The Chennai-based fertilizer manufacturer, with a market capitalisation of ₹1,838 crores, demonstrated resilience in revenue generation whilst grappling with margin pressures that characterised the September 2025 quarter. The company's ability to post sequential revenue growth of 4.70% to ₹817.29 crores, alongside impressive year-on-year profit expansion, underscores operational momentum. However, the 8.23% quarter-on-quarter decline in consolidated profit signals emerging headwinds that warrant investor attention.
SPIC's performance comes against a backdrop of heightened volatility in the fertilizer industry, where raw material cost fluctuations, subsidy dynamics, and seasonal demand patterns create a challenging operating environment. The company's stock has delivered a 21.77% return over the past year, outperforming the Sensex's 9.00% gain by 12.77 percentage points, though recent technical indicators suggest a mildly bullish trend following a correction from recent highs.
| Metric (₹ Cr) | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 |
|---|---|---|---|---|---|
| Net Sales | 817.29 | 780.63 | 754.37 | 818.04 | 759.58 |
| QoQ Change | +4.70% | +3.48% | -7.78% | +7.70% | +0.69% |
| YoY Change | +7.60% | +3.49% | +504.08% | — | — |
| Operating Profit (Excl OI) | 76.87 | 93.29 | 36.80 | 79.49 | 66.78 |
| Operating Margin % | 9.45% | 12.00% | 4.90% | 9.76% | 8.84% |
| Consolidated Net Profit | 61.22 | 66.71 | 19.47 | 38.50 | 35.17 |
| QoQ Change | -8.23% | +242.63% | -49.43% | +9.47% | -43.77% |
| YoY Change | +74.07% | +6.65% | -180.35% | — | — |
| PAT Margin % | 7.52% | 8.58% | 2.59% | 4.73% | 4.66% |
Financial Performance: Growth Momentum Tempered by Margin Erosion
SPIC's Q2 FY26 financial performance presents a nuanced picture of a company balancing volume growth against margin pressures. Net sales of ₹817.29 crores represented a healthy 7.60% year-on-year increase and a 4.70% sequential uptick, suggesting sustained demand for the company's fertilizer products. However, the revenue expansion failed to translate into proportionate bottom-line growth, as consolidated net profit declined 8.23% quarter-on-quarter from ₹66.71 crores to ₹61.22 crores.
The margin compression story becomes clearer when examining operating metrics. Operating profit excluding other income fell sharply to ₹76.87 crores from ₹93.29 crores in Q1 FY26, resulting in a 259-basis-point contraction in operating margin to 9.45% from the previous quarter's 12.00%. This deterioration signals rising input costs or competitive pricing pressures that eroded profitability despite higher sales volumes.
On a more positive note, the company's interest burden eased significantly to ₹6.95 crores from ₹11.80 crores quarter-on-quarter, reflecting improved working capital management and lower debt servicing costs. This 41.10% reduction in interest expense provided crucial support to bottom-line performance, partially offsetting the operating margin squeeze. Tax expenses remained stable at ₹31.00 crores with an effective tax rate of 33.62%, broadly in line with statutory requirements.
The quality of earnings bears scrutiny. Other income surged to ₹25.53 crores from ₹17.52 crores in Q1 FY26, contributing meaningfully to overall profitability. Whilst this 45.72% jump in non-operating income bolstered the top line, it also raises questions about the sustainability of core operating performance. Investors should monitor whether this trend reflects one-off gains or represents a structural improvement in treasury operations.
Return Ratios: Capital Efficiency Remains Respectable Despite Volatility
SPIC's return on equity (ROE) of 19.28% on an average basis positions the company favourably within the fertilizer sector, demonstrating efficient utilisation of shareholder capital to generate profits. This metric, whilst subject to quarterly fluctuations, reflects the company's ability to deliver returns well above the cost of equity, a critical consideration for long-term investors. The latest ROE of 12.99%, though lower than the five-year average, remains healthy and indicates that the recent margin pressures have not fundamentally impaired capital efficiency.
