Acknit Industries Q3 FY26: Margin Pressure and Revenue Decline Cloud Garment Maker's Performance

The quarter's performance reflects the challenges facing Acknit in the competitive garments and apparels sector. Net sales of ₹51.50 crores marked the lowest quarterly revenue in over a year, declining 22.90% sequentially from ₹66.80 crores in Q2 FY26 and slipping 6.84% from the year-ago quarter. On a nine-month basis for FY2026, net profit stood at ₹4.58 crores, registering a concerning 21.44% decline compared to ₹5.83 crores in the corresponding period of FY2025.

Financial Performance: Squeezed Margins Despite Cost Management

Acknit's Q3 FY26 results reveal a company grappling with top-line pressures whilst attempting to maintain operational efficiency. Net sales contracted sharply on a sequential basis, falling from ₹66.80 crores in Q2 FY26 to ₹51.50 crores in Q3 FY26, a decline of 22.90%. The year-on-year comparison shows a more modest but still troubling 6.84% drop from ₹55.28 crores in Q3 FY25.

Operating profit before depreciation, interest, and tax (excluding other income) stood at ₹3.67 crores in Q3 FY26, marginally below the ₹3.69 crores reported in Q3 FY25. However, the operating margin (excluding other income) improved to 7.13% from 6.68% a year earlier, suggesting some success in cost rationalisation. Employee costs remained relatively stable at ₹1.90 crores compared to ₹1.89 crores in the year-ago quarter, demonstrating disciplined workforce management.

The profit before tax of ₹1.90 crores in Q3 FY26 represented a 15.56% decline from ₹2.25 crores in Q3 FY25. Interest costs rose substantially to ₹1.00 crore from ₹0.64 crore year-on-year, reflecting increased borrowing costs that weighed on profitability. After accounting for tax of ₹0.44 crores at an effective rate of 23.16%, net profit settled at ₹1.46 crores, translating to a PAT margin of 2.83%, down from 3.20% in the corresponding quarter last year.

Operational Challenges: Weak Return Ratios Signal Efficiency Concerns

Acknit's operational performance reveals a company struggling to generate attractive returns on capital. The average return on equity (ROE) over recent years stands at 11.46%, whilst the latest ROE for FY2025 declined to 8.95%. Whilst higher ROE values indicate better capital efficiency and profitability, Acknit's single-digit latest ROE suggests the company is not optimally utilising shareholder capital to generate profits. The average return on capital employed (ROCE) of 10.93% further underscores the challenge, with the latest ROCE at just 9.64%.

The company's 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 net debt-to-equity ratio averaged 0.59 over recent years, indicating manageable but not negligible financial leverage. Current assets stood at ₹125.05 crores against current liabilities of ₹79.44 crores, providing a reasonable current ratio of approximately 1.57, which offers some comfort on short-term liquidity.

Cash flow from operations turned positive at ₹10.00 crores for FY2025 after a negative ₹8.00 crores in FY2024, driven primarily by improved working capital management despite the ₹5.00 crores working capital outflow. However, the company continues to invest in fixed assets, with cash flow from investing activities at negative ₹7.00 crores in FY2025.

Industry Context: Navigating a Challenging Garments Landscape

The garments and apparels sector in India faces headwinds from fluctuating global demand, intense competition from low-cost manufacturers, and volatile raw material prices. Acknit operates in the niche segment of seamless hand gloves and industrial garments, which provides some differentiation but also exposes the company to concentrated customer risk and export market volatility.

The company's diversification into leather products and industrial garments divisions represents an attempt to broaden revenue streams. However, the Q3 FY26 results suggest these efforts have yet to translate into sustained growth momentum. The 9.08% sales compound annual growth rate (CAGR) over the past five years and 10.93% EBIT CAGR indicate modest but not spectacular expansion in a competitive environment.

Peer Comparison: Valuation Discount Reflects Concerns

Acknit trades at a significant valuation discount to several peers in the garments and apparels space, reflecting market scepticism about its growth prospects and operational efficiency. The company's price-to-earnings ratio of 9.42 times compares favourably against peers like Nagreeka Exports (32.24x) and Shalimar Wires (23.82x), but this discount appears justified given the weaker financial performance.

Acknit's ROE of 11.46% stands above most peers except Sanrhea Tech (24.99%), positioning it as a relatively better capital allocator within the group. The price-to-book ratio of 0.84 times suggests the stock trades below its book value, potentially offering a margin of safety for value-oriented investors. However, the low dividend yield of 0.60% and minimal payout ratio of 5.07% indicate limited cash returns to shareholders.

Valuation Analysis: Attractive Entry Point or Value Trap?

