Indian Acrylics Q2 FY26: Mounting Losses Despite Revenue Recovery Signal Deep Distress

The September quarter results paint a picture of a company struggling to translate revenue growth into profitability. Whilst net sales reached their highest level in seven quarters at ₹102.19 crores—a 6.58% year-on-year improvement—the company's operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) stood at a meagre ₹1.78 crores. This translates to an operating margin of just 1.74%, a marginal improvement from the negative margins witnessed in the previous three quarters but still woefully inadequate to cover the company's substantial fixed costs and debt servicing obligations.

The company's debt burden continues to weigh heavily on its financial performance. Interest expenses surged to ₹4.94 crores in Q2 FY26, the highest level recorded in the past seven quarters, consuming the entirety of the operating profit and pushing the company deeper into the red. Combined with depreciation charges of ₹2.84 crores, Indian Acrylics recorded a pre-tax loss of ₹5.75 crores, which flowed through entirely to the bottom line as the company paid no taxes.

Financial Performance: Revenue Recovery Masks Profitability Crisis

On a half-yearly basis for H1 FY26 (April to September 2025), Indian Acrylics reported consolidated net sales of ₹188.38 crores, representing a sequential improvement from the subdued quarters of late FY25. However, the company's cumulative net loss for the first half stood at ₹10.47 crores, highlighting the persistent inability to achieve breakeven despite top-line growth. The year-on-year comparison is particularly stark: H1 FY26 revenues of ₹188.38 crores represent a 10.27% decline from H1 FY25's ₹210.04 crores, whilst losses have deepened significantly.

The company's operating margin trajectory tells the story of a business under severe pressure. After hitting a nadir of -4.13% in September 2024, operating margins have gradually improved but remain perilously thin at 1.74% in the latest quarter. This marginal profitability at the operating level is insufficient to service the company's debt obligations, which continue to mount. The interest coverage ratio—measured by operating profit to interest—stood at just 0.36 times in Q2 FY26, meaning the company generates only 36 paise of operating profit for every rupee of interest expense.

Employee costs have remained relatively stable at ₹11.12 crores in Q2 FY26, up from ₹9.74 crores in the previous quarter but broadly in line with historical levels. However, the company's total expenditure continues to exceed revenues, creating a vicious cycle of losses and mounting debt. Other income of ₹0.25 crores in Q2 FY26 provided minimal relief, down sharply from ₹1.86 crores in the previous quarter, suggesting the company is unable to generate meaningful non-operating income to offset its operational struggles.

Balance Sheet Distress: Eroding Equity and Mounting Leverage

The balance sheet of Indian Acrylics reveals a company in severe financial distress. As of March 2025, shareholder funds had collapsed to just ₹10.09 crores, down from ₹40.68 crores a year earlier and ₹92.19 crores in March 2023. This dramatic erosion of equity—a staggering 89.06% decline over two years—reflects the cumulative impact of sustained losses. Reserves and surplus have turned deeply negative at ₹-125.24 crores, meaning accumulated losses now exceed the company's paid-up share capital of ₹135.32 crores.

The debt-to-equity ratio has ballooned to an alarming 17.21 times as of H1 FY26, with some periods showing ratios exceeding 450 times. Long-term debt stood at ₹133.30 crores as of March 2025, whilst current liabilities totalled ₹196.42 crores, including trade payables of ₹123.15 crores. This precarious capital structure leaves the company with virtually no financial flexibility and raises serious questions about its ability to continue as a going concern without significant capital infusion or debt restructuring.

Working capital metrics have deteriorated sharply. The debtors turnover ratio fell to 19.53 times in H1 FY26, its lowest level in recent periods, suggesting either slower collections or a change in sales mix. Cash and cash equivalents stood at a meagre ₹7.25 crores in H1 FY26, barely sufficient to cover even one quarter's interest obligations. The company generated negative operating cash flow of ₹9.54 crores in FY25, its worst performance in five years, forcing it to rely on asset sales and additional borrowings to meet obligations.

Profitability Metrics: A Company in Structural Decline

Indian Acrylics' profitability metrics paint a grim picture of a business in structural decline. Return on equity (ROE) has collapsed to -306.25% on a trailing basis, whilst return on capital employed (ROCE) stands at -9.50%. These deeply negative returns indicate that the company is destroying shareholder value at an alarming rate. The five-year sales growth rate of -8.59% and five-year EBIT growth of -199.80% underscore the severity of the company's long-term deterioration.

The company's inability to generate positive earnings before interest and tax (EBIT) is particularly concerning. With an average EBIT-to-interest ratio of just 0.50 times over recent periods, Indian Acrylics generates only 50 paise of operating profit for every rupee of interest expense. This chronic underperformance has resulted in the company's quality grade being classified as "Below Average" based on long-term financial performance, with the rating deteriorating from "Does Not Qualify" prior to June 2020 to its current status.

Industry Context: Petrochemicals Sector Headwinds

The petrochemicals sector in India has faced significant headwinds over the past two years, with volatile raw material prices, subdued demand from downstream industries, and intense competition from imports creating a challenging operating environment. Whilst larger, integrated players have managed to navigate these challenges through operational efficiencies and diversification, smaller manufacturers like Indian Acrylics have struggled to maintain profitability.

