The quarter's results paint a picture of severe operational stress despite a 71.55% sequential jump in revenue to ₹1,006.40 crores. The company's operating profit margin (excluding other income) collapsed to a multi-quarter low of 1.55%, down sharply from 6.11% in Q1 FY26 and 5.26% in Q2 FY25. The PAT margin compressed to a mere 0.06%, effectively wiping out profitability despite higher top-line activity. This alarming deterioration in margins suggests the company is operating in an intensely competitive environment with minimal pricing power, or facing significant cost pressures that are not being passed through to customers.
Financial Performance: A Quarter of Margin Destruction
Veritas (India)'s Q2 FY26 results reveal a troubling disconnect between revenue growth and profitability. Net sales surged 71.55% quarter-on-quarter to ₹1,006.40 crores, marking the company's second-highest quarterly revenue on record. However, this top-line expansion came at an enormous cost to margins. Operating profit (PBDIT excluding other income) stood at just ₹15.63 crores, representing a margin of 1.55%—the lowest in at least the past eight quarters and a dramatic compression from the 6.11% achieved in Q1 FY26.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Sep'25 | 1,006.40 | +71.55% | 0.60 | -97.52% | 1.55% | 0.06% |
| Jun'25 | 586.66 | -25.32% | 24.15 | -2295.45% | 6.11% | 4.12% |
| Mar'25 | 785.56 | -52.17% | -1.10 | -103.68% | 3.36% | -0.14% |
| Dec'24 | 1,642.46 | +79.40% | 29.93 | -18.36% | 3.06% | 1.82% |
| Sep'24 | 915.51 | +21.18% | 36.66 | -23.74% | 5.26% | 4.00% |
| Jun'24 | 755.52 | -30.97% | 48.07 | +97.82% | 8.51% | 6.36% |
| Mar'24 | 1,094.54 | — | 24.30 | — | 4.62% | 2.22% |
The profit before tax (PBT) for Q2 FY26 collapsed to ₹0.60 crores from ₹24.10 crores in the previous quarter, a staggering 97.52% decline. Year-on-year, PBT fell 98.38% from ₹36.99 crores in Q2 FY25. The company also reported negative other income of ₹0.33 crores in Q2 FY26, compared to positive other income of ₹2.78 crores in Q1 FY26, further pressuring the bottom line. Interest costs remained relatively stable at ₹4.39 crores, down slightly from ₹4.57 crores in Q1 FY26, whilst depreciation was ₹10.31 crores.
On a half-yearly basis for H1 FY26 (April-September 2025), the company's net sales stood at ₹1,593.06 crores, with net profit of ₹24.75 crores. Whilst this represents growth over the previous year's comparable period, the quarterly trajectory shows alarming deterioration. The gross profit margin for Q2 FY26 compressed to 1.08%, down from 5.81% in Q1 FY26, indicating the company is barely covering direct costs.
Critical Margin Erosion
Veritas (India)'s operating margin collapse from 6.11% to 1.55% in a single quarter represents one of the sharpest profitability deteriorations in recent company history. At current margin levels, the company is operating with virtually no buffer for cost fluctuations or competitive pressures. The PAT margin of 0.06% means the company is generating just 6 paise of profit for every ₹100 of sales—an unsustainable level for long-term viability.
Operational Challenges: Return Ratios Hit Multi-Year Lows
The company's return metrics have deteriorated sharply, reflecting the severe profitability challenges. The latest half-yearly return on capital employed (ROCE) stood at just 2.72%, marking a multi-year low and well below the company's five-year average of 5.37%. Return on equity (ROE) for the latest period was 1.95%, compared to a five-year average of 5.26%—already a weak level by industry standards. These anaemic returns indicate the company is struggling to generate meaningful profits from the capital invested in the business.
The balance sheet shows a company with adequate solvency but declining operational efficiency. As of March 2025, Veritas (India) had shareholder funds of ₹2,665.45 crores, with no long-term debt—a position of financial strength. However, current liabilities surged to ₹896.26 crores from ₹409.22 crores in the previous year, driven primarily by a spike in trade payables to ₹693.21 crores from ₹147.53 crores. This suggests the company is extending payment terms with suppliers, possibly to manage working capital pressures.
Cash flow dynamics reveal further stress. Operating cash flow for FY25 was ₹28 crores, down sharply from ₹55 crores in FY24 and ₹80 crores in FY23. The company's cash position improved to ₹40 crores as of March 2025 from ₹18 crores the previous year, but this was achieved through investing activities (generating ₹19 crores) rather than core operations. The sales-to-capital-employed ratio of 1.13x indicates the company is not efficiently converting its asset base into revenue.
