The September 2025 quarter presents a mixed narrative for the Ahmedabad-based adhesives manufacturer. Whilst revenue expansion continues at a healthy double-digit pace, the company's profitability metrics reveal troubling signs of margin erosion. The operating profit margin excluding other income contracted to 27.53% in Q2 FY26 from 29.75% in the year-ago period, reflecting rising cost pressures that have offset volume gains. The stock, currently trading at ₹1,218.95, remains 22.36% below its 52-week high of ₹1,570.00, with technical indicators firmly in bearish territory.
Financial Performance: Growth Without Profitability Expansion
Jyoti Resins recorded net sales of ₹74.38 crores in Q2 FY26, representing a marginal 0.96% sequential decline from ₹75.10 crores in Q1 FY26 but a robust 13.99% improvement over the ₹65.25 crores reported in Q2 FY25. The year-on-year growth trajectory demonstrates the company's ability to capture market share in the wood adhesives segment, yet the sequential dip suggests potential seasonality or demand moderation in recent months.
| Quarter | Net Sales (₹ Cr) | QoQ Change | YoY Change | Operating Margin | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 74.38 | -0.96% | +13.99% | 27.53% | 23.07% |
| Jun'25 | 75.10 | -4.47% | +8.56% | 27.48% | 23.14% |
| Mar'25 | 78.61 | +10.58% | +10.35% | 30.73% | 25.16% |
| Dec'24 | 71.09 | +8.95% | — | 31.64% | 26.81% |
| Sep'24 | 65.25 | -5.68% | — | 29.75% | 24.97% |
| Jun'24 | 69.18 | -2.89% | — | 33.85% | 27.12% |
The margin story presents a more concerning picture. Operating profit (PBDIT) excluding other income stood at ₹20.48 crores in Q2 FY26, yielding a margin of 27.53%—down from 29.75% in the corresponding quarter last year and significantly below the 33.85% achieved in Jun'24. This 222 basis point year-on-year contraction suggests that input cost inflation or competitive pricing pressures are outpacing the company's ability to pass through costs to customers. Net profit margins similarly compressed to 23.07% from 24.97% year-on-year, indicating that the margin squeeze is flowing through to the bottom line.
On a half-yearly basis for H1 FY2026, the company generated combined revenues of ₹149.48 crores and net profits of ₹34.54 crores, reflecting year-on-year growth of approximately 11.21% and 5.35% respectively when compared to H1 FY2025. Whilst growth persists, the deceleration in profit growth relative to revenue expansion underscores the margin compression challenge that has emerged as the defining characteristic of recent quarters.
Key Insight: Margin Erosion Accelerates
The 222 basis point year-on-year decline in operating margins from 29.75% to 27.53% represents the steepest margin compression in recent quarters, raising questions about pricing power and cost management capabilities in an increasingly competitive specialty chemicals landscape.
Operational Excellence: Exceptional Capital Efficiency Amid Profitability Headwinds
Despite near-term margin pressures, Jyoti Resins maintains exceptional capital efficiency metrics that distinguish it within the specialty chemicals sector. The company's average Return on Equity (ROE) of 35.14% significantly exceeds industry standards, demonstrating superior profitability relative to shareholder capital employed. This high ROE reflects the company's ability to generate substantial returns from its equity base, a critical strength that underpins long-term value creation. The latest ROE of 31.63%, whilst slightly below the five-year average, remains robust and indicative of quality business fundamentals.
Even more impressive is the company's Return on Capital Employed (ROCE) of 90.80% on average, with the latest reading soaring to 117.55%. This exceptional ROCE signals that Jyoti Resins generates extraordinary returns on the total capital deployed in the business, far surpassing the cost of capital and reflecting highly efficient asset utilisation. Such elevated ROCE figures are rare in capital-intensive chemical manufacturing and suggest either a highly differentiated product portfolio, superior operational execution, or favourable industry dynamics—or a combination thereof.
Operational Strengths
Zero Debt Structure: Jyoti Resins operates with negligible debt, maintaining a net debt to equity ratio of -0.67, effectively making it a net cash company. This conservative balance sheet provides significant financial flexibility and insulates the business from interest rate volatility.
Strong Interest Coverage: With EBIT to interest coverage averaging 56.43 times, the company demonstrates an ability to comfortably service any minimal debt obligations, though the near-zero debt levels render this largely academic.
Efficient Capital Deployment: Sales to capital employed ratio of 2.15 times indicates effective utilisation of invested capital to generate revenues, supporting the high ROCE metrics.
