The September 2025 quarter painted a picture of operational recovery after a weak Q1, with net sales climbing 16.62% sequentially to ₹426.85 crores, though the year-on-year comparison revealed a marginal 0.27% decline. The standout performance came from the bottom line, where consolidated net profit jumped from ₹21.17 crores in Q1 FY26 to ₹37.44 crores, marking a significant 76.85% sequential expansion. However, this impressive quarterly rebound has failed to arrest the stock's dramatic decline from its 52-week high of ₹534.00, now trading 55.81% below that peak.
Quarterly Performance Trajectory: Volatility Dominates
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Cons. Net Profit (₹ Cr) | QoQ Growth | PAT Margin |
|---|---|---|---|---|---|
| Sep'25 | 426.85 | +16.62% | 37.44 | +76.85% | 10.61% |
| Jun'25 | 366.01 | -41.58% | 21.17 | -56.19% | 8.01% |
| Mar'25 | 626.52 | -12.64% | 48.32 | -3.46% | 7.69% |
| Dec'24 | 717.13 | +67.56% | 50.05 | +61.14% | 6.98% |
| Sep'24 | 427.99 | -27.57% | 31.06 | +3.43% | 7.71% |
| Jun'24 | 590.94 | +72.61% | 30.03 | -12.37% | 4.96% |
| Mar'24 | 342.35 | — | 34.27 | — | 9.75% |
The quarterly trend reveals a business characterised by extreme volatility, with revenue swinging dramatically between quarters. Q2 FY26's ₹426.85 crores in net sales represents a recovery from the weak ₹366.01 crores reported in Q1, yet remains significantly below the ₹626.52 crores achieved in Q4 FY25 and the peak of ₹717.13 crores in Q3 FY24. This erratic pattern raises questions about the predictability and sustainability of the company's revenue streams in the refrigerant gas business.
Financial Performance Analysis: Margin Expansion Drives Profitability
Refex Industries demonstrated notable margin expansion in Q2 FY26, with operating margin (excluding other income) improving to 16.51% from 10.16% in the previous quarter. This 635 basis points sequential improvement reflects better operational efficiency and possibly favourable input cost dynamics. The PAT margin similarly strengthened to 10.61% from 8.01%, indicating that the profit growth was not merely a function of revenue expansion but also operational leverage.
The year-on-year comparison reveals a more nuanced picture. While consolidated net profit grew 20.54% YoY to ₹37.44 crores, revenue remained essentially flat with a marginal 0.27% decline. This suggests that the profit growth was driven entirely by margin expansion and cost management rather than volume growth or pricing power. Operating profit before depreciation, interest, and tax (PBDIT) excluding other income reached ₹70.48 crores in Q2 FY26, representing a healthy 16.51% margin.
However, a notable feature of Q2 results was the declining contribution from other income, which fell to ₹5.20 crores from ₹10.39 crores in Q1 FY26. This 49.95% sequential decline in non-operating income indicates that the core business improvement was genuine, though it also highlights the historical reliance on treasury income and other non-core sources to bolster overall profitability.
Quality of Earnings: Tax Rate Volatility
The effective tax rate in Q2 FY26 stood at 29.13%, significantly higher than the 19.78% reported in Q1 FY26 and the 19.52% in Q4 FY25. This 940 basis points sequential increase in the tax rate partially offset the operational improvements. The inconsistent tax rates across quarters—ranging from 8.78% in Mar'24 to 29.13% currently—suggest complexities in the company's tax structure or one-time adjustments that warrant closer scrutiny.
Balance Sheet Strength: Net Cash Position Provides Cushion
One of Refex Industries' most compelling attributes is its robust balance sheet. As of March 2025, the company maintained shareholder funds of ₹1,212.79 crores against minimal long-term debt of ₹91.84 crores, translating to a debt-to-equity ratio of just 0.08. With cash and cash equivalents of ₹281.00 crores at FY25 year-end, the company operates with a net cash position, reflected in the negative net debt-to-equity ratio of -0.16.
The company's return on equity (ROE) averaged a strong 23.25% over recent years, though the latest ROE of 13.55% suggests some moderation. The return on capital employed (ROCE) similarly averaged 25.81%, indicating efficient capital deployment, though the latest ROCE of 18.09% shows a declining trend that aligns with the company's quality grade being downgraded from "Good" to "Average" in recent quarters.
Capital Allocation Concerns
Despite generating ₹158.00 crores in net profit for FY25, Refex Industries reported a negative cash flow from operations of ₹264.00 crores, driven by a massive ₹416.00 crores increase in working capital. This was financed through ₹603.00 crores in cash flow from financing activities, suggesting aggressive inventory build-up or extended receivables that merit careful monitoring. The company's working capital intensity appears to be rising, potentially straining future cash generation.
