Shares of S H Kelkar and Company Limited fell 5.16% to ₹128.07 on the NSE on May 18, 2026, shedding ₹6.97 from a previous close of ₹135.04, after India’s largest domestic fragrance and flavour company reported a Q4FY26 consolidated net profit of just ₹1.85 crore on revenue of ₹649.94 crore — a PAT margin of 0.28% against 18.16% in Q4FY25. The stock touched an intraday low of ₹124.35 against the day’s high of ₹130, with the 52-week range spanning ₹111.98 to ₹275.50 — placing the current price just 14% above its 52-week low.
The headline collapse — net profit down 98.2% year on year and 94.34% sequentially from ₹32.66 crore in Q3FY26 — is explained almost entirely by a single anomalous number: a tax rate of 87.67% in Q4FY26.
The tax rate that destroyed the quarter
S H Kelkar’s profit before tax for Q4FY26 was ₹14.60 crore — a reasonable if uninspiring number for a company with ₹650 crore in quarterly revenue. Against this PBT, the company recorded a tax expense of ₹12.80 crore, producing an effective tax rate of 87.67%. The result: net profit of ₹1.85 crore.
The company’s normalised effective tax rate has historically ranged between 30-35%. An 87.67% rate against the same PBT base would ordinarily have produced a tax outgo of approximately ₹4.4-4.9 crore and a net profit of approximately ₹9.7-10.2 crore — five times what was actually reported. The difference — approximately ₹7.9-8.4 crore — reflects tax adjustments or provisions that appear to be one-time in nature but have not been separately disclosed as exceptional items. For context, the tax rate in Q4FY25 was -5.67%, meaning the company had a net tax credit in the year-ago quarter. The swing from -5.67% to +87.67% represents an approximately 9,300 basis point deterioration in the effective tax rate year on year.
Additionally, other income of ₹7.28 crore represented 49.86% of profit before tax in Q4FY26 — meaning nearly half of pre-tax earnings came from non-operating sources. Stripping out other income, the operating profit available to service interest, depreciation, and tax was significantly lower, raising questions about earnings quality even before the tax anomaly is considered.
The operating picture beneath the tax distortion
Operating margin for Q4FY26 was 9.27% — down 374 basis points year on year from 13.01% in Q4FY25 and the lowest quarterly margin in at least six quarters. The margin has contracted consistently through FY26, falling from 14.97% in September 2024 to 9.27% in March 2026 — a 568 basis point erosion over six quarters.
The drivers are structural. Employee costs surged 36.01% year on year to ₹102.76 crore from ₹75.56 crore in Q4FY25, growing more than twice as fast as revenue growth of 14.55%. Interest expenses rose 16.60% year on year to ₹15.03 crore — the highest quarterly level in recent history — reflecting rising debt and higher borrowing costs. Depreciation jumped 56.52% year on year to ₹38.63 crore from ₹24.68 crore, pointing to significant capital expenditure undertaken during FY26 that has not yet translated into revenue or margin improvement.
Revenue from operations did grow — ₹649.94 crore was up 14.55% year on year and 11.33% sequentially — making this a case of revenue growing while profitability collapses, the most frustrating pattern for equity investors to navigate.
The longer structural concern
S H Kelkar’s five-year revenue CAGR is a respectable 13.83%. But EBIT over the same five years has grown at just 0.70% annually — a gap of over 1,300 basis points between topline and bottom-line growth that signals systematic margin compression rather than a one-quarter aberration. Return on equity has declined to 7.03% on a trailing basis from a historical average of 10.41%. ROCE has similarly dropped to 7.60% from an average of 10.43%. The stock has declined 32.83% over the past year against a specialty chemicals sector return of +10.09% — an underperformance of 42.92 percentage points.
Long-term debt stands at ₹174.68 crore and current liabilities have risen sharply to ₹1,131.32 crore from ₹934.11 crore the previous year. The debt-to-EBITDA ratio of 2.68 and interest coverage of 5.80 times are not distress-level figures but are moving in the wrong direction. Trade payables rose to ₹399.97 crore from ₹355.13 crore, suggesting extended payment cycles to suppliers as working capital tightens.
At ₹128.07 and a P/E of 10.47x — the lowest among its specialty chemicals peer group — S H Kelkar is priced for continued earnings pressure. A normalisation of the tax rate alone would mechanically improve reported profitability in Q1FY27. Whether the operating margin trajectory — the more fundamental concern — reverses depends on whether employee cost growth moderates and whether the capital expenditure cycle begins generating returns.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a SEBI-registered financial advisor before making investment decisions.