The results paint a concerning picture for the Alembic Group company, which has been grappling with margin compression despite modest revenue growth. The sharp contraction in profitability margins—with PAT margin falling from 21.53% in Q1 FY26 to just 14.65% in Q2 FY26—suggests significant operational headwinds. The stock, currently trading at ₹527.80, has underperformed the broader market substantially, losing 5.44% over the past year whilst the Sensex gained 8.61%, resulting in a negative alpha of 14.05 percentage points.
Financial Performance: Revenue Growth Masks Profitability Crisis
In Q2 FY26, Paushak Limited posted net sales of ₹58.78 crores, representing a sequential increase of 5.19% from ₹55.88 crores in Q1 FY26 and a year-on-year growth of 2.56% from ₹57.31 crores in Q2 FY25. However, this top-line expansion failed to translate into bottom-line growth, with net profit collapsing to ₹8.61 crores—the lowest quarterly profit in the past seven quarters.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 (Q2) | 58.78 | +5.19% | 8.61 | -28.45% | 14.65% |
| Jun'25 (Q1) | 55.88 | +6.72% | 12.03 | +25.31% | 21.53% |
| Mar'25 (Q4) | 52.36 | +6.29% | 9.60 | -37.09% | 18.33% |
| Dec'24 (Q3) | 49.26 | -14.05% | 15.26 | +7.46% | 30.98% |
| Sep'24 (Q2) | 57.31 | +10.19% | 14.20 | +37.73% | 24.78% |
| Jun'24 (Q1) | 52.01 | -3.38% | 10.31 | -43.54% | 19.82% |
| Mar'24 (Q4) | 53.83 | — | 18.26 | — | 33.92% |
The operating margin (excluding other income) deteriorated sharply to 25.18% in Q2 FY26 from 31.94% in Q1 FY26, marking a contraction of 676 basis points quarter-on-quarter. Year-on-year, the operating margin declined from 29.72% to 25.18%, reflecting persistent cost pressures. The PAT margin compression was even more pronounced, falling from 21.53% in Q1 FY26 to 14.65% in Q2 FY26—a decline of 689 basis points sequentially and 1,013 basis points year-on-year.
A critical factor behind the profitability erosion was the sharp decline in other income, which fell to ₹1.05 crores in Q2 FY26 from ₹1.88 crores in Q1 FY26 and ₹3.66 crores in Q2 FY25. This 44.15% sequential drop in other income, coupled with rising employee costs (up 16.06% year-on-year to ₹9.76 crores), squeezed overall profitability. Additionally, the tax rate increased to 24.07% in Q2 FY26 from 23.03% in the previous quarter, further impacting net earnings.
Operational Challenges: Return Metrics Signal Quality Concerns
Paushak's operational efficiency metrics reveal deeper structural concerns. The company's latest Return on Equity (ROE) stands at just 9.47%, significantly below its five-year average of 13.08% and well short of the 15% threshold typically considered healthy for manufacturing companies. This declining ROE trajectory—from a peak of 26.4% in FY21 to the current sub-10% levels—indicates deteriorating capital efficiency and profitability.
The Return on Capital Employed (ROCE) paints an even more alarming picture, plummeting to 8.89% in the latest period from a five-year average of 17.62%. This sharp decline in ROCE suggests that the company is struggling to generate adequate returns on the capital invested in its business, raising questions about the effectiveness of its capital allocation decisions and operational execution.
⚠️ Critical Concern: Deteriorating Capital Efficiency
Paushak's ROE has collapsed to 9.47% from historical levels above 15%, whilst ROCE has halved to 8.89% from the five-year average of 17.62%. This twin deterioration in return metrics signals fundamental operational challenges that extend beyond cyclical headwinds. For a speciality chemicals manufacturer, such low returns on capital are particularly concerning given the capital-intensive nature of the business and the need for continuous investment in capacity and technology.
On the balance sheet front, the company added ₹25.00 crores in long-term debt during FY25, marking a departure from its historically debt-free capital structure. Whilst the debt-to-EBITDA ratio of 0.46 remains manageable and interest coverage of 50.85 times is exceptionally strong, the introduction of leverage amidst declining profitability warrants close monitoring. The company's fixed assets declined to ₹141.07 crores in FY25 from ₹152.44 crores in FY24, suggesting limited capacity expansion or asset write-downs.
