Ashnoor Textile Mills Q2 FY26: Sharp Profit Decline Amid Revenue Contraction Raises Concerns

The stock, trading at ₹46.70 as of February 11, 2026, gained 4.38% on the day despite the weak quarterly numbers. However, this short-term bounce masks a deeper malaise – the company has underperformed the broader market significantly, delivering a negative 20.44% return over the past year against the Sensex's 10.41% gain, resulting in a negative alpha of 30.85 percentage points. The stock remains 24.68% below its 52-week high of ₹62.00, reflecting persistent investor concerns about the business trajectory.

Financial Performance: Revenue Contraction Drives Profit Erosion

Ashnoor Textile's Q2 FY26 performance reveals a troubling sequential deterioration across key metrics. Net sales contracted sharply by 26.08% quarter-on-quarter to ₹29.45 crores from ₹39.84 crores in Q1 FY26. The year-on-year comparison is equally concerning, with revenues declining 33.81% from ₹44.49 crores in Q2 FY25. This represents the company's lowest quarterly revenue in recent periods, signalling potential demand weakness or market share loss in the highly competitive textile export sector.

Operating profit before depreciation, interest, and tax (excluding other income) stood at ₹4.76 crores in Q2 FY26, down 29.28% from ₹6.73 crores in the previous quarter. The operating margin contracted by 73 basis points sequentially to 16.16% from 16.89%, though it remained relatively stable compared to the 17.42% margin in Q2 FY25. This suggests that whilst the company has managed to maintain some pricing discipline or cost efficiency, the absolute profit pool has shrunk significantly due to lower volumes.

The profit after tax (PAT) margin compression has been severe, falling from 11.65% in Q1 FY26 to just 6.15% in Q2 FY26. This 550-basis-point sequential decline reflects not just revenue pressure but also the impact of operating deleverage. Interest costs remained relatively stable at ₹1.04 crores, whilst depreciation held steady at ₹1.44 crores. The effective tax rate increased to 32.21% from 24.92% in the previous quarter, further squeezing post-tax profitability.

Operational Challenges: Volume Decline and Margin Pressure

The sharp revenue contraction in Q2 FY26 points to significant operational challenges for Ashnoor Textile. As a manufacturer and exporter of terry towels primarily serving the US hospitality industry, the company is exposed to global demand fluctuations, foreign exchange volatility, and competitive pressures from low-cost producers. The sequential 26.08% revenue decline suggests either a loss of key orders, destocking by clients, or increased competitive intensity in export markets.

The company's return on capital employed (ROCE) averaged 11.72% over the past five years, with the latest reading at 17.76%. Whilst this suggests some improvement in asset productivity, the quarterly profit decline raises questions about sustainability. The debt-to-EBITDA ratio of 4.22 times indicates elevated leverage, though the net debt-to-equity ratio of 0.09 times suggests manageable absolute debt levels relative to shareholder equity.

Employee costs remained subdued at ₹0.61 crores in Q2 FY26, down from ₹0.65 crores in Q1 FY26, reflecting either headcount rationalisation or lower variable compensation linked to business performance. The company's production facilities spread across Amritsar, Agra, Mirzapur, Jaipur, Panipat, and Srinagar provide geographic diversification, but also entail fixed cost burdens that become onerous during periods of weak demand.

The Other Income Anomaly: Non-Operating Income Dependency

A notable feature of Ashnoor Textile's recent quarterly performance has been the volatile contribution of other income to overall profitability. In Q2 FY26, other income stood at ₹0.39 crores, representing 14.61% of profit before tax (PBT). Whilst this proportion appears reasonable, the trend has been erratic – other income constituted ₹2.23 crores in Q1 FY26 (36.08% of PBT) and reached as high as ₹3.30 crores in Q2 FY25 (38.06% of PBT).

For a manufacturing and export-oriented business, such heavy dependence on other income – which typically includes treasury income, forex gains, or one-time items – suggests that core operations may be struggling to generate adequate returns. This quality of earnings issue becomes particularly concerning when viewed alongside the sequential revenue and profit declines, indicating that the operational business is under significant stress.

Industry Context: Textile Export Headwinds

Ashnoor Textile operates in the garments and apparels sector, specifically focusing on terry towel exports to the US market. The global textile industry has faced multiple headwinds in recent quarters, including subdued demand in developed markets, inventory corrections by retailers, and pricing pressures from competing low-cost producers in countries such as Bangladesh, Vietnam, and Pakistan.

The company's year-on-year revenue decline of 33.81% in Q2 FY26 significantly underperforms the broader sector trend. According to industry data, the garments and apparels sector delivered a negative 0.59% return over the past year, whilst Ashnoor Textile underperformed by 19.85 percentage points with a negative 20.44% return. This suggests company-specific challenges beyond broader sector weakness.

The US hospitality industry, which constitutes Ashnoor's primary end-market, has shown resilience in recent quarters, making the sharp revenue contraction particularly puzzling. This could indicate either loss of market share to competitors, client-specific issues, or quality/delivery concerns that have resulted in order cancellations or reduced allocations.

Peer Comparison: Valuation Discount Reflects Fundamental Weakness

A comparison with peers in the garments and apparels sector reveals that whilst Ashnoor Textile trades at attractive valuation multiples, these discounts appear justified given the deteriorating fundamentals and quality concerns.

Ashnoor Textile's price-to-earnings ratio of 6.79 times represents a significant discount to peers such as Garment Mantra (8.85x), Riba Textiles (8.79x), and Sky Industries (12.44x). The price-to-book ratio of 0.80 times also trades below most comparable companies, with only Riba Textiles offering a similar discount at 0.72 times. However, these valuation discounts appear warranted given the deteriorating financial trend and below-average quality grade assigned by fundamental analysis.