Industry Context: Chemical Sector Headwinds
Refex Industries operates in the "Other Chemical Products" segment, specifically focusing on hydrofluorocarbon (HFC) refrigerants used in air conditioning, refrigeration, and foam blowing applications. The broader chemical sector has faced significant headwinds over the past year, with the industry benchmark declining 10.57%. Refex's 48.36% underperformance relative to this already-weak sector baseline highlights company-specific challenges beyond general industry malaise.
The refrigerant gas business is inherently cyclical, tied to construction activity, automobile production, and consumer durables demand. The extreme quarterly revenue volatility suggests either lumpy order patterns, seasonal factors, or competitive pressures affecting pricing and volumes. The company's inability to demonstrate consistent sequential growth raises questions about market share dynamics and competitive positioning within the refrigerant space.
Peer Comparison: Valuation Discount Reflects Concerns
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Refex Industries | 19.52 | 2.64 | 23.25 | -0.16 | 0.19 |
| Solar Industries | 86.61 | 22.36 | 25.80 | 0.09 | 0.08 |
| Linde India | 98.80 | 12.68 | 12.47 | -0.01 | 0.20 |
| PCBL Chemical | 29.99 | 2.71 | 14.58 | 1.28 | 2.16 |
| Ellenbarrie Indl. Gas | 44.25 | 4.00 | — | -0.06 | — |
| Premier Explosives | 50.15 | 9.14 | 8.53 | 0.07 | 0.11 |
Refex Industries trades at a P/E ratio of 19.52x, significantly below the industry average of 22x and well below premium peers like Solar Industries (86.61x) and Linde India (98.80x). The company's price-to-book ratio of 2.64x appears reasonable given its 23.25% average ROE, which exceeds most peers except Solar Industries. However, the valuation discount reflects market scepticism about earnings sustainability and growth visibility.
The company's minimal dividend yield of 0.19% compares unfavourably with PCBL Chemical's 2.16%, suggesting limited cash return to shareholders despite the net cash position. With institutional holdings at just 2.19%—comprising 2.03% FII and 0.15% mutual fund ownership—Refex lacks the institutional support base that typically provides stability during market corrections.
Valuation Analysis: Expensive Despite Correction
Despite the 48.36% decline from peak levels, Refex Industries still carries an "Expensive" valuation grade. The stock trades at 20x trailing twelve-month earnings, 2.64x book value, and 14.07x EV/EBITDA. While these multiples appear reasonable in absolute terms, they seem elevated given the company's flat financial trend designation and the absence of clear growth catalysts.
The PEG ratio of 0.48x suggests the stock may be undervalued relative to its five-year earnings growth rate of 30.59%. However, this backward-looking metric may not accurately reflect future prospects given the recent deceleration in growth momentum and the flat financial trend designation. The company's valuation has oscillated between "Very Expensive" and "Expensive" grades over recent months, indicating persistent market concerns about paying a premium for uncertain growth.
"With revenue growth stalling and quarterly volatility persisting, Refex Industries' 'expensive' valuation tag appears justified despite the steep correction—the market demands visibility before re-rating this chemical play."
Shareholding Pattern: Promoter Stability, Institutional Apathy
| Quarter | Promoter (%) | FII (%) | MF (%) | Insurance (%) | Non-Inst (%) |
|---|---|---|---|---|---|
| Dec'25 | 55.80 | 2.03 | 0.15 | 0.00 | 42.01 |
| Oct'25 | 55.92 (▼0.12%) | 1.60 (▲0.43%) | 0.13 (▲0.02%) | 0.00 | 42.35 (▼0.34%) |
| Sep'25 | 53.33 (▲2.59%) | 1.71 (▼0.11%) | 0.14 (▼0.01%) | 0.00 | 44.81 (▼2.46%) |
| Jun'25 | 53.33 | 1.86 (▼0.15%) | 0.15 (▼0.01%) | 0.00 | 44.66 (▲0.15%) |
| Mar'25 | 53.37 (▼0.04%) | 2.00 (▼0.14%) | 0.11 (▲0.04%) | 0.00 | 44.51 |
Promoter holding has remained stable around 55-56% over the past year, with Refex Holding Private Limited maintaining majority ownership at 55.80% as of December 2025. The marginal quarter-on-quarter fluctuations reflect minor adjustments rather than strategic shifts. Importantly, there is zero promoter pledging, indicating confidence and financial stability at the ownership level.
However, institutional participation remains negligible, with FII holdings at just 2.03% and mutual fund ownership at a mere 0.15%. The absence of insurance company holdings further underscores the lack of institutional conviction. This thin institutional base makes the stock vulnerable to volatility and limits liquidity, as evidenced by the retail-heavy non-institutional holding of 42.01%.
