Himadri Speciality Chemical shares drop sharply as rising material costs squeeze profit margins

Himadri Speciality Chemicals saw its stock drop 6% on Friday, October 23, closing at 492 rupees and touching its lowest price point since April. This decline marked the sixth day in a row of losses, pushing the weekly drop to 25.5% and creating the worst weekly performance for the company since 2008, when shares fell 34.5%. The recent drop wiped out the stock's gains for the year, leaving the share price 40% below its peak from earlier in the year, while a general sell-off in the wider market added to the downward pressure.

Financial Results

The company announced its financial results for the July to September period, showing a 44.12% rise in operational revenue to 1,542.67 crore rupees compared to 1,070.41 crore rupees in the same period last year. Revenue also grew 21.06% compared to the previous quarter. However, the cost of raw materials increased at a much faster rate, surging 55.25% from the previous year to reach 1,048.83 crore rupees. This material expense grew faster than sales both yearly and quarterly, squeezing profit margins.

Earnings and Investments

Operating profit grew 26.98% from the previous year to 308.19 crore rupees, but this growth fell behind the revenue increase by roughly 17.1 percentage points, lowering the operating margin to 20%. Net profit rose 28.32% to 239.77 crore rupees, while the net profit margin dropped to roughly 15.5%. Despite these pressures, the company shared plans in its investor presentation to invest 1,125 crore rupees in lithium iron phosphate, 248 crore rupees in speciality chemicals, 70 crore rupees in carbon nanotubes, and 170 crore rupees in super speciality carbon black.

Context

When a company experiences rising material expenses that grow faster than its overall sales, profit margins shrink even if total revenue increases. Manufacturing firms often face these cost pressures when raw material prices rise in the market, which can disappoint investors and lead to a fall in stock prices. Despite this sharp weekly drop, the company's shares still show a strong long-term gain of 787% over the past five years following heavy gains between 2021 and 2024.