Tejas Networks Q2 FY26: Steep Revenue Collapse Triggers Massive Losses

With a market capitalisation of ₹10,518 crores, Tejas Networks has transitioned from a promising growth story to a company facing severe operational headwinds. The quarter's results reveal a business struggling with revenue visibility, margin compression, and escalating interest costs, raising fundamental questions about the sustainability of its business model in the current environment. The company's operating profit margin excluding other income collapsed to -112.18%, while interest expenses surged to ₹84.32 crores, the highest on record.

Financial Performance: A Quarter of Unprecedented Deterioration

The second quarter of FY2026 marked one of the most challenging periods in Tejas Networks' recent history. Net sales of ₹261.82 crores represented a sequential decline of 29.63% from Q1 FY26's ₹201.98 crores and a staggering 90.69% year-on-year collapse from ₹2,811.26 crores in Q2 FY25. This dramatic revenue contraction reflects severe order flow disruptions and execution challenges that have fundamentally altered the company's near-term trajectory.

The operating profit excluding other income plunged to a loss of ₹293.70 crores, compared to a profit of ₹534.71 crores in the year-ago quarter. This represents not just margin compression but a complete breakdown of operational profitability. Employee costs remained elevated at ₹94.35 crores despite the revenue collapse, highlighting the company's inability to adjust its cost structure rapidly enough to match the revenue decline.

Interest expenses surged to ₹84.32 crores in Q2 FY26, up 38.17% from ₹61.01 crores in Q2 FY25, adding significant financial pressure. The interest coverage ratio deteriorated to -3.48 times, indicating the company's operating profits are insufficient to service its debt obligations. Depreciation costs rose to ₹100.98 crores from ₹73.80 crores year-on-year, reflecting the company's capital-intensive nature even as revenue generation faltered.

Quarterly Trend Analysis: From Growth Champion to Distressed Asset

The quarterly trend reveals a dramatic reversal of fortune. From a period of exceptional growth in FY2025, where the company posted triple-digit revenue growth rates and healthy margins, Tejas Networks has entered a phase of severe contraction. The first half of FY2026 has witnessed consecutive quarters of losses, with H1 FY26 recording a combined net loss of ₹501.00 crores on revenues of just ₹463.80 crores.

Operational Challenges: The Lumpy Order Book Problem

Tejas Networks operates in a project-based business model characterised by large, lumpy orders from telecom operators and government entities. This creates significant revenue volatility, as evidenced by the wild swings in quarterly performance. The company's business model requires substantial working capital to execute large orders, leading to high inventory and receivables during execution phases, followed by cash conversion upon project completion.

The current quarter's performance suggests a severe gap in order inflows or execution delays. With return on equity at 11.61% for the latest period and return on assets at 4.27%, the company is generating modest returns even in better periods. However, the current operational crisis has pushed these metrics into negative territory on a trailing basis.

Debt and Interest Burden: A Growing Concern

Tejas Networks' debt position has deteriorated significantly. Long-term debt stood at ₹151.16 crores as of March 2025, up from zero in the previous year. The debt-to-equity ratio of 0.21 appears manageable on the surface, but the inability to generate operating profits makes even this level of debt problematic. The company's interest coverage ratio has collapsed, with operating profits insufficient to cover interest expenses.

The surge in interest costs to ₹84.32 crores in Q2 FY26 from ₹61.01 crores in Q2 FY25 reflects both higher borrowings and potentially higher interest rates. With the company burning cash and reporting losses, the debt burden is likely to increase further unless revenue recovery materialises quickly. The company's net debt position has shifted from a net cash position of ₹822.00 crores to a more stressed situation.

Peer Comparison: Struggling Within a Challenged Sector

Within the IT-Hardware sector, Tejas Networks ranks as the third-largest company by market capitalisation at ₹10,518 crores. The peer comparison reveals a sector in distress, with multiple companies reporting losses or extremely elevated P/E ratios. Tejas Networks' ROE of 11.61% appears relatively strong compared to peers, but this figure reflects historical performance rather than current operational reality.

