The quarter's performance reflects the company's ongoing transformation journey following its conversion from a private to public limited entity in August 2024. With net sales of ₹489.33 crores in Q2 FY26, the company demonstrated strong revenue momentum despite a marginal 3.57% sequential decline from Q1 FY26's ₹507.45 crores. The year-on-year revenue surge of 89.74% underscores the company's aggressive expansion trajectory in the competitive hotels and resorts sector.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 489.33 | -3.57% | 52.57 | +95.21% | 38.75% |
| Jun'25 | 507.45 | -27.29% | 26.93 | -78.94% | 40.94% |
| Mar'25 | 697.94 | +30.70% | 127.88 | +474.48% | 50.37% |
| Dec'24 | 533.99 | +107.06% | 22.26 | — | 45.88% |
| Sep'24 | 257.89 | +124.47% | -56.26 | — | 37.36% |
| Jun'24 | 114.89 | -7.50% | 26.42 | -44.06% | 59.10% |
| Mar'24 | 124.21 | — | 47.23 | — | 61.15% |
Financial Performance: Profitability Rebounds Amid Margin Pressure
In Q2 FY26, Ventive Hospitality's consolidated net profit of ₹52.57 crores represented a significant turnaround from the previous quarter's ₹26.93 crores, translating to a 95.21% sequential improvement. This recovery came despite net sales declining 3.57% quarter-on-quarter to ₹489.33 crores from ₹507.45 crores. The company's profit after tax margin improved to 13.13% in Q2 FY26 from 7.47% in Q1 FY26, though it remained well below the 21.65% achieved in Q4 FY25.
Operating profit excluding other income stood at ₹189.63 crores in Q2 FY26, yielding an operating margin of 38.75%, down 213 basis points from the previous quarter's 40.94%. The margin contraction reflects rising employee costs, which increased to ₹89.48 crores in Q2 FY26 from ₹85.89 crores in Q1 FY26, representing 18.29% of net sales. Interest costs declined marginally to ₹55.92 crores from ₹60.08 crores, whilst depreciation remained relatively stable at ₹78.92 crores.
A notable feature of Q2 FY26 was the substantial other income of ₹65.19 crores, which constituted 54.33% of profit before tax. This heavy reliance on non-operating income raises questions about the sustainability of core earnings. The tax rate for the quarter stood at 46.46%, significantly higher than the 21.73% recorded in Q4 FY25, further compressing net profitability.
Capital Efficiency: ROE Challenges Persist Despite Strong ROCE
Ventive Hospitality's return on equity (ROE) of 2.58% represents a critical weakness in the company's financial profile, particularly when benchmarked against industry peers. This low ROE indicates that the company is generating minimal returns on shareholder capital, a concerning metric for investors seeking efficient capital deployment. In contrast, the company's return on capital employed (ROCE) of 24.08% on an average basis demonstrates superior operational efficiency in utilising total capital, though the latest ROCE has moderated to 7.18%.
Capital Efficiency Concerns
Key Issue: The stark divergence between ROCE (24.08% average) and ROE (2.58%) suggests that whilst the company deploys capital efficiently operationally, high leverage and financial costs are eroding shareholder returns. With a debt-to-equity ratio of 0.46 and debt-to-EBITDA of 2.63, the company's leverage profile remains moderate but requires careful monitoring.
The company's balance sheet as of March 2025 reveals shareholder funds of ₹4,806.55 crores, comprising share capital of ₹23.35 crores and reserves of ₹4,783.19 crores. Long-term debt stood at ₹2,179.03 crores, whilst fixed assets totalled ₹5,054.70 crores. The company's investment book of ₹1,943.00 crores indicates significant capital allocation to strategic investments, though the nature and returns from these investments warrant closer scrutiny.
Industry Context: Navigating a Competitive Hospitality Landscape
The Indian hotels and resorts sector has witnessed robust recovery momentum following the pandemic-induced disruption, with premium hospitality assets commanding strong pricing power. Ventive Hospitality's 235.70% five-year sales growth significantly outpaces industry averages, reflecting aggressive capacity additions and strategic positioning. However, the company's operating profit (EBIT) growth of 114.11% over the same period, whilst impressive, lags revenue expansion, indicating margin pressures from operational scaling.
The company's EBIT-to-interest coverage ratio of 3.48 times suggests adequate but not comfortable debt servicing capability, particularly given the capital-intensive nature of hospitality infrastructure. With sales-to-capital employed of just 0.40 times, the company requires ₹2.50 of capital to generate ₹1.00 of sales, underscoring the heavy asset intensity characteristic of the sector.
Shareholding Transformation: Post-IPO Dynamics
The company's shareholding pattern underwent a dramatic transformation in Q1 FY25, with promoter holding plummeting from 99.59% in September 2024 to 7.70% by December 2024, stabilising at that level through September 2025. This 92-percentage-point reduction reflects the company's public listing and subsequent stake dilution. Institutional participation remains modest, with FIIs holding 1.66%, mutual funds 5.08%, and insurance companies just 0.14% as of September 2025.