Return on capital employed (ROCE) averaged 15.83% over the past five years, with the latest reading at 13.25%. Higher ROCE values indicate superior capital efficiency, and SPIC's performance in this regard suggests the company generates adequate returns from its total capital base, including both equity and debt. The slight moderation in recent quarters warrants monitoring, as sustained ROCE above the weighted average cost of capital (WACC) is essential for value creation.
The company's balance sheet strength provides a solid foundation for operations. With a debt-to-equity ratio of just 0.35 times as of H1 FY26, SPIC maintains conservative leverage, reducing financial risk and providing flexibility for future growth investments. Long-term debt stood at ₹142.23 crores as of March 2025, a manageable burden given the company's cash generation capabilities. The debt-to-EBITDA ratio of 1.18 times indicates strong debt servicing ability, with EBIT-to-interest coverage averaging 7.45 times over recent periods.
Margin Pressure: A Temporary Blip or Structural Challenge?
The 259-basis-point sequential decline in operating margin to 9.45% in Q2 FY26 represents the most significant concern from the quarter. This erosion from the 12.00% achieved in Q1 FY26 suggests either rising raw material costs, competitive pricing pressures, or operational inefficiencies. Investors should closely watch the Q3 FY26 results to determine whether this represents a temporary seasonal phenomenon or signals a more persistent margin compression trend that could impact long-term profitability.
Balance Sheet Quality: Conservative Leverage Provides Financial Flexibility
SPIC's balance sheet reflects prudent financial management with shareholder funds of ₹1,198.85 crores as of March 2025, comprising share capital of ₹203.64 crores and reserves of ₹995.21 crores. The steady accumulation of reserves—up from ₹871.98 crores in March 2024—demonstrates consistent profit retention and strengthens the company's net worth. Book value per share stands at ₹58.87, providing a tangible asset backing for the current market price of ₹90.06.
Current assets of ₹905.80 crores as of March 2025 comfortably exceed current liabilities of ₹903.05 crores, yielding a current ratio marginally above 1.0. Whilst this suggests adequate short-term liquidity, the thin cushion leaves little room for working capital stress. Cash and cash equivalents reached a high of ₹325.14 crores in H1 FY26, providing a buffer against operational uncertainties. The debtors turnover ratio of 335.36 times in H1 FY26 indicates exceptionally efficient receivables management, a positive sign for cash flow generation.
Fixed assets of ₹613.50 crores represent the company's manufacturing infrastructure at its Thoothukudi facility in Tamil Nadu. Investments totalling ₹222.25 crores as of March 2025 reflect strategic capital allocation, potentially in subsidiaries or financial instruments. The company's ability to maintain stable fixed asset levels whilst growing operations suggests disciplined capital expenditure and effective asset sweating.
Cash Flow Dynamics: Working Capital Volatility Impacts Liquidity
SPIC's cash flow profile reveals significant working capital volatility that merits attention. For FY25, the company reported a negative operating cash flow of ₹37.00 crores, driven by an adverse working capital movement of ₹302.00 crores. This substantial working capital absorption likely reflects inventory build-up, extended receivables, or reduced payables, all of which tie up cash and strain liquidity. The sharp reversal from FY24's positive operating cash flow of ₹227.00 crores highlights the cyclical nature of fertilizer industry cash dynamics.
Investing activities consumed ₹145.00 crores in FY25, reflecting capital expenditure and investment outlays. Financing activities generated ₹163.00 crores, primarily through debt raising, which helped offset the operating cash outflow. The net result was a ₹20.00 crores reduction in cash balances from ₹69.00 crores to ₹48.00 crores during FY25. Investors should monitor whether FY26 sees improved working capital management and positive operating cash generation.
| Cash Flow (₹ Cr) | FY25 | FY24 | FY23 | FY22 |
|---|---|---|---|---|
| Profit Before Tax | 202.00 | 142.00 | 299.00 | 133.00 |
| Changes in Working Capital | -302.00 | 70.00 | -334.00 | -284.00 |
| Operating Cash Flow | -37.00 | 227.00 | -11.00 | -105.00 |
| Investing Cash Flow | -145.00 | -175.00 | -34.00 | -156.00 |
| Financing Cash Flow | 163.00 | 0.00 | 57.00 | 189.00 |
| Net Cash Change | -20.00 | 52.00 | 11.00 | -72.00 |
Industry Leadership: How SPIC Compares to Fertilizer Peers
SPIC's positioning within the Indian fertilizer industry reveals both competitive strengths and areas for improvement. With a market capitalisation of ₹1,838 crores, the company ranks as the third-largest player in its peer group, behind larger competitors but ahead of several mid-sized manufacturers. The company's valuation multiples and operational metrics offer insights into how the market perceives its relative attractiveness.
