The quarter's headline-grabbing profit surge conceals a troubling reality: the company's core petrochemical operations are struggling. Operating profit excluding other income plummeted 31.08% quarter-on-quarter to ₹13.99 crores, whilst operating margins contracted sharply to 5.66% from 8.18% in Q2 FY26. Most alarmingly, other income of ₹19.78 crores constituted a staggering 91.28% of profit before tax, raising serious questions about earnings sustainability and operational health.
The Southern Petrochemical Industries Corporation Limited (SPICL)-promoted company, incorporated in June 1986, operates in a challenging petrochemical landscape where raw material cost volatility and competitive pressures have historically compressed margins. As the second-largest company in India's petrochemicals sector, Manali Petrochemicals' current predicament reflects broader industry headwinds that have plagued the sector throughout FY26.
Financial Performance: Margin Compression Amid Revenue Growth
Manali Petrochemicals reported net sales of ₹247.02 crores in Q3 FY26, representing marginal sequential contraction of 0.41% from Q2 FY26's ₹248.04 crores but showing resilient 25.95% year-on-year growth compared to Q3 FY25's ₹196.12 crores. However, this top-line expansion failed to translate into proportionate bottom-line growth through operational excellence, instead relying heavily on non-operating income streams.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Operating Profit (₹ Cr) | Operating Margin | Net Profit (₹ Cr) | PAT Margin |
|---|---|---|---|---|---|---|
| Dec'25 | 247.02 | -0.41% | 13.99 | 5.66% | 68.43 | 27.70% |
| Sep'25 | 248.04 | +5.70% | 20.30 | 8.18% | 18.15 | 7.32% |
| Jun'25 | 234.67 | +1.87% | 22.83 | 9.73% | 14.34 | 6.11% |
| Mar'25 | 230.36 | +17.46% | 21.04 | 9.13% | 10.81 | 4.69% |
| Dec'24 | 196.12 | -14.81% | 12.67 | 6.46% | 5.27 | 2.69% |
| Sep'24 | 230.22 | -4.24% | 3.83 | 1.66% | 0.20 | 0.09% |
| Jun'24 | 240.42 | — | 20.75 | 8.63% | 13.02 | 5.42% |
The company's operating profit (PBDIT) excluding other income declined to ₹13.99 crores in Q3 FY26 from ₹20.30 crores in Q2 FY26, marking a concerning 31.08% sequential deterioration. Operating margins compressed 252 basis points quarter-on-quarter to 5.66%, significantly below the company's historical average and indicative of mounting cost pressures or pricing challenges in core petrochemical products.
Employee costs remained relatively stable at ₹18.54 crores in Q3 FY26 compared to ₹17.70 crores in Q2 FY26, representing 7.51% of net sales. Interest expenses edged marginally higher to ₹3.38 crores from ₹3.36 crores, whilst depreciation increased to ₹8.72 crores from ₹7.87 crores, reflecting the company's ongoing capital expenditure programme.
Critical Earnings Quality Concern
Other income of ₹19.78 crores constituted 91.28% of profit before tax in Q3 FY26, raising serious red flags about earnings sustainability. Profit before tax less other income stood at just ₹1.89 crores, marking the lowest level in recent quarters. This extraordinary dependence on non-operating income suggests the core petrochemical business is barely profitable at current operating margins.
The Other Income Anomaly: Masking Operational Weakness
The most striking feature of Q3 FY26 results was the extraordinary surge in other income to ₹19.78 crores, up 53.33% from ₹12.90 crores in Q2 FY26 and representing a dramatic 352.63% increase compared to ₹4.37 crores in Q3 FY25. This non-operating income stream now dwarfs the company's core operating profit, fundamentally distorting the earnings picture and raising questions about the nature and sustainability of these income sources.
When stripping away other income, the company's profit before tax less other income collapsed to just ₹1.89 crores in Q3 FY26, the lowest quarterly figure in recent memory. This metric, which better reflects core operational profitability, reveals the extent to which the petrochemical business is struggling with margin compression and competitive pressures.
