The micro-cap company, with a market capitalisation of ₹93.45 crores, operates in the highly competitive garments and apparels sector. Trading at ₹307.40 as of November 17, 2025, the stock has gained 1.12% in the latest session but remains under pressure with a year-to-date return of just 0.79%, significantly underperforming the Sensex's 8.39% gain over the same period.
The quarter's performance reveals a concerning trend: whilst the company managed to push topline growth, it failed to translate this into bottom-line expansion. Operating profit (PBDIT) excluding other income fell to ₹3.66 crores in Q2 FY26, the lowest in the trailing twelve-month period, despite sales reaching their highest quarterly level at ₹66.80 crores.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 66.80 | 55.25 | 65.47 | 55.28 | 62.39 | 57.23 |
| QoQ Growth | +20.90% | -15.61% | +18.43% | -11.40% | +9.02% | -16.39% |
| Net Profit (₹ Cr) | 1.41 | 1.71 | 3.16 | 1.77 | 2.08 | 1.98 |
| QoQ Growth | -17.54% | -45.89% | +78.53% | -14.90% | +5.05% | -35.50% |
| Operating Margin | 5.48% | 7.15% | 8.66% | 6.68% | 6.94% | 7.41% |
| PAT Margin | 2.11% | 3.10% | 4.83% | 3.20% | 3.33% | 3.46% |
Financial Performance: Growth Without Profitability
Acknit Industries' Q2 FY26 results paint a picture of operational stress beneath the surface of revenue expansion. Net sales climbed to ₹66.80 crores from ₹55.25 crores in Q1 FY26, representing a robust 20.90% sequential growth. However, this topline momentum failed to flow through to profitability, with net profit contracting to ₹1.41 crores from ₹1.71 crores in the previous quarter.
The year-on-year comparison is even more sobering. Whilst sales grew 7.07% from ₹62.39 crores in Q2 FY25, net profit plunged 32.21% from ₹2.08 crores during the same period last year. This divergence between revenue growth and profit decline signals deteriorating operational efficiency and pricing power.
Operating profit excluding other income collapsed to ₹3.66 crores in Q2 FY26 from ₹3.95 crores in Q1 FY26, a sequential decline of 7.34%. The operating margin compressed sharply to 5.48% from 7.15% in the previous quarter and 6.94% in Q2 FY25, marking the lowest operating margin in at least seven quarters. This 167 basis points QoQ margin erosion reflects severe cost pressures that the company has been unable to pass on to customers.
Employee costs rose to ₹2.45 crores in Q2 FY26 from ₹2.01 crores in Q1 FY26, an increase of 21.89% that outpaced revenue growth. Interest expenses remained stable at ₹1.01 crores, whilst depreciation held steady at ₹0.76 crores. The profit before tax stood at ₹1.91 crores, down 16.96% QoQ, with the effective tax rate at 26.18%.
The PAT margin of 2.11% in Q2 FY26 represents the lowest profitability level recorded in recent quarters, down from 3.10% in Q1 FY26 and 3.33% in Q2 FY25. This 99 basis points sequential contraction and 122 basis points year-on-year decline underscores the severity of the margin pressure facing the company.
Operational Challenges: Weak Returns on Capital
Beyond the quarterly volatility, Acknit Industries faces structural challenges in generating adequate returns on invested capital. The company's average return on equity (ROE) of 11.52% over recent years, whilst marginally above the sector average, remains below the threshold typically associated with quality businesses. The latest ROE of 9.99% shows further deterioration, indicating that shareholder capital is not being deployed efficiently.
Return on capital employed (ROCE) presents a similar picture, averaging 10.91% and declining to 10.03% in the most recent period. These modest returns suggest the company operates in a competitive, low-margin environment where differentiation and pricing power are limited. For context, quality manufacturing businesses typically generate ROCE in excess of 15-20%.
Critical Concern: Margin Erosion
Operating margins have fallen to a seven-quarter low of 5.48% in Q2 FY26, down from 8.66% in Q4 FY25. This 318 basis points decline over two quarters signals severe operational stress. The company's inability to maintain pricing power whilst absorbing cost inflation raises questions about its competitive positioning and business model sustainability.
