Shivalik Rasayan Q2 FY26: Profit Surge Masks Underlying Margin Pressures

The quarter's performance presents a mixed narrative—whilst top-line growth remained robust at 13.83% year-on-year, reaching a record ₹93.84 crores, the company's profitability metrics reveal deeper structural concerns. The sharp sequential profit recovery from Q1 FY2026's dismal ₹1.60 crores offers little comfort when viewed against the backdrop of persistent margin compression and deteriorating year-on-year comparatives.

For a company operating in the cyclical agrochemicals sector, where pricing power and operational efficiency determine long-term sustainability, Shivalik Rasayan's current trajectory raises questions about its competitive positioning and ability to navigate an increasingly challenging operating environment.

Financial Performance: Growth Without Profitability

Shivalik Rasayan's Q2 FY2026 performance underscores a troubling dichotomy between revenue expansion and profit generation. Net sales climbed to ₹93.84 crores, representing sequential growth of 5.07% and year-on-year advancement of 13.83%. However, this top-line momentum failed to translate into proportionate bottom-line gains, with consolidated net profit declining 23.94% year-on-year to ₹3.05 crores.

The quarter's operating margin (excluding other income) stood at 12.82%, marginally improved from Q1 FY2026's 12.31% but significantly below the 14.26% achieved in Q2 FY2025. This 144 basis point year-on-year contraction reflects intensifying cost pressures, particularly evident in the employee cost segment which surged to ₹15.66 crores from ₹13.98 crores a year earlier—a 12.01% increase that outpaced revenue growth.

The PAT margin of 4.58% in Q2 FY2026, whilst recovering from Q1's anaemic 3.16%, remains substantially below the 5.37% registered in the corresponding quarter last year. Interest costs remained elevated at ₹2.22 crores, whilst depreciation charges of ₹4.73 crores continued to weigh on profitability, reflecting the company's ongoing capital expenditure programme.

On a half-yearly basis (H1 FY2026), the company reported net sales of ₹183.15 crores, up 16.73% from H1 FY2025's ₹157.07 crores. However, consolidated net profit for H1 FY2026 stood at just ₹4.65 crores, representing a sharp 37.50% decline from H1 FY2025's ₹7.53 crores. This widening gap between revenue growth and profit performance highlights deteriorating operational efficiency and suggests that volume gains are being achieved at the expense of margins.

Operational Challenges: Return Ratios Signal Weakness

The company's return metrics paint a concerning picture of capital efficiency. Return on equity (ROE) averaged just 5.85% over the assessment period, placing Shivalik Rasayan in the lower quartile of its peer group and signalling poor utilisation of shareholder capital. The latest ROE figure of 3.16% represents a further deterioration, falling well below acceptable thresholds for value creation.

Return on capital employed (ROCE) fared marginally better at an average of 9.94%, though the latest reading of 4.06% suggests accelerating weakness. For a manufacturing enterprise operating in a capital-intensive sector, these anaemic returns indicate that the company struggles to generate adequate profits relative to the capital deployed in the business.

The balance sheet reveals a company in expansion mode, with fixed assets surging to ₹336.64 crores in FY2025 from ₹214.01 crores in FY2024—a 57.29% increase driven by substantial capital expenditure. However, this aggressive expansion has yet to yield commensurate returns, raising questions about the wisdom of capacity additions in a challenging demand environment.

The debt profile shows long-term borrowings of ₹13.72 crores as of March 2025, down from ₹23.97 crores a year earlier, suggesting some deleveraging. However, with a debt-to-EBITDA ratio of 1.37 and interest coverage of 8.43 times, the company maintains adequate solvency metrics. The absence of promoter pledging (0.0% pledged shares) provides some comfort regarding financial stability.

Agrochemicals Sector: Navigating Headwinds

The pesticides and agrochemicals sector has faced significant headwinds in recent quarters, with volatile raw material prices, excess channel inventory, and subdued farmer sentiment weighing on demand. Shivalik Rasayan's focus on organophosphate insecticides—specifically dimethoate technical and malathion technical—exposes it to intense competition from both domestic and international players.

The company's 44.12% stake in Medicamen Biotech Ltd., acquired in 2016, was intended to provide diversification and synergies. However, the consolidated results suggest that this subsidiary has yet to become a meaningful profit contributor, with consolidated PAT consistently trailing standalone figures.

Industry dynamics remain challenging, with Chinese competition keeping pricing power limited and regulatory pressures adding compliance costs. The sector's cyclical nature means that companies with stronger balance sheets and superior operational efficiency are better positioned to weather downturns—attributes where Shivalik Rasayan appears vulnerable.

Shivalik Rasayan's peer comparison reveals a company trading at a premium P/E multiple of 46.75 times despite delivering inferior returns. The ROE of 5.85% lags substantially behind Best Agrolife's 25.19% and Dharmaj Crop's 11.64%. The price-to-book ratio of 1.23 times appears relatively modest compared to peers, but this reflects market scepticism about the company's ability to generate adequate returns on its asset base.

The minimal dividend yield of 0.12%—based on a ₹0.50 per share dividend—underscores the company's cash conservation stance and limited free cash flow generation. With a dividend payout ratio of just 6.12%, management is clearly prioritising reinvestment over shareholder distributions, though the returns on that reinvestment remain questionable.

Valuation Analysis: Premium Without Justification

At ₹417.00 per share, Shivalik Rasayan trades at a P/E (TTM) of 46.75 times, representing a significant premium to the industry average of 42 times. This elevated multiple appears difficult to justify given the company's weak return profile, deteriorating profitability trends, and absence of visible growth catalysts.

