The results underscore a company in distress. Sequential revenue declined 11.00% from Q2 FY26, marking the third consecutive quarter of falling sales. More alarmingly, operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) plummeted to ₹1.94 crores—the lowest in the past seven quarters—representing an 83.71% collapse from the year-ago quarter's ₹11.91 crores. The company's profit before tax stood at a loss of ₹4.79 crores, compared to a profit of ₹3.64 crores in Q3 FY25.
With a market capitalisation of just ₹545.27 crores and trading at an inflated P/E ratio of 189x—nearly five times the industry average of 39x—the stock's valuation appears disconnected from operational reality. The shares have lost 63.16% over the past year, dramatically underperforming both the Sensex (up 6.90%) and the commodity chemicals sector (up 6.62%).
| Quarter | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 68.14 | 76.56 | 91.54 | 92.32 | 83.62 | 81.90 | 76.53 |
| QoQ Change (%) | -11.00% | -16.36% | -0.84% | +10.40% | +2.10% | +7.02% | — |
| Net Profit (₹ Cr) | -4.45 | -2.01 | 2.55 | -9.19 | 1.88 | -0.53 | 0.90 |
| YoY Change (%) | -336.70% | +279.25% | +183.33% | — | — | — | — |
| Operating Margin (%) | 2.85% | 7.13% | 12.34% | 14.44% | 14.24% | 12.39% | 10.88% |
| PAT Margin (%) | -6.53% | -2.63% | 2.79% | -9.95% | 2.25% | -0.65% | 1.18% |
Financial Performance: A Downward Spiral Accelerates
The Q3 FY26 numbers reveal a company struggling with fundamental operational challenges. Net sales of ₹68.14 crores marked the lowest quarterly revenue in the trailing seven-quarter period, declining 18.51% year-on-year and 11.00% sequentially. This represents the third consecutive quarter of revenue contraction, with sales falling from ₹91.54 crores in Q1 FY26 to the current levels—a cumulative decline of 25.56% within just two quarters.
The margin picture is even more troubling. Operating profit excluding other income collapsed to ₹1.94 crores from ₹11.91 crores in Q3 FY25, translating to an operating margin of just 2.85% versus 14.24% a year ago—a deterioration of 1,139 basis points. This represents the lowest operating margin recorded in at least seven quarters, signalling severe pricing pressure or cost inflation challenges in the commodity chemicals space.
Interest costs have risen 69.17% year-on-year to ₹2.03 crores, whilst depreciation surged to ₹7.47 crores from ₹9.62 crores in Q3 FY25, reflecting the company's capital-intensive expansion undertaken in recent years. The combination of falling revenues, collapsing margins, and rising fixed costs pushed the company into a pre-tax loss of ₹4.79 crores in Q3 FY26.
The nine-month performance for FY26 (April-December 2025) paints an equally concerning picture. Cumulative revenue of ₹236.24 crores represents only a marginal decline of 2.90% compared to the same period last year, but net losses have mounted to ₹3.91 crores versus a profit of ₹2.25 crores in the first nine months of FY25. The company's inability to maintain profitability despite relatively stable top-line performance highlights deteriorating operational efficiency and margin compression.
Critical Concern: Lowest Quarterly Metrics
Operating Profit to Interest Coverage: At just 0.96 times in Q3 FY26, this represents the lowest coverage in recent history, signalling severe stress in servicing debt obligations.
Cash Position: Cash and cash equivalents in the first half of FY26 stood at just ₹0.89 crores—the lowest in years—raising concerns about liquidity and working capital management.
Debt-Equity Ratio: Has risen to 0.29 times in H1 FY26, the highest recorded level, indicating increasing financial leverage at a time when profitability is deteriorating.
Margin Dynamics: The Core Problem
The erosion in operating margins from 14.24% in Q3 FY25 to 2.85% in Q3 FY26 represents the single most critical challenge facing Chemfab Alkalis. This 1,139 basis point contraction cannot be attributed solely to cyclical factors—it points to structural issues in the company's cost base or pricing power.
