Everest Organics Q3 FY26: Profit Plunges 68% as Margin Pressures Mount

The stock reacted brutally to the results, plummeting 18.66% to ₹324.00 on February 16, 2026, extending its year-to-date losses to 35.36%. The pharmaceutical micro-cap now trades 39.60% below its 52-week high of ₹536.40, with investors fleeing amid concerns about deteriorating profitability and operational efficiency.

The third quarter results mark a concerning reversal for Everest Organics, which had shown sequential improvement through the first half of FY2026. Net sales of ₹42.59 crores in Q3 FY26 declined 16.49% from ₹51.00 crores in Q2 FY26, though they registered modest 1.28% year-on-year growth compared to ₹42.05 crores in Q3 FY25. More troubling was the compression in profitability metrics across the board, with operating profit margin (excluding other income) contracting to 8.31% from 10.06% in the previous quarter.

Financial Performance: Sequential Deterioration Raises Alarms

The quarter-on-quarter comparison reveals a company struggling with multiple headwinds. Net sales declined 16.49% sequentially to ₹42.59 crores in Q3 FY26 from ₹51.00 crores in Q2 FY26, marking the steepest quarterly revenue drop in recent quarters. This decline came after the company had posted strong 31.47% sequential growth in Q1 FY26, suggesting volatility in order flows or customer demand patterns.

Operating profit (PBDIT excluding other income) fell to ₹3.54 crores in Q3 FY26 from ₹5.13 crores in Q2 FY26, a decline of 30.99%. The operating margin contracted by 175 basis points to 8.31% from 10.06%, indicating rising cost pressures that the company failed to pass through to customers. Interest costs remained stable at ₹1.23 crores, while depreciation held steady at ₹1.52 crores. However, the tax rate spiked dramatically to 65.38% in Q3 FY26 from 56.93% in Q2 FY26, severely impacting bottom-line profitability.

On a nine-month basis for FY2026, the company has posted net sales of ₹147.40 crores, representing 24.34% year-on-year growth compared to ₹118.55 crores in the corresponding period of FY2025. However, net profit for the nine-month period stands at just ₹2.93 crores, barely ahead of the ₹1.88 crores reported in 9M FY25. The PAT margin for the nine-month period has compressed to 1.99% from 1.59% in the previous year, reflecting the company's inability to convert revenue growth into proportionate profit expansion.

Operational Challenges: Weak Returns and Deteriorating Efficiency

The company's operational metrics paint a concerning picture of capital efficiency and profitability. Return on equity (ROE) averaged a weak 5.58% over recent periods, significantly below industry benchmarks and indicating poor returns generated for shareholders. The latest half-yearly ROE improved to 9.13%, but this remains inadequate for a pharmaceutical company operating in a sector where double-digit returns are standard. Return on capital employed (ROCE) averaged just 1.12% historically, though the latest half-yearly ROCE showed improvement to 9.06%, suggesting some recent operational traction.

The balance sheet reveals a debt-to-equity ratio of 0.67, which is moderate but concerning given the weak profitability. Long-term debt stood at ₹9.20 crores as of March 2025, down from ₹14.64 crores in March 2024, showing some deleveraging effort. However, the company's ability to service this debt is constrained by weak EBIT generation. The average EBIT-to-interest coverage ratio of just 1.05 times indicates that operating profits barely cover interest obligations, leaving little room for error.

Working capital management has deteriorated, with the debtors turnover ratio falling to its lowest level of 1.63 times in the first half of FY2026. This suggests the company is taking longer to collect receivables, tying up valuable cash that could be deployed elsewhere. Trade payables stood at ₹95.79 crores as of March 2025, down from ₹110.65 crores the previous year, while current assets remained relatively stable at ₹147.90 crores.

The Pharmaceutical Sector Context: Navigating Margin Pressures

The pharmaceutical ingredients sector has faced significant headwinds over the past year, with raw material cost inflation, regulatory compliance expenses, and pricing pressures from customers squeezing margins across the board. Everest Organics' margin compression mirrors broader industry trends, though the company's small scale and limited product diversification make it more vulnerable to these pressures than larger, more diversified peers.

The company's five-year sales growth of just 1.52% compound annual growth rate (CAGR) significantly lags the pharmaceutical sector's growth trajectory. More concerning is the five-year EBIT growth of -9.29% CAGR, indicating that the company has not only failed to grow profitability but has actually seen operating profits shrink over the medium term. This structural weakness in earnings power raises fundamental questions about the company's competitive positioning and business model sustainability.

Peer Comparison: Valuation Premium Unjustified by Fundamentals

When compared to pharmaceutical sector peers, Everest Organics trades at a significant valuation premium that appears unjustified by its operational performance. The company's price-to-earnings ratio of 58.42 times trailing twelve-month earnings substantially exceeds the sector median and most comparable companies. This elevated multiple becomes even more concerning when viewed against the company's weak 5.58% ROE, which lags behind peers.

Everest Organics' price-to-book value ratio of 5.33 times is nearly double the peer average of approximately 2.83 times, despite delivering inferior returns on equity. Medico Remedies, for instance, commands a similar P/BV multiple of 5.82 times but justifies it with a robust 17.20% ROE—more than triple Everest Organics' return. Haleos Labs trades at a far more reasonable 20.65 times earnings with 8.63% ROE and lower leverage of 0.33 times debt-to-equity.

