The Mumbai-based NBFC demonstrated remarkable top-line momentum in Q3 FY26, with net sales climbing 13.29% sequentially to ₹19.18 crores and surging 43.24% year-on-year from ₹13.39 crores in Q3 FY25. This represents the company's highest quarterly revenue on record, reflecting robust loan disbursement activity and portfolio expansion. The profit after tax of ₹6.59 crores significantly outpaced the previous quarter's ₹3.98 crores, driven primarily by improved operational efficiency and margin expansion.
Despite the encouraging quarterly performance, Usha Financial Services faces substantial headwinds. The stock has witnessed a brutal correction, trading at ₹30.00 as of February 09, 2026, down 69.98% over the past six months and 43.40% over the past year. The company's return on equity of just 6.17% remains well below industry benchmarks, signalling inefficient capital deployment and raising concerns about the sustainability of recent profit growth.
| Quarter | Revenue (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Dec'25 (Q3 FY26) | 19.18 | +13.29% | 6.59 | +65.60% | 34.36% |
| Sep'25 (Q2 FY26) | 16.93 | -1.91% | 3.98 | -25.61% | 23.51% |
| Jun'25 (Q1 FY26) | 17.26 | +4.99% | 5.35 | +17.58% | 31.00% |
| Dec'24 (Q3 FY25) | 16.44 | +22.78% | 4.55 | +8.59% | 27.68% |
| Sep'24 (Q2 FY25) | 13.39 | — | 4.19 | — | 31.29% |
Financial Performance: Margin Expansion Drives Profitability Surge
Usha Financial Services delivered its strongest quarterly profit performance in Q3 FY26, with net profit reaching ₹6.59 crores compared to ₹3.98 crores in Q2 FY26 and ₹4.55 crores in the year-ago quarter. The 65.60% sequential growth and 44.84% year-on-year expansion underscore a significant acceleration in earnings momentum. Revenue for the quarter stood at ₹19.18 crores, marking a 13.29% quarter-on-quarter increase and a robust 43.24% year-on-year surge, reflecting strong loan book growth and improved disbursement activity.
The standout feature of Q3 FY26 results was the dramatic improvement in profit margins. PAT margin expanded to 34.36% from 23.51% in the previous quarter, an impressive gain of 10.85 percentage points. Operating profit margin (excluding other income) reached 81.60%, up from 68.87% in Q2 FY26, indicating superior operational efficiency and improved cost management. The company's operating profit before depreciation, interest, and tax (PBDIT) excluding other income climbed to ₹15.65 crores, the highest on record, compared to ₹11.66 crores in the prior quarter.
Interest costs remained relatively stable at ₹6.04 crores in Q3 FY26 versus ₹5.98 crores in Q2 FY26, suggesting disciplined borrowing management despite portfolio expansion. The tax rate increased marginally to 28.76% from 25.38% in the previous quarter, reflecting normalisation of effective tax rates. Employee costs rose to ₹1.01 crores from ₹0.96 crores sequentially, a modest 5.21% increase that remained well-controlled relative to revenue growth.
Operational Challenges: Weak Return Ratios Signal Efficiency Concerns
While the quarterly profit surge appears impressive on the surface, a deeper examination of Usha Financial Services' operational metrics reveals concerning inefficiencies. The company's return on equity (ROE) stands at just 6.17%, significantly below the double-digit returns typically expected from well-managed NBFCs. This weak ROE indicates that the company is generating inadequate returns relative to the equity capital deployed, a critical red flag for investors seeking capital-efficient businesses.
The average ROE over recent periods has been 6.32%, reinforcing the persistent nature of this profitability challenge. Such low return ratios suggest either conservative lending practices that limit yield, higher-than-optimal cost structures, or asset quality issues that constrain net interest margins. The company's ROCE (return on capital employed) of 4.60% further underscores the capital efficiency problem, indicating that the business generates minimal returns on the total capital base.
Balance sheet analysis reveals shareholder funds of ₹211.15 crores as of March 2025, up substantially from ₹106.03 crores in the prior year, driven by retained earnings and equity capital expansion. The share capital more than doubled from ₹10.59 crores to ₹21.74 crores, suggesting equity dilution that may have contributed to the weak ROE metrics. Current liabilities stood at ₹229.01 crores, essentially flat compared to ₹229.83 crores in the previous year, indicating stable funding sources.