The balance sheet reveals moderate leverage with long-term debt of ₹1.07 crores as of March 2025, up from ₹0.16 crores in the previous year. The debt-to-EBITDA ratio of 3.10 times and net debt-to-equity of 0.67 indicate manageable but elevated financial leverage. With shareholder funds of ₹87.29 crores and current assets of ₹125.05 crores against current liabilities of ₹79.44 crores, the company maintains adequate liquidity, though working capital management appears strained.
Cash flow generation has been erratic. In FY25, the company generated ₹10.00 crores from operations, a significant improvement from the negative ₹8.00 crores in FY24. However, this positive operating cash flow was absorbed by investing activities (₹7.00 crores) and financing activities (₹3.00 crores), leaving minimal free cash flow. The previous year saw a working capital outflow of ₹22.00 crores, highlighting the capital-intensive nature of the business and challenges in managing receivables and inventory.
Industry Context: Competitive Garments Sector
Acknit Industries operates in the garments and apparels sector, a highly fragmented and competitive industry characterised by thin margins, volatile raw material costs, and intense pricing pressure. The company's product portfolio spans seamless hand gloves, leather products, and industrial garments, serving both domestic and export markets. This diversification provides some revenue stability but also exposes the business to multiple competitive dynamics.
The Indian textile and garments industry has faced headwinds from fluctuating cotton prices, rising labour costs, and competitive pressures from neighbouring countries with lower cost structures. Export-oriented manufacturers like Acknit must navigate currency volatility, changing trade policies, and evolving quality standards in international markets. The company's ISO 9001-2008 certification demonstrates its commitment to quality, but this alone is insufficient to command premium pricing in a commoditised market.
Sector Dynamics
The garments sector has witnessed margin compression across the board as manufacturers struggle to pass on input cost inflation to price-sensitive customers. Companies with strong brand presence or niche positioning have fared better, whilst commodity producers face persistent profitability challenges. Acknit's margin profile suggests it operates closer to the commodity end of the spectrum.
The company's five-year sales CAGR of 8.35% reflects modest growth, in line with broader industry trends. However, the EBIT growth of 12.37% over the same period indicates some historical success in improving operational efficiency. The recent quarterly results, however, suggest this positive trend may be reversing.
Peer Comparison: Valuation and Performance Metrics
Compared to its peers in the garments and apparels sector, Acknit Industries presents a mixed picture. The company trades at a price-to-earnings ratio of 10.60 times, significantly below the industry average of 23 times and well below peers such as Nagreeka Exports (31.71 times). This valuation discount could reflect either an attractive entry point or justified concerns about the company's earnings quality and growth prospects.
| Company | P/E Ratio | P/BV Ratio | Dividend Yield |
|---|---|---|---|
| Acknit Industries | 10.60 | 1.06 | 0.49% |
| Bhilwara Spinners | NA (Loss Making) | 2.42 | NA |
| Amarjothi Spinning | 8.21 | 0.51 | 1.47% |
| Deepak Spinners | NA (Loss Making) | 0.43 | NA |
| Vippy Spinpro | 7.55 | 1.13 | NA |
| Nagreeka Exports | 31.71 | 0.56 | NA |
Acknit's ROE of 11.52% exceeds the peer average of approximately 7%, positioning it favourably on this metric. However, this advantage is offset by concerns about the sustainability of these returns given the recent margin compression. The company's price-to-book ratio of 1.06 times sits in the middle of the peer range, neither particularly cheap nor expensive on a book value basis.
The company's dividend yield of 0.49%, based on a recent dividend of ₹1.50 per share, is modest and reflects a conservative payout ratio of 5.07%. This low payout suggests either capital retention for growth investments or limited confidence in sustainable cash generation. Given the company's working capital intensity and modest free cash flow, the conservative dividend policy appears prudent.
Valuation Analysis: Discount Reflects Concerns
At the current market price of ₹307.40, Acknit Industries trades at a trailing twelve-month P/E ratio of 10.60 times, representing a significant 54% discount to the industry average of 23 times. This valuation gap warrants careful examination to determine whether it represents value or a value trap.
The company's enterprise value-to-EBITDA multiple of 8.55 times and EV-to-EBIT of 10.45 times appear reasonable in isolation. However, these multiples must be considered in the context of deteriorating margins and flat financial trends. The EV-to-sales ratio of 0.63 times suggests modest revenue valuation, though this metric is less meaningful given the company's thin profit margins.
The stock has traded between ₹210.20 and ₹405.90 over the past year, currently sitting 24.27% below its 52-week high. This distance from peak levels, combined with the valuation discount, might appear attractive to value investors. However, the recent deterioration in fundamentals suggests the market's scepticism may be warranted.
