The sequential profit recovery in Q2 FY26 stems primarily from improved revenue realisation, with net sales climbing 7.63% quarter-on-quarter to ₹112.53 crores. However, this growth failed to translate into meaningful margin expansion, as operating profit margin (excluding other income) remained virtually flat at 11.93% compared to 11.96% in Q1 FY26. More troubling is the year-on-year perspective: despite operating margins improving by 112 basis points to 11.93% from 10.81% in Q2 FY25, net profit margins contracted sharply by 151 basis points to 4.55% from 6.06%, pointing to deterioration in below-the-line items including elevated interest costs and depreciation charges.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 112.53 | +7.63% | 5.12 | +26.42% | 4.55% |
| Jun'25 | 104.55 | -16.13% | 4.05 | -48.34% | 3.87% |
| Mar'25 | 124.65 | +16.66% | 7.84 | +74.22% | 6.30% |
| Dec'24 | 106.85 | -7.62% | 4.50 | -35.90% | 4.22% |
| Sep'24 | 115.66 | +4.95% | 7.02 | +33.46% | 6.06% |
| Jun'24 | 110.20 | -7.57% | 5.26 | -33.84% | 4.75% |
| Mar'24 | 119.23 | — | 7.95 | — | 6.65% |
Financial Performance: Volatile Trajectory Continues
Yuken India's Q2 FY26 results underscore a pattern of quarterly volatility that has characterised the company's recent performance. Net sales of ₹112.53 crores represented a 7.63% sequential improvement from Q1 FY26's ₹104.55 crores, yet remained 2.71% below the ₹115.66 crores achieved in the corresponding quarter last year. This inconsistent revenue trajectory reflects the cyclical nature of the capital goods sector, where order flows and execution timelines can create significant quarter-to-quarter variations.
Operating profit before depreciation, interest, tax and other income (PBDIT excluding OI) reached ₹13.43 crores in Q2 FY26, up from ₹12.50 crores in the previous quarter. The operating margin of 11.93% showed marginal compression of 3 basis points sequentially, suggesting that the company's cost management efforts are struggling to keep pace with revenue growth. Year-on-year, however, the operating margin expanded by 112 basis points from 10.81%, indicating some success in improving operational efficiency despite challenging market conditions.
The profit before tax (PBT) of ₹6.61 crores in Q2 FY26 represented a 15.16% sequential increase from ₹5.74 crores in Q1 FY26, but fell 20.17% short of the ₹8.28 crores recorded in Q2 FY25. Interest expenses remained elevated at ₹2.56 crores, marginally lower than the previous quarter's ₹2.61 crores but significantly higher than the ₹2.21 crores in Q2 FY25. This 15.84% year-on-year increase in interest costs reflects the company's higher debt levels and rising borrowing costs, which are eroding bottom-line profitability despite operational improvements.
Depreciation charges surged to ₹5.21 crores in Q2 FY26 from ₹5.06 crores in Q1 FY26 and ₹3.29 crores in Q2 FY25, representing a substantial 58.36% year-on-year increase. This sharp rise in depreciation is attributable to the company's ongoing capital expenditure programme, with fixed assets expanding from ₹188.32 crores in FY24 to ₹235.26 crores in FY25. Whilst this investment in capacity enhancement may position Yuken India for future growth, it is currently pressuring near-term profitability metrics.
Operational Challenges: Return Ratios Remain Subdued
Yuken India's return on equity (ROE) stands at a modest 5.81% on average, reflecting weak capital efficiency relative to industry standards. The latest ROE of 8.18% shows some improvement but remains well below the double-digit returns typically expected from manufacturing companies. Return on capital employed (ROCE) presents a similar picture, with the average ROCE at 6.36% and the latest figure at 9.47%. These subdued return metrics indicate that the company is struggling to generate adequate returns on the capital deployed in its business.
The company's debt-to-equity ratio stood at 0.33 times on a half-yearly basis, representing the highest level in recent periods. Whilst this leverage ratio remains manageable and the company maintains negative net debt (indicating cash exceeds debt), the upward trajectory in leverage is noteworthy. Total debt declined from ₹8.04 crores in FY24 to ₹6.06 crores in FY25, suggesting disciplined financial management, but the elevated interest coverage ratio of just 2.91 times (EBIT to interest) indicates limited cushion for servicing debt obligations.
Key Concern: Margin Compression Pipeline
Despite operating margin improvement of 112 basis points year-on-year, PAT margins contracted by 151 basis points due to higher interest costs (up 15.84% YoY) and surging depreciation charges (up 58.36% YoY). This divergence between operating and net profitability suggests that below-the-line items are increasingly eroding the benefits of operational efficiency gains.
Employee costs rose to ₹16.56 crores in Q2 FY26 from ₹16.15 crores in Q1 FY26 and ₹16.06 crores in Q2 FY25, representing a modest 3.11% year-on-year increase. This relatively contained growth in staff expenses, which constitute approximately 14.7% of net sales, demonstrates reasonable cost discipline. However, the company's ability to extract productivity gains from its workforce remains questionable given the subdued revenue growth trajectory.
Balance Sheet: Capital Intensity Rising
Yuken India's balance sheet reveals a company in expansion mode, with fixed assets increasing substantially to ₹235.26 crores in FY25 from ₹188.32 crores in FY24, representing a 24.93% increase. This aggressive capital deployment reflects ongoing investments in manufacturing capacity at the company's Malur facility near Bangalore. Total shareholder funds expanded to ₹301.15 crores in FY25 from ₹279.51 crores in FY24, driven by retained earnings and reserves growth.
Current assets stood at ₹223.98 crores in FY25, down from ₹238.09 crores in FY24, whilst current liabilities increased to ₹193.11 crores from ₹180.72 crores, resulting in a working capital position of ₹30.87 crores. The debtors turnover ratio improved to 3.97 times on a half-yearly basis, indicating faster collection of receivables. However, cash and cash equivalents, whilst at their highest level of ₹61.42 crores on a half-yearly basis, declined to just ₹2.00 crores by FY25 year-end from ₹10.00 crores in FY24, raising questions about liquidity management.
| Balance Sheet Item | FY25 (₹ Cr) | FY24 (₹ Cr) | Change |
|---|---|---|---|
| Fixed Assets | 235.26 | 188.32 | +24.93% |
| Shareholder Funds | 301.15 | 279.51 | +7.74% |
| Long-Term Debt | 6.06 | 8.04 | -24.63% |
| Current Assets | 223.98 | 238.09 | -5.93% |
| Current Liabilities | 193.11 | 180.72 | +6.86% |
| Cash & Equivalents | 2.00 | 10.00 | -80.00% |
Industry Context: Underperforming Sector Peers
The compressors, pumps and diesel engines sector has faced headwinds over the past year, with the sector declining 6.61%. Yuken India's 19.80% decline over the same period significantly underperformed its sector by 13.19 percentage points, indicating company-specific challenges beyond broader industry dynamics. The capital goods sector's performance is closely tied to industrial capital expenditure cycles, which have shown mixed signals in recent quarters as manufacturing activity moderates.
Yuken India operates in a niche segment of hydraulic equipment manufacturing, competing with both domestic players and imports from global manufacturers. The company's technical collaboration with Yuken Kogyo Company Limited, Japan, provides access to advanced technology and designs, but this advantage has not translated into superior financial performance. The company's market capitalisation of ₹1,207 crores positions it as a micro-cap player, limiting its ability to compete on scale with larger industrial equipment manufacturers.
Competitive Positioning: Scale Disadvantage
Yuken India's ROE of 5.81% significantly trails sector peers such as Oswal Pumps (54.66%), Swaraj Engines (44.26%) and Shakti Pumps (20.03%). This substantial performance gap highlights the company's struggle to generate competitive returns despite its technical collaboration with a Japanese technology partner. The company's micro-cap status and limited institutional following (just 1.41% institutional ownership) further constrain its ability to attract growth capital.
Peer Comparison: Valuation Premium Unjustified
Yuken India trades at a price-to-earnings ratio of 52.80 times trailing twelve-month earnings, representing a substantial premium to the industry average P/E of 32 times. This elevated valuation multiple appears difficult to justify given the company's weak return profile and negative earnings momentum. The company's price-to-book value of 4.10 times, whilst lower than some peers, still reflects a significant premium to net asset value despite the subdued ROE of 5.81%.
| Company | P/E (TTM) | ROE (%) | P/BV | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Yuken India | 52.80 | 5.81 | 4.10 | 0.16 | 0.32 |
| Shakti Pumps | 22.45 | 20.03 | 5.54 | 0.14 | 0.13 |
| Oswal Pumps | 31.48 | 54.66 | 17.99 | — | 0.64 |
| Kirloskar Pneumatic | 37.58 | 15.58 | 6.29 | 0.90 | -0.38 |
| Greaves Cotton | 47.94 | 7.17 | 3.61 | 0.94 | -0.03 |
| Swaraj Engines | 27.00 | 44.26 | 12.19 | 2.66 | -0.45 |
Compared to sector peers, Yuken India exhibits the weakest return on equity at 5.81%, substantially below the peer average of approximately 28%. Despite this inferior profitability profile, the company commands the highest P/E multiple in the peer group at 52.80 times. This valuation disconnect suggests that the market may be overestimating the company's growth prospects or underappreciating the structural challenges facing its business model.
