The packaging specialist's Q2 performance represents a tale of two narratives. Whilst operational efficiency improvements drove margins to multi-quarter highs, the company continues to grapple with demand softness that has now persisted for three consecutive quarters on a year-on-year basis. Net sales of ₹604.93 crores in Q2 FY26 grew a modest 2.19% sequentially from Q1 FY26's ₹591.94 crores, but remained below the ₹634.67 crores reported in Q2 FY24, marking the third straight quarter of year-on-year revenue contraction.
The silver lining emerged in profitability metrics, where Huhtamaki demonstrated impressive margin expansion. Operating profit before depreciation, interest, and tax (excluding other income) surged to ₹55.48 crores, translating to a 9.17% margin—the highest in at least twelve quarters. This represented a substantial 198 basis points improvement from Q1 FY26's 7.19% and a remarkable 632 basis points expansion from Q2 FY24's 2.85%. The margin recovery was driven by better cost management and improved product mix, though the sustainability of these gains remains uncertain given the revenue pressures.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | YoY Growth | Net Profit (₹ Cr) | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Sep'25 | 604.93 | 2.19% | -4.69% | 36.77 | 9.17% | 6.08% |
| Jun'25 | 591.94 | -0.19% | -4.68% | 24.94 | 7.19% | 4.21% |
| Mar'25 | 593.04 | -1.36% | -0.10% | 26.15 | 6.53% | 4.41% |
| Dec'24 | 601.23 | -5.27% | 2.74% | 11.69 | 4.36% | 1.94% |
| Sep'24 | 634.67 | 2.20% | -1.49% | 11.71 | 2.85% | 1.85% |
| Jun'24 | 620.98 | 4.60% | 2.50% | 38.54 | 5.15% | 6.21% |
| Mar'24 | 593.65 | 1.45% | -8.11% | 26.03 | 6.91% | 4.38% |
| Dec'23 | 585.19 | -9.17% | -13.50% | 327.42 | 9.86% | 55.95% |
Financial Performance: Margin Expansion Drives Bottom Line
Huhtamaki's Q2 FY26 financial performance showcased the company's ability to extract profitability improvements despite top-line challenges. Net profit of ₹36.77 crores represented a 47.47% sequential increase from Q1 FY26's ₹24.94 crores and a substantial 213.92% year-on-year surge from Q2 FY24's ₹11.71 crores. The profit after tax margin expanded to 6.08%, up from 4.21% in the previous quarter and 1.85% in the year-ago period, marking the company's best quarterly profitability in recent history excluding the exceptional Dec'23 quarter.
The margin improvement story was underpinned by robust operating leverage. Operating profit (PBDIT) excluding other income reached ₹55.48 crores, up 30.26% quarter-on-quarter and a staggering 206.86% year-on-year. This translated to an operating margin of 9.17%, significantly above the company's recent historical range of 4-7%. The improvement was primarily driven by better raw material cost management and operational efficiencies across the company's 15 manufacturing facilities.
Interest costs continued their downward trajectory, declining to ₹2.90 crores in Q2 FY26 from ₹3.06 crores in Q1 FY26 and ₹4.82 crores in Q2 FY24, reflecting the company's improving debt management. Depreciation remained relatively stable at ₹12.81 crores, whilst employee costs moderated to ₹60.05 crores from ₹71.17 crores in the previous quarter, contributing to the overall margin expansion. The tax rate normalised to 25.22% in Q2 FY26 from 25.33% in Q1 FY26, indicating stable tax planning.
Other income provided additional support, contributing ₹9.40 crores in Q2 FY26 compared to ₹6.68 crores in Q1 FY26 and ₹13.25 crores in Q2 FY24. This income stream, whilst volatile, has consistently provided a cushion to operating performance, though investors should note that reliance on other income can mask underlying operational challenges.
Operational Challenges: Revenue Stagnation Raises Concerns
Beneath the impressive margin story lies a more troubling narrative of persistent revenue weakness. Huhtamaki's net sales have declined on a year-on-year basis for three consecutive quarters—down 4.69% in Q2 FY26, 4.68% in Q1 FY26, and marginally by 0.10% in Q4 FY25. This sustained contraction suggests structural demand challenges in the company's core packaging markets rather than temporary disruptions.
