The quarter's results reveal a concerning trend: whilst the company managed to grow its top line by 17.45% sequentially to ₹32.30 crores, profitability metrics have deteriorated sharply. The PAT margin contracted to 4.37% from 8.95% in the same quarter last year, indicating significant operational pressures. This disconnect between revenue growth and profit expansion has raised questions about the sustainability of the company's business model in the current environment.
Financial Performance: Revenue Growth Masks Margin Erosion
Tirupati Forge's Q2 FY26 performance presents a paradox. On the surface, the 17.45% quarter-on-quarter revenue growth to ₹32.30 crores appears encouraging, representing a recovery from the ₹27.50 crores reported in Q1 FY26. However, a deeper examination reveals troubling undercurrents. The year-on-year comparison shows net sales growth of 11.15% from ₹29.06 crores in Q2 FY25, but this modest top-line expansion has been accompanied by a severe compression in profitability.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | PAT Margin |
|---|---|---|---|---|
| Jun'25 | 32.30 | +17.45% | 1.41 | 4.37% |
| Mar'25 | 27.50 | +5.20% | 1.30 | 4.73% |
| Dec'24 | 26.14 | -19.02% | 1.31 | 5.01% |
| Sep'24 | 32.28 | +11.08% | 2.64 | 8.18% |
| Jun'24 | 29.06 | -12.23% | 2.60 | 8.95% |
| Mar'24 | 33.11 | +2.32% | 1.92 | 5.80% |
| Dec'23 | 32.36 | — | 2.05 | 6.33% |
The operating profit margin (excluding other income) stood at 11.39% in Q2 FY26, marginally higher than the previous quarter's 11.27% but significantly below the 16.14% achieved in Q2 FY25. This 480 basis point year-on-year contraction in operating margins is particularly concerning for a manufacturing business, where operational efficiency is paramount. The erosion appears to stem from rising input costs and competitive pressures that the company has been unable to pass through to customers.
Employee costs have risen to ₹1.79 crores in Q2 FY26 from ₹1.41 crores in the year-ago quarter, representing a 26.95% increase that has outpaced revenue growth. Whilst some increase in employee expenses is natural in a growing business, the disproportionate rise suggests either wage inflation pressures or inefficient labour deployment. Interest costs have also surged to ₹0.73 crores from ₹0.38 crores year-on-year, reflecting higher working capital requirements and potentially increased borrowing costs.
Critical Concern: Other Income Dependency
Other income of ₹0.62 crores in Q2 FY26 represents a substantial 32.63% of profit before tax, raising questions about the quality of earnings. This heavy reliance on non-operating income to support profitability is unsustainable and masks underlying operational weaknesses. The company's core operations generated profit before tax (excluding other income) of just ₹1.28 crores, highlighting the fragility of its business model.
Operational Challenges: Quality of Earnings Under Scrutiny
The quality of Tirupati Forge's earnings has become a significant concern for investors. Whilst the company maintains a "Good" quality grade based on its long-term financial performance, recent operational metrics paint a less flattering picture. The return on equity (ROE) has declined to 6.82% in the latest period from an average of 14.43%, indicating diminishing returns on shareholder capital. This deterioration is particularly troubling given that higher ROE values signal better capital efficiency and profitability.
The company's balance sheet, whilst reasonably healthy with minimal debt, shows signs of strain. Net working capital has increased substantially, with current assets rising to ₹88.78 crores in March 2025 from ₹46.08 crores a year earlier. This near-doubling of working capital suggests either inventory build-up or slower receivables collection, both of which tie up valuable cash resources. The cash flow statement for FY25 reveals that working capital changes consumed ₹7.00 crores, a reversal from the ₹1.00 crore consumption in FY24.
Despite these challenges, Tirupati Forge maintains certain operational strengths. The company operates with minimal debt, boasting a net debt-to-equity ratio of -0.16, effectively making it a net cash company. This conservative financial structure provides a cushion against economic downturns and offers flexibility for future investments. The absence of promoter pledging (0% pledged shares) further underscores management's confidence and financial discipline.
| Metric | Q2 FY26 | Q1 FY26 | Q2 FY25 | Comment |
|---|---|---|---|---|
| Operating Margin (Excl OI) | 11.39% | 11.27% | 16.14% | 480 bps YoY decline |
| PAT Margin | 4.37% | 4.73% | 8.95% | 458 bps YoY decline |
| Interest (₹ Cr) | 0.73 | 0.44 | 0.38 | 92% YoY increase |
| Tax Rate | 25.79% | 24.12% | 24.86% | Stable |
Industry Context: Navigating Headwinds in Castings & Forgings
The castings and forgings industry has faced significant headwinds over the past year, with the sector delivering a negative return of 9.58% over the 12-month period. Tirupati Forge has underperformed this already weak sector, posting a negative return of 19.41%, thereby underperforming its industry peers by 9.83 percentage points. This relative weakness suggests company-specific challenges beyond broader sectoral issues.
