SEPC’s Q2FY27 Loss: A ₹95.35 Crore Deferred-Tax Charge Overshadows an Improved Operating Quarter
The gap between those two numbers has a single cause: a ₹95.35 crore deferred-tax charge. The company describes it as a non-cash accounting adjustment with no effect on cash flows, liquidity or its ability to service debt.
Interestingly, the pre-tax improvement came while other income fell from ₹13.61 crore to ₹1.25 crore. Operations did the lifting. Let me take you through the filing, number by number.
1 |
The Headline Numbers, With the Tax Charge Beside the Loss |
| Consolidated (₹ crore) | Q2FY27 | Q1FY27 | Q2FY26 |
| Revenue from operations | 230.77 | 273.80 | 237.42 |
| Other income | 1.25 | 8.68 | 13.61 |
| Total income | 232.02 | 282.48 | 251.02 |
| Profit before tax | 36.81 | 13.17 | 10.80 |
| Deferred-tax charge (non-cash) | 95.35 | 24.22 | 2.50 |
| Net profit/(loss) | (58.54) | (11.05) | 8.30 |
| EPS (₹) | (0.30) | (0.06) | 0.04 |
Across Q2FY26, Q1FY27 and Q2FY27, PBT went from ₹10.80 crore to ₹13.17 crore to ₹36.81 crore. The net line moved the other way only because of the tax charge that sits between PBT and profit.
Revenue from operations of ₹230.77 crore was 2.8% below Q2FY26 and 15.7% below a strong Q1FY27. The half-year picture is cleaner, as the next table shows.
| Consolidated (₹ crore) | H1FY27 | H1FY26 | Change |
| Revenue from operations | 504.58 | 439.70 | +14.8% |
| Profit before tax | 49.98 | 29.85 | +67.5% |
| Deferred-tax charge (non-cash) | 119.57 | 5.00 | — |
| Net profit/(loss) | (69.59) | 24.85 | — |
2 |
The ₹95.35 Crore Charge: What It Is |
SEPC carried forward large business losses from its difficult years. Tax law lets those losses be set off against future taxable profits within time limits. Accounting rules let a company book the expected tax saving as an asset, a deferred-tax asset, as long as future taxable profit looks likely enough.
Take an illustration. A company with ₹100 crore of eligible losses and a 25% tax rate may recognise a ₹25 crore asset. That asset is not cash in a bank account. It is an accounting recognition of tax that may never have to be paid.
Note 6 of the filing explains what SEPC did. A tranche of ₹190.24 crore of deferred-tax assets is due to expire by the end of the current financial year. As a matter of prudence the company charged off ₹119.57 crore of it during the half-year: ₹24.22 crore in Q1FY27 and ₹95.35 crore in Q2FY27.
| Case File · Deferred-Tax Assets on Carried-Forward Losses (₹ crore) | |
| DTA recognised, 31 March 2026 | 281.88 |
| Charged off in Q1FY27 | 24.22 |
| Charged off in Q2FY27 | 95.35 |
| DTA recognised, 30 September 2026 | 162.31 |
| Total carried-forward business losses | 872.86 |
| DTA balance the company expects to use before expiry | 91.63 |
The note is explicit on three points. The write-off involves no outflow of funds and no impact on cash flows, liquidity or the ability to service debt. The underlying business losses remain available for carry-forward and set-off under tax law, subject to time limits. And the company stays confident of generating enough taxable profit, given its order book and pipeline, to use the remaining balance of ₹91.63 crore.
Check the arithmetic yourself. ₹36.81 crore of PBT less the ₹95.35 crore charge gives the ₹58.54 crore loss. For the half-year, ₹49.98 crore less ₹119.57 crore gives ₹69.59 crore. Incidentally, Note 11 adds that no current-tax provision is needed, since brought-forward losses and unabsorbed depreciation shelter income under both the regular and minimum-tax provisions.
The charge does reduce reported profit and equity, and it carries a message about the timing of taxable profits. I treat it as housekeeping with a message, and not as a cash event.
3 |
What the Operating Line Is Saying? |
Strip out other income and the swing is stark. PBT excluding other income moved from a loss of ₹2.81 crore in Q2FY26 to a profit of ₹35.56 crore in Q2FY27.
| Consolidated (₹ crore) | Q2FY27 | Q1FY27 | Q2FY26 |
| PBT excluding other income | 35.56 | 4.49 | (2.81) |
| Operating EBITDA (excluding other income) | 45.87 | 17.25 | 10.57 |
| Margin on revenue from operations | 19.9% | 6.3% | 4.5% |
| Materials, erection and operation costs, % of revenue | 75.7% | 89.6% | 82.4% |
| Employee costs | 3.83 | 5.56 | 7.36 |
| Finance costs | 9.03 | 11.47 | 11.94 |
Three cost lines explain the improvement. Materials, erection, construction and operation costs fell to 75.7% of revenue from 82.4% a year ago. Employee costs nearly halved to ₹3.83 crore from ₹7.36 crore. Finance costs fell about 24% to ₹9.03 crore. Other expenses also dropped sharply, to ₹6.49 crore from ₹23.80 crore.
