The quarter's results reflect a challenging operating environment characterised by volume pressures and elevated tax incidence. Despite modest revenue growth sequentially, the company's profitability came under pressure from higher depreciation and tax expenses. The stock has underperformed both the broader market and its sector peers, declining 16.42% over the past year whilst the Sensex gained 9.67%, resulting in a negative alpha of 26.09 percentage points.
Established in April 1988, Hindustan Adhesives specialises in acrylic emulsion-based coatings, hot melt adhesive coatings, and double bubble film technology for the packaging industry. The company operates in a niche segment of industrial plastic products, competing with established players such as Kaka Industries, Captain Pipes, and National Plastic.
Financial Performance: Margin Compression Weighs on Profitability
In Q3 FY26, Hindustan Adhesives posted net sales of ₹66.89 crores, representing a modest 3.46% sequential increase from ₹64.65 crores in Q2 FY26. However, the year-on-year comparison reveals underlying weakness, with revenues declining 7.80% from ₹72.55 crores in Q3 FY25. This marks the third consecutive quarter of year-on-year revenue contraction, following declines of 23.44% in Q2 FY26 and a marginal 3.64% growth in Q1 FY26.
| Quarter | Net Sales (₹ Cr) | QoQ Change | YoY Change | Operating Margin | PAT Margin | Net Profit (₹ Cr) |
|---|---|---|---|---|---|---|
| Dec'25 | 66.89 | +3.46% | -7.80% | 15.61% | 6.74% | 4.51 |
| Sep'25 | 64.65 | -2.62% | -23.44% | 16.02% | 8.83% | 5.71 |
| Jun'25 | 66.39 | +4.11% | +3.64% | 13.04% | 5.65% | 3.75 |
| Mar'25 | 63.77 | -12.10% | — | 16.17% | 5.17% | 3.30 |
| Dec'24 | 72.55 | -14.08% | — | 12.14% | 6.33% | 4.59 |
| Sep'24 | 84.44 | +31.81% | — | 11.87% | 6.36% | 5.37 |
| Jun'24 | 64.06 | — | — | 7.93% | 3.33% | 2.13 |
Operating profit before depreciation, interest, tax, and other income (PBDIT excl OI) stood at ₹10.44 crores in Q3 FY26, marginally higher than Q2 FY26's ₹10.36 crores but representing the highest absolute figure in recent quarters. The operating margin (excluding other income) came in at 15.61%, down 41 basis points sequentially from 16.02% but significantly improved from the 12.14% recorded in Q3 FY25. This margin expansion year-on-year suggests better cost management despite revenue headwinds.
However, profitability at the bottom line suffered due to two key factors. First, depreciation charges surged to ₹2.93 crores from ₹2.55 crores in Q2 FY26, reflecting the company's capital-intensive expansion undertaken in recent periods. Second, the tax rate spiked to 33.58% in Q3 FY26 from 24.37% in the previous quarter, substantially eroding post-tax earnings. The effective tax rate of 33.58% stands well above the company's historical average of 28.04%, suggesting potential one-time adjustments or lower availability of tax benefits.
Net profit for Q3 FY26 declined 21.02% sequentially to ₹4.51 crores, whilst the year-on-year comparison showed a marginal 1.74% contraction. For the nine-month period ending December 2025, the company reported cumulative net sales of ₹197.93 crores and net profit of ₹13.97 crores, compared to ₹221.05 crores and ₹12.09 crores respectively in the corresponding period of the previous year. This translates to a 10.46% decline in nine-month revenues but a 15.55% increase in nine-month profits, highlighting improved operational efficiency despite top-line pressures.
Operational Challenges: Volume Pressures Test Resilience
The company's operational performance in Q3 FY26 reveals a business grappling with demand headwinds in its core packaging adhesives segment. The 7.80% year-on-year revenue decline suggests weakening end-market demand, possibly stemming from subdued activity in key customer industries such as flexible packaging, FMCG, and consumer goods.
Despite revenue challenges, the company demonstrated commendable cost discipline. Employee costs declined to ₹5.38 crores in Q3 FY26 from ₹5.75 crores in Q2 FY26, representing 8.04% of sales compared to 8.89% in the previous quarter. This suggests either workforce rationalisation or better productivity management. Operating leverage remains moderate, with the company's sales-to-capital-employed ratio averaging 1.91 times over recent periods.