The company's return on equity (ROE) of 5.92% in Q2 FY26, whilst an improvement from recent quarters, remains below the company's five-year average of 6.99% and significantly trails the 10-15% range typically expected from quality consumer-facing businesses. This subdued ROE reflects the capital-intensive nature of the packaging business and the challenges in generating superior returns during periods of revenue stagnation. The metric underscores the need for Huhtamaki to reignite top-line growth to justify its capital deployment and improve shareholder returns.
⚠️ Key Operational Concerns
Revenue Contraction: Three consecutive quarters of year-on-year sales decline, with Q2 FY26 sales down 4.69% to ₹604.93 crores, indicating persistent demand weakness in core packaging markets.
Below-Average ROE: Return on equity at 5.92% remains below the five-year average of 6.99%, reflecting challenges in generating adequate returns on shareholder capital during this period of revenue stagnation.
Debtor Management: Half-yearly debtor turnover ratio declined to its lowest level at 4.02 times, suggesting potential working capital pressures and collection challenges.
The balance sheet presents a mixed picture. Whilst the company maintains a comfortable net cash position of ₹226 crores and a low debt-to-equity ratio of 0.24, indicating financial stability, the quality assessment has been downgraded from "Good" to "Average" as of June 2025. This downgrade reflects concerns about the sustainability of operational performance and the company's ability to navigate the current challenging environment.
Return on capital employed (ROCE) stood at 6.73% in the latest quarter, below the five-year average of 11.16%, further highlighting the erosion in capital efficiency. The declining ROCE suggests that the company's investments in expanding capacity and upgrading facilities have not yet translated into proportionate improvements in profitability, a concern that warrants close monitoring.
Industry Context: Navigating Packaging Sector Headwinds
Huhtamaki operates in India's competitive packaging industry, which has faced significant headwinds over the past year. The sector has underperformed broader markets, with the packaging sector delivering a negative return of 66.08% over the past twelve months. Huhtamaki's one-year return of negative 41.87% represents relative outperformance versus the sector but still constitutes substantial value destruction for shareholders.
The packaging industry's challenges stem from multiple factors: raw material price volatility, intense competition from unorganised players, and demand softness across key end-user segments including fast-moving consumer goods (FMCG) and food services. The shift towards sustainable packaging solutions, whilst creating long-term opportunities, has required significant capital investments that are yet to generate meaningful returns.
Sector Positioning: Relative Strength Amid Weakness
Despite the challenging environment, Huhtamaki has demonstrated relative resilience compared to sector peers. The company's market capitalisation of ₹1,742 crores positions it as the sixth-largest player amongst 68 companies in the packaging sector. Its established relationships with major FMCG brands and diversified product portfolio across flexible packaging and labels provide some insulation from sector-wide pressures, though these advantages have not been sufficient to prevent revenue contraction.
Looking ahead, the packaging industry's prospects remain tied to the recovery in consumer demand and the pace of economic growth. Huhtamaki's ability to capitalise on the gradual shift towards organised packaging solutions and premiumisation trends in consumer goods will be critical to reversing the current revenue trajectory. However, near-term visibility remains limited, and the company faces the challenge of maintaining its recent margin gains whilst simultaneously reigniting top-line growth.
Peer Comparison: Valuation Appears Reasonable
Relative to its packaging sector peers, Huhtamaki presents a mixed valuation picture. The company trades at a price-to-earnings (TTM) ratio of 24.03x, significantly below the sector average and well below peers such as Cropster Agro (124.29x), Ester Industries (50.13x), and Mold-Tek Packaging (36.65x). This valuation discount reflects market concerns about the company's revenue growth trajectory and the sustainability of its recent margin improvements.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Huhtamaki India | 24.03 | 1.42 | 5.92% | -0.11 | 0.86% |
| Cosmo First | 16.23 | 1.61 | 9.09% | 0.71 | 0.45% |
| Cropster Agro | 124.29 | 15.80 | 12.71% | -0.01 | 0.00% |
| Mold-Tek Packaging | 36.65 | 3.78 | 10.32% | 0.27 | 0.55% |
| Ester Industries | 50.13 | 1.56 | -11.21% | 0.73 | 0.52% |
Huhtamaki's price-to-book ratio of 1.42x is the lowest amongst the peer group, suggesting the market is pricing in limited growth expectations. The company's ROE of 5.92%, whilst below its historical average, compares reasonably against peers, though it trails Cosmo First (9.09%), Cropster Agro (12.71%), and Mold-Tek Packaging (10.32%). The company's net cash position (negative debt-to-equity of 0.11) provides a significant advantage over leveraged peers, offering financial flexibility to navigate challenging market conditions.
