The third quarter performance marks a dramatic deterioration in the company's financial health, with operating margins collapsing to their lowest level in the past eight quarters. Revenue declined 24.66% year-on-year to ₹408.44 crores, whilst profit margins compressed sharply across all levels. The stock has now fallen 35.91% over the past year, significantly underperforming both the Sensex (up 9.66%) and the broader petrochemicals sector (down 14.49%).
What makes these results particularly concerning is the sharp sequential deterioration. Quarter-on-quarter, net profit plunged 76.65% from ₹11.99 crores in Q2 FY26, whilst revenue increased 66.85%. This suggests severe margin pressure and operational challenges that have overwhelmed any volume benefits. The company's PAT margin contracted to just 0.69%, down from 4.90% in the previous quarter and 5.11% in the year-ago period.
Quarterly Performance Trend: A Deteriorating Picture
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Dec'25 | 408.44 | +66.85% | 2.80 | -76.65% | 5.05% | 0.69% |
| Sep'25 | 244.80 | -58.76% | 11.99 | -7.98% | 11.44% | 4.90% |
| Jun'25 | 593.61 | -27.91% | 13.03 | -57.33% | 6.09% | 2.20% |
| Mar'25 | 823.44 | +51.90% | 30.54 | +10.25% | 6.50% | 3.71% |
| Dec'24 | 542.11 | +66.47% | 27.70 | +50.22% | 9.83% | 5.11% |
| Sep'24 | 325.66 | -53.98% | 18.44 | -52.72% | 10.80% | 5.66% |
| Jun'24 | 707.71 | — | 39.00 | — | 8.50% | 5.51% |
Financial Performance Analysis: Margins Under Severe Pressure
The Q3 FY26 results reveal a company grappling with significant operational challenges. Net sales of ₹408.44 crores represent a 24.66% year-on-year decline, marking the third consecutive quarter of revenue contraction compared to the prior year. More troubling is the volatile quarter-on-quarter pattern, with revenue swinging wildly between ₹244.80 crores in Q2 FY26 and ₹408.44 crores in Q3 FY26, suggesting unstable demand or execution issues.
Operating profit (PBDIT excluding other income) collapsed to ₹20.64 crores in Q3 FY26 from ₹53.28 crores in Q3 FY25, a decline of 61.26%. The operating margin contracted sharply to 5.05%, the lowest level in at least eight quarters, down from 9.83% in the year-ago period and 11.44% in the previous quarter. This severe margin compression indicates either deteriorating pricing power, rising input costs, or operational inefficiencies—or a combination of all three.
The profit before tax stood at just ₹4.64 crores, down 86.31% year-on-year from ₹33.88 crores. Interest costs increased to ₹7.39 crores from ₹6.84 crores, whilst depreciation declined slightly to ₹13.14 crores from ₹15.03 crores. The company's tax rate spiked to an unusually high 39.87% in Q3 FY26, compared to 18.24% in Q3 FY25, further eroding net profitability.
Operational Challenges: Profitability Crisis Deepens
The company's return on capital employed (ROCE) has deteriorated sharply to 11.92% on a trailing basis from an average of 19.29% over the longer term. On a half-yearly basis for H1 FY26, ROCE stood at just 12.30%, marking the lowest level in recent periods. Similarly, return on equity (ROE) has declined to 12.68% from an average of 20.42%, indicating diminishing capital efficiency and profitability.
A particularly alarming red flag in the Q3 FY26 results is the relationship between operating profit and interest coverage. The operating profit to interest ratio has fallen to just 2.79 times, the lowest in the observed period, down from over 7.78 times in Q3 FY24. This suggests the company is generating barely enough operating profit to cover its interest obligations, raising concerns about financial sustainability if the trend continues.
The balance sheet shows total debt of ₹181.76 crores as of March 2025, with a debt-to-equity ratio of 0.51 and debt-to-EBITDA of 1.77 times. Whilst these leverage metrics appear manageable on the surface, the sharp deterioration in profitability and cash generation raises questions about the company's ability to service this debt comfortably going forward.
Critical Warning Signs
Multiple red flags demand immediate attention: Operating margin at 8-quarter low of 5.05%, operating profit to interest coverage at weakest level of 2.79x, PAT margin collapsed to 0.69%, and earnings per share at lowest point of ₹1.87. The company's financial trend has been classified as "Negative" with nine specific deteriorating parameters identified.
Industry Context: Underperforming the Petrochemicals Sector
The petrochemicals sector has faced headwinds over the past year, with the industry declining 14.49%. However, Agarwal Industrial Corporation has significantly underperformed this already weak sector, posting a decline of 35.91% over the same period—an underperformance of 21.42 percentage points. This suggests company-specific challenges beyond broader industry dynamics.
The company's volatile revenue pattern—swinging from ₹244.80 crores in Q2 FY26 to ₹408.44 crores in Q3 FY26—indicates potential issues with order book visibility, customer concentration, or execution capabilities. For a company positioned as the largest in the petrochemicals sector by the data provided, such operational instability is particularly concerning.
