The quarter's standout feature was the company's ability to expand operating margins to 17.49%, the highest level in the past eight quarters, even as revenue contracted. This margin improvement of 324 basis points quarter-on-quarter suggests effective cost management and potentially favourable raw material pricing dynamics. However, the stock has struggled significantly in 2025, declining 25.02% year-to-date and trading 33.75% below its 52-week high of ₹219.86, reflecting investor concerns about sustained growth momentum in the petrochemicals sector.
Quarterly Performance Trend: Profit Resilience Amidst Revenue Volatility
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Sep'25 | 143.02 | -10.99% | 18.42 | +4.78% | 17.49% | 12.88% |
| Jun'25 | 160.67 | +5.07% | 17.58 | +1.74% | 14.25% | 10.94% |
| Mar'25 | 152.92 | +16.49% | 17.28 | +34.51% | 15.22% | 11.30% |
| Dec'24 | 131.27 | -12.26% | 12.85 | -21.31% | 13.64% | 9.79% |
| Sep'24 | 149.62 | +3.29% | 16.33 | -15.64% | 13.74% | 10.91% |
| Jun'24 | 144.86 | -13.74% | 19.36 | +27.54% | 12.77% | 13.36% |
| Mar'24 | 167.94 | — | 15.18 | — | 15.49% | 9.04% |
The quarterly trend analysis reveals a pattern of revenue volatility that has characterised Kothari Petrochemicals' recent performance. After reaching ₹167.94 crores in March 2024, revenue has fluctuated significantly, with the latest quarter's ₹143.02 crores representing a decline from the previous quarter's ₹160.67 crores. The 10.99% sequential drop in Q2 FY26 is concerning, particularly when viewed against the modest 4.41% year-on-year decline, suggesting that growth momentum has not recovered to prior-year levels.
Financial Performance Analysis: Margin Magic Compensates for Revenue Weakness
On a half-yearly basis for H1 FY2026, Kothari Petrochemicals generated revenue of ₹303.69 crores with net profit of ₹36.00 crores, translating to a PAT margin of 11.85%. The second quarter's revenue of ₹143.02 crores, whilst lower sequentially, was accompanied by a remarkable expansion in operating margins to 17.49%, the highest level recorded in recent quarters and significantly above the 14.25% achieved in Q1 FY26.
The profit before depreciation, interest, and tax (PBDIT) for Q2 FY26 stood at ₹25.01 crores, representing the highest quarterly PBDIT in recent periods and reflecting an operating margin expansion of 324 basis points from the previous quarter. This margin improvement, from 14.25% in Q1 to 17.49% in Q2, demonstrates operational efficiency gains that more than offset the revenue decline. The gross profit margin similarly expanded to 18.62% from 15.53% in the prior quarter.
Net profit of ₹18.42 crores in Q2 FY26 represented a 4.78% sequential increase and a 12.80% year-on-year improvement, with the PAT margin expanding to 12.88% from 10.94% in the previous quarter. This margin expansion was driven by disciplined cost management, with employee costs declining to ₹8.40 crores from ₹9.13 crores quarter-on-quarter, and effective control over operating expenses. The tax rate of 24.82% remained relatively stable compared to 23.00% in Q1 FY26.
Quality of Earnings: Strong Cash Generation
Kothari Petrochemicals maintains a debt-free balance sheet with negative net debt-to-equity of -0.09, indicating the company is a net cash position. Interest coverage remains exceptionally strong at 51.49 times on average, providing substantial financial flexibility. The company's debtors turnover ratio of 14.04 times on a half-yearly basis represents the highest level achieved, suggesting efficient working capital management and strong cash conversion from sales.
Operational Excellence: Capital Efficiency Drives Returns
Kothari Petrochemicals' operational performance is characterised by impressive capital efficiency metrics that distinguish it within the petrochemicals sector. The company's average return on equity (ROE) of 21.53% and average return on capital employed (ROCE) of 35.07% demonstrate superior profitability relative to the capital base, though the latest half-yearly ROCE of 26.23% represents a decline from historical peaks and marks the lowest level in recent periods.