The company's proprietary Mojo score of 34 out of 100, with a SELL rating, reflects the convergence of multiple negative factors: flat financial trends, below-average quality assessment, and deteriorating operational metrics. Whilst the valuation grade is marked as "ATTRACTIVE," this assessment appears at odds with the fundamental deterioration, suggesting the low valuation may be justified rather than representing an opportunity.
Shareholding Pattern: Promoter Stability
Promoter holding in Acknit Industries stands at 54.13% as of September 2025, unchanged from the previous two quarters but up from 50.34% in December 2024. This 3.79 percentage point increase in Q4 FY25 demonstrates promoter confidence, though the subsequent stabilisation suggests no further accumulation. The absence of any pledged shares is a positive indicator of financial stability at the promoter level.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 |
|---|---|---|---|---|
| Promoter | 54.13% | 54.13% | 54.13% | 50.34% |
| QoQ Change | 0.00% | 0.00% | +3.79% | 0.00% |
| FII | 0.00% | 0.00% | 0.00% | 0.00% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% |
| Non-Institutional | 45.87% | 45.87% | 45.87% | 49.66% |
The complete absence of foreign institutional investors (FIIs), mutual funds, and insurance companies in the shareholder base is noteworthy. This lack of institutional participation typically reflects limited liquidity, small market capitalisation, or concerns about corporate governance and business quality. For a company with a market cap of just ₹93.45 crores, institutional interest is unlikely to materialise without significant improvements in scale, profitability, and governance standards.
The promoter group is led by Shri Krishan Saraf (18.06%), Deo Kishan Saraf (7.52%), and other family members, with holdings distributed across individuals and family trusts. This concentrated promoter ownership structure is typical of small-cap Indian companies but can limit free float and trading liquidity.
Stock Performance: Underperformance Across Timeframes
Acknit Industries' stock performance reveals a pattern of significant long-term gains followed by recent stagnation and underperformance. Over a five-year horizon, the stock has delivered impressive returns of 339.46%, vastly outpacing the Sensex's 92.69% gain and generating alpha of 246.77 percentage points. This historical outperformance reflects the company's growth trajectory during a more favourable operating environment.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 1.12% | 1.38% | -0.26% |
| 1 Month | 0.97% | 0.88% | +0.09% |
| 3 Months | 9.36% | 5.08% | +4.28% |
| 6 Months | 31.40% | 2.87% | +28.53% |
| Year-to-Date | 0.79% | 8.39% | -7.60% |
| 1 Year | 5.62% | 9.17% | -3.55% |
| 3 Years | 97.30% | 37.15% | +60.15% |
| 5 Years | 339.46% | 92.69% | +246.77% |
However, recent performance tells a different story. The stock has delivered just 5.62% returns over the past year, underperforming the Sensex by 3.55 percentage points. Year-to-date returns of 0.79% lag the benchmark by 7.60 percentage points, signalling a clear shift in investor sentiment. The six-month return of 31.40% suggests some recovery from earlier lows, but this appears to be fading as fundamental concerns mount.
The stock's high beta of 1.50 indicates significantly greater volatility than the broader market, with annualised volatility of 53.36% compared to the Sensex's 12.26%. This elevated volatility is typical of small-cap stocks but adds to the risk profile. The risk-adjusted return of 0.11 over the past year compares unfavourably to the Sensex's 0.75, classifying Acknit as a "high risk, medium return" investment.
From a technical perspective, the stock trades above all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting a mildly bullish short-term trend. However, technical indicators present mixed signals, with MACD showing mildly bearish readings on the weekly chart and KST indicator bearish across both weekly and monthly timeframes. The current price of ₹307.40 sits well below the 52-week high of ₹405.90, indicating limited momentum.
Investment Thesis: Multiple Red Flags
The investment case for Acknit Industries faces significant headwinds across multiple parameters. The company's Mojo score of 34 out of 100, resulting in a SELL rating, reflects the convergence of concerning trends across valuation, quality, financial performance, and technical indicators.
Whilst the valuation appears attractive on a headline basis, with the stock trading at 10.60 times earnings and 1.06 times book value, this discount appears justified given the deteriorating fundamentals. The quality assessment of "below average" reflects weak ROCE of 10.91%, modest ROE of 11.52%, and elevated leverage metrics. The flat financial trend in Q2 FY26, characterised by margin compression and profit decline despite revenue growth, raises serious questions about operational efficiency.
