The December 2025 quarter results reveal a company grappling with severe margin pressure despite achieving sequential revenue growth. Whilst net sales climbed 14.60% quarter-on-quarter to ₹1,280.93 crores, operating profit excluding other income contracted to ₹70.78 crores from ₹78.72 crores in Q2 FY26, pushing operating margins down to 5.55% from 7.08%. This margin compression, coupled with higher depreciation charges that surged to ₹27.14 crores from ₹18.63 crores, severely impacted bottom-line profitability. The PAT margin deteriorated to just 2.40%, down from 4.36% in the previous quarter and a robust 5.87% in Q1 FY26.
Financial Performance: A Tale of Deteriorating Profitability
Supreme Petrochem's Q3 FY26 performance presents a concerning picture of margin erosion despite top-line recovery. Net sales in Q3 FY26 stood at ₹1,280.93 crores, representing a 14.60% sequential improvement from Q2 FY26's ₹1,117.76 crores, yet this revenue growth failed to translate into improved profitability. The operating profit before depreciation, interest, tax, and other income (PBDIT excl OI) declined to ₹70.78 crores from ₹78.72 crores quarter-on-quarter, indicating fundamental operational challenges.
| Quarter | Net Sales (₹ Cr) | QoQ Change | Net Profit (₹ Cr) | QoQ Change | Operating Margin | PAT Margin |
|---|---|---|---|---|---|---|
| Dec'25 (Q3) | 1,280.93 | +14.60% | 30.57 | -36.69% | 5.55% | 2.40% |
| Sep'25 (Q2) | 1,117.76 | -20.27% | 48.29 | -40.98% | 7.08% | 4.36% |
| Jun'25 (Q1) | 1,401.91 | — | 81.82 | — | 8.33% | 5.87% |
The margin compression is particularly troubling when examined across the nine-month period of FY26. Operating margins have contracted from 8.33% in Q1 to 5.55% in Q3, a decline of 278 basis points that signals either pricing pressure in the petrochemicals market or rising input costs that the company has been unable to pass through to customers. The PAT margin decline of 347 basis points over the same period—from 5.87% to 2.40%—suggests deteriorating operational efficiency and profitability.
Other income provided some cushion, contributing ₹8.84 crores in Q3 FY26, though this was significantly lower than the ₹15.24 crores recorded in Q1 FY26. Interest costs rose to ₹4.20 crores from ₹2.99 crores quarter-on-quarter, whilst depreciation charges jumped sharply to ₹27.14 crores from ₹18.63 crores, representing a 45.66% sequential increase that warrants management explanation. The tax rate remained stable at 25.49%, consistent with the company's historical average of 25.53%.
Critical Margin Erosion Alert
Operating margins have declined 278 basis points from Q1 to Q3 FY26, whilst PAT margins have contracted 347 basis points over the same period. This sustained margin pressure, coupled with a sharp 45.66% QoQ increase in depreciation, raises concerns about asset productivity and pricing power in the current market environment.
Operational Challenges: Return Metrics Under Pressure
Despite Supreme Petrochem's historical reputation as an excellent quality company with an exceptional average return on capital employed (ROCE) of 73.34% and average return on equity (ROE) of 30.47%, recent operational metrics paint a less flattering picture. The latest half-yearly ROCE has declined to 18.01%, representing the lowest level in recent periods and a significant deterioration from the company's historical performance standards. This decline in ROCE, which measures how efficiently the company generates profits from its capital employed, signals reduced operational effectiveness.
The company's balance sheet remains fundamentally sound, with Supreme Petrochem maintaining its status as a net cash company with an average net debt to equity ratio of -0.18. This indicates the company holds more cash than debt, providing financial flexibility during challenging market conditions. The average debt to EBITDA ratio of just 0.16 underscores minimal leverage, whilst the exceptional average EBIT to interest coverage of 98.36 times demonstrates robust interest servicing capability. However, these balance sheet strengths have not translated into operational performance improvement in recent quarters.