Asset Quality Remains Solid
Despite operational challenges, Veritas (India) maintains a strong balance sheet with zero long-term debt and shareholder funds exceeding ₹2,665 crores. The debt-to-EBITDA ratio averages a comfortable 0.90, whilst net debt to equity is minimal at 0.03. The company also operates wind power generation facilities in Maharashtra and Tamil Nadu, providing some revenue diversification beyond its core trading business. Fixed assets stood at ₹2,032.93 crores as of March 2025.
The Trading Volatility Challenge: Margin Compression in Competitive Markets
Veritas (India)'s core business—trading and distribution of chemicals, metals, and machinery—is inherently cyclical and margin-sensitive. The Q2 FY26 results suggest the company is operating in an environment of intense price competition or facing significant cost inflation that cannot be passed through to customers. The 71.55% jump in revenue coupled with the 74.62% decline in operating profit (excluding other income) from ₹35.85 crores to ₹15.63 crores indicates the company is taking on lower-margin business to maintain market share.
The company's financial trend has been classified as "Negative" since September 2024, with multiple red flags emerging in recent quarters. Operating profit has fallen to its lowest level at ₹15.63 crores, whilst profit before tax (less other income) hit a quarterly low of ₹0.93 crores. The operating profit-to-net-sales ratio of 1.55% represents the weakest performance in at least eight quarters. This deterioration suggests structural challenges rather than temporary headwinds.
The five-year sales growth of 14.66% appears respectable on the surface, but EBIT growth of just 2.83% over the same period reveals a troubling trend of margin erosion. The company's average EBIT-to-interest coverage of 5.20x, whilst adequate, has been declining. For FY25, the company reported net sales of ₹3,854 crores (up 78.2% year-on-year), but operating profit margin (excluding other income) fell to 5.3% from 6.6% in FY24, continuing the negative trajectory.
Peer Comparison: Underperforming on Returns Despite Valuation Discount
Within the Trading & Distributors sector, Veritas (India) presents a mixed picture. The company trades at a price-to-earnings ratio of 12.43x, significantly below the industry average P/E of 32x, suggesting the market is pricing in limited growth prospects or elevated risk. The price-to-book ratio of 0.24x indicates the stock is trading at a substantial discount to book value, reflecting investor scepticism about the company's ability to generate returns on its equity base.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Veritas (India) | 12.43 | 0.24 | 5.26 | 0.03 | 0.02 |
| Arisinfra Solutions | 226.29 | 1.84 | 1.23 | 1.29 | — |
| Polo Queen Ind. | 442.44 | 6.35 | 1.03 | 0.06 | — |
| Yamuna Syndicate | 12.85 | — | — | — | — |
| Oswal Agro Mills | 7.00 | 0.92 | 4.14 | -0.18 | — |
| S T C | 21.99 | -0.16 | 0.00 | -0.43 | — |
Veritas (India) does maintain a competitive advantage in return on equity, with its five-year average ROE of 5.26% exceeding most peers in the comparison set. However, this is still a weak absolute level—quality businesses typically generate ROEs above 15%. The company's debt-to-equity ratio of 0.03 is amongst the lowest in the peer group, indicating conservative financial management. The dividend yield of 0.02% is negligible, with the company paying just ₹0.05 per share in its latest dividend (ex-date September 19, 2025).
Valuation Analysis: Attractive Price, But Is It a Value Trap?
Veritas (India) currently carries an "Attractive" valuation grade, having been downgraded from "Very Attractive" in February 2025. At ₹248.50 per share, the stock trades at 12.43x trailing twelve-month earnings and 0.24x book value. The enterprise value-to-EBITDA multiple of 6.96x and EV-to-EBIT of 10.14x appear reasonable on the surface. However, these metrics are backward-looking and may not reflect the deteriorating profitability trajectory evident in recent quarters.
The stock's 73.02% decline over the past year has created a significant valuation discount, but this appears to be justified by fundamentals rather than representing an opportunity. The company's book value per share of ₹994.20 implies substantial downside protection—the stock trades at just 25% of book value—but this assumes the assets can generate adequate returns, which current performance suggests they cannot. The PEG ratio is not available, likely because growth has been insufficient to calculate a meaningful metric.