For the half-year, the company reports consolidated EBITDA of ₹73.04 crore, which includes ₹9.92 crore of other income. Excluding it, EBITDA is ₹63.12 crore, a margin of 12.5% on revenue from operations. PBT excluding other income rose to ₹40.06 crore from ₹14.73 crore a year earlier.
4 |
The Avenir Order, Read Squarely |
Q2FY27 includes a one-time order from Avenir International Engineers & Consultants LLC, valued at AED 13.50 million, for oil and gas design and drawing services. It was completed and billed within the quarter and recognised under other operating income.
The filing does not disclose what the order earned. It does show where the effect landed. The India segment earned PBT of ₹25.78 crore on revenue of ₹72.56 crore, against ₹6.05 crore on ₹118.85 crore in Q1FY27. In the standalone accounts, materials, erection and operation costs fell to 37.8% of revenue from 82.5% in Q1FY27.
My reading is that a high-margin, one-off design assignment accounts for much of that jump. That is why I anchor this article on the half-year and on the overseas run-rate, and not on the 19.9% margin of a single quarter. Overseas segment margin rose to 7.0% from 4.6% in Q1FY27, on revenue growth of 63% year on year.
Finally, the order shows what the planned acquisition of 90% of Avenir could bring in-house: specialised engineering capability for oil and gas clients.
5 |
Two Engines, One Direction |
| Segments (₹ crore) | Q2FY27 | Q1FY27 | Q2FY26 |
| Rest of World revenue | 158.22 | 154.96 | 96.89 |
| Rest of World PBT | 11.03 | 7.12 | 5.18 |
| India revenue | 72.56 | 118.85 | 140.53 |
| India PBT | 25.78 | 6.05 | 5.62 |
| Consolidated revenue from operations | 230.77 | 273.80 | 237.42 |
Overseas operations supplied about 69% of consolidated revenue in Q2FY27. Revenue rose roughly 63% year on year and segment PBT more than doubled, from ₹5.18 crore to ₹11.03 crore. Over the half-year, overseas revenue grew 42% to ₹313.17 crore. That is the Gulf pivot showing up in the ledger.
The India book is being reshaped at the same time. India segment revenue fell about 48% year on year in Q2FY27 and about 13% over the half-year, to ₹191.40 crore. Standalone PBT for the half-year still doubled to ₹31.83 crore from ₹14.98 crore.
6 |
Cash and the Balance Sheet |
Operating profit before working-capital changes rose about 37% to ₹66.25 crore in H1FY27. Net cash from operating activities was still negative at ₹47.49 crore, because receivables and contract assets absorbed cash during a growth half. The direction, however, is right: the outflow was ₹148.03 crore a year earlier, so the gap has narrowed by about ₹100 crore.
| Consolidated cash flow (₹ crore) | H1FY27 | H1FY26 |
| Operating profit before working-capital changes | 66.25 | 48.48 |
| Increase in trade payables | 411.81 | 194.88 |
| Increase in trade receivables | (369.99) | (246.51) |
| Increase in contract assets | (153.61) | (109.47) |
| Net cash from operating activities | (47.49) | (148.03) |
| Net cash from investing activities | 9.63 | 1.39 |
| Net cash from financing activities | 49.21 | 157.69 |
| Net increase in cash | 11.35 | 11.05 |
Interestingly, H1FY26 financing included a ₹175 crore share issue, while H1FY27 bridged its gap without fresh equity. On my arithmetic from the consolidated and standalone cash-flow statements, the overseas subsidiaries added about ₹343 crore of receivables and about ₹322 crore of payables, so overseas working capital is broadly self-funding. The whole ₹153.61 crore build in contract assets sits in the standalone India books, where billing milestones will decide the pace of conversion.
| Consolidated balance sheet (₹ crore) | 30 Sep 2026 | 31 Mar 2026 |
| Total assets | 3,500.84 | 3,092.66 |
| Total equity | 1,974.51 | 1,920.79 |
| Non-current borrowings | 343.94 | 239.30 |
| Current borrowings | 142.59 | 112.06 |
| Total borrowings | 486.53 | 351.37 |
| Cash and cash equivalents | 37.52 | 26.18 |
| Current contract assets | 1,617.12 | 1,463.51 |
| Trade receivables (current and non-current) | 1,230.63 | 860.84 |
| Trade payables | 968.55 | 720.08 |
Total borrowings of ₹486.53 crore sit against equity of ₹1,974.51 crore, a debt-to-equity ratio of about 0.25x. Current assets of ₹2,899.63 crore cover current liabilities of ₹1,153.13 crore about 2.5 times. Paid-up capital implies roughly 194.55 crore shares, so book value works out to about ₹10 per share, and at ₹5.40 the stock trades at about half of that.
Contract assets and receivables are large, and their conversion into cash is the test of the next two quarters. They are not bad debts by definition. They are billings in waiting.