The company operates in a highly competitive environment characterised by pricing pressures, raw material volatility, and evolving customer demands. The automotive component segment, which forms a significant portion of Tirupati Forge's business, has been particularly challenging due to the ongoing transition towards electric vehicles and changing supply chain dynamics. Manufacturers are increasingly seeking suppliers who can offer not just cost competitiveness but also technological capabilities and quality assurance.
Sector Dynamics: Margin Pressure Intensifies
The castings and forgings sector is experiencing structural margin compression due to rising input costs (steel, energy) and limited pricing power. Companies with diversified product portfolios and strong customer relationships are better positioned to navigate these challenges. Tirupati Forge's concentration in specific product categories may limit its ability to offset weakness in any single segment.
Peer Comparison: Valuation Premium Appears Unjustified
When compared to industry peers, Tirupati Forge's valuation metrics raise concerns about whether the stock is appropriately priced relative to its fundamentals. The company trades at a price-to-earnings ratio of 66.13x, significantly higher than most peers in the castings and forgings space. This premium valuation is difficult to justify given the company's deteriorating profitability and negative financial trend.
| Company | P/E (TTM) | P/BV | ROE % | Div Yield |
|---|---|---|---|---|
| Tirupati Forge | 66.13 | 4.51 | 14.43% | NA |
| Steelcast | 23.75 | 0.59 | 20.42% | 0.73% |
| Nelcast | 26.02 | 1.73 | 5.11% | 0.45% |
| Synergy Green | 48.72 | 7.84 | 11.34% | 0.18% |
| ANB Metal | 36.91 | 11.14 | 40.10% | NA |
| Munish Forge | 19.64 | 4.17 | 0.00% | NA |
Tirupati Forge's ROE of 14.43% is respectable but lags behind industry leaders like ANB Metal (40.10%) and Steelcast (20.42%). The company's price-to-book value of 4.51x is moderate compared to peers like ANB Metal (11.14x) but appears elevated given the recent deterioration in profitability metrics. The absence of dividend payments further reduces the stock's appeal for income-oriented investors.
Valuation Analysis: Premium Difficult to Justify
At the current market price of ₹35.92, Tirupati Forge trades at a significant premium to its historical valuations and appears expensive relative to its near-term earnings potential. The P/E ratio of 66.13x is more than double the average of its peer group (approximately 31x), suggesting that the market has priced in substantial growth expectations that may be difficult to achieve given current operational challenges.
The company's enterprise value multiples paint a similar picture. EV/EBITDA stands at 29.89x, whilst EV/EBIT is elevated at 46.20x. These multiples are typically associated with high-growth businesses with strong competitive moats, characteristics that Tirupati Forge currently lacks. The EV/Sales ratio of 3.60x appears reasonable for a manufacturing business but offers little comfort when profitability is under pressure.
The stock's valuation grade has oscillated between "Fair" and "Expensive" over recent months, with the current classification being "Fair" as of October 10, 2025. However, this assessment appears generous given the deteriorating financial trends. A more conservative fair value estimate would place the stock at approximately ₹28-30, implying a potential downside of 17-22% from current levels.
Shareholding Pattern: Promoter Confidence Remains Intact
The shareholding pattern of Tirupati Forge reveals a stable ownership structure with promoters maintaining a significant stake. As of October 2025, promoter holding stands at 48.93%, representing a marginal increase of 0.83% from the previous quarter. This sequential increase, whilst modest, signals continued promoter confidence in the company's long-term prospects despite near-term operational challenges.
| Quarter | Promoter % | QoQ Change | FII % | Non-Institutional % |
|---|---|---|---|---|
| Oct'25 | 48.93% | +0.83% | 0.02% | 51.04% |
| Sep'25 | 48.10% | 0.00% | 0.02% | 51.88% |
| Aug'25 | 48.10% | -1.21% | 0.02% | 51.88% |
| Jun'25 | 49.31% | 0.00% | 0.02% | 50.67% |
Institutional participation remains negligible, with FII holding at a mere 0.02% and no presence from mutual funds or insurance companies. This absence of institutional interest is telling, suggesting that professional investors have not found the company's risk-reward profile attractive at current valuations. The dominance of non-institutional shareholders (51.04%) indicates a predominantly retail investor base, which can contribute to higher stock price volatility.
Stock Performance: Severe Underperformance Across Timeframes
Tirupati Forge's stock performance has been disappointing across most timeframes, with particularly severe underperformance in recent months. The stock has declined 40.85% year-to-date, dramatically underperforming the Sensex, which has gained 7.34% over the same period. This 48.19 percentage point negative alpha highlights the magnitude of investor dissatisfaction with the company's operational performance and outlook.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -6.80% | +0.49% | -7.29% |
| 1 Month | -13.59% | +1.66% | -15.25% |
| 3 Months | -6.97% | +4.05% | -11.02% |
| 6 Months | +21.15% | +5.56% | +15.59% |
| YTD | -40.85% | +7.34% | -48.19% |
| 1 Year | -19.41% | +5.50% | -24.91% |
| 2 Years | +225.07% | +29.22% | +195.85% |
The technical picture is equally concerning. The stock trades below all key moving averages—5-day (₹37.78), 20-day (₹39.70), 50-day (₹39.19), 100-day (₹40.37), and 200-day (₹38.93)—indicating persistent selling pressure. The current trend is classified as "Sideways" after transitioning from "Mildly Bearish" on November 10, 2025, suggesting some stabilisation but no clear directional momentum.
