XT Global Infotech Q2 FY26: Revenue Surge Masks Margin Pressures

The quarter's results highlight a critical challenge facing XT Global Infotech: whilst the company has successfully scaled revenues, profitability has come under significant pressure. Consolidated net profit of ₹2.74 crores in Q2 FY26, though up 1.11% year-on-year, represents a sequential decline from ₹2.93 crores in Q1 FY26. More concerning is the sharp compression in operating margins, which have fallen from 16.09% in December 2024 to just 7.31% in the latest quarter. This margin erosion suggests rising cost pressures, particularly in employee expenses, which consumed 50.47% of revenues in Q2 FY26 compared to 60.34% in December 2024.

Financial Performance: Growth at the Expense of Profitability

XT Global Infotech's revenue trajectory over recent quarters demonstrates impressive growth momentum. Net sales climbed from ₹49.05 crores in December 2024 to ₹94.41 crores in September 2025, representing a near-doubling of revenues in just nine months. The company posted ₹92.31 crores in Q1 FY26, followed by ₹94.41 crores in Q2 FY26, suggesting stabilisation at elevated levels. On a year-on-year basis, Q2 FY26 revenues surged 93.70%, whilst Q1 FY26 grew 87.20% compared to the prior year.

However, the profit picture tells a different story. Consolidated net profit has exhibited significant volatility, ranging from a low of ₹0.59 crores in March 2025 to a high of ₹3.68 crores in December 2024. The sequential decline from ₹2.93 crores in Q1 FY26 to ₹2.74 crores in Q2 FY26, despite higher revenues, underscores deteriorating operational efficiency. Operating profit before depreciation, interest, and tax (PBDIT) stood at ₹6.79 crores in Q2 FY26, marginally up from ₹6.61 crores in Q1 FY26, but the operating margin (excluding other income) compressed to 7.31% from 7.10%.

The profit after tax (PAT) margin has similarly contracted to 3.64% in Q2 FY26 from 4.05% in Q1 FY26 and 7.50% in December 2024. This margin compression is particularly concerning given the robust revenue growth, suggesting that the company is struggling to translate top-line expansion into bottom-line profitability. Employee costs, which stood at ₹47.66 crores in Q2 FY26, represent a significant burden, having increased from ₹29.60 crores in December 2024.

Operational Challenges: Weak Return Metrics Signal Efficiency Issues

Beyond the quarterly numbers, XT Global Infotech's fundamental operational metrics reveal deeper structural challenges. The company's average return on capital employed (ROCE) stands at just 8.64%, with the latest ROCE at 7.03%, indicating weak capital efficiency. Similarly, the average return on equity (ROE) of 9.06%, with the latest ROE at 5.01%, suggests the company is generating below-average returns for shareholders. These metrics place XT Global Infotech in the "Below Average" quality category, reflecting long-term financial performance concerns.

The company's five-year sales growth of 12.88% demonstrates reasonable top-line expansion, but the five-year EBIT growth of just 0.90% highlights the profitability challenge. This disconnect between revenue growth and earnings growth suggests that XT Global Infotech has been unable to leverage scale effectively, with rising costs eroding the benefits of higher revenues. The average EBIT to interest coverage ratio of 5.62 times provides adequate cushion, but the average debt to EBITDA ratio of 4.34 indicates elevated leverage levels.

On the balance sheet front, shareholder funds stood at ₹182.55 crores as of March 2025, up from ₹168.68 crores in March 2024. Long-term debt has declined from ₹11.41 crores to ₹9.52 crores, suggesting some deleveraging progress. The company's book value per share of ₹13.67 provides a reference point for valuation, though the stock currently trades at 2.85 times book value. Fixed assets increased substantially to ₹134.51 crores in March 2025 from ₹105.28 crores in March 2024, suggesting capital investments to support growth.

Industry Context: Navigating a Challenging IT Services Landscape

The broader computers software and consulting industry has faced headwinds over the past year, with the sector declining 16.99% whilst XT Global Infotech fell 7.32%, representing a relative outperformance of 9.67 percentage points. However, this relative strength masks absolute weakness, with the stock down 7.32% over one year and 19.10% over two years. The company's high beta of 1.50 indicates significantly greater volatility than the broader market, making it a high-risk proposition for investors.

XT Global Infotech's risk-adjusted returns paint a concerning picture. Over the past year, the stock delivered a risk-adjusted return of -0.11 with volatility of 66.33%, placing it firmly in the "High Risk Low Return" category. In contrast, the Sensex achieved a risk-adjusted return of 0.73 with volatility of just 12.26%. This stark divergence suggests that XT Global Infotech has failed to compensate investors adequately for the elevated risk profile.

The technical picture shows mixed signals, with the stock currently in a "Mildly Bullish" trend as of November 11, 2025, having changed from "Bullish" status. The stock trades below all key moving averages—5-day (₹39.59), 20-day (₹39.76), 50-day (₹39.63), 100-day (₹36.70), and 200-day (₹36.25)—suggesting weak momentum. Immediate support lies at the 52-week low of ₹29.32, whilst resistance is encountered at the 20-day moving average area around ₹39.76.