Stock Performance: Catastrophic Decline from Peak
| Period | Refex Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -0.36% | -1.32% | +0.96% |
| 1 Month | -14.56% | -3.12% | -11.44% |
| 3 Months | -33.63% | -2.54% | -31.09% |
| 6 Months | -45.00% | +0.10% | -45.10% |
| YTD (2026) | -9.27% | -3.45% | -5.82% |
| 1 Year | -48.36% | +8.49% | -56.85% |
| 2 Years | +69.86% | +15.20% | +54.66% |
| 3 Years | +352.36% | +35.73% | +316.63% |
Refex Industries' stock performance tells a tale of two dramatically different periods. The longer-term picture remains impressive, with three-year returns of 352.36% and five-year returns of 1,139.23%, massively outperforming the Sensex. However, the past year has witnessed a complete reversal, with the stock plunging 48.36% against the Sensex's 8.49% gain—a negative alpha of 56.85 percentage points.
The stock currently trades at ₹235.95, down 55.81% from its 52-week high of ₹534.00 but still 11.30% above the 52-week low of ₹212.00. Technical indicators paint a uniformly bearish picture, with the stock trading below all key moving averages—5-day (₹242.67), 20-day (₹253.48), 50-day (₹296.87), 100-day (₹329.40), and 200-day (₹381.15). The bearish trend, which began on January 5, 2026, reflects sustained selling pressure and absence of buying support.
Investment Thesis: Quality Concerns Trump Balance Sheet Strength
Refex Industries' investment case has deteriorated significantly from its "Good" quality designation prior to November 2022 to the current "Average" rating. While the company maintains strong return ratios (23.25% average ROE, 25.81% average ROCE) and a net cash balance sheet, the flat financial trend designation and expensive valuation create a challenging setup for investors.
The proprietary Mojo score of 31/100 places the stock firmly in "SELL" territory, down from a "STRONG SELL" rating earlier. The score reflects concerns about the bearish technical trend, flat recent financial performance, underperformance relative to the market, and valuation that remains elevated despite the correction. With four out of four key parameters (valuation, quality, financial trend, technicals) flashing caution signals, the investment thesis lacks compelling support.
Key Strengths & Risk Factors
KEY STRENGTHS
- Net Cash Balance Sheet: Debt-to-equity of 0.08 with ₹281 crores cash provides financial flexibility and downside protection
- Strong Return Metrics: Average ROE of 23.25% and ROCE of 25.81% demonstrate efficient capital deployment historically
- Zero Promoter Pledging: 55.80% promoter holding with no pledging indicates ownership confidence and financial stability
- Margin Expansion: Q2 operating margin improved to 16.51% from 10.16%, showing operational leverage potential
- Long-Term Track Record: Five-year sales CAGR of 24.79% and EBIT CAGR of 30.59% demonstrate historical growth capability
- Niche Market Position: Focus on eco-friendly HFC refrigerants positions company in growing environmental compliance segment
KEY CONCERNS
- Revenue Stagnation: Q2 revenue declined 0.27% YoY despite strong profit growth, indicating margin-driven rather than volume-driven performance
- Extreme Quarterly Volatility: Revenue swings from ₹342 crores to ₹717 crores across quarters suggest unpredictable business patterns
- Working Capital Intensity: FY25 saw ₹416 crores working capital increase, resulting in negative operating cash flow of ₹264 crores
- Deteriorating Quality: Downgrade from "Good" to "Average" quality reflects concerns about sustainability of historical performance
- Institutional Apathy: Just 2.19% institutional holding (2.03% FII, 0.15% MF) indicates lack of confidence from sophisticated investors
- Technical Breakdown: Stock below all moving averages with bearish indicators across timeframes suggests continued downside risk
- Valuation Concerns: "Expensive" grade despite 48% correction indicates market believes fundamentals don't support current multiples
Outlook: What Lies Ahead
POSITIVE CATALYSTS
- Consistent revenue growth across multiple quarters demonstrating business predictability
- Sustained margin improvement beyond 16-17% levels indicating structural efficiency gains
- Positive operating cash flow generation reversing the working capital drain
- Meaningful increase in institutional holdings above 5-10% providing stability
- Technical reversal with stock reclaiming 200-day moving average at ₹381
RED FLAGS TO MONITOR
- Further revenue decline or continued flat growth trajectory in coming quarters
- Margin compression if Q2's 16.51% proves unsustainable
- Continued working capital build-up straining cash generation
- Promoter stake reduction or any pledging of shares
- Stock breaking below 52-week low of ₹212, opening further downside
The Verdict: Avoid Until Visibility Improves
Score: 31/100
For Fresh Investors: Avoid initiating positions. Despite the strong balance sheet and historical track record, the combination of flat revenue growth, expensive valuation, bearish technical setup, and deteriorating quality grade creates an unfavourable risk-reward profile. Wait for sustained revenue growth visibility and technical reversal before considering entry.
For Existing Holders: Consider reducing exposure on any technical bounce towards ₹250-260 levels. The 48% correction has not made the stock attractive enough given fundamental concerns. Retain only if conviction exists about near-term revenue recovery and margin sustainability. Use the strong balance sheet as a reason to wait for better exit opportunities rather than averaging down.
Fair Value Estimate: ₹200-220 (15-7% downside from current levels), based on 15-16x FY26E earnings assuming flat to modest growth and margin normalisation.
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 prices are subject to market risks, and investments may result in loss of capital.
