Sheela Foam Q2 FY26: Sales Up 8%, Profit Slumps on Costs

Stock snapshot and what changed

Sheela Foam, a ₹7,876 crore market capitalisation company, was trading at ₹715.80 as of November 4, 2025. The stock fell 1.40% in the latest trading session, extending a weak run seen across longer periods. The share price is down 32.40% from its 52-week high of ₹1,058.85 and trades 16.62% above its 52-week low of ₹613.80. In peer-return snapshots carried alongside the results data, Sheela Foam showed -6.9% over 1 week, -13.3% over 1 month, and -43.1% over 1 year.

Operationally, the company runs ten manufacturing facilities across India and sells across home comfort, technical foam, and institutional foam segments. The quarter’s numbers reinforced a recurring theme: revenue growth has stayed positive, but costs and below-the-line items continue to compress the bottom line.

Q2 FY26 headline numbers

For Q2 FY26, consolidated net sales rose to ₹874.94 crore, up 6.52% quarter-on-quarter and 7.66% year-on-year. Consolidated net profit came in at ₹9.66 crore, up 47.71% sequentially but down 51.55% from the year-ago quarter. Operating margin (excluding other income) improved to 9.96%, described as the highest in eight quarters.

Despite the operating margin improvement, the profit-after-tax (PAT) margin dropped to 0.87% from 2.48% in Q2 FY25. The mismatch between operating progress and net profitability is central to how investors are reading these results.

Sequential recovery, but an uneven revenue path

Sequentially, the topline improved from ₹821.41 crore in Q1 FY26 to ₹874.94 crore in Q2 FY26. But the quarterly series shows volatility across recent periods, including a -12.15% sequential decline in Mar’25 revenue from the prior quarter and a strong rebound in Dec’24.

The company’s operating profit (excluding other income) in Q2 FY26 was ₹87.13 crore, up 15.83% from ₹75.23 crore in Q1 FY26 and up 23.88% from ₹70.33 crore in Q2 FY25. Employee costs were ₹112.66 crore, slightly lower than ₹115.21 crore in Q1 FY26.

The operating margin improvement suggests some cost control at the operating line. But it was not enough to offset higher interest and depreciation, and a tax rate that further reduced reported profit.

Why operating gains did not translate into net profit

Profit before tax (PBT) stood at ₹12.23 crore in Q2 FY26, improving from ₹9.68 crore in Q1 FY26 but falling sharply from ₹26.01 crore in Q2 FY25. Two large recurring charges continue to weigh on reported profitability: interest and depreciation.

Interest costs were ₹28.07 crore in Q2 FY26, while depreciation was ₹49.52 crore. The results note that depreciation reflects a sizeable capital expenditure programme. The effective tax rate for Q2 FY26 was 37.78%, which further compressed profits after tax.

The company reported standalone net profit of ₹7.61 crore and consolidated net profit of ₹9.66 crore for the quarter, highlighting the importance of viewing segment and consolidation effects carefully when comparing quarters.

Other income dependence and earnings quality

A key flag highlighted in the results commentary is the dependence on other income. In Q2 FY26, other income was ₹10.53 crore, which was 52.47% of PBT of ₹12.23 crore. In Q1 FY26, other income was ₹9.74 crore, exceeding PBT of ₹9.68 crore, implying that core operations alone would not have covered below-the-line costs in that quarter. In Q2 FY25, other income was ₹31.83 crore and materially lifted reported profitability.

This pattern matters because a higher share of non-operating income can make earnings less predictable and harder to value, especially when core margins are under pressure.

Margin pressure shows up in gross profitability

The commentary states that gross profit margin fell to 7.06% in Q2 FY26 from 9.09% in Q2 FY25, pointing to persistent raw material cost pressure and pricing challenges in a competitive market. This deterioration, alongside a much lower PAT margin, explains why investors may focus more on net profitability than on the eight-quarter high in operating margin.

Capital efficiency and leverage indicators

The company’s capital efficiency ratios were described as weak, with ROCE at 1.69% and ROE at 2.28% in the latest period. Fixed assets were stated to exceed ₹2,800 crore, with annual depreciation approaching ₹190 crore.

On leverage, debt-to-EBITDA was noted at 2.55 times. Net debt to equity was stated at 0.31. Interest coverage, measured by EBIT to interest, averaged 8.55 times over recent periods, but in Q2 FY26, operating profit to interest was 3.10 times. These indicators underline why interest costs of roughly ₹28 crore per quarter have become a major swing factor for net profit.

FY25 and Q4 FY25: management commentary and reported numbers

In the earnings commentary for FY25 and Q4 FY25, management pointed to integration actions in which Kurlon brand sales were routed through Sheela Foam as part of the integration plan, aiding revenue growth. For Q4 FY25 (standalone), the company reported revenue of ₹691 crore, EBITDA of ₹46 crore, EBITDA margin of 6.6%, and net profit of ₹12 crore. For FY25 (standalone), revenue was around ₹2,600 crore, EBITDA was ₹235 crore with a margin of 9.1%, and net profit was ₹112 crore.

On a consolidated basis, Q4 FY25 revenue was ₹850 crore with EBITDA of ₹69 crore and EBITDA margin of 8.1%, while net profit was ₹22 crore. For FY25 (consolidated), revenue was around ₹3,500 crore, EBITDA around ₹300 crore with a margin of 8.3%, and net profit around ₹100 crore.

Management also cited an annual cost-saving run rate of ₹120 crore reflected in FY25 gross margins, and said an additional ₹130 crore of savings had been executed, with impact expected to show in performance over time.

Market impact: what investors are reacting to

The market’s focus appears to be on the sustainability of earnings rather than just revenue growth. Q2 FY26 showed healthy sales growth and improved operating margin, but net profit still halved year-on-year, and PAT margin fell below 1%. The results also highlight the extent to which other income supports reported profitability and how interest and depreciation constrain earnings.

The stock’s distance from its 52-week high, alongside weak one-year returns (-43.1% in the peer-return table), fits with investor caution around margin pressures, capital efficiency, and the path to meaningful net margin recovery.

Key financial datapoints (recent quarters)

Analysis: what to watch from here

Operationally, the near-10% operating margin in Q2 FY26 is a positive data point, especially after the sharp margin dip to 3.88% in Mar’25. But the quarter also shows that operating performance alone is not enough when interest, depreciation, and tax keep net profits thin. A second monitorable is the quality of earnings: other income comprised more than half of PBT in Q2 FY26.

The results commentary also flagged sector pressure, noting the furniture industry declined 26.02% over the past year, which frames the demand environment in which Sheela Foam is operating.

Conclusion

Sheela Foam’s Q2 FY26 results combined steady sales growth with an improvement in operating margin, but net profit and PAT margin remained under pressure due to interest, depreciation, tax, and a reliance on other income. The next few quarters will likely be judged on whether operating improvements can persist and whether net profitability recovers without heavy support from non-operating income.