The ratio of operating profit to interest coverage deteriorated to 4.14 times in Q3 FY26, marking the lowest level across recent quarters and indicating reduced financial flexibility. Whilst still comfortably above distress levels, this declining trend warrants monitoring, particularly if operating performance continues to weaken.
Balance Sheet Concerns Emerging
The company's debt-equity ratio for the half-year period reached 0.14 times, the highest in recent periods, as Manali Petrochemicals introduced ₹19.00 crores of long-term debt onto its previously debt-free balance sheet as of March 2025. Whilst the absolute debt level remains modest, this represents a notable shift from the company's historical net cash position. The debtors turnover ratio also deteriorated to 5.68 times for the half-year, suggesting potential working capital pressures or extended credit terms to maintain sales volumes.
Profitability Metrics: Weak Returns on Capital
Manali Petrochemicals' return on equity (ROE) stood at 14.95% on an average basis, falling below the 15% threshold typically associated with quality compounding businesses. More concerning, the latest half-yearly ROE calculation shows further deterioration, reflecting the compressed margins and weak operational performance. The company's historical ROE has been inconsistent, oscillating significantly based on raw material cost cycles and product pricing dynamics.
Return on capital employed (ROCE) averaged a respectable 32.80% over the long term, suggesting reasonable capital efficiency during favourable industry cycles. However, the latest ROCE calculation for the half-year period stood at just 6.22%, a dramatic decline that underscores the current operational challenges. This metric, which measures how efficiently the company generates profits from its capital base, has compressed substantially as operating margins have deteriorated whilst capital employed has increased due to ongoing capacity expansion.
The company's PAT margin expanded dramatically to 27.70% in Q3 FY26 from 7.32% in Q2 FY26, but this improvement is entirely artificial, driven by the surge in other income rather than operational efficiency gains. The gross profit margin of 32.85% in Q3 FY26, whilst superficially impressive, again reflects the distorting effect of non-operating income on profitability metrics.
Industry Context: Petrochemicals Under Pressure
The petrochemicals sector has faced persistent headwinds throughout FY26, with raw material price volatility, oversupply conditions in certain product segments, and intense competition from imports compressing margins across the industry. Manali Petrochemicals' position as the sole domestic manufacturer of Propylene Glycol provides some insulation from import competition in that specific product, but the company's broader Propylene Oxide and Polyether Polyol businesses face more competitive market dynamics.
The sector's challenges are reflected in the Petrochemicals index return of -21.39% over the past year, significantly underperforming the broader market. Manali Petrochemicals' one-year return of -3.93% represents substantial outperformance versus its peer group by 17.46 percentage points, though this relative strength provides little comfort given the absolute price decline and deteriorating fundamentals.
Global petrochemical capacity additions, particularly from Middle Eastern producers with feedstock cost advantages, continue to pressure pricing and margins for Indian manufacturers. The sector's cyclical nature means periods of margin compression can extend for multiple quarters before supply-demand dynamics rebalance, creating uncertain near-term visibility for companies like Manali Petrochemicals.
Peer Comparison: Valuation Discount Reflects Quality Concerns
Relative to its petrochemical peers, Manali Petrochemicals trades at a significant valuation discount that appears justified by its weaker return profile and operational challenges. The company's ROE of 14.95% lags behind Supreme Petrochem's 30.47% and Agarwal Industrial's 20.42%, though it compares favourably to Rain Industries' 7.59% and DCW's 7.01%.
