Covance Softsol Limited

Technology — Information Technology Services · BSE

₹143.00+₹7.95 (+5.89%)

DalalBaazaar Score

73 / 100

🟢 Good

Verdict

REASONABLE

Risk

Moderate

Driven by micro-cap size, which brings thin liquidity.

In simple words: Strong business and financial position, with both sales and profits growing well. Thin profit margins are the main factor to watch.

Decision support, not a buy or sell call.

As of 18 Oct 2026, 7:02 pm

Understanding the Business

Company site ↗

The 60-second version of Covance Softsol Limited — what it does, how it earns, and who it competes with, before any of the numbers below.

What does this company do?

Covance Softsol Limited provides information technology services and software solutions.

IndustryInformation Technology Services

SectorTechnology

Annual revenue₹146 Cr

How does it make money?

Turns over ₹146 Cr a year. Of every ₹100 of sales, about ₹24 reaches shareholders as profit, with ₹29 left at the operating level before interest, tax and depreciation.

Who are its competitors?

The closest listed comparisons in its industry are TATA CONSULTANCY SERV LT, INFOSYS LIMITED, HCL TECHNOLOGIES LTD, WIPRO LTD. These are the companies its valuation and returns are measured against elsewhere in this report.

Compared side by side in Peers ↓

What is its competitive advantage?Some evidence

ROCE of 24.0% is above what capital typically costs, which suggests some pricing power, though not yet the sustained, wide gap that marks a durable advantage.

Peer median ROE32.0%

What has been driving growth?

Profit has moved mainly because margins changed, not because the business sold much more. Over 2 years revenue moved +139% while net margin moved +1048% relative to itself. What this cannot tell you is which products, customers or geographies did the work — that lives in the segment disclosures of the annual report.

Revenue effect+139%

Margin effect+1048%

DalalBaazaar Score

73/ 100

Good

Weighted across six categories. Every point is explained below.

✗ Micro Cap: thinner liquidity and sharper drawdowns are normal
✗ Profits have swung sharply from year to year — earnings are hard to forecast

Quality vs. Valuation

Company Quality

76/ 100

Good

How good the business is, ignoring the share price entirely.

Valuation

84/ 100

Cheap

What you are being asked to pay, ignoring how good the business is.

A good business currently available at an undemanding price — the combination this framework is built to look for.

Historical Valuation

Current P/E

7.4x

2Y Median

15.0x

22 monthly readings · mean 18.2x · range 3.9x–43.0x

Sector Median

16.5x

median of 4 sector peers

🟢Current valuation is approximately 50% below its 2y median of 15.0x. Cheaper than its own history, which is worth a reason too: the market may be pricing in something the backward-looking numbers do not show.

🟢Against its sector it trades 55% below the peer median of 16.5x.

vs. its own history

Cheap

15.0x median over 22 months · -50%

vs. sector peers

Cheap

16.5x median of 4 peers · -55%

vs. generic bands

Cheap

Below 15x

EV/EBITDA

9.2x

PEG

0.02

What's Good / What's Bad

🟢 What's Going Well5

Margins are improving
EBITDA margin is up from 0.7% to 28.6% over 2 years.
Cash flow has turned positive
Free cash flow moved from negative to positive over 2 years.
Return on equity is rising
ROE has improved from 1.7% to 20.4%.
Return on capital is rising
ROCE has improved from 5.0% to 24.0%.
High return on capital employed
ROCE of 24.0% is the mark of a business that converts capital into profit efficiently.

🔴 What Needs Attention0

Nothing stands out as clearly deteriorating on the years of data available.

Red Flags

2 items require attention · 2 high

🔴Profit up while operating cash flow fallsFinancial
Reported profit rose but cash generated by operations declined — worth checking whether earnings are being supported by non-cash items or working capital.
🔴Receivables growing faster than salesFinancial
Receivables up 382% against revenue up 139% — sales are being booked faster than they are collected.

Investment Thesis

🟢 Bull CaseWhat could make this work?

Capital compounds at a high rate
ROCE of 24.0% means each rupee reinvested earns well above what capital costs. If the company can keep deploying at this rate, growth creates value rather than just consuming cash.
Margin expansion has further to run
EBITDA margin has risen from 0.7% to 28.6%. If that holds, profit compounds faster than sales and today's multiple looks cheaper in hindsight than it does now.
Priced below its own history
The stock trades 50% below its own median multiple. If the business performs as it has and simply re-rates back to normal, that gap is return on its own.
Cheaper than its peers
It trades 55% below the sector median. Either the market sees a problem the numbers do not show, or the discount closes.
Self-funding with balance-sheet headroom
Positive free cash flow of ₹3 Cr alongside low debt means growth, buybacks or dividends need no outside money — and a downturn can be absorbed rather than refinanced.

🔴 Bear CaseWhat could go wrong?

Sales are being booked faster than collected
Receivables are up 382% against revenue up 139%. If customers keep taking longer to pay, reported profit will not turn into cash — and write-offs follow if some never do.
Earnings are hard to forecast
Profit has swung sharply from year to year, so any single year — good or bad — is a weak guide to the next. Cyclical earnings deserve lower multiples for that reason.
Size brings its own risk
Micro Cap businesses are thinly traded, so exits are harder in a falling market and single events move the price more than they would for a larger company.
Several serious flags at once
2 high-severity checks triggered. Individually each has an explanation; together they raise the chance that something structural is wrong rather than a one-off.

🟡 Key Things to WatchMeasurable tripwires, set against where this company stands today

1Revenue growth stays above 41% a year✓ 54.5% CAGR
Latest reported year was 43.5%. The bar is set below the established compounding rate, so ordinary variation does not trip it.
2EBITDA margin holds above 27%✓ 28.6%
Two points below today's level — enough room for noise, tight enough to catch real compression.
3Free cash flow remains positive✓ ₹3 Cr
Profit that never becomes cash eventually stops being profit.
4Debt / EBITDA stays below 2x✓ 1.8x
The ratio lenders write covenants against; it survives a small or negative equity base, unlike Debt/Equity.
5ROCE stays above 21%✓ 24.0%
Falling returns on capital are usually competition arriving, and show up here before they reach the margin.

Investment Checklist

9 / 11 checks passed

✓ Strong return on equity (ROE ≥ 15%)
✓ Strong return on capital employed (ROCE ≥ 15%)
✗ Healthy net margin (≥ 10%)
✓ Generates positive free cash flow
✓ Manageable leverage (Debt/Equity < 1.0)
✓ Adequate short-term liquidity (Current Ratio ≥ 1.0)
✓ Revenue growing year-over-year
✓ Profit growing year-over-year
✓ Not trading at an extreme valuation (P/E < 40x)
✓ Not buying right at the 52-week high
✗ Short-term technical trend isn't bearish

Price history

Quick Metrics

8 good · 3 neutral · 0 weak

Market Cap

₹317 Cr

Micro Cap

Smaller company — thin liquidity and deep drawdowns are normal here

P/E (Trailing)

7.4x

Cheap

Cheap against the generic band

P/B Ratio

Not available

No data

Source didn't return this field

EPS (TTM)

₹19.22

Profitable

Profitable on a per-share basis

ROE

20.4%

Strong

Strong capital efficiency

ROCE

24.0%

Strong

Earns comfortably above its likely cost of capital

Debt/Equity

0.45x

Low

Conservative leverage

Revenue Growth (YoY)

43.5%

Healthy

Healthy top-line growth

Profit Growth (YoY)

183.7%

Healthy

Profits growing at a healthy clip

Dividend Yield

None

No dividend yield reported — usually means no payout, but verify if one was recently initiated