Working capital management also deteriorated, with current assets falling sharply to ₹99.58 crores in FY25 from ₹215.53 crores in FY24—a decline of 53.79%. This dramatic contraction in current assets, combined with rising current liabilities (up 71.12% to ₹44.44 crores), points to potential liquidity pressures and operational challenges in managing the cash conversion cycle.
Industry Context: Underperformance in a Challenging Sector
The speciality chemicals sector in India has faced headwinds over the past year, with pricing pressures from Chinese competition and subdued global demand impacting margins across the industry. However, Paushak's underperformance stands out even within this challenging context. Over the past year, whilst the speciality chemicals sector delivered a modest return of 3.11%, Paushak's stock declined 5.44%, underperforming its sector by 8.55 percentage points.
The company's five-year sales growth of 10.81% compares reasonably well with sector trends, but the EBIT growth of just 4.95% over the same period highlights the margin compression that has plagued the business. This divergence between revenue growth and profitability growth suggests that Paushak has been unable to pass on cost increases to customers or has faced intensifying competitive pressures in its core product segments.
Market Positioning: Niche Player in Phosgene Chemistry
As India's largest phosgene-based speciality chemicals manufacturer, Paushak holds a strategic position in niche segments including isocyanates, chloroformates, carbamoyl chlorides, and carbamates. These products find applications in pharmaceuticals, agrochemicals, and polymers. However, the company's modest scale—with annual revenues of around ₹210 crores—limits its pricing power and ability to absorb cost volatility. The lack of meaningful scale expansion over recent years (revenues grew just 1.9% in FY25) suggests either market saturation in its core segments or execution challenges in capturing growth opportunities.
Peer Comparison: Valuation Premium Unjustified by Fundamentals
A comparison with speciality chemicals peers reveals that Paushak trades at a significant valuation premium despite inferior operational metrics. The company's P/E ratio of 28.99 times is higher than Bhansali Engineering's 12.37 times and S H Kelkar's 21.11 times, yet Paushak's ROE of 13.08% lags behind both Bhansali Engineering (26.35%) and Vidhi Specialty (17.96%).
| Company | P/E (TTM) | P/BV | ROE (%) | Dividend Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Paushak | 28.99 | 2.75 | 13.08 | 0.49 | 0.11 |
| Bhansali Engineering | 12.37 | 1.99 | 26.35 | 3.62 | -0.10 |
| S H Kelkar & Co. | 21.11 | 1.48 | 10.41 | 0.70 | 0.60 |
| Vidhi Specialty | 33.08 | 5.12 | 17.96 | 1.42 | 0.08 |
| Yasho Industries | 117.15 | 3.48 | 16.65 | 0.04 | 1.33 |
| Indokem | 346.07 | 30.97 | 4.48 | — | 0.32 |
Paushak's Price-to-Book ratio of 2.75 times also appears elevated given its ROE of 13.08%, which barely exceeds the cost of equity for most investors. In contrast, Bhansali Engineering trades at just 1.99 times book value despite delivering an ROE of 26.35%—twice that of Paushak. The dividend yield of 0.49% is amongst the lowest in the peer group, with the company paying out just 12.48% of earnings as dividends, suggesting management's lack of confidence in generating strong returns on retained capital.
Valuation Analysis: Very Expensive by All Measures
Paushak's valuation metrics consistently flag the stock as "Very Expensive" across multiple parameters. With a P/E ratio of 28.99 times trailing twelve-month earnings, the stock trades at a significant premium to the broader market and many of its peers. The EV/EBITDA multiple of 21.68 times and EV/Sales ratio of 6.33 times further underscore the rich valuation, particularly concerning given the deteriorating profitability trends.
The stock's valuation grade has been "Very Expensive" since April 2020, with brief periods of "Expensive" classification. At the current price of ₹527.80, the stock has declined 46.75% from its 52-week high of ₹991.20 but remains 17.41% above its 52-week low of ₹449.52. This suggests that whilst the stock has corrected significantly, the valuation remains stretched relative to the company's fundamental performance and growth prospects.
Based on a conservative P/E multiple of 20 times (reflecting the company's below-average growth and deteriorating margins) applied to the trailing twelve-month earnings per share, a fair value estimate would be approximately ₹375-400, implying further downside of 24-29% from current levels. The market appears to be pricing in a sharp recovery in profitability that seems unlikely given the structural challenges facing the business.