⚠️ Capital Efficiency Warning
Weak Return Profile: With ROE at just 6.17% and ROCE at 4.60%, Usha Financial Services demonstrates significantly below-average capital efficiency compared to industry peers. This raises questions about the company's ability to generate attractive returns for shareholders despite recent profit growth. Investors should closely monitor whether management can improve these metrics through enhanced operational leverage or portfolio optimisation.
Asset Quality & Growth Balance: Navigating NBFC Fundamentals
For NBFCs, the critical balance between asset quality and growth determines long-term sustainability. Usha Financial Services has demonstrated strong growth momentum, with five-year sales CAGR of 15.60% and EBIT growth of 13.20%, indicating consistent business expansion. However, the absence of detailed asset quality metrics such as gross and net non-performing assets (NPAs) in the available quarterly data limits a comprehensive assessment of loan book health.
The company's interest expense of ₹6.04 crores in Q3 FY26 represents approximately 31.50% of revenue, a relatively manageable cost of funds that suggests reasonable borrowing rates. The stability of interest costs despite portfolio growth indicates disciplined liability management. However, without visibility into net interest margins (NIMs) or spreads, it remains difficult to assess the true profitability of the lending operations.
Cash flow analysis from the annual statements reveals significant volatility. For FY25, the company reported negative operating cash flow of ₹92.00 crores, driven by adverse working capital changes of ₹111.00 crores. This was offset by cash flow from financing activities of ₹94.00 crores, suggesting reliance on external funding to support operations. Such cash flow patterns are typical for growing NBFCs deploying capital into loan assets, but sustained negative operating cash flows warrant monitoring.
Industry Leadership: Valuation Discount Reflects Quality Concerns
Usha Financial Services trades at a significant valuation discount to its micro-cap NBFC peers, reflecting market scepticism about the company's quality and growth sustainability. The stock's price-to-earnings ratio of 9.77x appears attractive compared to peers such as Assam Entrade (25.20x), KIFS Financial (14.68x), and Tilak Ventures (21.32x), but this discount is justified by the company's materially weaker return profile.
| Company | P/E (TTM) | P/BV | ROE (%) | Market Cap (₹ Cr) |
|---|---|---|---|---|
| Usha Financial | 9.77 | 0.60 | 6.32 | 126.00 |
| Assam Entrade | 25.20 | — | — | — |
| KIFS Financial | 14.68 | — | — | — |
| Tilak Ventures | 21.32 | — | — | — |
| PMC Fincorp | 11.66 | — | — | — |
| Escorp Asset Mgt | 7.58 | — | — | — |
The price-to-book value ratio of 0.60x suggests the stock trades at a 40% discount to its book value of ₹48.57 per share, indicating that the market ascribes limited value to the company's equity base. This discount is particularly pronounced given that the company has posted consistent profitability and demonstrated growth. The valuation gap likely reflects concerns about return on equity, capital efficiency, and the sustainability of recent margin improvements.
Usha Financial Services holds the largest market capitalisation among its immediate peer group at ₹126.00 crores, providing some liquidity advantage. However, institutional holdings remain negligible at just 3.31%, with FII holdings at 2.75% and mutual fund participation at zero. This lack of institutional interest underscores quality concerns and limited analyst coverage that typically plague micro-cap NBFCs.
Valuation Analysis: Deeply Discounted but Quality Questions Persist
At the current market price of ₹30.00, Usha Financial Services presents a compelling valuation on traditional metrics, but quality concerns temper the apparent attractiveness. The stock's P/E ratio of 9.77x represents a substantial discount to the broader NBFC sector and even to micro-cap peers. The price-to-book ratio of 0.60x suggests the market values the company's equity at just 60% of its stated book value, an unusual discount for a profitable, growing financial services business.
The company's EV/EBITDA multiple of 16.33x and EV/Sales of 4.87x provide alternative valuation perspectives. The EV/Capital Employed ratio of 0.78x indicates that the enterprise is valued below its capital base, reinforcing the P/BV discount. These metrics collectively point to a market that remains sceptical about the company's ability to generate sustainable returns despite recent profit improvements.