Commodity chemicals manufacturers typically operate in highly competitive, price-sensitive markets where margins are thin and volumes drive profitability. Chemfab's margin collapse suggests either severe pricing pressure in caustic soda and chlorine markets, or significant cost inflation in raw materials and energy that the company has been unable to pass through to customers. Employee costs remained relatively stable at ₹6.59 crores in Q3 FY26, but depreciation of ₹7.47 crores continues to weigh heavily on profitability.
The company's return on equity (ROE) has deteriorated sharply to just 0.82% in the latest period, down from an average of 6.91% over recent years. This anaemic return profile—well below the cost of capital—indicates value destruction for shareholders. Return on capital employed (ROCE) similarly plunged to 1.80% from a historical average of 10.65%, reflecting poor asset utilisation and weak operational returns.
Quality of Earnings: Red Flags Emerging
The negative tax rate of 7.31% in Q3 FY26 (compared to 48.35% in Q3 FY25) reflects tax adjustments on losses rather than normal operations. More concerning is the interest coverage ratio, which has collapsed to below 1x—meaning operating profits are insufficient to cover even interest expenses. This is particularly worrying given that long-term debt surged to ₹63.80 crores in FY25 from just ₹16.39 crores in FY24, representing a near-quadrupling of debt at precisely the time when operational performance has deteriorated.
Balance Sheet Stress: Liquidity Concerns Mount
Chemfab's balance sheet reveals a company under increasing financial strain. Long-term debt jumped dramatically to ₹63.80 crores in FY25 from ₹16.39 crores in FY24, indicating significant borrowing—likely to fund the capital expenditure that pushed fixed assets to ₹303.26 crores from ₹232.52 crores. However, this expansion has occurred at an inopportune time, with operating performance deteriorating sharply.
Current assets of ₹119.37 crores in FY25 provide some cushion against current liabilities of ₹72.20 crores, yielding a current ratio of approximately 1.65x. However, the cash flow statement reveals concerning trends: operating cash flow of ₹39.00 crores in FY25 was entirely absorbed by investing activities of ₹85.00 crores, forcing the company to rely on financing cash flow of ₹58.00 crores (primarily debt) to bridge the gap.
Most alarmingly, cash and cash equivalents in the first half of FY26 stood at just ₹0.89 crores—down from ₹19.00 crores at the end of FY25. This dramatic depletion of liquidity, combined with mounting losses and rising debt service obligations, raises serious questions about the company's ability to navigate the current downturn without additional capital infusion.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Chemfab Alkalis | 189.44 | 1.56 | 6.91% | 0.29 | 0.29% |
| TGV Sraac | 7.88 | 0.76 | 13.78% | 0.16 | 1.12% |
| Andhra Sugars | 12.30 | 0.58 | 9.18% | -0.16 | 1.14% |
| Indo Borax & Chem. | 20.14 | 2.19 | 16.18% | -0.41 | 0.41% |
| Sr. Rayalaseema Hypo | 8.13 | 0.77 | 13.39% | -0.40 | 0.63% |
| Transpek Industries | 10.96 | 0.83 | 9.64% | -0.08 | 1.75% |
Peer Comparison: Valuation Disconnect Stark
When benchmarked against commodity chemicals peers, Chemfab Alkalis' valuation appears egregiously expensive relative to operational performance. Trading at a P/E ratio of 189.44x—the highest in its peer group by a wide margin—the stock commands a valuation premium that is entirely unjustified by fundamentals.
Peer companies trade at P/E multiples ranging from 7.88x (TGV Sraac) to 20.14x (Indo Borax & Chemicals), with an average around 12x. Chemfab's 189x multiple implies the market is pricing in a dramatic operational turnaround that current trends do not support. More tellingly, the company's ROE of 6.91% is the lowest in its peer group, where competitors deliver returns ranging from 9.18% to 16.18%.