The sharp margin compression across operating, gross, and net profit levels suggests the company is struggling to pass on input cost increases to customers or is facing intense competitive pressure. In the petrochemicals business, where margins are often sensitive to raw material prices and capacity utilisation, such sustained margin deterioration typically signals structural challenges rather than temporary headwinds.
Peer Comparison: Valuation Discount Reflects Concerns
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Agarwal Indl. | 12.44 | 1.58 | 20.42 | 0.51 | 0.48 |
| Supreme Petroch. | 43.24 | 5.29 | 30.47 | -0.18 | 1.60 |
| Rain Industries | NA (Loss Making) | 0.73 | 7.59 | 1.16 | 0.66 |
| DCW | 36.84 | 1.44 | 7.01 | 0.16 | 0.19 |
| Manali Petrochem | 15.18 | 0.89 | 14.95 | -0.18 | 0.85 |
| T N Petro Prod. | 7.92 | 0.87 | 13.12 | 0.03 | 1.27 |
Agarwal Industrial Corporation trades at a P/E ratio of 12.44x, below the industry average of approximately 26x (excluding loss-making Rain Industries). The stock's price-to-book ratio of 1.58x is modest compared to peers like Supreme Petrochemicals at 5.29x. However, this valuation discount appears justified given the company's deteriorating financial performance.
Whilst Agarwal Industrial's historical ROE of 20.42% compares favourably to most peers, the recent sharp decline in profitability raises questions about the sustainability of these returns. The company's dividend yield of just 0.48% is the lowest amongst profitable peers, reflecting both the low payout ratio of 4.11% and concerns about cash generation.
Valuation Analysis: Low Multiples Mask Fundamental Concerns
At the current price of ₹600.00, Agarwal Industrial Corporation trades at a P/E ratio of 12.44x based on trailing twelve-month earnings. The stock's price-to-book value of 1.58x appears reasonable given the book value per share of ₹262.57. The company's EV/EBITDA multiple of 8.02x and EV/Sales of 0.62x suggest the stock is not expensive on traditional valuation metrics.
However, these apparently attractive valuations must be viewed in the context of rapidly deteriorating fundamentals. The company's earnings have collapsed 89.89% year-on-year in Q3 FY26, and the financial trend is classified as "Negative". The valuation grade of "Very Attractive" reflects backward-looking metrics rather than forward prospects.
The stock has fallen 46.14% from its 52-week high of ₹1,113.95 and now trades just 0.51% above its 52-week low of ₹596.95. This dramatic decline reflects the market's reassessment of the company's earnings power and growth prospects. With all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day) well above the current price, the technical picture remains firmly bearish.
Shareholding Pattern: Promoters Stable, Institutions Reducing
| Category | Dec'25 | Sep'25 | Jun'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 57.20% | 57.20% | 57.20% | 0.00% |
| FII | 5.05% | 5.91% | 6.04% | -0.86% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 0.01% | 0.01% | 0.01% | 0.00% |
| Non-Institutional | 37.75% | 36.88% | 36.76% | +0.87% |
The shareholding pattern reveals a concerning trend. Foreign institutional investors (FIIs) have been steadily reducing their stake, declining from 6.04% in June 2025 to 5.05% in December 2025. The most recent quarter saw FII holding drop by 0.86 percentage points, suggesting institutional investors are losing confidence in the company's prospects.
Notably, the company has zero holdings from mutual funds and insurance companies, indicating a complete absence of domestic institutional support. This lack of institutional participation is particularly telling for a company claiming to be the largest in its sector. Promoter holding remains stable at 57.20%, with no pledging of shares, which provides some comfort regarding governance.
Stock Performance: Severe Underperformance Across All Timeframes
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -16.36% | -0.94% | -15.42% |
| 1 Month | -13.12% | -0.35% | -12.77% |
| 3 Month | -26.36% | -1.52% | -24.84% |
| 6 Month | -36.15% | +3.32% | -39.47% |
| YTD | -15.64% | -2.28% | -13.36% |
| 1 Year | -35.91% | +9.66% | -45.57% |
| 2 Years | -40.93% | +14.98% | -55.91% |
| 3 Years | -8.49% | +35.81% | -44.30% |
The stock's performance has been dismal across virtually all timeframes. Over the past year, Agarwal Industrial Corporation has declined 35.91% whilst the Sensex gained 9.66%, resulting in a negative alpha of 45.57 percentage points. The six-month performance is even worse, with the stock down 36.15% against a Sensex gain of 3.32%.
The recent acceleration in the decline is particularly concerning. The stock has fallen 16.36% over the past week and 13.12% over the past month, suggesting the deteriorating fundamentals are now being rapidly reflected in the share price. With the stock trading at high volatility of 39.55% and a negative risk-adjusted return of -0.91, it falls squarely into the "high risk, low return" category.