Peer Comparison: Valuation Premium Difficult to Justify
When benchmarked against established hospitality peers, Ventive Hospitality's valuation multiples appear stretched. The company trades at a price-to-earnings ratio of 141.41 times trailing twelve-month earnings, nearly triple the peer group average and significantly above Indian Hotels Company's 60.76 times and EIH's 31.34 times. This premium valuation becomes particularly difficult to justify given the company's inferior ROE of 2.58% compared to the peer average of approximately 7%.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Dividend Yield |
|---|---|---|---|---|---|
| Ventive Hospitality | 141.41 | 3.64 | 2.58 | 0.46 | — |
| Indian Hotels Co | 60.76 | 8.86 | 9.57 | 0.03 | — |
| ITC Hotels | 62.36 | 3.83 | 6.32 | -0.13 | — |
| EIH | 31.34 | 5.01 | 9.95 | -0.17 | 0.40% |
| Chalet Hotels | 33.37 | 5.65 | 7.00 | 0.67 | 0.11% |
| Leela Palaces | 299.68 | 2.33 | 1.34 | 0.11 | — |
The company's price-to-book value of 3.64 times sits below the peer average of approximately 5.10 times, offering some valuation comfort. However, this discount is warranted given the materially lower ROE. With a book value per share of ₹205.81 and current market price of ₹750.00, the stock trades at a substantial premium to net asset value, pricing in significant future growth expectations that may prove challenging to meet.
Valuation Analysis: "Very Expensive" Tag Warranted
The company's proprietary valuation assessment classifies Ventive Hospitality as "Very Expensive", a designation that has persisted since February 2025. The EV-to-EBITDA multiple of 25.94 times and EV-to-sales ratio of 12.30 times both indicate premium pricing relative to intrinsic value. The EV-to-EBIT multiple of 39.11 times further reinforces concerns about stretched valuations, particularly given the company's modest earnings visibility and high dependence on non-operating income.
The stock's current price of ₹750.00 represents a 43.50% premium to its 52-week low of ₹522.65, whilst sitting 11.22% below the 52-week high of ₹844.75. This positioning suggests the market has already priced in substantial growth expectations, leaving limited margin of safety for investors. The absence of dividend yield eliminates any income cushion, making total returns entirely dependent on capital appreciation.
Shareholding Pattern: Institutional Interest Remains Tepid
The company's shareholding structure reveals minimal institutional participation, with total institutional holdings at just 6.90% as of September 2025. Foreign institutional investors hold a mere 1.66%, down from 2.68% in June 2025, indicating reduced overseas investor appetite. Mutual fund holdings have remained relatively stable at 5.08%, though this represents a marginal decline from 5.20% in March 2025.
| Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoters | 7.70% | 7.70% | 7.70% | 88.98% | — |
| FII | 1.66% | 2.68% | 2.92% | 3.31% | -1.02% |
| Mutual Funds | 5.08% | 5.11% | 5.20% | 2.87% | -0.03% |
| Insurance | 0.14% | 0.11% | 0.08% | 0.37% | +0.03% |
| Other DII | 0.02% | 0.02% | 0.13% | 0.54% | — |
| Non-Institutional | 4.12% | 3.09% | 2.69% | 3.93% | +1.03% |
The sequential decline in FII holdings by 102 basis points in Q2 FY26 suggests foreign investors are taking profits or reducing exposure at current valuations. Insurance company participation remains negligible at 0.14%, whilst other domestic institutional investors (DIIs) hold just 0.02%. The low institutional ownership limits liquidity and increases vulnerability to retail-driven volatility.
Stock Performance: Near-Term Momentum Amid Medium-Term Underperformance
Ventive Hospitality's stock has demonstrated positive momentum in the immediate term, gaining 4.08% over the past week and 7.83% over one month, outperforming the Sensex's 1.62% and 3.09% returns over the same periods. This translates to alpha generation of 2.46 percentage points weekly and 4.74 percentage points monthly. However, the six-month performance reveals underperformance, with the stock declining 1.64% against the Sensex's 3.97% gain, resulting in negative alpha of 5.61 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | +0.11% | +0.10% | +0.01% |
| 1 Week | +4.08% | +1.62% | +2.46% |
| 1 Month | +7.83% | +3.09% | +4.74% |
| 3 Months | +5.20% | +4.92% | +0.28% |
| 6 Months | -1.64% | +3.97% | -5.61% |
| YTD | +4.12% | +8.22% | -4.10% |
Year-to-date, the stock has gained 4.12%, underperforming the Sensex's 8.22% advance by 410 basis points. The stock currently trades above all key moving averages—5-day (₹731.27), 20-day (₹737.30), 50-day (₹736.94), 100-day (₹741.93), and 200-day (₹730.09)—indicating positive technical momentum. The technical trend is classified as "Mildly Bullish", with on-balance volume (OBV) showing bullish characteristics on a weekly basis.