At a price-to-earnings ratio of 9.87 times, SPIC trades at a significant discount to National Fertilizers' 42.89 times and Mangalore Chemicals' 22.64 times, suggesting the market assigns a lower growth premium or perceives higher risk. However, this valuation appears reasonable given the company's average quality grade and cyclical industry dynamics. The price-to-book value of 1.53 times sits in the middle of the peer range, reflecting fair recognition of the company's asset base and accumulated reserves.
SPIC's standout metric is its return on equity of 19.28%, which substantially exceeds the peer average of approximately 8% and positions the company as a superior capital allocator. This higher ROE—remember, higher values indicate better capital efficiency—demonstrates SPIC's ability to generate stronger returns from shareholder funds compared to competitors. Only Zuari Agro Chemicals (13.53%) and Khaitan Chemicals (14.42%) approach SPIC's capital efficiency, whilst National Fertilizers lags significantly at 5.85%.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| SPIC | 9.87 | 1.53 | 19.28 | 0.53 | 2.22 |
| National Fertilizers | 42.89 | 1.76 | 5.85 | 1.75 | 1.63 |
| Mangalore Chemicals | 22.64 | — | — | — | — |
| Madras Fertilizers | 16.50 | -40.45 | 0.00 | -28.74 | — |
| Zuari Agro Chemicals | 3.83 | 0.48 | 13.53 | 0.21 | — |
| Khaitan Chemicals | 14.38 | 3.47 | 14.42 | 1.00 | — |
The debt-to-equity comparison further highlights SPIC's financial prudence. At 0.53 times, SPIC maintains lower leverage than National Fertilizers (1.75 times) and Khaitan Chemicals (1.00 times), providing greater financial flexibility and lower bankruptcy risk. Only Zuari Agro Chemicals operates with less debt at 0.21 times. This conservative capital structure positions SPIC well to weather industry downturns and pursue growth opportunities without excessive financial strain.
Dividend yield of 2.22% places SPIC amongst the more shareholder-friendly companies in the sector, exceeding National Fertilizers' 1.63% and providing a modest income stream for investors. The company's dividend payout ratio of 26.17% suggests a balanced approach between rewarding shareholders and retaining capital for growth, leaving room for future dividend increases as profitability improves.
Valuation Analysis: Attractive Entry Point Despite Near-Term Headwinds
SPIC's current valuation presents a compelling case for patient investors willing to look past near-term margin pressures. Trading at a P/E ratio of 9.87 times compared to the industry average of 25 times, the stock offers a substantial 60.52% discount to sector valuations. This valuation gap reflects market concerns about earnings volatility and cyclical industry dynamics, but may overstate the risks given the company's solid long-term fundamentals and improving financial trajectory.
The price-to-book value of 1.53 times appears reasonable given the company's 19.28% average ROE. Using the justified P/BV formula (ROE × P/E), SPIC's theoretical fair value P/BV would be approximately 1.90 times (19.28% × 9.87), suggesting the current valuation already incorporates a margin of safety. The enterprise value-to-EBITDA multiple of 8.64 times sits comfortably below the typical 12-15 times range for quality industrial companies, indicating room for multiple expansion as earnings stabilise.
The PEG ratio of 0.50 times—calculated by dividing the P/E ratio by the earnings growth rate—signals potential undervaluation, as ratios below 1.0 typically suggest the stock trades cheaply relative to growth prospects. With five-year EBIT growth of 36.33% and sales growth of 14.00%, SPIC demonstrates strong historical expansion that justifies a higher valuation multiple. The current stock price of ₹90.06 trades 29.70% below the 52-week high of ₹128.10, presenting a potential entry opportunity for investors with a medium to long-term horizon.