Return on Equity: Quality Under Scrutiny
Supreme Petrochem's average ROE of 30.47% reflects strong historical capital efficiency, indicating the company has consistently generated healthy returns on shareholder equity. However, the latest ROE of 13.85% marks a significant decline from historical averages, suggesting recent profitability challenges are impacting the company's ability to maintain its premium return profile. Higher ROE typically indicates better capital efficiency and profitability—a metric where Supreme Petrochem has historically excelled but now faces pressure.
The company's asset turnover, measured by sales to capital employed, averages 2.81 times, indicating reasonable efficiency in generating revenue from invested capital. Employee costs in Q3 FY26 stood at ₹20.97 crores, up from ₹17.08 crores in Q2 FY26, representing a 22.77% sequential increase that outpaced revenue growth and contributed to margin pressure. Cash and cash equivalents at the half-year mark stood at ₹342.14 crores, the lowest level in recent periods, though still providing adequate liquidity for operations.
Petrochemicals Sector Context: Navigating Industry Headwinds
Supreme Petrochem operates in the petrochemicals sector, manufacturing polystyrene (PS), expandable polystyrene (EPS), masterbatches, compounds, and extruded polystyrene insulation boards (XPS) from facilities in Maharashtra and Tamil Nadu. The petrochemicals industry has faced significant challenges in recent periods, with volatile raw material prices, fluctuating demand patterns, and margin pressure across the value chain affecting profitability for most players.
The company's stock performance reflects these sector-wide challenges, with Supreme Petrochem delivering a negative return of 21.59% over the past year, significantly underperforming the petrochemicals sector average return of -0.90% by 20.69 percentage points. This substantial underperformance suggests company-specific issues beyond broader sector trends. Over longer time horizons, however, the stock has demonstrated strong wealth creation, delivering 152.97% returns over five years and an exceptional 928.27% return over ten years, vastly outperforming the Sensex's 241.54% gain over the same period.
The company's debtor turnover ratio for the half-year period reached 20.07 times, the highest in recent quarters, indicating improved working capital management and faster collection of receivables. This positive development suggests Supreme Petrochem is maintaining discipline in credit management despite challenging market conditions. However, this strength has been overshadowed by deteriorating profitability metrics that have dominated investor sentiment.
Peer Comparison: Premium Valuation Under Question
Supreme Petrochem's valuation metrics reveal a significant premium relative to petrochemical sector peers, raising questions about whether current financial performance justifies the elevated multiples. The company trades at a price-to-earnings (P/E) ratio of 31.05 times trailing twelve-month earnings, substantially higher than the industry average P/E of 39 times for the broader chemicals sector but commanding a premium over most direct petrochemical peers.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Div Yield (%) | Debt/Equity |
|---|---|---|---|---|---|
| Supreme Petrochem | 31.05 | 4.30 | 30.47 | 1.97 | -0.18 |
| Rain Industries | NA (Loss Making) | 0.64 | 7.59 | 0.75 | 1.16 |
| DCW | 28.69 | 1.36 | 7.01 | 0.21 | 0.16 |
| Agarwal Industrial | 12.13 | 1.54 | 20.42 | 0.49 | 0.51 |
| Manali Petrochem | 18.34 | 0.83 | 14.95 | 0.91 | -0.18 |
| T N Petro Products | 8.47 | 0.87 | 13.12 | 1.28 | 0.03 |
Supreme Petrochem's price-to-book value (P/BV) ratio of 4.30 times stands significantly above the peer group average of approximately 1.0 times, reflecting the market's historical recognition of the company's superior return profile. The company's average ROE of 30.47% justifies some valuation premium, as it substantially exceeds the peer average of around 13%. However, with the latest ROE declining to 13.85%, this premium appears increasingly difficult to defend.
The company's dividend yield of 1.97% compares favourably to most peers, supported by a healthy dividend payout ratio of 48.84%. Supreme Petrochem paid a dividend of ₹2.50 per share with an ex-dividend date of October 31, 2025. The company's net cash position (debt to equity of -0.18) provides a competitive advantage over peers such as Rain Industries (debt to equity of 1.16) and Agarwal Industrial (0.51), offering greater financial flexibility.
