Ashish Kacholia buys into this lead recycler. Can the stock overcome margin pressure?

The business, however, has grown quickly. Revenue more than doubled between the financial years ended March 2024 and March 2026. Profit also rose sharply. But its latest results raised a question. Can Ardee maintain that growth without giving up the margins it has built? According to September 2026 shareholding data, Kacholia held 3,773,600 shares of Ardee Industries, representing a 1.20% stake. He acquired these shares in pre-IPO transactions in July 2026 at ₹53 each.

The holding cost him about ₹20 crore. Bengal Finance and Investment, an entity linked to Kacholia, made a separate investment. It received 4,717,147 shares in Ardee’s anchor investor allocation at the same price, worth about ₹25 crore. The two investments should be viewed separately. Together, they represent about 2.7% of the company. Kacholia has not publicly disclosed the specific reason for his investment.

The company’s growth, expanding capacity, and export business offer some context, but they do not establish his investment rationale. Ardee Industries recycles used lead-acid batteries and lead scrap. It refines the recovered material into pure lead and lead alloys, which are used by battery makers and other industries. The business has expanded quickly. Revenue rose from ₹463 crore in FY24 to ₹1,168 crore in FY26.

Net profit increased from ₹8.95 crore to ₹84.7 crore over the same period. The company also improved its earnings before interest, tax, depreciation and amortization (Ebitda) margin from about 6.1% to 12.6%. These gains point to a larger business and better profitability. The next test is whether the company can protect its margins as costs and market conditions change. Ardee increased its annual production capacity by 50.9% to 156,950 tonnes from 29 May 2026.

Its capacity was nearly three times the level recorded in FY24. Exports have grown just as quickly. They rose from ₹81.6 crore in FY24 to about ₹465 crore in FY26. The company now exports to eight countries. Ardee’s ARDEE LEAD 9997 brand is listed on the London Metal Exchange. Its pure lead is also listed on the Multi Commodity Exchange of India. A larger plant and a wider export base could support growth.

However, capacity alone does not guarantee higher profits. The company must secure enough orders and manage its raw material costs to make the additional capacity pay. Ardee’s June-quarter results showed that sales growth remained strong, but profitability did not keep pace. Revenue rose 35.2% year on year. Net profit increased by about 6%. Ebitda, however, remained broadly flat, while Ebitda margin fell to 9.90% from 13.44% in the same quarter last year.

The company also reported lower gross profit per tonne than in the March 2026 quarter. The figure fell to about ₹34,500 from ₹38,000. Management pointed to global uncertainty, shipping disruptions, higher freight costs, and imported scrap costs. It expects volume growth of 10% to 20% in the current financial year and has indicated that a margin of about 10% is a more cautious assumption under current conditions.

The message is clear: higher sales do not always translate into higher profits. Ardee will need to manage costs carefully if it wants to sustain its recent growth. Customer concentration: Ardee relies heavily on a small group of buyers. Amara Raja Energy & Mobility accounted for 40.6% of revenue in the financial year ended March 2026. Its ten largest customers contributed about 91.6%. Losing a major customer, or seeing one reduce its orders, could affect revenue.

Raw material costs and working capital: Imported materials accounted for about 86.9% of Ardee’s raw material purchases in FY26. Freight costs, shipping delays, and changes in lead prices can affect margins. The business also has a working capital cycle of about 90 to 100 days, according to published reports. This means money can remain tied up in inventory and customer dues before it returns as cash.

Shares becoming eligible for sale: Part of the anchor investors’ holdings became eligible for sale in September, with another tranche due in November. These releases increase the number of shares that investors may sell. They do not mean that investors have sold their shares. However, the additional supply is worth tracking in a recently listed stock. Ardee’s revenue growth is encouraging, and its expanding capacity and export business offer room for further growth.

But the latest quarter showed that margins can come under pressure even when sales rise. The key questions are whether the company can lift capacity utilisation, protect its profit per tonne, and reduce its dependence on a few customers. Cash flow and working capital also deserve attention. Kacholia’s entry may have brought the company into the spotlight. It does not, by itself, establish whether the stock is attractively priced today.

Investors should assess Ardee’s operating performance, balance sheet, customer concentration, and valuation independently before drawing conclusions. This article is syndicated from Equitymaster.com