The company's attractive valuation grade—recently upgraded from "Very Attractive" to "Attractive"—reflects improving fundamentals despite the recent price correction. With an EV-to-capital employed ratio of 1.35 times and ROCE of 13.25%, SPIC generates returns above its cost of capital, creating shareholder value. The dividend yield of 2.22% provides downside protection whilst investors await margin recovery and earnings growth acceleration.
"At 9.87 times earnings and trading 30% below recent highs, SPIC offers value-conscious investors an opportunity to acquire a fundamentally sound fertilizer manufacturer at a meaningful discount to both historical valuations and industry peers."
Shareholding Pattern: Stable Promoter Base with Rising FII Interest
SPIC's shareholding structure reflects a stable ownership base with gradually shifting institutional dynamics. Promoter holding has remained rock-solid at 53.38% for the past five quarters, demonstrating unwavering confidence from the founding group led by the Chidambaram family and Tamil Nadu Industrial Development Corporation (TIDCO). Key promoter entities include Ami Holdings Private Limited (18.31%), Lotus Fertilizers Private Limited (13.75%), and Ficon Holdings Ltd (7.70%), with no pledging of shares—a positive indicator of financial health and long-term commitment.
The most notable development in recent quarters has been the significant increase in foreign institutional investor (FII) holdings, which surged from 0.65% in September 2024 to 6.09% in September 2025. This 543-basis-point expansion signals growing international confidence in SPIC's prospects, though the sequential decline from 6.53% in June 2025 to 6.09% in September 2025 suggests some profit booking following the stock's strong run-up earlier in the year. The March 2025 quarter saw the most dramatic FII accumulation, with holdings jumping 403 basis points from 0.84% to 4.87%.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | QoQ Change |
|---|---|---|---|---|---|
| Promoter Holdings | 53.38% | 53.38% | 53.38% | 53.38% | 0.00% |
| FII Holdings | 6.09% | 6.53% | 4.87% | 0.84% | -0.44% |
| Mutual Fund Holdings | 0.01% | 0.01% | 0.01% | 0.01% | 0.00% |
| Insurance Holdings | 0.00% | 0.15% | 0.16% | 0.16% | -0.15% |
| Other DII Holdings | 0.14% | 0.14% | 0.13% | 1.00% | 0.00% |
| Non-Institutional | 40.39% | 39.80% | 41.45% | 44.61% | +0.59% |
Domestic institutional participation remains minimal, with mutual fund holdings at a negligible 0.01% and insurance companies exiting their 0.16% stake entirely during the September 2025 quarter. This limited domestic institutional interest represents both a concern and an opportunity—a concern because it suggests domestic fund managers remain unconvinced about the stock's near-term prospects, but an opportunity because future domestic institutional buying could provide significant upside catalyst.
Non-institutional holdings, which include retail investors and high-net-worth individuals, constitute 40.39% of the shareholding base. The sequential increase of 59 basis points from 39.80% in June 2025 suggests growing retail interest, likely driven by the stock's attractive valuation and dividend yield. With 29 FII investors and 12 mutual funds tracking the stock, SPIC maintains reasonable institutional coverage despite low overall participation levels.
Stock Performance: Outperformance Marred by Recent Volatility
SPIC's stock has delivered impressive long-term returns whilst exhibiting significant short-term volatility characteristic of cyclical commodity businesses. Over a five-year horizon, the stock has generated a stunning 392.13% return, massively outperforming the Sensex's 93.78% gain by 298.35 percentage points. This exceptional performance reflects the company's successful turnaround from earlier operational challenges and benefited from the fertilizer sector's cyclical upswing during this period.