The acrylic fibre segment, in particular, has witnessed structural pressures as synthetic fibre demand has moderated and Chinese imports have intensified price competition. Indian Acrylics' technical collaboration with E I DuPont de Nemours & Company, established at the time of incorporation in 1986, has not translated into sustainable competitive advantages in the current market environment. The company's installed capacity expansions in the mid-1990s—adding 11,000 tonnes per annum—now appear to be operating at sub-optimal utilisation rates given the revenue trajectory.

Peer Comparison: Stark Underperformance Against Industry

A comparison with peers in the petrochemicals sector highlights the extent of Indian Acrylics' underperformance. The company's return on equity of 0.00% (five-year average) compares unfavourably with peers such as Manali Petrochemicals (14.95%), T N Petro Products (13.11%), and Pasupati Acrylon (12.95%). More concerning is the company's debt-to-equity ratio of 17.21 times, which stands in stark contrast to the negative net debt positions or minimal leverage maintained by most peers.

The valuation premium commanded by Indian Acrylics—with a price-to-book value ratio of 9.85 times compared to the peer average of approximately 1.20 times—appears entirely unjustified given the company's operational and financial distress. This disconnect suggests that the market capitalisation of ₹98.00 crores may not reflect the true economic value of the business, particularly considering the negative reserves and mounting losses.

Valuation Analysis: Overvalued Relative to Fundamentals

Indian Acrylics' current valuation metrics defy fundamental logic. Trading at 9.85 times book value whilst generating negative returns on equity represents a severe mispricing. The company's enterprise value to EBITDA multiple of -110.44 times and EV to EBIT of -17.86 times are meaningless given the negative denominators, but they underscore the fundamental disconnect between market price and business value.

At the current market price of ₹7.34 per share, the stock trades 41.19% below its 52-week high of ₹12.48 but still 14.51% above its 52-week low of ₹6.41. The valuation grade has deteriorated progressively from "Very Attractive" in August 2023 to "Risky" as of February 2024, reflecting the mounting concerns about the company's financial viability. With book value per share at just ₹0.75, the current market price implies expectations of a dramatic turnaround that appears increasingly unlikely given current trends.

Shareholding Pattern: Promoter Concerns and Minimal Institutional Interest

The shareholding pattern of Indian Acrylics reveals concerning dynamics. Promoter holding stands at 26.36% as of September 2025, with a significant 26.36% of promoter shares pledged—a clear indicator of financial stress at the promoter level. The promoter holding increased marginally from 24.89% in September 2024 to 26.36% in December 2024 and has remained stable since, suggesting limited ability or willingness to increase stake further.

Institutional participation is virtually non-existent, with foreign institutional investors holding 0.00%, mutual funds holding a negligible 0.07% (just four funds), and insurance companies maintaining no position. This absence of institutional support reflects the fundamental concerns about the company's financial health and future prospects. The non-institutional shareholding of 37.37% has remained static, suggesting limited trading interest and poor liquidity in the stock.

Stock Performance: Severe Underperformance Across All Timeframes

Indian Acrylics' stock performance has been dismal across virtually all timeframes, with the company consistently underperforming both the benchmark Sensex and its sector peers. Over the past year, the stock has declined 32.66% whilst the Sensex gained 9.00%, resulting in a negative alpha of -41.66 percentage points. The underperformance extends across longer periods: a three-year decline of 36.72% versus the Sensex's 37.22% gain (alpha of -73.94 percentage points) and a five-year decline of 8.02% versus the Sensex's 93.78% surge (alpha of -101.80 percentage points).

The stock's technical indicators uniformly point to bearish sentiment. The current trend turned bearish on September 23, 2025, at ₹7.63, and has remained under pressure since. The stock trades below all key moving averages—5-day (₹7.16), 20-day (₹7.19), 50-day (₹7.45), 100-day (₹7.76), and 200-day (₹7.94)—indicating sustained selling pressure. With a beta of 1.50, the stock exhibits higher volatility than the market, amplifying downside moves during market corrections whilst offering limited upside participation during rallies.

The risk-adjusted returns paint an even grimmer picture. With a one-year absolute return of -32.66% and volatility of 40.25%, the stock's risk-adjusted return stands at -0.81, placing it firmly in the "High Risk Low Return" category. This combination of elevated volatility and negative returns makes Indian Acrylics one of the least attractive risk-reward propositions in the petrochemicals space.

Investment Thesis: Fundamental Weakness Across All Parameters

The investment thesis for Indian Acrylics is overwhelmingly negative across all critical parameters. The company's Mojo Score of just 12 out of 100 reflects the confluence of poor fundamentals, deteriorating financials, bearish technicals, and risky valuation. The "Strong Sell" rating, maintained since April 2024, appears entirely justified given the mounting evidence of financial distress.

Key Strengths & Risk Factors

Outlook: What to Watch

The road ahead for Indian Acrylics appears treacherous. Without immediate and substantial intervention—whether through debt restructuring, fresh equity infusion, or operational transformation—the company risks sliding into insolvency within the next few quarters. The marginal improvement in operating margins provides scant comfort given the magnitude of the debt burden and the pace of equity erosion. Investors should monitor the December 2025 quarter results closely; any deterioration from Q2 FY26 levels would signal an accelerating crisis.