The quarter's performance reveals a company navigating operational challenges whilst demonstrating resilience in top-line growth. Net sales increased 12.95% sequentially to ₹153.11 crores, recovering from the previous quarter's contraction. Yet, the operating margin excluding other income at 13.76% remains well below the 18.42% achieved in Q4 FY25, highlighting persistent margin pressures that have characterised the company's recent performance trajectory.
The proprietary Mojo Score of 38 out of 100 places Thejo Engineering firmly in "SELL" territory, reflecting concerns about the company's technical bearishness, flat financial trend, and expensive valuation despite recent price corrections. The stock's journey from ₹2,485.80 in its 52-week high to current levels represents a 30.27% decline, with all major moving averages acting as overhead resistance.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 153.11 | +12.95% | 15.10 | +60.30% | 13.76% |
| Jun'25 | 135.56 | -11.51% | 9.42 | -38.11% | 12.06% |
| Mar'25 | 153.19 | +12.99% | 15.22 | +15.65% | 18.42% |
| Dec'24 | 135.58 | +1.60% | 13.16 | +10.50% | 17.83% |
| Sep'24 | 133.44 | +2.23% | 11.91 | +24.06% | 12.65% |
| Jun'24 | 130.53 | -7.31% | 9.60 | -23.08% | 14.11% |
| Mar'24 | 140.82 | — | 12.48 | — | 18.11% |
Financial Performance: Revenue Recovery Amidst Margin Compression
Thejo Engineering's Q2 FY26 revenue performance demonstrates a welcome recovery from the previous quarter's 11.51% sequential decline. Net sales of ₹153.11 crores represent 14.74% year-on-year growth, marginally below the Q4 FY25 level of ₹153.19 crores. This revenue trajectory suggests the company operates in a cyclical business environment with quarterly fluctuations influenced by project execution timelines and order book realisation.
The operating margin excluding other income at 13.76% marks a sequential improvement of 170 basis points from Q1 FY26's 12.06%, yet remains substantially below the 18.42% achieved in Q4 FY25. This volatility in profitability metrics raises questions about the company's pricing power, cost management efficacy, and competitive positioning within the industrial manufacturing sector. Employee costs at ₹51.20 crores consumed 33.44% of revenues, up from 34.18% in the previous quarter, indicating modest operational leverage despite higher sales.
The profit after tax margin of 9.22% in Q2 FY26, whilst higher than Q1 FY26's 7.20%, falls short of the double-digit margins recorded in Q4 FY25 (10.82%) and Q3 FY25 (10.21%). This compression reflects both operational challenges and a higher effective tax rate of 29.41% in the latest quarter compared to 26.67% in Q1 FY26. The tax rate volatility, ranging from 16.18% to 29.41% over recent quarters, adds another layer of earnings unpredictability.
Capital Efficiency: Strong ROE Offset by Modest Growth
Thejo Engineering's average return on equity of 18.50% positions the company favourably within its peer group, demonstrating superior capital efficiency compared to most industrial manufacturing counterparts. This higher ROE indicates that the company generates better returns on shareholder capital, a testament to management's ability to deploy resources effectively. The latest ROE of 16.75% remains healthy, though marginally below the historical average.
However, this strong capital efficiency metric must be contextualised against the company's modest long-term growth trajectory. Over the past five years, net sales have grown at a compound annual rate of just 5.87%, whilst operating profit (EBIT) expanded at 16.82% annually. This divergence suggests improving operational leverage and margin expansion over time, yet the absolute growth rates remain unimpressive for a company trading at premium valuations.
The balance sheet reveals a virtually debt-free structure with shareholder funds of ₹297.78 crores as of March 2025 and minimal long-term debt of ₹1.30 crores. The average net debt to equity ratio of -0.16 indicates the company maintains net cash, eliminating financial risk and providing flexibility for growth investments. Current assets of ₹305.84 crores comfortably exceed current liabilities of ₹98.14 crores, ensuring adequate working capital management.
⚠️ Key Concern: Margin Volatility
Operating margins have fluctuated dramatically between 12.06% and 18.42% over the past five quarters, indicating challenges in maintaining consistent profitability. This volatility, combined with modest long-term revenue growth of 5.87% CAGR, raises questions about the sustainability of premium valuations. The company's inability to sustain margins above 14% in recent quarters despite strong ROE metrics warrants close monitoring.
