The December quarter results underscore a decisive operational turnaround, with revenue climbing 18.14% YoY to ₹56.73 crores whilst operating margins expanded to a multi-quarter high of 18.81%. Sequential momentum remained robust, with consolidated profit advancing 21.92% QoQ, suggesting sustained execution strength beyond mere base effects.
The company's performance represents a significant inflection point, with all key profitability metrics reaching multi-quarter peaks. Operating profit before depreciation, interest and tax (PBDIT) excluding other income expanded to ₹10.67 crores, whilst profit before tax climbed to ₹10.78 crores, demonstrating the scalability of the business model as volumes improve.
Financial Performance: Margin Expansion Drives Bottom-Line Acceleration
Narmada Gelatines' Q3 FY26 financial performance reveals a company firing on multiple cylinders. Net sales of ₹56.73 crores represented not just an 18.14% year-on-year increase, but also a healthy 10.78% sequential improvement over Q2 FY26's ₹51.21 crores. This consistent momentum across both comparative periods signals genuine demand strength rather than transitory factors.
The margin story proved even more compelling. Operating margin (excluding other income) expanded to 18.81% from 13.70% in the year-ago quarter—a substantial 511 basis points improvement. Sequential expansion of 55 basis points from Q2's 18.26% suggests this isn't merely cyclical recovery but reflects structural operational improvements. PAT margin similarly surged to 14.81% from 9.20% YoY, a 561 basis point leap that underscores improving cost management and operating leverage.
| Quarter | Net Sales (₹ Cr) | Operating Margin (%) | Consol. PAT (₹ Cr) | PAT Margin (%) |
|---|---|---|---|---|
| Dec'25 | 56.73 | 18.81% | 8.40 | 14.81% |
| Sep'25 | 51.21 | 18.26% | 6.89 | 13.45% |
| Jun'25 | 45.77 | 16.43% | 5.98 | 13.07% |
| Mar'25 | 49.77 | 15.01% | 6.03 | 12.12% |
| Dec'24 | 48.02 | 13.70% | 4.42 | 9.20% |
The quality of earnings improved markedly, with interest costs declining to ₹0.29 crores from ₹0.55 crores YoY, reflecting the company's debt-light balance sheet. Employee costs rose to ₹5.94 crores from ₹4.02 crores, but this 47.76% increase must be contextualised against revenue growth of 18.14%—suggesting strategic investments in talent to support future expansion. The tax rate of 22.08% in Q3 normalised from Q2's elevated 27.17%, contributing to the strong PAT growth.
Operational Excellence: Return Ratios Signal Efficiency Gains
Narmada Gelatines' improving operational metrics extend beyond margin expansion. The company's return on capital employed (ROCE) stands at an impressive 20.86% on a trailing basis, substantially higher than the five-year average of 15.29%. This acceleration in capital efficiency demonstrates management's ability to generate superior returns from deployed capital—a critical quality marker in capital-intensive chemical manufacturing.
Return on equity (ROE) of 16.90% similarly exceeds the five-year average of 12.68%, indicating that the company is creating value for shareholders at an accelerating rate. Whilst the average ROE of 12.68% over the longer term suggests some historical volatility, the current trajectory points to sustained improvement. With a price-to-book value of just 1.77x, the stock offers reasonable valuation relative to this improving ROE profile.
Key Operational Strengths
Capital Efficiency: ROCE expanded to 20.86% from a five-year average of 15.29%, demonstrating superior asset utilisation and operational leverage. The company's debt-to-EBITDA ratio of just 0.63 provides substantial financial flexibility whilst maintaining strong returns.
Balance Sheet Quality: Net debt-to-equity ratio of merely 0.10 positions Narmada Gelatines amongst the most conservatively leveraged players in speciality chemicals. Zero long-term debt and interest cover of 16.52x provide a robust foundation for growth investments.
