HMA Agro Industries Q3 FY26: Export Momentum Drives Strong Profit Growth Despite Margin Pressures

The stock closed at ₹30.01 on February 12, gaining 0.91% on the day, though it continues to trade 21.34% below its 52-week high of ₹38.15. The company's performance reflects strong export demand offsetting margin compression concerns, with operating margins contracting to 3.13% in Q3 from 4.43% in Q2, raising questions about sustainability of the growth trajectory.

HMA Agro Industries, recognised as a star export house by the Government of India, has demonstrated remarkable revenue momentum through the first nine months of FY26, with cumulative sales reaching ₹5,337.40 crores compared to ₹3,633.45 crores in the corresponding period last year—a growth of 46.89%. However, the sequential revenue decline in Q3 and contracting margins signal potential headwinds in the export meat industry, particularly amid fluctuating international demand and raw material cost pressures.

Financial Performance: Strong Topline Masks Margin Deterioration

The Q3 FY26 results present a paradox of robust revenue growth coupled with concerning margin compression. Net sales of ₹2,059.45 crores represented a 41.54% year-on-year increase, driven by strong export demand for frozen buffalo meat products. However, the 4.45% sequential decline from Q2's ₹2,155.34 crores suggests potential seasonality or demand moderation in key export markets.

Operating profit before depreciation, interest, tax, and other income (PBDIT excl OI) stood at ₹64.46 crores in Q3, translating to an operating margin of just 3.13%—a significant contraction from Q2's 4.43% and well below the company's historical range. This margin compression occurred despite revenue growth, indicating rising input costs or competitive pricing pressures in international markets. Employee costs increased to ₹42.79 crores from ₹35.42 crores sequentially, reflecting both volume growth and potential wage inflation.

The profit after tax of ₹66.23 crores, whilst impressive on a year-on-year basis, declined 26.21% from Q2's ₹89.76 crores. The PAT margin of 3.23% in Q3, though improved from Q1's anaemic 0.05%, remains substantially below Q2's 4.17%. This volatility in profitability metrics raises concerns about earnings quality and sustainability, particularly given the company's reliance on export markets subject to currency fluctuations and international trade dynamics.

The Other Income Dependency: A Critical Quality Concern

A particularly troubling aspect of HMA Agro's Q3 performance is the outsized contribution of other income to overall profitability. Other income stood at ₹40.68 crores in Q3 FY26, representing a staggering 46.31% of profit before tax (₹87.85 crores). This heavy reliance on non-operating income—which jumped from ₹11.32 crores in Q1 to ₹40.68 crores in Q3—raises serious questions about the sustainability of reported profits and the quality of core operating earnings.

The company's operating profit excluding other income was merely ₹64.46 crores, meaning that other income contributed more than 60% of the total operating profit (PBDIT) of ₹105.14 crores. This pattern suggests that the impressive headline profit figures are significantly inflated by non-recurring or non-core income sources, potentially including forex gains, interest income, or other treasury operations rather than fundamental business strength.

On a nine-month basis for FY26, cumulative other income of ₹88.11 crores represents a substantial portion of the ₹253.33 crores in total operating profit, highlighting that this is not merely a one-quarter aberration but a structural characteristic of the company's current earnings profile. For investors focused on sustainable, high-quality earnings, this dependency on other income is a significant red flag that diminishes confidence in the company's core operational profitability.

Operational Challenges: Capital Efficiency and Return Profile

HMA Agro's return on equity (ROE) of 13.82% on an average basis, whilst positive, lags behind industry leaders and reflects moderate capital efficiency. The company's ROE improved to 14.35% in the latest period from the average, suggesting some improvement in profitability relative to shareholder equity. However, this remains substantially below the 20%+ ROE levels that characterise truly high-quality compounders in the FMCG and food processing sectors.

Return on capital employed (ROCE) presents an even more concerning picture at just 10.25% on average and 7.85% in the latest period—indicating deteriorating capital efficiency. This declining ROCE trend, combined with negative five-year EBIT growth of -11.50%, signals fundamental operational challenges in the frozen meat export business. The company appears to be deploying increasing amounts of capital to generate diminishing returns, a classic value-destructive pattern.

The balance sheet reveals moderate leverage with a debt-to-equity ratio of 0.53 and debt-to-EBITDA of 3.78 times. Long-term debt stood at ₹27.00 crores as of March 2025, down marginally from ₹28.30 crores the previous year. Whilst the leverage is manageable, the company's interest coverage ratio of 6.63 times (EBIT to interest) provides adequate but not exceptional cushion, particularly concerning given the volatility in operating performance.