Shareholding Pattern: Stable Promoter Holding, Minimal Institutional Interest
Paushak's shareholding pattern reflects a stable promoter base with minimal institutional participation. Promoter holding has remained steady at 67.28% over the past three quarters, with a marginal increase of 0.15% in September 2025. The Alembic Group entities—Nirayu Private Limited (41.15%) and Alembic Limited (19.07%)—form the core of the promoter group, providing strategic stability to the company.
| Quarter | Promoter | FII | Mutual Funds | Insurance | Other DII | Public |
|---|---|---|---|---|---|---|
| Nov'25 | 67.28% | 0.00% | 0.00% | 0.00% | 0.71% | 32.01% |
| Oct'25 | 67.28% | 0.00% | 0.00% | 0.00% | 0.71% | 32.01% |
| Sep'25 | 67.28% | 0.00% | 0.00% | 0.00% | 0.71% | 32.01% |
| Jun'25 | 67.13% | 0.00% | 0.00% | 0.00% | 0.53% | 32.33% |
| Mar'25 | 67.13% | 0.01% | 0.00% | 0.00% | 0.53% | 32.32% |
However, the near-total absence of institutional investors is a significant red flag. Foreign Institutional Investors (FIIs) have exited completely, declining from a negligible 0.01% in March 2025 to zero by June 2025. Mutual fund holding remains at zero throughout the period, and insurance companies have no exposure to the stock. Other Domestic Institutional Investors (DIIs) hold a mere 0.71%, up slightly from 0.53% in June 2025.
This lack of institutional interest reflects professional investors' assessment of the company's poor fundamentals, stretched valuation, and limited growth visibility. The fact that not a single mutual fund scheme holds the stock despite its listing on major exchanges speaks volumes about institutional sentiment. The high promoter holding, whilst providing stability, also limits free float and liquidity, with average daily volumes of just 1,567 shares indicating extremely thin trading.
Stock Performance: Consistent Underperformance Across Timeframes
Paushak's stock performance has been dismal across virtually all timeframes, with the stock delivering negative alpha against the Sensex benchmark consistently. Over the past week, the stock declined 1.29% compared to the Sensex's 0.39% decline, resulting in a negative alpha of 0.90 percentage points. The underperformance intensifies over longer periods, with the stock down 10.63% over one month versus the Sensex's 3.74% decline (negative alpha of 6.89 percentage points).
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | 0.13% | 0.39% | -0.26% |
| 1 Week | -1.29% | -0.39% | -0.90% |
| 1 Month | -10.63% | -3.74% | -6.89% |
| 3 Month | -26.02% | -3.45% | -22.57% |
| 6 Month | -16.24% | 0.48% | -16.72% |
| YTD | -11.08% | -3.95% | -7.13% |
| 1 Year | -5.44% | 8.61% | -14.05% |
| 2 Years | -19.92% | 15.78% | -35.70% |
| 3 Years | -43.29% | 37.97% | -81.26% |
| 5 Years | 10.33% | 72.66% | -62.33% |
The three-month return of -26.02% against the Sensex's -3.45% decline (negative alpha of 22.57 percentage points) is particularly concerning, coinciding with the company's deteriorating quarterly results. Over one year, the stock's negative return of 5.44% compares unfavourably to the Sensex's positive return of 8.61%, resulting in a negative alpha of 14.05 percentage points. The two-year and three-year returns paint an even grimmer picture, with the stock down 19.92% and 43.29% respectively, whilst the Sensex gained 15.78% and 37.97%.
The stock's high beta of 1.35 indicates elevated volatility relative to the broader market, with a one-year volatility of 51.02% compared to the Sensex's 11.28%. This high volatility combined with negative returns results in a negative Sharpe ratio, classifying the stock as "High Risk Low Return"—the worst possible risk-return profile for investors.
Technical Analysis: Entrenched Bearish Trend with Multiple Resistance Levels
From a technical perspective, Paushak's stock remains firmly in bearish territory, with the trend officially classified as "Bearish" since January 7, 2026, when the stock broke down from ₹573.90. The stock currently trades below all key moving averages—5-day (₹535.44), 20-day (₹564.88), 50-day (₹577.16), 100-day (₹664.35), and 200-day (₹629.46)—indicating sustained selling pressure across all timeframes.
Technical indicators across weekly and monthly charts paint a predominantly negative picture. The MACD shows a bearish signal on the weekly chart and only mildly bullish on the monthly chart. Bollinger Bands indicate mildly bearish conditions on the weekly chart and outright bearish on the monthly chart. The On-Balance Volume (OBV) shows no clear trend on the weekly chart but is bearish on the monthly chart, suggesting persistent distribution by investors.