Shorter-term performance metrics paint a more mixed picture. The stock has delivered 21.77% returns over the past year, outperforming the Sensex by 12.77 percentage points, and generated positive alpha of 14.63% on a year-to-date basis. However, recent momentum has weakened, with the stock underperforming the benchmark over one-week (-0.72% alpha) and one-month (-1.29% alpha) timeframes. The current price of ₹90.06 represents a 29.70% decline from the 52-week high of ₹128.10 reached earlier in the year, though it remains 35.94% above the 52-week low of ₹66.25.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 0.90% | 1.62% | -0.72% |
| 1 Month | 1.80% | 3.09% | -1.29% |
| 3 Months | 6.50% | 4.92% | +1.58% |
| 6 Months | 8.91% | 3.97% | +4.94% |
| Year to Date | 22.85% | 8.22% | +14.63% |
| 1 Year | 21.77% | 9.00% | +12.77% |
| 3 Years | 56.22% | 37.22% | +19.00% |
| 5 Years | 392.13% | 93.78% | +298.35% |
Technical indicators suggest a mildly bullish trend following the recent correction. The stock trades below all major moving averages—5-day (₹88.54), 20-day (₹89.89), 50-day (₹96.48), 100-day (₹94.98), and 200-day (₹88.27)—indicating near-term weakness. However, the MACD shows mildly bearish signals on a weekly basis but remains bullish on a monthly timeframe, suggesting the longer-term uptrend remains intact despite short-term consolidation. The RSI indicator shows no clear signal, whilst Bollinger Bands indicate mildly bearish weekly trends but mildly bullish monthly patterns.
The stock's beta of 1.35 classifies it as a high-beta security, meaning it tends to move 35% more than the broader market in either direction. This higher volatility, reflected in the 43.80% annual volatility figure, makes SPIC suitable primarily for risk-tolerant investors who can withstand significant price swings. The risk-adjusted return of 0.50 over one year, whilst positive, lags the Sensex's 0.73, indicating investors have not been adequately compensated for the additional volatility assumed.
Investment Thesis: Quality Business at Fair Value with Execution Risks
SPIC's investment case rests on four key pillars that together yield a Mojo Score of 64 out of 100, translating to a HOLD rating. The valuation parameter scores positively, with the stock trading at an "Attractive" valuation grade that reflects its significant discount to industry multiples and reasonable pricing relative to book value and earnings. This valuation cushion provides downside protection and potential for multiple expansion as operational performance stabilises.
The quality assessment grades SPIC as "Average," acknowledging solid long-term growth metrics (14.00% sales CAGR, 36.33% EBIT CAGR over five years) and healthy return ratios (19.28% average ROE) balanced against the cyclical nature of the fertilizer business and recent margin pressures. The company's zero promoter pledging, low institutional holdings of 6.23%, and adequate debt servicing capability (EBIT-to-interest of 7.45 times) support the average quality designation.
The financial trend parameter registers as "Positive," driven by strong nine-month sales growth of 43.54%, highest-ever debtors turnover ratio of 335.36 times in H1 FY26, peak operating profit-to-interest coverage of 11.06 times, and quarterly PAT growth of 53.2% versus the previous four-quarter average. These metrics demonstrate improving operational efficiency and profitability trajectory despite the Q2 FY26 margin squeeze. Technical trends show a "Mildly Bullish" outlook, with the stock maintaining support above the ₹66.25 52-week low and exhibiting positive momentum on longer timeframes.
