Quality Grade Downgrade: What Changed?
Supreme Petrochem’s quality grade adjustment from excellent to good reflects subtle but significant shifts in its core financial metrics. The downgrade is primarily driven by a decline in earnings before interest and tax (EBIT) growth over the past five years, which has contracted by 1.66%, contrasting with a healthy 15.45% sales growth over the same period. This divergence suggests that while the company has been successful in expanding its top line, profitability growth has lagged, potentially signalling margin pressures or rising costs.
Moreover, the company’s average EBIT to interest coverage ratio remains exceptionally strong at 91.67, indicating comfortable interest servicing capacity. Debt metrics are also favourable, with an average debt to EBITDA ratio of just 0.16 and net debt to equity effectively zero, underscoring a conservative capital structure and minimal leverage risk.
Return Metrics and Capital Efficiency
Supreme Petrochem continues to demonstrate impressive returns on capital, with an average return on capital employed (ROCE) of 73.34% and return on equity (ROE) averaging 30.47%. These figures are well above industry norms, reflecting efficient utilisation of capital and strong profitability. However, the downgrade in quality grade suggests that these returns may not be as consistently sustainable as previously assessed.
The company’s sales to capital employed ratio stands at 2.81, indicating effective asset turnover. Yet, the slight deterioration in EBIT growth hints at potential challenges in maintaining operational leverage or cost control, which could impact future return profiles.
Dividend and Shareholding Patterns
Supreme Petrochem maintains a dividend payout ratio of 48.84%, signalling a balanced approach to rewarding shareholders while retaining earnings for growth. Institutional holding is relatively modest at 7.66%, and there are no pledged shares, which is a positive sign for investor confidence and governance standards.
Stock Performance in Context
Despite the downgrade, the stock price has shown resilience, closing at ₹515.65 on 22 Jan 2026, up 1.62% on the day. However, the stock has underperformed the Sensex over recent periods, with a 1-month return of -17.63% compared to Sensex’s -3.56%, and a year-to-date decline of -19.99% versus Sensex’s -3.89%. Over longer horizons, Supreme Petrochem has delivered exceptional returns, with a 10-year gain of 955.58% compared to Sensex’s 241.83%, highlighting its strong historical growth trajectory.
Momentum building strong! This Mid Cap from NBFC is on our MomentumNow radar. Other investors are catching on – will you join?
- - Building momentum strength
- - Investor interest growing
- - Limited time advantage
Comparative Industry Positioning
Within the petrochemicals sector, Supreme Petrochem’s quality rating now aligns with peers such as Navin Fluorine International, Himadri Speciality Chemicals, Deepak Nitrite, and Vinati Organics, all graded as good. This cluster of companies reflects a competitive environment where maintaining excellent quality grades requires consistent earnings growth and operational excellence.
Other sector players like Atul and Aether Industries hold average quality ratings, indicating that Supreme Petrochem remains in the upper tier despite the downgrade. However, the shift from excellent to good signals that the company must address emerging challenges to regain its superior standing.
Debt and Financial Stability
One of Supreme Petrochem’s strengths remains its conservative debt profile. The average debt to EBITDA ratio of 0.16 and net debt to equity of zero highlight a virtually debt-free balance sheet. This low leverage reduces financial risk and provides flexibility for future capital allocation, whether for expansion or shareholder returns.
Interest coverage at 91.67 times further confirms the company’s robust ability to meet debt obligations, insulating it from interest rate volatility and economic downturns. This financial stability is a key positive amid the quality downgrade, offering a cushion against operational headwinds.
Profitability and Growth Concerns
While sales growth remains healthy at 15.45% over five years, the negative EBIT growth of -1.66% is a concern. This suggests that rising costs, competitive pressures, or inefficiencies may be eroding operating margins. The tax ratio of 25.35% is in line with statutory rates and does not materially affect profitability trends.
The dividend payout ratio near 49% indicates a commitment to shareholder returns, but the company must balance this with reinvestment needs to sustain growth and improve earnings quality.
Holding Supreme Petrochem Ltd from Petrochemicals? See if there's a smarter choice! SwitchER compares it with peers and suggests superior options across market caps and sectors!
- - Peer comparison ready
- - Superior options identified
- - Cross market-cap analysis
Outlook and Investor Considerations
Supreme Petrochem’s downgrade to a Sell rating by MarketsMOJO, with a Mojo Score of 33.0, reflects a cautious stance on the company’s near-term prospects. Investors should weigh the company’s strong capital efficiency and low leverage against the slowdown in earnings growth and the potential for margin pressure.
The stock’s recent underperformance relative to the Sensex and the downgrade in quality grade suggest that market expectations are adjusting to these fundamental shifts. While the company’s long-term track record remains impressive, the current environment calls for vigilance regarding operational execution and cost management.
For investors focused on quality and consistency, Supreme Petrochem’s transition from excellent to good quality grade signals a need to reassess portfolio allocations and consider peer comparisons within the petrochemicals sector.
Valuation and Price Action
At a current price of ₹515.65, the stock trades significantly below its 52-week high of ₹981.65, reflecting market concerns over growth sustainability. The intraday range on 22 Jan 2026 was ₹460.95 to ₹543.90, indicating volatility amid mixed sentiment. The market cap grade of 3 suggests a mid-cap status with moderate liquidity and investor interest.
Given the company’s fundamentals and sector dynamics, valuation multiples may compress if earnings growth does not rebound, underscoring the importance of monitoring quarterly performance and margin trends closely.
Conclusion
Supreme Petrochem Ltd’s recent quality downgrade and Mojo Grade shift to Sell highlight emerging challenges in maintaining its previously excellent business fundamentals. While the company boasts strong returns on capital, minimal debt, and solid sales growth, the decline in EBIT growth and relative underperformance against benchmarks warrant caution.
Investors should carefully analyse the company’s operational efficiency and cost structure going forward, balancing the positives of financial stability and capital efficiency against the risks of margin erosion and slower earnings growth. Peer comparisons and sector trends will be crucial in determining whether Supreme Petrochem can regain its superior quality standing or if alternative petrochemical stocks offer better risk-reward profiles.
Unlock special upgrade rates for a limited period. Start Saving Now →