Working capital management appears stretched, with current liabilities of ₹868.16 crores against current assets of ₹1,120.95 crores as of March 2025. Trade payables increased to ₹98.71 crores from ₹136.36 crores, whilst other current liabilities surged to ₹261.60 crores from ₹70.48 crores, suggesting potential payment pressures or changes in working capital structure that merit close monitoring.

Industry Context: Navigating a Challenging Export Landscape

HMA Agro operates in the highly competitive and regulated frozen meat export industry, where Indian companies have established a significant presence in global markets, particularly in the Middle East, Southeast Asia, and Africa. As India's largest exporter of frozen buffalo meat products, the company benefits from India's position as one of the world's leading beef exporters, though the business faces multiple structural headwinds.

The frozen meat export industry is characterised by thin margins due to intense competition, commodity-like pricing, and high working capital requirements. Export realisations are subject to international price fluctuations, currency movements, and geopolitical factors affecting trade relationships. The company's 41.54% year-on-year revenue growth in Q3 suggests strong demand recovery in key export markets, though the sequential decline indicates potential volatility or seasonality in order flows.

Regulatory compliance remains a critical factor, with stringent food safety standards in importing countries and evolving animal welfare regulations domestically. The company's recognition as a star export house by the Government of India provides some competitive advantage through easier access to export incentives and streamlined procedures, though this does not insulate it from global market dynamics.

The industry faces long-term challenges including potential shifts in consumer preferences towards plant-based proteins, environmental concerns around meat production, and the risk of trade restrictions or import bans by key markets. The company's heavy reliance on export markets exposes it to these external risks beyond management control, making earnings predictability challenging.

HMA Agro's valuation appears relatively attractive compared to peers, trading at a P/E ratio of 12.23x versus the peer average of approximately 38x, and a price-to-book ratio of 1.76x against a peer average near 2.8x. However, the company's ROE of 13.82% is superior to most peers, with only Jindal Photo reporting a higher ROE of 15.58%. This suggests the stock may be undervalued relative to its profitability metrics, though the valuation discount likely reflects concerns about earnings quality, volatility, and the structural challenges facing the frozen meat export industry.

Valuation Analysis: Attractive Entry Point or Value Trap?

At the current market price of ₹30.01, HMA Agro Industries trades at a trailing twelve-month P/E ratio of 12.23x, representing a significant discount to the FMCG sector average P/E of 53x. The stock's price-to-book ratio of 1.76x compares favourably to its book value per share of ₹15.75, suggesting the market is valuing the company at less than twice its net asset value—a relatively conservative multiple for a profitable, growing business.

The company's EV/EBITDA multiple of 14.40x and EV/EBIT multiple of 19.02x reflect moderate valuations, particularly given the 28.43% five-year sales CAGR. However, the negative five-year EBIT growth of -11.50% explains much of the valuation discount, as investors price in concerns about margin sustainability and profitability trends. The EV/Sales ratio of just 0.32x indicates that the market is valuing the entire enterprise at less than one-third of annual revenues—typical for low-margin, commodity-like businesses.

The PEG ratio of 0.52x suggests potential undervaluation relative to growth, though this metric must be interpreted cautiously given the volatility in quarterly earnings and the heavy dependence on other income. The stock's dividend yield of 0.99% provides minimal income support, with the company paying ₹0.30 per share as the latest dividend—a conservative payout ratio of 14.93% that leaves substantial room for increased distributions if management gains confidence in earnings sustainability.

The valuation assessment categorises the stock as "Very Attractive," with the grade having fluctuated between "Attractive" and "Very Attractive" over recent months, reflecting the market's ongoing reassessment of the company's prospects. The stock currently trades 21.34% below its 52-week high of ₹38.15 and 27.43% above its 52-week low of ₹23.55, positioning it in the middle of its recent trading range.

Shareholding: Promoter Dilution and Institutional Caution

The shareholding pattern reveals a promoter holding of 81.63% as of December 2025, down from 83.61% in March 2025—a 1.98 percentage point dilution during the year. This reduction in promoter stake, whilst not dramatic, suggests either capital raising activities or stake sales that warrant attention. The promoter group, led by Mohammad Mehmood Qureshi, Mohammad Ashraf Qureshi, and Zulfiqar Ahmad Qurashi (each holding 18.43%), maintains dominant control with no pledged shares—a positive indicator of financial stability.

