With a market capitalisation of ₹7,909 crores as of November 07, 2025, Arvind operates across denim fabric, shirting fabric, knitted fabric, and garments manufacturing. The company's September quarter results reflect a significant operational turnaround from the subdued June quarter performance, though margin volatility remains a persistent concern for investors evaluating the stock's long-term trajectory.
The textile major's ability to deliver sequential profit growth of nearly 95% demonstrates operational resilience, but the underlying margin fluctuations and competitive pressures in the textile sector warrant careful examination. For investors with a market capitalisation threshold of ₹7,909 crores, understanding whether this quarter's performance represents sustainable momentum or temporary recovery becomes critical.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 2,371.14 | 2,006.32 | 2,220.69 | 2,089.21 | 2,188.31 | 1,830.60 | 2,074.51 |
| QoQ Growth | +18.18% | -9.65% | +6.29% | -4.53% | +19.54% | -11.76% | — |
| Net Profit (₹ Cr) | 103.40 | 53.24 | 151.04 | 103.42 | 59.72 | 39.31 | 99.03 |
| QoQ Growth | +94.21% | -64.75% | +46.05% | +73.17% | +51.92% | -60.30% | — |
| Operating Margin % | 10.42% | 8.84% | 11.06% | 11.35% | 10.10% | 8.18% | 11.71% |
| PAT Margin % | 4.50% | 2.73% | 6.96% | 5.09% | 2.87% | 2.39% | 5.03% |
Financial Performance: Recovery Momentum But Margin Consistency Eludes
Arvind's Q2 FY26 financial performance showcased a strong sequential recovery, with net sales climbing 18.18% quarter-on-quarter to ₹2,371.14 crores from ₹2,006.32 crores in Q1 FY26. Year-on-year growth was more modest at 8.35%, reflecting the broader challenges facing India's textile sector. The company's consolidated net profit of ₹103.40 crores represented a dramatic 94.21% sequential improvement, though it's worth noting this followed a weak June quarter where profits had plummeted 64.75% to ₹53.24 crores.
The operating profit margin (excluding other income) improved to 10.42% in Q2 FY26 from 8.84% in the previous quarter, marking a 158 basis point sequential expansion. However, this remains below the 11.06% achieved in Q4 FY25 and the 11.35% recorded in Q3 FY25, highlighting the persistent volatility in margin performance. The PAT margin of 4.50% showed similar sequential improvement from 2.73%, yet fell short of the 6.96% margin delivered in March 2025.
On a half-yearly basis (H1 FY26), Arvind reported combined sales of ₹4,377.46 crores and net profit of ₹156.64 crores, representing year-on-year growth of 8.95% and 58.17% respectively. This half-year performance demonstrates that despite quarterly fluctuations, the company has managed to sustain growth momentum compared to the previous year's corresponding period.
Employee costs rose to ₹315.79 crores in Q2 FY26 from ₹286.81 crores in the previous quarter, reflecting the company's continued investment in human capital. Interest costs remained relatively stable at ₹41.21 crores compared to ₹41.22 crores in Q1 FY26, indicating disciplined financial management. Depreciation increased marginally to ₹71.94 crores from ₹69.00 crores, in line with the company's ongoing capital expenditure programme.
The tax rate of 28.19% in Q2 FY26 was consistent with the 28.37% recorded in the previous quarter, representing a normalisation after the unusually low 2.35% tax rate in Q4 FY25. This normalised tax rate provides a more reliable basis for projecting future earnings, though it does reduce the bottom-line benefit compared to quarters with favourable tax adjustments.
Return Ratios: Modest Capital Efficiency Remains a Constraint
Arvind's return on equity (ROE) of 7.69% and return on capital employed (ROCE) of 9.61% on an average basis reflect moderate capital efficiency that lags behind industry leaders. The latest ROE of 9.34% and ROCE of 11.37% show sequential improvement, but these metrics remain in single digits, indicating the company generates relatively modest returns on the capital deployed in the business.
