CHD Chemicals Q3 FY26: Losses Deepen as Revenue Continues Sharp Decline

The results underscore the severe operational challenges facing this micro-cap company. With revenue declining from ₹1.87 crores in Q3 FY25 to just ₹1.32 crores in Q3 FY26, CHD Chemicals has lost nearly 30% of its quarterly sales base year-on-year. The company's operating profit before depreciation, interest, tax and other income (PBDIT) stood at a negative ₹0.10 crores, reflecting fundamental profitability issues at the core business level. The company's five-year sales growth of -40.81% and EBIT growth of -177.29% paint a picture of sustained deterioration rather than temporary headwinds.

The stock has significantly underperformed the broader market, declining 14.43% over the past year whilst the Sensex gained 9.86%, resulting in negative alpha of -24.29 percentage points. More concerning is the three-year performance, with CHD Chemicals down 19.05% compared to the Sensex's 36.86% gain, creating a staggering -55.91 percentage point underperformance. The company's proprietary investment score stands at a dismal 12 out of 100, firmly in "STRONG SELL" territory.

Financial Performance: Chronic Profitability Crisis

The quarterly performance reveals a company struggling with fundamental operational viability. Net sales in Q3 FY26 stood at ₹1.32 crores, showing a modest 16.81% sequential improvement from Q2 FY26's ₹1.13 crores but remaining sharply below the ₹1.87 crores recorded in Q3 FY25. The year-on-year revenue contraction of 29.41% is particularly alarming given the already depressed base from the previous year. On a nine-month basis for FY26 (April-December 2025), the company has generated total revenue of just ₹3.72 crores compared to ₹5.45 crores in the corresponding period of FY25, representing a 31.74% decline.

Operating margins have collapsed into deeply negative territory. The operating profit before depreciation, interest, tax and other income (PBDIT) excluding other income was negative ₹0.10 crores in Q3 FY26, translating to an operating margin of -7.58%. This compares unfavourably to the 2.14% operating margin in Q3 FY24. The company's gross profit margin deteriorated to -1.52% in Q3 FY26 from 0.00% in Q3 FY24, indicating that the company is unable to cover even its direct costs of operations. The PAT margin of -3.79% reflects losses at every level of the income statement.

Interest costs of ₹0.05 crores and depreciation of ₹0.03 crores further pressured the already negative operating performance, resulting in a pre-tax loss of ₹0.05 crores. The company reported no tax expense for the quarter given the loss-making status. Other income of ₹0.13 crores provided some cushion in Q3 FY26, though this appears to be non-operating in nature and cannot sustainably offset operational losses. Employee costs remained minimal at ₹0.03 crores, unchanged sequentially, suggesting a lean organisational structure that nonetheless cannot generate profitable operations.

Operational Challenges: Structural Decline and Weak Returns

The operational metrics reveal a company facing existential challenges. The average return on capital employed (ROCE) over recent periods stands at just 2.63%, far below the cost of capital and indicative of value destruction. The latest ROCE is even worse at -0.88%, reflecting the company's inability to generate positive returns on the capital deployed in the business. Similarly, the average return on equity (ROE) of 0.92% is exceptionally weak, with the latest ROE at -1.37% as losses erode shareholder value. These metrics underscore that CHD Chemicals is not merely facing cyclical headwinds but fundamental issues with its business model and competitive positioning.

The balance sheet reflects a company under stress. As of March 2024, shareholder funds stood at ₹13.32 crores, comprising share capital of ₹10.11 crores and reserves of ₹3.21 crores. Long-term debt has declined from ₹6.18 crores in March 2023 to ₹4.77 crores in March 2024, suggesting some deleveraging, though the company's net debt to equity ratio of 0.47 indicates moderate leverage that is concerning given the loss-making operations. Current assets of ₹22.35 crores exceed current liabilities of ₹4.99 crores, providing some liquidity cushion, though the quality and realisability of these current assets warrant scrutiny given the declining business volumes.