The immediate support level lies at ₹449.52 (the 52-week low), whilst immediate resistance is positioned at ₹564.88 (20-day moving average area). Major resistance levels exist at ₹629.46 (200-day moving average) and ₹664.35 (100-day moving average), with the 52-week high of ₹991.20 representing a distant resistance level. Any meaningful recovery would require the stock to reclaim these moving averages sequentially, which appears unlikely given the deteriorating fundamental backdrop.
Investment Thesis: Quality Concerns and Valuation Mismatch
Paushak's investment case is severely compromised by a combination of deteriorating fundamentals, stretched valuation, and negative technical momentum. The company's proprietary Mojo Score of just 19 out of 100 places it firmly in "Strong Sell" territory, reflecting the confluence of negative factors across valuation, quality, financial trends, and technical indicators.
The quality assessment of "Average" reflects the company's modest long-term growth (sales CAGR of 10.81% over five years) and declining return metrics. Whilst the company maintains a strong balance sheet with negligible debt and no promoter pledging, the deteriorating ROE (from 26.4% in FY21 to 9.47% currently) and ROCE (from historical highs to 8.89%) signal fundamental operational challenges that transcend cyclical headwinds.
"With profitability margins collapsing, return metrics at multi-year lows, and valuation remaining stretched despite a 46% decline from peaks, Paushak presents a classic value trap scenario where further downside appears more likely than a meaningful recovery."
Key Strengths & Risk Factors
KEY STRENGTHS
- Niche positioning as India's largest phosgene-based speciality chemicals manufacturer
- Strong promoter backing from the established Alembic Group with 115+ years of legacy
- Virtually debt-free balance sheet with interest coverage of 50.85 times
- No promoter pledging, indicating confidence and financial stability
- Established presence in specialised chemical segments with technical barriers to entry
- Consistent dividend payer with uninterrupted track record
KEY CONCERNS
- Net profit collapsed 39.33% QoQ and 39.37% YoY in Q2 FY26 to ₹8.61 crores
- PAT margin compressed 689 bps QoQ to just 14.65%, lowest in seven quarters
- ROE deteriorated to 9.47% from 26.4% in FY21, signalling capital inefficiency
- ROCE halved to 8.89% from five-year average of 17.62%
- Zero institutional investor interest with no mutual fund or FII holdings
- Valuation remains "Very Expensive" at 28.99x P/E despite 46% decline from peak
- Consistent underperformance with negative alpha of 81.26% over three years
- High beta (1.35) with 51.02% volatility creating "High Risk Low Return" profile
- Limited scale with revenues stagnant around ₹210 crores annually
- Working capital deterioration with current assets down 53.79% year-on-year
Outlook: What to Watch
POSITIVE CATALYSTS
- Stabilisation of operating margins above 30% levels seen historically
- Revival in other income to historical ₹3-4 crore quarterly run rate
- Successful cost management initiatives to control employee and operational expenses
- Any institutional investor interest or mutual fund accumulation
- Reclaiming of 200-day moving average (₹629.46) on sustained volume
RED FLAGS
- Further deterioration in quarterly profitability below ₹8 crore levels
- PAT margins falling below 12% threshold
- ROE declining below 8% or ROCE falling below 7%
- Any promoter stake reduction or pledging of shares
- Breach of 52-week low support at ₹449.52
- Continued absence of institutional buying interest
- Revenue growth turning negative on a year-on-year basis
The Verdict: Exit Recommended
Score: 19/100
For Fresh Investors: Avoid completely. The combination of deteriorating fundamentals (39% profit decline, ROE at 9.47%, ROCE at 8.89%), stretched valuation (P/E of 28.99x despite poor performance), and bearish technical setup creates an unfavourable risk-reward profile. Better opportunities exist in the speciality chemicals space with stronger fundamentals and reasonable valuations.
For Existing Holders: Exit on any bounce towards ₹550-560 levels. The company faces structural challenges beyond cyclical headwinds, as evidenced by the persistent margin compression and declining return metrics over multiple quarters. The lack of institutional interest and consistent underperformance against benchmarks (negative alpha of 81.26% over three years) suggests limited confidence in a turnaround. With the stock still trading at expensive valuations despite a 46% decline from peaks, further downside to the ₹375-400 range appears likely.
Fair Value Estimate: ₹375-400 (24-29% downside from current levels of ₹527.80)
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.