The company's P/E ratio of 59.56x appears elevated given the current loss-making status, suggesting the market is pricing in a significant recovery. However, with the stock down 47.66% over the past year compared to the sector's decline of 93.62%, Tejas has actually outperformed its peer group, albeit both in negative territory.

Valuation Analysis: Attractive Grade Masks Operational Crisis

Despite the operational challenges, Tejas Networks carries an "Attractive" valuation grade, with the stock trading at a P/BV of 2.71x against a book value of ₹214.17 per share. The EV/EBITDA multiple of 14.59x and EV/Sales of 1.72x suggest moderate valuation levels. However, these metrics are based on trailing twelve-month figures that include the strong performance of FY2025, which may not be representative of current earning power.

The stock's 52-week range of ₹543.00 to ₹1,459.80 illustrates the dramatic volatility, with the current price of ₹590.10 sitting just 8.67% above the 52-week low. The market has clearly repriced the stock to reflect the operational challenges, but the question remains whether current levels adequately discount the risk of prolonged revenue weakness and continued losses.

Shareholding Pattern: Institutional Exodus Signals Concern

The shareholding pattern reveals a concerning trend of institutional selling. Foreign Institutional Investors reduced their stake from 10.19% in June 2024 to 6.14% in June 2025, a decline of 405 basis points over four quarters. The number of FIIs holding the stock decreased from 93 to 89, whilst mutual fund holders dropped from 18 to 17, indicating waning institutional confidence.

Promoter holding has also declined marginally from 55.50% to 53.73% over the same period, though the reduction is modest. Notably, there is no promoter pledging, which provides some comfort regarding financial stress at the promoter level. The increase in non-institutional holdings from 29.40% to 35.40% suggests retail participation has risen, potentially reflecting value hunting at lower price levels or trapped investors averaging down.

Stock Performance: Severe Underperformance Across All Timeframes

The stock's performance has been dismal across all recent timeframes, with particularly severe underperformance in the past six months. The 31.15% decline over six months against the Sensex's 6.87% gain represents a negative alpha of 38.02 percentage points. Year-to-date, the stock has lost 50.17% of its value, erasing significant shareholder wealth.

The technical picture is equally concerning. The stock trades below its 20-day, 100-day, and 200-day moving averages, with the current price of ₹590.10 sitting 19.97% below the 200-day moving average of ₹737.55. The stock's beta of 1.35 indicates high volatility, with the stock typically moving 35% more than the broader market. This high beta has worked against investors during the downturn.

Technical Analysis: Mildly Bearish Trend with Limited Support

The technical trend classification stands at "Mildly Bearish" as of 26th September 2025, having oscillated between bearish and mildly bearish over recent weeks. The stock's delivery volume has declined 15.36% over the trailing month, suggesting weakening conviction amongst buyers. Recent delivery volumes of 1.67 lakh shares represent just 31.87% of total volumes, down from a five-day average of 43.43%, indicating increased speculative activity rather than long-term accumulation.

Key technical indicators present a mixed picture. The MACD shows mildly bullish signals on a weekly basis but remains bearish on monthly charts. The RSI indicates monthly bullish conditions, suggesting the stock may be oversold. However, Bollinger Bands remain bearish to mildly bearish across timeframes, whilst moving averages indicate a daily mildly bearish trend. The immediate support lies at ₹543.00 (the 52-week low), whilst resistance emerges at ₹592.24 (20-day moving average).

Investment Thesis: Quality Concerns Overshadow Valuation Appeal

Tejas Networks' investment case has deteriorated significantly. Whilst the company demonstrated impressive 5-year sales CAGR of 89.59% and maintained an "Average" quality grade, the current operational crisis has fundamentally altered the risk-reward equation. The company's proprietary score of 31 out of 100 places it firmly in "SELL" territory, having recently upgraded from "STRONG SELL" but remaining in distressed territory.

Outlook: Critical Monitoring Points for Recovery

The path forward for Tejas Networks requires immediate operational stabilisation. The company must secure new orders, execute existing commitments efficiently, and aggressively manage costs to stem the cash burn. Without visible signs of recovery in revenue and margins over the next two quarters, the investment case remains severely impaired despite attractive valuation multiples.