The quarter's performance reflects a tale of two narratives: robust top-line expansion driven by higher volumes, offset by margin compression stemming from unfavourable product mix and competitive pricing dynamics. Whilst revenue growth of 19.93% year-on-year demonstrates the company's ability to capture market share in India's fertiliser sector, the sequential decline in profitability raises questions about sustainability in the near term. The company's nine-month performance for FY26 (April-December 2025) shows consolidated net profit of ₹1,784.13 crores, up 17.64% from ₹1,519.15 crores in the corresponding period of FY25.
Financial Performance: Volume Gains Offset by Margin Erosion
Chambal Fertilisers reported net sales of ₹5,898.26 crores in Q3 FY26, registering a sequential decline of 8.02% from Q2 FY26's ₹6,412.76 crores but posting a healthy 19.93% year-on-year growth over Q3 FY25's ₹4,918.06 crores. The year-on-year revenue expansion was primarily driven by higher urea volumes and improved realisation in the non-urea fertiliser segment. However, the sequential contraction reflects typical seasonal patterns in the fertiliser industry, where Q2 (July-September) traditionally witnesses peak demand during the kharif sowing season.
| Metric | Q3 FY26 | Q2 FY26 | Q1 FY26 | Q4 FY25 | Q3 FY25 |
|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 5,898.26 | 6,412.76 | 5,697.61 | 2,448.73 | 4,918.06 |
| QoQ Change (%) | -8.02% | +12.55% | +132.68% | -50.21% | — |
| YoY Change (%) | +19.93% | +47.55% | +15.49% | — | — |
| Operating Profit (₹ Cr) | 820.74 | 841.73 | 760.97 | 163.36 | 777.93 |
| Operating Margin (%) | 13.91% | 13.13% | 13.36% | 6.67% | 15.82% |
| Net Profit (₹ Cr) | 586.41 | 648.76 | 548.96 | 130.36 | 534.42 |
| PAT Margin (%) | 9.94% | 10.12% | 9.63% | 5.32% | 10.87% |
Operating profit excluding other income stood at ₹820.74 crores in Q3 FY26, translating to an operating margin of 13.91%, which represents a sequential improvement of 78 basis points from Q2 FY26's 13.13% but a significant year-on-year contraction of 191 basis points from Q3 FY25's 15.82%. This margin compression, despite volume growth, signals pricing pressure and rising input costs in the fertiliser manufacturing value chain. The company's ability to maintain double-digit operating margins in a challenging environment demonstrates operational resilience, though it falls short of the superior margins achieved in the prior year.
Net profit for Q3 FY26 came in at ₹586.41 crores, yielding a PAT margin of 9.94%, down 18 basis points sequentially and 93 basis points year-on-year. The tax rate for the quarter stood at 23.65%, significantly lower than the 31.71% rate in Q3 FY25, providing some cushion to bottom-line profitability. Employee costs rose to ₹95.27 crores in Q3 FY26 from ₹64.47 crores in Q2 FY26, reflecting seasonal workforce adjustments and inflationary pressures. Interest costs remained negligible at ₹0.92 crores, underscoring the company's virtually debt-free balance sheet—a critical competitive advantage in capital-intensive industries.
Balance Sheet Strength: Fortress-Like Financial Position
Chambal Fertilisers boasts a remarkably robust balance sheet that sets it apart in the fertiliser sector. As of March 2025, the company's shareholder funds stood at ₹8,728.02 crores, comprising equity capital of ₹400.65 crores and reserves of ₹8,327.37 crores. Long-term debt has been reduced dramatically to just ₹82.33 crores from ₹1,853.55 crores a year earlier, representing a debt reduction of over 95% and positioning the company as essentially a net cash entity with a net debt-to-equity ratio of -0.08.
Financial Fortress: Key Balance Sheet Metrics
The company's financial health is exemplary with virtually zero debt (₹82.33 crores vs shareholder funds of ₹8,728 crores), net cash position, and a book value per share of ₹217.85. This provides significant financial flexibility for capacity expansion, working capital management, and shareholder returns. The dramatic debt reduction from ₹1,853.55 crores in FY24 to ₹82.33 crores in FY25 demonstrates aggressive deleveraging that strengthens the balance sheet considerably.
