The December quarter results revealed a company grappling with severe margin compression and operational challenges. Revenue declined 7.53% year-on-year to ₹347.00 crores, whilst operating margins contracted sharply to 5.63% from 7.81% a year earlier. The profit after tax margin shrank to a meagre 0.90%, down from 2.87% in Q3 FY25, highlighting the acute profitability pressures facing the agricultural products manufacturer.
The quarterly results mark a concerning deterioration in financial performance for Sukhjit Starch, which has been struggling with persistent margin pressures throughout FY26. The company's nine-month performance for FY26 shows net profit of ₹12.44 crores, down substantially from ₹37.15 crores in the corresponding period of FY25, representing a decline of 66.52%. This sustained weakness suggests structural challenges rather than transitory issues.
| Quarter | Revenue (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | PAT Margin |
|---|---|---|---|---|---|
| Dec'25 | 347.00 | +10.30% | 3.13 | -27.21% | 0.90% |
| Sep'25 | 314.61 | -14.77% | 4.30 | -14.17% | 1.37% |
| Jun'25 | 369.13 | +2.61% | 5.01 | +78.93% | 1.36% |
| Mar'25 | 359.75 | -4.13% | 2.80 | -74.03% | 0.78% |
| Dec'24 | 375.26 | +2.03% | 10.78 | -14.10% | 2.87% |
| Sep'24 | 367.81 | -6.91% | 12.55 | -9.19% | 3.41% |
| Jun'24 | 395.13 | — | 13.82 | — | 3.50% |
Financial Performance: Margin Erosion Accelerates
The December quarter witnessed a sequential revenue improvement of 10.30% quarter-on-quarter to ₹347.00 crores from ₹314.61 crores in Q2 FY26, suggesting some demand recovery. However, this top-line growth failed to translate into bottom-line improvement, with net profit declining 27.21% sequentially from ₹4.30 crores to ₹3.13 crores. The divergence between revenue growth and profit decline points to severe cost pressures eroding profitability.
Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) stood at ₹19.53 crores in Q3 FY26, down from ₹29.30 crores a year earlier, representing a 33.41% decline. The operating margin contracted sharply to 5.63% from 7.81% in Q3 FY25, marking a deterioration of 218 basis points. This margin compression has been persistent throughout FY26, with the nine-month operating margin at 5.53% compared to 8.32% in the corresponding period of FY25.
Interest costs remained elevated at ₹8.02 crores in Q3 FY26, up from ₹7.86 crores in Q3 FY25, reflecting the company's debt burden. On a half-yearly basis, interest expenses surged 27.73% to ₹16.86 crores, significantly pressuring profitability. Depreciation remained stable at ₹9.05 crores, unchanged from the previous quarter. The combined burden of interest and depreciation consumed ₹17.07 crores, leaving minimal operating profit after these fixed charges.
Tax expenses in Q3 FY26 stood at ₹1.05 crores, with an effective tax rate of 25.12%, up from 24.77% a year earlier. Profit before tax plummeted 70.84% year-on-year to ₹4.18 crores from ₹14.33 crores, underscoring the severity of the operational challenges. The quality of earnings remains a concern, with other income contributing ₹1.72 crores in the quarter, representing 41.15% of profit before tax, suggesting significant reliance on non-operating income to support profitability.
Operational Challenges: Cost Pressures and Efficiency Concerns
The sharp margin compression at Sukhjit Starch reflects multiple operational headwinds. Employee costs rose to ₹17.34 crores in Q3 FY26 from ₹18.18 crores in Q3 FY25, showing a marginal decline. However, as a percentage of revenue, employee costs have increased, indicating reduced labour productivity. The company's inability to leverage fixed costs despite revenue growth suggests operational inefficiencies.
Return on capital employed (ROCE) has deteriorated significantly, falling to 6.21% on a half-yearly basis for FY26, marking the lowest level in recent periods. This represents a sharp decline from the company's average ROCE of 12.49% over the past five years. The latest ROCE of 5.39% on an annual basis indicates that the company is generating returns well below its cost of capital, destroying shareholder value. Return on equity (ROE) has similarly weakened to 4.16% from an average of 11.12%, reflecting poor capital efficiency.
