Shri Jagdamba Polymers Q2 FY26: Profit Slumps 36% Despite Stable Margins

The Ahmedabad-based packaging company, engaged in manufacturing PP/HDPE woven and non-woven fabrics and bags, faced a challenging quarter marked by revenue contraction and margin compression at the bottom line. While the company maintained operational efficiency with operating margins expanding to 14.79%, elevated interest costs and a significantly higher tax rate eroded profitability.

For the first half of FY26, consolidated net profit stood at ₹20.42 crores, representing year-on-year growth of 10.10% compared to H1 FY25. However, the sequential deterioration in Q2 has raised questions about the sustainability of the company's growth trajectory in an increasingly competitive packaging industry.

Financial Performance: Revenue Decline Pressures Bottom Line

In Q2 FY26, Shri Jagdamba Polymers reported net sales of ₹111.77 crores, declining 20.53% quarter-on-quarter from ₹140.65 crores in Q1 FY26. On a year-on-year basis, revenue contracted 10.95% from ₹125.52 crores in Q2 FY25, marking the lowest quarterly sales figure in recent periods. The revenue decline appears to stem from cyclical demand patterns and competitive pressures in the technical textile segment.

Operating profit excluding other income stood at ₹16.53 crores in Q2 FY26, yielding an operating margin of 14.79%, up from 11.48% in the previous quarter. This margin expansion, despite revenue contraction, suggests improved operational efficiency and better cost management. The company's gross profit margin for the quarter was 13.24%, down marginally from 13.75% in Q1 FY26.

However, the profit trajectory was significantly impacted by a sharp rise in interest costs, which jumped to ₹2.93 crores in Q2 FY26 from ₹0.92 crores in Q1 FY26. This threefold increase in finance charges reflects higher working capital requirements and increased borrowing costs. Additionally, the tax rate surged to 37.19% in Q2 FY26 compared to 26.41% in the previous quarter, further compressing net profitability.

The consolidated net profit of ₹7.95 crores in Q2 FY26 translates to a PAT margin of 6.60%, down from 8.79% in Q1 FY26. Year-on-year, net profit declined 9.86% from ₹8.82 crores in Q2 FY25, underscoring the challenges in maintaining profitability amid revenue pressures.

Capital Efficiency: Strong ROCE Amid Balance Sheet Strength

Despite near-term earnings volatility, Shri Jagdamba Polymers demonstrates robust capital efficiency metrics. The company's return on capital employed (ROCE) for H1 FY26 stood at an impressive 22.05%, the highest in recent periods, reflecting efficient deployment of capital. The average ROCE over the past five years stands at 25.02%, significantly above industry benchmarks and indicative of superior operational execution.

Return on equity (ROE) averaged 20.45% over the same period, with the latest ROE at 16.88%, demonstrating strong profitability relative to shareholder equity. These metrics position Shri Jagdamba Polymers favourably within the packaging sector, where capital intensity and competitive pressures often compress returns.

The company's EBIT-to-interest coverage ratio averaged 12.53 times over recent years, indicating comfortable debt servicing capability despite the recent spike in interest costs. Sales-to-capital-employed ratio of 1.47 times reflects moderate asset turnover, typical for capital-intensive manufacturing operations.

However, a notable concern emerged in the annual cash flow statement for FY25, which showed operating cash flow at negative ₹34.00 crores, primarily driven by a ₹91.00 crores increase in working capital requirements. This was offset by ₹86.00 crores of financing inflows, suggesting the company tapped debt markets to fund working capital expansion. Monitoring working capital management will be critical in assessing the sustainability of profitability.

Industry Context: Navigating Packaging Sector Headwinds

The Indian packaging industry, particularly the technical textiles segment, has faced headwinds from raw material price volatility, intense competition, and cyclical demand patterns. Shri Jagdamba Polymers operates in the PP/HDPE woven and non-woven fabrics space, serving diverse end-user industries including agriculture, construction, and consumer goods.

The company's 5-year sales CAGR of 21.14% demonstrates its ability to capture market share and expand operations over the long term. However, the 5-year EBIT growth of 11.64% suggests margin pressures have limited profitability growth relative to revenue expansion. This divergence highlights the challenges of operating in a competitive, commoditised segment where pricing power remains limited.

The packaging sector has witnessed consolidation and increasing quality standards, favouring organised players with scale and technological capabilities. Shri Jagdamba Polymers' focus on technical textiles and geotextiles positions it in higher-value segments, though these markets remain susceptible to infrastructure spending cycles and agricultural demand fluctuations.

Peer Comparison: Valuation Discount Despite Superior Returns

Relative to packaging sector peers, Shri Jagdamba Polymers trades at a significant valuation discount despite demonstrating superior return metrics. The company's P/E ratio of 13.71 times compares favourably to the sector average of approximately 39 times, while its ROE of 20.45% substantially exceeds the peer group average of around 9%.

The company's price-to-book ratio of 2.31 times is substantially lower than peers like Cropster Agro (13.62x) and Arrow Greentech (4.49x), suggesting the market is not fully recognising Shri Jagdamba's superior capital efficiency. This valuation gap may reflect concerns about earnings sustainability, limited liquidity given its micro-cap status, and minimal institutional participation (just 5.10% institutional holding).