Balance Sheet Concerns: Rising Leverage
Hindustan Adhesives' balance sheet has witnessed significant deterioration in leverage metrics. Long-term debt surged to ₹39.77 crores in FY25 from ₹17.48 crores in FY24, more than doubling in a single year. The debt-to-EBITDA ratio stands at 2.75 times, whilst net debt-to-equity has reached 1.00, indicating high leverage for a company of this size. Interest coverage, measured by EBIT-to-interest, stands at a weak 3.17 times, leaving limited cushion for profit volatility. The sharp increase in debt appears linked to capital expenditure of ₹49 crores in FY25, as evidenced by investing cash outflows.
Return on equity (ROE) stands at a respectable 16.01% on average and 17.16% for the latest period, indicating that the company generates reasonable returns on shareholder capital despite leverage concerns. However, return on capital employed (ROCE) of 12.28% on average and 13.05% for the latest period remains modest, suggesting that the capital-intensive nature of the business limits overall returns. The divergence between ROE and ROCE highlights the role of financial leverage in boosting equity returns, a strategy that carries increased risk in challenging operating environments.
Industry Context: Navigating a Competitive Landscape
The industrial plastic products sector, particularly the adhesives and coatings segment, operates in a highly competitive environment with moderate barriers to entry. Hindustan Adhesives competes with both organised players and smaller regional manufacturers in serving the packaging industry. The company's niche focus on acrylic emulsion-based coatings and hot melt adhesives provides some differentiation, but pricing power remains limited due to the commoditised nature of certain product lines.
Demand dynamics in the packaging industry have been mixed. Whilst e-commerce growth and changing consumption patterns support long-term structural demand, near-term cyclicality in FMCG and consumer goods sectors has impacted order flows. Raw material cost volatility, particularly for petroleum-based inputs used in adhesive formulations, poses an ongoing margin risk. The company's ability to pass through cost increases to customers determines profitability sustainability.
Market Positioning: Niche Player with Limited Scale
With a market capitalisation of just ₹159 crores, Hindustan Adhesives ranks as a micro-cap player in the industrial plastics space. Its annual revenue run rate of approximately ₹280-290 crores places it well behind larger peers. This limited scale constrains negotiating power with both suppliers and customers, whilst also limiting access to capital for growth investments. The company's promoter holding of 68.48% provides management stability, but the complete absence of institutional investors (0% FII, 0% mutual fund holdings) reflects limited market visibility and liquidity concerns.
Peer Comparison: Valuation Discount Reflects Concerns
Comparing Hindustan Adhesives to peers in the plastic products – industrial segment reveals a significant valuation discount that appears justified by weaker growth prospects and quality concerns. The company trades at a price-to-earnings ratio of 8.73 times trailing twelve-month earnings, substantially below the peer average of approximately 26 times and well below the broader industry P/E of 38 times.
| Company | Market Cap (₹ Cr) | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) |
|---|---|---|---|---|---|
| Hindustan Adhesives | 159 | 8.73 | 1.50 | 16.01 | — |
| Kaka Industries | — | 20.50 | 3.60 | 19.99 | — |
| Captain Pipes | — | 54.79 | 3.92 | 13.90 | — |
| National Plastic | — | 15.94 | 2.88 | 17.75 | 0.57 |
| Ecoplast | — | 21.79 | 2.09 | 11.45 | — |
| Tainwala Chemicals | — | 15.77 | 0.97 | 3.33 | 1.68 |
The company's price-to-book value of 1.50 times also trades at a discount to most peers, despite maintaining a competitive ROE of 16.01%. This suggests the market assigns limited value to the company's growth prospects or harbours concerns about earnings quality and sustainability. Notably, Hindustan Adhesives does not pay dividends, unlike some peers such as National Plastic and Tainwala Chemicals, depriving investors of income whilst capital appreciation remains muted.
The valuation discount appears warranted when considering the company's negative sales growth of 4.38% over five years, high leverage with debt-to-equity of 1.00, and weak interest coverage of 3.17 times. Whilst the company has achieved impressive EBIT growth of 42.84% over five years, this appears driven more by margin expansion than volume growth, raising questions about sustainability.