⚠️ Critical Profitability Concerns
Deteriorating Returns: ROCE has plunged to 6.21% (H1 FY26), the lowest in recent periods, down from a 5-year average of 12.49%. ROE has weakened to 4.16%, well below the historical average of 11.12%, indicating severe capital inefficiency.
Margin Collapse: Operating margins have contracted 218 basis points year-on-year to 5.63%, whilst PAT margins have shrunk to a meagre 0.90% from 2.87%, reflecting acute cost pressures and pricing challenges.
Interest Burden: Interest expenses on a half-yearly basis surged 27.73% to ₹16.86 crores, significantly eroding profitability and highlighting the financial strain from elevated debt levels.
The company's balance sheet reveals moderate leverage, with long-term debt of ₹82.32 crores as of March 2025. The debt-to-EBITDA ratio stands at 2.94 times on average, whilst net debt to equity is 0.58 times. Whilst these leverage metrics are not alarming, the declining profitability raises concerns about debt servicing capability. Current liabilities stood at ₹299.13 crores, with trade payables of ₹77.56 crores, indicating working capital pressures.
Fixed assets increased to ₹536.15 crores from ₹520.26 crores, reflecting ongoing capital expenditure. However, the sales-to-capital-employed ratio of 1.57 times suggests suboptimal asset utilisation. The company generated operating cash flow of ₹67.00 crores in FY25, down from ₹77.00 crores in FY24, with changes in working capital absorbing ₹31.00 crores. Cash flow from operations remains positive but has weakened, raising concerns about cash generation sustainability.
Industry Context: Underperformance in Agricultural Products Sector
Sukhjit Starch operates in the Other Agricultural Products sector, which has delivered a one-year return of 14.82%. The company's 18.09% decline over the same period represents a significant underperformance of 32.91 percentage points versus its sector peers. This substantial underperformance reflects company-specific challenges rather than broader sector headwinds, as competitors have managed to deliver positive returns.
The agricultural products sector in India has faced mixed conditions, with raw material price volatility and demand fluctuations impacting manufacturers. However, the sector has generally shown resilience, with several players maintaining stable margins and profitability. Sukhjit Starch's margin compression stands in contrast to peer performance, suggesting operational or competitive disadvantages specific to the company.
Sector Positioning: Lagging Peer Performance
Sukhjit Starch's 18.09% decline over the past year compares unfavourably with the Other Agricultural Products sector's 14.82% gain, representing an underperformance of 32.91 percentage points. The stock has also significantly underperformed the broader Sensex, which gained 9.85% over the same period, resulting in a negative alpha of 27.94%.
Over longer timeframes, the underperformance persists, with the stock declining 29.45% over two years whilst the Sensex gained 17.73%, and falling 14.96% over three years against the Sensex's 37.89% rise. This sustained underperformance suggests structural challenges requiring urgent management attention.
Peer Comparison: Valuation Discount Reflects Operational Weakness
Sukhjit Starch's valuation metrics reflect the market's concerns about its deteriorating fundamentals. The stock trades at a price-to-earnings ratio of 22.93 times trailing twelve-month earnings, below the industry average of approximately 40 times. However, this apparent valuation discount is justified by the company's weak profitability and declining returns. The price-to-book ratio of 0.95 times indicates the stock trades below its book value, suggesting the market questions the company's ability to generate adequate returns on its asset base.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Sukhjit Starch | 22.93 | 0.95 | 11.12 | 0.58 | 0.60 |
| Gulshan Polyols | 23.72 | 1.58 | 5.17 | 0.68 | 0.18 |
| Krishival Foods | 63.79 | 5.98 | 10.00 | 0.09 | 0.05 |
| Ganesh Consumer | 21.79 | 2.10 | 0.00 | 0.00 | 1.31 |
| Regaal Resources | 13.04 | 1.36 | 18.01 | 1.86 | — |
| Sarveshwar Foods | 16.44 | 1.10 | 5.40 | 0.33 | — |
Compared to peers, Sukhjit Starch demonstrates a mixed positioning. Its ROE of 11.12% on an average basis is superior to most peers, including Gulshan Polyols (5.17%) and Sarveshwar Foods (5.40%), though it trails Regaal Resources (18.01%). However, the latest ROE of 4.16% shows a sharp deterioration, falling below most competitors. The company's debt-to-equity ratio of 0.58 times is moderate, better than Regaal Resources (1.86) but higher than Krishival Foods (0.09).
The dividend yield of 0.60% is modest, reflecting a conservative payout ratio of 7.82%. The company declared a dividend of ₹1.00 per share with an ex-dividend date of August 20, 2025. The low payout ratio suggests management is retaining earnings for business needs, though the declining profitability raises questions about the sustainability of even this modest dividend. The P/BV ratio of 0.95 times is the lowest among peers, with most competitors trading at premiums to book value, indicating the market's lack of confidence in Sukhjit Starch's future prospects.
Valuation Analysis: Attractive Valuation Fails to Compensate for Weak Fundamentals
Despite the sharp deterioration in operating performance, Sukhjit Starch's valuation has been assessed as "Very Attractive" by proprietary metrics, having transitioned to this grade in recent months. The stock trades at an EV/EBITDA multiple of 10.12 times, EV/EBIT of 18.02 times, and EV/Sales of 0.60 times. These multiples appear reasonable on a historical basis, particularly the EV/Sales ratio, which suggests the market is assigning limited value to the company's revenue base.
However, valuation attractiveness alone does not make a compelling investment case when fundamentals are deteriorating. The stock's 52-week range of ₹143.80 to ₹238.00 shows significant volatility, with the current price of ₹168.00 sitting 29.41% below the 52-week high and 16.83% above the 52-week low. The valuation grade history shows frequent oscillations between "Attractive" and "Very Attractive" throughout 2025, reflecting the market's uncertainty about the company's prospects.
The enterprise value to capital employed ratio of 0.97 times indicates the market values the company's capital base at approximately its carrying value, suggesting no expectation of superior returns. Given the declining ROCE, this valuation appears fair rather than attractive. The PEG ratio is not available, reflecting the absence of reliable growth expectations. The combination of attractive valuation multiples with deteriorating fundamentals creates a classic value trap scenario, where low multiples fail to provide downside protection as earnings continue to decline.
Shareholding Pattern: Stable Promoter Holdings Amidst Institutional Absence
The shareholding pattern reveals a company dominated by promoter ownership, with negligible institutional participation. Promoter holding stood at 66.07% as of December 2025, marginally increasing from 66.04% in the previous quarter. The promoter group comprises multiple members of the Sardana family, with Bhavdeep Sardana (8.06%), Puneet Sardana (8.04%), Manjoo Sardana (7.98%), and Dhiraj Sardana (7.73%) being the largest individual shareholders. The absence of any pledged shares is a positive, indicating promoters are not under financial stress.
| Quarter | Promoter % | Change | FII % | MF % | Non-Inst % |
|---|---|---|---|---|---|
| Dec'25 | 66.07 | +0.03 | 0.02 | 0.00 | 33.91 |
| Sep'25 | 66.04 | — | 0.00 | 0.00 | 33.95 |
| Jun'25 | 66.04 | — | 0.01 | 0.00 | 33.95 |
| Mar'25 | 66.04 | +0.03 | 0.00 | 0.00 | 33.95 |
| Dec'24 | 66.01 | — | 0.01 | 0.00 | 33.98 |
Foreign institutional investor (FII) holding is negligible at 0.02%, with only one FII holding shares as of December 2025. Mutual fund and insurance company holdings are zero, indicating a complete absence of institutional investor interest. Total institutional holding stands at a mere 0.02%, reflecting the lack of confidence from sophisticated investors. The non-institutional shareholding of 33.91% comprises primarily retail investors and non-institutional entities.
The stable promoter holding provides governance stability but also raises concerns about the lack of fresh capital inflows and institutional validation. The absence of mutual fund and insurance participation is particularly telling, as these institutions typically avoid companies with deteriorating fundamentals and uncertain growth prospects. The minimal FII interest suggests the company lacks the scale, liquidity, and quality metrics that attract foreign capital. This shareholding pattern limits the stock's liquidity and makes it vulnerable to volatility during periods of selling pressure.
Stock Performance: Sustained Underperformance Across All Timeframes
Sukhjit Starch's stock performance has been dismal across virtually all timeframes, with persistent underperformance versus both the Sensex and its sector peers. Over the past year, the stock declined 18.09% whilst the Sensex gained 9.85%, resulting in a negative alpha of 27.94%. The underperformance accelerated over longer periods, with the stock falling 29.45% over two years against the Sensex's 17.73% gain, and declining 14.96% over three years whilst the Sensex surged 37.89%.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -6.01% | +0.43% | -6.44% |
| 1 Month | -3.09% | -0.24% | -2.85% |
| 3 Months | +8.84% | -0.94% | +9.78% |
| 6 Months | -0.03% | +4.29% | -4.32% |
| YTD | -9.48% | -1.81% | -7.67% |
| 1 Year | -18.09% | +9.85% | -27.94% |
| 2 Years | -29.45% | +17.73% | -47.18% |
| 3 Years | -14.96% | +37.89% | -52.85% |
The stock's volatility stands at 37.05% on a one-year basis, significantly higher than the Sensex's 11.44%, reflecting the heightened risk profile. The risk-adjusted return is negative at -0.49, indicating investors are being penalised for the additional risk they bear. The stock's beta of 1.07 suggests it is slightly more volatile than the broader market, amplifying both gains and losses. However, in the current context of declining fundamentals, this high beta translates primarily into magnified downside risk.
Recent performance has been particularly weak, with the stock declining 6.67% on a single day following the Q3 results announcement, and falling 6.01% over the past week. The year-to-date decline of 9.48% compares unfavourably with the Sensex's 1.81% fall, highlighting continued underperformance. The only positive period is the three-month return of 8.84%, which generated a positive alpha of 9.78%, though this appears to be a temporary bounce rather than a sustained reversal given the subsequent decline.
Investment Thesis: Multiple Red Flags Outweigh Valuation Appeal
The investment thesis for Sukhjit Starch is severely challenged by deteriorating fundamentals across multiple dimensions. The company's Mojo Score of 37 out of 100 places it firmly in "SELL" territory, having previously been rated "STRONG SELL" at ₹158.20 in December 2025. The score reflects a combination of negative financial trends, mildly bearish technical indicators, and weak quality parameters, partially offset by attractive valuation metrics.
The financial trend is unequivocally negative, with quarterly profit before tax excluding other income falling 42.10% versus the previous four-quarter average, and net profit declining 45.30%. Interest expenses on a half-yearly basis have grown 27.73%, whilst ROCE has hit a low of 6.21%. The quality assessment is "Average," reflecting weak profitability metrics despite no promoter pledging and moderate debt levels. The five-year sales growth of 14.86% and EBIT growth of 10.28% are positive but have not translated into sustainable profitability.
Technical indicators paint a bearish picture, with the stock trading below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day). The overall technical trend is "Mildly Bearish," having changed from "Bearish" on December 23, 2025. MACD shows mixed signals (mildly bullish on weekly, bearish on monthly), whilst moving averages are bearish and OBV is mildly bearish. The immediate support lies at ₹143.80 (the 52-week low), whilst resistance is at ₹177.13 (20-day moving average area).