7 |
The Auditors’ Qualified Conclusion, Explained |
MSKA & Associates LLP have issued a qualified conclusion on the standalone and consolidated results. Both items concern recoverability evidence, not misstated numbers, and the auditors state that the same qualifications appeared in their FY26 audit report, their September 2025 review and their June 2026 review. Nothing new surfaced this quarter.
| Case File · The Two Qualified Items (₹ crore) | |
| A. DTA the auditors could not corroborate | 91.63 |
| B1. Non-current contract assets, net of provisions | 90.38 |
| B2. Non-current trade receivables, net of provisions | 57.43 |
Item A concerns taxable profits. The auditors could not obtain enough evidence that SEPC will earn sufficient taxable profit to use the ₹91.63 crore balance of deferred-tax assets before expiry. The company has already written off ₹119.57 crore of such assets in the half-year rather than leave them to be argued over.
Item B concerns older balances on projects stalled by delays in regulatory approvals and by disputes. One customer is under a liquidation process. Management is confident of recovery, citing the realisability of that customer’s assets and ongoing negotiations with the others. The auditors say they lack sufficient evidence to confirm it either way. The company’s Note 3 gives the receivables figure as ₹57.43 crore at September, while the auditors’ paragraph quotes ₹58.45 crore, which is the March level.
Proportion helps. On my arithmetic, contract assets and trade receivables on the balance sheet total about ₹2,938 crore. The questioned non-current items of about ₹148 crore are roughly 5% of that pool. Outside these two matters, the auditors state that nothing has come to their attention to suggest the statement is materially misstated, and the results are prepared on a going-concern basis with positive net worth and cash profits.
8 |
The Beams Under the Roof |
- Promoter support. Mark AB Capital Private Limited funded ₹220.32 crore during the half-year at a concessional 0.1% a year. The loans are repayable in December 2035 as a bullet payment, are not repayable on demand and rank behind banks and other creditors. A letter of support covers at least twelve months. The money settled legal obligations, vendor dues, employee salary arrears, statutory liabilities and lender payments while the company’s bank accounts were under attachment.
- Equity effect. The difference between the face value and the discounted present value of the loans, ₹121.16 crore, is recorded as a deemed capital contribution in other equity, which moved to a positive ₹27.13 crore from a negative ₹24.36 crore in March.
- Bank accounts freed. The Singapore arbitration involving GPE (India) Limited and others was settled with no financial impact on SEPC. By its order of 30 September 2026, the Madras High Court directed withdrawal of the attachment on SEPC’s bank accounts.
- ECGC award. Mokul Shriram EPC JV, a joint venture in which SEPC is a partner, won a National Consumer Disputes Redressal Commission order of 27 January 2021 for the Basra, Iraq project. It directs ECGC to pay ₹265.01 crore with 10% simple interest from 19 September 2016. ECGC has appealed to the Supreme Court. I am not counting it; anything that arrives is a bonus.
- Avenir. The board approved the acquisition of 90% of Avenir through a share swap on 6 July 2026. Shareholders approved it by postal ballot on 5 August 2026 and the stock exchanges on 6 November 2026. Lender and other applicable regulatory approvals are still required.
Money at 0.1% for nine years is not a loan. It is patience in cash form.
9 |
What I Will Be Watching |
- Operating margin outside one-off orders, starting with Q3FY27.
- A positive operating cash flow print, led by collections on contract assets.
- Recovery of the older project dues behind the auditors’ qualification.
- Revenue from the India book stabilising after the sharp contraction.
- Completion of the Avenir acquisition and its first order contributions.
- Utilisation of the remaining deferred-tax assets as taxable profits build.
10 |
The SumanSpeaks Verdict |
The loss is housekeeping, the profit is real and the cash is next. Consolidated PBT of ₹36.81 crore is nearly three times Q1FY27’s ₹13.17 crore, other income fell while profit rose, overseas revenue grew about 63% year on year, and the balance sheet carries debt of roughly 0.25 times equity.
The checklist ahead is short. At ₹5.40 the stock trades at about half of a book value per share of roughly ₹10, a book that includes the receivables and tax assets discussed above. The market is telling you how much of that checklist it still treats as undelivered.
| Parameter | SumanSpeaks Reading |
| Consolidated PBT | ₹36.81 crore, up about 241% year on year. H1FY27 ₹49.98 crore, up 67.5%. |
| Quality of profit | Other income fell to ₹1.25 crore from ₹13.61 crore while PBT rose. |
| Overseas business | Revenue up about 63%, segment PBT up about 113%, margin 7.0%. |
| Reported net loss | Driven by a ₹95.35 crore non-cash deferred-tax charge. |
| Balance sheet | Debt-to-equity about 0.25x, current ratio about 2.5x, stock near half of book value. |
| Promoter and legal support | ₹220.32 crore of long-dated funding. Bank attachment withdrawn. |
| Operating cash flow | ₹47.49 crore negative against ₹148.03 crore negative a year ago. A positive print is awaited. |
| Q2FY27 margin | Includes a one-time Avenir order. The half-year and overseas margins are the better guide. |
| Auditors’ qualification | Carried over from earlier reports. Covers about 5% of the receivables pool plus part of the DTA. |
For personalized stock market insights and guidance, feel free to reach out at: sumanm2007s@gmail.com | suman2005s@rediffmail.com
| SumanSpeaks | Estd 2006 | sumanspeaks.blogspot.com |
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