The balance sheet reflects prudent financial management. Shareholder funds stood at ₹108.94 crores as of March 2024, with zero long-term debt—a rarity in the manufacturing sector. Current assets of ₹93.46 crores comfortably cover current liabilities of ₹20.11 crores, yielding a healthy current ratio above 4.6x. This liquidity cushion, combined with minimal leverage, positions the company to capitalise on growth opportunities without financial constraint.
The Gelatine Industry: Niche Market with Steady Demand Dynamics
Narmada Gelatines operates in the specialised gelatine manufacturing sector, producing gelatine, ossein, di-calcium phosphate and bone meal. The gelatine industry serves diverse end markets including pharmaceuticals (capsule shells), food and beverages (confectionery, dairy), photography and technical applications. This diversification provides natural demand stability across economic cycles.
The company's five-year sales compound annual growth rate (CAGR) of 9.60% aligns with steady industry growth, though recent quarters suggest acceleration. More impressively, EBIT has grown at 26.26% CAGR over five years, indicating margin expansion and operating leverage—a hallmark of companies gaining market share or improving production efficiency. The sales-to-capital-employed ratio of 1.42x demonstrates reasonable asset turnover, though there remains scope for further improvement as capacity utilisation increases.
Industry Positioning & Competitive Advantages
Narmada Gelatines benefits from established relationships with pharmaceutical and food industry clients, where product quality and regulatory compliance create switching costs. The company's manufacturing facility in Jabalpur provides logistical advantages for serving central and northern Indian markets. With 75% promoter holding and zero pledging, the ownership structure reflects long-term commitment and alignment with minority shareholders.
Peer Comparison: Valuation Discount Despite Superior Returns
Relative to its speciality chemicals peer group, Narmada Gelatines presents an intriguing valuation proposition. Trading at a price-to-earnings ratio of 10.46x, the stock commands a significant discount to the broader speciality chemicals industry average P/E of 40x. This valuation gap appears unjustified given the company's competitive return profile.
| Company | P/E (TTM) | P/BV | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Narmada Gelatines | 10.46 | 1.77 | 12.68 | 2.74 | 0.10 |
| Vikas Ecotech | 40.29 | 0.69 | 5.45 | — | 0.09 |
| Indian Toners | 9.87 | 1.22 | 12.20 | 2.38 | -0.41 |
| India Gelatine | 9.59 | 1.39 | 12.26 | 1.40 | -0.35 |
| Diamines & Chemicals | NA (Loss Making) | 1.61 | 13.83 | 0.39 | -0.16 |
| Cochin Minerals | 14.42 | 1.28 | 15.06 | 2.95 | -0.09 |
Narmada Gelatines' ROE of 12.68% (five-year average) positions it competitively within the peer set, matching or exceeding most comparables. The company's dividend yield of 2.74% ranks amongst the highest in the group, with a sustainable payout ratio of 39.47% indicating capacity for continued distributions. The debt-to-equity ratio of 0.10 is the most conservative amongst peers, providing financial stability that warrants a valuation premium rather than discount.
The P/BV ratio of 1.77x appears reasonable given the improving ROE trajectory. Peers with similar or lower ROEs trade at comparable or lower P/BV multiples, suggesting Narmada's valuation is aligned with fundamentals. However, the P/E discount to the broader industry average of 40x seems excessive, particularly as operational momentum accelerates.
Valuation Analysis: Attractive Entry Point for Patient Investors
At the current price of ₹388.95, Narmada Gelatines trades at compelling valuation multiples that suggest meaningful upside potential. The P/E ratio of 10.46x represents a 73.85% discount to the speciality chemicals industry average of 40x, whilst the EV/EBITDA multiple of 7.52x appears modest for a company demonstrating accelerating profitability.
The PEG ratio of 0.34 provides particularly strong evidence of undervaluation. With five-year EBIT growth of 26.26% and a P/E of 10.46x, the PEG ratio substantially below 1.0 suggests the market is not fully pricing in the company's growth trajectory. Historical valuation grade changes—oscillating between "Fair" and "Attractive" over the past year—indicate the stock has been range-bound, but recent operational improvements may catalyse a re-rating.
