Vardhman Holdings Q2 FY26: Profit Plunges 6.6% as Revenue Contracts Sharply

The quarter was marked by a sharp 62.84% year-on-year contraction in net sales to ₹2.75 crores, down from ₹7.40 crores in Q2 FY25. On a sequential basis, net profit fell 26.30% from ₹62.58 crores in Q1 FY26, whilst revenue declined 19.35% quarter-on-quarter. The company's operating profit margin excluding other income stood at 86.91%, though the absolute operating profit declined to ₹2.39 crores from ₹4.88 crores a year earlier.

The results underscore the challenges facing this Ludhiana-based NBFC, which transitioned from its original textile manufacturing business to focus on lending and investment activities. With promoter holding stable at 74.90% and minimal institutional participation at just 0.11%, the company operates with limited market oversight. The stock has underperformed significantly, posting a 21.95% decline over the past year compared to the Sensex's 5.09% gain, resulting in a negative alpha of 27.04 percentage points.

Financial Performance: Revenue Collapse Masks Profit Volatility

The second quarter of FY26 revealed severe revenue deterioration for Vardhman Holdings, with net sales plummeting to ₹2.75 crores from ₹7.40 crores in Q2 FY25, representing a 62.84% year-on-year decline. This marks the third consecutive quarter of revenue contraction, following a brief recovery in March 2025. The sequential decline of 19.35% from Q1 FY26's ₹3.41 crores further emphasises the company's struggle to generate consistent top-line growth in its lending and investment operations.

Despite the revenue collapse, operating margins remained elevated at 86.91% excluding other income, up from 65.95% in the year-ago quarter. However, this margin expansion appears unsustainable given the minimal employee costs of ₹0.17 crores and the company's investment-focused business model. The profit before tax of ₹57.49 crores in Q2 FY26 primarily reflects investment gains rather than operational excellence, highlighting the disconnect between reported profitability and core business performance.

The tax rate exhibited extreme volatility, standing at 19.78% in Q2 FY26 compared to 20.47% in Q2 FY25, but having fluctuated between 0.60% and 20.47% across recent quarters. This inconsistency suggests irregular income recognition patterns typical of investment holding companies. For the first half of FY26, net sales totalled just ₹6.16 crores, representing a 56.00% decline compared to the corresponding period last year, underscoring the structural challenges in the company's revenue-generating capacity.

Asset Quality Concerns: Investment-Heavy Model Under Scrutiny

Vardhman Holdings operates with an investment-heavy balance sheet, with total investments comprising ₹3,527.79 crores as of March 2025, representing 99.62% of total assets. This concentration exposes the company to significant market risk and valuation volatility. The company's fixed assets remain minimal at ₹3.19 crores, reflecting its complete pivot away from manufacturing operations. Current assets stood at ₹485.03 crores, up marginally from ₹467.83 crores in the previous year, providing some liquidity cushion.

The company maintains a debt-free balance sheet with zero long-term borrowings, which provides financial flexibility but also suggests limited leverage of the capital base. Shareholder funds increased to ₹3,540.46 crores from ₹3,297.17 crores, driven primarily by retained earnings rather than fresh capital infusion. However, the return on capital employed (ROCE) stood at a meagre 0.47%, highlighting the inefficient deployment of this substantial capital base.

The average return on equity of 8.77% over the past five years positions Vardhman Holdings in the "below average" quality category. This weak profitability metric, combined with minimal institutional holdings of 0.11%, reflects the market's lack of confidence in the company's ability to generate sustainable returns. The five-year sales growth of 7.90% and EBIT growth of 10.82% appear modest given the capital-intensive nature of the business and fail to justify the current valuation metrics.

Valuation Analysis: Attractive Multiples Mask Fundamental Weakness

At the current market price of ₹3,815.00, Vardhman Holdings trades at a price-to-earnings ratio of 4.98x based on trailing twelve-month earnings, significantly below the NBFC industry average of 24x. This steep discount reflects market concerns about earnings quality and sustainability rather than representing a genuine value opportunity. The price-to-book value of 0.35x suggests the market values the company's net assets at just 35% of their book value, indicating scepticism about the realisable value of the investment portfolio.

The enterprise value to EBITDA multiple of 85.57x appears disconnected from operational reality, reflecting the distortions inherent in valuing investment holding companies using traditional metrics. The PEG ratio of 2.81 suggests the stock is expensive relative to its growth prospects, contradicting the low P/E ratio. This divergence highlights the importance of looking beyond headline multiples when assessing investment companies.

The company's dividend yield of 0.13%, based on a ₹5 per share dividend declared with an ex-date of September 12, 2025, provides minimal income support to shareholders. The valuation grade has oscillated between "Fair" and "Attractive" over recent months, currently settling at "Fair" as of July 25, 2025. However, given the deteriorating financial trends and weak operational metrics, even the current valuation appears generous.

Peer Comparison: Lagging on Key Metrics Despite Low Multiples

Within the NBFC peer group, Vardhman Holdings occupies an unusual position, trading at the lowest multiples whilst delivering below-average returns. The company's ROE of 8.77% compares unfavourably with peers like LKP Finance (13.44%) and Saraswati Commercial (11.94%), despite having zero debt compared to leveraged competitors. This suggests fundamental operational inefficiencies rather than conservative financial management.