The dividend yield of 0.86% is amongst the highest in the peer group, reflecting the company's commitment to shareholder returns despite operational challenges. However, with a conservative payout ratio of 17.18%, there remains scope for increased distributions if profitability stabilises at current levels. The valuation discount appears justified given the revenue concerns, but the stock could re-rate if management successfully demonstrates sustainable top-line recovery in coming quarters.
Valuation Analysis: Fair Value With Limited Upside
At the current market price of ₹228.45, Huhtamaki India trades at a P/E (TTM) of 24.03x and a price-to-book value of 1.42x. The stock's valuation has been classified as "Expensive" since September 2025, having previously oscillated between "Fair" and "Expensive" throughout the year. This classification reflects the market's uncertainty about the company's ability to sustain its recent profitability improvements whilst addressing persistent revenue challenges.
The company's enterprise value multiples provide additional context. Trading at an EV/EBITDA of 12.69x and EV/Sales of 0.64x, Huhtamaki's valuation appears reasonable relative to its historical range and sector peers. However, the elevated P/E ratio relative to the company's growth profile (reflected in a PEG ratio of 0.00x due to negative growth) suggests limited margin of safety at current levels.
The stock's 52-week range of ₹170.40 to ₹410.00 illustrates the significant volatility experienced over the past year. Currently trading 44.28% below its 52-week high and 34.07% above its 52-week low, the stock appears to be consolidating in the middle of this range. The substantial decline from peak levels reflects the market's reassessment of the company's growth prospects and margin sustainability.
Based on the company's current earnings trajectory and assuming normalised margins of 7-8% (below the current 9.17% but above the historical 5-6% range), a fair value estimate for Huhtamaki would be in the range of ₹220-240 per share, suggesting limited upside of approximately 0-5% from current levels. This estimate assumes modest revenue recovery and sustained operational efficiency, both of which remain uncertain at this juncture.
Shareholding Pattern: Stable Promoter Base, Weak Institutional Interest
Huhtamaki India's shareholding structure reflects a promoter-dominated ownership with limited institutional participation. Promoter holding has remained rock-solid at 67.73% over the past five quarters, with Huhtavefa B.V. maintaining its controlling stake. This stable promoter base provides governance continuity and long-term strategic direction, though the lack of any stake increase also suggests limited conviction about near-term value creation opportunities.
| Shareholder Category | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|
| Promoter | 67.73% | 67.73% | 67.73% | 0.00% |
| FII | 1.11% | 1.17% | 1.19% | -0.06% |
| Mutual Funds | 0.40% | 1.06% | 1.06% | -0.66% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 0.22% | 0.02% | 0.22% | +0.20% |
| Non-Institutional | 30.53% | 30.02% | 29.80% | +0.51% |
The most concerning aspect of the shareholding pattern is the extremely low institutional participation. Foreign institutional investors (FIIs) hold just 1.11%, having reduced their stake marginally from 1.17% in March 2025. More significantly, mutual fund holdings dropped sharply from 1.06% to 0.40% in the June 2025 quarter, representing a 62% reduction in MF exposure. This exodus of domestic institutional investors signals waning confidence in the company's near-term prospects.
Insurance companies have zero exposure to the stock, whilst other domestic institutional investors maintain a minimal 0.22% stake. The total institutional holding of just 1.73% is remarkably low for a company of Huhtamaki's scale and legacy, suggesting that sophisticated investors remain unconvinced about the investment case. The number of mutual funds holding the stock increased from 4 to 5, but the aggregate stake declined, indicating that any new positions were smaller than the exits.
Non-institutional investors, comprising retail and high-net-worth individuals, have marginally increased their stake to 30.53%, up from 30.02% in the previous quarter. The number of non-institutional shareholders increased from 35,204 to 35,861, suggesting some retail interest, though this category's behaviour tends to be less indicative of long-term value than institutional holdings. The absence of any promoter pledging is a positive, eliminating concerns about financial stress at the parent level.
