TCPL Packaging Q3 FY26: Profit Plunges 34% Amid Volume Pressures and Rising Costs

The quarter's results paint a concerning picture of a company grappling with volume headwinds and cost pressures. Whilst the company managed to expand its operating margin excluding other income to 17.42% from 14.95% in Q3 FY25, the bottom line was severely impacted by a sharp rise in interest costs and normalisation of other income. Net sales declined marginally by 1.76% year-on-year to ₹471.23 crores, suggesting weak demand conditions in the packaging sector.

On a sequential basis, the decline was more moderate, with net profit falling 12.81% from ₹28.72 crores in Q2 FY26. Revenue growth remained anaemic at just 2.33% quarter-on-quarter, indicating that the company continues to struggle with volume growth despite being in a traditionally stable industry. The stock has significantly underperformed the broader market, declining 19.68% over the past year compared to a 7.97% gain in the Sensex, translating to a negative alpha of 27.65 percentage points.

Financial Performance: Margin Expansion Masks Deeper Concerns

Whilst TCPL Packaging managed to improve its operating margin excluding other income to 17.42% in Q3 FY26 from 14.95% in Q3 FY25, this 247 basis point expansion could not prevent a sharp contraction in profitability at the net level. The improvement in operating margins appears to be driven by better cost management and operating leverage, with the company reporting its highest quarterly operating profit at ₹80.98 crores. However, this positive development was more than offset by a surge in interest costs and a collapse in other income.

Interest expense rose 3.27% quarter-on-quarter to ₹15.49 crores in Q3 FY26, though it remained relatively stable compared to ₹15.00 crores in Q3 FY25. More concerning is the nine-month trend, with interest costs for the first nine months of FY26 growing 31.86% to ₹61.59 crores, reflecting higher debt levels and rising borrowing costs. The company's debt-to-equity ratio stands at 1.01, indicating relatively high leverage that is pressuring profitability in a rising interest rate environment.

Other income collapsed to ₹2.57 crores in Q3 FY26 from ₹11.99 crores in Q3 FY25, a decline of 78.57%. This sharp drop suggests that the company benefited from one-time gains or higher treasury income in the year-ago period, which did not recur in the current quarter. The normalisation of other income has exposed the underlying weakness in core profitability, with profit before tax (excluding other income) rising only modestly despite the margin expansion.

Employee costs rose 19.94% year-on-year to ₹49.63 crores in Q3 FY26, reflecting wage inflation and potentially higher headcount to support future growth. The tax rate for the quarter stood at 28.60%, significantly higher than the 21.85% in Q3 FY25, further eroding net profitability. The quality of earnings remains a concern, with the sharp decline in net profit despite margin expansion raising questions about the sustainability of the current business model.

Operational Challenges: Volume Weakness and Working Capital Strain

The company's operational performance reveals deeper structural challenges beyond the headline numbers. The marginal 1.76% year-on-year decline in net sales to ₹471.23 crores in Q3 FY26 masks more significant volume pressures. In an industry where revenue growth typically tracks GDP growth closely, TCPL Packaging's stagnant top line suggests market share losses or weakness in end-user demand from sectors like FMCG, pharmaceuticals, and consumer goods.

Return on equity (ROE) for FY25 stood at 18.94%, which whilst respectable, has declined from the company's five-year average of 21.02%. This erosion in capital efficiency reflects the challenges in converting revenue growth into bottom-line expansion. The company's return on capital employed (ROCE) has also shown signs of stress, with the half-yearly ROCE for H1 FY26 falling to 17.11%, the lowest in recent periods. This suggests that the company is struggling to generate adequate returns on the capital it has deployed, particularly given the high debt levels.

The balance sheet shows total debt of ₹261.44 crores as of March 2025, up from ₹224.78 crores in March 2024, representing a 16.32% increase. With net debt-to-equity averaging 1.01 over the past five years, the company operates with relatively high leverage compared to some of its peers. The debt-to-EBITDA ratio of 2.39 times suggests that it would take the company approximately 2.4 years to repay its debt using current EBITDA levels, assuming no growth or dividend payments.

