United Van Der Horst Q2 FY26: Margin Pressures Weigh Despite Revenue Growth

The September quarter results reveal a tale of two narratives: whilst the company continues to demonstrate strong year-on-year growth with revenues climbing 8.81% to ₹8.65 crores, sequential momentum has faltered. The quarter witnessed a 4.84% decline in net sales compared to Q1 FY26's ₹9.09 crores, raising questions about demand sustainability in the near term. However, the company's ability to maintain a PAT margin above 23% underscores the inherent profitability of its business model, even as operational efficiency metrics show signs of pressure.

For H1 FY26, United Van Der Horst reported cumulative net sales of ₹17.74 crores, representing a robust 29.96% growth over the corresponding period last year. Net profit for the half-year stood at ₹4.04 crores, marking an impressive 99.01% year-on-year surge. This performance places the company on track to potentially surpass its FY25 full-year revenue of ₹30.00 crores, though the sequential deceleration in Q2 warrants close monitoring of demand trends in the second half of the fiscal year.

Financial Performance: Margin Compression Amidst Growth

The Q2 FY26 financial performance presents a nuanced picture of operational dynamics. Whilst net sales of ₹8.65 crores reflected an 8.81% year-on-year increase, the 4.84% sequential decline from Q1's peak of ₹9.09 crores signals potential demand volatility. More concerning is the compression in operating margins (excluding other income), which contracted 164 basis points sequentially to 45.66%, down from Q1's 47.30%. This margin erosion, despite the company maintaining industry-leading profitability levels, suggests rising input costs or pricing pressures that warrant management attention.

Operating profit (PBDIT excluding other income) stood at ₹3.95 crores in Q2 FY26, down from ₹4.30 crores in the preceding quarter, though still ahead of the year-ago period's ₹3.97 crores. The company's gross profit margin of 41.16% remains healthy, though it too has contracted from Q1's 42.68%. Interest costs remained stable at ₹0.57 crores, maintaining consistency with the previous quarter, whilst depreciation edged marginally higher to ₹0.71 crores from ₹0.69 crores.

The tax rate for Q2 stood at 29.93%, down from Q1's elevated 36.05%, providing some relief to bottom-line performance. This normalisation of the tax burden helped cushion the impact of margin compression, allowing PAT margins to actually expand by 68 basis points to 23.12% despite the operational headwinds. The effective tax management demonstrates financial prudence, though sustainability of this lower rate will be crucial for maintaining profitability momentum.

On an annual basis, FY25 witnessed remarkable growth with net sales surging 36.40% to ₹30.00 crores, whilst net profit quadrupled to ₹4.00 crores from just ₹1.00 crore in FY24. Operating margins (excluding other income) improved to 33.30% from 31.80%, reflecting improved operational leverage. This strong annual performance provides context for the current quarter's sequential moderation, suggesting that Q2 FY26 may represent a temporary pause rather than a reversal of the positive trend.

Balance Sheet Strength: Moderate Leverage with Growth Investments

United Van Der Horst's balance sheet as of March 2025 reflects a company investing for growth whilst managing debt prudently. Shareholder funds stood at ₹51.40 crores, up from ₹43.80 crores in the previous year, driven by retained earnings and modest equity expansion. Share capital increased to ₹6.89 crores from ₹6.18 crores, whilst reserves and surplus grew to ₹44.51 crores from ₹35.84 crores, demonstrating healthy profit retention.

Long-term debt declined to ₹14.30 crores from ₹18.85 crores, indicating deleveraging efforts. The debt-to-EBITDA ratio of 4.18 times, whilst elevated, has been improving, and net debt-to-equity stands at a manageable 0.41 times. Current liabilities contracted sharply to ₹11.31 crores from ₹14.37 crores, improving the working capital position. This balance sheet structure, with moderate leverage and improving liquidity, provides adequate financial flexibility for operational requirements.

Fixed assets increased to ₹67.46 crores from ₹66.29 crores, reflecting continued capital expenditure to support growth. Current assets remained relatively stable at ₹19.22 crores versus ₹18.73 crores in the prior year. The company's return on equity (ROE) of 12.10% for the latest period, whilst modest, represents a significant improvement from the 5.31% average, indicating improving capital efficiency. However, the return on capital employed (ROCE) of 6.56%, though better than the 0.45% average, remains below industry benchmarks and suggests room for further operational improvement.

Industry Positioning: Niche Player in Specialised Segment

United Van Der Horst operates in the heavy electrical equipment sector, a segment characterised by capital intensity and technical expertise. The company, originally established as a collaborator between the UB Group and Dr. Van Der Horst B.V., has carved out a niche in hydraulic, pneumatic, and rotary seals. This specialisation provides certain competitive advantages, including technical know-how and established customer relationships, though it also exposes the company to concentration risks.

The company's strong operating margins of 45.66% (excluding other income) significantly exceed the sector average, reflecting either superior operational efficiency or a favourable product mix with higher value-added components. However, the micro-cap nature of the business, with a market capitalisation of just ₹273.00 crores, limits its ability to compete for large-scale projects and constrains access to capital markets for aggressive expansion.

The heavy electrical equipment sector in India is experiencing mixed demand trends, with infrastructure and industrial capex providing tailwinds, whilst global economic uncertainties create headwinds. United Van Der Horst's year-on-year growth of 8.81% in Q2 FY26, though positive, lags the robust 59.47% growth witnessed in Q1 FY26, suggesting that demand conditions may be normalising after an exceptionally strong first quarter.