Stock Performance: Severe Underperformance Across Timeframes
Huhtamaki India's stock price performance over the past year has been dismal, with the stock declining 41.87% compared to the Sensex's marginal 0.96% gain, resulting in a negative alpha of 42.83 percentage points. This severe underperformance reflects the market's loss of confidence in the company's ability to deliver sustainable growth and profitability.
| Period | Huhtamaki Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.39% | 1.02% | -3.41% |
| 1 Month | -0.67% | 1.00% | -1.67% |
| 3 Months | -1.53% | 0.04% | -1.57% |
| 6 Months | 17.76% | 7.65% | +10.11% |
| YTD | -15.62% | 5.72% | -21.34% |
| 1 Year | -41.87% | 0.96% | -42.83% |
| 2 Years | -13.71% | 24.63% | -38.34% |
| 3 Years | -0.37% | 42.62% | -42.99% |
The only bright spot in the returns profile is the six-month performance, where the stock gained 17.76% compared to the Sensex's 7.65% advance, generating a positive alpha of 10.11 percentage points. This recent outperformance, however, merely represents a partial recovery from the steep declines experienced earlier and leaves the stock significantly underwater on longer timeframes.
Year-to-date, Huhtamaki has declined 15.62% whilst the broader market gained 5.72%, resulting in underperformance of 21.34 percentage points. The two-year and three-year returns paint an equally disappointing picture, with the stock declining 13.71% and 0.37% respectively, whilst the Sensex surged 24.63% and 42.62% over these periods. This consistent underperformance across multiple timeframes highlights the structural challenges facing the business.
The stock's high beta of 1.35 indicates elevated volatility, with the stock typically moving 35% more than the broader market in either direction. This high-beta characteristic, combined with the stock's negative returns, has resulted in a negative risk-adjusted return profile. The volatility of 40.50% compared to the Sensex's 12.49% underscores the heightened risk associated with the investment, making it unsuitable for conservative investors seeking stable returns.
From a technical perspective, the stock is currently in a "Mildly Bullish" trend, having changed from "Bullish" on 22 September 2025 at ₹240.31. The stock trades above its 50-day, 100-day, and 200-day moving averages, providing some technical support, though it remains below its 5-day and 20-day moving averages, suggesting near-term weakness. The MACD indicator shows a bullish signal on the weekly timeframe but bearish on the monthly, reflecting the mixed technical outlook.
Investment Thesis: Recovery Potential Versus Execution Risk
Huhtamaki India presents a complex investment proposition that balances near-term margin improvements against persistent revenue challenges and uncertain growth visibility. The company's proprietary Mojo Score of 64 out of 100 places it in the "HOLD" category, upgraded from "SELL" in September 2025 following the improved Q2 results. This score reflects a cautiously optimistic view that acknowledges the operational improvements whilst recognising the significant execution risks ahead.
The bull case for Huhtamaki rests on several pillars. The company has demonstrated its ability to significantly improve operating margins, reaching 9.17% in Q2 FY26 from just 2.85% a year earlier. If management can sustain margins in the 7-9% range whilst gradually reviving revenue growth, the stock could deliver attractive returns from current levels. The company's strong balance sheet with net cash of ₹226 crores provides financial flexibility to invest in capacity expansion and product innovation without diluting shareholders.
The bear case, however, is equally compelling. Three consecutive quarters of year-on-year revenue decline suggest structural demand challenges that may not be easily reversed. The company's ROE of 5.92% remains inadequate, indicating that management has struggled to deploy capital efficiently. The extremely low institutional holding of 1.73% and the recent exodus of mutual funds signal that sophisticated investors remain unconvinced about the turnaround story. Furthermore, the stock's "Expensive" valuation classification leaves little room for disappointment.