Fixed assets stood at ₹6,206.68 crores, reflecting the company's substantial manufacturing infrastructure with three urea plants at Gadepan, Rajasthan, having an aggregate annual production capacity of approximately 3.4 million metric tonnes. Current assets of ₹3,622.06 crores against current liabilities of ₹1,174.13 crores provide a comfortable current ratio of approximately 3.1x, ensuring ample liquidity for operations. The company generated operating cash flow of ₹1,393 crores in FY25, though this was lower than the exceptional ₹3,326 crores in FY24, primarily due to working capital build-up as reflected in the negative ₹914 crores change in working capital.
✓ Key Strength: Exceptional Return Ratios
Chambal Fertilisers demonstrates strong capital efficiency with a Return on Equity (ROE) of 19.28% and Return on Capital Employed (ROCE) of 24.45%, both significantly above industry averages. These metrics indicate the company generates healthy returns on shareholder capital and deployed assets, a testament to operational excellence and effective capital allocation. The ROE of 19.28% means that for every ₹100 of shareholder equity, the company generates ₹19.28 in profit—a solid performance that reflects quality management and profitable business operations.
Operational Dynamics: Navigating Subsidy-Driven Landscape
The fertiliser industry in India operates within a complex regulatory framework where urea pricing is controlled by the government, and manufacturers receive subsidies to bridge the gap between cost of production and maximum retail price. This subsidy-dependent model creates both stability and constraints for companies like Chambal Fertilisers. The company's urea business benefits from assured off-take and government support, but profitability is contingent upon timely subsidy disbursements and cost management.
The nine-month period of FY26 (April-December 2025) witnessed net sales of ₹18,008.63 crores, up 32.89% from ₹13,552.29 crores in the corresponding period of FY25. This robust top-line growth reflects both volume expansion and improved price realisation. However, operating margins for the nine-month period compressed to 13.47% from 15.90% in 9M FY25, indicating that revenue growth came at the cost of margin sacrifice—a concerning trend that merits close monitoring.
⚠ Concern: Margin Compression Trend
Operating margins have declined from 15.82% in Q3 FY25 to 13.91% in Q3 FY26, representing a 191 basis point erosion year-on-year. Similarly, nine-month margins contracted by 243 basis points. This trend suggests pricing pressure, unfavourable product mix, or rising input costs that are not being fully passed through. Whilst the company maintains healthy double-digit margins, the trajectory is concerning and requires management action to stabilise profitability.
The company's sales-to-capital-employed ratio of 1.88x indicates moderate asset turnover, suggesting that for every rupee of capital employed, the company generates ₹1.88 in sales. The interest coverage ratio stands at an exceptional 100x, reflecting negligible debt and strong earnings relative to minimal interest obligations. This provides substantial headroom for financial flexibility, whether for capacity expansion, acquisitions, or enhanced shareholder distributions.
Peer Comparison: Valuation Discount Despite Quality
Chambal Fertilisers trades at a significant valuation discount to most of its fertiliser sector peers, despite comparable or superior financial metrics. The company's price-to-earnings (P/E) ratio of 9.52x is substantially below the industry average P/E of 23x, suggesting either market undervaluation or investor concerns about growth prospects. Compared to Coromandel International's 31.87x P/E or Deepak Fertilisers' 14.82x, Chambal appears attractively valued on a relative basis.
| Company | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Chambal Fert. | 9.52 | 1.85 | 19.28% | 2.20% | -0.08 |
| Coromandel Inter | 31.87 | 5.55 | 20.41% | 0.79% | -0.23 |
| Deepak Fertilis. | 14.82 | 1.99 | 16.02% | 0.97% | 0.55 |
| Paradeep Phosph. | 12.33 | 1.98 | 9.84% | 0.64% | 0.67 |
| EID Parry | 17.26 | 1.87 | 12.82% | — | -0.26 |
The company's ROE of 19.28% is competitive, trailing only Coromandel's 20.41% whilst exceeding Deepak Fertilisers' 16.02%, Paradeep Phosphates' 9.84%, and EID Parry's 12.82%. This indicates that Chambal generates returns on shareholder equity that are amongst the best in the sector. The price-to-book ratio of 1.85x is the lowest in the peer group (excluding EID Parry's 1.87x), suggesting the market assigns a conservative valuation to the company's net assets despite strong return metrics.