The stock's valuation grade has oscillated between "Very Attractive" and "Attractive" over recent months, currently sitting at "Very Attractive" as of the latest assessment. This reflects the significant price correction from the 52-week high of ₹105.00 to the current level of ₹30.00. However, the valuation attractiveness must be weighed against the fundamental quality concerns, particularly the weak 6.17% ROE that limits the case for multiple expansion.
Shareholding: Promoter Stability Amid Institutional Indifference
The shareholding pattern of Usha Financial Services reveals a promoter-dominated structure with minimal institutional participation. Promoter holding stood at 74.97% as of December 2025, up marginally from 74.48% in the previous quarter, indicating continued promoter confidence and commitment to the business. The promoter group is led by Rajesh Gupta with a 19.64% stake, followed by BR Hands Investments Private Limited (13.07%) and Anoop Garg (12.56%).
| Category | Dec'25 | Sep'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 74.97% | 74.48% | 74.54% | +0.49% |
| FII | 2.75% | 3.56% | 5.63% | -0.81% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | — |
| Insurance | 0.00% | 0.00% | 0.05% | 0.00% |
| Other DII | 0.56% | 0.56% | 0.56% | 0.00% |
| Non-Institutional | 21.72% | 21.40% | 19.22% | +0.32% |
Foreign institutional investor (FII) holdings have declined steadily from 9.53% in October 2024 to just 2.75% in December 2025, representing a concerning exodus of sophisticated investors. The sequential decline of 0.81 percentage points in the latest quarter and the cumulative reduction of 6.78 percentage points over the past year signal waning institutional confidence. The complete absence of mutual fund participation and negligible insurance company holdings (0.00%) further underscore the lack of institutional validation.
Non-institutional holdings have increased modestly to 21.72% from 21.40% in the previous quarter, suggesting some retail investor interest at current depressed price levels. However, this increase of 0.32 percentage points is marginal and insufficient to offset the institutional selling pressure. The promoter pledge status remains clean with no pledging of shares, providing some comfort regarding promoter financial stability.
Stock Performance: Brutal Correction Reflects Fundamental Concerns
Usha Financial Services has experienced a severe price correction across all timeframes, with the stock currently trading at ₹30.00, down 71.43% from its 52-week high of ₹105.00. The magnitude of this decline far exceeds typical market volatility and points to fundamental concerns about the company's business model, profitability sustainability, or sector-specific headwinds affecting micro-cap NBFCs.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -5.81% | +2.94% | -8.75% |
| 1 Month | -25.00% | +0.59% | -25.59% |
| 3 Months | -30.48% | +1.02% | -31.50% |
| 6 Months | -69.98% | +5.27% | -75.25% |
| YTD | -25.00% | -1.36% | -23.64% |
| 1 Year | -43.40% | +7.97% | -51.37% |
Over the past year, the stock has delivered a negative return of 43.40% compared to the Sensex's positive return of 7.97%, resulting in a massive negative alpha of 51.37 percentage points. This underperformance extends across all measured timeframes, with particularly severe losses over the six-month period (down 69.98%) and three-month period (down 30.48%). The stock has underperformed the broader NBFC sector by 64.79 percentage points over the past year, as the sector delivered a positive 21.39% return.
Technical indicators paint a mixed picture. The stock currently trades below all major moving averages, including the 5-day (₹30.59), 20-day (₹32.33), 50-day (₹36.46), 100-day (₹40.27), and 200-day (₹41.27) moving averages. This uniform breakdown below key technical levels suggests sustained selling pressure and lack of buying support. The overall technical trend is classified as "Mildly Bullish" as of the latest assessment, though this appears inconsistent with the price action and moving average structure.
The stock's beta of 1.50 indicates high volatility relative to the broader market, with the stock expected to move 50% more than the market in either direction. The annualised volatility of 60.61% over the past year classifies the stock as "High Risk Low Return," a particularly unfavourable combination for investors. The risk-adjusted return of -0.72 over the past year compares poorly to the Sensex's positive risk-adjusted return of 0.69.
Investment Thesis: Quality Concerns Outweigh Valuation Appeal
Usha Financial Services presents a complex investment case characterised by attractive valuation metrics, recent profit momentum, and stable promoter ownership, but counterbalanced by weak return ratios, institutional investor exodus, and severe stock price underperformance. The company's Mojo Score of 53/100 places it firmly in "HOLD" territory, reflecting this mixed assessment across key investment parameters.
