Southern Magnesium and Chemicals Limited

Basic Materials — Other Industrial Metals & Mining · BSE

₹72.71−₹1.28 (−1.73%)

DalalBaazaar Score

33 / 100

🔴 Weak

Verdict

CAUTION

Risk

Very High

Driven by negative free cash flow, the company is currently loss-making, micro-cap size, which brings thin liquidity.

In simple words: The company is currently losing money, though profits are falling even as sales grow. Cash generation is currently the main factor to watch.

Decision support, not a buy or sell call.

As of 18 Oct 2026, 6:08 pm

Caution warranted. Multiple fundamental metrics — flagged in red below — point to either valuation stretch, leverage risk, or weakening profitability. This doesn't mean avoid the stock outright, but it does mean the burden of proof is on the growth story to justify the current price.

Understanding the Business

Company site ↗

The 60-second version of Southern Magnesium and Chemicals Limited — what it does, how it earns, and who it competes with, before any of the numbers below.

What does this company do?

Southern Magnesium and Chemicals Limited manufactures and sells magnesium metal in India. The company provides magnesium granule, powder, alloy, and extrusion, as well as magnesium chips.

IndustryOther Industrial Metals & Mining

SectorBasic Materials

Employees34

Annual revenue₹3 Cr

How does it make money?

Turns over ₹3 Cr a year. Of every ₹100 of sales, about ₹4 reaches shareholders as profit, with ₹22 left at the operating level before interest, tax and depreciation. Each of its 34 employees supports ₹9.9 lakh of revenue a year, the signature of a people-led business.

EBITDA margin21.6%

Net margin3.8%

Revenue / employee₹9.9 lakh

Who are its competitors?

The closest listed comparisons in its industry are HINDALCO INDUSTRIES LTD, VEDANTA LIMITED, TATA STEEL LIMITED. These are the companies its valuation and returns are measured against elsewhere in this report.

HINDALCO INDUSTRIES LTDP/E 12.3x · ROE 12.0%

VEDANTA LIMITEDP/E 10.4x · ROE 18.7%

TATA STEEL LIMITEDP/E 19.8x · ROE 10.8%

What is its competitive advantage?Little sign of one

Returns on capital of 4.7% are at or below what the capital likely costs. That is the financial pattern of a business competing largely on price, where advantage has to come from execution rather than position.

ROCE4.7%

ROE1.0%

Peer median ROE12.0%

What has been driving growth?

Sales and margins have both contributed to where profit is now. Over 3 years revenue moved -61% while net margin moved -91% relative to itself. What this cannot tell you is which products, customers or geographies did the work — that lives in the segment disclosures of the annual report.

Revenue effect-61%

Margin effect-91%

DalalBaazaar Score

33/ 100

Weak

Weighted across six categories. Every point is explained below.

✗ Revenue has contracted at 26.8% a year
✗ Profit has declined at 67.0% a year
✗ Profit fell 96.0% in the latest year

Quality vs. Valuation

Company Quality

31/ 100

Weak

How good the business is, ignoring the share price entirely.

Valuation

25/ 100

Expensive

What you are being asked to pay, ignoring how good the business is.

Weak on business quality and not cheap enough to compensate.

vs. its own history

Not enough price and earnings history

vs. sector peers

Not enough peers with a usable P/E

vs. generic bands

N/A

No P/E — the company is lossmaking

P/E (Trailing)

Not meaningful

P/B

1.67x

EV/EBITDA

36.5x

PEG

—

Dividend Yield

None

What's Good / What's Bad

🟢 What's Going Well1

Consistently profitable
Profitable in every one of the last 4 reported years.

🔴 What Needs Attention6

Margins are compressing
EBITDA margin has slipped from 57.7% to 21.6% over 3 years.
Debt is rising
Total debt is up 2394% over 3 years — worth checking what it funded.
Free cash flow is negative
The business is not currently covering its capital spending from operations.
Return on equity is falling
ROE has dropped from 55.2% to 1.0% — each rupee of shareholder capital earns less than it did.
Return on capital is falling
ROCE has declined from 74.2% to 4.7% — often a sign of competition or overexpansion.
Inventory building faster than sales
Inventory is up 323% against revenue growth of -61% — stock may not be moving.

