Kothari Sugars Q2 FY26: Losses Deepen Amid Crushing Season Weakness

With a market capitalisation of ₹245.43 crores, Kothari Sugars remains a micro-cap player in India's sugar industry. The company's latest quarterly results reveal mounting operational pressures, with operating profit before depreciation, interest, and tax (excluding other income) plunging to a loss of ₹7.95 crores—the worst performance in at least seven quarters. This represents a dramatic reversal from the ₹10.63 crores operating profit recorded in the same quarter last year, highlighting deteriorating core business fundamentals.

Financial Performance: Profitability Under Severe Pressure

The second quarter of FY26 exposed critical vulnerabilities in Kothari Sugars' business model. Net sales of ₹68.04 crores represented only a marginal 2.02% quarter-on-quarter improvement from ₹66.69 crores in Q1 FY26, but the year-on-year comparison reveals a troubling 33.02% decline from ₹101.59 crores in Q2 FY24. This revenue erosion occurred despite the company operating during what should have been a more active period for sugar operations.

More concerning than the revenue decline is the complete collapse of operating profitability. The company's operating profit before depreciation, interest, and tax (excluding other income) turned sharply negative at ₹-7.95 crores in Q2 FY26, compared to a positive ₹1.09 crores in the previous quarter. This translated into an operating margin of -11.68%, the worst performance in the seven-quarter data set available. The year-on-year comparison is equally stark, with operating profit plummeting from ₹10.63 crores (10.46% margin) in Q2 FY24.

The profit before tax (PBT) figure of ₹-10.80 crores in Q2 FY26 represents a dramatic reversal from the ₹9.71 crores profit recorded in the same quarter last year. Despite a tax credit of ₹3.56 crores, the company still posted a net loss of ₹7.23 crores, translating to a negative PAT margin of -10.63%. Employee costs remained relatively stable at ₹6.76 crores, but this provided little relief given the severe revenue and margin pressures.

On a half-yearly basis for H1 FY26, the company's cumulative net sales stood at ₹134.73 crores, whilst the net loss for the period totalled ₹5.98 crores. This compares unfavourably with H1 FY25, when the company generated ₹191.21 crores in revenue and posted a net profit of ₹5.72 crores. The deterioration in profitability is evident across all metrics, with the company struggling to maintain positive earnings amidst challenging market conditions.

Operational Challenges: Core Business Deterioration

The fundamental issue plaguing Kothari Sugars is the sustained weakness in its core sugar operations. The company's operating profit (excluding other income) has been on a declining trajectory, falling from ₹10.63 crores in Q2 FY24 to a loss of ₹7.95 crores in Q2 FY26. This represents a swing of over ₹18 crores in operating performance, indicating severe stress in the underlying business model.

Return on equity (ROE), a critical measure of how efficiently a company uses shareholder capital, stands at just 2.48% on a trailing basis—significantly below acceptable standards for a manufacturing business. The five-year average ROE of 10.15% suggests that the company has historically struggled to generate adequate returns, but the current figure represents a further deterioration. Return on capital employed (ROCE) tells an even more troubling story, with the latest half-yearly figure at -1.66%, indicating that the company is destroying value rather than creating it.

The company's balance sheet does provide some cushion, with shareholder funds of ₹139.64 crores as of March 2018 (latest available data) and relatively manageable debt levels. Long-term debt stood at ₹36.05 crores, resulting in a debt-to-equity ratio that remains conservative. The company's average net debt to equity over the five-year period is -0.23, indicating it has historically maintained a net cash position. However, the operational losses are steadily eroding this financial strength.

Interest coverage, measured by EBIT to interest ratio, averaged 5.48 times over the past five years, suggesting adequate ability to service debt obligations. However, with operating profits turning negative in recent quarters, this coverage metric is likely under significant pressure. The company's debt-to-EBITDA ratio of 1.34 times (five-year average) remains within acceptable bounds, but deteriorating EBITDA generation threatens to worsen this metric.