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current price of ₹305.95, Hindustan Adhesives trades at valuations that appear optically attractive relative to historical norms and peer comparisons. The P/E ratio of 8.73 times represents a significant discount to the industry average of 38 times, whilst the EV/EBITDA multiple of 6.62 times and EV/Sales of 0.94 times suggest the business trades close to replacement value.
The company's proprietary Mojo Score of 37 out of 100 places it firmly in "SELL" territory, reflecting concerns that outweigh the valuation discount. The scoring system assigns an "ATTRACTIVE" valuation grade but downgrades the overall assessment due to "BEARISH" technical trends, "FLAT" financial performance in recent quarters, and "AVERAGE" quality characteristics.
The PEG ratio of 0.90 suggests the stock trades below its growth rate, typically considered attractive. However, this metric can be misleading when historical growth rates are unsustainable or when a company faces structural headwinds. Given Hindustan Adhesives' negative five-year sales growth of 4.38% and recent quarterly revenue declines, the historical EBIT growth of 42.84% appears driven by one-time margin improvements rather than sustainable volume expansion.
Shareholding Pattern: Promoter-Dominated with Zero Institutional Interest
The shareholding pattern of Hindustan Adhesives reveals a promoter-dominated structure with virtually no institutional participation, raising questions about governance oversight and market credibility. As of December 2025, promoters held 68.48% of equity, unchanged from the previous quarter but marginally lower than the 68.58% held in March 2025.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 68.48% | 68.48% | 68.58% | 68.58% | 0.00% |
| FII | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Non-Institutional | 31.52% | 31.52% | 31.42% | 31.42% | 0.00% |
The complete absence of foreign institutional investors (FIIs), mutual funds, insurance companies, and other domestic institutional investors signals a lack of confidence from professional money managers. This institutional void limits liquidity, constrains price discovery, and raises corporate governance concerns. The 31.52% non-institutional holding consists primarily of retail investors and non-promoter entities, a shareholder base that typically exhibits higher volatility during market stress.
Positively, there is no promoter pledging of shares, eliminating one potential red flag. The promoter group includes individuals from the Bagla family along with several private limited companies, suggesting a closely held family business structure. Whilst this ensures management continuity, it also limits accountability to external stakeholders.
Stock Performance: Sustained Underperformance Across Timeframes
Hindustan Adhesives has delivered disappointing returns across most relevant investment horizons, significantly underperforming both the Sensex and its sectoral peers. The stock declined 16.42% over the past year, whilst the Sensex gained 9.67%, resulting in a negative alpha of 26.09 percentage points. This underperformance has persisted across multiple timeframes, with the stock down 4.95% year-to-date compared to a 2.27% decline in the Sensex.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.73% | -0.93% | +0.20% |
| 1 Month | -0.96% | -0.34% | -0.62% |
| 3 Months | -0.34% | -1.51% | +1.17% |
| 6 Months | -2.22% | +3.34% | -5.56% |
| Year-to-Date | -4.95% | -2.27% | -2.68% |
| 1 Year | -16.42% | +9.67% | -26.09% |
| 2 Years | -17.67% | +14.99% | -32.66% |
| 3 Years | +55.46% | +35.82% | +19.64% |
| 5 Years | +146.73% | +59.85% | +86.88% |
The stock's risk-adjusted returns paint an even bleaker picture. With a volatility of 38.53% over the past year – more than three times the Sensex's 11.53% volatility – the stock exhibits high risk without commensurate returns. The risk-adjusted return of -0.43 and negative Sharpe ratio place it firmly in the "HIGH RISK LOW RETURN" category, an unattractive combination for most investors.
Technical indicators uniformly signal caution. The stock trades in a "BEARISH" trend that commenced on February 12, 2026, with the price currently below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day). MACD remains bearish on both weekly and monthly timeframes, whilst the stock trades 22.29% below its 52-week high of ₹393.70 and just 10.03% above its 52-week low of ₹278.05.
The company's beta of 1.50 indicates it moves 50% more than the broader market, amplifying both gains and losses. This high beta, combined with sustained underperformance, suggests the stock acts as a leveraged play on sector weakness without participating proportionally in sector strength.