Capital expenditure remains elevated, with the company investing ₹149 crores in FY25, reflecting ongoing capacity expansion and modernisation efforts. However, the cash flow from operations of ₹132 crores in FY25 was insufficient to cover this capital expenditure, necessitating additional borrowing. This pattern of investing ahead of demand growth has pressured the balance sheet and contributed to the rise in interest costs.

Industry Context: Navigating Headwinds in a Competitive Landscape

The packaging industry in India has faced multiple headwinds over the past year, including raw material cost volatility, weak demand from key end-user segments, and intense competition. TCPL Packaging's underperformance relative to the broader packaging sector—which delivered a 2.44% return over the past year compared to TCPL's negative 19.68%—suggests company-specific challenges beyond industry-wide factors.

The folding carton segment, which forms TCPL Packaging's core business, has seen pricing pressure as larger FMCG companies negotiate harder on packaging costs amidst their own margin pressures. The company's inability to pass on cost increases fully to customers has resulted in margin compression at the gross profit level in certain quarters. Whilst the operating margin expansion in Q3 FY26 is encouraging, it remains to be seen whether this is sustainable or merely a function of favourable raw material costs in the quarter.

The company's sales-to-capital-employed ratio of 1.41 times indicates moderate asset utilisation efficiency. This suggests that for every rupee of capital employed, the company generates ₹1.41 in sales, which is reasonable but not exceptional. Improving this metric through better capacity utilisation and working capital management will be critical for improving overall returns.

Peer Comparison: Valuation Premium Unjustified by Performance

TCPL Packaging trades at a price-to-earnings (P/E) ratio of 18.95 times trailing twelve-month earnings, which is above the packaging industry average of 16 times. This valuation premium appears unjustified given the company's deteriorating financial performance and weak growth trajectory. The company's price-to-book (P/BV) ratio of 3.59 times is significantly higher than peers like Uflex (0.47x) and Polyplex Corporation (0.69x), suggesting that the market has been slow to adjust valuations to reflect the underlying business challenges.

TCPL Packaging's key competitive advantage lies in its superior return on equity of 21.02%, which is higher than most peers. This reflects the company's historical ability to generate strong returns on shareholder capital. However, the declining trend in ROE and the sharp profit decline in recent quarters raise questions about whether this advantage is sustainable. The company's debt-to-equity ratio of 1.01 is significantly higher than EPL Ltd. (0.24) and AGI Greenpac (0.20), indicating higher financial risk.

The dividend yield of 1.14% is modest and in line with the sector average, reflecting a conservative payout ratio of 19.75%. Whilst this provides some downside support to the stock price, it is unlikely to attract income-focused investors given the availability of higher yields elsewhere in the market.

Valuation Analysis: Overvalued Relative to Deteriorating Fundamentals

At the current market price of ₹2,640.95, TCPL Packaging trades at a significant premium to its historical valuations and peer group multiples. The stock has declined 46.21% from its 52-week high of ₹4,909.55, reflecting growing investor concerns about the company's growth prospects and profitability trajectory. However, even after this correction, the valuation appears stretched given the fundamental challenges.

The company's enterprise value-to-EBITDA (EV/EBITDA) multiple of 10.82 times is reasonable but not cheap for a company experiencing declining profitability and weak revenue growth. The EV/EBIT multiple of 14.97 times is elevated, particularly given the margin pressures and rising interest costs. The price-to-earnings-growth (PEG) ratio of 1.87 suggests that the stock is trading above fair value relative to its growth rate, with the five-year earnings growth of 24.26% not justifying the current P/E multiple in the context of recent performance.

The company's book value per share of ₹707.43 provides a baseline valuation floor. At the current price-to-book ratio of 3.59 times, the stock would need to demonstrate a return to robust earnings growth and margin expansion to justify this premium. Based on the current trajectory, a fair value estimate would be closer to ₹2,200-2,400, implying limited upside and potential downside risk of 8-17% from current levels.