Valuation Dashboard
P/E Ratio (TTM): 12.43x (vs Industry 32x)
P/BV Ratio: 0.24x
EV/EBITDA: 6.96x
Dividend Yield: 0.02%
Overall Assessment: Attractive valuation, but deteriorating fundamentals raise value trap concerns
Shareholding Pattern: Stable Promoter Base, Limited Institutional Interest
The shareholding structure of Veritas (India) has remained remarkably stable over recent quarters. Promoter holding stands at 55.01%, unchanged for at least the past five quarters, indicating strong promoter commitment with no pledging of shares. Swan Energy Ltd. holds the entire promoter stake. Foreign institutional investor (FII) holding is 9.70%, also stable over recent quarters with just two FIIs on the register. Notably, mutual fund and insurance company holdings are zero, suggesting limited interest from domestic institutional investors.
| Quarter | Promoter % | FII % | MF % | Insurance % | Other DII % | Public % |
|---|---|---|---|---|---|---|
| Sep'25 | 55.01 | 9.70 | 0.00 | 0.00 | 0.14 | 35.15 |
| Jun'25 | 55.01 | 9.70 | 0.00 | 0.00 | 0.14 | 35.15 |
| Mar'25 | 55.01 | 9.70 | 0.00 | 0.00 | 0.14 | 35.15 |
| Dec'24 | 55.01 | 9.70 | 0.00 | 0.00 | 0.14 | 35.15 |
| Sep'24 | 55.01 | 9.71 | 0.00 | 0.00 | 0.00 | 35.28 |
The absence of mutual fund participation is particularly telling—domestic fund managers, who conduct extensive due diligence, have chosen not to invest in the company. Other domestic institutional investor (DII) holdings are minimal at 0.14%, appearing only in December 2024. Total institutional holdings of 9.84% are low by industry standards, suggesting limited conviction from professional investors. The public shareholding of 35.15% has remained stable, indicating neither accumulation nor distribution by retail investors.
Stock Performance: Severe Underperformance Across All Timeframes
Veritas (India)'s stock price performance has been disastrous across virtually all timeframes. The stock has declined 73.02% over the past year, compared to a 9.50% gain in the Sensex, resulting in negative alpha of 82.52 percentage points. Year-to-date, the stock has plummeted 71.33% against the Sensex's 8.72% gain. The recent decline has accelerated, with the stock falling 33.76% over three months and 39.22% over six months, whilst the broader market has advanced.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -7.19% | +1.69% | -8.88% |
| 1 Month | -20.37% | +1.19% | -21.56% |
| 3 Month | -33.76% | +5.40% | -39.16% |
| 6 Month | -39.22% | +3.18% | -42.40% |
| YTD | -71.33% | +8.72% | -80.05% |
| 1 Year | -73.02% | +9.50% | -82.52% |
| 2 Years | -19.53% | +29.12% | -48.65% |
| 3 Years | +76.87% | +37.57% | +39.30% |
| 5 Years | +552.23% | +93.28% | +458.95% |
The stock's technical picture is unambiguously bearish. The current trend turned bearish on November 3, 2025, at ₹296.35, and has remained so since. The stock is trading below all key moving averages—5-day (₹256.36), 20-day (₹285.06), 50-day (₹323.79), 100-day (₹352.49), and 200-day (₹402.08)—indicating sustained selling pressure. Technical indicators including MACD, Bollinger Bands, KST, and Dow Theory are all flashing bearish signals on both weekly and monthly timeframes. The stock's beta of 1.50 indicates it is 50% more volatile than the broader market, amplifying losses during downturns.
Longer-term returns paint a different picture. Over three years, the stock has gained 76.87% against the Sensex's 37.57%, generating positive alpha of 39.30 percentage points. The five-year return of 552.23% is exceptional, vastly outperforming the Sensex's 93.28% gain. However, this historical outperformance appears to have reversed sharply in recent quarters as fundamentals have deteriorated. Within its sector, Veritas (India) has underperformed the Trading & Distributors index by 51.27 percentage points over the past year.
"At current margin levels of 1.55%, Veritas (India) is generating barely enough profit to cover operating costs, raising serious questions about the sustainability of its trading business model in the current competitive environment."
Investment Thesis: Quality Concerns Override Valuation Appeal
The investment case for Veritas (India) is severely challenged by multiple negative factors converging simultaneously. The company's overall quality grade is "Average," reflecting long-term financial performance that, whilst not disastrous, fails to inspire confidence. The five-year sales CAGR of 14.66% is respectable, but EBIT growth of just 2.83% reveals persistent margin pressure. The average ROCE of 5.37% and ROE of 5.26% are well below levels that would indicate a competitive advantage or quality franchise.
