Multibagger stock: Sell 'overvalued' Paradeep Phosphates, says JM Financial

JM Financial has downgraded multibagger stock Paradeep Phosphates from 'Hold' to 'Sell', citing overvaluation despite a robust earnings performance in the first quarter of FY26. The revised target price for the stock is set at Rs 175 per share for September 2026. 

The downgrade comes after Paradeep Phosphates posted a better-than-expected earnings report for Q1FY26, with significant volume growth driven by an early monsoon and inventory gains estimated between Rs 100 crore and 120 crore. The company's Ebitda per kg is now projected to reach Es 5.60 by FY28, surpassing management's guidance. 

Despite the positive earnings, JM Financial highlighted that Paradeep Phosphates is operating at over 95% utilisation and does not anticipate significant volume growth until the completion of brownfield expansions by FY28. The brokerage believes that current operations leave little room for further growth in the short term. Paradeep Phosphates shares are up 85% in 2025 and 133%  in the past one year.

In Q1FY26, the company exceeded JM Financial's expectations on several fronts, including a 39% higher gross profit and a 37% increase in revenue from its estimates. Paradeep's earnings before interest, taxes, depreciation, and amortisation (Ebitda) also came in significantly higher than forecasts, at Rs 470 crore.

Fertiliser sales volumes were notably high, with Di-Ammonium Phosphate (DAP) volumes up 54% year-on-year, and other NPK sales increasing by 84% year-on-year. This was partly offset by lower-than-expected urea volumes.

JM Financial's decision to downgrade the stock is also influenced by concerns over the sustainability of Ebitda per kg and limited expansion options until the end of FY28. The firm's projections indicate that Ebitda per kg will surpass management targets, but this is not enough to justify the current stock valuation.

While significant volume growth was achieved in Q1FY26, JM Financial remains cautious about long-term prospects. The sales boost was largely attributed to early monsoon impacts and inventory gains, factors that may not be sustainable in the coming quarters.

Paradeep Phosphates' future growth prospects are limited until new capacity comes online. The stock's current valuation appears high, prompting the downgrade to 'Sell' as investors are advised to consider these factors.