The company's debt servicing capability is severely compromised. The EBIT to interest coverage ratio averages just 0.09x, meaning operating profits are insufficient to cover even interest obligations. The debt to EBITDA ratio of 8.11x is alarmingly high, indicating that at current EBITDA levels, it would take over eight years to repay debt, assuming all EBITDA were directed towards debt reduction. The sales to capital employed ratio of 1.86x suggests moderate asset turnover, but this metric is of limited value when the business itself is unprofitable. Cash flow from operations has been volatile, swinging from negative ₹12.00 crores in FY22 to positive ₹11.00 crores in FY23 and back to positive ₹2.00 crores in FY24, reflecting the unstable nature of the underlying business.

Industry Context: Trading Business Under Pressure

As a chemicals and dyes trading and distribution company, CHD Chemicals operates in a highly competitive segment with limited barriers to entry and thin margins. The company's declining revenue trajectory suggests loss of market share, customer attrition, or withdrawal from unprofitable segments. The chemicals trading business is inherently capital-intensive with working capital requirements for inventory and receivables, yet generates modest margins even in the best of times. CHD Chemicals' negative operating margins indicate the company is unable to generate even minimal trading spreads, potentially due to pricing pressure, competition from larger distributors, or operational inefficiencies.

The broader chemicals sector in India has faced headwinds from global overcapacity, weak demand in key end-user industries, and pricing pressures. However, well-managed chemical companies have been able to navigate these challenges through product diversification, value-added services, and efficient working capital management. CHD Chemicals' sustained underperformance relative to its sector—underperforming the Miscellaneous sector by 3.99 percentage points over the past year—suggests company-specific issues rather than sector-wide challenges. The company's inability to scale operations is evident from its stagnant share capital of ₹10.11 crores (unchanged since at least FY19) and declining reserves, indicating no capital infusion or retained earnings growth to fund expansion.

Valuation Analysis: Deep Discount Reflects Distress

CHD Chemicals trades at a price-to-book value of 0.39x, representing a 61% discount to book value. Whilst this might superficially appear attractive, the discount is entirely justified given the company's loss-making operations, negative returns on equity, and deteriorating business fundamentals. The company's P/E ratio is not applicable due to losses, and traditional valuation multiples offer little insight for a business destroying value. The EV to EBITDA multiple of -11.37x is negative due to the company's negative EBITDA, rendering this metric meaningless for valuation purposes.

The valuation grade has deteriorated from "Very Attractive" in early 2024 to "Risky" as of February 2025, reflecting the market's reassessment of the company's prospects. The book value per share of ₹13.17 compares to a market price of ₹5.10, but this book value includes accumulated reserves that have been eroding due to losses. At current loss rates, the book value will continue to decline, potentially justifying an even deeper discount to book value. The company last paid a dividend of ₹0.10 per share in October 2020, and there is no prospect of dividend resumption given the loss-making status.

The stock trades 37.73% below its 52-week high of ₹8.19 and just 6.25% above its 52-week low of ₹4.80, indicating that the market has largely priced in the deteriorating fundamentals. The enterprise value to sales ratio of 2.20x might appear reasonable in isolation, but it is elevated for a low-margin trading business with negative profitability. Any valuation framework must account for the high probability of continued losses, potential capital erosion, and the risk of business failure if operations do not stabilise.

Shareholding Pattern: Stable but Concerning Structure

The shareholding pattern has remained completely static over the past five quarters, with promoter holding steady at 27.49%, non-institutional investors at 72.32%, and other DII holdings at 0.20%. The absence of any FII, mutual fund, or insurance company participation is a significant red flag, indicating that institutional investors have deemed this company uninvestable based on its fundamentals, governance, or growth prospects. The low promoter holding of 27.49% is unusual and raises questions about promoter commitment and confidence in the business.