Chambal's dividend yield of 2.20% is the highest amongst peers, with the company paying ₹5 per share as the latest dividend (ex-date November 11, 2025). This translates to a dividend payout ratio of 23.55%, indicating a balanced approach between rewarding shareholders and retaining capital for growth. The net cash position (negative debt-to-equity of -0.08) is matched only by Coromandel (-0.23) and EID Parry (-0.26), positioning these companies favourably for economic downturns or expansion opportunities.
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current market price of ₹454.90, Chambal Fertilisers trades at a P/E ratio of 9.52x based on trailing twelve-month earnings, representing a 58.6% discount to the industry average P/E of 23x. The price-to-book ratio of 1.85x implies the market values the company at less than twice its book value of ₹217.85 per share, which appears reasonable given the ROE of 19.28%. The EV/EBITDA multiple of 6.73x is at the lower end of historical ranges, suggesting potential value for long-term investors.
The company's valuation grade has evolved from "Very Expensive" in early May 2025 to "Very Attractive" as of October 8, 2025, reflecting the sharp correction in stock price from its 52-week high of ₹742.45. The current price of ₹454.90 represents a 38.73% decline from that peak, bringing valuations to more reasonable levels. However, the PEG ratio of 0.52 (where values below 1 typically indicate undervaluation) must be viewed cautiously given the modest 5-year EBIT growth rate of just 1.57%, which raises concerns about future earnings expansion.
Shareholding Pattern: Promoter Confidence Amidst FII Exit
The shareholding pattern reveals interesting dynamics in investor sentiment towards Chambal Fertilisers. Promoter holding has gradually increased from 60.40% in March 2025 to 60.85% in December 2025, demonstrating incremental confidence from the promoter group. The sequential increase of 27 basis points in Q3 FY26 suggests ongoing commitment to the company's long-term prospects. The promoter group comprises diverse entities including The Hindustan Times Limited (14.28%), Zuari Industries Limited (14.22%), and Sil Investments Limited (8.19%).
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter Holding | 60.85% | 60.58% | 60.50% | 60.40% | +0.27% |
| FII Holding | 15.66% | 18.34% | 17.11% | 20.19% | -2.68% |
| Mutual Fund Holding | 4.18% | 3.87% | 6.40% | 4.50% | +0.31% |
| Insurance Holdings | 0.36% | 0.03% | 0.07% | 0.03% | +0.33% |
| Non-Institutional | 18.84% | 17.07% | 15.83% | 14.82% | +1.77% |
Foreign Institutional Investors (FIIs) have been net sellers, reducing their stake from 20.19% in March 2025 to 15.66% in December 2025—a decline of 453 basis points over three quarters. The most recent quarter witnessed a sharp 268 basis point reduction in FII holding, signalling concerns amongst global investors about the company's near-term prospects or broader sector headwinds. This selling pressure has likely contributed to the stock's underperformance relative to the broader market.
Mutual fund holding has been volatile, declining from 6.40% in June 2025 to 4.18% in December 2025, though it saw a marginal 31 basis point increase in Q3 FY26. Insurance companies increased their stake significantly from 0.03% to 0.36% in Q3 FY26, indicating fresh institutional interest at current valuations. Non-institutional investors (primarily retail) have steadily increased their holding from 14.82% to 18.84%, suggesting accumulation by individual investors who may view current levels as attractive entry points.