The company's dividend yield of 0.16% is amongst the lowest in the peer group, reflecting both the modest absolute dividend of ₹1.50 per share and the elevated stock price. With a dividend payout ratio of just 10.36%, Yuken India retains the vast majority of earnings for reinvestment, yet the return on this retained capital remains disappointingly low. This combination of high valuation, low returns and minimal dividend yield presents an unattractive proposition for value-oriented investors.
Valuation Analysis: Expensive Relative to Fundamentals
Yuken India's current valuation metrics signal an expensive stock relative to its fundamental performance. The P/E ratio of 52.80 times represents a substantial premium to both the industry average of 32 times and many higher-quality peers. The company's EV/EBITDA multiple of 24.58 times and EV/EBIT multiple of 36.92 times further confirm the stretched valuation, particularly when juxtaposed against the company's modest growth trajectory and weak return profile.
The stock's price-to-book value of 4.10 times implies that investors are paying ₹4.10 for every rupee of book value, despite the company generating an ROE of just 5.81%. This valuation-to-return mismatch is concerning, as companies typically justify premium P/BV multiples through superior return on equity. The company's valuation grade has oscillated between "Expensive" and "Fair" over the past year, currently sitting in "Expensive" territory since May 2025.
Trading at ₹904.95, the stock has declined 27.01% from its 52-week high of ₹1,239.75 but remains 26.08% above its 52-week low of ₹717.75. The current price sits below all key moving averages, including the 5-day (₹918.01), 20-day (₹929.55), 50-day (₹959.84), 100-day (₹1,016.62) and 200-day (₹948.32) moving averages, indicating weak technical momentum across all timeframes.
Shareholding Pattern: Promoter Stake Increases
Promoter holding in Yuken India stood at 58.04% as of September 2025, up from 56.16% in June 2025, reflecting a 1.88 percentage point increase. This sequential rise in promoter stake, achieved through reclassification in July 2025, demonstrates continued promoter confidence in the business. The promoter group is led by Yuken Kogyo Co Ltd of Japan with a 47% stake, alongside domestic promoter entity Benefic Investment And Finance Company Pvt Ltd holding 10.25%.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter Holding | 58.04% | 56.16% | 56.16% | +1.88% |
| FII Holding | 0.07% | 0.03% | 0.08% | +0.04% |
| Mutual Fund Holding | 0.67% | 0.94% | 0.95% | -0.27% |
| Other DII Holdings | 0.68% | 0.71% | 0.71% | -0.03% |
| Non-Institutional | 40.54% | 42.16% | 42.10% | -1.62% |
Institutional participation remains minimal, with combined FII and mutual fund holdings totalling just 0.74% as of September 2025. Mutual fund holding declined from 0.94% in June 2025 to 0.67% in September 2025, indicating reduced institutional interest. The number of mutual funds invested in the company stands at just two, whilst FII participation is spread across nine foreign institutional investors. This limited institutional ownership reflects the company's micro-cap status and constrained liquidity, which may contribute to higher stock price volatility.
Non-institutional investors, comprising retail and high-net-worth individuals, hold 40.54% of the company, down from 42.16% in the previous quarter. The absence of promoter pledging is a positive indicator of financial stability, as zero pledged shares suggest promoters have no immediate funding constraints. However, the low institutional holding limits the stock's appeal to larger investors and may restrict access to growth capital.
Stock Performance: Sustained Underperformance
Yuken India's stock has delivered disappointing returns across most timeframes, declining 19.80% over the past year compared to the Sensex's 8.37% gain, resulting in negative alpha of 28.17 percentage points. The underperformance extends to shorter timeframes as well, with the stock down 1.23% over one month versus the Sensex's 2.49% gain, and down 9.18% over three months against the Sensex's 4.31% rise.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.17% | +1.03% | -3.20% |
| 1 Month | -1.23% | +2.49% | -3.72% |
| 3 Month | -9.18% | +4.31% | -13.49% |
| 6 Month | +0.03% | +3.37% | -3.34% |
| YTD | -15.82% | +7.59% | -23.41% |
| 1 Year | -19.80% | +8.37% | -28.17% |
| 2 Years | +32.67% | +29.47% | +3.20% |
| 3 Years | +85.06% | +36.43% | +48.63% |
The longer-term picture provides some relief, with the stock generating positive alpha over two-year (3.20 percentage points) and three-year (48.63 percentage points) periods. However, this historical outperformance has reversed sharply over the past year as fundamental performance has deteriorated. The stock's year-to-date decline of 15.82% against the Sensex's 7.59% gain underscores the challenging operating environment and investor scepticism about near-term prospects.