"Revenue growth without profitability is a warning sign, not a strength. Acknit's margin compression to seven-quarter lows suggests structural challenges that low valuations alone cannot overcome."
Key Strengths and Risk Factors
Key Strengths ✓
- Revenue Growth Momentum: Q2 FY26 sales reached ₹66.80 crores, the highest quarterly level in recent periods, with 20.90% QoQ growth demonstrating demand resilience.
- Diversified Product Portfolio: Operations span seamless gloves, leather products, and industrial garments, providing multiple revenue streams and reducing single-product dependency.
- No Promoter Pledging: Zero pledged shares indicate financial stability at the promoter level and reduced risk of forced selling.
- Attractive Valuation Multiples: Trading at 10.60x P/E and 1.06x P/BV represents significant discount to industry averages.
- Long-term Track Record: Five-year stock returns of 339.46% demonstrate historical value creation capabilities.
- ISO Certification: ISO 9001-2008 certification validates quality standards and enhances export market credibility.
Key Concerns ⚠
- Severe Margin Compression: Operating margin fell to 5.48% in Q2 FY26, down from 8.66% in Q4 FY25, indicating structural cost pressures and weak pricing power.
- Profit Decline Despite Revenue Growth: Net profit dropped 32.21% YoY whilst sales grew 7.07%, revealing deteriorating operational efficiency.
- Weak Return Metrics: ROCE of 10.03% and ROE of 9.99% fall short of quality business thresholds, suggesting capital is not being deployed effectively.
- Zero Institutional Participation: Complete absence of FII, mutual fund, and insurance holdings signals limited confidence from sophisticated investors.
- High Volatility: Beta of 1.50 and volatility of 53.36% expose investors to significant price swings and downside risk.
- Erratic Cash Flow: Operating cash flow swung from negative ₹8.00 crores in FY24 to positive ₹10.00 crores in FY25, indicating inconsistent cash generation.
- Flat Financial Trend: Q2 FY26 marked as "flat" with lowest operating profit and EPS in recent quarters, suggesting momentum loss.
Outlook: What to Watch
Positive Catalysts
- Margin Recovery: Any signs of operating margin stabilisation or improvement above 7% would signal operational turnaround.
- Consistent Profit Growth: Two consecutive quarters of YoY profit growth would rebuild confidence in business model.
- Working Capital Efficiency: Improvement in cash conversion cycle and sustained positive operating cash flow.
- Volume Growth: Continued topline expansion if accompanied by margin protection would validate demand strength.
Red Flags
- Further Margin Erosion: Operating margins falling below 5% would signal severe competitive or cost pressures.
- Revenue Stagnation: Inability to sustain QoQ revenue growth would eliminate the one positive aspect of recent performance.
- Deteriorating Returns: ROCE or ROE falling below 8-9% would indicate value destruction.
- Working Capital Stress: Negative operating cash flow or rising debtor days would signal liquidity concerns.
- Promoter Selling: Any reduction in promoter holding would be a significant negative signal.
The path forward for Acknit Industries requires urgent attention to operational efficiency and margin protection. The company must demonstrate an ability to translate revenue growth into sustainable profitability. Without visible improvements in Q3 FY26 results, the current sell rating appears justified. Investors should monitor whether management can address the cost structure issues that have led to margin compression, or whether the company faces structural challenges that preclude a return to historical profitability levels.
The Verdict: Avoid Until Fundamentals Stabilise
Score: 34/100
For Fresh Investors: Avoid initiating positions. Whilst valuation multiples appear attractive, the deteriorating fundamentals—particularly the severe margin compression and profit decline despite revenue growth—suggest the low valuation is justified rather than representing an opportunity. The lack of institutional participation and below-average quality grade further support staying on the sidelines.
For Existing Holders: Consider reducing exposure or exiting positions. The Q2 FY26 results represent a concerning inflection point, with operating margins hitting seven-quarter lows and profitability declining sharply. Unless subsequent quarters demonstrate margin recovery and sustained profit growth, the risk-reward profile remains unfavourable. The stock's high volatility adds to downside risk.
Fair Value Estimate: ₹260-280 (15-19% downside from current levels), based on normalised earnings of ₹8-9 crores and a conservative 9-10x P/E multiple reflecting below-average quality and flat growth trajectory.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