Key promoter details show Divya Kothari holding 16.36%, Ankit Trade & Investment Pvt Ltd. with 10.39%, and Kitabwati Kothari with 0.74%. Positively, there is no promoter pledging, eliminating one potential risk factor. However, the promoter group's decision to maintain only a 27.49% stake—retaining minority control—is noteworthy. The dominant non-institutional shareholding of 72.32% likely comprises retail investors and potentially distressed holders unable to exit due to limited liquidity. The absence of any sequential changes in shareholding across all categories over five quarters suggests minimal trading interest and poor liquidity.

Stock Performance: Consistent Underperformance Across Timeframes

The stock's performance has been dismal across all meaningful timeframes, with negative returns significantly trailing the Sensex. Over the past year, CHD Chemicals declined 14.43% whilst the Sensex gained 9.86%, resulting in negative alpha of -24.29 percentage points. The three-year performance is even more stark, with the stock down 19.05% compared to the Sensex's 36.86% gain, creating -55.91 percentage points of underperformance. Over five years, the stock has collapsed by 82.35% whilst the Sensex surged 61.47%, representing a catastrophic -143.82 percentage points of underperformance.

More recently, the stock declined 8.93% over three months compared to the Sensex's -1.72% decline, underperforming by 7.21 percentage points even in a weak market environment. The six-month return of -14.00% versus the Sensex's +3.59% shows continued weakness. Only over the past week has the stock shown a modest 0.99% gain versus the Sensex's -0.93% decline, though this is likely noise rather than a meaningful trend reversal. The stock's high beta of 1.15 indicates it is more volatile than the market, amplifying losses during downturns without commensurate gains during rallies.

The stock trades below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—signalling persistent technical weakness. The technical trend is classified as "Bearish" with the trend having changed to bearish on 13th January 2026. All technical indicators including MACD, Bollinger Bands, KST, and Dow Theory are flashing bearish signals on both weekly and monthly timeframes. The stock's risk-adjusted return of -0.22 over one year with volatility of 65.54% places it in the "HIGH RISK LOW RETURN" category—the worst possible combination for investors. The lack of institutional participation and poor liquidity (daily volumes of just 525 shares) make the stock difficult to exit, trapping existing holders.

Investment Thesis: Multiple Red Flags Justify Strong Sell Rating

The investment case for CHD Chemicals is overwhelmingly negative across all parameters. The company's proprietary score of 12 out of 100 places it firmly in "STRONG SELL" territory, with the score having declined from 47 (SELL) in January 2025 to 14 (STRONG SELL) in February 2025 and further deteriorating to the current level. The quality grade is "Below Average", the financial trend is "Flat" (though trending negative), the technical trend is "Bearish", and the valuation is classified as "Risky" rather than attractive. This combination of weak fundamentals, deteriorating financials, negative technicals, and risky valuation creates a compelling case for avoidance or exit.

Key concerns limiting the score include: the stock being in a bearish technical trend, flat-to-negative financial performance in recent quarters, weak long-term fundamental strength with operating losses, and consistent underperformance against the benchmark over the past three years. The company has demonstrated no ability to return to profitability, with nine-month FY26 losses continuing the trend from FY25. The absence of any institutional investors and minimal promoter holding of 27.49% further undermine confidence. The high debt to EBITDA ratio of 8.11x and EBIT to interest coverage of just 0.09x raise serious questions about financial sustainability.

Key Strengths & Risk Factors

Outlook: What to Watch

The path forward for CHD Chemicals is fraught with challenges. The company must first stabilise revenues and return to positive operating margins—neither of which appears imminent based on current trends. The chemicals trading business requires scale to generate meaningful margins, and at current quarterly revenue run-rates of ₹1.30 crores, the company lacks the scale to cover fixed costs and generate acceptable returns. Without a significant business restructuring, capital infusion, or strategic shift, the trajectory points towards continued value erosion. Existing shareholders face the difficult choice of accepting losses and exiting, or holding in hope of an unlikely turnaround that has not materialised despite multiple quarters of deterioration.