Industry Context: Underperforming Sector Benchmarks
The industrial manufacturing sector has faced headwinds over the past year, with the sector index declining 9.22%. Thejo Engineering's 24.60% decline over the same period represents a significant 15.38 percentage point underperformance relative to its sector peers. This divergence suggests company-specific challenges beyond broader sectoral trends, potentially related to order book quality, execution capabilities, or competitive pressures.
The company's high beta of 1.35 indicates greater volatility than the broader market, amplifying both upside and downside movements. With the stock currently in a bearish technical trend since October 21, 2025, and trading below all major moving averages, the technical setup provides little support for contrarian positioning. The weighted average price action suggests continued selling pressure, with the 52-week low of ₹1,446.00 serving as the next critical support level.
Within the industrial manufacturing space, Thejo Engineering faces competition from both established players and emerging specialists. The company's ability to differentiate through engineering capabilities, client relationships, and execution excellence will determine its capacity to regain market confidence and justify premium valuations. The current operating environment demands operational excellence, margin discipline, and visible growth catalysts to reverse the negative sentiment.
Peer Comparison: Premium Valuation Despite Mixed Fundamentals
Thejo Engineering's valuation metrics reveal a mixed picture when benchmarked against industrial manufacturing peers. The company trades at a price-to-earnings ratio of 37.96x, below the peer average but still elevated in absolute terms. More concerning is the price-to-book value ratio of 6.34x, significantly higher than peers such as Honda India (2.99x) and Indian Hume Pipe (1.43x), suggesting the market has priced in aggressive growth expectations that recent performance fails to validate.
| Company | P/E (TTM) | P/BV | ROE (%) | Dividend Yield |
|---|---|---|---|---|
| Thejo Engineering | 37.96 | 6.34 | 18.50% | 0.29% |
| Honda India | 35.22 | 2.99 | 10.49% | 5.17% |
| Windsor Machines | NA (Loss Making) | 3.55 | 1.25% | NA |
| Indian Hume Pipe | 23.87 | 1.43 | 7.98% | 1.55% |
| Aimtron | 69.62 | 9.25 | 25.63% | NA |
The company's superior ROE of 18.50% compared to the peer average of approximately 9% provides some justification for the valuation premium. However, the dividend yield of just 0.29% with a conservative payout ratio of 5.80% indicates management prioritises internal growth investments over shareholder returns. This strategy makes sense only if the company can demonstrate accelerating growth and consistent margin expansion, neither of which is evident in recent results.
Aimtron commands an even higher P/BV multiple of 9.25x supported by exceptional ROE of 25.63%, suggesting that Thejo Engineering's valuation premium lacks sufficient fundamental support. The company's market capitalisation of ₹1,880 crores positions it as the fifth-largest player in the peer group, indicating limited scale advantages relative to larger competitors.
Valuation Analysis: Expensive Despite Price Correction
Despite the 24.60% decline from peak levels, Thejo Engineering continues to trade at expensive valuations based on historical standards and fundamental metrics. The current P/E ratio of 37.96x reflects optimism that appears disconnected from the company's 5.87% sales CAGR and volatile margin profile. The valuation grade has oscillated between "Expensive" and "Very Expensive" throughout 2025, with the most recent assessment maintaining the "Expensive" classification.
The enterprise value to EBITDA multiple of 21.48x and EV to EBIT multiple of 27.51x both suggest limited margin of safety for investors at current price levels. These multiples would be justifiable for a high-growth, high-margin business with visible scalability, characteristics that Thejo Engineering currently lacks. The EV to sales ratio of 3.30x further underscores the premium nature of the valuation, particularly given the company's modest revenue growth trajectory.
From a price-to-book perspective, the 6.34x multiple implies the market values the company's intangible assets, competitive positioning, and growth potential at more than six times its accounting book value. Whilst the strong ROE of 18.50% supports some premium, the current multiple appears stretched given the operational challenges and margin volatility evident in recent quarters. The lack of a PEG ratio calculation due to inconsistent growth patterns further highlights valuation concerns.
