The disappointing performance was driven by a sharp contraction in operating margins and sequential revenue decline, raising questions about the company's near-term earnings trajectory. Operating profit margin (excluding other income) fell to 11.07% in Q2 FY26 from 13.64% in the previous quarter, whilst net sales declined 12.69% sequentially to ₹270.23 crores. The results underscore mounting operational challenges in a competitive chemical manufacturing landscape, compounded by elevated employee costs and margin pressures.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 (Q2 FY26) | 270.23 | -12.69% | 21.19 | -37.23% | 11.07% |
| Jun'25 (Q1 FY26) | 309.52 | +24.89% | 33.76 | +172.04% | 13.64% |
| Mar'25 (Q4 FY25) | 247.84 | +26.19% | 12.41 | +100.16% | 7.90% |
| Dec'24 (Q3 FY25) | 196.41 | -26.96% | 6.20 | -82.62% | 6.15% |
| Sep'24 (Q2 FY25) | 268.91 | +1.51% | 35.68 | +15.02% | 18.21% |
| Jun'24 (Q1 FY25) | 264.91 | +13.43% | 31.43 | +365.07% | 14.71% |
| Mar'24 (Q4 FY24) | 233.54 | — | 7.07 | — | 5.40% |
Financial Performance: Margin Compression Drives Profit Decline
Excel Industries' Q2 FY26 results revealed significant quarter-on-quarter deterioration across key financial metrics. Net sales declined 12.69% sequentially to ₹270.23 crores from ₹309.52 crores in Q1 FY26, though the company managed a marginal 0.49% year-on-year growth compared to ₹268.91 crores in Q2 FY25. The sequential revenue decline suggests potential demand softness or timing issues in order execution during the July-September period.
More concerning was the sharp margin compression witnessed during the quarter. Operating profit margin (excluding other income) contracted to 11.07% from 13.64% in the previous quarter, representing a 257 basis point sequential decline. Year-on-year, the margin erosion was even more pronounced at 714 basis points from 18.21% in Q2 FY25. This margin pressure translated directly into profitability, with profit before tax falling 38.21% quarter-on-quarter to ₹27.47 crores from ₹44.46 crores.
Employee costs remained elevated at ₹33.11 crores, though marginally lower than Q1 FY26's ₹33.80 crores. As a percentage of sales, employee costs increased to 12.25% from 10.92% in the previous quarter, indicating reduced operating leverage. Other income provided some cushion at ₹7.44 crores, though this was significantly lower than the ₹12.21 crores recorded in Q1 FY26, further pressuring overall profitability.
Operational Challenges: Weak Capital Efficiency Persists
Beyond the quarterly volatility, Excel Industries faces structural challenges in capital efficiency that have persisted over the medium term. The company's average return on equity of 6.82% over the past five years remains significantly below industry standards for speciality chemicals, indicating suboptimal utilisation of shareholder capital. This weak ROE reflects the company's struggle to generate adequate returns relative to the equity base, which has grown to ₹1,588.72 crores as of March 2025.
The company's average return on capital employed of 8.84% similarly underscores capital efficiency concerns. Whilst Excel Industries maintains a debt-free balance sheet with net cash position (average net debt to equity of -0.11), this conservative capital structure has not translated into superior returns. The company's sales to capital employed ratio of 0.77x suggests that asset turnover remains subdued, limiting the ability to drive profitability through operational leverage.
On a positive note, the company's balance sheet remains robust with shareholder funds of ₹1,588.72 crores as of March 2025, up from ₹1,427.06 crores in the previous year. Total investments stood at ₹890.84 crores, providing a comfortable liquidity cushion. The absence of long-term debt and strong interest coverage of 43.82x (average) insulates the company from financial distress, though it also highlights the missed opportunity to deploy leverage for growth when returns exceed cost of capital.
⚠️ Critical Concern: Capital Efficiency
Return on Equity at 6.82% (5-year average) remains well below acceptable thresholds for a speciality chemicals player. Despite maintaining a debt-free balance sheet and strong liquidity position, the company has struggled to generate adequate returns on shareholder capital. This weak capital efficiency, combined with subdued asset turnover (Sales/Capital Employed: 0.77x), raises questions about the company's ability to create value through its current operational model. Management must articulate a clear strategy to improve ROE, whether through margin expansion, asset-light growth, or strategic capital allocation.