Key Strengths & Risk Factors
✓ Key Strengths
- Attractive Valuation: Stock trades at 0.95x P/BV and 22.93x P/E, below book value and industry average, offering potential value if fundamentals stabilise
- Stable Promoter Base: 66.07% promoter holding with no pledging indicates committed ownership and absence of financial stress
- Established Operations: Company has been operating since 1943 with indigenous manufacturing capabilities in maize starch and glucose products
- Positive Operating Cash Flow: Generated ₹67.00 crores in operating cash flow in FY25, indicating some underlying cash generation capability
- Moderate Leverage: Debt-to-equity of 0.58x and debt-to-EBITDA of 2.94x are manageable, providing some financial flexibility
- Long-term Growth Track Record: Five-year sales CAGR of 14.86% demonstrates historical ability to grow revenue, though profitability has lagged
- Dividend History: Continues to pay dividends (₹1.00 per share) despite profitability pressures, showing commitment to shareholder returns
⚠ Key Concerns
- Profitability Collapse: Net profit plunged 70.96% YoY to ₹3.13 crores in Q3 FY26, with nine-month profit down 66.52%, indicating severe operational distress
- Margin Compression: Operating margin contracted 218 bps to 5.63% and PAT margin shrank to 0.90%, reflecting acute cost pressures and pricing challenges
- Deteriorating Returns: ROCE fell to 6.21% (H1 FY26 low) from 12.49% average, whilst ROE weakened to 4.16% from 11.12%, destroying shareholder value
- Rising Interest Burden: Interest expenses surged 27.73% on a half-yearly basis, significantly eroding profitability despite moderate debt levels
- Weak Stock Performance: Stock declined 18.09% over one year, underperforming Sensex by 27.94% and sector by 32.91%, with sustained weakness across all timeframes
- Institutional Exodus: Zero mutual fund and insurance holdings, with only 0.02% FII participation, indicating lack of institutional confidence
- High Other Income Dependency: Other income represents 41.15% of PBT, raising concerns about earnings quality and sustainability of core operations
- Negative Financial Trend: Quarterly financial trend rated "Negative" with multiple metrics hitting multi-year lows, suggesting structural rather than cyclical challenges
Outlook: What to Watch for Turnaround or Further Deterioration
Positive Catalysts
- Margin Recovery: Stabilisation or improvement in operating margins above 7% would signal easing cost pressures and operational improvement
- Revenue Growth: Sustained sequential revenue growth with improving realisation would indicate market share gains or pricing power improvement
- Cost Rationalisation: Reduction in interest expenses and improved working capital management could boost profitability
- ROCE Improvement: Return to double-digit ROCE levels would validate capital efficiency and operational turnaround
- Institutional Interest: Entry of mutual funds or FIIs would provide validation of improving fundamentals and enhance liquidity
Red Flags to Monitor
- Further Margin Erosion: Operating margins falling below 5% or PAT margins turning negative would signal deepening crisis
- Consecutive Quarterly Losses: Any quarter with negative PAT would raise serious concerns about business viability
- Rising Debt Levels: Increase in debt-to-equity above 0.75x or debt-to-EBITDA above 3.5x would constrain financial flexibility
- Promoter Selling: Any reduction in promoter holding or introduction of pledging would indicate loss of confidence
- Working Capital Deterioration: Negative operating cash flow or increasing debtor days would signal liquidity stress
The outlook for Sukhjit Starch remains challenging, with the company needing to demonstrate tangible improvements in operational efficiency and margin management to restore investor confidence. The Q4 FY26 results will be critical in determining whether the current weakness is temporary or represents a sustained deterioration. Investors should monitor quarterly margin trends, ROCE trajectory, and management commentary on cost pressures and demand conditions. Any signs of stabilisation in margins or sequential profit improvement could trigger a re-rating, given the attractive valuation. However, continued deterioration would validate the current bearish stance and potentially drive the stock towards its 52-week low of ₹143.80.
The Verdict: Avoid Until Clear Signs of Operational Turnaround
Score: 37/100
For Fresh Investors: Avoid initiating positions despite attractive valuation multiples. The 71% year-on-year profit decline, collapsing margins, and deteriorating return ratios indicate severe operational distress. Wait for at least two consecutive quarters of margin stabilisation and profit growth before considering entry. The stock remains in a downtrend with multiple technical and fundamental red flags.
For Existing Holders: Consider reducing exposure or exiting on any bounce towards ₹175-180 levels. The sustained underperformance, negative financial trend, and absence of institutional support suggest limited near-term upside. The dividend yield of 0.60% provides minimal compensation for the capital erosion risk. Only long-term investors with high risk tolerance and conviction in eventual turnaround should maintain holdings.
Fair Value Estimate: ₹145-155 (13% downside from current levels), based on normalised earnings and peer multiples. The current price of ₹168.00 does not adequately reflect the deteriorating fundamentals and operational challenges. A sustainable turnaround with margins returning to 7%+ levels could justify a fair value of ₹200-220, but this appears unlikely in the near term given current 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.