For context, higher ROE values typically indicate superior capital efficiency and profitability, with industry benchmarks often exceeding 15% for well-managed textile companies. Arvind's single-digit ROE suggests the company faces challenges in translating revenue growth into proportionate shareholder value creation. The ROCE of 11.37%, while showing improvement, indicates that the company earns just over 11% on the capital employed after accounting for interest and taxes.
Capital Efficiency: Room for Improvement
Arvind's ROE of 9.34% and ROCE of 11.37% reflect moderate capital efficiency. The company's ability to improve these metrics through better asset utilisation, margin expansion, and debt optimisation will be critical for long-term value creation. The five-year EBIT growth of 23.88% suggests operational improvements are underway, but translating this into higher return ratios remains a work in progress.
The company's debt management shows mixed signals. Long-term debt stood at ₹292.30 crores as of March 2025, up from ₹263.35 crores in the previous year. The average debt-to-EBITDA ratio of 2.66 times indicates moderate leverage, while the net debt-to-equity ratio of 0.38 suggests the balance sheet isn't overly stretched. However, the EBIT-to-interest coverage ratio of 3.12 times is relatively weak, leaving limited cushion for earnings volatility.
Operational Dynamics: Margin Volatility Overshadows Growth
The most striking aspect of Arvind's recent operational performance is the pronounced margin volatility across quarters. Operating margins (excluding other income) have swung between 8.18% and 11.71% over the past seven quarters, reflecting the company's exposure to raw material price fluctuations, competitive pricing pressures, and operational inefficiencies. The Q2 FY26 margin of 10.42% sits in the middle of this range, neither exceptionally strong nor worryingly weak.
This margin instability creates challenges for earnings predictability. The PAT margin fluctuation from 2.39% in June 2024 to 6.96% in March 2025, and back down to 4.50% in September 2025, demonstrates how quickly profitability can swing based on operational execution and market conditions. For investors seeking stable, predictable earnings, this volatility represents a significant concern.
Cash flow generation provides some comfort. Operating cash flow for FY25 reached ₹762.00 crores, the highest in recent years and up from ₹696.00 crores in FY24. This strong operating cash flow, combined with disciplined capital expenditure of ₹493.00 crores, demonstrates that the company is generating sufficient internal resources to fund growth while servicing debt obligations. The company reduced net debt through financing cash outflows of ₹270.00 crores in FY25.
Five-Year Growth Trajectory
Arvind has delivered 6.97% compound annual sales growth and 23.88% EBIT growth over the past five years, demonstrating improving operational leverage. However, the company's sales-to-capital-employed ratio of 1.50 times suggests modest asset turnover efficiency. The company's ability to sustain EBIT growth ahead of sales growth will be crucial for margin expansion and improved return ratios in the coming years.
Industry Context: Navigating Textile Sector Headwinds
Arvind operates in India's highly competitive garments and apparels sector, facing pressure from both domestic competition and international players. The company's year-on-year sales growth of 8.35% in Q2 FY26 outpaced the sector's average return of -3.61% over the past year, indicating relative outperformance despite challenging market conditions. However, the stock's -13.35% return over the past year underperformed the sector by 9.74 percentage points, reflecting investor concerns about margin sustainability and growth visibility.
The textile industry has faced significant headwinds including volatile cotton prices, weak global demand, and intense competition from low-cost producers. Arvind's vertically integrated model—spanning from fabric manufacturing to branded garments—provides some insulation through diversification, but also exposes the company to challenges across multiple segments simultaneously.
