AB Cotspin India Q2 FY26: Revenue Slumps Amid Demand Headwinds Despite Strong Margins

The stock, trading at ₹435.00 as of February 11, 2026, declined 1.46% on the day, reflecting investor caution over the revenue contraction. However, the company's ability to expand operating margins to 22.19% from 14.96% in the previous quarter demonstrates operational efficiency gains that partially offset volume concerns. The quarter's performance underscores a tale of two narratives: weakening demand conditions countered by improving profitability per unit of sale.

Quarterly Performance Trajectory: Volatility Marks Recent Trend

The quarterly trend table reveals significant volatility in AB Cotspin's operational performance over the past seven quarters. Revenue has oscillated between ₹50.74 crores and ₹85.07 crores, with no clear directional trend. Net profit has been equally erratic, ranging from ₹1.76 crores to ₹4.18 crores, though margins have shown gradual improvement from the 2.48% PAT margin recorded in March 2024 to the current 7.13%.

Financial Performance: Margin Expansion Cushions Revenue Decline

In Q2 FY26, AB Cotspin India reported net sales of ₹50.74 crores, marking a sharp 23.92% sequential decline from ₹66.69 crores in Q1 FY26 and a steeper 37.64% year-on-year contraction from ₹81.36 crores in Q2 FY25. This revenue compression signals weakening demand conditions or potential loss of market share in the highly competitive garments sector. The company's operating profit before depreciation, interest, tax, and other income stood at ₹11.26 crores, translating to an impressive operating margin of 22.19%, up 720 basis points quarter-on-quarter from 14.96%.

Net profit for the quarter came in at ₹3.62 crores, down 13.40% from ₹4.18 crores in the previous quarter but significantly higher than the ₹1.76 crores reported in the year-ago period, representing a 105.68% year-on-year surge. The PAT margin expanded to 7.13% from 6.27% in Q1 FY26, indicating better cost management and operational efficiency despite the revenue headwinds. Interest costs increased to ₹2.67 crores from ₹2.19 crores sequentially, whilst depreciation jumped to ₹3.97 crores from ₹2.03 crores, reflecting recent capital investments or asset revaluation.

The tax rate for Q2 FY26 stood at 22.32%, down from 27.56% in the previous quarter, providing some relief to bottom-line performance. Employee costs increased marginally to ₹2.77 crores from ₹2.21 crores quarter-on-quarter, suggesting stable workforce levels. On a full-year basis for FY25, the company posted net sales of ₹298.00 crores with a net profit of ₹10.00 crores, yielding a PAT margin of 3.40%, significantly lower than the recent quarterly margins, indicating improving profitability trends in recent periods.

Operational Challenges: Revenue Volatility Raises Concerns

The most pressing concern for AB Cotspin India remains the substantial revenue volatility and the recent sharp contraction. The 23.92% quarter-on-quarter decline in net sales is particularly worrying, coming on the heels of a 21.61% decline in the previous quarter. This suggests persistent demand challenges rather than temporary disruptions. The company's inability to sustain revenue momentum raises questions about its competitive positioning, customer retention, and order book visibility in the garments and apparels sector.

From a balance sheet perspective, the company's long-term debt increased to ₹70.16 crores in FY25 from ₹45.00 crores in FY24, representing a 55.91% increase. This elevated leverage, combined with negative operating cash flows, raises concerns about financial flexibility. The debt-to-EBITDA ratio stands at 5.10 times, significantly higher than comfortable levels for a company of this size and sector, whilst the average EBIT-to-interest coverage ratio of 2.79 times provides limited cushion against earnings volatility.

However, the company demonstrates strong operational efficiency when sales volumes are achieved. The average return on equity of 13.39% is respectable for the sector, though it has weakened to 6.77% in the latest period due to the profit base expansion through fresh equity issuance. The average return on capital employed of 7.52% remains below optimal levels, indicating the company needs to generate better returns on its asset base to justify its current valuation multiples.

Industry Context: Navigating a Competitive Landscape

The garments and apparels sector in India has faced mixed conditions, with export demand remaining subdued due to global economic uncertainties whilst domestic consumption has shown resilience. AB Cotspin's revenue contraction suggests it may be more exposed to the weaker export segment or facing intensified competition in its core markets. The company's margin expansion despite revenue decline indicates it may be focusing on higher-value products or implementing aggressive cost optimisation measures.

Peer Comparison: Premium Valuation Despite Operational Challenges

AB Cotspin India trades at a price-to-earnings ratio of 95.64 times, significantly higher than most peers except the loss-making AYM Syntex. This premium valuation appears difficult to justify given the company's 13.39% return on equity, which, whilst respectable, lags significantly behind Borana Weaves' exceptional 48.03% ROE. The company's price-to-book ratio of 6.47 times is also elevated compared to sector peers, with only Borana Weaves commanding a comparable premium at 4.05 times.

