Margin Under Pressure; Capex Roadmap Intact

SKM reported Q2 PAT of ₹17.8 Cr, down 28.2% year-on-year—a direct contradiction of management's on-call claim that it 'maintained performance.' The culprit is a sudden soya and feed ingredient cost surge. Management disclosed a ₹10 Cr+ impact in Q2, with no pricing power to pass it through to customers. International egg prices are set by European, US, and Ukrainian supply; SKM is a price-taker at ₹700/dozen average realization. Revenue fell 6% YoY to ₹189.8 Cr despite flat-to-up volumes, underscoring the margin squeeze.

Capex accelerated: SKM Universal merger (sister company) board-approved for April 2027 closure, adding ₹180–250 Cr investment and lifting capacity from 7,000 to 10,000+ tons annually. EC farm timeline: Phase-1 trial validated; phase-2 (2.4M bird capacity) now targeting Sep 28, though 1–2 week slippage mentioned. South Korea entry: Two customers approved; first order expected Oct–Dec 2026, a new export market validation. Margin pressure intensified: Feed cost shock—described as 'sudden'—emerged post-prior-call, eroding PAT and signaling a structural headwind, not a temporary blip.

Price action: Stock at ₹183.13 (as of Oct 26) is 50.77% below its all-time high of ₹372. It sits below SMA20 (₹207.54), SMA50 (₹232.8), and SMA200 (₹215.38)—a bearish setup. RSI at 27.1 flags oversold territory. However, volume trend is increasing, and FII holdings rose to 1.30% from 0.49% last quarter—institutional investors are adding at these depressed levels. Promoter stake stable at 57.47%. Bulk deals over the past six months cluster around ₹231–233 with no insider selling near the highs—no red flag. The market's verdict: The stock has repriced to reflect near-term margin pressure and capex dilution. The oversold RSI and FII buying suggest value is being recognized, but the 50% drawdown from ATH and below-MA setup leave room for further weakness if capex execution stumbles or feed costs persist.

The honest read: This is a Hold. Management's tone (confident, expansion-focused) outpaced the Q2 numbers. But the contradiction is partly cyclical (feed cost shock) and partly structural (no pricing power). The capex roadmap is credible and backed by board/lender approvals. SEP 28 EC completion and South Korea entry are genuine catalysts. However, near-term margin recovery depends on uncertain soya import timing and a potential international price floor. The street has priced in downside (stock -50%, FII buying at oversold RSI). There is value at current levels, but execution risk is real. Hold for capex completion; watch Q3/Q4 margin recovery. If soya import cost savings materialize and Sep 28 delivers, re-rate to Buy.