates some rotation away from sophisticated investors towards retail participants. This pattern, whilst not alarming in isolation, merits monitoring in the context of deteriorating quarterly performance.
Stock Performance: Exceptional Long-Term Gains Mask Recent Weakness
Synergy Green Industries has delivered remarkable long-term returns that significantly outpace broader market indices, though recent momentum has faltered.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.45% | 1.15% | -1.60% |
| 1 Month | 2.49% | 2.61% | -0.12% |
| 3 Months | -0.22% | 4.44% | -4.66% |
| 6 Months | 5.66% | 3.50% | +2.16% |
| Year to Date | 15.11% | 7.72% | +7.39% |
| 1 Year | 40.10% | 8.50% | +31.60% |
| 2 Years | 112.99% | 29.63% | +83.36% |
| 3 Years | 269.91% | 36.59% | +233.32% |
The stock's three-year return of 269.91% and five-year return of 536.47% represent extraordinary wealth creation, generating alpha of 233.32% and 443.58% respectively over these periods. However, near-term performance reveals a loss of momentum. The stock has underperformed the Sensex over the past three months, generating negative alpha of 4.66%, whilst one-week returns show a 5.10% decline.
The stock exhibits high volatility with a beta of 1.50, indicating 50% greater price swings than the broader market. This high-beta characteristic, combined with a 44.61% volatility measure, classifies Synergy Green as a high-risk, high-return proposition. The risk-adjusted return of 0.90 over one year compares favourably to the Sensex's 0.69, suggesting that investors have been adequately compensated for the elevated risk—though this relationship may shift if operational performance continues to deteriorate.
"Whilst long-term shareholders have been richly rewarded, the confluence of declining revenues, margin compression, and elevated leverage suggests the easy gains may be behind us."
Investment Thesis: Mixed Signals Across Key Parameters
The investment case for Synergy Green Industries presents a complex picture with conflicting signals across different analytical dimensions. The company's proprietary Mojo Score of 47 out of 100 places it in "SELL" territory, reflecting the deterioration in fundamentals despite attractive valuation metrics.
The financial trend classification of "Negative" as of September 2025 represents the most significant headwind. Key negative factors include operating profit to interest coverage at a concerning 1.98 times, quarterly PAT declining 45.5% versus the previous four-quarter average, and nine-month interest costs growing 23.57% year-on-year. Revenue, operating profit, and profit before tax excluding other income all registered as the lowest in recent quarters.
Quality metrics paint a mixed picture. The company demonstrates healthy long-term growth with a five-year sales CAGR of 13.51% and EBIT growth of 24.21%. The absence of promoter pledging and average ROCE of 15.37% provide some comfort. However, the average ROE of 11.34% appears weak relative to peers, whilst the debt-to-EBITDA ratio of 6.88 times signals elevated leverage. Interest coverage of just 1.64 times on average raises sustainability concerns.
Key Strengths and Risk Factors
KEY STRENGTHS ✓
- Exceptional Long-Term Track Record: Five-year returns of 536.47% and three-year returns of 269.91% demonstrate significant wealth creation capability
- Zero Promoter Pledging: 69.39% promoter holding with no pledged shares indicates financial stability and confidence
- Attractive Valuation Grade: Current pricing offers entry opportunity if operational turnaround materialises
- Established Market Position: Specialisation in wind turbine castings provides exposure to renewable energy growth theme
- Consistent Revenue Growth: Five-year sales CAGR of 13.51% demonstrates historical growth trajectory
- Positive Cash Generation: Operating cash flow of ₹37.00 crores in FY24 provides some financial flexibility
KEY CONCERNS ⚠
- Deteriorating Quarterly Performance: Q2 FY26 revenue down 19.02% YoY and net profit down 43.27% YoY signal operational stress
- Weak Interest Coverage: Operating profit to interest at 1.98x provides minimal cushion for debt servicing
- Heavy Reliance on Other Income: 71.26% of PBT from non-operating sources raises earnings quality concerns
- Elevated Leverage: Debt-to-EBITDA of 6.88x and rising interest costs of ₹4.70 crores constrain financial flexibility
- Margin Compression: Operating margin declined to 12.94% from 14.76% YoY, indicating pricing or cost pressures
- Minimal Institutional Participation: Just 0.42% FII holding and zero mutual fund presence suggest limited institutional validation
- Weak Return Ratios: ROE of 11.34% lags peer average and suggests suboptimal capital allocation
Outlook: Critical Monitoring Points for Recovery
POSITIVE CATALYSTS 📈
- Revenue Recovery: Sequential improvement in quarterly sales above ₹85 crores would signal demand stabilisation
- Margin Expansion: Operating margin returning above 14% would demonstrate operating leverage benefits
- Debt Reduction: Deleveraging to bring debt-to-EBITDA below 5.0x would improve financial profile
- Order Book Visibility: Announcement of significant wind turbine casting orders would provide revenue visibility
- Institutional Interest: Entry of mutual funds or increased FII participation would validate investment thesis
RED FLAGS 🚩
- Further Revenue Decline: Q3 FY26 sales below ₹70 crores would confirm negative trend
- Interest Coverage Below 1.5x: Would signal acute debt servicing stress
- Continued Reliance on Other Income: Non-operating income exceeding 60% of PBT for another quarter
- Working Capital Deterioration: Sharp increase in debtor days or inventory levels
- Promoter Stake Reduction: Material decline in promoter holding would signal loss of confidence
The next two quarters will prove critical in determining whether Q2 FY26 represents a temporary setback or the beginning of a sustained downtrend. Investors should closely monitor order inflow announcements, margin trajectory, and debt servicing capability. The wind energy sector's capacity addition plans and government policy support will also influence demand visibility.
The Verdict: Sell on Fundamental Deterioration
Score: 47/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst the stock trades at an "attractive" valuation, the deteriorating financial trends, weak interest coverage, and heavy reliance on other income create significant downside risks. Wait for tangible signs of operational turnaround, including revenue stabilisation above ₹80 crores per quarter and operating margins recovering above 14%, before considering entry.
For Existing Holders: Consider reducing positions or exiting entirely if holding period exceeds three years with substantial gains already realised. Long-term shareholders sitting on 200%+ returns should book profits given the negative financial trend and elevated leverage. Those with shorter holding periods may wait for one more quarter to assess whether Q2 FY26 was an aberration, but should maintain strict exit discipline if Q3 FY26 shows continued deterioration.
Fair Value Estimate: ₹420-450 (22% downside risk from current levels), based on normalised earnings and peer valuation multiples of 35-40x P/E with a 15-20% discount for elevated leverage and weak near-term trends.
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. The views expressed are based on data available as of November 19, 2025, and are subject to change.