| Company | P/E (TTM) | Price/Book | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Manali Petrochem | 19.40 | 0.88 | 14.95% | 0.86% | -0.18 |
| Supreme Petroch. | 40.37 | 4.94 | 30.47% | 1.72% | -0.18 |
| Rain Industries | NA (Loss Making) | 0.75 | 7.59% | 0.64% | 1.16 |
| DCW | 26.15 | 1.24 | 7.01% | 0.23% | 0.16 |
| Agarwal Indl. | 12.95 | 1.64 | 20.42% | 0.46% | 0.51 |
| T N Petro Prod. | 8.40 | 0.86 | 13.12% | 1.29% | 0.03 |
Manali Petrochemicals' P/E ratio of 19.40x sits in the middle of the peer range, below Supreme Petrochem's 40.37x and DCW's 26.15x but above Agarwal Industrial's 12.95x and T N Petro Products' 8.40x. However, the company's price-to-book ratio of 0.88x represents one of the lowest in the peer group, trading below book value and suggesting the market harbours concerns about the company's ability to generate adequate returns on its asset base.
The valuation discount becomes more understandable when considering Manali Petrochemicals' deteriorating operational metrics, heavy reliance on other income, and weak recent financial trends. Whilst the company maintains a net cash position (debt-to-equity of -0.18 historically) similar to Supreme Petrochem, it lacks the robust operating margins and consistent profitability that would justify a premium valuation.
Valuation Analysis: Expensive Despite Recent Decline
Despite the stock's 28.17% decline from its 52-week high of ₹81.00, Manali Petrochemicals' valuation assessment remains "Very Expensive" according to proprietary scoring models. The company's P/E ratio of 19.40x appears reasonable in isolation but becomes stretched when considering the poor quality of recent earnings and deteriorating operational trends.
The EV/EBITDA multiple of 10.31x and EV/EBIT multiple of 16.71x suggest the market is pricing in expectations of a recovery in operating performance that may not materialise in the near term. The company's PEG ratio of 0.11x appears attractive superficially, but this metric is distorted by negative historical earnings growth, rendering it less meaningful as a valuation tool.
The stock's price-to-book ratio of 0.88x, trading below book value of ₹63.61 per share, indicates the market questions whether the company can generate adequate returns on its ₹1,094.45 crores of shareholder funds. This below-book valuation often signals concerns about asset quality, earning power, or both—concerns that appear well-founded given recent operational performance.
Valuation Grade: Very Expensive
The stock's valuation assessment has oscillated between "Expensive" and "Very Expensive" throughout the latter half of 2025, reflecting market uncertainty about the sustainability of earnings. The current "Very Expensive" grade suggests limited margin of safety at current prices, particularly given the weak operational performance and heavy dependence on non-operating income.
Shareholding Pattern: Stable Promoter Base, Declining FII Interest
Promoter holding remained rock-solid at 44.86% across the last five quarters, demonstrating unwavering confidence from the Southern Petrochemical Industries Corporation Limited (SPICL) group and associated entities. The promoter group, led by Sidd Life Sciences Private Limited (38.28%) and Tamilnadu Industrial Development Corporation Limited (6.52%), has maintained its stake despite the company's operational challenges.
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 44.86% | 44.86% | 44.86% | 44.86% | 0.00% |
| FII | 0.29% | 0.44% | 0.45% | 0.66% | -0.15% |
| Mutual Funds | 0.01% | 0.01% | 0.01% | 0.01% | 0.00% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Non-Institutional | 54.83% | 54.69% | 54.67% | 54.47% | +0.14% |
More concerning is the steady decline in foreign institutional investor (FII) holding, which has contracted from 0.66% in March 2025 to just 0.29% in December 2025. This 56% reduction in FII stake over three quarters signals waning international investor confidence in the company's prospects. The sequential decline of 0.15 percentage points from September to December 2025 suggests the selling pressure continued through the most recent quarter.
Institutional participation remains minimal, with mutual fund holding at a negligible 0.01% and zero holdings from insurance companies and other domestic institutional investors. The combined institutional holding of just 0.31% represents one of the lowest levels amongst listed petrochemical companies, indicating limited institutional conviction in the investment case.
Non-institutional investors, comprising retail and high-net-worth individuals, hold 54.83% of the company, with this category showing marginal sequential expansion of 0.14 percentage points in Q3 FY26. The dominance of non-institutional holding often correlates with higher volatility and lower liquidity, both characteristics evident in Manali Petrochemicals' trading pattern.
Stock Performance: Persistent Underperformance Across Timeframes
Manali Petrochemicals' stock price performance has been disappointing across virtually all meaningful timeframes, with the shares trading at ₹58.18 as of February 2, 2026, representing a 28.17% decline from the 52-week high of ₹81.00 reached earlier in the fiscal year. The stock has underperformed the Sensex by 9.30 percentage points over the past year, generating negative alpha of -9.30%.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +8.91% | +0.16% | +8.75% |
| 1 Month | -7.65% | -4.78% | -2.87% |
| 3 Months | -21.42% | -2.71% | -18.71% |
| 6 Months | -12.18% | +1.32% | -13.50% |
| YTD | -7.75% | -4.17% | -3.58% |
| 1 Year | -3.93% | +5.37% | -9.30% |
| 2 Years | -26.94% | +13.29% | -40.23% |
| 3 Years | -24.39% | +36.26% | -60.65% |
The three-month return of -21.42% represents particularly severe underperformance, with negative alpha of -18.71% versus the Sensex. This sharp decline coincides with the period when the company's operational challenges became increasingly apparent through quarterly results. The six-month return of -12.18% against the Sensex's +1.32% gain further underscores the market's loss of confidence in the company's near-term prospects.
Longer-term performance metrics paint an even bleaker picture. The two-year return of -26.94% compares unfavourably to the Sensex's +13.29% gain, generating massive negative alpha of -40.23%. Over three years, the stock has declined 24.39% whilst the Sensex surged 36.26%, resulting in negative alpha of -60.65%. This persistent underperformance across multiple timeframes reflects fundamental business challenges rather than temporary market sentiment.
Interestingly, the stock has outperformed its petrochemical peer group over the past year, declining just 3.93% compared to the sector's -21.39% return, representing outperformance of 17.46 percentage points. However, this relative strength provides limited comfort given the absolute negative return and deteriorating fundamentals.
Technical Analysis: Bearish Trend Firmly Established
From a technical perspective, Manali Petrochemicals entered a confirmed bearish trend on January 9, 2026, at ₹58.91, transitioning from a sideways pattern that had persisted since late 2025. The stock currently trades below all key moving averages, including the 5-day MA (₹56.51), 20-day MA (₹58.05), 50-day MA (₹60.71), 100-day MA (₹65.26), and 200-day MA (₹64.46), confirming the negative momentum.
Multiple technical indicators flash bearish signals. The MACD indicator shows bearish readings on both weekly and monthly timeframes, whilst Bollinger Bands indicate mildly bearish conditions across both periods. The KST indicator registers bearish on the weekly chart, though it shows mildly bullish on the monthly timeframe, suggesting some potential for stabilisation at current levels.
The stock's immediate support lies at the 52-week low of ₹49.15, approximately 15.5% below current levels. Immediate resistance sits at the 20-day moving average around ₹58.05, with major resistance at the 100-day and 200-day moving averages in the ₹64-65 range. The 52-week high of ₹81.00 represents distant resistance, requiring a 39% rally to reclaim.
The stock's beta of 1.50 indicates significantly higher volatility than the broader market, with annualised volatility of 39.81% over the past year placing it in the "high risk, low return" category. This elevated volatility combined with negative returns creates an unfavourable risk-reward profile for investors.
Investment Thesis: Quality Concerns Outweigh Valuation Discount
Manali Petrochemicals presents a challenging investment proposition characterised by deteriorating operational performance, questionable earnings quality, and persistent underperformance despite trading at a valuation discount to book value. The company's proprietary Mojo Score of 37 out of 100 reflects these multiple concerns, resulting in a "SELL" recommendation.
The investment case is undermined by several critical factors. First, the company's heavy reliance on other income (91.28% of PBT in Q3 FY26) raises serious questions about the sustainability of reported profits and the health of core petrochemical operations. Second, operating margins have compressed sharply to just 5.66%, well below historical averages and indicating significant competitive or cost pressures. Third, return on equity of 14.95% falls short of quality thresholds, whilst the latest half-yearly ROCE of just 6.22% suggests poor capital efficiency.
Key Strengths
- Market Leadership: Only domestic manufacturer of Propylene Glycol, providing niche positioning
- Stable Promoter Base: Consistent 44.86% promoter holding with zero pledging demonstrates long-term commitment
- Strong Balance Sheet: Historically net cash company with minimal debt burden
- Sector Outperformance: One-year return of -3.93% significantly better than sector's -21.39%
- Dividend Track Record: Consistent dividend payer with 67.18% payout ratio
- Strong Interest Coverage: Average EBIT to interest of 24.52x provides financial flexibility
Key Concerns
- Earnings Quality Crisis: Other income constitutes 91.28% of PBT, masking operational weakness
- Margin Compression: Operating margin declined to 5.66% from 8.18% QoQ, showing deteriorating profitability
- Weak Returns: ROE of 14.95% below quality threshold; latest ROCE of 6.22% indicates poor capital efficiency
- Negative Growth: Five-year EBIT growth of -4.43% reflects structural challenges
- FII Exodus: FII holding declined 56% from 0.66% to 0.29% over three quarters
- Technical Breakdown: Bearish trend with stock below all major moving averages
- Persistent Underperformance: Negative alpha of -60.65% over three years versus Sensex
Outlook: What to Watch
The near-term outlook for Manali Petrochemicals hinges on the company's ability to restore operating margin health and reduce dependence on non-operating income. Investors should monitor several critical factors to assess whether the business can stabilise and potentially recover.
Positive Catalysts
- Recovery in operating margins above 8% through improved product pricing or cost optimisation
- Reduction in other income as percentage of PBT, indicating healthier core operations
- Stabilisation or improvement in ROCE metrics demonstrating better capital efficiency
- Return of FII interest as operational performance improves
- Favourable shift in petrochemical industry dynamics reducing competitive pressures
Red Flags
- Further compression of operating margins below 5% would signal severe distress
- Continued reliance on other income exceeding 50% of PBT for multiple quarters
- Additional debt raising to fund operations rather than strategic capex
- Further deterioration in working capital metrics, particularly debtors turnover
- Technical breakdown below 52-week low of ₹49.15 would trigger additional selling pressure
The company's ability to navigate the current petrochemical downcycle whilst maintaining financial stability will determine whether the current valuation discount represents opportunity or value trap. Given the multiple red flags and deteriorating trends, the burden of proof rests firmly on management to demonstrate operational improvement before investors should consider re-engagement.
The Verdict: Avoid Until Operational Health Improves
Score: 37/100
For Fresh Investors: Avoid initiating positions. The company's heavy reliance on other income (91.28% of PBT), compressed operating margins (5.66%), and weak return profile (ROE 14.95%, latest ROCE 6.22%) create an unfavourable risk-reward proposition. The below-book valuation (P/BV 0.88x) reflects legitimate concerns about earning power rather than presenting a bargain opportunity. Wait for clear evidence of operational improvement, including sustained recovery in operating margins above 8% and reduction in other income dependence below 30% of PBT, before considering investment.
For Existing Holders: Consider reducing positions or exiting on any technical bounce towards the ₹64-65 resistance zone (100-day and 200-day moving averages). The deteriorating operational metrics, questionable earnings quality, and bearish technical setup suggest limited near-term upside potential. The stock's persistent underperformance across multiple timeframes (negative alpha of -60.65% over three years) indicates structural rather than cyclical challenges. Only investors with high risk tolerance and long investment horizons should maintain exposure, and even then, position sizing should be minimal.
Fair Value Estimate: ₹52-55 per share (10-15% downside from current levels), based on normalised operating earnings excluding extraordinary other income and applying a 15-17x P/E multiple to sustainable earnings power. The current price of ₹58.18 offers limited margin of safety given operational challenges.
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. The author and publisher assume no responsibility for investment decisions made based on this analysis.