The price-to-book ratio of 1.56x also appears elevated given the weak return profile. Whilst higher than most peers (average around 1.0x), this metric would be justified only if the company were generating superior returns on equity—which it clearly is not. The dividend yield of 0.29% is among the lowest in the group, reflecting both weak profitability and a conservative payout policy.
"At 189 times trailing earnings and an ROE of just 6.91%, Chemfab Alkalis trades at a valuation that assumes perfection in a business currently experiencing operational distress."
Valuation Analysis: Extreme Premium Unjustified
Chemfab Alkalis' valuation metrics flash bright red warning signals across the board. The P/E ratio of 189x is not merely expensive—it's in the stratosphere, particularly for a commodity chemicals manufacturer experiencing margin compression and mounting losses. The company's EV/EBITDA multiple of 16.65x and EV/EBIT of 79.76x are similarly elevated, especially given the deteriorating operational trajectory.
The stock's classification as "VERY EXPENSIVE" by valuation grading systems is well-deserved. Since May 2024, the stock has oscillated between "Expensive" and "Very Expensive" ratings, with the current assessment reflecting the disconnect between market price and underlying fundamentals. With the stock down 63.86% from its 52-week high of ₹1,049.80, much of the valuation froth has been eliminated, but significant downside risk remains given the negative earnings trajectory.
Book value per share stands at ₹264.55, implying the current price of ₹379.35 trades at a 43% premium to book. For a company generating sub-par returns and facing existential profitability challenges, this premium appears entirely unwarranted. A fair valuation would likely require the stock to trade at or below book value, suggesting potential downside of 30-40% from current levels.
Shareholding Pattern: Promoters Steady, Institutions Absent
The shareholding structure of Chemfab Alkalis reveals a promoter-dominated company with minimal institutional participation. Promoter holding stood at 72.13% as of December 2025, down marginally by 0.05% from the previous quarter. The promoter group, led by Dr Rao Holdings Pte Ltd (47.04%) and individual promoters including Suresh Krishnamurthi Rao (9.91%), has maintained a stable stake, with no pledging of shares—a positive sign indicating promoter confidence or at least no immediate liquidity stress at the holding company level.
However, institutional participation remains negligible. Foreign institutional investors (FIIs) hold a mere 0.08% as of December 2025, up slightly from 0.00% in September but still insignificant. Mutual fund holdings are static at 0.07%, whilst insurance companies have zero exposure. Other domestic institutional investors (DIIs) hold 0.21%, down from 0.27% in the previous quarter. This lack of institutional interest is telling—sophisticated investors have largely avoided the stock, likely due to concerns about the company's small size, operational volatility, and weak governance or disclosure standards typical of micro-cap companies.
| Quarter | Promoter % | FII % | MF % | Insurance % | Other DII % | Public % |
|---|---|---|---|---|---|---|
| Dec'25 | 72.13% | 0.08% | 0.07% | 0.00% | 0.21% | 27.50% |
| Sep'25 | 72.18% | 0.00% | 0.07% | 0.00% | 0.27% | 27.48% |
| Jun'25 | 72.18% | 0.02% | 0.07% | 0.00% | 0.20% | 27.53% |
| Mar'25 | 72.18% | 0.03% | 0.07% | 0.00% | 0.20% | 27.51% |
| Dec'24 | 72.57% | 0.03% | 0.07% | 0.00% | 0.20% | 27.12% |
The non-institutional public holding of 27.50% represents primarily retail investors, who may lack the resources or sophistication to fully analyse the company's deteriorating fundamentals. The absence of institutional buying over the past several quarters—despite the stock's 63% decline from peaks—suggests professional investors remain unconvinced about the company's turnaround prospects.
Stock Performance: Brutal Wealth Destruction
The stock price performance of Chemfab Alkalis over the past year can only be described as catastrophic. Shares have plummeted 63.16% over the past 12 months, underperforming the Sensex by a staggering 70.06 percentage points. The commodity chemicals sector index, which gained 6.62% during the same period, highlights that Chemfab's troubles are company-specific rather than sector-wide.
