Prasol Chemicals Ltd

At ₹676 per share the company lists at a market capitalisation of roughly ₹4,000 crore and an enterprise value of about ₹4,090 crore, or 29.3x EV/EBITDA and 47.2x earnings on FY26. We feel that is expensive for a low-margin business with limited pricing power. The company has reputed clientbase including Clean Science, Croda, Lubrizol, Coromandel, Gharda, Supriya, Alembic and MSN among others, and records ten-to-sixteen-year relationships with the lead customer in each end market, each having gone from one product to four or more, but Prasol has no long-term contracts with most of its customers, and the chemistries it runs are well established and widely available: dehydration, esterification, oxidation, substitution, hydrogenation, aldol condensation. It is hard to build a genuinely differentiated product on that toolkit, and the gross margin shows it. Gross margin went from 26.09% in FY24 to 28.46% in FY25 and 30.72% in FY26, moving in step with acetone, which fell 26.89% last year. A specialty business prices on value and holds gross margin through the input cycle. A business that earns more only when its raw material gets cheaper is passing costs through. For scale, Vinati Organics earns a 29.36% EBITDA margin, which is about the whole of Prasol's gross margin, and that gap is the difference between specialty and intermediate chemistry. The EBITDA margin tells the same story less clearly at 11.3% against 6.9% two years ago, and over eleven years it has sat between 6% and 12%, the only exception being roughly 16% in FY22 during Covid. So 11.3% is the top of the range, not a new base. The safety record is the second reason. Prasol has been under regulatory scrutiny repeatedly for poor hazard management, four workers have died and several more have been injured across the two plants, and there is ample precedent of companies being forced to halt production over safety failures and repeated non-compliance with pollution control boards. The auditor has qualified internal financial controls in each of the last three years, we feel that for a company with inventory worth INR 153 Crore, these systems should be placed well before auditor’s flagging it repeatedly in the audited financials.

The closest parallel we can think of is Rossari Biotech, on the standalone or core business. It listed on a high multiple, could not hold its 17 to 18% margin once raw material prices normalised, and the stock de-rated as EBITDA growth tapered

Given the history of criminal cases, recurring lapses on human security and weak business as demonstrated by its margin and cashflow profiles we would like to skip the investment opportunity at any price.