With a beta of 1.50, Yuken India exhibits higher volatility than the broader market, amplifying both gains and losses. The stock's 47.21% volatility over the past year, combined with negative returns, has resulted in a negative Sharpe ratio and risk-adjusted return of -0.42, placing it in the "high risk, low return" category. This unfavourable risk-return profile makes the stock unattractive for risk-averse investors seeking stable returns.
"Despite operating margin improvements, the disconnect between operational gains and bottom-line profitability reveals structural challenges in Yuken India's business model that justify investor caution."
Investment Thesis: Multiple Red Flags Emerge
Yuken India's investment case is undermined by several concerning factors that outweigh its limited positives. The company's proprietary advisory score of 28 out of 100 places it firmly in "Strong Sell" territory, reflecting negative financial trends, bearish technical indicators and expensive valuation. The Mojo 4 Dots analysis reveals negative near-term drivers (quarterly financial trend negative, technicals mildly bearish), average quality, expensive valuation and an overall cautious assessment.
The company's quality grade of "Average" reflects its modest long-term growth (19.79% sales CAGR over five years) but is constrained by weak return metrics. The average ROCE of 6.36% and average ROE of 5.81% fall well short of acceptable thresholds for manufacturing companies, indicating inefficient capital deployment. The weak EBIT-to-interest coverage of 2.91 times provides limited cushion for debt servicing, whilst the rising debt-to-equity ratio adds to financial risk.
Key Strengths & Risk Factors
KEY STRENGTHS
- Technical collaboration with Yuken Kogyo Japan provides access to advanced hydraulic technology and global best practices
- Operating margin expansion of 112 basis points YoY to 11.93% demonstrates improving operational efficiency
- Zero promoter pledging indicates financial stability and confidence in business prospects
- Debtors turnover ratio at 3.97 times reflects efficient working capital management and faster receivables collection
- Long-term sales growth CAGR of 19.79% over five years shows consistent top-line expansion
- Manageable debt-to-equity ratio of 0.33 times provides financial flexibility for growth investments
- Established manufacturing presence in Malur near Bangalore with 40+ years of operational history
KEY CONCERNS
- Net profit declined 27.07% YoY despite revenue remaining flat, indicating severe margin compression at bottom line
- ROE of 5.81% and ROCE of 6.36% are significantly below acceptable thresholds, reflecting poor capital efficiency
- Interest costs surged 15.84% YoY whilst depreciation jumped 58.36% YoY, eroding profitability
- Stock trades at expensive P/E of 52.80x despite weak fundamentals, representing significant valuation risk
- Minimal institutional ownership of 1.41% limits liquidity and access to growth capital
- Stock underperformed sector by 13.19 percentage points over past year, indicating company-specific challenges
- Cash position declined 80% from ₹10 crores to ₹2 crores in FY25, raising liquidity concerns
- Negative financial trend since June 2025 and mildly bearish technical trend signal deteriorating momentum
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained improvement in operating margins above 12% for multiple consecutive quarters
- Revenue growth acceleration to double-digit YoY levels driven by capacity utilisation gains
- ROE improvement towards 10-12% range through better asset productivity
- Reduction in interest and depreciation burden as proportion of revenues
- Increased institutional participation and improved stock liquidity
RED FLAGS
- Further YoY profit declines in upcoming quarters indicating persistent operational challenges
- Continued margin compression at PAT level despite operating margin stability
- Rising debt levels or deteriorating interest coverage ratio below 2.5 times
- Cash flow generation remaining negative for multiple consecutive quarters
- Sustained technical weakness with stock breaking below ₹850 support levels
The Verdict: Exit Recommended on Weak Fundamentals
Score: 28/100
For Fresh Investors: Avoid initiating positions. The combination of expensive valuation (P/E 52.80x), weak return profile (ROE 5.81%), negative earnings momentum (PAT down 27% YoY) and bearish technical trend creates an unfavourable risk-reward equation. Better opportunities exist in the capital goods space with stronger fundamentals and more attractive valuations.
For Existing Holders: Consider exiting positions on any relief rallies towards ₹950-₹1,000 levels. The deteriorating financial trend, margin pressures from elevated interest and depreciation costs, and expensive valuation relative to fundamentals warrant booking losses. The 27% decline from 52-week highs may extend further if operational challenges persist.
Fair Value Estimate: ₹650-₹700 (28-33% downside from current levels), implying a more reasonable P/E of 35-38x on normalised earnings, which better reflects the company's modest growth and return profile.
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.
