The petrochemicals manufacturer, promoted by Supreme Industries and R Raheja Investments, has been classified as a "Negative" financial trend company by analysts, with the latest quarterly performance marking the lowest levels across multiple key metrics including net sales, operating profit, and earnings per share. The company's shares, trading at ₹798.05 as of October 27, 2025, have declined 1.24% in recent sessions, reflecting investor concerns about the sequential deterioration in performance metrics despite the company's robust long-term track record.
Financial Performance: Sequential Decline Raises Concerns
Supreme Petrochem's Q2 FY2026 results revealed a troubling sequential decline across all major financial parameters. Net sales contracted sharply by 20.27% quarter-on-quarter to ₹1,117.76 crores from ₹1,401.91 crores in Q1 FY2026, representing the lowest quarterly sales figure in recent periods. This revenue compression was accompanied by a more severe profit decline, with consolidated net profit falling 40.98% to ₹48.29 crores, marking the steepest quarterly profit drop in the company's recent history.
The margin profile deteriorated significantly during the quarter. Operating profit (PBDIT excluding other income) declined to ₹78.72 crores from ₹116.41 crores in the previous quarter, translating to an operating margin of 7.08% compared to 8.33% in Q1 FY2026—a contraction of 125 basis points. The PAT margin compressed even more dramatically, falling to 4.36% from 5.87%, a decline of 151 basis points that reflects both operational pressures and the impact of reduced other income, which nearly halved from ₹15.24 crores to ₹8.72 crores.
| Metric | Q2 FY26 | Q1 FY26 | QoQ Change |
|---|---|---|---|
| Net Sales | ₹1,117.76 Cr | ₹1,401.91 Cr | -20.27% |
| Operating Profit | ₹78.72 Cr | ₹116.41 Cr | -32.37% |
| Net Profit | ₹48.29 Cr | ₹81.82 Cr | -40.98% |
| Operating Margin | 7.08% | 8.33% | -125 bps |
| PAT Margin | 4.36% | 5.87% | -151 bps |
On a positive note, the company maintained disciplined cost management in certain areas. Employee costs declined marginally to ₹17.08 crores from ₹18.27 crores, whilst interest expenses remained well-contained at ₹2.99 crores, reflecting the company's virtually debt-free balance sheet. Depreciation remained stable at ₹18.63 crores compared to ₹18.38 crores in the previous quarter. The tax rate increased slightly to 26.34% from 25.48%, remaining within a reasonable range for the sector.
Margin Dynamics: Operational Headwinds Take Centre Stage
The sharp margin compression witnessed in Q2 FY2026 represents a significant departure from Supreme Petrochem's historically robust profitability profile. The company's operating margin of 7.08% marks the lowest level in recent quarters, falling below the 7.6% average operating margin recorded in FY2010 and significantly trailing the company's long-term performance. This deterioration suggests that the styrenics manufacturer is facing meaningful headwinds in its core business operations, likely stemming from a combination of raw material price volatility, competitive pressures, and potentially subdued demand conditions in key end-user segments.
Margin Pressure Alert
The 125 basis point decline in operating margin to 7.08% represents a critical concern for investors. This level is significantly below the company's historical performance and suggests that Supreme Petrochem is experiencing challenges in maintaining pricing power or managing input costs effectively. The steeper 151 basis point decline in PAT margin to 4.36% indicates that profitability pressures are intensifying at the bottom line, warranting close monitoring of management commentary on margin recovery strategies.
The gross profit margin also witnessed compression, falling to 7.59% in Q2 FY2026 from 9.19% in the previous quarter, a decline of 160 basis points. This deterioration at the gross margin level indicates that the company is facing challenges at the fundamental level of its business operations—either through reduced realisations for its polystyrene, expandable polystyrene, and other styrenics products, or through elevated input costs that it has been unable to pass through to customers. The fact that the margin pressure is visible at both the gross and operating levels suggests systemic rather than one-off challenges.
Balance Sheet Strength: A Silver Lining Amid Operational Challenges
Despite the near-term operational headwinds, Supreme Petrochem continues to maintain an exceptionally strong balance sheet that provides a crucial cushion against cyclical downturns. The company operates with a negative net debt-to-equity ratio of -0.40, effectively making it a net cash company—a rare distinction in the capital-intensive petrochemicals sector. This financial strength is further evidenced by the company's debt-to-EBITDA ratio of just 0.14, indicating negligible leverage and substantial financial flexibility to weather challenging market conditions or pursue growth opportunities.
The company's return on equity (ROE), whilst declining from its exceptional historical average of 30.06% to a latest reading of 13.78%, remains healthy by industry standards. Similarly, the return on capital employed (ROCE) has moderated from an outstanding average of 73.48% to 27.25% in the latest period, yet still reflects efficient capital deployment. These metrics, combined with the company's strong interest coverage ratio averaging 98.36 times, underscore the fundamental financial robustness that has earned Supreme Petrochem an "Excellent" quality grade despite the recent operational setbacks.
Quality Credentials Remain Intact
Supreme Petrochem maintains its "Excellent" quality rating, supported by zero promoter pledging, consistent dividend payments with a 48.84% payout ratio, and a track record of 21.05% sales CAGR and 59.12% EBIT CAGR over five years. The company's virtually debt-free status and strong historical returns on capital provide a solid foundation for recovery once cyclical headwinds abate.
Industry Context: Navigating Petrochemicals Cyclicality
The petrochemicals sector, particularly the styrenics segment in which Supreme Petrochem operates, is characteristically cyclical and sensitive to both raw material price movements and demand conditions in key end-user industries such as packaging, consumer durables, and construction. The company's product portfolio—spanning polystyrene, expandable polystyrene, masterbatches, compounds, and extruded polystyrene insulation boards—serves diverse applications, but remains exposed to the broader economic environment and competitive dynamics within the polymer industry.
The sharp sequential decline in sales and margins suggests that the company may be experiencing a temporary demand slowdown or facing intensified competitive pressures that have constrained pricing flexibility. The petrochemicals industry has historically exhibited periods of margin compression during phases of capacity additions, raw material volatility, or demand weakness. Supreme Petrochem's performance in Q2 FY2026 appears to reflect such cyclical pressures, though the magnitude of the sequential decline is notable even by sector standards.
Peer Comparison: Premium Valuation Under Scrutiny
Supreme Petrochem's valuation metrics reflect a significant premium to most of its petrochemicals peers, a positioning that has historically been justified by the company's superior return on equity and quality credentials. However, with the recent deterioration in operational performance, this valuation premium is coming under increased scrutiny from investors seeking clarity on the company's earnings trajectory.
| Company | P/E (TTM) | P/BV | ROE | Div Yield | Debt/Equity |
|---|---|---|---|---|---|
| Supreme Petrochem | 49.00 | 6.75 | 30.06% | 1.25% | -0.40 |
| Rain Industries | NA (Loss Making) | 0.62 | 7.59% | 0.77% | 1.16 |
| DCW | 53.51 | 1.81 | 6.49% | 0.16% | 0.20 |
| Agarwal Industrial | 14.51 | 2.08 | 20.99% | 0.38% | 0.56 |
| Manali Petrochem | 39.01 | 1.17 | 15.80% | 0.67% | -0.19 |
| T N Petro Products | 14.46 | 1.13 | 13.07% | 1.04% | -0.25 |
At a price-to-earnings ratio of 49.00 times trailing twelve-month earnings, Supreme Petrochem trades at a substantial premium to peers such as Agarwal Industrial (14.51x) and T N Petro Products (14.46x). The company's price-to-book value of 6.75 times is also significantly higher than the peer group average of approximately 1.4 times. This premium has historically been supported by Supreme Petrochem's superior ROE of 30.06% compared to the peer average of around 13%, as well as its debt-free balance sheet. However, with the latest ROE declining to 13.78% and operational performance weakening, the sustainability of this valuation premium will depend critically on the company's ability to demonstrate earnings recovery in coming quarters.
Valuation Analysis: Fair Value Under Pressure
Supreme Petrochem's current valuation assessment stands at "Fair," having oscillated between "Fair" and "Attractive" grades multiple times during recent months. At the current market price of ₹798.05, the stock trades at 49.00 times trailing earnings, 6.75 times book value, and an EV/EBITDA multiple of 32.49 times. Whilst these multiples appear elevated in absolute terms, they must be evaluated in the context of the company's historically superior returns on capital and growth trajectory.
The company's EV/Sales ratio of 2.61 times and EV/Capital Employed ratio of 10.58 times reflect the market's recognition of Supreme Petrochem's operational efficiency and asset quality. However, the recent sequential deterioration in earnings and margins raises questions about the appropriateness of these premium multiples in the near term. The stock's dividend yield of 1.25%, based on a latest dividend of ₹7.50 per share, provides some support to valuations, though it remains modest relative to the overall valuation premium.
"The key question for investors is whether Supreme Petrochem's current operational challenges represent a temporary cyclical downturn or a more sustained structural shift in the company's competitive positioning."
Shareholding Pattern: Stable Promoter Base, Growing Institutional Interest
Supreme Petrochem's shareholding structure reflects a stable promoter base and gradually increasing institutional participation. Promoter holding has remained steady at 64.24% over the past five quarters, with no pledging of shares—a positive indicator of promoter confidence and financial stability. The promoter group is anchored by R Raheja Investments Private Limited and The Supreme Industries Limited, each holding 30.78%, providing strong strategic oversight and long-term commitment to the business.
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 64.24% | 64.24% | 64.24% | 0.00% |
| FII | 3.70% | 3.54% | 3.49% | +0.16% |
| Mutual Funds | 3.79% | 3.67% | 2.97% | +0.12% |
| DII (Other) | 0.18% | 0.18% | 0.18% | 0.00% |
| Non-Institutional | 28.09% | 28.36% | 29.11% | -0.27% |
Institutional participation has been gradually increasing, with foreign institutional investors raising their stake to 3.70% in September 2025 from 3.49% in March 2025, reflecting a gain of 21 basis points over two quarters. Mutual fund holdings have shown more significant growth, rising from 2.97% to 3.79% during the same period—an increase of 82 basis points. This growing institutional interest, despite the recent operational challenges, suggests that long-term investors continue to recognise the company's fundamental strengths and potential for recovery. The presence of 108 FIIs and 7 mutual funds in the shareholder base indicates reasonable institutional conviction, though overall institutional holding of 7.66% remains relatively modest.
Stock Performance: Long-Term Strength, Near-Term Weakness
Supreme Petrochem's stock price performance presents a tale of two timeframes—exceptional long-term wealth creation tempered by recent near-term underperformance. Over a ten-year horizon, the stock has delivered remarkable returns of 1,272.99%, vastly outperforming the Sensex's 211.08% gain and generating alpha of 1,061.91 percentage points. This extraordinary long-term performance reflects the company's successful execution of its growth strategy, margin expansion, and capital efficiency improvements over the past decade.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +3.56% | +0.49% | +3.07% |
| 1 Month | -8.28% | +5.41% | -13.69% |
| 3 Month | -0.25% | +4.07% | -4.32% |
| 6 Month | +22.20% | +7.03% | +15.17% |
| YTD | +19.94% | +8.50% | +11.44% |
| 1 Year | +4.67% | +6.77% | -2.10% |
| 3 Years | +124.16% | +41.87% | +82.29% |
| 5 Years | +483.16% | +109.22% | +373.94% |
However, the near-term picture is more challenging. Over the past month, the stock has declined 8.28% whilst the Sensex gained 5.41%, resulting in negative alpha of 13.69 percentage points. The three-month performance shows a marginal decline of 0.25% against the Sensex's 4.07% gain. These recent underperformance trends coincide with the deteriorating operational metrics and suggest that the market is reassessing the company's near-term earnings outlook. The stock's high beta of 1.35 and volatility of 35.61% underscore its sensitivity to market movements and earnings revisions, categorising it as a high-risk investment despite its strong long-term fundamentals.
Technical Analysis: Mildly Bullish Trend Provides Limited Support
From a technical perspective, Supreme Petrochem's stock exhibits a "Mildly Bullish" trend as of October 27, 2025, having transitioned from a sideways pattern on October 20, 2025. The stock currently trades at ₹798.05, positioned below its 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, indicating a lack of strong momentum across multiple timeframes. The 20-day moving average at ₹808.69 represents immediate resistance, whilst the 52-week low of ₹518.05 provides a distant support level.
Technical indicators present a mixed picture. The weekly MACD shows a "Mildly Bearish" signal whilst the monthly MACD indicates "Bullish" momentum, reflecting divergence between short-term and medium-term trends. Bollinger Bands suggest bearish pressure on the weekly timeframe but mildly bullish conditions on the monthly chart. The RSI shows no clear signal on either timeframe, indicating a lack of strong directional conviction. Delivery volumes have surged significantly, with a 249.96% increase over the trailing one-month period, suggesting heightened investor interest despite the operational challenges—though whether this represents accumulation or distribution remains to be seen.
Investment Thesis: Quality Credentials Meet Cyclical Headwinds
Supreme Petrochem's investment case rests on a foundation of exceptional long-term quality credentials—including an average ROE of 30.06%, five-year sales CAGR of 21.05%, and a virtually debt-free balance sheet—set against the backdrop of concerning near-term operational deterioration. The company's proprietary Mojo Score of 61 out of 100 places it in the "HOLD" category, reflecting this tension between fundamental strength and cyclical challenges. The score incorporates the company's "Excellent" quality grade, "Fair" valuation assessment, "Negative" financial trend, and "Mildly Bullish" technical positioning.