Valuation Analysis: Premium Increasingly Difficult to Justify
At the current market price of ₹507.45, Supreme Petrochem trades at a P/E ratio of 31.05 times, representing a modest discount to the broader industry P/E of 39 times but a significant premium to most direct petrochemical peers. The stock has corrected sharply from its 52-week high of ₹981.65, now trading 48.31% below that peak, bringing valuations closer to reasonable levels. However, the company currently trades just 1.18% above its 52-week low of ₹501.55, suggesting limited downside cushion at current levels.
The enterprise value (EV) to EBITDA multiple of 20.96 times appears elevated for a company experiencing margin compression and declining profitability trends. The EV to EBIT ratio of 25.05 times and EV to sales ratio of 1.68 times further underscore the premium valuation. The price-to-book ratio of 4.30 times, whilst justified by historical ROE performance, looks increasingly stretched given the latest ROE of 13.85% and deteriorating operational metrics.
Valuation Grade: Fair but Vulnerable
Supreme Petrochem's valuation grade stands at "Fair" following multiple recent changes between "Fair" and "Attractive" during 2025. The stock transitioned to Fair from Attractive on July 10, 2025, reflecting the market's reassessment of the company's prospects amid deteriorating financial trends. At current levels, the valuation appears fair but offers limited margin of safety given the negative financial trajectory and bearish technical setup.
The stock's PEG ratio is not available, suggesting either negative or inconsistent earnings growth that prevents meaningful calculation. With five-year sales growth of 19.05% and five-year EBIT growth of 23.60%, the company has demonstrated strong historical growth. However, recent quarterly performance suggests this growth trajectory has stalled, with Q3 FY26 net profit declining 53.8% compared to the previous four-quarter average.
Shareholding Pattern: Stable Promoter Base, Modest Institutional Interest
Supreme Petrochem's shareholding pattern reveals a stable promoter base holding 64.24% of equity, unchanged over the past five quarters. The promoter group is led by R Raheja Investments Private Limited and The Supreme Industries Limited, each holding 30.78%, with smaller stakes held by Hathway Investments Private Limited (1.51%) and other group entities. Importantly, there is zero promoter pledging, indicating strong promoter confidence and financial stability within the promoter group.
| Quarter | Promoter % | FII % | MF % | Insurance % | Other DII % | Non-Inst % |
|---|---|---|---|---|---|---|
| Sep'25 | 64.24 | 3.70 | 3.79 | 0.00 | 0.18 | 28.09 |
| Jun'25 | 64.24 | 3.54 | 3.67 | 0.00 | 0.18 | 28.36 |
| Mar'25 | 64.24 | 3.49 | 2.97 | 0.00 | 0.18 | 29.11 |
| Dec'24 | 64.24 | 3.42 | 2.85 | 0.00 | 0.17 | 29.31 |
| Sep'24 | 64.24 | 3.36 | 2.71 | 0.00 | 0.18 | 29.49 |
Foreign institutional investor (FII) holdings have shown gradual improvement, rising from 3.36% in September 2024 to 3.70% in September 2025, with sequential increases each quarter. This steady accumulation by FIIs, totalling 108 foreign institutional investors, suggests growing international interest despite recent operational challenges. Mutual fund holdings have also increased meaningfully, climbing from 2.71% to 3.79% over the same period, with a notable jump of 70 basis points between March and June 2025. The company now has seven mutual funds as shareholders.
Insurance company holdings remain at zero, indicating an absence of participation from this institutional category. Other domestic institutional investor (DII) holdings remain minimal at 0.18%. Non-institutional holdings have declined from 29.49% to 28.09%, suggesting some retail investor exodus amid the stock's poor recent performance. Overall institutional holdings of 7.66% remain relatively low, providing potential upside if institutional participation increases following operational improvement.