Peer Comparison: Premium Valuation Despite Modest Returns

Compared to its peer group in the heavy electrical equipment sector, United Van Der Horst trades at a significant valuation premium despite delivering relatively modest return metrics. The company's price-to-earnings ratio of 45.98 times, whilst lower than outliers like Urja Global's 430.67 times, exceeds most peers. This valuation appears stretched when juxtaposed against the company's ROE of 5.31% (average), which lags behind Indo Tech Transformers' 15.54%.

The company's price-to-book ratio of 5.56 times stands as the highest amongst its immediate peers, surpassing Indo Tech Transformers' 6.29 times when considering operational scale and profitability. This premium valuation appears difficult to justify given the modest ROE and ROCE metrics. However, United Van Der Horst does offer a dividend yield of 1.21%, the highest amongst comparable peers that declare dividends, providing some income support to the investment thesis.

From a leverage perspective, United Van Der Horst's debt-to-equity ratio of 0.41 positions it favourably against higher-leveraged peers like Jyoti Structures (2.64) and Exicom Tele-Systems (0.79). This conservative balance sheet structure provides downside protection and financial flexibility, though it may also indicate underutilisation of financial leverage to drive growth.

Valuation Analysis: Expensive Multiples Limit Upside

United Van Der Horst's current valuation metrics signal caution for fresh investors. Trading at ₹207.40 per share as of November 07, 2025, the stock commands a price-to-earnings ratio of 46 times trailing twelve-month earnings, substantially above the industry average of 31 times. This 48% premium to sector multiples appears unjustified given the company's modest profitability metrics and recent sequential growth deceleration.

The price-to-book ratio of 5.56 times reflects significant optimism about future earnings potential, particularly considering the book value per share of just ₹37.28. The company's enterprise value-to-EBITDA multiple of 22.96 times and EV-to-sales ratio of 9.19 times further underscore the expensive valuation. The PEG ratio of 0.17, whilst appearing attractive, may be misleading given the potential for growth normalisation after the exceptional FY25 performance.

The stock has corrected 32.67% from its 52-week high of ₹308.05, though it remains 124.43% above its 52-week low of ₹92.41. This volatility reflects the speculative nature of micro-cap stocks and the market's reassessment of growth sustainability. The company's valuation grade has been classified as "Very Expensive" since April 2023, suggesting that the premium pricing has persisted despite operational performance not consistently justifying such multiples.

Fair value estimation for United Van Der Horst is challenging given the limited analyst coverage typical of micro-cap stocks. However, applying a more reasonable P/E multiple of 25-30 times (in line with sustained profitability and growth) to the current earnings run rate would suggest a fair value range of ₹110-₹135 per share, implying a potential downside of 35-47% from current levels. This valuation gap underscores the risk embedded in the current share price.

Shareholding Pattern: Stable Promoter Base, Minimal Institutional Interest

United Van Der Horst's shareholding structure has remained remarkably stable over the past five quarters, with promoter holding consistently at 74.94%. This unwavering promoter stake signals strong confidence in the business and alignment with minority shareholders. The promoter group, led by Jagmeet Singh Sabharwal (69.28%), Max Spare Limited (4.93%), and Sheetal Jagmeet Singh Sabharwal (0.73%), has maintained its position without any dilution or pledging of shares.

The complete absence of foreign institutional investors (FIIs), mutual funds, and insurance companies in the shareholding pattern is noteworthy. Institutional holdings stand at a negligible 0.02%, classified under "Other DII Holdings." This lack of institutional participation reflects the company's micro-cap status and limited liquidity, which typically deters large institutional investors. The remaining 25.04% is held by non-institutional investors, primarily retail shareholders.

The stable shareholding pattern, whilst indicating promoter confidence, also raises concerns about liquidity and price discovery. With no institutional buying or selling activity, the stock's price movements may be driven more by retail sentiment than fundamental performance. This structure increases volatility risk and makes the stock susceptible to sharp movements on relatively small trading volumes.

Investment Thesis: Growth Story Tempered by Valuation Concerns

United Van Der Horst presents a complex investment proposition characterised by strong operational performance offset by stretched valuations and structural constraints. The company's proprietary Mojo Score of 64/100 places it in "HOLD" territory, reflecting this balance of positives and concerns. The investment thesis rests on several pillars, each requiring careful evaluation.

The company's quality grade has improved to "Average" from "Below Average," acknowledging the progress in financial performance. The 5-year sales growth of 35.94% and EBIT growth of 62.18% demonstrate robust expansion, albeit from a small base. Operating cash flow generation has been exemplary, reaching ₹11.64 crores in FY25, the highest in the company's recent history. The financial trend is classified as "Positive," supported by H1 FY26 net sales growth of 29.96% and PAT growth of 99.01%.

However, the "Very Expensive" valuation grade serves as a significant deterrent. At 46 times earnings, the stock offers limited margin of safety, particularly given the modest ROE of 5.31% (average) and ROCE of 0.45% (average). The sequential deceleration in Q2 FY26, with revenue declining 4.84% and margins compressing 164 basis points, raises questions about the sustainability of the high growth trajectory that the market appears to be pricing in.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

The outlook for United Van Der Horst hinges critically on the company's ability to sustain revenue growth momentum whilst defending margin integrity. The H2 FY26 performance will be particularly telling, as it will reveal whether Q2's sequential decline was an aberration or the beginning of a normalisation phase. Management's ability to articulate a clear growth strategy, provide order book visibility, and demonstrate pricing power will be crucial for maintaining investor confidence.

From a sector perspective, the heavy electrical equipment industry's prospects remain tied to India's infrastructure and industrial capex cycle. Government initiatives in power transmission, renewable energy, and manufacturing could provide tailwinds. However, global economic uncertainties and potential commodity price volatility pose risks. United Van Der Horst's specialised product portfolio in seals and hydraulic components may provide some insulation from broader sector headwinds, though the company's small scale limits its ability to capture large-scale opportunities.