Red Flags

7 items require attention · 4 high · 3 watch

🔴Debt has risen sharplyFinancial
Total debt is up 2394% over 3 years, from ₹0 Cr to ₹5 Cr.
🔴Thin interest coverageFinancial
Operating profit covers interest only 1.6x — little room if earnings dip.
🔴Significant margin compressionFinancial
EBITDA margin has fallen 36.1 points, from 57.7% to 21.6%.
🔴Inventory building faster than salesFinancial
Inventory up 323% against revenue up -61% — stock may not be moving.
🟡Interest coverage is deterioratingFinancial
Cover has fallen from 30.0x to 1.6x.
🟡Free cash flow is negativeFinancial
Free cash flow was -₹5 Cr in the latest year.
🟡Profit is decliningFinancial
Net profit is down 96% over 3 years.

Investment Thesis

🟢 Bull CaseWhat could make this work?

Earnings have proved durable
Profitable in every one of the last 4 reported years. Consistency lowers the risk that any single bad year is structural rather than cyclical.

🔴 Bear CaseWhat could go wrong?

Margins are being competed away
EBITDA margin has fallen from 57.7% to 21.6%. If the trend continues, profit falls even on flat sales — and margin decline rarely reverses quickly.
The debt load needs earnings to hold up
Debt is 6.4x EBITDA. At that level a downturn in earnings turns a manageable balance sheet into a refinancing problem, and lenders get paid before shareholders.
Returns on shareholder capital are falling
ROE has dropped from 55.2% to 1.0%. Each rupee of equity earns less than it did, so profit growth increasingly depends on raising more capital rather than on the existing base working harder.
Size brings its own risk
Micro Cap businesses are thinly traded, so exits are harder in a falling market and single events move the price more than they would for a larger company.
Several serious flags at once
4 high-severity checks triggered. Individually each has an explanation; together they raise the chance that something structural is wrong rather than a one-off.

🟡 Key Things to WatchMeasurable tripwires, set against where this company stands today

1EBITDA margin holds above 20%✓ 21.6%
Two points below today's level — enough room for noise, tight enough to catch real compression.
2Debt / EBITDA falls below 3x✗ 6.4x
Already stretched, so this is a reduction target rather than a level to hold. Around 3x is where lenders typically start attaching conditions.
3Free cash flow remains positive✗ -₹5 Cr
Profit that never becomes cash eventually stops being profit.
4Interest cover stays above 3x✗ 1.6x
How much operating profit can fall before interest stops being comfortably covered.
5ROCE stays above 8%✗ 4.7%
Falling returns on capital are usually competition arriving, and show up here before they reach the margin.

Investment Checklist

6 / 11 checks passed

✗ Strong return on equity (ROE ≥ 15%)
✗ Strong return on capital employed (ROCE ≥ 15%)
✗ Healthy net margin (≥ 10%)
✗ Generates positive free cash flow
✓ Manageable leverage (Debt/Equity < 1.0)
✓ Adequate short-term liquidity (Current Ratio ≥ 1.0)
✓ Revenue growing year-over-year
✗ Profit growing year-over-year
✓ Not trading at an extreme valuation (P/E < 40x)
✓ Not buying right at the 52-week high
✓ Short-term technical trend isn't bearish

Price history

Quick Metrics

2 good · 3 neutral · 6 weak

Market Cap

₹22 Cr

Micro Cap

Smaller company — thin liquidity and deep drawdowns are normal here

P/E (Trailing)

Not meaningful

Loss-making

Earnings are negative, so a P/E multiple can't be read here

P/B Ratio

1.67x

Fair

Moderate premium to the company's book value

EPS (TTM)

₹-0.92

Loss-making

Negative earnings per share — the business is losing money

ROE

1.0%

Weak

Weak capital efficiency

ROCE

4.7%

Weak

Low return on total capital employed

Debt/Equity

0.36x

Low

Conservative leverage

Revenue Growth (YoY)

45.3%

Healthy

Healthy top-line growth

Profit Growth (YoY)

-96.0%

Falling

Profits are shrinking

Dividend Yield

None

No dividend yield reported — usually means no payout, but verify if one was recently initiated

Free Cash Flow

-₹5 Cr

Cash burning

Spending more cash than the operations bring in

More Metrics

CMP

₹72.71

Operating Margin

-150.5%

Weak

Thin margins leave little room for error

Net Margin

-8.0%

Weak

Very little revenue reaches the bottom line

Current Ratio

2.38

Comfortable

Healthy short-term liquidity

Beta (vs Nifty)