Stock Performance: Severe Underperformance Across All Timeframes
Supreme Petrochem's stock performance has been dismal across most recent timeframes, with the stock experiencing severe selling pressure that has accelerated in recent months. The stock declined 4.99% on January 20, 2026, closing at ₹507.45 against a previous close of ₹534.10, underperforming the Sensex's 1.28% decline by 3.71 percentage points. This single-day weakness reflects broader negative momentum that has characterised the stock's recent trajectory.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | -4.99% | -1.28% | -3.71% |
| 1 Week | -9.98% | -1.73% | -8.25% |
| 1 Month | -18.94% | -3.24% | -15.70% |
| 3 Month | -33.97% | -2.59% | -31.38% |
| 6 Month | -37.77% | +0.52% | -38.29% |
| YTD | -21.26% | -3.57% | -17.69% |
| 1 Year | -21.59% | +6.63% | -28.22% |
| 3 Years | +40.67% | +35.56% | +5.11% |
| 5 Years | +152.97% | +65.05% | +87.92% |
The stock's one-week performance shows a decline of 9.98%, underperforming the Sensex by 8.25 percentage points, whilst the one-month return of negative 18.94% represents massive underperformance of 15.70 percentage points versus the benchmark. The three-month return of negative 33.97% and six-month return of negative 37.77% underscore the severity of the correction, with the stock generating negative alpha of 31.38 percentage points and 38.29 percentage points respectively against the Sensex.
The stock's beta of 1.35 indicates high volatility relative to the market, classifying it as a high-beta stock that amplifies market movements. With annualised volatility of 37.65% over the past year, significantly exceeding the Sensex's 11.31% volatility, the stock carries substantially higher risk. The risk-adjusted return of negative 0.57 over one year, compared to the Sensex's positive 0.59, places the stock in the "high risk, low return" category—an unfavourable combination for investors.
All moving averages present bearish signals, with the stock trading below its 5-day moving average of ₹549.07, 20-day moving average of ₹608.60, 50-day moving average of ₹631.89, 100-day moving average of ₹712.15, and 200-day moving average of ₹725.90. This complete breakdown below all key moving averages confirms strong bearish momentum and suggests further downside risk unless operational performance improves meaningfully.
"With the stock trading below all moving averages and having lost nearly 38% over six months, Supreme Petrochem faces a critical juncture where operational improvement must materialise soon to arrest the technical breakdown and restore investor confidence."
Technical Analysis: Entrenched Bearish Trend
Supreme Petrochem's technical picture remains decidedly negative, with the overall trend classified as "Bearish" since December 10, 2025, when the trend changed from "Mildly Bearish" at ₹659.30. Multiple technical indicators across weekly and monthly timeframes flash warning signals, suggesting the path of least resistance remains downward barring significant fundamental catalysts.
The Moving Average Convergence Divergence (MACD) indicator shows bearish signals on both weekly and monthly charts, whilst the Relative Strength Index (RSI) provides no clear signal, suggesting the stock is neither oversold nor overbought at current levels. Bollinger Bands indicate bearish conditions on both weekly and monthly timeframes, with the stock trading near the lower band. The Know Sure Thing (KST) oscillator displays bearish readings on the weekly chart and mildly bearish on the monthly chart, confirming negative momentum.
Dow Theory analysis suggests mildly bearish conditions on both weekly and monthly charts, whilst On-Balance Volume (OBV), which measures buying and selling pressure, shows bearish trends across both timeframes. This comprehensive array of negative technical signals provides little comfort for existing shareholders or potential buyers at current levels. Immediate support rests at ₹501.55, the 52-week low, which the stock is currently testing. Immediate resistance lies at ₹608.60 around the 20-day moving average, with major resistance at ₹712.15 (100-day moving average) and strong resistance at ₹725.90 (200-day moving average).
Investment Thesis: Quality Company Facing Cyclical Headwinds
Supreme Petrochem's investment case rests on the dichotomy between excellent long-term quality credentials and deteriorating near-term operational performance. The company maintains an "Excellent" quality grade, reflecting strong historical financial performance characterised by exceptional average ROCE of 73.34%, robust average ROE of 30.47%, minimal debt, strong interest coverage, and consistent dividend payments with zero promoter pledging. These fundamental strengths have underpinned the stock's exceptional long-term wealth creation, with 152.97% returns over five years.
However, the current financial trend is classified as "Negative" based on Q3 FY26 results, with multiple red flags including quarterly PAT declining 53.8% versus the previous four-quarter average, half-yearly ROCE at a multi-quarter low of 18.01%, operating profit to net sales ratio at a low of 5.48%, and cash and cash equivalents at the lowest level in recent periods. The technical trend remains firmly "Bearish," whilst valuation has moderated to "Fair" from previously "Attractive" levels following the sharp correction.