Shareholding Pattern: Stable Promoter Holding, Modest Institutional Interest

The shareholding pattern reveals a stable ownership structure with promoters holding 55.74% of the equity as of December 2025, unchanged over the past five quarters. This stable promoter holding provides some confidence in the long-term commitment of the founding families—the Jindal and Kanoria groups—to the business. Importantly, there is no promoter pledging, which eliminates concerns about forced selling or governance issues related to pledged shares.

Institutional ownership remains modest, with mutual funds holding 7.64% and other domestic institutional investors (DIIs) holding 5.02% as of December 2025. Foreign institutional investor (FII) holding is minimal at just 0.96%, reflecting limited interest from global investors. The gradual increase in DII holdings—up from 4.08% in March 2025 to 5.02% in December 2025—suggests some accumulation by domestic institutions, though the pace is slow.

The decline in non-institutional holdings from 31.19% in September 2025 to 30.63% in December 2025 indicates that retail investors and smaller institutions have been reducing their exposure, likely in response to the deteriorating financial performance. The overall institutional holding of 13.63% is relatively low for a company of this size, suggesting that the stock remains under-owned by large institutional investors.

Stock Performance: Severe Underperformance Across All Timeframes

TCPL Packaging's stock performance has been dismal over the past year, with the shares declining 19.68% compared to a 7.97% gain in the Sensex. This translates to a negative alpha of 27.65 percentage points, reflecting severe underperformance. The stock has also underperformed its sector, with the packaging industry delivering a positive 2.44% return over the same period, resulting in a 22.12 percentage point underperformance relative to peers.

The stock's technical indicators paint a bearish picture, with the current trend classified as "Bearish" since December 9, 2025, when it broke down from ₹3,082. The stock is trading below all key moving averages—5-day (₹2,669.87), 20-day (₹2,690.02), 50-day (₹2,892.09), 100-day (₹3,122.03), and 200-day (₹3,401.58)—indicating sustained selling pressure and lack of buying interest.

The stock's beta of 1.35 indicates that it is 35% more volatile than the broader market, amplifying both gains and losses. With a volatility of 43.95% over the past year, TCPL Packaging falls into the "high risk, low return" category based on risk-adjusted metrics. The negative Sharpe ratio reflects that the stock has delivered negative returns whilst exposing investors to above-average volatility.

On a longer-term basis, the stock has been a strong performer, delivering returns of 92.64% over three years and an exceptional 561.48% over five years. However, the recent deterioration in performance suggests that the growth trajectory that drove these historical returns may be coming to an end. Investors who bought at higher levels over the past year are sitting on significant losses, with the stock down 46.21% from its 52-week high of ₹4,909.55.

Investment Thesis: Deteriorating Fundamentals Outweigh Historical Strengths

TCPL Packaging's investment thesis has weakened considerably over the past year as the company grapples with volume pressures, margin erosion, and rising debt costs. Whilst the company retains some competitive advantages—including its position as one of India's largest folding carton manufacturers, a stable promoter base, and historically strong return ratios—these positives are increasingly overshadowed by near-term challenges.

The company's quality grade of "Average" reflects a mixed fundamental picture. Whilst the five-year sales growth of 16.56% and EBIT growth of 24.26% are respectable, the recent deceleration in both metrics raises concerns. The average EBIT-to-interest coverage of 3.14 times is weak for a manufacturing company, suggesting limited financial flexibility. The debt-to-EBITDA ratio of 2.39 and net debt-to-equity of 1.01 indicate elevated leverage that constrains the company's ability to invest in growth or weather economic downturns.

The financial trend is classified as "Flat" for Q3 FY26, reflecting stagnant revenue growth and declining profitability. Key negative factors include a 31.86% increase in interest costs over the nine-month period and the lowest ROCE in recent periods at 17.11% for H1 FY26. The debtors turnover ratio falling to 3.62 times signals deteriorating working capital management, which could pressure cash flows in coming quarters.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters