The quarter's headline numbers reveal a familiar pattern of erratic performance that has characterised Touchwood's recent operational history. Net sales for Q3 FY26 stood at ₹24.10 crores, surging 328.06% quarter-on-quarter from a depressed Q2 FY26 base of ₹5.63 crores, yet falling 33.26% year-on-year from ₹36.11 crores in Q3 FY25. This volatility underscores the lumpy, project-based nature of the event management business, where quarterly results can swing dramatically based on the timing and magnitude of large-scale events. For the nine months ended December 2025, the company has accumulated net sales of ₹46.63 crores and consolidated net profit of ₹3.41 crores, setting a challenging baseline for the final quarter of FY26.
The event management sector operates with inherent unpredictability, particularly for smaller players like Touchwood that lack the scale and diversification of larger competitors. The company's ability to post sequential growth in Q3 FY26 reflects the seasonal nature of corporate events, which typically cluster in the October-December period. However, the substantial year-on-year decline raises questions about market share erosion, competitive pressures, or a shift in the overall demand environment for event management services. With minimal institutional holding at just 1.99% and no mutual fund or FII participation, the stock lacks the institutional support that typically provides stability during periods of operational turbulence.
Financial Performance: Margin Pressure Amid Revenue Swings
A detailed examination of Q3 FY26 financials reveals concerning margin dynamics despite the sequential revenue recovery. Operating profit before depreciation, interest, tax and other income (PBDIT excluding OI) stood at ₹2.58 crores with an operating margin of 10.71%, down from 12.77% in Q3 FY25 and marginally below Q2 FY26's 13.85%. The year-on-year margin compression of 206 basis points signals either pricing pressure, higher execution costs, or unfavourable project mix. Net profit margin of 7.34% in Q3 FY26, whilst improved from Q2 FY26's 6.57%, remains substantially below the 9.00% achieved in Q3 FY25, reflecting the erosion in operational efficiency.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Dec'25 | 24.10 | +328.06% | 1.78 | +368.42% | 7.34% |
| Sep'25 | 5.63 | -66.69% | 0.38 | -69.60% | 6.57% |
| Jun'25 | 16.90 | -32.24% | 1.25 | -8.09% | 7.40% |
| Mar'25 | 24.94 | -30.93% | 1.36 | -58.15% | 5.45% |
| Dec'24 | 36.11 | +814.18% | 3.25 | +915.62% | 9.00% |
| Sep'24 | 3.95 | +2.33% | 0.32 | +23.08% | 7.85% |
| Jun'24 | 3.86 | — | 0.26 | — | 6.48% |
The quarterly trend table starkly illustrates the extreme volatility that defines Touchwood's business model. Q3 FY25 witnessed an extraordinary surge with revenues jumping 814.18% quarter-on-quarter to ₹36.11 crores and net profit soaring 915.62% to ₹3.25 crores, creating an exceptionally high base for year-on-year comparisons. The subsequent quarters of FY26 have failed to sustain that momentum, with Q1 and Q2 FY26 posting particularly weak numbers before the Q3 FY26 sequential recovery. This pattern suggests that Touchwood secured one or more large-scale events in Q3 FY25 that have not been replicated in FY26, raising concerns about the sustainability and predictability of the revenue stream.
Cost structure analysis reveals relatively stable employee costs at ₹1.08 crores in Q3 FY26, up modestly from ₹0.86 crores in Q3 FY25, representing 4.48% of net sales compared to 2.38% a year earlier. The rising employee cost ratio suggests either wage inflation or underutilised capacity during periods of lower revenue. Interest costs remain negligible at ₹0.12 crores, reflecting the company's minimal debt burden. Depreciation stood at ₹0.32 crores in Q3 FY26, up from ₹0.19 crores in Q3 FY25, indicating recent capital expenditure that has yet to translate into proportionate revenue growth. The effective tax rate of 23.04% in Q3 FY26 provides some relief compared to Q2 FY26's 30.19%, contributing to the sequential improvement in net profit.