Key Strengths ✓
- Exceptional Balance Sheet: Debt-free status with net debt-to-equity of -0.40 provides substantial financial flexibility and resilience
- Superior Historical Returns: Average ROE of 30.06% and ROCE of 73.48% demonstrate outstanding capital efficiency
- Strong Long-Term Growth: Five-year sales CAGR of 21.05% and EBIT CAGR of 59.12% reflect successful execution
- Zero Promoter Pledging: Stable 64.24% promoter holding with no pledging indicates strong promoter confidence
- Consistent Dividend Policy: 48.84% payout ratio demonstrates commitment to shareholder returns
- Growing Institutional Interest: FII and MF holdings increasing despite operational challenges
- Excellent Quality Grade: Long-term financial performance earns "Excellent" quality rating
Key Concerns ⚠
- Sharp Profit Decline: Q2 FY26 net profit down 40.98% QoQ to ₹48.29 crores, marking steepest quarterly drop
- Revenue Contraction: Net sales declined 20.27% QoQ to ₹1,117.76 crores, lowest quarterly level
- Margin Compression: Operating margin fell 125 bps to 7.08%, PAT margin down 151 bps to 4.36%
- Negative Financial Trend: Classified as "Negative" trend with multiple metrics at multi-quarter lows
- Elevated Valuation: P/E of 49x and P/BV of 6.75x represent significant premium to peers
- High Volatility: Beta of 1.35 and volatility of 35.61% indicate above-market risk
- Near-Term Underperformance: One-month return of -8.28% vs Sensex +5.41% signals market concern
Outlook: What to Watch
The trajectory of Supreme Petrochem's stock over the coming quarters will depend critically on the company's ability to demonstrate operational recovery and margin stabilisation. Investors should monitor several key factors that will determine whether the current challenges represent a temporary cyclical trough or a more sustained structural shift in the company's competitive positioning.
Positive Catalysts
- Margin Recovery: Sequential improvement in operating and PAT margins back towards historical levels
- Volume Growth: Revival in sales volumes indicating demand recovery in key end-user segments
- Raw Material Stabilisation: Easing of input cost pressures or improved pass-through ability
- Management Commentary: Clear articulation of recovery roadmap and strategic initiatives
- Balance Sheet Deployment: Utilisation of strong cash position for growth or shareholder returns
Red Flags
- Sustained Margin Pressure: Continued compression below 7% operating margin in Q3 FY26
- Market Share Loss: Evidence of competitive pressures leading to structural margin erosion
- Demand Weakness: Further sequential revenue decline indicating broader industry challenges
- ROE Deterioration: Continued decline in returns on equity below 13% levels
- Institutional Selling: Reversal of recent FII/MF accumulation trend
The Verdict: Hold for Recovery, Caution for Fresh Entries
Score: 61/100
For Fresh Investors: Not recommended for fresh purchases at current levels. The sharp sequential deterioration in Q2 FY2026 results, combined with elevated valuations (P/E of 49x, P/BV of 6.75x), suggests limited margin of safety. Investors should wait for clearer signs of operational recovery and margin stabilisation before initiating positions. Consider accumulating only if the stock corrects to ₹650-700 levels or if Q3 FY2026 results demonstrate meaningful sequential improvement.
For Existing Holders: Continue to hold given the company's excellent long-term quality credentials, debt-free balance sheet, and superior historical returns. The current challenges appear cyclical rather than structural, and the company's strong financial position provides resilience to weather near-term headwinds. However, monitor Q3 FY2026 results closely—sustained margin pressure or further profit declines would warrant a reassessment. Consider reducing positions if operating margins fail to recover above 8% or if ROE continues declining below 12%.
Fair Value Estimate: ₹700-750 (12-19% downside from current levels), based on normalised earnings of ₹16-17 per share and a justified P/E multiple of 42-45x given the company's quality profile and growth potential once cyclical pressures ease.
Rationale: Supreme Petrochem remains a fundamentally strong company with exceptional long-term credentials, but the sharp sequential deterioration in Q2 FY2026 results and negative financial trend classification warrant a cautious stance. The HOLD rating reflects the balance between the company's excellent quality grade and strong balance sheet on one hand, and near-term operational challenges and elevated valuations on the other. Recovery in margins and earnings trajectory will be critical for re-rating.
⚠️ 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.