The company's five-year sales compound annual growth rate (CAGR) of 20.87% and EBIT growth of 31.92% reflect strong historical expansion, though recent quarters have shown more muted growth momentum. The sales-to-capital-employed ratio of 2.23 times indicates efficient asset utilisation, whilst the minimal debt-to-EBITDA ratio of 0.11 underscores the company's conservative financial structure and absence of leverage-related risks.
⚠️ Monitoring Point: ROE Compression
Whilst Kothari Petrochemicals maintains a healthy ROE of 21.66% on a trailing basis, the half-yearly ROCE of 26.23% represents the lowest level in recent periods, down from historical averages above 35%. This compression warrants monitoring, as sustained deterioration could signal margin pressures or inefficient capital deployment. The company's ability to maintain returns above 20% remains a key strength, but investors should watch for stabilisation or improvement in these metrics in coming quarters.
The balance sheet remains exceptionally clean, with zero long-term debt and shareholder funds of ₹68.23 crores as of March 2016. Current assets of ₹57.00 crores comfortably exceed current liabilities of ₹38.54 crores, providing adequate liquidity. Trade payables of ₹14.50 crores represent manageable obligations, whilst fixed assets of ₹52.60 crores reflect the company's manufacturing infrastructure for PIB production.
Petrochemicals Landscape: Navigating Sector Headwinds
The broader petrochemicals sector has faced challenges in 2025, with the industry index declining 8.39% over the past year. Kothari Petrochemicals has underperformed this benchmark, with its stock falling 22.39% over the same period, representing a 14.00 percentage point underperformance relative to the sector. This relative weakness reflects investor concerns about the company's ability to sustain revenue growth and market share in its core PIB business, despite its dominant 90% share of domestic production capacity.
The company's positioning as India's primary PIB manufacturer, with annual capacity of 24,000 tonnes, provides a competitive moat in a specialised chemical segment. However, the revenue volatility observed across recent quarters suggests either demand fluctuations in end-user industries or potential pricing pressures. The petrochemicals sector's performance is closely tied to industrial activity, automobile production, and construction sectors, all of which have experienced varying growth trajectories in recent quarters.
| Company | Market Cap (₹ Cr) | P/E Ratio (TTM) | P/BV Ratio | ROE % | Dividend Yield % |
|---|---|---|---|---|---|
| Kothari Petrochemicals | 855 | 12.84 | 2.78 | 21.53 | 0.69 |
| Rain Industries | — | NA (Loss Making) | 0.57 | 7.59 | 0.83 |
| DCW | — | 41.97 | 1.98 | 7.01 | 0.14 |
| Agarwal Industrial | — | 13.94 | 1.99 | 20.99 | 0.39 |
| Manali Petrochemicals | — | 23.08 | 1.04 | 14.95 | 0.72 |
| T N Petro Products | — | 9.97 | 1.02 | 13.11 | 1.09 |
Kothari Petrochemicals' peer comparison reveals a mixed competitive positioning. The company's ROE of 21.53% stands out favourably against most peers, second only to Agarwal Industrial's 20.99% and significantly above the sector average. However, this superior profitability is reflected in a higher price-to-book ratio of 2.78 times, substantially above peers like Manali Petrochemicals (1.04x) and T N Petro Products (1.02x). The P/E ratio of 12.84 times appears reasonable compared to DCW's 41.97x and Manali's 23.08x, though T N Petro Products trades at a lower 9.97x multiple.
Valuation Analysis: Reasonable Entry Point with Growth Concerns
At the current market price of ₹145.65, Kothari Petrochemicals trades at a trailing twelve-month P/E ratio of 12.84 times, which appears reasonable relative to its historical range and peer group valuations. The price-to-book ratio of 2.78 times reflects a premium to book value, justified by the company's strong ROE profile but potentially stretched given the recent revenue challenges and margin compression in ROCE metrics.
The enterprise value-to-EBITDA multiple of 9.25 times and EV-to-EBIT of 10.23 times suggest moderate valuation levels, though the PEG ratio of 10.39 indicates that the current valuation may be high relative to expected growth rates. The stock's dividend yield of 0.69%, based on the latest dividend of ₹1.00 per share with an ex-date of August 19, 2025, provides minimal income support. The valuation grade has fluctuated between "Attractive" and "Fair" in recent months, currently classified as "Attractive" since September 25, 2025.
The stock's 52-week range of ₹132.31 to ₹219.86 provides context for current price levels. Trading at ₹145.65, the stock is positioned just 10.08% above its 52-week low and 33.75% below its high, suggesting significant downside protection but also reflecting the market's concerns about near-term growth prospects. The technical picture remains challenging, with the stock trading below all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), indicating persistent selling pressure.
Shareholding Pattern: Promoter Confidence Incrementally Rising
| Quarter | Promoter % | QoQ Change | FII % | MF % | Non-Institutional % |
|---|---|---|---|---|---|
| Sep'25 | 72.22 | +1.24 | 0.00 | 0.08 | 27.69 |
| Mar'25 | 70.98 | — | 0.01 | 0.08 | 28.92 |
| Dec'24 | 70.98 | — | 0.16 | 0.08 | 28.76 |
| Sep'24 | 70.98 | — | 0.34 | 0.08 | 28.59 |
| Jun'24 | 70.98 | — | 0.02 | 0.08 | 28.87 |
The shareholding pattern reveals a notable development in Q2 FY26, with promoter holding increasing by 1.24 percentage points to 72.22% from 70.98% in the previous quarter. This marks the first change in promoter stake after four consecutive quarters of stability, suggesting renewed confidence from the controlling shareholders in the company's prospects. The promoter group is dominated by Bhk Trading LLP (61.57%) and Nina Bhadrashyam Kothari (10.63%), with no pledging of shares, which is a positive indicator of financial stability.
Institutional participation remains minimal, with foreign institutional investors (FIIs) holding virtually zero stake (down from 0.34% in September 2024), and mutual funds maintaining a stable but negligible 0.08% position. The total institutional holding of just 0.09% indicates limited interest from professional investors, which may contribute to lower liquidity and higher volatility in the stock. Non-institutional shareholders account for 27.69% of the equity, down from 28.92% in March 2025.
Stock Performance: Severe Underperformance Across Timeframes
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +2.70% | +1.39% | +1.31% |
| 1 Month | +2.85% | +2.86% | -0.01% |
| 3 Months | -10.29% | +4.68% | -14.97% |
| 6 Months | -10.25% | +3.74% | -13.99% |
| Year-to-Date | -25.02% | +7.98% | -33.00% |
| 1 Year | -22.39% | +8.76% | -31.15% |
| 3 Years | +111.70% | +36.92% | +74.78% |
| 5 Years | +871.00% | +93.35% | +777.65% |
Kothari Petrochemicals' stock performance presents a tale of two distinct periods. The long-term returns remain spectacular, with the stock delivering 871.00% returns over five years compared to the Sensex's 93.35%, generating alpha of 777.65 percentage points. The three-year return of 111.70% versus the Sensex's 36.92% similarly demonstrates substantial outperformance during the company's growth phase.
However, recent performance has deteriorated sharply. The stock has declined 22.39% over the past year whilst the Sensex gained 8.76%, resulting in negative alpha of 31.15 percentage points. Year-to-date performance is particularly concerning, with the stock down 25.02% against the Sensex's 7.98% gain, representing underperformance of 33.00 percentage points. The three-month and six-month returns of -10.29% and -10.25% respectively, against positive Sensex returns, highlight persistent selling pressure.
The stock's high beta of 1.50 indicates significantly higher volatility than the broader market, with annual volatility of 42.06% compared to the Sensex's 12.26%. The risk-adjusted return of -0.53 over one year, classified as "HIGH RISK LOW RETURN," reflects the unfavourable risk-reward profile at current levels. Recent weeks have shown modest stabilisation, with one-week and one-month returns marginally positive, but the overall technical picture remains bearish, with the stock trading below all major moving averages.
Investment Thesis: Quality Company Facing Growth Headwinds
The investment thesis for Kothari Petrochemicals is characterised by conflicting signals across key parameters. The company's quality credentials remain intact, with an "Average" grade reflecting solid long-term financial performance, zero debt, strong return on equity, and dominant market positioning in PIB manufacturing. The five-year sales CAGR of 20.87% and EBIT growth of 31.92% demonstrate historical expansion capability, whilst the absence of promoter pledging and conservative balance sheet management provide financial stability.
However, near-term drivers present challenges. The financial trend is classified as "Flat" following the September 2025 quarter results, indicating stagnation in growth momentum despite margin improvements. The technical trend remains firmly "Bearish," with the stock trading below all moving averages and showing persistent weakness. The valuation, whilst deemed "Attractive" at current levels with a P/E of 12.84 times, must be weighed against the high PEG ratio of 10.39, suggesting limited growth visibility relative to valuation multiples.
"Kothari Petrochemicals' margin expansion prowess demonstrates operational excellence, but sustained revenue weakness and bearish technical momentum warrant caution despite attractive headline valuation metrics."
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Dominant Market Position: Commands 90% market share in domestic PIB manufacturing with 24,000 tonnes annual capacity
- Debt-Free Balance Sheet: Zero long-term debt and net cash position with negative net debt-to-equity of -0.09
- Strong Return Metrics: Average ROE of 21.53% and ROCE of 35.07% demonstrate superior capital efficiency
- Margin Expansion Capability: Q2 FY26 operating margin of 17.49% represents highest level in eight quarters
- Excellent Interest Coverage: EBIT-to-interest ratio of 51.49 times provides substantial financial flexibility
- No Promoter Pledging: Zero pledged shares indicates strong promoter financial health
- Efficient Working Capital: Debtors turnover of 14.04 times reflects strong cash conversion
⚠ KEY CONCERNS
- Revenue Volatility: Q2 FY26 revenue declined 10.99% QoQ and 4.41% YoY, indicating demand challenges
- ROCE Compression: Half-yearly ROCE of 26.23% represents lowest level in recent periods, down from 35%+ average
- Minimal Institutional Interest: Total institutional holding of just 0.09% suggests limited professional investor confidence
- Severe Stock Underperformance: Down 22.39% over one year and 25.02% YTD versus positive market returns
- High Valuation Relative to Growth: PEG ratio of 10.39 indicates expensive valuation relative to growth prospects
- Bearish Technical Setup: Trading below all moving averages with persistent selling pressure
- Sector Headwinds: Underperforming petrochemicals sector by 14 percentage points over past year
Outlook: What to Watch in Coming Quarters
POSITIVE CATALYSTS
- Revenue Stabilisation: Sustained revenue above ₹150 crores quarterly would signal demand recovery
- Margin Sustainability: Maintaining operating margins above 16% would confirm structural improvement
- ROCE Recovery: Return to historical ROCE levels above 30% would indicate efficient capital deployment
- Institutional Interest: Meaningful FII or mutual fund accumulation would improve liquidity and sentiment
- Capacity Utilisation: Improved utilisation of 24,000-tonne PIB capacity would drive operating leverage
RED FLAGS TO MONITOR
- Further Revenue Decline: Revenue falling below ₹140 crores quarterly would indicate deepening demand issues
- Margin Compression: Operating margins reverting below 15% would negate recent improvements
- Continued ROCE Deterioration: ROCE falling below 25% would signal profitability concerns
- Technical Breakdown: Break below ₹132 (52-week low) would trigger further selling pressure
- Working Capital Stress: Deterioration in debtors turnover or inventory management
The Verdict: Hold with Caution
Score: 37/100
For Fresh Investors: Avoid initiating positions at current levels. Despite attractive valuation multiples and strong historical performance, the combination of revenue weakness, bearish technical momentum, and flat financial trend presents unfavourable risk-reward. Wait for clear evidence of revenue stabilisation and technical trend reversal before considering entry.
For Existing Holders: Consider reducing exposure on any technical bounce towards ₹155-160 levels. Whilst the debt-free balance sheet and margin expansion provide downside protection, the persistent revenue challenges and negative price momentum suggest limited near-term upside. Those maintaining positions should monitor quarterly revenue trends closely and reassess if revenue falls below ₹140 crores or ROCE continues declining.
Fair Value Estimate: ₹155-165 (6.4% to 13.3% upside from current levels), contingent on revenue stabilisation and margin sustainability
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. Stock investments are subject to market risks, and investors may lose their entire investment.