The valuation disconnect becomes even more apparent when considering that Everest Organics pays no dividend, offers no income component to investors, and has demonstrated negative five-year earnings growth. In contrast, Haleos Labs provides a 0.11% dividend yield while maintaining superior profitability metrics and lower financial risk.

Valuation Analysis: Expensive Multiple for Deteriorating Business

At the current market price of ₹324.00, Everest Organics trades at 58.42 times trailing twelve-month earnings, 5.33 times book value, and an enterprise value-to-EBITDA multiple of 25.56 times. These elevated multiples are difficult to justify given the company's operational challenges and declining profitability trajectory. The EV-to-EBIT ratio of 39.73 times is particularly concerning, as it suggests investors are paying nearly 40 times operating profit for a business with structurally weak margins.

The company's valuation grade has deteriorated significantly over the past year, moving from "Very Attractive" in July 2024 to "Expensive" as of May 2025, after briefly touching "Very Expensive" and "Risky" classifications. This progression reflects the market's growing recognition that the premium valuation is unsupported by fundamental performance. At 58 times earnings with declining profitability trends, Everest Organics appears significantly overvalued relative to both intrinsic value and peer comparisons.

The PEG ratio of 0.29 might superficially suggest value, but this metric is misleading given the negative five-year earnings growth rate. A traditional PEG ratio interpretation breaks down when applied to companies with shrinking profits, and in this case, the low PEG simply reflects mathematical distortion rather than genuine value opportunity.

Shareholding Pattern: Promoter Dilution Raises Governance Questions

The shareholding pattern reveals a concerning trend of gradual promoter dilution over recent quarters. Promoter holding has declined from 61.09% in March 2025 to 59.61% in December 2025, a reduction of 148 basis points over three quarters. While the absolute magnitude appears modest, the consistent quarterly decline—with reductions of 10 basis points, 135 basis points, and 3 basis points in the last three quarters respectively—suggests ongoing promoter stake sales or dilution through equity issuances.

Institutional interest in Everest Organics remains virtually non-existent, with zero holdings from foreign institutional investors, mutual funds, and insurance companies. Other domestic institutional investors hold a negligible 0.02% stake. The complete absence of institutional participation is a significant red flag, as sophisticated investors with dedicated research teams have evidently found no compelling reason to invest in the company despite its pharmaceutical sector positioning.

The non-institutional shareholding has correspondingly increased from 38.89% to 40.37%, suggesting retail investors are absorbing shares being sold by promoters or issued through dilution. This dynamic—promoters reducing stakes while institutions remain absent—typically signals lack of confidence in the company's near-term prospects and raises corporate governance concerns.

Stock Performance: Brutal Correction After Unsustainable Rally

Everest Organics' stock price performance tells a tale of irrational exuberance followed by painful reality. After delivering spectacular returns of 143.81% over two years and 223.55% over three years, the stock has collapsed 35.36% year-to-date through February 16, 2026. The recent correction has been particularly severe, with the stock down 18.49% over the past week, 25.20% over the past month, and 23.60% over the past three months.

The stock now trades 39.60% below its 52-week high of ₹536.40, though it remains 53.59% above its 52-week low of ₹210.95. This positioning suggests the stock is in the midst of a painful correction from unsustainable valuations, with the recent quarterly results serving as a catalyst for reality to reassert itself. The high beta of 1.50 indicates the stock is significantly more volatile than the broader market, amplifying both gains and losses.

Technical indicators paint a deteriorating picture. The stock trades below all key moving averages—5-day (₹408.98), 20-day (₹409.24), 50-day (₹450.96), 100-day (₹428.92), and 200-day (₹405.36)—indicating strong bearish momentum. The overall technical trend has shifted to "Mildly Bullish" from "Bullish" in January 2026, though this classification appears optimistic given the severity of recent declines and the stock's position relative to moving averages.

Investment Thesis: Fundamental Weakness Outweighs Technical Recovery

The investment case for Everest Organics rests on shaky foundations. While the company has demonstrated some positive momentum in near-term financial trends and technical indicators remain "Mildly Bullish," these short-term factors are overwhelmed by structural weaknesses in the business. The company's quality grade of "Below Average" reflects long-term financial underperformance, with five-year EBIT growth of -9.29% representing a fundamental deterioration in earning power.

The company's Mojo Score of 47 out of 100 places it firmly in "SELL" territory, reflecting the analytical consensus that risks significantly outweigh potential rewards at current valuations. The valuation remains "Expensive" despite the recent correction, with the stock trading at 58 times earnings for a business generating single-digit returns on equity and experiencing margin compression.

Key Strengths & Risk Factors

Outlook: What Lies Ahead for Everest Organics

The forward outlook for Everest Organics hinges on management's ability to address fundamental operational weaknesses while navigating a challenging pharmaceutical ingredients market. The company must demonstrate consistent margin improvement, sustainable revenue growth, and meaningful improvement in capital returns to justify even a moderate valuation, let alone the current expensive multiple.