The quality of earnings appears sound, with a tax rate of 25.78% in Q2 FY26 remaining consistent with historical averages around 25.26%. Employee costs increased to ₹8.61 crores from ₹7.56 crores year-on-year, representing 11.58% of revenues—a reasonable proportion that suggests the company is investing in human capital to support growth initiatives. Depreciation charges remain modest at ₹0.48 crores, reflecting an asset-light operational model that contributes to the exceptional ROCE generation.
The Valuation Conundrum: Premium Multiples Meet Deteriorating Trends
Jyoti Resins trades at a Price-to-Earnings ratio of 21 times trailing twelve-month earnings, representing a significant discount to the specialty chemicals industry average P/E of 42 times. On the surface, this might suggest relative value; however, the company's proprietary valuation grade of "Very Expensive" and elevated PEG ratio of 5.78 paint a more nuanced picture. The PEG ratio, which adjusts the P/E multiple for growth rates, indicates that investors are paying a steep premium relative to the company's growth trajectory—a concerning signal given the recent margin compression.
| Valuation Metric | Current Value | Assessment |
|---|---|---|
| P/E Ratio (TTM) | 21.00x | Below industry average (42x) |
| Price to Book Value | 6.53x | Justified by high ROE (35.14%) |
| EV/EBITDA | 15.48x | Moderate premium |
| PEG Ratio | 5.78x | Expensive relative to growth |
| Dividend Yield | 0.72% | Below peer average (~2%) |
The Price-to-Book ratio of 6.53 times, whilst elevated in absolute terms, finds partial justification in the company's exceptional ROE profile. Financial theory suggests that companies generating returns on equity significantly above their cost of equity deserve premium price-to-book multiples. However, the sustainability of these elevated returns comes into question when margins are contracting and financial trends are classified as "Flat" rather than positive or accelerating.
The company's Enterprise Value to EBITDA multiple of 15.48 times and EV to Sales ratio of 4.63 times both suggest that the market is pricing in expectations of continued strong performance. With the stock trading 22.36% below its 52-week high and technical indicators firmly bearish, the market appears to be reassessing these valuation assumptions in light of recent operational performance.
Peer Comparison: Leadership in Profitability, Lagging in Market Recognition
When benchmarked against specialty chemicals peers, Jyoti Resins demonstrates clear operational superiority on profitability metrics whilst trading at relatively moderate valuation multiples. The company's 35.14% average ROE significantly outpaces competitors such as Paushak (13.08%), Vidhi Specialty (17.96%), and Yasho Industries (16.65%), signalling superior capital efficiency and business quality.
| Company | P/E (TTM) | P/BV | ROE % | Div Yield | Debt/Equity |
|---|---|---|---|---|---|
| Jyoti Resins | 20.64x | 6.53x | 35.14% | 0.72% | -0.67 |
| Bhansali Engg. | 14.41x | 2.31x | 26.35% | 4.15% | -0.10 |
| Paushak | 32.53x | 3.08x | 13.08% | 0.43% | 0.11 |
| Vidhi Specialty | 36.41x | 5.64x | 17.96% | 1.58% | 0.08 |
| Yasho Industries | 148.46x | 4.41x | 16.65% | 0.03% | 1.33 |
| Indokem | 462.65x | 39.28x | 2.56% | — | 0.30 |
Jyoti Resins' P/E multiple of 20.64 times appears reasonable when compared to peers like Vidhi Specialty (36.41x), Paushak (32.53x), and especially Yasho Industries (148.46x) and Indokem (462.65x). The company's Price-to-Book ratio of 6.53 times, whilst above Bhansali Engineering (2.31x) and Paushak (3.08x), remains well below Indokem's astronomical 39.28 times and finds justification in the superior ROE profile.
However, Jyoti Resins significantly underperforms on dividend yield at just 0.72%, compared to Bhansali Engineering's attractive 4.15% and Vidhi Specialty's 1.58%. With a conservative dividend payout ratio of 14.62%, the company retains substantial earnings for reinvestment, prioritising growth over immediate shareholder returns—a strategy that makes sense given the high ROCE environment but may disappoint income-focused investors.