The only silver lining appears in the very long-term numbers, with the stock up 275.59% over five years and 292.41% over ten years. However, these historical returns provide little comfort to investors who purchased shares in the past three years, all of whom are sitting on significant losses.
Investment Thesis: Quality Concerns Overshadow Valuation
The company's proprietary Mojo score stands at just 29 out of 100, firmly in "Strong Sell" territory. This assessment reflects the convergence of multiple negative factors: bearish technical trend, negative financial trend, deteriorating quality metrics, and concerning operational performance.
Whilst the valuation grade shows as "Very Attractive", this must be interpreted cautiously. Low valuations often reflect justified concerns about future earnings power rather than genuine investment opportunities. In this case, the company's quality grade of "Average" and negative financial trend suggest the low multiples are warranted rather than representing a bargain.
The technical picture remains firmly bearish, with the stock below all major moving averages and the overall trend classified as "Bearish" since February 13, 2026. Multiple technical indicators including MACD, Bollinger Bands, and KST are flashing bearish signals, suggesting further downside risk unless fundamentals improve dramatically.
Key Strengths & Risk Factors
KEY STRENGTHS
- Strong Historical ROE: Average ROE of 20.42% demonstrates historically efficient capital allocation
- Long-term Growth Track Record: 5-year sales CAGR of 25.24% shows strong historical growth trajectory
- No Promoter Pledging: Zero pledged shares indicates promoter confidence and governance comfort
- Manageable Leverage: Debt-to-equity of 0.51 and debt-to-EBITDA of 1.77x remain within acceptable ranges
- Stable Promoter Holding: Consistent 57.20% promoter stake provides ownership stability
- Attractive Valuation Multiples: P/E of 12.44x and P/BV of 1.58x below peer averages
- Sector Leadership Position: Positioned as largest company in petrochemicals sector
KEY CONCERNS
- Collapsing Profitability: Net profit down 89.89% YoY to just ₹2.80 crores in Q3 FY26
- Severe Margin Compression: Operating margin at 8-quarter low of 5.05%, PAT margin at 0.69%
- Deteriorating Interest Coverage: Operating profit to interest at weakest level of 2.79x
- Revenue Volatility: Wild swings in quarterly revenue suggest operational instability
- Declining ROE/ROCE: Returns fallen to 12.68%/11.92% from historical averages above 20%
- Zero Institutional Support: No mutual fund or insurance holdings; FII stake declining
- Negative Financial Trend: Nine specific deteriorating parameters identified by analysis
- Severe Stock Underperformance: Down 35.91% vs Sensex up 9.66% over past year
- Technical Breakdown: Stock below all moving averages with bearish indicators across the board
Outlook: What to Watch
POSITIVE CATALYSTS
- Stabilisation of operating margins above 8% levels
- Consistent quarterly revenue above ₹500 crores with reduced volatility
- Improvement in operating profit to interest coverage above 5x
- Return of institutional investor interest (FII/MF buying)
- Management guidance on margin recovery roadmap
RED FLAGS TO MONITOR
- Further deterioration in operating margins below 5%
- Interest coverage falling below 2.5x
- Continued FII stake reduction
- Revenue declining below ₹350 crores quarterly
- Any increase in promoter pledging from current zero
- Working capital stress impacting cash flows
The path forward for Agarwal Industrial Corporation requires urgent attention to margin restoration and operational stability. The company needs to demonstrate that Q3 FY26 represents a trough rather than the beginning of a prolonged downturn. Until clear evidence emerges of improving fundamentals—stable revenues, expanding margins, and recovering profitability—the investment case remains deeply challenged despite seemingly attractive valuation multiples.
For a company that has historically generated strong returns on equity and demonstrated impressive growth, the recent deterioration is particularly concerning. The absence of institutional investor support, combined with declining FII holdings, suggests sophisticated investors have already reassessed their positions. The technical breakdown, with the stock trading near 52-week lows and below all major moving averages, reinforces the fundamental concerns.
The Verdict: Exit Recommended
Score: 29/100
For Fresh Investors: Avoid initiating positions until clear evidence of operational turnaround emerges. The combination of collapsing profitability, severe margin compression, and negative financial trend presents unacceptable risk. Wait for at least two consecutive quarters of margin stabilisation and profit recovery before considering entry.
For Existing Holders: Strongly consider exiting positions. The 89.89% year-on-year profit decline, operating margin at eight-quarter lows, and deteriorating interest coverage suggest fundamental challenges that may persist. The stock's 35.91% decline over the past year may have further to run if operational metrics do not improve dramatically in Q4 FY26.
Fair Value Estimate: ₹520-550 (13.33% downside from current levels), based on sustainable earnings power of ₹40-45 crores annually and P/E multiple of 10-11x, reflecting elevated risk profile and operational uncertainties.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results. Stock investments carry risk of loss.