Foreign institutional investor (FII) holdings stood at 4.92% in December 2025, declining from 6.73% in June 2025, indicating net selling by overseas investors over the past two quarters. This 1.81 percentage point reduction in FII stake suggests waning international investor confidence, possibly reflecting concerns about earnings quality, margin pressures, or the challenging outlook for the frozen meat export industry.

The complete absence of mutual fund and insurance company holdings is particularly noteworthy and concerning. With 0.00% allocation from domestic institutional investors, HMA Agro lacks the institutional support that typically provides price stability and validates investment theses. The minimal other DII holdings of 1.34% further underscore the limited institutional interest in the stock.

Non-institutional holdings increased marginally to 12.11% from 11.05% over the year, suggesting some retail investor interest, though this category includes high-net-worth individuals, family offices, and other non-institutional entities whose investment horizons and motivations vary widely. The overall institutional holding of just 6.26% positions HMA Agro as a largely promoter-controlled company with limited institutional validation—a risk factor for minority shareholders.

Stock Performance: Significant Underperformance Across Timeframes

HMA Agro's stock performance presents a concerning picture of sustained underperformance relative to both the broader market and its FMCG sector peers. Over the past one year, the stock has declined 13.39%, significantly underperforming the Sensex's 9.85% gain—a negative alpha of 23.24 percentage points. This underperformance accelerates over longer timeframes, with the stock down 59.98% over two years whilst the Sensex gained 17.73%, representing a staggering 77.71 percentage point underperformance.

The stock's sector-relative performance is equally disappointing, with HMA Agro declining 13.39% over the past year whilst the FMCG sector gained 6.17%—an underperformance of 19.56 percentage points. This suggests company-specific challenges beyond broader sector headwinds, likely reflecting concerns about margin sustainability, earnings quality, and the structural profitability of the frozen meat export business.

Recent price action shows some recovery momentum, with the stock gaining 9.57% over the past week and 7.45% over the past month, outperforming the Sensex in both periods. Year-to-date, the stock is up 3.30% versus the Sensex's 1.81% decline, suggesting nascent investor interest following the sharp corrections of 2024 and 2025. However, the six-month return of -6.13% indicates this recent strength follows a prolonged period of weakness.

From a risk-adjusted perspective, the stock's performance is particularly troubling. With a volatility of 35.03%—more than three times the Sensex's 11.44%—and negative risk-adjusted returns of -0.38 versus the Sensex's positive 0.86, HMA Agro falls squarely into the "high risk, low return" category. The stock's beta of 1.50 indicates it is 50% more volatile than the market, amplifying both gains and losses but historically delivering predominantly the latter.

Technical indicators paint a mixed picture, with the stock currently in a "mildly bearish" trend as of February 11, 2026, having recently transitioned from a "bearish" trend. The stock trades below all major moving averages—5-day (₹27.86), 20-day (₹26.69), 50-day (₹28.14), 100-day (₹29.55), and 200-day (₹30.77)—suggesting technical resistance at multiple levels above the current price. The immediate support lies at the 52-week low of ₹23.55, whilst resistance clusters around the ₹26-31 zone defined by various moving averages.

Investment Thesis: Attractive Valuation Meets Structural Concerns

HMA Agro Industries presents a complex investment case characterised by attractive valuations offset by significant quality and sustainability concerns. The company's proprietary investment score of 43/100 and "SELL" rating reflects this mixed assessment, with the analysis highlighting both opportunities and substantial risks that investors must carefully weigh.

On the valuation front, the stock appears compellingly cheap at a P/E of 12.23x and P/BV of 1.76x, trading at substantial discounts to both sector averages and peer multiples. The "Very Attractive" valuation grade suggests potential upside if the company can stabilise margins and demonstrate sustainable profitability. For value-oriented investors willing to accept high volatility and execution risk, the current price may represent an opportunistic entry point.

However, this valuation discount exists for legitimate reasons. The company's "Below Average" quality grade reflects weak long-term fundamentals, including negative five-year EBIT growth of -11.50%, declining ROCE from 10.25% to 7.85%, and concerning earnings quality with other income constituting 46.31% of Q3 profit before tax. These structural issues suggest the business model may be fundamentally challenged rather than temporarily depressed.

The positive short-term financial trend and recent quarterly momentum provide some support for a contrarian view, though the mildly bearish technical trend and sustained historical underperformance argue for caution. The complete absence of mutual fund and insurance holdings, combined with declining FII interest, indicates institutional investors remain unconvinced about the company's prospects despite attractive valuations.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters