Hind.Composites Q1 FY27 Results (NSE: HINDCOMPOS)
Signal: Margin pressure
The read
This is a transition quarter: the friction business (the real profit engine) is classified as discontinued ops pending its slump sale to Rane (Madras) for ₹370 Cr, expected by Sep 2026. Continuing ops (investment + commodity trading) show a concerning trend — revenue surged 37% YoY but operating profit fell 28% YoY, with OPM contracting 720bps to 7.88% as stock-in-trade costs rose faster than sales. The continuing ops PAT growth of 25% YoY was entirely due to a deferred tax credit, not operating improvement. The consolidated numbers look healthy (₹868 Lakh PAT, +16% YoY) but are almost entirely the friction business, which will soon be sold.
| Metric | Value | YoY | QoQ |
|---|---|---|---|
| Revenue | ₹20.05 Cr | 37.1% | 11.1% |
| EBIT | ₹1.58 Cr | -28.2% | |
| Net profit | ₹8.68 Cr | 16.4% | |
| EPS | ₹5.88 | 16.4% | |
| EBIT margin | 7.88% |
P&L walk
Consolidated continuing ops revenue surged 37% YoY to ₹2,005 Lakh, driven by a 103% YoY jump in Trading in Commodity segment revenue (₹1,024 Lakh) while Investment segment revenue was flat (+2.5% YoY). OPM compressed 720bps YoY to 7.88% as purchase of stock-in-trade outpaced revenue growth (₹2,067 Lakh vs ₹1,001 Lakh, +106% YoY). Continuing ops PAT grew 25% YoY to ₹193 Lakh, but the consolidated PAT of ₹868 Lakh is dominated by discontinued friction business (₹675 Lakh, +14% YoY).
Segments
Continuing ops revenue split shows Trading in Commodity segment doubled YoY (₹1,024 Lakh, +103%) while Investment segment was flat (₹981 Lakh, +2.5%). Segment result from Trading in Commodity was ₹39 Lakh (vs ₹1 Lakh in Q1FY26), turning positive but still very low margin (~3.8%). Discontinued friction business is the profit engine, generating ₹675 Lakh PAT (78% of total consolidated PAT) and revenue of ₹8,553 Lakh (+18% YoY).
Key positives
- Friction business (discontinued ops) revenue grew 18% YoY to ₹8,553 Lakh, PAT up 14% to ₹675 Lakh — strong underlying demand ahead of the sale.
- Slump sale of friction business to Rane (Madras) for ₹370 Cr values the business at a significant premium (EV/EBITDA multiple likely >8x based on FY26 friction EBITDA), unlocking shareholder value.
- Trading in Commodity segment turned profitable at segment result level (₹39 Lakh vs ₹1 Lakh YoY).
Key concerns
- Continuing ops OPM collapsed 720bps YoY to 7.88% — stock-in-trade cost (₹2,067 Lakh) grew 106% YoY, far outpacing revenue growth of 37%, indicating either input cost inflation or aggressive pricing in the trading business.
- Continuing ops PAT of ₹1.93 Cr is entirely driven by deferred tax credit (₹79 Lakh) and lower current tax; operating profit before tax fell 28% YoY — core profitability is deteriorating.
- Investment segment revenue flat (+2.5% YoY) and segment result fell 20% (₹412 Lakh vs ₹513 Lakh) — this is the high-margin business; its stagnation is a concern.
- Once the friction business is sold, the continuing entity (investment + commodity trading) will have a much smaller earnings base — Q1FY27 continuing ops PAT of ₹1.93 Cr annualizes to only ~₹7.7 Cr, against a market cap of ₹637 Cr, implying a P/E exceeding 80x on continuing ops alone, with no visibility on replacement earnings.
Research and educational content only. Not investment advice.