Investment Thesis: Struggling with Structural Challenges
The investment case for Hindustan Adhesives rests on a challenging foundation. Whilst the company benefits from an attractive valuation grade and operates in a niche segment of the packaging industry, multiple headwinds constrain the investment appeal. The proprietary Mojo assessment framework assigns the following ratings across four key parameters:
The "ATTRACTIVE" valuation reflects the significant discount at which the stock trades relative to peers and historical norms. However, this discount appears justified rather than opportunistic, given the company's challenged growth profile, elevated leverage, and weak competitive positioning. The P/E ratio of 8.73 times, whilst low in absolute terms, may prove appropriate for a business experiencing revenue contraction and facing structural headwinds.
The "AVERAGE" quality grade acknowledges the company's respectable ROE of 16.01% and absence of promoter pledging, but penalises weak interest coverage of 3.17 times, high debt-to-EBITDA of 2.75 times, and complete absence of institutional investors. The five-year sales decline of 4.38% raises questions about the company's competitive positioning and ability to capture industry growth.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Valuation Discount: Trading at P/E of 8.73x vs industry 38x provides margin of safety
- Improved Operating Margins: Operating margin of 15.61% up 347 bps YoY despite revenue pressures
- Respectable ROE: Return on equity of 16.01% demonstrates adequate capital efficiency
- No Promoter Pledging: Zero pledged shares eliminates one governance red flag
- Niche Positioning: Specialised products in adhesive coatings provide differentiation
- Stable Promoter Base: 68.48% promoter holding ensures management continuity
⚠ KEY CONCERNS
- Revenue Contraction: Sales declined 7.80% YoY in Q3 FY26, third consecutive quarter of YoY decline
- High Leverage: Debt-to-equity of 1.00 and weak interest coverage of 3.17x limit financial flexibility
- Zero Institutional Interest: Complete absence of FII/MF holdings signals credibility concerns
- Sustained Underperformance: Stock down 16.42% in past year vs Sensex up 9.67%
- Bearish Technicals: Trading below all major moving averages with negative momentum
- High Volatility: 38.53% volatility with negative risk-adjusted returns
- Limited Scale: ₹159 crore market cap constrains competitive positioning
Outlook: What to Watch
POSITIVE CATALYSTS
- 📈 Revenue Stabilisation: Return to positive YoY growth would signal demand recovery
- 💰 Deleveraging: Reduction in debt levels from current ₹39.77 crores would improve financial flexibility
- 🎯 Margin Sustainability: Maintaining 15%+ operating margins demonstrates pricing power
- 🏢 Institutional Entry: Any MF/FII buying would validate investment case
- 📊 Technical Reversal: Break above ₹324 (200 DMA) would signal trend change
RED FLAGS TO MONITOR
- 🚨 Further Revenue Decline: Continued top-line contraction would question business viability
- ⚠️ Interest Coverage Deterioration: Coverage below 2.5x would signal financial stress
- 📉 Margin Compression: Operating margins falling below 12% would indicate pricing pressure
- 💸 Cash Flow Stress: Negative operating cash flow would necessitate further borrowing
- 📊 Technical Breakdown: Break below ₹278 (52-week low) would accelerate selling
The Verdict: Avoid – Valuation Discount Masks Fundamental Weakness
Score: 37/100
For Fresh Investors: Avoid initiating positions. The apparent valuation discount reflects genuine concerns about revenue trajectory, elevated leverage, and competitive positioning. The complete absence of institutional investors and sustained underperformance suggest limited near-term catalysts for re-rating. Better opportunities exist elsewhere in the industrial space with stronger growth visibility and healthier balance sheets.
For Existing Holders: Consider reducing exposure on any technical bounce towards ₹320-325 levels. The combination of flat financial trends, bearish technicals, and structural headwinds suggests limited upside potential. The 68.48% promoter holding may provide some downside protection, but the lack of institutional interest limits liquidity for meaningful exits.
Fair Value Estimate: ₹280-290 (8-10% downside from current levels). The stock's fair value appears closer to its 52-week low of ₹278.05, reflecting challenged fundamentals and weak momentum. Any valuation expansion would require sustained evidence of revenue stabilisation, deleveraging, and institutional interest – none of which appear imminent.
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 author and publisher are not registered investment advisors and do not provide personalised investment advice.