The stock's 52-week range of ₹300.00 to ₹415.55 places the current price at ₹388.95 approximately 6.40% below the high and 29.65% above the low. This positioning suggests the recent rally has not yet reached overbought territory, with potential to test the 52-week high if operational momentum continues. A fair value estimate in the ₹425-450 range would imply 9-16% upside, based on a target P/E of 12-13x applied to annualised Q3 earnings.
Shareholding: Stable Promoter Base with Minimal Institutional Presence
The shareholding pattern reveals a stable ownership structure dominated by promoter holding. Pioneer Jellice India Private Limited and Ashok Matches and Timber Industries Private Limited collectively hold 75% of equity, a stake that has remained unchanged over the past five quarters. This consistency signals long-term commitment and eliminates concerns about promoter exits or dilution.
| Category | Dec'25 | Sep'25 | Jun'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 75.00% | 75.00% | 75.00% | — |
| FII | 0.00% | 0.00% | 0.00% | — |
| Mutual Funds | 0.00% | 0.00% | 0.00% | — |
| Insurance | 0.01% | 0.01% | 0.01% | — |
| Non-Institutional | 24.99% | 24.99% | 24.99% | — |
The virtual absence of institutional investors (FII and mutual fund holdings at 0%) represents both a concern and an opportunity. On one hand, the lack of institutional validation may reflect the stock's micro-cap status and limited liquidity, which constrains larger investors. On the other hand, any future institutional discovery could catalyse significant re-rating, as even modest buying by funds would materially impact the stock given the small free float.
Zero promoter pledging eliminates a key governance risk, whilst the stable non-institutional holding of 24.99% suggests a loyal retail shareholder base. The absence of recent changes in shareholding pattern indicates equilibrium, with neither aggressive accumulation nor distribution occurring—a neutral factor that could shift if operational performance continues to improve.
Stock Performance: Strong Recent Momentum After Extended Consolidation
Narmada Gelatines' stock performance reflects a company emerging from a prolonged consolidation phase. Over the past year, the stock has delivered 20.18% returns, outperforming the Sensex's 9.76% gain by 1042 basis points. This alpha generation accelerated in recent months, with the stock surging 15.09% over six months versus the Sensex's 4.20%, and 12.64% year-to-date against the benchmark's 1.90% decline.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +8.49% | +0.35% | +8.14% |
| 1 Month | +8.69% | -0.33% | +9.02% |
| 3 Months | +2.58% | -1.02% | +3.60% |
| 6 Months | +15.09% | +4.20% | +10.89% |
| YTD | +12.64% | -1.90% | +14.54% |
| 1 Year | +20.18% | +9.76% | +10.42% |
| 3 Years | +39.56% | +37.77% | +1.79% |
| 5 Years | +152.07% | +62.20% | +89.87% |
The longer-term picture shows impressive wealth creation, with five-year returns of 152.07% substantially exceeding the Sensex's 62.20%—an alpha of nearly 90 percentage points. However, the two-year return of -3.87% versus the Sensex's +17.63% highlights a challenging period between 2023-2024, likely reflecting the broader chemicals sector downturn and margin pressures that have now reversed.
Technical indicators paint a mixed but improving picture. The stock trades above all key moving averages (5-day, 20-day, 50-day, 100-day, 200-day), a bullish configuration suggesting sustained upward momentum. The current trend classification of "Sideways" following a shift from "Mildly Bullish" on February 11 indicates near-term consolidation, but the overall technical structure remains constructive. With a beta of 1.50, the stock exhibits higher volatility than the market—a characteristic that amplifies both gains and losses but offers opportunity for active investors.
Investment Thesis: Quality Improvement Justifies Accumulation
Narmada Gelatines' investment case rests on three pillars: accelerating operational performance, attractive valuation, and improving quality metrics. The company's quality grade has been upgraded to "Good" from "Average," reflecting sustained financial improvement. The Mojo score of 71/100 places the stock firmly in "BUY" territory, up from "HOLD" just days earlier.