The decline has accelerated in recent months. Over the past six months, the stock has lost 50.40% whilst the Sensex gained 0.58%—an underperformance of 50.98 percentage points. The three-month return of -36.88% (versus Sensex -3.75%) reflects the market's increasingly negative assessment following the string of disappointing quarterly results. Even the most recent week saw the stock decline 6.31%, with the single-day 7.66% plunge on January 29, 2026, following the Q3 results announcement.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | -7.66% | -0.65% | -7.01% |
| 1 Week | -6.31% | -0.60% | -5.71% |
| 1 Month | -10.84% | -3.40% | -7.44% |
| 3 Month | -36.88% | -3.75% | -33.13% |
| 6 Month | -50.40% | +0.58% | -50.98% |
| YTD | -8.04% | -4.00% | -4.04% |
| 1 Year | -63.16% | +6.90% | -70.06% |
| 3 Years | +49.23% | +37.89% | +11.34% |
| 5 Years | +183.63% | +76.75% | +106.88% |
The stock now trades at ₹379.35, perilously close to its 52-week low of ₹374.95 and 63.86% below its 52-week high of ₹1,049.80. All key moving averages have been decisively breached—the stock trades below its 5-day (₹396.74), 20-day (₹414.51), 50-day (₹453.22), 100-day (₹530.85), and 200-day (₹648.82) moving averages, indicating a firmly established downtrend with no technical support in sight.
The stock's beta of 1.50 indicates high volatility—it tends to move 50% more than the broader market. With annualised volatility of 43.45% over the past year, this is a high-risk stock that has delivered negative risk-adjusted returns of -1.45, firmly placing it in the "HIGH RISK LOW RETURN" category.
Technical Analysis: Bearish Trend Firmly Entrenched
The technical picture for Chemfab Alkalis is unambiguously bearish. The stock entered a "BEARISH" trend on January 19, 2026, at ₹424, and has since fallen 10.53% to current levels. Multiple technical indicators confirm the negative momentum: MACD shows bearish signals on both weekly and monthly timeframes, Bollinger Bands indicate mildly bearish to bearish conditions, and moving averages across all periods remain bearish.
The KST (Know Sure Thing) oscillator displays bearish to mildly bearish readings, whilst Dow Theory shows no clear trend on weekly charts but mildly bearish on monthly timeframes. Only the On-Balance Volume (OBV) indicator shows any positive divergence on monthly charts, suggesting some accumulation, but this is overshadowed by the weight of negative technical evidence.
Immediate support lies at the 52-week low of ₹374.95—just 1.17% below current levels—with no meaningful technical support visible until much lower levels. Resistance is stacked overhead at ₹414.51 (20-day moving average), ₹530.85 (100-day moving average), and ₹648.82 (200-day moving average), making any meaningful rally difficult without a fundamental catalyst.
Investment Thesis: Multiple Red Flags, No Catalysts
The investment case for Chemfab Alkalis has deteriorated significantly, with the company's proprietary Mojo Score plummeting to just 19 out of 100—firmly in "STRONG SELL" territory. This score reflects the confluence of negative factors: bearish technical trends, negative financial trends, very expensive valuation, and poor long-term growth (operating profit CAGR of -6.47% over five years).
The company's quality grade of "AVERAGE" provides little comfort. Whilst the balance sheet shows no promoter pledging and maintains reasonable debt levels (debt-to-equity of 0.29x), the operational metrics are concerning. Average ROCE of 10.65% and ROE of 6.91% over recent years are mediocre at best, and current period returns have collapsed to 1.80% and 0.82% respectively—well below the cost of capital.
The 5-year sales growth of 14.44% is respectable, but this is more than offset by the -6.47% EBIT growth over the same period, indicating margin compression has been a persistent issue, not just a recent phenomenon. The company's strong interest coverage of 28.47x on average has now collapsed to below 1x in the latest quarter, signalling acute financial stress.