At the current market price of ₹267.90, Acknit Industries presents an interesting valuation proposition that warrants careful consideration. The stock trades at a P/E multiple of 9.42 times trailing twelve-month earnings, substantially below the industry average P/E of 22 times. This 57% discount to sector multiples reflects market concerns about growth sustainability and operational challenges.

The company's enterprise value-to-EBITDA ratio of 7.61 times and EV-to-EBIT ratio of 9.36 times suggest reasonable valuations relative to cash generation capabilities. The EV-to-sales ratio of 0.53 times indicates the market values the entire enterprise at roughly half of annual revenues, which appears conservative for a profitable, albeit slowly growing, business.

The stock's 52-week range of ₹210.20 to ₹344.00 shows significant volatility, with the current price sitting 22.12% below the 52-week high and 27.45% above the 52-week low. The valuation grade has fluctuated between "Attractive" and "Very Attractive" over the past year, currently assessed as "Attractive," suggesting the market recognises some value at prevailing levels despite operational headwinds.

Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest

Acknit's shareholding structure reveals a stable promoter base but concerning absence of institutional participation. Promoter holding stood at 54.13% as of December 2025, unchanged sequentially for three consecutive quarters. This followed a 3.79 percentage point increase from 50.34% in December 2024 to 54.13% in March 2025, indicating promoter confidence through increased stake.

The complete absence of foreign institutional investors (FII), mutual funds, insurance companies, and other domestic institutional investors (DII) raises red flags about institutional confidence. The 0.0% institutional holding suggests sophisticated investors have avoided the stock, likely due to concerns about liquidity, growth prospects, and corporate governance in a promoter-dominated micro-cap company. The remaining 45.87% is held by non-institutional investors, primarily retail shareholders.

Positively, there is no promoter pledging, eliminating concerns about financial stress at the promoter level. The Saraf family dominates the promoter group, with Shri Krishan Saraf holding 18.06% individually, followed by other family members and family-controlled entities.

Stock Performance: Long-Term Strength, Recent Weakness

Acknit's stock performance presents a tale of two timelines—impressive long-term gains overshadowed by recent underperformance. Over the past five years, the stock has delivered returns of 183.04%, significantly outpacing the Sensex's 62.93% gain and generating an alpha of 120.11 percentage points. The three-year return of 74.47% versus the Sensex's 38.39% further demonstrates the stock's historical ability to create wealth.

However, near-term performance reveals significant weakness. The stock has declined 11.88% over three months and 6.98% over six months, substantially underperforming the Sensex. The one-year return of 3.30% trails the benchmark's 10.25% gain by 6.95 percentage points, indicating momentum has shifted decidedly negative. The stock's beta of 1.50 classifies it as a high-beta security, meaning it tends to amplify market movements—both up and down.

From a technical perspective, Acknit entered a bearish trend on February 11, 2026, at ₹249.50, transitioning from a mildly bearish phase. The stock trades below all key moving averages—5-day (₹257.02), 20-day (₹254.90), 50-day (₹261.70), 100-day (₹277.11), and 200-day (₹274.03)—signalling technical weakness across multiple timeframes. MACD indicators show bearish signals on both weekly and monthly charts, whilst Bollinger Bands indicate continued bearish momentum.

Investment Thesis: Value Opportunity or Deteriorating Fundamentals?

Acknit Industries presents a complex investment case characterised by attractive valuation metrics offset by deteriorating operational performance and weak technical momentum. The company's proprietary Mojo Score stands at a dismal 23 out of 100, firmly in "Strong Sell" territory, having declined from a "Sell" rating of 34 in November 2025.

The investment thesis rests on a single pillar—valuation attractiveness—whilst three critical factors argue against accumulation. The quality assessment rates Acknit as "Below Average," reflecting weak long-term fundamental strength with a 10.93% CAGR in operating profits over five years. The financial trend is classified as "Flat" following the Q3 FY26 results, which showed the lowest quarterly revenue in over a year. Technical indicators uniformly signal bearish momentum, with the stock in a confirmed downtrend.

Key Strengths & Risk Factors

Outlook: What to Watch in Coming Quarters

The company faces critical challenges in the coming quarters. Management's ability to arrest the revenue decline and stabilise margins will determine whether the current valuation discount represents an opportunity or a value trap. The absence of institutional interest and weak financial trends suggest the market remains unconvinced about near-term prospects.

Investors should monitor Q4 FY26 results closely for signs of stabilisation. A return to quarterly revenues above ₹60 crores with improving operating margins would signal potential bottoming. Conversely, further deterioration in top-line growth or margin compression would validate the market's cautious stance and justify the current "Strong Sell" rating.