The company's positioning as one of the world's largest denim manufacturers provides scale advantages, but the denim market itself has faced softness due to changing fashion preferences and economic uncertainty in key export markets. Arvind's ability to navigate these sector-specific challenges while maintaining market share and margins will determine its medium-term growth trajectory.
| Company | P/E (TTM) | P/BV | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| Arvind Ltd | 22.12 | 2.15 | 7.69% | 0.38 | 1.19% |
| Vardhman Textile | 14.68 | 0.12 | 9.56% | -0.08 | 1.17% |
| Welspun Living | 22.81 | 2.56 | 12.63% | 0.39 | 1.34% |
| Aditya Birla Fashion | NA (Loss Making) | 1.40 | 0.0% | 0.39 | — |
| V2 Retail | 100.21 | 23.25 | 6.18% | 2.43 | — |
Peer Comparison: Competitive Positioning Analysis
Compared to peers in the garments and apparels sector, Arvind trades at a P/E ratio of 22.12 times, in line with Welspun Living's 22.81 times but at a premium to Vardhman Textile's 14.68 times. The company's price-to-book value of 2.15 times sits between Vardhman's 0.12 times and Welspun's 2.56 times, suggesting the market values Arvind's franchise at a moderate premium to book value.
However, Arvind's ROE of 7.69% trails both Vardhman Textile (9.56%) and Welspun Living (12.63%), indicating weaker capital efficiency relative to these peers. This ROE differential partially explains why Arvind doesn't command a higher valuation multiple despite its scale and market position. The company's debt-to-equity ratio of 0.38 is comparable to Welspun's 0.39, suggesting similar leverage profiles.
Arvind's dividend yield of 1.19% is marginally higher than Vardhman's 1.17% but trails Welspun's 1.34%, reflecting a moderate dividend payout ratio of 27.78%. The company's latest dividend of ₹3.70 per share paid in July 2025 demonstrates management's commitment to returning cash to shareholders, though the yield remains modest compared to fixed-income alternatives.
"Arvind's valuation appears reasonable at 22 times earnings, but the company must demonstrate consistent margin improvement and higher return ratios to justify a premium multiple relative to better-performing peers."
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current price of ₹328.45, Arvind trades at a P/E ratio of 22.12 times trailing twelve-month earnings, in line with the industry average P/E of 22 times. The stock's price-to-book value of 2.15 times compares to a book value per share of ₹144.61, suggesting the market values the company at more than twice its net asset value. The EV/EBITDA multiple of 10.86 times and EV/EBIT of 15.40 times indicate moderate valuation levels relative to historical standards.
The company's proprietary valuation assessment grades the stock as "Very Attractive," with the valuation grade having improved from "Attractive" as recently as August 2021. However, this valuation attractiveness must be viewed in the context of the company's modest return ratios and margin volatility. A PEG ratio of 1.18 suggests the stock is reasonably priced relative to its growth rate, though this metric can be misleading given the cyclical nature of earnings.
The stock currently trades 27.08% below its 52-week high of ₹450.40 and 20.95% above its 52-week low of ₹271.55, positioning it in the middle of its recent trading range. This suggests neither extreme optimism nor pessimism is priced in at current levels. For investors seeking entry points, the stock's recent 5.88% gain following quarterly results may represent a near-term tactical opportunity, though the longer-term value proposition depends on sustained operational improvements.
Shareholding Pattern: Institutional Confidence Building
Arvind's shareholding structure reveals modest promoter holding of just 7.24%, which has remained unchanged over the past five quarters. This low promoter stake is unusual for an Indian textile company and reflects the company's historical corporate structure and evolution. The stability in promoter holding suggests no concerns about stake dilution or management exits.
Institutional participation has shown mixed trends. Foreign institutional investors (FIIs) reduced their stake to 16.82% in Q2 FY26 from 17.58% in the previous quarter and 18.72% in Q4 FY25, representing a cumulative 190 basis point decline over two quarters. This FII selling could reflect concerns about margin sustainability or profit-taking after the stock's strong medium-term gains.