Peer Comparison: Premium Valuation Without Commensurate Quality

XT Global Infotech's valuation metrics reveal a concerning disconnect between price and quality. The company trades at a price-to-earnings ratio of 52.40 times, substantially higher than the industry average of 28 times and elevated compared to most peers except Mold-Tek Technologies (67.27 times). This premium valuation appears unjustified given the company's weak ROE of 9.06%, which lags behind peers like Sigma Solve (42.16%), Mold-Tek Technologies (19.22%), and Onward Technologies (13.81%).

The price-to-book ratio of 2.85 times is relatively modest compared to peers like Sigma Solve (8.75 times) and Tera Software (5.46 times), suggesting some valuation support. However, with an ROE of just 9.06%, the market is essentially paying 2.85 times book value for assets generating single-digit returns. The company's debt-to-equity ratio of 0.13 is amongst the lowest in the peer group, indicating conservative leverage, though this has not translated into superior profitability.

Valuation Analysis: Attractive Grade Masks Fundamental Weaknesses

Despite the operational challenges, XT Global Infotech carries an "Attractive" valuation grade, having been upgraded from "Fair" in January 2025. The company's enterprise value to EBITDA multiple of 21.24 times and EV to EBIT multiple of 29.58 times suggest moderate valuations relative to earnings, though these metrics must be viewed in context of the weak underlying profitability. The EV to capital employed ratio of 2.63 times indicates investors are paying a reasonable premium for the asset base.

However, the valuation attractiveness is largely a function of the stock's decline from its 52-week high of ₹51.45. At the current price of ₹39.00, the stock trades 24.20% below its peak, creating a perception of value. Yet, this decline reflects genuine concerns about margin compression and profitability sustainability rather than temporary market dislocation. The stock's year-to-date decline of 2.35% and one-year decline of 7.32% have occurred despite the Sensex advancing 8.22% and 9.00% respectively, highlighting significant underperformance.

The company does not pay meaningful dividends, with the latest dividend of just ₹0.05 per share paid in November 2023. This absence of dividend income, combined with capital depreciation and weak operational metrics, makes the investment case challenging for income-focused investors. The proprietary Mojo Score of 57 out of 100 places the stock in "Hold" territory, upgraded from "Sell" in October 2025, suggesting marginal improvement but no compelling buy case.

Shareholding Pattern: Stable Promoter Base, Absent Institutional Interest

The shareholding pattern reveals a stable promoter base holding 62.81% as of September 2025, down marginally from 63.09% in December 2024. The promoter group, led by Ramarao Atchuta Mullapudi with 58.96%, demonstrates strong commitment with zero pledging of shares. This absence of pledged shares is a positive signal, indicating promoters are not leveraging their holdings for personal financing needs.

However, the complete absence of institutional interest is a significant red flag. Foreign institutional investors (FIIs), mutual funds, and insurance companies collectively hold 0.00% of the company, whilst overall institutional holdings stand at a negligible 0.01%. This institutional vacuum suggests that professional investors, who conduct rigorous due diligence, have found little to recommend in XT Global Infotech's investment proposition. The remaining 37.19% is held by non-institutional investors, likely retail participants attracted by the micro-cap's growth narrative.

Stock Performance: Underperformance Across All Timeframes

The stock's performance metrics reveal consistent underperformance relative to the broader market across most meaningful timeframes. Whilst XT Global Infotech has delivered positive alpha over the past three months (+14.93%) and six months (+5.58%), these short-term gains must be viewed against a backdrop of sustained long-term underperformance. Over one year, the stock has generated negative alpha of 16.32%, over two years negative alpha of 49.33%, and over three years negative alpha of 19.22%.

The year-to-date decline of 2.35% against the Sensex's 8.22% gain represents an alpha of -10.57%, highlighting the stock's inability to participate in the broader market rally. The one-year decline of 7.32% against the Sensex's 9.00% advance further underscores this weakness. The two-year performance is particularly concerning, with the stock down 19.10% whilst the Sensex surged 30.23%, a divergence of nearly 50 percentage points.

The exceptional 10-year return of 9,185.71% appears impressive on the surface but must be contextualised. This represents growth from an extremely low base nearly a decade ago and does not reflect the company's current operational reality. More relevant for current investors are the recent timeframes, which show persistent value destruction and underperformance.

Investment Thesis: Limited Upside, Elevated Risk

The investment case for XT Global Infotech rests on three pillars: valuation attractiveness following the stock's decline, positive short-term financial trend, and mildly bullish technical indicators. The company's Mojo Score of 57 out of 100 reflects these mixed signals, with the "Hold" rating suggesting neither compelling buy nor urgent sell. The valuation grade of "Attractive" provides some support, particularly for contrarian investors willing to bet on operational improvement.

However, this thesis is undermined by significant structural weaknesses. The "Below Average" quality grade reflects weak return metrics, with ROCE of 7.03% and ROE of 5.01% indicating poor capital efficiency. The positive financial trend is encouraging but must be sustained over multiple quarters to establish credibility. The mildly bullish technical trend provides tactical support but lacks conviction, with the stock trading below all key moving averages.

Outlook: What Lies Ahead

For XT Global Infotech to justify a more constructive investment stance, the company must demonstrate that recent margin compression is temporary rather than structural. Key monitoring points include the trajectory of operating margins over the next 2-3 quarters, the company's ability to maintain revenue momentum whilst improving profitability, and any signs of institutional investor interest. The absence of institutional holdings remains a significant concern that requires resolution before a more positive view can be adopted.