0.57

Defensive

Steadier than the market

52W Range Position

16%

Mid-range

Technical Snapshot

SMA 20 / SMA 50

77.1 / 75.5

Bullish alignment (short > long)

Price vs SMA 200

Below

Long-term downtrend

RSI (14)

34.8

Neutral momentum

Financial Trend (4-Year)

Metric	FY23	FY24	FY25	FY26	3Y CAGR
Revenue	₹9 Cr	₹9 Cr	₹12 Cr	₹3 Cr	-26.8%
EBITDA	₹5 Cr	₹5 Cr	₹4 Cr	₹1 Cr	-47.2%
EBITDA Margin	57.7%	48.6%	36.0%	21.6%	—
PAT (Net Profit)	₹4 Cr	₹3 Cr	₹3 Cr	₹0 Cr	-67.0%
EPS	₹11.77	₹11.1	₹10.66	₹0.42	-67.1%
ROE	55.2%	34.2%	24.7%	1.0%	—
ROCE	74.2%	46.7%	34.2%	4.7%	—
Total Debt	₹0 Cr	₹2 Cr	₹3 Cr	₹5 Cr	+192.2%
Free Cash Flow	₹3 Cr	-₹3 Cr	₹5 Cr	-₹5 Cr	—

🔴 Revenue has shrunk at 26.8% a year over 3 years.

🔴 EBITDA has shrunk at 47.2% a year over 3 years.

🔴 EBITDA Margin has fallen from 57.7% to 21.6% over 3 years (-36.1 pts).

🔴 PAT (Net Profit) has shrunk at 67.0% a year over 3 years.

🔴 EPS has shrunk at 67.1% a year over 3 years.

🔴 ROE has fallen from 55.2% to 1.0% over 3 years (-54.2 pts).

🔴 ROCE has fallen from 74.2% to 4.7% over 3 years (-69.4 pts).

🔴 Total Debt has grown at 192.2% a year over 3 years.

🔴 Free Cash Flow has turned negative, from ₹3 Cr to -₹5 Cr.

Balance Sheet & Cash Flow — FY2026

Total Assets

₹18 Cr

Total Liabilities

₹5 Cr

Total Debt

₹5 Cr

Cash & Equivalents

₹0 Cr

Operating Cash Flow

-₹5 Cr

Capex

-₹0 Cr

Shareholding (proxy)

Institutional Holding

0.0%

Insider Holding

62.2%

Corporate Actions

Ex-Dividend Date

24 Sept 1996

Peer Comparison

Company	P/E	ROE
HINDALCO INDUSTRIES LTD	12.3x	12.0%
VEDANTA LIMITED	10.4x	18.7%
TATA STEEL LIMITED	19.8x	10.8%

Recent News

1 positive5 general

Southern Magnesium & Chemicals Ltd. Shareholding Pattern – Promoters, FIIs & DIIs

Value Research, 30 Aug

Southern Magnesium shareholders reject change in designation to MD

scanx.trade, 30 Sept

Southern Magnesium & Chemicals Ltd. Key Financial Ratios – Valuation, Profitability & More

Value Research, 30 Aug

Southern Magnesium & Chemicals Clarifies Share Price Movement to BSE

scanx.trade, 22 Jan

Iron Ore Mineral Processing Penny Stocks 2027: 5 Picks

Univest, 17 Sept

Winsome Textile Industries standalone net profit rises 25.80% in the June 2026 quarter

Business Standard, 07 AugResults

🟢Potentially positiveReported improvement. Check whether it came from volume, price or a one-off item before treating it as a trend.

Watch Items

Cross-check against the company's latest quarterly filing / investor presentation before acting.

DalalBaazaar Thesis

🔴Business QualityWeak7.5/20

🟡Financial HealthAdequate10.1/20

🔴GrowthWeak2.4/20

🔴ProfitabilityWeak3.4/15

🔴ValuationDemanding5.1/15

🔴RiskHigh4.4/10

Weak on the fundamentals

Poor scores on business quality without a price low enough to compensate. There is no obvious argument for owning this over a stronger company at a similar valuation. 4 high-severity red flags sit above this conclusion and should be read first.

This thesis breaks if

✓EBITDA margin holds above 20%21.6%
✗Debt / EBITDA falls below 3x6.4x
✗Free cash flow remains positive-₹5 Cr
✗Interest cover stays above 3x1.6x
✗ROCE stays above 8%4.7%