The stark discount in price-to-book value (0.35x versus peer average of approximately 3.8x) cannot be explained by leverage alone. Rather, it reflects market scepticism about asset quality, earnings sustainability, and corporate governance. With a market capitalisation of ₹1,293 crores, Vardhman Holdings ranks fifth among its peer group, limiting liquidity and institutional interest.

The company's dividend yield of 0.13% trails most income-focused NBFCs, providing little incentive for yield-seeking investors. The combination of weak ROE, declining revenues, and minimal dividend support creates a challenging value proposition despite the headline valuation discount. Investors must question whether the low multiples represent opportunity or justified concern about underlying business quality.

Shareholding Dynamics: Stable Promoter Base, Absent Institutions

The shareholding pattern of Vardhman Holdings has remained remarkably stable over the past five quarters, with promoter holding locked at 74.90% throughout. This consistency provides governance stability but also limits free float and trading liquidity. The promoter group, led by Devakar Investment And Trading Company Private Limited (34.29%) and Adishwar Enterprises LLP (32.86%), maintains firm control with no pledging of shares, which is a positive indicator of promoter confidence.

Institutional participation remains virtually non-existent, with total institutional holdings at just 0.11%. Foreign institutional investors hold a negligible 0.05%, down from 0.06% in the previous quarter, indicating continued disinvestment. Mutual fund holdings have flatlined at 0.06% with just one fund maintaining exposure. Insurance companies have completely exited, with holdings dropping from 0.07% in September 2024 to zero currently. This institutional exodus speaks volumes about professional investors' assessment of the company's prospects.

The non-institutional category, comprising retail and high-net-worth individuals, accounts for 24.99% of shareholding, showing marginal sequential increase of 0.01%. This suggests some retail accumulation, though volumes remain thin. The absence of institutional sponsorship limits price discovery, contributes to volatility, and restricts access to long-term capital. For a company with over ₹3,500 crores in shareholder funds, the lack of institutional validation raises red flags about governance, transparency, and strategic direction.

Stock Performance: Persistent Underperformance Across Timeframes

Vardhman Holdings has delivered disappointing returns across most timeframes, significantly underperforming both the Sensex and its NBFC sector peers. Over the past year, the stock declined 21.95% whilst the Sensex gained 5.09%, resulting in a negative alpha of 27.04 percentage points. This underperformance accelerated in recent months, with the stock down 8.39% over the past week compared to the Sensex's 0.53% decline.

The year-to-date performance shows a decline of 12.58% compared to the Sensex's 6.91% gain, reflecting the impact of deteriorating quarterly results. Notably, the stock has underperformed its NBFC sector benchmark by 43.38 percentage points over the past year, with the sector delivering 21.43% returns whilst Vardhman Holdings declined. This relative weakness highlights company-specific issues rather than sector headwinds.

Medium-term performance offers little solace, with three-year returns of 27.11% lagging the Sensex's 37.82% by 10.71 percentage points. The stock's beta of 1.50 indicates high volatility, with price movements 50% more volatile than the broader market. Combined with negative risk-adjusted returns of -0.55 over the past year and volatility of 40.03%, the stock falls into the "high risk, low return" category—an unattractive combination for most investors.

The technical picture remains mixed, with the stock currently in a "mildly bullish" trend since November 7, 2025, though trading below all key moving averages. The stock sits 33.70% below its 52-week high of ₹5,754.00 and 33.85% above its 52-week low of ₹2,850.10, suggesting neither clear support nor resistance levels. Delivery volumes have surged 69.13% over the past month, though the low absolute volumes limit the significance of this metric.

Investment Thesis: Multiple Red Flags Override Valuation Appeal

The investment case for Vardhman Holdings faces significant headwinds across multiple parameters. The company's proprietary Mojo score of 33 out of 100 places it firmly in "SELL" territory, reflecting weak fundamentals, deteriorating financial trends, and below-average quality metrics. The score improved marginally from 26 in late September, but remains well below the threshold for investment consideration.

The quality grade of "Below Average" reflects the company's weak return on equity of 8.77%, significantly below acceptable thresholds for financial services companies. The five-year sales growth of 7.90% and EBIT growth of 10.82% appear anaemic given the capital-intensive nature of the business. The financial trend classification of "Negative" captures the recent deterioration in operating cash flows, declining revenues, and inconsistent profitability.

Valuation metrics present a paradox: whilst headline multiples appear attractive with a P/E of 4.98x and P/BV of 0.35x, the quality of earnings and sustainability of profits remain questionable. The PEG ratio of 2.81 suggests the stock is expensive relative to growth prospects, contradicting the low P/E. Technical indicators show mildly bullish momentum, but this provides limited comfort given the fundamental challenges. The absence of institutional ownership and minimal dividend yield of 0.13% further diminish the investment appeal.

Outlook: Critical Monitoring Points for Investors

The path forward for Vardhman Holdings depends critically on management's ability to stabilise revenues, improve capital efficiency, and articulate a clear strategic direction. The company's transition from textile manufacturing to an investment holding structure requires greater transparency around portfolio composition, investment strategy, and return expectations. Investors should monitor quarterly results closely for signs of revenue stabilisation and improvement in operating cash flows.

The technical setup remains fragile, with the stock trading below all key moving averages despite the recent "mildly bullish" classification. A decisive break below the 52-week low of ₹2,850.10 would signal further downside risk, whilst sustained trading above ₹4,000 with improving volumes could indicate a reversal. However, technical factors should remain secondary to fundamental improvements in business performance.