Chemical Stock Reports 267% QoQ Net Profit Growth; Key Red Flags Investors Should Know

Synopsis: Shares of S H Kelkar & Company Ltd rose 7% after reporting a 267% QoQ jump in Q3 PAT. However, a Rs 33.07 crore one-time exceptional gain from insurance largely boosted profits, masking modest core performance and raising concerns about the sustainability of earnings momentum.

The shares of this company, which is engaged in the manufacture, supply and export of fragrances and aroma ingredients and is the largest domestic fragrance producer in India and the only company of Indian origin to file patents in the field of fragrance & novel aroma molecules, had its shares in the news after the company reported a 267% profit jump but with certain red flags.

With the market cap of Rs 2,475 crore, the shares of S H Kelkar & Company Ltd have gained about 7% and reached a high at Rs 182.90, compared to their previous day’s closing price of Rs 169.25. The shares are trading at a PE of 26.7, whereas its industry PE is at 27.5.

Q3 Result highlights

The revenue from operation for the company stood at Rs 584 crore when compared to Rs 543 crore in Q3 FY25, growing by about 8 per cent on a YoY basis and on a QoQ basis increasing by 5 per cent from Rs 554 crore in Q2 FY26.

The PAT grew by about 83 per cent on a YoY basis when you compare the Q3 FY26 profit at Rs 33 crore to Rs 18 crore in Q3 FY25 and on a QoQ basis has increased by 267 per cent from Rs 9 crore in Q2 FY26. 

What are the red flags? 

The Rs 33.07 crore exceptional gain was a significant factor in boosting the company’s profitability in the quarter. Reported profit before tax (PBT) from continuing operations was Rs 49.04 crore.

However, excluding this exceptional item, underlying PBT was only Rs 15.97 crore. Therefore, around two-thirds of the reported PBT was from the one-time insurance claim related to the fire and not core operating performance. The company had received 35.46 crore claims, out of which the company an expense of Rs 2.39 crore, giving you the exceptional item of Rs 33.07 crore 

The business performed well with stable total revenues of Rs 583.80 crore but achieved only modest margins due to high material costs, employee costs, and other operating overheads. The reported PBT of Rs 49.04 crore represented a large increase from the pre-exceptional PBT of Rs 15.97 crore. This illustrates how much of a boost the Rs 33.07 crore gain provided to the company’s profitability. After accounting for a tax expense of Rs 16.41 crore, net profit was Rs 32.63 crore; again, this amount would have been significantly lower without the exceptional income.

While the insurance recovery provides a boost to the bottom line and supports cash flow in the short term, it is important to understand that this gain is not a recurring one. While short-term spikes in earnings due to extraordinary income have led to significant increases in both operating margins and returns, longer-term growth in earnings will rely on improvements to core performance. Consequently, investors need to be able to identify the difference between ‘normalised’ profit and ‘reported’ profit since the reported earnings have also experienced a significant amount of above-normal income.

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