The stock's beta of 1.50 indicates high volatility relative to the broader market, with a volatility measure of 54.16% over the past year. This elevated volatility, combined with negative returns, places the stock in the "High Risk Low Return" category—an unfavourable combination for most investors. The risk-adjusted return of -0.36 compares poorly to the Sensex's positive risk-adjusted return of 0.44.
"With margins under pressure, elevated valuations, and negative momentum, Tirupati Forge faces a challenging road ahead. The company must demonstrate operational improvements to justify investor confidence."
Investment Thesis: Multiple Red Flags Warrant Caution
The investment case for Tirupati Forge has weakened considerably in recent quarters. The company's proprietary score stands at 44 out of 100, placing it firmly in "SELL" territory with a recommendation to consider selling and look for exit opportunities. This score reflects the confluence of negative factors: deteriorating financial trends, elevated valuations, and weak technical momentum.
The quality assessment of "Good" based on long-term performance provides some comfort, particularly given the company's healthy balance sheet and absence of debt concerns. The 5-year sales CAGR of 34.79% and EBIT growth of 57.40% demonstrate historical growth capabilities. However, recent performance suggests these growth rates may not be sustainable in the current environment.
From a valuation perspective, the stock is classified as "Fair" but appears expensive when considering forward earnings potential. The technical trend of "Sideways" offers no support for contrarian positioning, whilst the negative financial trend (classified as "Negative" since December 2024) raises concerns about near-term earnings trajectory.
Key Strengths & Risk Factors
Key Strengths
- Debt-Free Balance Sheet: Net cash position with debt-to-equity of -0.16 provides financial flexibility and resilience
- Zero Promoter Pledging: Demonstrates management confidence and eliminates risk of forced selling
- Strong Historical Growth: 5-year sales CAGR of 34.79% and EBIT growth of 57.40% show proven growth capabilities
- Diversified Product Portfolio: Presence in auto components, bearings, gears, and flanges reduces concentration risk
- Quality Certification: ISO 9001:2008 certification enhances credibility with customers
- Established Market Presence: Over 13 years of operations with established customer relationships
Key Concerns
- Margin Compression: PAT margin declined from 8.95% to 4.37% year-on-year, indicating severe profitability pressures
- Deteriorating ROE: Return on equity fell to 6.82% from 14.43% average, signalling declining capital efficiency
- High Other Income Dependency: 32.63% of PBT comes from other income, raising earnings quality concerns
- Elevated Valuation: P/E of 66.13x is more than double peer average, difficult to justify given fundamentals
- Negative Financial Trend: Classified as "Negative" since December 2024 with no signs of reversal
- Minimal Institutional Interest: Negligible FII/MF holding suggests professional investors are avoiding the stock
- High Volatility: Beta of 1.50 and volatility of 54.16% create significant downside risk
Outlook: What to Watch in Coming Quarters
Positive Catalysts
- Sustained improvement in operating margins back above 14-15% levels
- Reduction in other income dependency to below 20% of PBT
- Sequential profit growth with stable or improving PAT margins
- Institutional investor participation (FII/MF buying)
- Successful new product launches or customer wins in high-margin segments
Red Flags
- Further margin compression below 10% operating margin levels
- Continued decline in absolute profit despite revenue growth
- Promoter stake reduction or any pledging of shares
- Working capital deterioration requiring increased borrowing
- Loss of major customers or order cancellations
- Break below ₹28 support level (52-week low)
The outlook for Tirupati Forge remains challenging in the near term. The company must demonstrate its ability to improve operational efficiency, reduce cost pressures, and expand margins to justify current valuations. Management commentary on order book strength, capacity utilisation, and raw material cost trends will be critical indicators to monitor. Until clear signs of operational turnaround emerge, the stock is likely to remain under pressure.
The Verdict: Operational Challenges Outweigh Balance Sheet Strength
Score: 44/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of deteriorating profitability, elevated valuations (P/E of 66x), and negative financial trends creates an unfavourable risk-reward profile. Wait for clear evidence of operational improvement and margin expansion before considering entry.
For Existing Holders: Consider reducing exposure or exiting positions, particularly if holding unrealised gains. The stock has declined 40.85% year-to-date, and further downside risk exists if margins continue to compress. The absence of dividend income reduces the incentive to hold through the downturn. Use any technical bounce towards ₹38-40 levels as exit opportunities.
Fair Value Estimate: ₹28-30 (17-22% downside from current price of ₹35.92)
Rationale: Whilst Tirupati Forge maintains a debt-free balance sheet and has demonstrated strong historical growth, current operational metrics paint a concerning picture. The severe margin compression, declining ROE, and heavy reliance on other income for profitability raise serious questions about earnings sustainability. The elevated P/E multiple of 66x is unjustified given the negative financial trend and lack of near-term catalysts. Until the company demonstrates consistent margin improvement and operational efficiency gains, the stock remains a SELL.
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.
