The quarter showcased robust topline expansion with net sales reaching ₹92.49 crores, up 88.56% year-on-year, yet profitability failed to keep pace as operating margins compressed sharply from 16.09% in Q3 FY25 to just 9.46% in the latest quarter. This divergence between revenue growth and margin deterioration raises critical questions about the sustainability of the company's business model and cost structure management.
The quarter's results present a mixed narrative for investors. While the company has successfully scaled its revenue base—with the latest six months recording ₹186.90 crores, representing 91.12% growth—the inability to translate this topline momentum into proportionate bottom-line expansion signals underlying operational challenges. The stock's technical indicators paint a bearish picture, with the price trading below all key moving averages and the overall trend categorised as bearish since February 12, 2026.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Cons. Net Profit (₹ Cr) | QoQ Growth | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Dec'25 | 92.49 | -2.03% | 2.92 | +6.57% | 9.46% | 4.00% |
| Sep'25 | 94.41 | +2.27% | 2.74 | -6.48% | 7.31% | 3.64% |
| Jun'25 | 92.31 | +6.04% | 2.93 | +396.61% | 7.10% | 4.05% |
| Mar'25 | 87.05 | +77.47% | 0.59 | -83.97% | 4.99% | 1.56% |
| Dec'24 | 49.05 | +0.64% | 3.68 | +35.79% | 16.09% | 7.50% |
| Sep'24 | 48.74 | -1.16% | 2.71 | +24.88% | 11.12% | 5.56% |
| Jun'24 | 49.31 | — | 2.17 | — | 9.71% | 4.40% |
Financial Performance: Growth Without Profitability
XT Global Infotech's Q3 FY26 performance reveals a troubling disconnect between revenue expansion and profitability metrics. Net sales of ₹92.49 crores represent an impressive 88.56% year-on-year surge, yet this growth came at a significant cost. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) stood at ₹8.75 crores with a margin of 9.46%, substantially lower than the 16.09% achieved in Q3 FY25. This 659 basis points margin compression indicates severe operational inefficiencies or aggressive pricing strategies to capture market share.
The sequential trend offers limited comfort. Whilst the company managed a modest quarter-on-quarter revenue decline of 2.03% from ₹94.41 crores in Q2 FY26, consolidated net profit improved by 6.57% to ₹2.92 crores. However, this improvement pales against the 20.65% year-on-year decline, highlighting the company's struggle to maintain profitability levels achieved in the previous year despite doubling its revenue base.
Employee costs, the largest expense category for IT services firms, surged to ₹48.18 crores in Q3 FY26 from ₹29.60 crores in Q3 FY25—a 62.77% increase that outpaced revenue growth. This suggests either significant headcount additions to support the expanded business or wage inflation pressures that management has been unable to offset through improved realisations or operational leverage. The employee cost-to-revenue ratio deteriorated to 52.09% from 60.35% a year ago, though this remains elevated for the sector.
The tax expense behaviour warrants scrutiny. Q3 FY26 recorded a tax charge of ₹2.96 crores at an effective rate of 44.44%, significantly higher than the 33.03% rate in Q3 FY25 and the 20.32% rate in Q2 FY26. This volatility in tax rates—ranging from 9.22% in Q1 FY26 to 44.44% in the latest quarter—suggests potential one-time adjustments or differing tax treatment across geographies, adding another layer of uncertainty to earnings quality.
Operational Challenges: The Margin Compression Dilemma
The company's operational metrics paint a concerning picture of efficiency deterioration. Return on equity (ROE) has declined to 5.18% in the latest period from an average of 10.49% historically, whilst return on capital employed (ROCE) stands at a weak 8.41% compared to the historical average of 9.35%. These subdued returns indicate that management is struggling to generate adequate profits from the capital deployed in the business, a critical weakness for a company seeking to attract growth capital.
The balance sheet reveals a company in transition. Fixed assets have expanded substantially to ₹134.51 crores in March 2025 from ₹105.28 crores a year earlier, suggesting significant capital investments to support business expansion. However, this 27.77% increase in fixed assets has not translated into proportionate profit growth, raising questions about asset utilisation and return on invested capital. The company's investments declined sharply from ₹37.31 crores in March 2024 to zero in March 2025, potentially indicating liquidity needs or strategic reallocation of resources.
⚠️ Key Concern: Margin Sustainability
Critical Issue: Operating margins have compressed by 659 basis points year-on-year to 9.46%, whilst PAT margins declined 350 basis points to 4.00%. The company's inability to maintain profitability levels despite near-doubling revenue suggests structural cost challenges or unsustainable pricing strategies. With employee costs consuming 52% of revenue and tax rates fluctuating wildly between 9.22% and 44.44% across recent quarters, earnings quality remains questionable.