Industry Context: Underperformance Against Peer Group
Excel Industries' challenges become more apparent when viewed against the backdrop of its speciality chemicals peer group. Over the past year, the stock has declined 29.54%, significantly underperforming the speciality chemicals sector return of 1.11%, resulting in an underperformance of 30.65 percentage points. This divergence suggests company-specific issues rather than broader sectoral headwinds.
The company's operational metrics lag peers across several dimensions. Whilst Excel Industries trades at a price-to-book value of 0.64x, reflecting market scepticism about asset quality and earnings power, this discount appears justified given the weak return on equity of 6.82% compared to peer averages exceeding 15%. The company's P/E ratio of 15.76x, whilst lower than many peers, must be evaluated in the context of deteriorating earnings trends rather than as a simple valuation opportunity.
From a technical perspective, the stock has been in a sustained bearish trend since October 2025, with the current trend turning bearish on February 02, 2026 at ₹904.75. The stock trades below all key moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, indicating weak momentum across all timeframes. With immediate support at the 52-week low of ₹798.50 and resistance at ₹918.98 (20 DMA), the technical setup offers little encouragement for near-term recovery absent a fundamental catalyst.
| Company | P/E (TTM) | P/BV | ROE % | Div Yield % | Debt/Equity |
|---|---|---|---|---|---|
| Excel Industries | 15.76 | 0.64 | 6.82 | 1.49 | -0.11 |
| Yasho Industries | 129.96 | 3.86 | 16.65 | 0.04 | 1.33 |
| Vidhi Specialty | 33.46 | 5.15 | 17.96 | 1.41 | 0.08 |
| Jyoti Resins | 17.50 | 5.07 | 35.79 | 0.84 | -0.69 |
| Platinum Industries | 29.63 | 3.09 | 12.45 | — | -0.32 |
| Paushak | 32.71 | 2.48 | 13.08 | 0.54 | 0.11 |
The peer comparison reveals Excel Industries' significant valuation discount, with its P/BV of 0.64x substantially below the peer average of approximately 3.9x. However, this discount is warranted given the company's ROE of 6.82% compared to the peer average of around 19%. The company's dividend yield of 1.49% provides some income support, though this alone cannot compensate for the weak operational performance and capital efficiency concerns.
Valuation Analysis: Attractive Multiple Masks Fundamental Weakness
At the current market price of ₹922.05, Excel Industries trades at a P/E ratio of 16.00x based on trailing twelve-month earnings, representing a significant discount to the industry P/E of 28.00x. The stock's price-to-book value of 0.64x suggests the market is valuing the company's assets at a substantial discount to book value, reflecting concerns about the sustainability of current returns and future earnings power.
The company's EV/EBITDA multiple of 9.33x and EV/EBIT of 14.15x appear reasonable on the surface, though these metrics must be interpreted cautiously given the volatility in operating profits. With EBITDA margins compressing and quarterly earnings showing significant fluctuations, the sustainability of current multiples remains questionable. The EV/Sales ratio of 0.95x indicates the enterprise is valued close to annual revenues, typical for companies with modest profitability.
From a dividend perspective, the stock offers a yield of 1.49% based on the latest dividend of ₹13.75 per share, with an ex-dividend date of August 14, 2025. The dividend payout ratio of 20.26% suggests conservative distribution policy, though this also indicates management's caution about earnings sustainability. The company's book value per share stands at ₹1,263.84, significantly above the current market price, though this gap reflects concerns about the quality of earnings and return generation rather than an obvious value opportunity.
Shareholding Pattern: Stable Promoter Base, Minimal Institutional Interest
Excel Industries' shareholding pattern reveals a stable promoter base with minimal institutional participation, which has implications for stock liquidity and valuation support. As of December 2025, promoter holding stood at 52.69%, marginally increasing from 52.68% in September 2025. The promoter group, led by Anshul Specialty Molecules Private Limited with 42.92%, has maintained consistent ownership with no pledging of shares, indicating confidence in the company's long-term prospects despite near-term challenges.