The price-to-book ratio of 1.23 times, whilst lower than several peers, still implies that the market values the company's assets above their book value despite a ROE that barely exceeds the risk-free rate. The EV/EBITDA multiple of 17.17 times and EV/Sales ratio of 2.14 times suggest that investors are pricing in a significant improvement in operational performance—an expectation that recent results do little to support.

The stock's valuation grade has fluctuated between "Attractive" and "Very Attractive" in recent months, currently sitting at "Attractive" as of November 3, 2025. However, this assessment appears overly generous when weighed against the company's fundamental weaknesses and the substantial 52.27% decline from its 52-week high of ₹873.60.

Shareholding: Stable but Uninspiring

The shareholding pattern reveals a stable ownership structure with minimal volatility. Promoter holding remained unchanged at 47.37% in Q2 FY2026, consistent with the previous two quarters. The primary promoter entity, Growel Remedies Ltd., maintains this entire stake with zero pledging—a positive indicator of promoter confidence and financial stability.

Foreign institutional investor (FII) holdings stood at 4.38% as of September 2025, marginally up from 4.36% in the previous quarter, suggesting tentative international interest. However, the complete absence of mutual fund and insurance company holdings (0.00% each) speaks volumes about domestic institutional sentiment. The lack of participation from sophisticated Indian investors raises red flags about the company's investment merit.

Other domestic institutional investor (DII) holdings declined to 0.48% from 0.56% in the previous quarter, indicating continued divestment by smaller institutional players. The non-institutional category, comprising retail and high-net-worth investors, holds 47.77% of equity—a relatively high proportion that suggests the stock remains primarily a retail-driven counter with limited institutional sponsorship.

Stock Performance: Severe Underperformance Across Timeframes

Shivalik Rasayan's stock performance has been dismal across virtually all meaningful timeframes, significantly underperforming both the benchmark Sensex and its sectoral peers. The stock declined 3.59% on November 17, 2025, closing at ₹417.00, whilst the Sensex gained 0.46%—resulting in negative alpha of 4.05 percentage points.

Over the past year, the stock has fallen 20.42% compared to the Sensex's 9.50% gain, generating negative alpha of 29.92 percentage points. More alarmingly, the stock has underperformed its sector benchmark by 28.05 percentage points, with the Pesticides & Agrochemicals sector delivering positive returns of 7.63% over the same period.

The year-to-date performance has been particularly brutal, with the stock down 45.55% compared to the Sensex's 8.72% gain—a staggering negative alpha of 54.27 percentage points. The three-month decline of 19.84% and six-month fall of 28.48% highlight accelerating downward momentum.

Technical indicators uniformly signal distress. The stock trades below all key moving averages—5-day (₹433.42), 20-day (₹431.84), 50-day (₹442.87), 100-day (₹489.66), and 200-day (₹559.30)—indicating sustained selling pressure. The overall technical trend turned "Bearish" on November 13, 2025, at ₹438.60, having previously been classified as "Mildly Bearish."

With a beta of 1.50, Shivalik Rasayan exhibits high volatility relative to the broader market, amplifying both gains and losses. The stock's 52.13% volatility over the past year places it in the "High Risk Low Return" category—a particularly unfavourable risk-reward profile. The immediate support level sits at ₹405.10 (the 52-week low), whilst meaningful resistance emerges at ₹431.84 (20-day moving average area).

Investment Thesis: Quality Deficit Undermines Value

Shivalik Rasayan's investment proposition suffers from a fundamental mismatch between valuation expectations and operational delivery. The company carries an "Average" quality grade, reflecting "average quality company basis long term financial performance"—a charitable assessment given the weak return ratios and deteriorating profitability trends.

The Mojo score of 37 out of 100 places the stock firmly in "SELL" territory, with the proprietary advisory system recommending investors "consider selling" and "look for exit opportunities." This rating reflects multiple headwinds: bearish technical trends, flat financial performance in recent quarters, poor management efficiency evidenced by a 5.85% ROE, and lacklustre long-term growth with sales expanding at 12.67% annually and operating profit at just 2.20% over five years.

The financial trend classification of "Flat" for Q2 FY2026 captures the essence of the problem—whilst net sales reached a quarterly high of ₹93.84 crores, consolidated PAT of ₹3.05 crores declined 23.94% year-on-year. The company's inability to convert revenue growth into profit expansion represents a structural weakness that undermines long-term value creation.

Outlook: Limited Visibility on Turnaround

The forward outlook for Shivalik Rasayan remains clouded by persistent operational challenges and an uncertain demand environment. The company's aggressive capacity expansion—reflected in the 57.29% surge in fixed assets to ₹336.64 crores—has yet to yield commensurate returns, raising questions about asset utilisation and return on invested capital.

The agrochemicals sector faces structural headwinds including intense competition from low-cost Chinese imports, volatile raw material prices, and regulatory pressures. Companies with superior operational efficiency, stronger balance sheets, and diversified product portfolios are better positioned to navigate these challenges—attributes where Shivalik Rasayan appears comparatively weak.

The cash flow statement reveals concerning trends, with operating cash flow remaining negative at ₹9.00 crores in FY2025, driven by adverse working capital movements of ₹52.00 crores. The company has relied on financing cash flows of ₹20.00 crores to fund operations and capital expenditure, highlighting its inability to generate sufficient internal accruals.

For investors seeking exposure to the agrochemicals sector, higher-quality alternatives with superior return profiles, stronger institutional backing, and more favourable risk-reward characteristics exist within the peer group. Shivalik Rasayan's combination of weak fundamentals, deteriorating trends, and unfavourable technicals makes it difficult to recommend at current valuations.