Management Efficiency Concern: ROCE of just 8.41% and ROE of 5.18% indicate poor capital allocation and operational efficiency. For a software services firm, these returns are substantially below industry standards and fail to justify the company's premium valuation of 42x trailing earnings.
Debt levels provide some relief, with long-term debt declining to ₹9.52 crores in March 2025 from ₹11.41 crores the previous year. The debt-to-EBITDA ratio of 1.97 remains manageable, whilst the net debt-to-equity ratio of 0.14 indicates a conservative capital structure. Interest coverage, measured by EBIT-to-interest ratio, stands at a comfortable 5.62 times, suggesting the company can service its debt obligations without strain. However, with deteriorating profitability, these metrics warrant close monitoring in coming quarters.
Industry Context: Underperforming in a Challenging Sector
The broader IT services sector has faced headwinds over the past year, with the Computers - Software & Consulting segment delivering a negative 23.13% return. Against this backdrop, XT Global Infotech's one-year return of -8.34% represents relative outperformance by 14.79 percentage points, though this provides limited comfort given the absolute wealth destruction for shareholders. The stock has significantly underperformed the Sensex, which gained 9.66% over the same period, resulting in a negative alpha of 18.00 percentage points.
The company's five-year sales growth of 12.88% appears respectable on the surface, but this must be contextualised against the anaemic EBIT growth of just 0.90% over the same period. This stark divergence indicates that revenue growth has come at the expense of profitability, a pattern that has accelerated in recent quarters. The average sales-to-capital-employed ratio of 1.22 times suggests moderate asset intensity, typical for a services business with both onsite consultancy and offshore development operations.
From a quality perspective, XT Global Infotech receives an "Average" grade, having been downgraded from "Below Average" in recent months. The company benefits from zero promoter pledging and a healthy balance sheet with low leverage. However, institutional holdings remain negligible at just 0.01%, reflecting limited confidence from sophisticated investors. The absence of meaningful foreign institutional investor (FII) or mutual fund participation—both at 0.00%—signals that the stock remains off the radar for most professional fund managers, limiting potential demand catalysts.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| XT Global Infotech | 42.33 | 2.19 | 10.49 | 0.14 | 0.16 |
| NINtec Systems | 20.93 | 8.26 | 38.15 | -0.76 | — |
| Trejhara Solutions | 91.70 | 2.09 | 1.59 | 0.00 | — |
| Tera Software | 23.71 | 3.64 | 9.11 | 0.17 | 0.26 |
| Sigma Solve | 18.81 | 7.68 | 42.16 | -0.04 | 0.11 |
| DigiSpice Technologies | 21.13 | 2.07 | 2.50 | -1.35 | — |
XT Global Infotech's peer comparison reveals a valuation anomaly. Trading at 42.33 times trailing earnings, the company commands a significant premium to peers like NINtec Systems (20.93x), Tera Software (23.71x), and Sigma Solve (18.81x), despite delivering inferior return on equity of 10.49% compared to NINtec's 38.15% and Sigma Solve's 42.16%. The price-to-book ratio of 2.19x appears reasonable relative to peers, but this must be weighed against the company's weak profitability metrics and deteriorating margin trajectory.
Valuation Analysis: Premium Without Justification
At the current price of ₹32.00, XT Global Infotech trades at a trailing P/E ratio of 42.33x, representing a 123% premium to the industry average of 19x. This elevated multiple appears unjustified given the company's operational challenges, margin compression, and weak return ratios. The EV/EBITDA multiple of 17.44x and EV/EBIT multiple of 24.29x further underscore the rich valuation, particularly when juxtaposed against the company's anaemic EBIT growth of just 0.90% over five years.
The company's market capitalisation of ₹433.00 crores values it at 1.39 times trailing sales, a reasonable multiple for a services business but one that assumes margin improvement and sustained growth—assumptions that recent quarterly results call into question. With a book value per share of ₹13.67, the stock trades at 2.34 times book value, implying market expectations of superior returns on equity that the company has consistently failed to deliver.
From a dividend perspective, XT Global Infotech offers minimal income appeal with a yield of just 0.16%, based on the latest dividend of ₹0.05 per share paid in November 2025. The negligible payout reflects management's preference to retain capital for growth investments, though the poor returns generated on this capital raise questions about capital allocation wisdom. The stock's valuation grade of "Attractive" appears generous given the fundamental deterioration, having been downgraded from "Very Attractive" in June 2025.
Shareholding Pattern: Stable but Uninspiring
The shareholding structure of XT Global Infotech has remained largely static over recent quarters, with promoter holding steady at 62.81% as of December 2025. The marginal 0.28% decline in promoter stake from 63.09% in December 2024 to 62.81% in March 2025 reflects minor adjustments rather than any significant strategic shift. The absence of promoter pledging provides comfort regarding financial stability and alignment of interests with minority shareholders.