Stock Performance: Significant Underperformance Across Timeframes
Chambal Fertilisers' stock has delivered disappointing returns across most recent timeframes, significantly underperforming both the Sensex and the fertiliser sector. Over the past one year, the stock has declined 14.93% whilst the Sensex gained 8.52%, resulting in negative alpha of -23.45 percentage points. This underperformance is even more pronounced when compared to the fertiliser sector's 5.56% return, with Chambal lagging by 20.49 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +6.24% | -1.14% | +7.38% |
| 1 Month | +2.67% | -1.20% | +3.87% |
| 3 Months | -2.43% | -2.19% | -0.24% |
| 6 Months | -13.75% | +2.59% | -16.34% |
| YTD | -5.63% | -3.04% | -2.59% |
| 1 Year | -14.93% | +8.52% | -23.45% |
| 2 Years | +26.94% | +15.47% | +11.47% |
| 3 Years | +50.88% | +36.73% | +14.15% |
| 5 Years | +88.01% | +60.30% | +27.71% |
The near-term picture shows some stabilisation, with the stock gaining 6.24% over the past week and 2.67% over the past month, outperforming the Sensex during these periods. However, the six-month return of -13.75% against the Sensex's +2.59% gain highlights the severity of the correction from mid-2025 highs. The stock's beta of 1.35 indicates it is 35% more volatile than the broader market, making it susceptible to amplified moves during market swings—a characteristic that has worked against investors during the recent downturn.
On a longer-term basis, Chambal has been a wealth creator, delivering returns of 26.94% over two years, 50.88% over three years, and an impressive 88.01% over five years, all outperforming the Sensex. The 10-year return of 770.62% versus the Sensex's 259.46% demonstrates the stock's long-term compounding potential, though recent performance raises questions about whether this trajectory can be sustained given the margin pressure and modest growth rates.
Technical Analysis: Mildly Bearish Trend with Support Levels in Focus
From a technical perspective, Chambal Fertilisers is currently in a "Mildly Bearish" trend as of February 12, 2026, having transitioned from a "Sideways" trend. The stock trades below all key moving averages—5-day (₹450.68), 20-day (₹438.36), 50-day (₹446.79), 100-day (₹466.42), and 200-day (₹518.63)—indicating persistent selling pressure across short, medium, and long-term timeframes. The current price of ₹454.90 is just 10.91% above the 52-week low of ₹410.15, suggesting limited downside cushion if selling intensifies.
Technical indicators present a mixed picture. The MACD shows "Mildly Bullish" on a weekly basis but "Mildly Bearish" on a monthly basis, suggesting short-term momentum divergence. Bollinger Bands indicate "Mildly Bearish" on both weekly and monthly timeframes, implying the stock is trading near the lower end of its recent range. The On-Balance Volume (OBV) remains "Mildly Bullish" on both timeframes, suggesting that despite price weakness, volume patterns haven't turned decisively negative—a potential silver lining for contrarian investors.
Key support lies at the 52-week low of ₹410.15, which represents a critical level to watch. A breach below this level could trigger further selling and test psychological support near ₹400. On the upside, immediate resistance is at the 20-day moving average of ₹438.36, followed by the 50-day moving average at ₹446.79. A sustained move above the 100-day moving average of ₹466.42 would be required to signal a meaningful trend reversal. The 200-day moving average at ₹518.63 represents strong resistance and would likely attract profit-booking if tested.
Investment Thesis: Quality Company at Crossroads
Chambal Fertilisers presents a nuanced investment case characterised by strong fundamental quality metrics offset by near-term operational challenges and technical weakness. The company's proprietary Mojo Score of 47/100 places it in "SELL" territory, reflecting concerns that outweigh positives at current juncture. The score breakdown reveals mixed signals: whilst quality remains "Good" and valuation is "Fair," the financial trend is "Flat" and technicals are "Mildly Bearish."
The company's strengths are undeniable: a fortress balance sheet with virtually zero debt, strong return ratios (ROE of 19.28%, ROCE of 24.45%), high institutional holdings of 20.31%, and a long track record of operational performance. The net cash position provides financial flexibility for growth initiatives, working capital management, or enhanced shareholder returns through dividends or buybacks. The dividend yield of 2.20% offers some income cushion whilst investors wait for capital appreciation.