The debt-to-equity ratio of 0.92 positions AB Cotspin in the middle of the peer group, higher than the virtually debt-free Century Enka and Mafatlal Industries but lower than AYM Syntex. However, the company's inability to pay dividends, unlike Century Enka, Mafatlal, and VTM, suggests cash flow constraints that limit shareholder returns. The peer comparison reveals that AB Cotspin commands a valuation premium that appears disconnected from its operational fundamentals and financial metrics.

Valuation Analysis: Stretched Multiples Signal Caution

Trading at ₹435.00 per share with a market capitalisation of ₹966.00 crores, AB Cotspin India's valuation metrics flash warning signals across multiple parameters. The trailing twelve-month price-to-earnings ratio of 96 times represents a substantial premium to the industry average of 22 times, implying the market is pricing in exceptional growth that recent operational performance fails to support. The price-to-book ratio of 6.47 times compares unfavourably to the book value per share of ₹60.44, suggesting the stock trades at a significant premium to its net asset value.

The enterprise value-to-EBITDA multiple of 36.48 times and EV-to-EBIT of 51.67 times are particularly concerning given the company's modest scale and recent revenue volatility. The EV-to-sales ratio of 3.66 times suggests the market is assigning a premium valuation despite the absence of consistent revenue growth. The proprietary valuation assessment categorises the stock as "Very Expensive," a grade it has held intermittently since September 2024, with brief periods of "Does Not Qualify" rating indicating fundamental concerns.

Shareholding Pattern: Promoter Stake Dilution Raises Questions

The shareholding pattern reveals a significant structural change in April 2025, when promoter holding declined sharply from 67.78% to 52.50%, a reduction of 15.28 percentage points. This substantial dilution coincided with a corresponding increase in non-institutional shareholding from 32.07% to 47.39%, suggesting either a public offering or preferential allotment that diluted promoter stake. Since April 2025, the shareholding structure has remained stable with no further changes across all categories.

The absence of meaningful institutional participation remains a concern, with foreign institutional investors holding a negligible 0.11%, mutual funds at zero, and no insurance company presence. This lack of institutional interest suggests professional investors remain unconvinced about the company's growth prospects or valuation. The promoter group, led by Deepak Garg (23.25%), Sanya Jindal (12.81%), and Suvarna Jindal (10.65%), maintains majority control despite the recent dilution. Positively, there is no promoter pledging, indicating financial stability at the promoter level.

Stock Performance: Short-Term Gains Mask Longer-Term Uncertainty

AB Cotspin India's stock has demonstrated positive momentum in recent months, gaining 4.69% over the past week and 6.12% over the past month, significantly outperforming the Sensex in both periods. The year-to-date return of 4.44% compares favourably to the Sensex's decline of 1.16%, generating a positive alpha of 5.60 percentage points. The stock trades above its 5-day, 20-day, and 50-day moving averages, with the current price of ₹435.00 showing technical strength.

However, the absence of longer-term return data limits assessment of the stock's historical performance and volatility characteristics. The stock's 52-week range of ₹379.65 to ₹508.00 indicates significant price volatility, with the current price sitting 14.37% below the 52-week high and 14.58% above the 52-week low. The technical trend is classified as "Mildly Bullish" as of February 9, 2026, having transitioned from "Sideways" trend, though the frequent trend changes in recent months suggest choppy price action rather than sustained directional movement.

Investment Thesis: Quality Concerns Overshadow Margin Gains

The proprietary Mojo score of 51 out of 100 places AB Cotspin India in "HOLD" territory, though it recently upgraded from a "SELL" rating on February 9, 2026. The score reflects a company with mixed fundamentals: whilst long-term growth metrics appear healthy with 25.90% sales CAGR and 49.57% EBIT CAGR over five years, recent quarterly performance has been disappointing with flat financial trends and concerning revenue declines.

The quality assessment of "Average" acknowledges the company's respectable long-term growth record but penalises weak interest coverage of 2.79 times and high debt-to-EBITDA ratio of 5.10 times. The complete absence of institutional holdings at just 0.11% suggests professional investors remain sceptical about the investment case. The "Very Expensive" valuation grade represents the most significant headwind, with the P/E ratio of 96 times appearing unjustifiable given the operational challenges and lack of consistent earnings growth.

Key Strengths & Risk Factors

Outlook: What Lies Ahead

The near-term outlook for AB Cotspin India hinges critically on whether the company can stabilise revenues whilst maintaining the improved margin profile demonstrated in Q2 FY26. The garments sector faces ongoing challenges from global demand uncertainty and competitive pressures, making revenue recovery uncertain. Management's ability to convert improved margins into positive cash flows whilst managing the elevated debt burden will be crucial. The stock's stretched valuation leaves little room for disappointment, with any further operational setbacks likely to trigger significant price correction.