However, the complete absence of institutional participation raises red flags. Foreign institutional investors, mutual funds, insurance companies, and other domestic institutional investors collectively hold 0.00% of the company's equity. This institutional vacuum suggests that sophisticated investors have either not discovered the stock or have evaluated and rejected it based on fundamental concerns. For a company with a ₹433.00 crore market capitalisation, this lack of institutional interest limits liquidity and potential re-rating catalysts.
| Quarter | Promoter (%) | FII (%) | Mutual Funds (%) | Insurance (%) | Non-Institutional (%) |
|---|---|---|---|---|---|
| Dec'25 | 62.81 | 0.00 | 0.00 | 0.00 | 37.19 |
| Sep'25 | 62.81 | 0.00 | 0.00 | 0.00 | 37.19 |
| Jun'25 | 62.81 | 0.00 | 0.00 | 0.00 | 37.19 |
| Mar'25 | 62.81 | 0.00 | 0.00 | 0.00 | 37.19 |
| Dec'24 | 63.09 | 0.00 | 0.00 | 0.00 | 36.91 |
The non-institutional shareholding of 37.19% comprises retail investors and high-net-worth individuals, a base that tends to be more volatile and price-sensitive than institutional holders. Key promoters include Ramarao Atchuta Mullapudi (58.96%), Mullapudi Harika Vardhani (3.29%), and smaller holdings by the Vuppuluri family. The concentrated promoter holding provides management stability but also limits free float and liquidity, with average daily volumes of just 611 shares highlighting the stock's illiquid nature.
Stock Performance: Underperformance Across Timeframes
XT Global Infotech's stock performance presents a sobering picture of wealth erosion across most meaningful timeframes. Over the past year, the stock has declined 8.34%, significantly underperforming the Sensex's 9.66% gain and generating a negative alpha of 18.00 percentage points. The two-year performance is even more troubling, with the stock down 22.35% against the Sensex's 14.98% gain, resulting in a 37.33 percentage point underperformance.
Recent momentum offers limited encouragement. The stock has gained 2.73% over the past week and 4.10% over one month, outperforming the Sensex's -0.94% and -0.35% returns respectively. However, the three-month performance reveals a sharp 18.01% decline, substantially worse than the Sensex's 1.52% dip, indicating that any short-term gains are merely technical bounces within a broader downtrend. The year-to-date decline of 5.60% further reinforces the negative sentiment surrounding the stock.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +2.73% | -0.94% | +3.67% |
| 1 Month | +4.10% | -0.35% | +4.45% |
| 3 Months | -18.01% | -1.52% | -16.49% |
| 6 Months | -1.66% | +3.32% | -4.98% |
| YTD | -5.60% | -2.28% | -3.32% |
| 1 Year | -8.34% | +9.66% | -18.00% |
| 2 Years | -22.35% | +14.98% | -37.33% |
| 3 Years | +21.21% | +35.81% | -14.60% |
The technical picture reinforces the bearish fundamental outlook. The stock trades below all key moving averages—5-day (₹31.17), 20-day (₹29.10), 50-day (₹32.72), 100-day (₹35.90), and 200-day (₹35.26)—a configuration that typically signals sustained downward pressure. The overall technical trend turned bearish on February 12, 2026, at ₹32.65, with weekly and monthly MACD indicators both flashing bearish signals. Bollinger Bands indicate mildly bearish conditions, whilst the KST indicator shows bearish momentum across both weekly and monthly timeframes.
Risk-adjusted metrics paint an unflattering picture. With one-year volatility of 61.52%—more than five times the Sensex's 11.53%—the stock delivers a negative risk-adjusted return of -0.14 compared to the Sensex's positive 0.84. This places XT Global Infotech firmly in the "HIGH RISK LOW RETURN" category, an unattractive combination for most investors. The beta of 1.01 indicates the stock moves in line with the market, offering no diversification benefits whilst delivering inferior absolute returns.
Investment Thesis: Quality Concerns Outweigh Valuation Appeal
XT Global Infotech's investment case rests on shaky foundations despite the "Attractive" valuation grade. The company's proprietary Mojo Score of 43 out of 100 results in a "SELL" rating, down from a "HOLD" rating at 50 on October 10, 2025. This deterioration reflects the confluence of negative factors: bearish technical trends, poor management efficiency with ROCE of just 8.41%, and weak long-term growth with sales expanding at 12.88% annually whilst operating profit grew at a mere 0.90% over five years.
The Mojo 4 Dots Analysis reveals a mixed picture with more negatives than positives. Near-term drivers show conflicting signals—the quarterly financial trend is positive with recent metrics at multi-quarter highs, yet technicals remain firmly bearish. Quality assessment yields an "Average" grade, reflecting the company's moderate long-term growth, adequate interest coverage, and clean balance sheet, but this is offset by weak return ratios and negligible institutional participation. Valuation appears attractive on paper, but this attractiveness stems from earnings deterioration rather than price compression, making it a potential value trap.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Robust Revenue Growth: Net sales surged 88.56% YoY to ₹92.49 crores in Q3 FY26, demonstrating strong demand capture and business scaling capabilities.