Ashnoor's ROE of 14.32% compares favourably against the peer average of approximately 6-11%, suggesting better historical capital efficiency. However, the declining trend in recent quarters and the heavy reliance on non-operating income raise questions about the sustainability of these returns. The company's low debt-to-equity ratio of 0.09 times provides some financial flexibility, though this has not translated into superior shareholder returns given the negative stock performance.

Valuation Analysis: Attractive Multiples Mask Fundamental Deterioration

Despite the concerning operational trends, Ashnoor Textile's valuation metrics appear superficially attractive. The stock trades at a P/E ratio of 7.00 times compared to the industry average of 22.00 times, representing a 68% discount. The price-to-book value of 0.80 times suggests the stock trades below its accounting book value, whilst the EV/EBITDA multiple of 3.70 times appears modest for a manufacturing business.

However, these attractive multiples must be viewed in the context of deteriorating fundamentals. The company's valuation grade has oscillated between "Attractive" and "Very Attractive" in recent months, with the current assessment at "Attractive" as of February 2026. This valuation appeal reflects the low absolute multiples rather than improving business prospects.

The absence of dividend payments despite reasonable profitability in prior years suggests management is conserving cash, possibly to navigate the current operational challenges or fund working capital requirements. The stock's beta of 1.50 indicates high volatility relative to the broader market, with the stock experiencing 42.50% annualised volatility over the past year – significantly higher than the Sensex's 11.52% volatility.

Shareholding Pattern: Stable Promoter Holdings Provide Limited Comfort

The shareholding pattern reveals stable promoter ownership at 71.71% as of December 2025, unchanged over the past three quarters. This consistency suggests promoter confidence in the business, though the absence of incremental buying during the stock's decline raises questions about conviction levels.

The complete absence of foreign institutional investor (FII) and mutual fund holdings reflects the stock's micro-cap status and lack of institutional interest. With just 0.14% total institutional holding and minimal coverage from financial institutions, the stock suffers from poor liquidity and limited analyst scrutiny. The recent trading volume of just 343 shares on February 11, 2026, underscores this liquidity challenge.

Promoter holdings are concentrated amongst the Gupta family, with Suneel Gupta holding 32.60%, Sangeeta Gupta at 23.43%, Abhinav Gupta at 9.95%, and Noor Gupta at 5.73%. Positively, there is no promoter pledging, eliminating concerns about forced selling or financial stress at the promoter level. However, the lack of institutional participation means the stock lacks the support and stability that professional investor interest typically provides.

Stock Performance: Persistent Underperformance Across Timeframes

Ashnoor Textile's stock performance has been disappointing across most relevant timeframes, with the exception of a strong five-year return driven by the base effect from COVID-19 lows. The stock's negative 20.44% return over the past year compares unfavourably to the Sensex's positive 10.41% gain, resulting in a negative alpha of 30.85 percentage points.

The recent price action shows some short-term strength, with the stock gaining 4.01% over the past week and 4.24% over the past month, outperforming the Sensex in both periods. However, the three-month return of negative 2.69% and the one-year decline of 20.44% reflect the market's growing concerns about the business trajectory. The stock's risk-adjusted return of negative 0.48 over the past year, combined with high volatility of 42.50%, places it in the "HIGH RISK LOW RETURN" category.

From a technical perspective, the stock is currently in a "MILDLY BEARISH" trend as of February 3, 2026, having transitioned from a "Bearish" trend. The stock trades below all major moving averages – 5-day (₹45.54), 20-day (₹43.58), 50-day (₹44.60), 100-day (₹45.78), and 200-day (₹47.96) – indicating persistent selling pressure. The immediate support lies at the 52-week low of ₹39.00, whilst resistance clusters around the 20-day moving average at ₹43.58 and the 100-day moving average at ₹45.78.

Investment Thesis: Deteriorating Fundamentals Outweigh Valuation Appeal

The investment case for Ashnoor Textile presents a classic value trap scenario – superficially attractive valuations masking fundamental deterioration and quality concerns. The company's proprietary Mojo score of 28 out of 100 results in a "STRONG SELL" rating, reflecting the confluence of negative factors across multiple dimensions.

The company's quality grade has been downgraded to "Below Average" since November 2025, reflecting weak long-term financial performance with sales growth of just 8.84% over five years. The average ROCE of 11.72% and ROE of 14.32%, whilst reasonable in absolute terms, mask the recent deterioration visible in quarterly results. The high debt-to-EBITDA ratio of 4.22 times and weak EBIT-to-interest coverage of 3.15 times raise concerns about financial flexibility during periods of operational stress.

The financial trend has turned decisively "NEGATIVE" as of December 2025, with multiple red flags including the lowest quarterly PAT at ₹0.55 crores (down 79.90% from the previous four-quarter average), lowest net sales at ₹18.55 crores, and the concerning statistic that non-operating income constituted 701.82% of profit before tax in the most recent quarter. These metrics collectively suggest a business struggling to generate sustainable profits from core operations.

Key Strengths & Risk Factors

Outlook: Critical Monitoring Points for Recovery Assessment

The immediate focus for investors should be on Q3 FY26 results, expected in the coming weeks, which will reveal whether the Q2 decline represents a temporary blip or the start of a sustained downturn. Key metrics to monitor include sequential revenue trends, operating margin stability, the proportion of other income to total profits, and any management commentary on order book visibility and demand outlook.

Given the company's export orientation, global macroeconomic trends – particularly US consumer spending and hospitality industry health – will be critical external factors. Any signs of inventory destocking completion or demand recovery in key export markets could provide relief. Conversely, further deterioration in global demand or intensifying competition from low-cost producers would exacerbate existing challenges.