The four-dots Mojo analysis reveals the following assessment: Near-term drivers appear positive, supported by a "Positive" quarterly financial trend and "Mildly Bullish" technical indicators. However, the quality grade remains "Below Average," reflecting the persistently weak ROE and ROCE metrics that constrain the investment case. Valuation scores as "Very Attractive" at current price levels, offering a potential entry point for risk-tolerant investors. The overall assessment is "Positive" with significant caveats regarding quality and sustainability.
Key Strengths & Risk Factors
✓ Key Strengths
- Strong Revenue Growth: 43.24% YoY revenue growth in Q3 FY26 demonstrates robust business expansion and loan book growth momentum.
- Record Quarterly Profit: Net profit of ₹6.59 crores represents the highest quarterly earnings in company history, up 65.60% QoQ.
- Margin Expansion: PAT margin improved to 34.36% from 23.51%, indicating improved operational efficiency and cost management.
- Stable Promoter Holding: Promoter stake at 74.97% with no pledging provides governance stability and aligned interests.
- Attractive Valuation: P/E of 9.77x and P/BV of 0.60x offer significant discount to book value and peer multiples.
- Consistent Profitability: Five-year track record of positive earnings with 15.60% sales CAGR demonstrates business sustainability.
- Controlled Interest Costs: Stable interest expense despite portfolio growth indicates disciplined liability management.
⚠ Key Concerns
- Weak Return on Equity: ROE of just 6.17% significantly below industry standards indicates poor capital efficiency and value creation.
- Severe Stock Underperformance: Down 43.40% over one year and 69.98% over six months, massively underperforming market and sector.
- Institutional Exodus: FII holdings declined from 9.53% to 2.75%, with zero mutual fund participation signalling quality concerns.
- Below Average Quality Grade: Classified as "Below Average" quality company based on long-term financial performance metrics.
- High Volatility: Beta of 1.50 and annualised volatility of 60.61% classify the stock as high risk with poor risk-adjusted returns.
- Negative Operating Cash Flow: FY25 operating cash flow of negative ₹92.00 crores raises sustainability questions about business model.
- Limited Asset Quality Visibility: Absence of detailed NPA metrics prevents comprehensive assessment of loan book health and provisioning adequacy.
Outlook: What to Watch
Positive Catalysts
- Sustained Margin Improvement: If PAT margins can stabilise above 30% for multiple quarters, it would validate operational efficiency gains.
- ROE Improvement: Any meaningful uptick in ROE towards double digits would significantly enhance investment appeal and justify valuation re-rating.
- Institutional Interest: Return of FII or mutual fund buying would signal improving quality perception and provide price support.
- Consistent Profit Growth: Maintaining 40%+ YoY profit growth for 2-3 more quarters would establish a credible earnings trajectory.
- Asset Quality Disclosure: Transparent reporting of NPA metrics showing strong asset quality would address a key information gap.
Red Flags
- Margin Compression: Any reversal of Q3 margin gains would suggest the improvement was temporary rather than structural.
- Further FII Selling: Continued institutional exits below 2% would reinforce quality concerns and limit upside potential.
- Negative Cash Flow Persistence: Sustained negative operating cash flows beyond FY26 would raise serious business model sustainability questions.
- ROE Stagnation: Failure to improve ROE above 8-10% within the next year would confirm structural capital efficiency problems.
- Asset Quality Deterioration: Any emergence of elevated NPAs or provisioning requirements would severely impact profitability and investor confidence.
The Verdict: Speculative Hold with Quality Concerns
Score: 53/100
For Fresh Investors: Avoid initiating positions despite attractive valuation multiples. The 6.17% ROE, institutional investor exodus, and severe stock price underperformance signal fundamental quality issues that outweigh the P/E and P/BV discounts. Wait for sustained improvement in return ratios and institutional validation before considering entry.
For Existing Holders: Hold positions with strict monitoring of Q4 FY26 results. If margins compress or profit growth moderates significantly, consider exiting on any price recovery. The recent quarterly performance provides a window to reassess, but the weak ROE and poor stock performance suggest limited upside unless fundamental quality metrics improve meaningfully.
Fair Value Estimate: ₹35-38 (17-27% upside potential), contingent on sustained margin improvement and ROE expansion towards 8-10% levels.
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.