- Conservative Capital Structure: Debt-to-EBITDA of 1.97 and net debt-to-equity of 0.14 indicate prudent financial management with adequate interest coverage of 5.62 times.
- Zero Promoter Pledging: Clean promoter holding of 62.81% with no pledged shares signals financial stability and aligned interests with minority shareholders.
- Positive Financial Trend: Recent quarterly metrics including PBDIT, cash balances, and debtor turnover ratio at multi-quarter highs suggest operational momentum.
- Attractive Valuation Grade: Current valuation assessed as attractive, potentially offering entry opportunity if operational issues can be resolved.
- Long Operating History: Incorporated in 1986, the company brings 40 years of experience in software development and IT consulting services.
- Diversified Service Mix: Offerings span onsite consultancy, offshore development, product development, and internet-enabled services, providing revenue diversification.
⚠ KEY CONCERNS
- Severe Margin Compression: Operating margin collapsed from 16.09% to 9.46% YoY whilst PAT margin declined from 7.50% to 4.00%, indicating unsustainable business model or aggressive pricing.
- Weak Return Ratios: ROCE of 8.41% and ROE of 5.18% fall significantly below industry standards, demonstrating poor capital allocation and operational efficiency.
- Profit Decline Despite Revenue Growth: Consolidated net profit down 20.65% YoY despite 88.56% revenue growth reveals fundamental profitability challenges.
- Unjustified Premium Valuation: Trading at 42.33x earnings—123% premium to industry average—despite inferior fundamentals and deteriorating margins.
- Complete Absence of Institutional Holdings: Zero FII, mutual fund, and insurance participation at 0.00% signals lack of confidence from sophisticated investors.
- Bearish Technical Outlook: Stock below all moving averages with bearish MACD, KST, and overall trend classification since February 12, 2026.
- High Volatility, Low Returns: One-year volatility of 61.52% with negative risk-adjusted returns places stock in "HIGH RISK LOW RETURN" category.
- Tax Rate Volatility: Effective tax rates fluctuating wildly from 9.22% to 44.44% across recent quarters raises earnings quality concerns.
- Illiquid Stock: Average daily volume of just 611 shares limits exit options and increases execution risk for investors.
Outlook: What to Monitor Going Forward
POSITIVE CATALYSTS
- Margin Recovery: Any quarter showing operating margin expansion back towards 12-15% levels would signal improved pricing power or cost management.
- Institutional Entry: Meaningful FII or mutual fund buying would validate the investment case and improve liquidity.
- Sustained Profit Growth: Consecutive quarters of YoY profit growth alongside revenue expansion would demonstrate business model sustainability.
- Return Ratio Improvement: ROCE and ROE trending upwards towards 15%+ levels would justify the premium valuation multiple.
- Technical Reversal: Stock breaking above 200-day moving average of ₹35.26 with improving momentum indicators would signal trend change.
RED FLAGS TO WATCH
- Further Margin Deterioration: Operating margins falling below 8% would indicate severe structural issues requiring immediate attention.
- Revenue Growth Slowdown: Any quarter showing flat or negative YoY revenue growth would remove the primary investment rationale.
- Debt Increase: Rising leverage or deteriorating interest coverage would strain the balance sheet and limit financial flexibility.
- Promoter Stake Reduction: Any material decline in promoter holding beyond normal corporate actions would signal loss of confidence.
- Technical Breakdown: Stock breaking below 52-week low of ₹25.50 would trigger fresh selling and potential capitulation.
The Verdict: Avoid Until Profitability Stabilises
Score: 43/100
For Fresh Investors: Avoid initiating positions. Whilst the 88.56% revenue growth appears attractive, the 659 basis points margin compression and 20.65% profit decline reveal fundamental profitability challenges that management has yet to address. The 42x earnings multiple offers no margin of safety given weak return ratios (ROCE 8.41%, ROE 5.18%) and bearish technical trends. Wait for at least two consecutive quarters of margin expansion and profit growth before considering entry.
For Existing Holders: Consider reducing exposure on any technical bounce towards ₹35-36 levels. The deteriorating fundamentals, absence of institutional support, and bearish technical setup suggest limited upside potential and significant downside risk. The company must demonstrate ability to translate revenue growth into sustainable profitability before the investment case improves.
Fair Value Estimate: ₹24-26 based on 30-35x earnings on normalised margins of 12-13%, implying 20-25% downside risk from current levels. The "Attractive" valuation grade appears premature until operational metrics stabilise and return ratios improve materially.
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 information available as of February 16, 2026, and are subject to change.