Investment Thesis: Quality Concerns Overshadow Growth Narrative
The company's proprietary Mojo Score of 64 out of 100 translates to a "HOLD" rating, reflecting a balanced assessment of competing factors. The financial trend is classified as "Positive", supported by 167.39% growth in net sales over the latest six months and 70% growth in profit after tax versus the previous four-quarter average. However, this positive momentum is counterbalanced by "Very Expensive" valuation and "Average" quality grade.
The company's quality assessment reveals a mixed picture. Whilst the 235.70% five-year sales growth and 114.11% EBIT growth demonstrate strong expansion, the average ROCE of 24.08% and particularly weak ROE of 2.58% raise concerns about capital efficiency. The EBIT-to-interest coverage of 3.48 times provides adequate but not comfortable debt servicing capacity, whilst the debt-to-EBITDA ratio of 2.63 indicates moderate leverage.
"With ROE at just 2.58% and P/E at 141 times, investors are paying a steep premium for a company that generates minimal shareholder returns—a combination that demands extraordinary caution."
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Exceptional Revenue Growth: 235.70% five-year sales CAGR demonstrates successful capacity expansion and market penetration
- Strong ROCE: 24.08% average return on capital employed indicates efficient operational deployment of assets
- Robust Operating Margins: 38-50% operating margins (excluding other income) reflect strong pricing power and operational efficiency
- Positive Financial Trend: 167.39% sales growth in latest six months shows accelerating momentum
- Moderate Leverage: Debt-to-equity of 0.46 and net debt-to-equity of 0.46 provide financial flexibility
- Technical Momentum: Stock trading above all moving averages with mildly bullish technical indicators
- Substantial Asset Base: Fixed assets of ₹5,054.70 crores provide tangible value backing
⚠ KEY CONCERNS
- Extremely Low ROE: 2.58% return on equity indicates poor shareholder value creation despite strong operational metrics
- Stretched Valuation: P/E of 141x represents nearly 3x peer average and 2.8x industry P/E of 51x
- Heavy Reliance on Other Income: 54.33% of Q2 FY26 PBT from non-operating income raises sustainability concerns
- Margin Compression: Operating margins declining from 61% in Mar'24 to 39% in Sep'25 indicates scaling challenges
- Minimal Institutional Support: Just 6.90% institutional holdings and declining FII participation signal limited conviction
- High Tax Burden: 46.46% effective tax rate in Q2 FY26 significantly erodes profitability
- Low Capital Efficiency: Sales-to-capital employed of 0.40x suggests heavy asset intensity with modest revenue generation
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained Revenue Growth: Maintenance of 80%+ YoY revenue growth would validate expansion strategy
- Margin Stabilisation: Operating margins returning to 45-50% range would demonstrate operational maturity
- ROE Improvement: Movement towards 5-7% ROE would narrow gap with peers and justify premium valuation
- Increased Institutional Interest: FII/MF holdings rising above 10% would signal growing conviction
- Reduced Other Income Dependency: Core PBT contributing 70%+ of total PBT would improve earnings quality
RED FLAGS
- Further ROE Deterioration: ROE falling below 2% would signal fundamental value destruction
- Revenue Growth Deceleration: YoY growth slipping below 50% without margin improvement would pressure valuations
- Rising Interest Burden: Interest costs exceeding ₹70 crores quarterly would compress profitability
- Continued FII Selling: Foreign holdings declining below 1% would indicate institutional exodus
- Margin Compression Below 35%: Operating margins falling below 35% would raise questions about competitive positioning
The Verdict: Hold for Existing Investors, Avoid Fresh Entry
Score: 64/100
For Fresh Investors: Avoid initiating positions at current valuations. The stock trades at 141 times earnings with ROE of just 2.58%, creating an unfavourable risk-reward profile. Wait for meaningful valuation correction or substantial ROE improvement before considering entry.
For Existing Holders: Continue holding with strict monitoring of quarterly ROE trends and margin trajectory. Consider partial profit booking if stock approaches ₹800-820 levels (near 52-week high). Exit if ROE deteriorates below 2% or operating margins fall below 35% on a sustained basis.
Fair Value Estimate: ₹580-620 (18-23% downside from current levels), based on peer-adjusted P/E of 90-100x and normalised earnings power.
Rationale: Whilst the company demonstrates impressive revenue growth and operational efficiency (ROCE of 24%), the combination of extremely low ROE (2.58%), stretched valuations (P/E of 141x), and high dependence on non-operating income creates significant downside risk. The "Very Expensive" valuation grade and minimal institutional support further reinforce a cautious stance. Existing holders benefit from recent momentum but should remain vigilant about deteriorating fundamentals.
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.
