I don’t know why people make understanding a business so complicated. There is no such thing as “promoter integrity” in the way some speak of it—because if there were pure integrity without self-interest, there would be no profit, and business is built for profit. Rather than calling it “promoter integrity,” it’s more accurate to talk about capital allocation. A business or investor should allocate capital expenditure in the right way, ensuring that the money spent is correctly allocated and not overpriced.
That’s how we should evaluate issues—acquisitions and similar matters are often negligible in the bigger picture. The market ultimately wants EPS growth and adjusts prices accordingly. For example, in Q4, the company had a write-off, which led to an EPS collapse and a corresponding price drop. But the write-off was a one-time event, so the mispricing happened only then.
In Q1 FY26, EPS saw a strong rebound across all financials, and the price moved up accordingly. If EPS growth continues into Q2 this year, it would confirm the management’s commentary about strong upward momentum in revenue and EPS growth of around 30%. This would likely lead to both further PE expansion and continued EPS growth.
Now, addressing why the company is still mispriced or undervalued despite good margins and growth rates: the main reason is low asset turnover. This is a supply-side dominant business, not demand-driven, so it requires large amounts of capital to operate. Additionally, working capital days are relatively long because most of their clients are government-related. Due to these two factors, even though the company earns good profits, it often has to raise capital through debt or equity, which drags down EPS.
This is essentially a shallow cyclical stock—when orders are high, performance improves significantly. The company’s ROIC is currently low, but as per my analysis, it is at the bottom of its cycle. Therefore, the stock has room to rally further without major turbulence. Capital allocation is also improving, sales growth is strong, and CFO remains a major strength for the company.