Conversely, mutual fund holdings increased to 18.34% in Q2 FY26 from 17.76% in Q1 FY26, marking the fourth consecutive quarter of rising domestic institutional ownership. This 58 basis point sequential increase suggests domestic fund managers view the stock favourably at current valuations. The combined institutional holding of 35.52% indicates healthy professional investor interest, though the divergence between FII selling and mutual fund buying warrants monitoring.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 |
|---|---|---|---|---|---|
| Promoter % | 7.24% | 7.24% | 7.24% | 7.24% | 7.24% |
| FII % | 16.82% | 17.58% | 18.72% | 18.67% | 18.32% |
| Mutual Fund % | 18.34% | 17.76% | 17.83% | 17.23% | 16.84% |
| Insurance % | 0.03% | 0.03% | 0.00% | 0.06% | 0.07% |
| Other DII % | 0.33% | 0.31% | 0.28% | 0.33% | 0.30% |
Stock Performance: Long-Term Outperformance Despite Recent Weakness
Arvind's stock has delivered exceptional long-term returns despite recent underperformance. Over five years, the stock has surged 871.75% compared to the Sensex's 98.64% gain, generating alpha of 773.11 percentage points. This remarkable outperformance reflects the company's transformation and recovery from the challenging FY21 period when it posted a loss.
However, more recent performance has been disappointing. Over the past year, the stock declined 13.35% while the Sensex gained 4.62%, resulting in negative alpha of 17.97 percentage points. The stock has underperformed its sector by 9.74 percentage points, with the garments and apparels sector itself declining 3.61% over the period. Year-to-date, the stock is down 19.93% against the Sensex's 6.50% gain.
The stock's volatility of 39.25% significantly exceeds the Sensex's 12.39%, and its beta of 1.35 indicates higher sensitivity to market movements. This high volatility creates both opportunity and risk—the stock can deliver outsized gains during favourable periods but also suffers sharp drawdowns during market weakness. The negative risk-adjusted return of -0.34 over the past year reflects the poor absolute performance relative to volatility.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +3.03% | -0.86% | +3.89% |
| 1 Month | +10.51% | +1.57% | +8.94% |
| 3 Months | +9.10% | +3.22% | +5.88% |
| 6 Months | -12.56% | +3.06% | -15.62% |
| 1 Year | -13.35% | +4.62% | -17.97% |
| 3 Years | +249.41% | +36.01% | +213.40% |
| 5 Years | +871.75% | +98.64% | +773.11% |
Technical indicators present a mixed picture. The stock currently trades in a "mildly bearish" trend that began on October 27, 2025, at ₹325.75. Moving averages show the stock trading below all key averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting technical weakness. However, weekly MACD and Bollinger Bands indicators show mildly bullish signals, creating conflicting technical signals that reflect the stock's transitional phase.
Investment Thesis: Quality Concerns Temper Valuation Appeal
Arvind's investment case rests on several pillars. The company's "Very Attractive" valuation grade suggests the stock offers value at current levels, trading at reasonable multiples relative to earnings and book value. The positive financial trend status following Q2 FY26 results indicates improving operational momentum, with the company achieving its highest quarterly sales and operating cash flow on record.
However, the investment thesis faces significant headwinds. The company's "Average" quality grade reflects modest return ratios, with ROE of 7.69% and ROCE of 9.61% falling well short of industry leaders. The mildly bearish technical trend and underperformance versus both the market and sector over the past year suggest investor scepticism about the sustainability of recent improvements.
The company's overall Mojo score of 51 out of 100 results in a "Hold" rating, reflecting the balanced risk-reward profile. The score acknowledges the attractive valuation and positive recent financial trends while penalising the stock for average quality metrics, technical weakness, and recent underperformance. For investors, this translates to a stock that may offer value for patient holders but lacks compelling catalysts for fresh deployment of capital.