The company's Mojo Score of 40 out of 100 results in a "SELL" rating, reflecting the confluence of negative financial trends, bearish technical setup, and deteriorating momentum despite fair valuation and excellent underlying quality. This score places the stock in the 30-50 range, warranting caution and consideration of exit opportunities for existing holders.
Key Strengths
- Excellent Quality Grade: Reflects strong long-term financial performance and robust fundamentals
- Exceptional Historical Returns: Average ROCE of 73.34% and average ROE of 30.47% demonstrate superior capital efficiency
- Net Cash Position: Debt to equity of -0.18 provides financial flexibility and reduces solvency risk
- Strong Interest Coverage: EBIT to interest ratio of 98.36 times ensures comfortable debt servicing
- Stable Promoter Base: 64.24% promoter holding with zero pledging indicates strong commitment
- Consistent Dividend Payer: Dividend yield of 1.97% with payout ratio of 48.84% rewards shareholders
- Improved Working Capital: Debtor turnover ratio at 20.07 times shows efficient receivables management
Key Concerns
- Severe Margin Compression: Operating margins declined from 8.33% to 5.55% in nine months of FY26
- Collapsing Profitability: Net profit down 36.69% QoQ and 53.8% vs four-quarter average
- Deteriorating Returns: Latest ROCE of 18.01% and ROE of 13.85% well below historical averages
- Sharp Depreciation Increase: Depreciation surged 45.66% QoQ, impacting profitability
- Bearish Technical Setup: Stock below all moving averages with negative momentum across indicators
- Severe Underperformance: Stock down 21.59% over one year vs Sensex gain of 6.63%
- High Volatility: Beta of 1.35 and volatility of 37.65% indicate elevated risk profile
Outlook: Critical Inflection Point Approaching
Supreme Petrochem stands at a critical juncture where the company must demonstrate operational improvement in the coming quarters to arrest the deteriorating financial trajectory and restore investor confidence. The Q4 FY26 results will be crucial in determining whether the margin compression represents temporary cyclical headwinds or structural challenges requiring strategic intervention. Investors should monitor several key catalysts and warning signs that will shape the stock's near-term direction.
Positive Catalysts to Watch
- Margin Recovery: Any stabilisation or improvement in operating margins above 7% would signal pricing power restoration
- Volume Growth: Sustained revenue growth with improved profitability would indicate market share gains
- Depreciation Normalisation: Explanation and normalisation of elevated depreciation charges
- Institutional Accumulation: Continued FII and mutual fund buying could provide price support
- Industry Recovery: Favourable petrochemical industry dynamics and raw material cost stabilisation
Red Flags to Monitor
- Further Margin Erosion: Operating margins falling below 5% would signal severe competitive or cost pressures
- Continued Profit Decline: Another quarter of QoQ profit decline would confirm negative trend
- ROCE Deterioration: Further decline in ROCE below 15% would undermine quality credentials
- Technical Breakdown: Break below ₹501.55 (52-week low) could trigger further selling
- Institutional Exit: Any reversal in FII or mutual fund accumulation trend
The Verdict: Quality Company in Cyclical Distress – Avoid for Now
Score: 40/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst the company possesses excellent long-term quality credentials, the negative financial trend, severe margin compression, and bearish technical setup present unfavourable risk-reward dynamics. Wait for concrete evidence of operational improvement and margin stabilisation before considering entry.
For Existing Holders: Consider reducing exposure or exiting positions, particularly if holding unrealised losses. The confluence of deteriorating fundamentals, negative momentum, and technical breakdown suggests further downside risk. Long-term investors with high conviction in the company's quality may hold with strict monitoring of Q4 FY26 results, but should prepare for continued volatility.
Fair Value Estimate: ₹450-480 (11% downside from current levels), based on normalised P/E of 25-27 times applied to deteriorating earnings trajectory. Valuation premium justified only if margins recover meaningfully.
Rationale: Despite excellent historical quality metrics and strong balance sheet, Supreme Petrochem's sharp margin compression, collapsing profitability, deteriorating return metrics, and entrenched bearish technical trend outweigh valuation support at current levels. The stock requires demonstration of operational improvement before becoming investable again.
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 is not indicative of future results, and all investments carry risk of loss.