✅ Key Strengths
- Margin Expansion: Operating margin surged to 9.17%, highest in 12 quarters, demonstrating improved operational efficiency
- Strong Balance Sheet: Net cash position of ₹226 crores with debt-to-equity of just 0.24 provides financial flexibility
- Profitability Recovery: Net profit jumped 214% YoY to ₹36.77 crores, with PAT margin expanding to 6.08%
- Stable Promoters: Consistent 67.73% promoter holding with zero pledging indicates long-term commitment
- Established Market Position: Leading flexible packaging manufacturer with 15 state-of-the-art facilities and strong FMCG relationships
- Declining Interest Burden: Interest costs reduced 40% YoY to ₹2.90 crores, improving net profitability
- Reasonable Peer Valuation: P/E of 24.03x and P/BV of 1.42x below sector averages
⚠️ Key Concerns
- Persistent Revenue Decline: Three consecutive quarters of YoY sales contraction, with Q2 down 4.69% to ₹604.93 crores
- Below-Par ROE: Return on equity at 5.92% trails five-year average of 6.99%, indicating capital inefficiency
- Institutional Exodus: Mutual fund holdings collapsed 62% to just 0.40%, total institutional holding at mere 1.73%
- Severe Stock Underperformance: 1-year return of -41.87% versus Sensex +0.96%, negative alpha of 42.83 percentage points
- Quality Downgrade: Company quality assessment reduced from "Good" to "Average" as of June 2025
- High Volatility: Beta of 1.35 with 40.50% volatility indicates elevated risk profile
- Working Capital Pressure: Debtor turnover ratio declined to lowest level at 4.02 times in H1 FY26
Outlook: Critical Inflection Point Ahead
Huhtamaki India stands at a critical juncture. The company has successfully demonstrated its ability to improve profitability through operational efficiencies and cost management. However, the acid test lies ahead: Can management reverse the revenue decline and deliver sustainable top-line growth whilst maintaining the recently achieved margin levels? The answer to this question will determine whether the stock re-rates higher or continues to languish.
📈 Positive Catalysts
- Sustained operating margins above 8% for two consecutive quarters
- Sequential revenue growth returning to positive territory
- Institutional investors (MFs/FIIs) rebuilding positions
- New product launches or client wins driving volume growth
- Improvement in debtor turnover ratio indicating better working capital management
🚨 Red Flags
- Fourth consecutive quarter of YoY revenue decline in Q3 FY26
- Operating margins reverting below 7% indicating unsustainability
- Further reduction in mutual fund or FII holdings
- Deterioration in working capital metrics or increase in debt levels
- ROE remaining below 6% for multiple quarters
The next two quarters will be decisive. Investors should closely monitor whether Q3 FY26 and Q4 FY26 results show sequential revenue improvement and sustained margins. Any indication of demand recovery in the company's key end-user segments—FMCG, food services, and consumer durables—would be a positive signal. Conversely, a fourth consecutive quarter of revenue decline would raise serious questions about the structural viability of the business model in its current form.
"Huhtamaki's impressive margin expansion in Q2 FY26 demonstrates operational capability, but three consecutive quarters of revenue decline remain the elephant in the room. Until top-line growth returns, the investment case remains incomplete."
The company's management commentary and guidance for the remainder of FY26 will be crucial. Investors should look for concrete evidence of order book improvement, new client acquisitions, or capacity utilisation increases that would validate the margin improvements as sustainable rather than merely cost-cutting measures. The packaging industry's overall trajectory and competitive intensity will also play a significant role in determining Huhtamaki's ability to reclaim growth momentum.
The Verdict: Cautious Hold With Limited Conviction
Score: 64/100
For Fresh Investors: Avoid initiating positions at current levels. The stock offers limited upside potential with significant downside risk if revenue trends do not improve. Wait for at least two quarters of sustained revenue growth and margin stability before considering entry. Better opportunities exist in the small-cap space with stronger growth visibility and institutional backing.
For Existing Holders: Continue holding with close monitoring of quarterly results. The recent margin improvement provides some cushion, and the strong balance sheet limits downside risk. However, be prepared to exit if Q3 FY26 results show continued revenue deterioration or margin compression. Consider reducing position size if the stock rallies towards ₹250 levels.
Fair Value Estimate: ₹220-240 (0-5% upside from current levels)
Rationale: Whilst Huhtamaki has successfully improved profitability metrics in Q2 FY26, the persistent revenue decline across three consecutive quarters, extremely low institutional participation, and severe stock underperformance raise significant concerns about the sustainability of the turnaround. The "Expensive" valuation classification leaves little margin of safety, and the company's below-average ROE of 5.92% indicates ongoing capital efficiency challenges. Until management demonstrates the ability to reverse revenue trends whilst maintaining improved margins, the risk-reward profile remains unattractive for fresh capital deployment.
⚠️ 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.