Margin Dynamics: A Tale of Operational Inefficiency
Touchwood's operating margin of 10.71% in Q3 FY26 trails the 12.77% achieved in Q3 FY25, highlighting deteriorating operational efficiency. The company's inability to maintain margin stability across revenue cycles suggests limited pricing power and high fixed cost absorption challenges. With PAT margin at 7.34% versus 9.00% a year earlier, the profitability erosion extends beyond operational issues to encompass overall business model sustainability concerns.
Operational Quality: Strong ROCE Masks Weak Return on Equity
Touchwood's return on capital employed (ROCE) stands at an impressive 31.44% on a trailing basis, significantly above the average of 31.08%, indicating efficient utilisation of the capital deployed in the business. This strong ROCE reflects the asset-light nature of the event management business, where the company does not require substantial fixed asset investments to generate revenues. However, this operational efficiency metric tells only part of the story. The return on equity (ROE) of 14.97% on a trailing basis, whilst improved from the average of 11.31%, remains in the weak category for equity investors seeking robust returns on their capital.
The divergence between high ROCE and moderate ROE stems from the company's capital structure and profitability levels. With shareholder funds of ₹40.04 crores as of March 2025 and minimal debt of ₹1.04 crores, Touchwood operates with negligible financial leverage. The debt-to-EBITDA ratio of 0.22 and negative net debt-to-equity of -0.38 confirm the company's status as a net cash entity. Whilst this conservative balance sheet provides financial stability, it also means that the company cannot amplify returns through judicious use of debt. For a business with strong ROCE, strategic deployment of moderate leverage could potentially enhance ROE, though the volatile revenue profile may not warrant such risk-taking.
⚠️ Key Concern: The average ROE of 11.31% over the long term falls short of the threshold that typically creates meaningful shareholder value. Whilst the trailing ROE has improved to 14.97%, this remains below the 15-20% range that characterises high-quality compounders. For a micro-cap stock with elevated volatility and minimal institutional participation, investors typically demand ROE in excess of 18-20% to justify the risk premium. Touchwood's current ROE profile does not adequately compensate for the business model uncertainties and operational unpredictability.
Balance Sheet Strength: Cash Cushion Provides Stability
The balance sheet as of March 2025 reveals a company with adequate financial resources but limited scale. Total shareholder funds of ₹40.04 crores comprise share capital of ₹11.08 crores and reserves of ₹28.96 crores, reflecting retained earnings accumulation over the years. Current assets of ₹40.50 crores significantly exceed current liabilities of ₹6.73 crores, providing a comfortable current ratio of approximately 6.0x, well above the healthy threshold of 1.5x. This strong liquidity position ensures the company can navigate periods of weak revenue without financial distress.
Fixed assets stood at ₹6.85 crores as of March 2025, up from ₹4.24 crores in March 2024, indicating capital expenditure of approximately ₹2.61 crores during FY25. For an event management business, fixed assets typically include office infrastructure, equipment, and technology platforms. The modest fixed asset base relative to annual revenues of ₹68.00 crores in FY25 confirms the asset-light operating model. However, the increasing fixed asset base without commensurate revenue growth raises questions about capital allocation efficiency and whether recent investments will generate adequate returns.
The cash flow statement for FY25 reveals concerning trends. Operating cash flow stood at zero, down from negative ₹2.00 crores in FY24, with the improvement driven by adjustments rather than underlying cash generation. Changes in working capital consumed ₹6.00 crores in FY25, indicating that revenue growth tied up substantial working capital, likely in the form of receivables or unbilled revenue. Investing cash flow of negative ₹3.00 crores reflects the capital expenditure discussed earlier. With no financing cash inflow in FY25 (compared to ₹7.00 crores in FY24 from equity issuance), the company drew down cash reserves by ₹4.00 crores, reducing closing cash from ₹21.00 crores to ₹17.00 crores. Whilst the cash position remains healthy, the trend of cash consumption amidst revenue growth warrants monitoring.
Industry Context: Navigating a Fragmented, Project-Based Market
The event management industry in India operates as a highly fragmented, relationship-driven sector characterised by intense competition and limited barriers to entry. Corporate events, social functions, and political gatherings constitute the primary revenue streams, with demand subject to economic cycles, corporate spending patterns, and seasonal factors. Touchwood competes with numerous regional and national players, ranging from small boutique agencies to larger integrated marketing services firms. The company's focus on "larger than life, awe-inspiring set-ups" positions it in the premium segment, but this differentiation has not translated into stable market share or predictable revenue streams.
The post-pandemic recovery in corporate events has been uneven, with companies increasingly scrutinising discretionary spending on large-scale events. Virtual and hybrid event formats have emerged as cost-effective alternatives, compressing margins for traditional event management firms. Additionally, the rise of in-house event teams at large corporations has reduced outsourcing opportunities for smaller agencies like Touchwood. The company's revenue volatility likely reflects these structural headwinds combined with its limited scale and geographic concentration in the Delhi-NCR region.
Peer Comparison: Valuation Premium Without Performance Justification
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity |
|---|---|---|---|---|
| Touchwood Enter. | 16.34 | 2.45 | 11.31 | -0.38 |
| Drone Destination | NA (Loss Making) | 1.99 | 0.00 | 0.10 |
| Rajnandini Metal | NA (Loss Making) | 2.06 | 21.21 | 0.27 |
| Mitcon Consult. | 20.31 | 0.68 | 4.14 | 0.57 |
| Chetana Educa. | 7.34 | 1.26 | 29.10 | 0.28 |
| Crayons Advertis | 8.93 | 0.82 | 9.36 | 0.09 |
Touchwood's peer comparison within the miscellaneous services sector reveals a valuation that appears stretched relative to fundamentals. At a P/E ratio of 16.34x, the stock trades at a premium to Chetana Education (7.34x) and Crayons Advertising (8.93x), despite posting inferior ROE of 11.31% compared to Chetana's 29.10%. The price-to-book ratio of 2.45x stands significantly above the peer average of approximately 1.40x, with only Rajnandini Metal trading at a comparable multiple of 2.06x. However, Rajnandini Metal justifies its valuation with ROE of 21.21%, nearly double Touchwood's 11.31%.
The valuation premium becomes even more difficult to justify when considering operational metrics. Touchwood's negative net debt-to-equity of -0.38 indicates a net cash position, which is favourable, but this balance sheet strength has not translated into superior returns or growth. The company's market capitalisation of ₹104.00 crores ranks fourth within the peer group, reflecting its micro-cap status and limited institutional interest. Without the scale advantages, superior profitability, or growth visibility that typically command premium valuations, Touchwood's current multiples appear to price in optimism that recent operational performance does not support.
Valuation Analysis: Premium Multiples Meet Deteriorating Fundamentals
At the current price of ₹89.99, Touchwood Entertainment trades at a P/E ratio of 16.34x on a trailing twelve-month basis, which represents a moderate multiple for a profitable micro-cap company. However, this valuation must be contextualised against the company's recent financial trajectory and quality metrics. The price-to-book ratio of 2.45x implies that investors are paying ₹2.45 for every rupee of book value, a premium that typically reflects expectations of sustained high ROE and growth. With trailing ROE of 14.97% and recent quarters showing declining year-on-year profitability, this premium appears unjustified.
The enterprise value-to-EBITDA multiple of 9.62x and EV-to-EBIT multiple of 10.65x fall within reasonable ranges for a small-cap services company, but again, these multiples assume stable or improving earnings. The EV-to-sales ratio of 1.03x indicates that the market values the company at approximately one times annual revenue, which is not excessive but leaves limited margin of safety given the revenue volatility. The PEG ratio of 0.16x appears attractive on the surface, suggesting the stock is undervalued relative to growth, but this metric can be misleading for companies with erratic earnings patterns where historical growth rates may not predict future performance.
Fair Value Assessment: Limited Upside at Current Levels
Based on normalised earnings and peer comparisons, a fair value P/E multiple of 12-14x appears more appropriate for Touchwood, given its ROE profile, volatility, and lack of institutional participation. Applying a 13x multiple to normalised earnings per share suggests a fair value in the range of ₹75-80, implying 11-16% downside from current levels. The stock's classification as "Very Attractive" from a valuation standpoint appears overly optimistic and likely reflects algorithmic scoring that does not fully capture business model risks and earnings quality concerns.
Shareholding Pattern: Stable Promoter Base, Minimal Institutional Interest
| Quarter | Promoter % | FII % | MF % | DII % | Non-Inst % |
|---|---|---|---|---|---|
| Dec'25 | 62.89 | 0.00 | 0.00 | 1.99 | 35.12 |
| Sep'25 | 62.89 | 0.00 | 0.00 | 1.33 | 35.79 |
| Jun'25 | 62.89 | 0.00 | 0.00 | 1.27 | 35.84 |
| Mar'25 | 62.89 | 0.00 | 0.00 | 0.23 | 36.89 |
| Dec'24 | 64.38 | 0.00 | 0.00 | 0.00 | 35.62 |
The shareholding pattern reveals a stable promoter base holding 62.89% as of December 2025, down marginally from 64.38% in December 2024. The promoter group, led by Manjit Singh (30.29%) and Vijay Arora (27.28%), maintains significant skin in the game with zero pledging, which is a positive signal of confidence. However, the complete absence of foreign institutional investors (FIIs) and mutual funds raises concerns about the stock's institutional acceptability. With only 1.99% held by other domestic institutional investors (DIIs) as of December 2025, the stock lacks the credibility stamp that institutional participation typically provides.
The gradual increase in DII holdings from 0.00% in December 2024 to 1.99% in December 2025, with most of the increase occurring between March 2025 (0.23%) and June 2025 (1.27%), suggests some institutional interest emerged during the stock's rally phase. However, this modest 1.99% holding represents minimal institutional conviction. The non-institutional shareholding of 35.12% comprises largely retail investors who may lack the resources for deep due diligence and could exhibit higher volatility in holding patterns. The absence of insurance company holdings further underscores the limited institutional appeal of this micro-cap stock.
Stock Performance: Bearish Trend Reflects Fundamental Concerns
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -1.53% | -1.00% | -0.53% |
| 1 Month | -7.63% | -0.42% | -7.21% |
| 3 Months | -12.63% | -1.59% | -11.04% |
| 6 Months | -7.27% | +3.26% | -10.53% |
| YTD | -12.86% | -2.35% | -10.51% |
| 1 Year | -12.94% | +9.59% | -22.53% |
| 2 Years | -46.47% | +14.90% | -61.37% |
| 3 Years | -47.25% | +35.72% | -82.97% |
Touchwood's stock performance paints a picture of sustained underperformance across all meaningful timeframes. Over the past year, the stock has declined 12.94% whilst the Sensex gained 9.59%, resulting in negative alpha of -22.53%. This underperformance accelerates over longer periods, with two-year returns of -46.47% (vs Sensex +14.90%) and three-year returns of -47.25% (vs Sensex +35.72%). The consistent negative alpha across timeframes indicates that Touchwood has destroyed shareholder value relative to both the broader market and risk-free alternatives.
The stock's risk-adjusted return of -0.24 over the past year, combined with volatility of 52.82%, places it firmly in the "high risk, low return" category. The beta of 1.50 indicates that Touchwood is 50% more volatile than the market, amplifying losses during market downturns without providing commensurate upside during rallies. Trading below all key moving averages—5-day (₹91.51), 20-day (₹93.57), 50-day (₹99.40), 100-day (₹101.55), and 200-day (₹100.31)—the stock exhibits clear bearish technical momentum. The technical trend classification of "Bearish" since February 10, 2026, with all major indicators (MACD, Bollinger Bands, Moving Averages, KST) flashing bearish signals, suggests continued downside pressure unless fundamental catalysts emerge.
Investment Thesis: Quality Concerns Override Valuation Appeal
The investment case for Touchwood Entertainment rests on shaky foundations despite apparent valuation attractiveness. The company's quality grade of "Average" reflects long-term financial performance that has been inconsistent at best. Whilst the company boasts strong ROCE of 31.44% and operates with zero net debt, these positives are overshadowed by weak ROE of 11.31%, extreme quarterly volatility, and deteriorating year-on-year profitability trends. The financial trend classification of "Negative" as of December 2025 captures the recent operational challenges, with net sales, profit before tax, and net profit all declining significantly year-on-year in Q3 FY26.