The financial trend classification of "Negative" since September 2024 reflects multiple red flags: operating cash flow at a multi-year low, quarterly PAT down 97.30% versus the previous four-quarter average, ROCE at its lowest level, and operating profit margin at a multi-quarter low. These are not temporary blips but appear to represent structural deterioration in the business model. The technical trend is firmly bearish, with the stock below all moving averages and multiple indicators signalling further downside risk.
KEY STRENGTHS
- Strong balance sheet with zero long-term debt and shareholder funds exceeding ₹2,665 crores
- No promoter pledging, indicating confidence and financial stability
- Debt-to-EBITDA of 0.90 and net debt-to-equity of 0.03 indicate conservative leverage
- Attractive valuation at 0.24x book value offers downside protection
- Diversified business with wind power generation alongside trading operations
- Exceptional five-year return of 552.23% demonstrates historical value creation capability
- P/E ratio of 12.43x well below industry average of 32x
KEY CONCERNS
- Net profit collapsed 98.36% year-on-year to just ₹0.60 crores in Q2 FY26
- Operating margin compressed to 1.55%, the lowest in eight quarters
- PAT margin of 0.06% indicates virtually no profitability despite revenue growth
- ROCE at 2.72% and ROE at 1.95% represent multi-year lows and inadequate returns
- Stock down 73.02% over one year with bearish technical signals across all timeframes
- Zero mutual fund and insurance company holdings indicate lack of institutional conviction
- Financial trend classified as "Negative" with multiple deteriorating metrics
- Operating cash flow declining sharply from ₹80 crores (FY23) to ₹28 crores (FY25)
Outlook: What Lies Ahead for Veritas (India)
The outlook for Veritas (India) hinges on management's ability to arrest the margin deterioration and restore profitability to sustainable levels. The trading business is inherently cyclical, and the current weakness could represent a trough from which recovery is possible. However, the severity and persistence of the margin compression—particularly the collapse from 6.11% to 1.55% in a single quarter—suggests structural rather than cyclical challenges. Investors should monitor several key indicators to assess whether the company can stabilise and recover.
POSITIVE CATALYSTS
- Operating margin recovery above 4% in coming quarters
- Revenue growth with improving absolute profit levels
- Stabilisation of working capital and improved cash conversion
- Return ratios (ROCE/ROE) improving above 5% levels
- Institutional investor accumulation or mutual fund entry
RED FLAGS TO WATCH
- Further margin compression below 1.5% levels
- Consecutive quarters of sub-₹5 crore net profit
- Operating cash flow turning negative
- Increase in debt levels to fund working capital
- Promoter stake reduction or emergence of pledging
- Stock breaking below ₹200 levels (20% downside from current)
For the company to merit a more positive assessment, it must demonstrate sustained margin improvement over at least two consecutive quarters, with operating margins returning to the 4-5% range. A return to quarterly net profit levels above ₹20 crores would indicate the business model is functioning effectively. Institutional investor interest, particularly from domestic mutual funds, would signal professional investors see value and recovery potential. Until such evidence emerges, the risk-reward remains unfavourable despite the attractive valuation.
The Verdict: Severe Deterioration Warrants Exit Despite Cheap Valuation
Score: 26/100
For Fresh Investors: Avoid initiation at current levels. Whilst the 0.24x price-to-book ratio appears attractive, the company is generating inadequate returns on equity (1.95%) and capital employed (2.72%). The 98.36% year-on-year profit collapse, combined with operating margins at unsustainable levels of 1.55%, indicates severe business model stress. Wait for at least two consecutive quarters of margin stabilisation above 4% before considering entry.
For Existing Holders: Consider exiting positions on any relief rally. The stock has declined 73.02% over the past year and remains in a confirmed bearish trend below all moving averages. The financial trend is classified as "Negative" with multiple deteriorating metrics including lowest-in-years ROCE, collapsing operating margins, and weak cash generation. The absence of institutional investor interest (zero mutual fund holdings) is telling. Whilst the balance sheet provides some downside protection, the inability to generate adequate returns on a debt-free capital base is deeply concerning.
Fair Value Estimate: ₹300-350 per share (20-41% upside) – conditional on demonstrated margin recovery to 4-5% levels over two consecutive quarters and return ratios improving above 5%. At current profitability levels, even ₹248.50 may not represent adequate value.
The combination of collapsing profitability, deteriorating return metrics, bearish technical signals, and lack of institutional conviction creates an unfavourable risk-reward profile. Whilst the valuation appears cheap, this increasingly looks like a value trap rather than an opportunity. Only a sustained operational turnaround with visible margin improvement would warrant reassessment.
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 is not indicative of future results. The views expressed are based on publicly available information and analysis as of the date of publication and are subject to change without notice.