Foreign institutional investor (FII) holding remained stable at 2.01% in December 2025, unchanged from the previous quarter. Mutual fund participation is negligible at 0.01%, whilst insurance companies hold 6.69%. The minimal institutional interest, with total institutional holdings at just 9.07%, suggests limited buy-side support and explains the stock's illiquidity and vulnerability to sharp price movements. The absence of meaningful mutual fund participation is particularly noteworthy, as it indicates that domestic institutional investors have not found the risk-reward proposition compelling.
| Quarter | Promoter % | FII % | MF % | Insurance % | Other DII % |
|---|---|---|---|---|---|
| Dec'25 | 52.69 | 2.01 | 0.01 | 6.69 | 0.37 |
| Sep'25 | 52.68 | 2.01 | 0.01 | 6.69 | 0.36 |
| Jun'25 | 52.68 | 2.08 | 0.01 | 6.69 | 0.28 |
| Mar'25 | 52.66 | 2.05 | 0.01 | 6.69 | 0.28 |
| Dec'24 | 52.57 | 2.18 | 0.01 | 6.71 | 0.28 |
The shareholding pattern has remained remarkably stable over the past five quarters, with no significant changes in any category. This stability, whilst indicating no distress selling, also suggests a lack of fresh institutional interest that could provide valuation support. Non-institutional investors hold 38.24%, representing primarily retail and HNI participation. The absence of institutional exodus despite weak performance indicates that current holders may be locked in at higher prices, creating potential overhang if sentiment deteriorates further.
Stock Performance: Severe Underperformance Across Timeframes
Excel Industries' stock performance has been dismal across virtually all meaningful timeframes, with particularly severe underperformance over the past year. The stock has declined 29.54% over the past twelve months, whilst the Sensex gained 8.49%, resulting in a negative alpha of 38.03 percentage points. This dramatic underperformance reflects both company-specific challenges and investor concerns about the sustainability of the business model.
The medium-term picture is equally concerning. Over three years, the stock has fallen 15.05% compared to the Sensex's 37.63% gain, representing an underperformance of 52.68 percentage points. Even over shorter periods, the stock has struggled, declining 17.37% over three months versus the Sensex's marginal 0.29% decline, and falling 31.07% over six months against the Sensex's 3.89% gain. The year-to-date performance shows a 1.28% decline, marginally better than the Sensex's 1.74% fall, though this provides little comfort given the broader context.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +1.55% | +2.30% | -0.75% |
| 1 Month | -2.21% | -2.36% | +0.15% |
| 3 Months | -17.37% | -0.29% | -17.08% |
| 6 Months | -31.07% | +3.89% | -34.96% |
| Year-to-Date | -1.28% | -1.74% | +0.46% |
| 1 Year | -29.54% | +8.49% | -38.03% |
| 2 Years | +3.77% | +16.17% | -12.40% |
| 3 Years | -15.05% | +37.63% | -52.68% |
From a risk-adjusted perspective, the stock's performance is particularly poor. With a one-year volatility of 42.61% compared to the Sensex's 11.41%, Excel Industries exhibits significantly higher risk without commensurate returns. The risk-adjusted return of -0.69 versus the Sensex's 0.74 highlights the unfavourable risk-reward profile. The stock's high beta of 1.35 indicates it is 35% more volatile than the market, amplifying downside during market corrections whilst failing to capture proportionate upside during rallies.
Investment Thesis: Attractive Valuation Cannot Offset Deteriorating Fundamentals
Excel Industries presents a complex investment proposition characterised by attractive valuation metrics that are overshadowed by deteriorating operational performance and weak capital efficiency. The company's proprietary Mojo score of 28 out of 100 places it firmly in "STRONG SELL" territory, reflecting the confluence of negative factors across multiple dimensions of investment analysis.
The valuation appears attractive on the surface, with the stock graded as "ATTRACTIVE" and trading at significant discounts to both book value and industry multiples. However, this apparent cheapness is a value trap rather than a genuine opportunity, as the weak return on equity of 6.82% and deteriorating quarterly financial trends justify the market's scepticism. The company's financial trend is classified as "NEGATIVE," with key metrics such as profit before tax (excluding other income) falling 63.10% in the latest quarter compared to the previous four-quarter average.
From a quality standpoint, Excel Industries receives an "AVERAGE" grade, reflecting its debt-free balance sheet and zero promoter pledging, offset by below-average growth (5-year sales CAGR of 9.54% and EBIT CAGR of 1.26%) and weak capital efficiency. The technical picture is unambiguously bearish, with the stock in a confirmed bearish trend since February 02, 2026, trading below all key moving averages and showing weak momentum across weekly and monthly indicators.
Key Strengths & Risk Factors
✅ KEY STRENGTHS
- Debt-Free Balance Sheet: Zero long-term debt and net cash position provides financial flexibility and eliminates refinancing risk.
- Strong Interest Coverage: EBIT to interest ratio of 43.82x indicates robust ability to service any financial obligations.
