Supreme Petrochem Q2 Profit Plunges 47% Amid Margin Pressure

Introduction

Supreme Petrochem Ltd., a leading player in the Indian styrenics market, reported a challenging second quarter for the fiscal year 2026. The company announced a significant 46.7% year-on-year (YoY) decline in standalone net profit, which stood at ₹48.20 crore. This sharp drop in profitability was driven by a 27% fall in revenue from operations and severe pressure on margins. Despite the weak performance, the company's board declared an interim dividend, signaling underlying confidence in its long-term strategy.

Detailed Financial Performance

The financial results for the quarter ending September 30, 2025, highlight the operational headwinds faced by the company. Revenue from operations fell to ₹1,094.62 crore compared to the corresponding quarter in the previous year. On a sequential basis, the performance also deteriorated, with net sales contracting by over 20% from the June 2025 quarter, marking the lowest quarterly sales figure in recent periods. The profit before tax (PBT) mirrored this trend, declining 46.6% YoY to ₹65.14 crore. This top-line pressure translated directly into weaker bottom-line performance, with earnings per share (EPS) falling to ₹2.57 for the quarter.

Management's Perspective on the Decline

Company management attributed the sharp quarter-on-quarter decline to a combination of factors. A primary driver was the fall in prices of styrene monomer, a key raw material. While lower input costs can be beneficial, the decline from approximately $140 in June to $100 led to lower end-product prices, directly impacting revenue figures. Furthermore, sales volumes were down by 5% sequentially. This was caused by extended heavy monsoons in India, which dampened demand for cooling devices like air conditioners and refrigerators, key end-user segments for the company's products. The situation was exacerbated by deferred purchases from Original Equipment Manufacturers (OEMs) ahead of an anticipated reduction in GST rates, which was announced in August. Subdued demand from advanced economies in Europe and trade barriers announced by the USA also impacted export performance, putting further pressure on both revenues and margins.

Margin Compression Analysis

The second quarter witnessed a significant erosion of Supreme Petrochem's historically strong profitability. The EBITDA margin contracted to 7.85%, a reduction of 157 basis points from 9.42% in the same quarter of the previous year. Sequentially, the operating margin fell by 125 basis points to 7.08%, while the Profit After Tax (PAT) margin saw a steeper decline of 151 basis points to 4.36%. This compression at both the operating and net levels indicates systemic challenges. The deterioration suggests the company is facing difficulties in maintaining pricing power or is unable to fully pass on costs in a competitive environment, likely stemming from raw material price volatility and subdued demand conditions.

Operational Updates and Future Outlook

On a positive note, Supreme Petrochem has made progress on its strategic expansion plans. The company successfully commissioned the first line of its Acrylonitrile Butadiene Styrene (ABS) project, with a capacity of 70,000 TPA, at its Amdoshi facility in Maharashtra. Production commenced on September 25, 2025. This new capacity is expected to enhance the company's product mix and strengthen its market position in the long run. Management anticipates achieving 80% to 90% capacity utilization for this new plant by FY27. However, management remains cautious about the near-term outlook. While they had earlier projected a 10-12% volume growth for the full fiscal year, the performance in the first half and the current global scenario make it difficult to provide specific guidance. They did state an expectation to perform better than the previous year.

Stock Performance and Valuation

The weak quarterly results have been reflected in the company's stock performance. Over the past month, the stock declined by 8.69%, significantly underperforming the broader market. The stock currently trades at a high valuation, with a price-to-earnings (P/E) ratio of approximately 49 times and a price-to-book (P/B) value of 6.7 times. These premium multiples are under scrutiny following the recent deterioration in earnings. Analysts have classified the company's financial trend as "Negative," citing that multiple key metrics are at multi-quarter lows. The stock's high beta of 1.35 also indicates above-average volatility and risk.

Dividend Declaration

Despite the challenging quarter, the company's Board of Directors declared an interim dividend of ₹2.50 per equity share for the fiscal year 2026. The record date for the dividend payment has been fixed as October 31, 2025. This move can be seen as a reflection of the management's confidence in the company's long-term financial health and its commitment to shareholder returns.

Conclusion

Supreme Petrochem's second-quarter performance was marked by significant challenges, leading to a sharp decline in revenue and profitability. While external factors like raw material prices and weak demand played a major role, the resulting margin compression is a key concern for investors. The successful commissioning of the new ABS plant provides a positive long-term catalyst, but the near-term outlook remains uncertain. Investors will be closely monitoring the company's ability to stabilize margins and achieve a recovery in sales volumes in the upcoming quarters.