The financial trend classification of "Positive" is supported by multiple quarters of sequential improvement across revenue, margins and profitability. Key positives include record quarterly PBDIT of ₹10.67 crores, peak operating margins of 18.81%, and highest-ever quarterly PAT of ₹8.40 crores. The company's ROCE of 20.86% significantly exceeds the cost of capital, indicating value creation.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Exceptional ROCE: 20.86% demonstrates superior capital efficiency and operational excellence in a capital-intensive industry
- Margin Expansion: Operating margins at 18.81%, up 511 bps YoY, reflect pricing power and cost management capabilities
- Debt-Free Balance Sheet: Zero long-term debt and net debt-to-equity of 0.10 provide financial flexibility for growth investments
- Consistent Dividend Policy: 2.74% yield with 39.47% payout ratio indicates sustainable shareholder returns
- Stable Promoter Base: 75% promoter holding with zero pledging demonstrates long-term commitment and governance quality
- Valuation Discount: P/E of 10.46x versus industry 40x and PEG of 0.34 suggest significant re-rating potential
- Accelerating Growth: 90% YoY profit growth and sequential momentum indicate sustainable earnings trajectory
⚠ KEY CONCERNS
- Micro-Cap Liquidity: ₹220 crore market cap limits institutional participation and increases volatility risk
- Zero Institutional Holding: Absence of FII/MF validation may reflect concerns about scalability or disclosure quality
- Sector Cyclicality: Speciality chemicals exposed to raw material price volatility and demand fluctuations
- Limited Track Record: Recent margin improvement needs validation over multiple quarters to confirm sustainability
- Working Capital Pressure: Debtors turnover ratio at 7.49 times (half-yearly) represents a deterioration requiring monitoring
- High Beta: 1.50 beta indicates above-market volatility, unsuitable for risk-averse investors
- Concentration Risk: Gelatine manufacturing is a niche market with limited diversification opportunities
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained Margin Expansion: Operating margins above 18% for three consecutive quarters would confirm structural improvement
- Institutional Discovery: Entry of even one quality mutual fund could catalyse significant re-rating given low free float
- Capacity Utilisation: Further revenue growth without proportional capex would demonstrate operating leverage
- Working Capital Improvement: Reduction in debtor days from current elevated levels would boost cash generation
- Dividend Increase: Upgrade from ₹10 per share would signal management confidence in earnings sustainability
RED FLAGS
- Margin Reversal: Sequential decline in operating margins below 16% would question sustainability of recent gains
- Debt Increase: Any material debt addition without corresponding revenue growth would pressure return ratios
- Promoter Pledging: Introduction of pledge against promoter shares would signal financial stress
- Volume Decline: QoQ revenue contraction would indicate demand weakness or competitive pressure
- Working Capital Deterioration: Further increase in debtor days or inventory levels would strain cash flows
Investors should monitor Q4 FY26 results closely to assess whether the Q3 performance represents a sustainable inflection point or temporary spike. Particular attention should be paid to operating margin trajectory, working capital management and any management commentary on capacity expansion plans. The upcoming annual results will also provide clarity on full-year performance and potential dividend announcements.
The Verdict: Compelling Value for Patient Investors
Score: 71/100
For Fresh Investors: Narmada Gelatines presents an attractive entry opportunity at current levels. The combination of accelerating profitability, improving return ratios, debt-free balance sheet and steep valuation discount creates a favourable risk-reward proposition. Recommended allocation of 2-3% of portfolio for investors comfortable with micro-cap volatility and 12-18 month investment horizon. Accumulate in the ₹380-400 range.
For Existing Holders: Continue holding with conviction. The operational turnaround is playing out as anticipated, with Q3 results validating the investment thesis. The stock's recent breakout above key moving averages suggests technical strength supporting fundamental improvement. Consider averaging up on any dips towards ₹360-370 levels. Maintain position for multi-quarter wealth creation potential.
Fair Value Estimate: ₹440 (13.12% upside from current ₹388.95)
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. Micro-cap stocks carry higher volatility and liquidity risks compared to large-cap stocks.