- Stable Promoter Holding: Promoter stake of 52.69% with zero pledging demonstrates long-term commitment and confidence.
- Attractive Valuation: Trading at 0.64x P/BV and 16x P/E represents significant discount to book value and industry multiples.
- Dividend Yield: 1.49% dividend yield provides some income support in weak market conditions.
- Long Operating History: Established presence since 1960 in speciality chemicals with diversified product portfolio.
⚠️ KEY CONCERNS
- Weak Capital Efficiency: ROE of 6.82% and ROCE of 8.84% significantly below industry standards indicate poor capital utilisation.
- Margin Compression: Operating margins fell 714 bps YoY to 11.07%, reflecting pricing pressure or cost inflation.
- Deteriorating Earnings: Net profit down 40.61% YoY and 37.23% QoQ signals fundamental business challenges.
- Minimal Institutional Interest: Total institutional holdings of 9.07% limit liquidity and valuation support.
- Negative Financial Trend: Quarterly metrics showing consistent deterioration versus historical averages.
- High Volatility: Beta of 1.35 and volatility of 42.61% create unfavourable risk-reward profile.
- Bearish Technicals: Stock below all moving averages with confirmed bearish trend since February 2026.
Outlook: What to Watch
📈 POSITIVE CATALYSTS
- Margin Recovery: Any evidence of operating margin stabilisation above 13-14% levels would signal improved pricing power or cost management.
- Revenue Growth Acceleration: Consistent quarterly sales growth above 10% YoY would indicate demand recovery and market share gains.
- Institutional Buying: Meaningful increase in FII or mutual fund holdings would provide valuation support and improve liquidity.
- Strategic Initiatives: Announcement of capacity expansion, new product launches, or strategic partnerships could reignite growth.
- ROE Improvement Plan: Clear management roadmap to improve capital efficiency towards 12-15% ROE targets.
🚩 RED FLAGS
- Further Margin Erosion: Operating margins falling below 10% would signal structural profitability challenges.
- Sequential Revenue Decline: Another quarter of QoQ sales decline would confirm demand weakness rather than timing issues.
- Increased Debt: Any move away from debt-free status without corresponding improvement in returns would be concerning.
- Promoter Stake Reduction: Any material decrease in promoter holding or emergence of pledging would signal loss of confidence.
- Technical Breakdown: Break below 52-week low of ₹798.50 could trigger further selling pressure and test lower support levels.
The forward outlook for Excel Industries remains challenging in the absence of concrete evidence of operational turnaround. The company needs to demonstrate sustained margin recovery, revenue growth acceleration, and most critically, a credible path to improving capital efficiency. Whilst the debt-free balance sheet provides a cushion, it cannot indefinitely compensate for weak returns on equity and deteriorating profitability trends.
Investors should closely monitor the upcoming quarterly results for signs of stabilisation in operating margins and sequential revenue growth. Any management commentary on strategic initiatives to improve ROE and capital turnover would be particularly important. From a technical perspective, the stock needs to reclaim the 20-day moving average at ₹918.98 and subsequently the 50-day moving average at ₹927.97 to signal any meaningful reversal of the current bearish trend.
The Verdict: Exit Recommended on Fundamental Deterioration
Score: 28/100
For Fresh Investors: Avoid initiation at current levels. The confluence of deteriorating quarterly earnings, weak capital efficiency (ROE: 6.82%), negative financial trends, and bearish technical setup creates an unfavourable risk-reward proposition. The apparent valuation discount is a value trap rather than an opportunity, as low multiples are justified by poor return generation. Wait for concrete evidence of margin stabilisation, revenue growth acceleration, and improvement in capital efficiency before considering entry.
For Existing Holders: Consider exiting positions on any technical bounce towards ₹950-980 levels. The company's fundamental trajectory has deteriorated significantly, with net profit declining 40.61% YoY and operating margins compressing 714 basis points. The negative financial trend, weak institutional interest (9.07%), and confirmed bearish technical trend suggest further downside risk. The debt-free balance sheet provides a safety net against distress, but cannot compensate for sustained poor capital efficiency and profitability challenges.
Fair Value Estimate: ₹750-800 (18-24% downside risk from current levels), based on normalised earnings of ₹60-65 crores annually and a fair P/E multiple of 12-13x given the weak ROE profile and deteriorating trends.
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 views expressed are based on publicly available information as of February 03, 2026, and are subject to change based on market conditions and new information.