Shareholding Pattern: Promoter Confidence Strengthens Amid Institutional Exodus
The shareholding structure reveals divergent sentiment between promoters and institutional investors. Promoter holdings increased notably to 53.89% in September 2025 from 50.83% in the previous quarter, representing a significant 3.06 percentage point sequential increase. This accumulation by insiders typically signals confidence in the company's future prospects and suggests that promoters view current price levels as attractive entry points.
| Quarter | Promoter % | FII % | MF % | Other DII % | Non-Inst % |
|---|---|---|---|---|---|
| Sep'25 | 53.89% | 0.04% | 0.00% | 0.95% | 45.13% |
| Jun'25 | 50.83% | 0.08% | 0.00% | 1.22% | 47.87% |
| Mar'25 | 50.83% | 0.09% | 0.00% | 0.77% | 48.30% |
| Dec'24 | 50.83% | 0.12% | 0.00% | 0.54% | 48.51% |
| Sep'24 | 50.83% | 0.31% | 0.00% | 0.44% | 48.41% |
In stark contrast, Foreign Institutional Investors (FIIs) have been steadily reducing exposure, with holdings declining from 0.31% in September 2024 to just 0.04% in September 2025—a near-complete exit over four quarters. Other Domestic Institutional Investors (DIIs) also trimmed positions, falling to 0.95% from 1.22% quarter-on-quarter. The complete absence of mutual fund holdings (0.00%) throughout the period reflects limited institutional interest in this small-cap specialty chemicals player.
The divergence between rising promoter confidence and declining institutional participation presents a mixed signal. Whilst insider accumulation often precedes positive developments, the institutional exodus suggests concerns about near-term growth prospects, valuation sustainability, or liquidity constraints typical of small-cap stocks. Non-institutional holdings declined to 45.13% from 47.87%, indicating that retail investors are also reducing exposure alongside institutions.
Stock Performance: Severe Underperformance Across All Timeframes
Jyoti Resins' stock performance presents a tale of two dramatically different periods. Over the ultra-long term, the stock has delivered exceptional returns, with 10-year gains of 6,113.27% vastly outperforming the Sensex's 226.55% return—generating alpha of 5,886.72 percentage points. Five-year returns of 1,329.48% similarly dwarf the Sensex's 94.82% gain, demonstrating the wealth-creation potential during the company's growth phase.
| Period | Stock Return | Sensex Return | Alpha | Sector Return |
|---|---|---|---|---|
| 1 Week | -0.52% | +1.21% | -1.73% | — |
| 1 Month | -1.38% | +2.38% | -3.76% | — |
| 3 Months | -9.45% | +5.28% | -14.73% | — |
| 6 Months | -4.02% | +2.47% | -6.49% | — |
| YTD | -7.82% | +8.10% | -15.92% | — |
| 1 Year | -15.17% | +7.36% | -22.53% | +6.82% |
| 2 Years | -26.44% | +29.43% | -55.87% | — |
| 3 Years | -10.28% | +36.69% | -46.97% | — |
However, recent performance tells a starkly different story. The stock has declined 15.17% over the past year, underperforming the Sensex by 22.53 percentage points and the specialty chemicals sector by 21.99 percentage points. This underperformance accelerates over shorter timeframes, with three-month losses of 9.45% generating negative alpha of 14.73% versus the Sensex's 5.28% gain. Year-to-date, the stock is down 7.82% whilst the broader market has advanced 8.10%.
Technical indicators paint a uniformly bearish picture. The stock trades below all key moving averages—5-day (₹1,226.06), 20-day (₹1,238.27), 50-day (₹1,250.13), 100-day (₹1,302.85), and 200-day (₹1,289.65)—a configuration that typically signals sustained downward momentum. The overall technical trend classification of "Bearish" since October 6, 2025, coupled with bearish readings across MACD, Bollinger Bands, KST, and moving averages on both weekly and monthly timeframes, suggests limited near-term upside potential absent a fundamental catalyst.
"The divergence between exceptional long-term returns and severe recent underperformance reflects a fundamental reassessment of growth sustainability and margin trajectory."
Investment Thesis: Quality Business Facing Transitional Headwinds
Jyoti Resins presents a complex investment case characterised by strong underlying business quality confronting near-term operational challenges and valuation concerns. The company's proprietary Mojo Score of 30 out of 100 places it firmly in "SELL" territory, downgraded from "HOLD" in August 2025 when the stock traded at ₹1,283.00. This deterioration reflects multiple converging negative factors that outweigh the company's fundamental strengths.
| Parameter | Assessment | Key Factor |
|---|---|---|
| Quality Grade | Average | Solid fundamentals, high ROE/ROCE |
| Valuation | Very Expensive | PEG ratio 5.78, premium multiples |
| Financial Trend | Flat | Margin compression, stagnant profits |
| Technical Trend | Bearish | Below all MAs, negative momentum |
The "Average" quality grade acknowledges the company's exceptional capital efficiency metrics (35.14% ROE, 90.80% ROCE) and zero-debt balance sheet, offset by recent margin pressures and flat financial performance. The "Very Expensive" valuation grade reflects the elevated PEG ratio of 5.78 and the market's reassessment of growth sustainability. The "Flat" financial trend captures the margin compression and sequential profit decline, whilst the "Bearish" technical trend confirms negative market sentiment and downward price momentum.
