The most profitable turning point

Summary: Some companies are quietly making the leap from years of losses to sustained profitability. And they’re doing it just as their industries stage a comeback after long periods of stagnation. These moments often trigger a rare alignment of fundamentals, sentiment and valuations, setting the stage for powerful re-ratings. The real opportunity lies in spotting these shifts early, before the market fully catches on. And in recognising when the story is more than just a company turnaround, it’s also about being the strongest player in a sector that’s finally ready to roar back.

In the markets, few turning points are as powerful as the moment a loss-making business tips into profitability. It is the instant when potential becomes tangible, when the numbers finally match the narrative. Take Zomato. The food delivery giant was showing strong growth, but its share price still slid below its IPO price as losses piled up. The real rally began only when it charted a credible path to sustained profits. That single shift changed the market’s lens—from questioning survival to betting on acceleration.

We have seen this before. After years of being balance-sheet pariahs, PSU banks staged a comeback once bad loans were cleaned up and profitability returned. Their valuations re-rated sharply, with investors rushing back. The market does not merely reward a turnaround; it often overcompensates once the red ink disappears.

Why this matters

A profit is more than just a number—it is a trigger. Valuations, previously anchored in hope, now have earnings to latch onto. Price-to-earnings multiples suddenly apply, cash flow models become credible, and discount rates shrink. The business narrative also transforms. The conversation moves from “will they survive?” to “how big can they get?” This attracts a new cohort of investors who avoid loss-making firms entirely.

Profitability also strengthens the balance sheet. Companies that once relied on external funding can now finance growth internally, reducing dilution and debt. And there is the behavioural factor—markets love a verified turnaround. When numbers confirm the comeback, optimism snowballs into enthusiasm, and enthusiasm into momentum.

For long-term alpha seekers, these moments matter because they mark the convergence of valuation, fundamentals, and sentiment. But timing is everything. Too early, and capital remains locked without returns. Too late, and the market has already priced in the good news.

The screening exercise

To identify these inflection points, we applied strict filters:

• Losses in FY23 and FY24
• Profits in FY25 (excluding exceptional items)
• Market capitalisation above Rs 1,000 crore

From there, we eliminated newly listed companies with already-priced-in profitability, commodity plays prone to temporary earnings, opaque shell-like entities, and turnarounds fully recognised by the market.

The framework has worked in the past. In 2022, it surfaced CG Power, BHEL, and Raymond. In 2023, it flagged the hotel sector before its rally, highlighting Indian Hotels, Chalet Hotels, and EIH. In 2024, it picked Force Motors, InterGlobe Aviation, and Healthcare Global Enterprises. Each time, the screen yielded 20–30 candidates, with weaker ones easily excluded. The hit rate has been compelling.

This year, the process leaves us with four companies that have emerged from the red with renewed earnings power: V-Mart Retail, Johnson Controls–Hitachi Air Conditioning India, Sterling and Wilson Renewable Energy, and Sequent Scientific. Each has its own backstory of struggle, change, and fresh potential.

V-Mart Retail

V-Mart exemplifies the economics of value fashion retail. A store must cross a sales threshold before it turns profitable—what insiders call “minimum unit economics.” Before the pandemic, V-Mart’s sales per square foot comfortably exceeded Rs 800. Covid crushed demand in its Tier-II and Tier-III markets, while operating costs rose and the integration of Unlimited stores proved challenging. The shift towards premiumisation also diverted some consumers, delaying recovery. Losses mounted, not because the model was broken, but because the economics were out of balance.

That equation has now improved. Sales per square foot climbed from Rs 559 in FY22 to Rs 710 in FY25, a decisive return towards pre-Covid levels. With a growing store network and profitability momentum, V-Mart appears back on firm ground. India’s organised value retail sector is growing in the high teens, powered by rising disposable incomes and aspirational demand in smaller towns. V-Mart’s positioning in affordable fashion, combined with its supply chain strength and disciplined expansion, could allow it to ride this wave. The challenge will be sustaining per-store profitability while scaling aggressively.

Johnson Controls–Hitachi Air Conditioning India

The air conditioning market suffered through FY22 and FY23. Demand was uneven, input costs were high, and competition kept prices under pressure. For Johnson Controls–Hitachi, this meant thin margins despite a strong brand and product portfolio.

The tide turned in FY25, as AC sales surged. Even in Q1 FY26, when industry volumes declined nearly 40 per cent, Hitachi’s sales fell only 14 per cent, a clear outperformance. A recent ownership change adds intrigue: Bosch has taken control following the global sale of Johnson Controls’ AC business. While the long-term impact remains to be seen, the shift could bring operational and technological synergies.

With penetration at just 16 per cent in India, compared to over 90 per cent in developed markets, long-term growth potential is immense. Rising incomes, urbanisation, and climate pressures all point to strong demand. Hitachi’s resilience in a down cycle and strong brand equity could position it as a beneficiary of this structural opportunity.

Sterling and Wilson Renewable Energy

Few industries are as strategically important as renewable energy, and Sterling and Wilson stands at the forefront. The company had struggled with cost overruns, execution delays, and a thin order pipeline, which pressured margins and profitability.

That picture is changing. New ownership and management have sharpened focus, with order inflows rising from about Rs 4,400 crore in FY23 to nearly Rs 7,000 crore in FY25. Backing from Reliance Industries has added credibility and financial muscle. India is targeting 500 GW of non-fossil capacity by 2030, with solar expected to contribute the bulk. Sterling’s global presence, deep project experience, and regained execution confidence could allow it to capture a meaningful share of this expansion. The challenge lies in delivering projects profitably at scale.

Sequent Scientific

Sequent has built a strong global portfolio in animal health APIs and formulations. But its Turkish operations dragged results down through currency depreciation, impairments, and forex losses.

Now the company is restructuring decisively. It has announced a merger with Viyash Life Sciences to streamline operations, expand capacity, and unlock synergies. Turkey is set to be leveraged as a low-cost export hub, where production costs are lower than in India. The company has guided for margin expansion over the next two years, driven by efficiencies, new product launches, and better utilisation.

The global animal health market, worth over $55 billion, is expected to grow steadily with rising protein demand, pet ownership, and veterinary spend. With Carlyle as promoter, Sequent enjoys strong financial backing. If execution matches ambition, the Viyash merger could help it evolve into a durable compounder.

The bigger picture for investors

The shift from losses to profits is where valuation, fundamentals, and sentiment align, often creating sharp re-ratings. But investors must recognise that not every turnaround is durable. Some companies swing into profit because of temporary cost savings, one-off gains, or cyclical demand, only to slip back once those tailwinds fade. Others face heavy competition that squeezes margins and limits scalability, making sustained profitability elusive.

The real alpha lies in separating structural change from fleeting improvements. Profits backed by healthier balance sheets, steady demand growth, and credible execution are far more reliable than those driven by short-term fixes. This is also where timing becomes critical—step in too early, and risks are still high; arrive too late, and valuations may already have captured the recovery.

The current shortlist—V-Mart, Johnson Controls–Hitachi, Sterling and Wilson, and Sequent—reflects businesses that appear to have made structural strides. But the challenge for investors is not simply spotting when red turns black; it is judging which of these companies can build on that momentum and deliver consistent profitability even after the easy gains of recovery are behind them.

Before you leave

Spotting a turnaround early is one thing. Knowing whether to bet on it—and how much—is another. Value Research Stock Advisor helps you cut through the noise with data-backed stock ratings, deep analysis, and clear allocation guidance, so you can back the winners and avoid the traps.

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Also read: How to lose money in the stock market

This article was originally published on August 16, 2025.