The technical trend remains firmly bearish, with the stock trapped below all major moving averages and exhibiting no signs of reversal. The combination of negative financial trends and bearish technicals creates a hostile environment for fresh capital deployment. The valuation grade of "Very Attractive" appears to be a mechanical output that does not adequately weight the business model risks, earnings volatility, and structural challenges facing the company. Investors seeking micro-cap opportunities would typically demand a significant margin of safety—perhaps 30-40% below fair value—to compensate for the elevated risks, a margin that does not exist at current prices.
✅ Key Strengths
- Zero Net Debt: Net cash position of ₹17 crores provides financial flexibility
- Strong ROCE: 31.44% indicates efficient capital deployment
- Asset-Light Model: Minimal fixed asset requirements enhance capital efficiency
- Stable Promoter Base: 62.89% promoter holding with zero pledging
- Positive Operating Cash Flow Trend: Improved from negative to zero in FY25
⚠️ Key Concerns
- Weak ROE: 11.31% average ROE insufficient for value creation
- Extreme Volatility: Quarterly results swing wildly, limiting predictability
- YoY Decline: Q3 FY26 profit down 45.23% despite sequential recovery
- Margin Erosion: Operating margin compressed from 12.77% to 10.71% YoY
- No Institutional Support: Zero FII/MF holdings, only 1.99% DII
- Bearish Technicals: Below all moving averages with negative momentum
- Limited Scale: ₹104 crore market cap restricts competitive positioning
Outlook: What to Watch in Coming Quarters
📈 Positive Catalysts
- Q4 FY26 Revenue: Need ₹22+ crores to achieve respectable full-year growth
- Margin Stabilisation: Operating margin recovery above 12% would signal pricing power
- Institutional Interest: Any mutual fund or FII entry would validate investment thesis
- Large Contract Wins: Announcement of significant multi-quarter events
- Geographic Expansion: Entry into new markets beyond Delhi-NCR
🚩 Red Flags to Monitor
- Continued YoY Declines: Another quarter of YoY profit decline would cement negative trend
- Further Margin Compression: Operating margin below 10% would signal structural issues
- Cash Burn Acceleration: Operating cash flow turning negative in FY26
- Promoter Selling: Any reduction in 62.89% promoter stake
- Technical Breakdown: Breach of ₹74 support (52-week low)
The path forward for Touchwood Entertainment hinges on the company's ability to demonstrate revenue stability and margin improvement over multiple quarters. The event management business inherently carries lumpiness, but consistent underperformance relative to prior-year periods suggests issues beyond normal volatility. Management's ability to secure large-scale events, maintain pricing discipline, and expand the client base will determine whether the current weakness represents a temporary trough or a structural deterioration. Investors should demand evidence of sustainable improvement before committing capital, particularly given the bearish technical setup and lack of institutional validation.
The Verdict: Avoid Until Clarity Emerges
Score: 31/100
For Fresh Investors: Avoid initiating positions. The combination of deteriorating fundamentals, bearish technical trends, and elevated valuation relative to quality metrics creates an unfavourable risk-reward profile. Wait for sustained evidence of revenue stabilisation, margin improvement, and technical reversal before considering entry.
For Existing Holders: Consider reducing positions on any technical bounce towards ₹95-100 levels. The negative financial trend, weak ROE, and lack of institutional support suggest limited near-term catalysts for meaningful appreciation. Capital may be better deployed in higher-quality opportunities with more predictable earnings trajectories.
Fair Value Estimate: ₹75-80 (11-16% downside from current levels)
Rationale: Whilst Touchwood operates with a debt-free balance sheet and generates strong ROCE, these positives are insufficient to overcome weak ROE, extreme quarterly volatility, deteriorating year-on-year profitability, margin compression, and complete absence of institutional participation. The stock's classification as "Very Attractive" from a valuation perspective appears mechanistic and does not adequately reflect business model risks. Until the company demonstrates consistent quarter-on-quarter improvement and attracts institutional interest, the risk-reward remains skewed negatively.
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 does not guarantee future results. Investing in micro-cap stocks carries elevated risks including liquidity constraints, volatility, and limited information availability.