Key concerns limiting the investment score include the high PEG ratio suggesting investors are overpaying for growth, the bearish technical setup indicating continued selling pressure, the flat recent financial performance signalling operational challenges, and the margin compression raising questions about competitive positioning and pricing power.
Key Strengths & Risk Factors
Key Strengths
- Exceptional Capital Efficiency: ROE of 35.14% and ROCE of 90.80% rank among the highest in specialty chemicals, demonstrating superior profitability and asset utilisation.
- Zero Debt Structure: Net cash position (debt to equity of -0.67) provides financial flexibility and eliminates interest rate risk.
- Strong Long-Term Track Record: Five-year sales CAGR of 35.34% and EBIT CAGR of 61.45% demonstrate sustained growth capability.
- Robust Interest Coverage: EBIT to interest ratio of 56.43 times indicates strong debt servicing capacity despite minimal leverage.
- No Promoter Pledging: Zero pledged shares reflect confidence and financial stability amongst promoters.
- Increasing Promoter Stake: Recent 3.06 percentage point increase to 53.89% signals insider confidence.
- Consistent Profitability: Uninterrupted profit generation across quarters demonstrates business resilience.
Key Concerns
- Margin Compression: Operating margins declined 222 basis points year-on-year from 29.75% to 27.53%, signalling pricing pressure or cost inflation.
- Sequential Profit Decline: Net profit fell 1.27% quarter-on-quarter despite revenue growth, indicating deteriorating operational leverage.
- Elevated Valuation: PEG ratio of 5.78 suggests the market is pricing in growth that may not materialise given current trends.
- Severe Stock Underperformance: One-year decline of 15.17% versus Sensex gain of 7.36% reflects sustained selling pressure.
- Institutional Exodus: FII holdings collapsed from 0.31% to 0.04%, whilst mutual funds maintain zero exposure.
- Bearish Technical Setup: Trading below all moving averages with uniformly negative technical indicators.
- Limited Liquidity: Small-cap status and low institutional holdings constrain trading volumes and price discovery.
Outlook: Critical Monitoring Points for Trend Reversal
The investment outlook for Jyoti Resins hinges on the company's ability to arrest margin compression and demonstrate renewed earnings momentum. Investors should closely monitor quarterly margin trends, particularly whether operating margins can stabilise above 28% or continue their downward trajectory. Revenue growth sustainability will be crucial—the company must maintain double-digit top-line expansion to justify current valuation multiples.
Positive Catalysts
- Margin Stabilisation: Operating margins recovering above 30% would signal successful cost management or pricing power restoration.
- Accelerating Revenue Growth: Quarterly sales growth exceeding 15% year-on-year would validate market share gains.
- Technical Reversal: Stock breaking above 20-day and 50-day moving averages could trigger momentum-based buying.
- Institutional Re-Entry: Mutual fund or FII accumulation would provide liquidity and validation of investment thesis.
- Capacity Expansion Announcement: New manufacturing facilities could support long-term growth narrative.
Red Flags to Watch
- Further Margin Decline: Operating margins falling below 25% would indicate structural profitability challenges.
- Sequential Revenue Contraction: Two consecutive quarters of negative QoQ growth would signal demand weakness.
- Promoter Stake Reduction: Any decline in promoter holdings after recent increase would be highly negative.
- Technical Breakdown: Stock falling below ₹1,010 (52-week low) could trigger accelerated selling.
- Working Capital Deterioration: Rising receivables or inventory days would indicate operational stress.
The company's ability to navigate input cost pressures whilst maintaining competitive pricing will determine whether the recent margin compression represents a temporary headwind or a structural shift in industry economics. Management commentary on demand trends, capacity utilisation, and new product development will provide crucial insights into medium-term growth prospects. Given the bearish technical setup and negative momentum, any sustained recovery will likely require multiple quarters of improving financial performance before investor confidence returns.
The Verdict: Quality Business at Wrong Price, Wrong Time
Score: 30/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of margin compression, elevated valuation (PEG ratio 5.78), bearish technical setup, and institutional exodus creates an unfavourable risk-reward profile. Wait for margin stabilisation above 30% and technical trend reversal before considering entry.
For Existing Holders: Consider reducing exposure on any technical bounce towards ₹1,280-1,300 levels. Whilst the underlying business quality remains sound with exceptional ROE/ROCE metrics and zero debt, near-term headwinds and valuation concerns warrant a defensive stance. Hold only if conviction exists that margin pressures are temporary.
Fair Value Estimate: ₹1,050-1,100 (11-14% downside from current levels), based on normalised earnings and sector-average valuation multiples adjusted for quality premium.
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. All investments carry risk, including the potential loss of principal.