✓ Key Strengths
- Virtually debt-free balance sheet with net cash position (Debt/Equity: -0.08)
- Strong return on equity of 19.28% and ROCE of 24.45%, indicating efficient capital deployment
- Attractive valuation at 9.52x P/E, 58.6% below industry average of 23x
- High institutional holdings of 20.31% with incremental promoter confidence (up to 60.85%)
- Healthy dividend yield of 2.20% with consistent payout history
- Substantial manufacturing capacity of 3.4 million MT urea annually
- Long-term wealth creation: 88% returns over 5 years, 771% over 10 years
⚠ Key Concerns
- Operating margin compression from 15.82% to 13.91% YoY (191 bps decline)
- Modest 5-year EBIT growth of just 1.57%, indicating limited earnings expansion
- Sequential net profit decline of 9.61% in Q3 FY26 despite revenue growth
- Stock underperformance: -14.93% in 1 year vs Sensex +8.52% (negative alpha of -23.45%)
- Mildly bearish technical trend with price below all key moving averages
- FII stake reduction from 20.19% to 15.66% over three quarters signals institutional concern
- High promoter pledge of 23.68% raises governance questions
However, the concerns are equally significant. The margin compression trend—from 15.82% in Q3 FY25 to 13.91% in Q3 FY26—raises questions about pricing power and cost management in a competitive, subsidy-driven industry. The flat financial trend designation reflects stagnation in profitability momentum despite revenue growth. The 5-year EBIT growth rate of just 1.57% is particularly troubling, as it suggests the company has struggled to expand earnings despite a growing top line, potentially due to pricing constraints or rising input costs.
Outlook: What to Watch Going Forward
The investment outlook for Chambal Fertilisers hinges on several critical factors that will determine whether the current valuation represents genuine value or a value trap. Investors should closely monitor quarterly margin trends to assess whether the compression is temporary or structural. Any stabilisation or improvement in operating margins above 14% would be a positive signal, whilst further erosion below 13% would be concerning.
Positive Catalysts
- Margin stabilisation or improvement above 14% in coming quarters
- Government policy support through timely subsidy disbursements and pricing revisions
- Capacity utilisation improvement driving operating leverage
- Technical trend reversal above 100-day MA (₹466.42) signalling momentum shift
- FII stake stabilisation or reversal of selling trend
Red Flags to Monitor
- Further margin compression below 13% indicating structural pricing pressure
- Continued FII selling and institutional exit
- Sequential profit declines in Q4 FY26 or FY27
- Technical breakdown below 52-week low of ₹410.15
- Subsidy payment delays impacting working capital and cash flows
Government policy remains a critical variable, as any favourable revisions to urea pricing or subsidy structures could provide tailwinds to profitability. Conversely, delays in subsidy disbursements or adverse policy changes could strain working capital and margins. The company's ability to maintain high capacity utilisation whilst managing costs will be crucial to defending profitability in a competitive landscape.
From a technical standpoint, a sustained move above the 100-day moving average of ₹466.42 would signal improving momentum and potentially attract momentum-driven buying. Conversely, a breakdown below the 52-week low of ₹410.15 could trigger further selling and test lower support levels. The stock's high beta of 1.35 means it will likely amplify broader market moves, making overall market sentiment an important consideration for timing entries or exits.
The Verdict: Quality Company in Transition, But Wait for Clarity
Score: 47/100
For Fresh Investors: Avoid initiating new positions at current levels. Whilst the valuation appears attractive on traditional metrics (9.52x P/E, 1.85x P/BV), the margin compression trend, flat financial performance, and negative technical momentum suggest waiting for clearer signs of stabilisation. Consider the stock only if it demonstrates margin improvement and technical trend reversal above ₹466 levels, or if it corrects further towards ₹400-410 support zone with improving fundamentals.
For Existing Holders: Consider reducing positions on any rallies towards ₹480-500 levels to lock in gains from lower cost bases. The company's strong balance sheet and quality metrics provide some comfort for long-term holders, but the near-term outlook remains clouded by operational challenges. Maintain a strict watch on quarterly margin trends—any sustained improvement above 14.5% would warrant reassessment, whilst further deterioration below 13% should trigger exit consideration.
Fair Value Estimate: ₹480-500 (5.5% to 10% upside from current levels), contingent upon margin stabilisation and return to positive earnings momentum. However, downside risks to ₹400-410 exist if margin pressure persists.
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. The stock market involves risks, including the potential loss of principal invested.