Free Cash Flow

₹3 Cr

Cash generative

Generates cash even after funding its capex

More Metrics

Operating Margin

0.0%

Weak

Thin margins leave little room for error

Net Margin

0.0%

Weak

Very little revenue reaches the bottom line

Current Ratio

3.64

Comfortable

Healthy short-term liquidity

52W Range Position

40%

Mid-range

Technical Snapshot

SMA 20 / SMA 50

147.7 / 165.7

Bearish alignment (short < long)

Price vs SMA 200

Below

Long-term downtrend

RSI (14)

44.4

Neutral momentum

Financial Trend (3-Year)

Metric	FY24	FY25	FY26	2Y CAGR
Revenue	₹61 Cr	₹102 Cr	₹146 Cr	+54.5%
EBITDA	₹0 Cr	₹12 Cr	₹42 Cr	+865.9%
EBITDA Margin	0.7%	11.7%	28.6%	—
PAT (Net Profit)	₹1 Cr	₹12 Cr	₹34 Cr	+423.4%
EPS	₹0.64	₹6.17	₹18.46	+437.5%
ROE	1.7%	13.3%	20.4%	—
ROCE	5.0%	12.5%	24.0%	—
Total Debt	₹82 Cr	₹73 Cr	₹76 Cr	-3.6%
Free Cash Flow	-₹12 Cr	₹18 Cr	₹3 Cr	—

🟢 Revenue has grown at 54.5% a year over 2 years.

🟢 EBITDA has grown at 865.9% a year over 2 years.

🟢 EBITDA Margin has risen from 0.7% to 28.6% over 2 years (+27.8 pts).

🟢 PAT (Net Profit) has grown at 423.4% a year over 2 years.

🟢 EPS has grown at 437.5% a year over 2 years.

🟢 ROE has risen from 1.7% to 20.4% over 2 years (+18.7 pts).

🟢 ROCE has risen from 5.0% to 24.0% over 2 years (+19.0 pts).

🟢 Total Debt has shrunk at 3.6% a year over 2 years.

🟢 Free Cash Flow has turned positive, from -₹12 Cr to ₹3 Cr.

Balance Sheet & Cash Flow — FY2026

Total Assets

₹280 Cr

Total Liabilities

₹111 Cr

Cash & Equivalents

₹10 Cr

Operating Cash Flow

₹4 Cr

Capex

-₹1 Cr

Shareholding (proxy)

Institutional Holding

0.0%

Insider Holding

94.2%

Peer Comparison

Company	P/E	ROE
TATA CONSULTANCY SERV LT	17.3x	45.6%
INFOSYS LIMITED	15.8x	32.0%
HCL TECHNOLOGIES LTD	20.4x	24.6%
WIPRO LTD	14.5x	15.9%

Recent News

6 general

COVANCE SOFTSOL Lower Circuit Today: Price, Data and Peers

Univest, 05 Oct

Compare with

Equitymaster, 09 Oct

Covance Softsol reports FY26 net profit of ₹630.40 lakh

scanx.trade, 27 May

COVANCE SOFTSOL LIMITED Upper Circuit Today: Price, Data and Peers

Univest, 21 Sept

Covance Softsol (BSE:544361) - Stock Analysis

Simply Wall Street, 01 Mar

Mahindra launches new BE 6 SPORTEQ series

Business Standard, 15 Aug

Watch Items

Cross-check against the company's latest quarterly filing / investor presentation before acting.
1 metric couldn't be retrieved for this stock — this is more common for smaller or thinly-covered listings.

DalalBaazaar Thesis

StrongBusiness Quality · Financial Health · Growth · Profitability · Valuation

WeakRisk

Points for each in the Score ↑

Attractive on both counts

A good business currently available at an undemanding price — the combination this framework exists to look for. The work left is qualitative: whether the advantage the numbers imply is one you can identify and expect to last. 2 high-severity red flags sit above this conclusion and should be read first.

All 5 tripwires holding · see Key things to watch ↑