Shareholding Pattern: Stable Promoter Base, Rising Institutional Interest
The shareholding structure reveals a stable promoter holding of 53.62% that has remained unchanged over the past year, indicating strong promoter confidence and commitment. With zero promoter pledging, financial risks associated with ownership are minimal. The promoter group comprises the Joseph and Thomas families, with individual holdings ranging from 2.45% to 6.36%, suggesting a well-distributed family ownership structure.
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 53.62% | 53.62% | 53.62% | 0.00% |
| FII | 0.66% | 0.65% | 0.67% | +0.01% |
| Mutual Funds | 1.97% | 1.89% | 1.82% | +0.08% |
| Other DII | 1.37% | 1.31% | 1.20% | +0.06% |
| Non-Institutional | 42.38% | 42.53% | 42.69% | -0.15% |
Institutional holdings remain modest at approximately 4.00%, with gradual accumulation visible over recent quarters. Mutual fund holdings increased from 1.82% in March 2025 to 1.97% in September 2025, whilst other domestic institutional investors raised their stake from 1.20% to 1.37% over the same period. This incremental buying suggests some institutional interest, though the absolute levels remain too low to provide meaningful support during periods of market stress.
The non-institutional shareholding of 42.38% indicates significant retail and high-net-worth individual participation. The sequential decline of 0.15% in this category during Q2 FY26 suggests some retail selling pressure, possibly in response to the stock's technical weakness and underperformance. The presence of 20 foreign institutional investors, despite their collective 0.66% stake, indicates some international awareness of the company, though meaningful foreign capital remains absent.
Stock Performance: Severe Underperformance Across Timeframes
Thejo Engineering's stock performance presents a concerning picture across most relevant timeframes. The one-year return of -24.60% compares unfavourably to the Sensex's 4.63% gain, resulting in negative alpha of -29.23 percentage points. This underperformance extends to shorter periods, with the stock declining 19.99% over three months whilst the Sensex gained 3.19%, and falling 6.26% over one month against the Sensex's 0.82% rise.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.27% | -0.34% | -1.93% |
| 1 Month | -6.26% | +0.82% | -7.08% |
| 3 Months | -19.99% | +3.19% | -23.18% |
| 6 Months | -2.12% | +4.69% | -6.81% |
| 1 Year | -24.60% | +4.63% | -29.23% |
| 3 Years | +42.20% | +34.60% | +7.60% |
| 5 Years | +30.88% | +90.80% | -59.92% |
The technical picture remains decidedly bearish, with the stock trading below all key moving averages including the 5-day (₹1,771.16), 20-day (₹1,795.93), 50-day (₹1,837.07), 100-day (₹1,957.93), and 200-day (₹1,877.26) moving averages. This alignment of moving averages in descending order typically indicates strong downward momentum and lack of buying support at current levels.
The risk-adjusted return analysis reveals a concerning profile, with the stock generating a negative risk-adjusted return of -0.59 over the past year compared to the Sensex's positive 0.37. The stock's volatility of 41.92% significantly exceeds the Sensex's 12.38%, classifying Thejo Engineering as a "HIGH RISK LOW RETURN" investment based on recent performance. This risk-return profile makes the stock unattractive for most investor categories, particularly those seeking capital preservation or steady returns.
"With margins oscillating wildly between 12% and 18%, modest long-term growth of 5.87% CAGR, and premium valuations of 38x earnings, Thejo Engineering faces a credibility gap between market expectations and operational delivery."
Investment Thesis: Quality Company at Wrong Price
The investment case for Thejo Engineering presents a paradox: a fundamentally sound company with strong capital efficiency trading at expensive valuations amidst deteriorating technical momentum and flat financial trends. The company's quality grade of "GOOD" reflects solid long-term fundamentals including zero debt, healthy ROE, and no promoter pledging. However, the valuation grade of "EXPENSIVE" and bearish technical trend create a challenging risk-reward proposition.
The Mojo four-dot analysis reveals mixed signals across key parameters. Near-term drivers show a "MIXED" assessment with flat quarterly financial trends and bearish technicals. Quality remains "GOOD" based on strong fundamentals and balance sheet strength. Valuation stays "EXPENSIVE" despite recent price corrections. The overall assessment of "MIXED" suggests the stock lacks compelling entry points across multiple dimensions.
The proprietary score of 38 out of 100 places the stock firmly in "SELL" territory, driven by concerns about bearish technical trends, flat recent performance, modest long-term growth, and expensive valuations. The score history shows recent downgrades from "HOLD" to "SELL" as technical momentum deteriorated, reflecting the algorithm's responsiveness to changing market dynamics.