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Superior Capital Efficiency: ROE of 19.28% significantly exceeds industry peers, demonstrating effective utilisation of shareholder capital to generate returns
- Conservative Financial Structure: Debt-to-equity ratio of 0.53 times and debt-to-EBITDA of 1.18 times provide financial flexibility and reduce bankruptcy risk
- Strong Long-Term Growth: Five-year EBIT CAGR of 36.33% and sales CAGR of 14.00% reflect successful business expansion and market share gains
- Attractive Valuation: P/E of 9.87 times represents 60% discount to industry average of 25 times, with PEG ratio of 0.50 suggesting undervaluation
- Stable Promoter Base: Consistent 53.38% promoter holding with zero pledging demonstrates long-term commitment and financial strength
- Rising FII Interest: Foreign institutional ownership increased from 0.65% to 6.09% over past year, signalling growing international confidence
- Exceptional Receivables Management: Debtors turnover ratio of 335.36 times in H1 FY26 indicates highly efficient working capital management
KEY CONCERNS ⚠
- Margin Compression: Operating margin declined 259 basis points QoQ to 9.45% in Q2 FY26, raising concerns about pricing power and cost management
- Working Capital Volatility: Negative operating cash flow of ₹37.00 crores in FY25 driven by ₹302.00 crores adverse working capital movement strains liquidity
- High Stock Volatility: Beta of 1.35 and annual volatility of 43.80% make the stock unsuitable for risk-averse investors seeking stable returns
- Minimal Domestic Institutional Support: Mutual fund holdings at 0.01% and insurance companies exiting positions suggest lack of domestic institutional conviction
- Cyclical Industry Dynamics: Fertilizer sector subject to raw material price swings, subsidy policy changes, and seasonal demand patterns
- Recent Price Correction: Stock down 29.70% from 52-week high of ₹128.10, with technical indicators showing weakness across multiple timeframes
- Sequential Profit Decline: Consolidated PAT fell 8.23% QoQ despite revenue growth, indicating operating leverage working in reverse
Outlook: What to Watch in Coming Quarters
POSITIVE CATALYSTS
- Margin Recovery: Any improvement in operating margins above 10% in Q3 FY26 would signal successful cost management and pricing power restoration
- Working Capital Normalisation: Positive operating cash flow generation in upcoming quarters would ease liquidity concerns and strengthen balance sheet
- Domestic Institutional Buying: Entry of mutual funds or insurance companies would provide strong demand support and validate investment thesis
- Subsidy Policy Clarity: Favourable government subsidy announcements or timely subsidy releases would boost profitability and cash flows
- Volume Growth Acceleration: Double-digit revenue growth sustained over multiple quarters would demonstrate market share gains and demand strength
RED FLAGS
- Further Margin Deterioration: Operating margins falling below 9% would indicate structural profitability challenges requiring strategic intervention
- Continued Cash Flow Stress: Persistent negative operating cash flows would strain liquidity and potentially force dilutive capital raising
- FII Selling Pressure: Sustained reduction in foreign institutional holdings below 5% would signal waning international confidence
- Raw Material Cost Spikes: Sharp increases in input prices without corresponding selling price adjustments would compress margins further
- Technical Breakdown: Stock price falling below ₹66.25 52-week low would trigger stop losses and potentially accelerate downside momentum
The fertilizer industry's outlook for FY26 remains mixed, with demand supported by normal monsoons and government thrust on agricultural productivity, but profitability challenged by volatile input costs and competitive intensity. SPIC's ability to navigate this environment will depend on operational execution, working capital management, and success in passing through cost increases to customers. The company's established market position, manufacturing infrastructure, and improving financial metrics provide a foundation for recovery, but investors should monitor quarterly results closely for evidence of sustained margin improvement and cash generation.
The Verdict: Hold for Existing Investors, Wait for Fresh Entry
Score: 64/100
For Fresh Investors: Not recommended for fresh buying at current levels. Whilst the valuation appears attractive at 9.87 times earnings and the long-term growth trajectory remains positive, the recent margin compression and working capital volatility warrant caution. Wait for evidence of margin stabilisation above 10% and positive operating cash flow generation before initiating positions. Investors seeking entry should consider accumulating on dips towards ₹75-80 levels, which would provide a better margin of safety.
For Existing Holders: Continue to hold with a medium to long-term perspective. The company's superior ROE of 19.28%, conservative balance sheet, and attractive valuation provide adequate reasons to maintain positions despite near-term headwinds. Set a stop loss at ₹66 (52-week low) to protect against further downside. Monitor quarterly results closely, particularly margin trends and cash flow generation. Consider averaging up if operating margins recover above 11% and the stock breaks above ₹100 with strong volumes.
Fair Value Estimate: ₹110-115 (22% to 28% upside from current levels), based on 12-13 times forward earnings assuming margin normalisation to 10-11% levels and sustained revenue growth of 10-12% annually. This target reflects the company's average quality grade, cyclical industry dynamics, and execution risks, balanced against attractive valuation and improving financial trends.
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 does not guarantee future results. The fertilizer industry is subject to regulatory changes, commodity price volatility, and cyclical demand patterns that can significantly impact company performance. All data and analysis are based on publicly available information as of November 19, 2025.