The company's negligible dividend yield of 0.09%, following a recent dividend of ₹0.75 per share declared in September 2025, contrasts with peers like Oricon Enterprises (0.86%) and Arrow Greentech (0.71%). The minimal dividend payout ratio suggests management is prioritising capital retention for growth, though this limits income appeal for yield-focused investors.

Valuation Analysis: Fair Pricing with Limited Upside Visibility

At the current market price of ₹772.75, Shri Jagdamba Polymers trades at a P/E multiple of 14 times trailing earnings, below the industry average of 17 times. The company's valuation grade stands at "Fair," having oscillated between "Expensive" and "Very Expensive" during its peak in July 2025 before moderating to current levels.

The stock's enterprise value-to-EBITDA multiple of 9.96 times and EV-to-capital-employed ratio of 2.19 times appear reasonable given the company's ROCE of 18.82% (latest). However, the PEG ratio of 0.30 suggests the market is pricing in concerns about growth sustainability, given the flat financial trend in the recent quarter.

The stock has declined 39.63% from its 52-week high of ₹1,279.95, but remains 33.93% above its 52-week low of ₹577.00. This positioning suggests the market has already discounted significant near-term concerns, though upside catalysts remain limited without visible earnings recovery.

With a market capitalisation of ₹701.00 crores and face value of ₹1.0, the company represents a micro-cap opportunity with inherent liquidity constraints. The average daily volume of just 2,152 shares (as of November 14) limits institutional participation and contributes to price volatility.

Shareholding Pattern: Stable Promoter Base, Limited Institutional Interest

Promoter holding in Shri Jagdamba Polymers has remained rock-solid at 72.94% over the past five quarters, with no pledging of shares. This stable promoter base, led by Ramakant Bhojnagarwala (34.23%), Radhadevi R Agrawal (22.24%), and Hanskumar Ramakant Agarwal (11.97%), provides governance comfort and alignment with minority shareholders.

Institutional participation remains minimal, with mutual funds holding a steady 4.67% and FII holding negligible at 0.02%. The marginal increase in Other DII holdings from 0.29% in March 2025 to 0.41% in September 2025 suggests some institutional interest, though overall institutional ownership of 5.10% remains far below levels that would ensure liquidity and research coverage.

The absence of insurance company holdings and limited mutual fund participation reflects the stock's micro-cap status and lack of analyst coverage. Non-institutional holdings declined marginally to 21.97% in Q2 FY26, indicating retail investor caution amid the recent earnings decline.

Stock Performance: Bearish Trend Amid Sectoral Underperformance

Shri Jagdamba Polymers' stock performance has deteriorated significantly in recent months, with the technical trend turning bearish on November 4, 2025. The stock closed at ₹772.75 on November 14, down 4.54% on the day and trading below all key moving averages—5-day (₹794.37), 20-day (₹805.96), 50-day (₹841.76), 100-day (₹938.29), and 200-day (₹924.07).

Over the past three months, the stock has underperformed the Sensex by 25.70 percentage points, declining 20.78% compared to the Sensex's 4.92% gain. The six-month performance shows similar weakness, with the stock down 23.52% versus the Sensex's 3.97% gain, resulting in negative alpha of 27.49%.

However, the one-year performance remains positive at 20.74%, outperforming the Sensex's 9.00% return by 11.74 percentage points. Notably, the stock has also outperformed its packaging sector peers, delivering 20.74% returns versus the sector's negative 5.92% returns over the past year, an outperformance of 26.66 percentage points.

The stock's high beta of 1.50 indicates significantly greater volatility than the market, with annualised volatility of 43.75% compared to the Sensex's 12.26%. This high-risk profile is reflected in the risk-adjusted return of 0.47 versus the Sensex's 0.73, classifying it as a "HIGH RISK HIGH RETURN" investment.

Technical indicators across weekly and monthly timeframes remain predominantly bearish, with MACD, Bollinger Bands, Moving Averages, and KST all signalling negative momentum. The immediate support level stands at ₹577.00 (52-week low), while resistance is clustered around the 20-day moving average at ₹805.96.

Investment Thesis: Quality Business Facing Cyclical Headwinds

Shri Jagdamba Polymers presents a mixed investment proposition characterised by strong fundamental quality metrics but near-term earnings uncertainty and bearish technical momentum. The company's proprietary investment score stands at 44 out of 100, warranting a "SELL" rating, reflecting concerns about the flat financial trend and negative technical outlook.

The bull case rests on the company's demonstrated capital efficiency (ROCE of 25.02%), strong balance sheet (debt-to-equity of 0.11), and long-term growth track record (21.14% sales CAGR over five years). The valuation discount relative to peers with inferior returns offers potential value for patient, long-term investors willing to look through near-term volatility.

However, the bear case is equally compelling: flat financial trends in the recent quarter, sharp sequential profit decline, elevated working capital requirements, and persistent earnings volatility. The bearish technical setup, high beta of 1.50, and minimal institutional participation further limit near-term upside potential.

Outlook: What to Watch

The near-term outlook for Shri Jagdamba Polymers hinges on the company's ability to stabilise revenues and restore profitability momentum. Investors should closely monitor quarterly revenue trends, margin sustainability, and working capital management in the coming quarters.

Given the cyclical nature of the packaging industry and the company's exposure to infrastructure and agricultural demand, macroeconomic factors including government infrastructure spending and rural consumption trends will influence near-term performance. The company's ability to leverage its technical textile capabilities and maintain operating efficiency will be critical in navigating these headwinds.