Key Strengths & Risk Factors
KEY STRENGTHS
- Strong Capital Efficiency: ROE of 18.50% significantly above peer average, demonstrating superior returns on shareholder capital
- Debt-Free Balance Sheet: Net cash position with debt-to-equity of -0.16 eliminates financial risk and provides growth flexibility
- Stable Promoter Base: 53.62% promoter holding with zero pledging indicates strong commitment and financial stability
- Positive Operating Cash Flow: Consistent cash generation of ₹72 crores in FY25 supports working capital and growth investments
- Rising Institutional Interest: Gradual accumulation by mutual funds and DIIs over recent quarters signals improving institutional confidence
- Quality Grade: "GOOD" rating reflects solid long-term fundamentals and operational track record
KEY CONCERNS
- Margin Volatility: Operating margins fluctuating between 12.06% and 18.42% over five quarters indicates inconsistent profitability
- Modest Growth: Five-year sales CAGR of just 5.87% fails to justify premium valuation multiples
- Expensive Valuation: P/E of 37.96x and P/BV of 6.34x appear stretched relative to growth and margin profile
- Severe Underperformance: One-year return of -24.60% versus Sensex gain of 4.63% reflects loss of market confidence
- Bearish Technical Setup: Trading below all moving averages with negative momentum across multiple timeframes
- High Volatility: Beta of 1.35 and volatility of 41.92% create elevated risk profile unsuitable for conservative investors
- Low Institutional Holdings: Just 4% institutional ownership limits support during market corrections
Outlook: What Lies Ahead
POSITIVE CATALYSTS
- Sustained margin improvement above 15% for three consecutive quarters would signal operational stabilisation
- Revenue acceleration to double-digit growth rates would justify current valuation premium
- Increased institutional participation above 10% could provide price support and liquidity
- Technical reversal above 200-day moving average of ₹1,877 would improve momentum outlook
- Strategic acquisitions or capacity expansion announcements could unlock growth potential
RED FLAGS TO MONITOR
- Further margin compression below 12% would indicate intensifying competitive pressures
- Sequential revenue decline in Q3 FY26 would confirm demand weakness
- Breach of 52-week low of ₹1,446 could trigger additional technical selling
- Declining institutional holdings or promoter stake reduction would signal confidence issues
- Deteriorating working capital metrics or cash flow generation would raise operational concerns
The forward outlook for Thejo Engineering hinges on management's ability to stabilise operating margins, accelerate revenue growth, and demonstrate consistent execution. The company operates in a competitive industrial manufacturing landscape where differentiation through engineering excellence, client relationships, and operational efficiency determines long-term success. Whilst the strong balance sheet and capital efficiency provide a foundation, the lack of visible growth catalysts and persistent margin volatility create uncertainty.
Investors should closely monitor quarterly margin trends, order book quality, and management commentary on demand visibility. The technical setup suggests further downside risks unless the stock can reclaim key moving averages and demonstrate stabilisation. From a fundamental perspective, the expensive valuation relative to growth and the flat financial trend classification warrant caution until clearer evidence emerges of sustainable improvement.
The Verdict: Quality Company Awaiting Better Entry Point
Score: 38/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of expensive valuations (P/E 37.96x, P/BV 6.34x), bearish technical momentum, and modest growth (5.87% sales CAGR) creates an unfavourable risk-reward profile. Wait for either significant price correction towards ₹1,400-1,450 levels or sustained evidence of margin stabilisation and revenue acceleration before considering entry.
For Existing Holders: Consider reducing positions on any technical bounce towards ₹1,800-1,850 levels. The persistent underperformance, margin volatility, and expensive valuation despite corrections suggest limited upside potential in the near term. Long-term holders with conviction may retain core positions given the debt-free balance sheet and strong ROE, but should reassess if margins fail to improve or growth remains subdued.
Fair Value Estimate: ₹1,450-1,550 (16% downside from current levels), based on normalised margins of 15%, sustainable growth of 8-10%, and target P/E of 28-30x reflecting quality premium but accounting for growth limitations.
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 those of the author and do not constitute recommendations to buy, sell, or hold any securities mentioned.
