HP Adhesives Ltd Valuation Shifts to Fair Amid Market Pressure

Valuation Metrics and Recent Changes

HP Adhesives currently trades at a price of ₹38.21, down from the previous close of ₹41.33, marking a day decline of 7.55%. The stock has seen a 52-week high of ₹63.90 and a low of ₹35.01, indicating significant volatility over the past year. The company’s price-to-earnings (P/E) ratio stands at 24.76, a figure that has contributed to the recent downgrade in its valuation grade from attractive to fair as of 12 Nov 2025.

The price-to-book value (P/BV) ratio is 1.86, which remains moderate but higher than historical averages for the company. Other valuation multiples include an enterprise value to EBIT (EV/EBIT) of 18.38 and an EV to EBITDA of 13.81, both suggesting a relatively stretched valuation compared to some peers in the Specialty Chemicals industry.

Comparative Peer Analysis

When benchmarked against its industry peers, HP Adhesives’ valuation appears more reasonable but less compelling. For instance, Stallion India trades at a P/E of 59.23 and an EV/EBITDA of 38.41, categorised as very expensive. Sanstar and Platinum Industries also command expensive valuations with P/E ratios of 80.98 and 30.55 respectively. Conversely, companies like Gem Aromatics and Gulshan Polyols are rated as attractive or very attractive, with P/E ratios of 17.74 and 23.82 and EV/EBITDA multiples below 13.

Notably, I G Petrochemicals, despite being loss-making, is considered very attractive on valuation grounds due to its EV/EBITDA of 15.71, while Oriental Aromatics’ valuation is skewed by an exceptionally high P/E of 1342.05, reflecting unique market dynamics.

Financial Performance and Returns

HP Adhesives’ return metrics over various periods reveal a challenging performance relative to the broader market. The stock has declined 4.5% over the past week and 3.8% in the last month, compared to Sensex returns of -1.14% and -1.20% respectively. Year-to-date, the stock is down 7.23%, more than double the Sensex’s 3.04% decline.

Longer-term returns are more concerning, with a one-year loss of 38.52% against an 8.52% gain in the Sensex, and a three-year decline of 45.12% while the benchmark rose 36.73%. These figures underscore the stock’s underperformance and heightened risk profile in recent years.

Profitability and Efficiency Metrics

HP Adhesives’ return on capital employed (ROCE) is 13.12%, indicating moderate efficiency in generating profits from its capital base. Return on equity (ROE) stands at 8.71%, which is modest and may be a factor in the cautious valuation stance. The dividend yield is 1.05%, reflecting a relatively low income return for shareholders.

These profitability ratios, combined with valuation multiples, suggest that while the company is not in distress, it faces headwinds in delivering superior returns compared to peers and market expectations.

Mojo Score and Market Sentiment

MarketsMOJO assigns HP Adhesives a Mojo Score of 26.0, with a grade of Strong Sell as of 12 Nov 2025, an upgrade from the previous Sell rating. This downgrade in sentiment reflects concerns over valuation and performance metrics. The market capitalisation grade is 4, indicating a mid-sized company with moderate liquidity and market presence.

The stock’s recent price action, including a drop to ₹38.21 from a recent high of ₹41.33, aligns with the negative sentiment and valuation reassessment by investors.

Valuation Grade Shift: Implications for Investors

The transition of HP Adhesives’ valuation grade from attractive to fair signals a recalibration of investor expectations. The P/E ratio of 24.76, while not excessive in absolute terms, is elevated relative to the company’s historical averages and some more attractively valued peers. The P/BV of 1.86 also suggests limited margin of safety for value investors.

Investors should weigh these valuation metrics against the company’s growth prospects, sector dynamics, and financial health. The Specialty Chemicals sector is competitive, with several peers trading at higher multiples justified by stronger growth or profitability. HP Adhesives’ moderate ROCE and ROE may limit its ability to command premium valuations going forward.

Sector Outlook and Market Context

The Specialty Chemicals sector continues to face mixed headwinds, including raw material cost volatility, regulatory pressures, and fluctuating demand from end-user industries. While some companies have managed to sustain premium valuations through innovation and strong earnings growth, others like HP Adhesives are grappling with margin pressures and subdued investor confidence.

Given the sector’s complexity, valuation multiples can vary widely. HP Adhesives’ current EV/EBITDA of 13.81 is moderate but less compelling compared to more attractively valued peers such as Gem Aromatics (12.72) and Gulshan Polyols (10.83). This suggests that investors may find better risk-adjusted opportunities elsewhere within the sector.

Conclusion: Navigating Valuation and Investment Decisions

HP Adhesives Ltd’s shift from an attractive to a fair valuation grade reflects a broader reassessment of its market position and financial performance. The company’s P/E and P/BV ratios, combined with moderate profitability metrics and underwhelming returns relative to the Sensex, warrant caution among investors.

While the stock is not deeply undervalued, it no longer offers the compelling valuation edge it once did. Investors should consider the company’s fundamentals in conjunction with sector trends and peer valuations before making allocation decisions. The current Strong Sell Mojo Grade further emphasises the need for prudence.

For those holding HP Adhesives, exploring alternative investments within the Specialty Chemicals sector or broader market may yield superior risk-adjusted returns, especially given the availability of peers with more attractive valuations and stronger growth prospects.

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