Sugar Industry Context: Sector Headwinds Persist

The Indian sugar industry has faced considerable headwinds in recent years, with oversupply concerns, regulated pricing mechanisms, and fluctuating sugarcane costs creating a challenging operating environment. Kothari Sugars' performance must be viewed against this broader sectoral backdrop, though the company's underperformance relative to peers suggests company-specific issues beyond just industry-wide pressures.

The sugar sector has delivered a negative return of -16.88% over the past year, but Kothari Sugars has underperformed even this weak benchmark by 20.52 percentage points, with its stock declining 37.40% over the same period. This significant underperformance indicates that investors have lost confidence in the company's ability to navigate industry challenges effectively.

The company's sales-to-capital-employed ratio of 1.62 times suggests moderate asset turnover efficiency, but this must be balanced against the negative profitability trends. With capacity utilisation and operational efficiency both under question, the company faces an uphill battle to restore meaningful profitability even if industry conditions improve.

Peer Comparison: Lagging Across Key Metrics

When benchmarked against other sugar manufacturers, Kothari Sugars' valuation and operational metrics present a mixed picture. The company trades at a price-to-earnings ratio of 34.83 times, which appears elevated given the weak earnings trajectory. Its price-to-book value of 0.86 times suggests the market values the company below its stated book value, reflecting concerns about asset quality and future earnings potential.

Kothari Sugars' ROE of 10.15% (five-year average) positions it in the middle of the peer group, though this figure masks the recent deterioration to just 2.48%. Ugar Sugar Works leads the peer group with an ROE of 26.28%, more than double Kothari's historical average and over ten times its current performance. KM Sugar Mills, with an ROE of 11.15%, demonstrates that profitable operations remain achievable in the sector.

The company's negative net debt-to-equity position of -0.23 is a positive differentiator, indicating stronger balance sheet health than most peers. However, this advantage is being steadily eroded by operating losses. With a market capitalisation of ₹245.43 crores, Kothari Sugars ranks sixth among the peer group, reflecting its relatively small scale in an industry where size and efficiency often correlate with profitability.

Valuation Analysis: Risk Outweighs Opportunity

Kothari Sugars' current valuation has been classified as "Risky" by proprietary assessment metrics, a designation that appears well-justified given the operational challenges and deteriorating financial trends. The company's enterprise value-to-EBITDA multiple of 14.88 times seems elevated considering the negative earnings trajectory and weak cash generation.

The stock's price-to-book ratio of 0.86 times might superficially appear attractive, suggesting the market values the company below its stated asset base. However, this discount likely reflects legitimate concerns about the quality and realisable value of those assets, particularly given the sustained operating losses. The enterprise value-to-sales ratio of 0.64 times indicates that the market is ascribing relatively low value to the company's revenue-generating capacity.

The company's valuation grade has fluctuated between "Very Expensive," "Expensive," and "Risky" over the past 18 months, with the most recent assessment settling on "Risky" as of May 2025. This classification acknowledges that whilst absolute valuation multiples may not appear exorbitant, the combination of operational challenges, negative financial trends, and uncertain earnings visibility creates substantial downside risk for investors.

With the stock trading at ₹29.61 as of November 14, 2025, it has declined 42.27% from its 52-week high of ₹51.29 but remains just 6.82% above its 52-week low of ₹27.72. This proximity to recent lows, combined with continued operational weakness, suggests limited near-term catalysts for a meaningful recovery in the share price.

Shareholding Pattern: Stable Promoter Base, Minimal Institutional Interest

The shareholding pattern of Kothari Sugars has remained remarkably stable over recent quarters, with promoter holding consistently at 73.53% across the past five quarters through September 2025. This high and stable promoter stake provides some reassurance regarding management commitment, though it has not translated into improved operational performance.

Foreign institutional investor (FII) holding has shown marginal fluctuation, declining from 0.62% in September 2024 to 0.22% in September 2025, with a notable quarter-on-quarter drop of 0.37 percentage points in the latest quarter. This reduction, whilst small in absolute terms, signals waning interest from foreign investors who have likely lost patience with the company's deteriorating fundamentals.

Mutual fund participation remains conspicuously absent at 0.00% across all reported quarters, indicating that domestic institutional fund managers see little investment merit in the stock at current valuations and operational performance levels. Insurance company holdings have remained stable at around 0.63-0.66%, whilst other domestic institutional investors maintain a negligible 0.01% stake.

The non-institutional shareholding category, comprising retail and other investors, has marginally increased from 25.18% in September 2024 to 25.61% in September 2025. Importantly, there is no promoter pledging, eliminating one potential risk factor. However, the overall institutional holding of just 0.86% reflects a severe lack of confidence from professional investors who typically conduct rigorous due diligence before committing capital.

Stock Performance: Severe Underperformance Across All Timeframes

Kothari Sugars' stock price performance has been dismal across virtually all meaningful timeframes, with the company significantly underperforming both the broader market and its sectoral peers. The stock declined 1.66% on November 14, 2025, compared to a 0.31% decline in the Sensex, resulting in negative alpha of -1.35%.

Over the past year, the stock has delivered a negative return of -37.40%, whilst the Sensex gained 8.56%, resulting in alpha of -45.96 percentage points. This massive underperformance extends across multiple timeframes, with the stock declining 32.47% year-to-date (versus Sensex gain of 7.78%) and falling 20.89% over six months (versus Sensex gain of 3.55%).

The two-year and three-year performance figures paint an even grimmer picture, with the stock down 44.76% and 27.78% respectively, whilst the Sensex surged 29.70% and 36.66% over the same periods. The negative alpha of -74.46 percentage points over two years and -64.44 percentage points over three years underscores the severe value destruction experienced by shareholders.

From a technical perspective, the stock is currently in a "Bearish" trend as of November 10, 2025, trading below all key moving averages including the 5-day (₹30.01), 20-day (₹30.78), 50-day (₹31.34), 100-day (₹32.73), and 200-day (₹34.91) moving averages. This alignment of the stock below all major moving averages is a classically bearish technical setup, suggesting continued downward pressure in the near term.

The stock's beta of 1.50 indicates it is significantly more volatile than the broader market, amplifying both gains and losses. However, given the negative returns, this high beta has worked entirely to shareholders' disadvantage. The risk-adjusted return of -0.92 over the past year, combined with volatility of 40.59%, places the stock firmly in the "HIGH RISK LOW RETURN" category—the worst possible quadrant for investors.

Investment Thesis: Multiple Red Flags Dominate

The investment case for Kothari Sugars is severely challenged across all critical parameters. The company's proprietary Mojo score of 23 out of 100 places it firmly in "STRONG SELL" territory, reflecting the confluence of negative factors affecting the business. The score has deteriorated from 30 (Sell rating) in early November 2024 to the current 23, indicating worsening fundamentals.

The quality grade of "Average" represents a downgrade from "Good" prior to May 2024, reflecting the sustained deterioration in operational metrics. The five-year sales decline of -3.98% annually and the catastrophic EBIT contraction of -170.40% annually paint a picture of a business in structural decline rather than cyclical weakness.

The financial trend assessment has been "Negative" since August 2025, with the latest half-yearly ROCE at -1.66% marking the worst performance on record. Key metrics including quarterly net sales (down 5.2% versus the previous four-quarter average), operating profit (at its lowest level of ₹-7.95 crores), and earnings per share (at its lowest of ₹-0.87) all point to accelerating deterioration.

Key Strengths & Risk Factors

Outlook: Limited Near-Term Catalysts for Recovery

The outlook for Kothari Sugars remains challenging in the near to medium term, with limited visible catalysts for a meaningful operational turnaround. The company faces the dual challenge of navigating a difficult industry environment whilst simultaneously addressing company-specific operational inefficiencies that have led to sustained losses.

The company's ability to navigate the current challenges will depend critically on its capacity to restore operating profitability, stabilise revenue trends, and demonstrate improved capital efficiency. Given the sustained nature of the operational decline over multiple quarters and years, any turnaround is likely to be gradual and uncertain. Investors should maintain heightened vigilance for signs of further deterioration, particularly in operating margins, cash generation, and market share metrics.