KEY STRENGTHS
- No Promoter Pledging: Zero pledged shares indicate no immediate promoter liquidity stress
- Stable Promoter Holding: 72.13% promoter stake remains steady with minimal quarterly variation
- Reasonable Debt Levels: Debt-to-equity of 0.29x remains manageable despite recent increase
- Long-term Sales Growth: 14.44% revenue CAGR over 5 years shows top-line expansion capability
- Established Operations: Manufacturing presence in caustic soda, chlorine, and PVCO pipes provides diversification
- Current Ratio: Approximately 1.65x provides some working capital cushion
KEY CONCERNS
- Consecutive Quarterly Losses: Q2 and Q3 FY26 both in red, with Q3 loss of ₹4.45 crores worsening
- Margin Collapse: Operating margin crashed from 14.24% to 2.85% YoY—unsustainable levels
- Revenue Decline: Three consecutive quarters of falling sales, down 18.51% YoY in Q3
- Liquidity Stress: Cash position fell to just ₹0.89 crores in H1 FY26 from ₹19 crores
- Interest Coverage Below 1x: Operating profits insufficient to cover interest costs
- Extreme Valuation: P/E of 189x for a loss-making company is indefensible
- Poor Capital Returns: Latest ROE of 0.82% and ROCE of 1.80% indicate value destruction
- No Institutional Interest: FII and MF holdings combined under 0.15%—sophisticated investors absent
- Technical Breakdown: Stock below all moving averages in confirmed bearish trend
- High Volatility: Beta of 1.50 with 43.45% annualised volatility amplifies downside risk
Outlook: What to Watch
The path forward for Chemfab Alkalis requires urgent operational improvements and a credible turnaround strategy. Investors and analysts should monitor several key indicators to assess whether the company can stabilise and reverse its deteriorating trajectory.
POSITIVE CATALYSTS
- Margin Recovery: Return of operating margins above 10% would signal pricing power restoration or cost control success
- Revenue Stabilisation: Arresting the three-quarter revenue decline with sequential growth in Q4 FY26
- Return to Profitability: Achieving positive net profit in Q4 FY26 would be critical psychological milestone
- Cash Flow Improvement: Rebuilding cash position above ₹5-10 crores to ease liquidity concerns
- Management Commentary: Clear articulation of turnaround strategy and market recovery timeline
RED FLAGS TO MONITOR
- Fourth Consecutive Loss: If Q4 FY26 also posts losses, full-year FY26 will be deeply negative
- Further Margin Compression: Operating margins falling below 2% would indicate terminal business stress
- Debt Covenant Breach: With interest coverage below 1x, watch for lender pressure or restructuring
- Working Capital Deterioration: Further decline in cash or current ratio compression
- Promoter Stake Reduction: Any decline in promoter holding would signal loss of confidence
- Technical Breakdown: Breach of ₹374.95 support would open downside to ₹300-350 zone
The commodity chemicals sector can be cyclical, and Chemfab's struggles may partly reflect broader market conditions for caustic soda and chlorine. However, the company's underperformance relative to peers (sector up 6.62% versus Chemfab down 63.16% over one year) suggests company-specific execution issues rather than purely sectoral headwinds. Without visible signs of operational improvement in Q4 FY26, the investment case remains deeply challenged.
The Verdict: Exit Recommended
Score: 19/100
For Fresh Investors: Avoid entirely. The combination of mounting losses, collapsing margins, liquidity stress, and extreme valuation creates a perfect storm of investment risks. No entry point is attractive until the company demonstrates at least two consecutive quarters of profitability and margin recovery above 10%.
For Existing Holders: Consider exiting on any technical bounce towards ₹400-420 levels. The stock has destroyed 63% of shareholder value over the past year, and the deteriorating operational trajectory suggests further downside risk. The absence of visible catalysts for turnaround, combined with interest coverage below 1x and depleted cash reserves, raises existential questions about the business model's viability in current market conditions.
Fair Value Estimate: ₹250-280 (34-26% downside from current levels), assuming the company can stabilise operations and return to modest profitability. Current price of ₹379.35 prices in an optimistic recovery scenario that fundamentals do not support.
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, and all investments carry risk of loss.