Key Strengths & Risk Factors
Key Strengths
- Strong Q2 Recovery: 94.21% QoQ profit growth demonstrates operational resilience and recovery capability from weak quarters
- Robust Cash Generation: Operating cash flow of ₹762 crores in FY25 highest in recent years, providing financial flexibility
- Institutional Support: 35.52% institutional holdings with rising mutual fund stake indicates professional investor confidence
- Vertically Integrated Model: Presence across fabric manufacturing to branded garments provides diversification and value capture
- Scale Advantages: Position as one of world's largest denim manufacturers offers competitive moat and pricing power
- Long-Term Track Record: 871.75% five-year return demonstrates ability to create shareholder value over extended periods
- Reasonable Valuation: P/E of 22x in line with sector average, with "Very Attractive" valuation grade suggesting value opportunity
Key Concerns
- Margin Volatility: Operating margins swinging between 8.18% and 11.71% creates earnings unpredictability and investor uncertainty
- Weak Return Ratios: ROE of 7.69% and ROCE of 9.61% lag peers and industry benchmarks, indicating capital inefficiency
- Recent Underperformance: Stock down 13.35% over past year versus Sensex gain of 4.62%, underperforming sector by 9.74%
- Technical Weakness: Mildly bearish trend with stock trading below all key moving averages suggests near-term headwinds
- Low Promoter Holding: Just 7.24% promoter stake unusual for Indian textile company, may indicate limited skin in the game
- FII Selling: Foreign institutional investors reduced stake by 190 bps over two quarters, suggesting cautious international sentiment
- Sector Headwinds: Textile industry facing weak global demand, volatile input costs, and intense competition limiting growth visibility
Outlook: What to Watch in Coming Quarters
Positive Catalysts
- Margin Stabilisation: Consistent operating margins above 10.5% for three consecutive quarters would signal structural improvement
- ROE Improvement: Return on equity crossing 12% threshold would indicate better capital efficiency and value creation
- Export Recovery: Revival in global demand and export growth would validate the company's international positioning
- Debt Reduction: Further deleveraging and improvement in interest coverage ratio above 4x would strengthen financial position
- Technical Breakout: Stock reclaiming 200-day moving average at ₹335.62 would signal trend reversal and attract momentum buyers
Red Flags to Monitor
- Margin Compression: Operating margins falling below 9% would indicate competitive pressure or operational challenges
- Working Capital Stress: Sharp increase in debtor days or inventory levels would signal demand weakness or collection issues
- Continued FII Selling: Further reduction in foreign institutional holdings below 15% would indicate waning international confidence
- Cash Flow Deterioration: Operating cash flow declining below ₹600 crores annually would constrain growth investments and debt servicing
- Market Share Loss: Revenue growth consistently lagging sector growth would indicate competitive positioning weakness
The textile sector's outlook remains challenging with continued uncertainty in global demand, particularly from key export markets. Domestic consumption has shown resilience but faces headwinds from inflationary pressures. For Arvind, the ability to maintain the Q2 FY26 momentum into the second half of FY26 will be critical. Investors should monitor whether the company can deliver consistent quarterly performance or if the recent results represent another peak in a volatile earnings cycle.
Management's ability to improve return ratios through better asset utilisation, margin expansion, and capital allocation will determine whether the stock can command a premium valuation. The company's strong cash generation provides resources for growth investments, debt reduction, or shareholder returns, but execution will be key. The rising mutual fund stake suggests domestic institutional investors see potential, but the FII selling indicates international investors remain cautious.
The Verdict: Hold for Existing Investors, Wait for Fresh Buyers
Score: 51/100
For Fresh Investors: Not recommended for fresh deployment at current levels. While valuation appears attractive and Q2 results showed strong recovery, the persistent margin volatility, weak return ratios, and technical weakness warrant caution. Wait for sustained improvement in operating margins above 10.5% for at least two consecutive quarters and evidence of ROE improvement before initiating positions.
For Existing Holders: Continue to hold current positions. The company's strong cash generation, institutional support, and "Very Attractive" valuation grade provide downside protection. However, maintain strict monitoring of margin trends and consider trimming positions if operating margins fall below 9% or if FII selling accelerates. The long-term track record justifies patience, but near-term performance will be critical.
Fair Value Estimate: ₹360-380 (9.6% to 15.7% upside from current levels), contingent on sustained margin improvement and consistent quarterly execution. Downside risk to ₹280-290 if margin pressures intensify.
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. Past performance is not indicative of future results. The author and publisher are not responsible for any investment decisions made based on the information provided in this article.
