With a market capitalisation of ₹71.00 crores and shares trading at ₹92.00 as of November 14, 2025, the stock has declined 3.03% from its previous close, reflecting investor unease about the company's operational challenges. The quarter's results reveal a company heavily dependent on non-operating income to maintain profitability—a structural concern that overshadows the topline growth momentum.
The quarter's performance presents a paradox: whilst revenue growth remains healthy at 49.06% year-on-year, the company's core operations turned loss-making, with operating profit before depreciation, interest, tax and other income (PBDIT excl OI) slipping into negative territory at ₹-1.37 crores. This represents a dramatic reversal from the ₹2.03 crores operating profit recorded in Q1 FY26 and a sharp deterioration from the marginal ₹0.11 crores profit in the year-ago quarter. The operating margin excluding other income contracted to -2.03%, the lowest level in at least seven quarters.
| Quarter | Net Sales (₹ Cr) | Operating Profit (₹ Cr) | Operating Margin (%) | Net Profit (₹ Cr) | PAT Margin (%) |
|---|---|---|---|---|---|
| Sep'25 | 67.57 | -1.37 | -2.03% | 2.18 | 3.23% |
| Jun'25 | 79.65 | 2.03 | 2.55% | 2.47 | 3.10% |
| Mar'25 | 41.58 | 2.39 | 5.75% | 3.69 | 8.87% |
| Dec'24 | 68.88 | 3.22 | 4.67% | 2.49 | 3.61% |
| Sep'24 | 45.33 | 0.11 | 0.24% | 1.32 | 2.91% |
| Jun'24 | 29.68 | 0.15 | 0.51% | 1.04 | 3.50% |
| Mar'24 | 56.13 | 1.64 | 2.92% | 3.56 | 6.34% |
Financial Performance: Revenue Growth Masks Operational Deterioration
Dhanalaxmi Roto Spinners' Q2 FY26 topline performance tells a story of recovery, with net sales reaching ₹67.57 crores, representing a 49.06% year-on-year increase from ₹45.33 crores in Q2 FY25. However, the sequential decline of 15.17% from Q1 FY26's ₹79.65 crores indicates volatility in the business. On a half-yearly basis, H1 FY26 revenue stood at ₹147.22 crores, marking a substantial 96.27% growth compared to H1 FY25's ₹75.01 crores, demonstrating strong momentum over the first half of the fiscal year.
The concern lies not in revenue generation but in profitability. The company's operating profit before depreciation, interest, tax and other income (PBDIT excl OI) turned negative at ₹-1.37 crores in Q2 FY26, a dramatic reversal from the ₹2.03 crores recorded in the previous quarter. This represents an operating margin of -2.03%, the lowest in the company's recent history. The year-on-year comparison shows deterioration as well, with Q2 FY25's marginal operating profit of ₹0.11 crores (0.24% margin) looking substantially better than the current quarter's loss-making operations.
The gross profit margin for Q2 FY26 stood at 4.44%, a marginal improvement from 4.26% in Q1 FY26 but significantly below the 12.31% achieved in Q4 FY25. This compression in gross margins suggests either pricing pressure, increased raw material costs, or unfavourable product mix. The PAT margin of 3.23% in Q2 FY26, whilst showing a 32 basis point improvement year-on-year from 2.91%, remains heavily dependent on other income rather than operational efficiency.
Critical Concern: Other Income Dependency
Non-operating income constituted 157.82% of profit before tax in Q2 FY26. The company reported other income of ₹4.64 crores against a profit before tax of ₹2.94 crores, meaning that without this other income, the company would have reported a pre-tax loss of ₹1.70 crores. This structural dependence on non-core income sources raises serious questions about the sustainability of reported profitability and the health of the core wood pulp and paper products business.
Operational Challenges: Cost Pressures Erode Core Profitability
The operational deterioration in Q2 FY26 stems from multiple factors. Employee costs remained stable at ₹1.05 crores, unchanged from Q1 FY26, representing approximately 1.55% of net sales. However, other operational expenses appear to have surged, pushing the company into negative operating territory. The interest burden remained modest at ₹0.27 crores, unchanged sequentially, whilst depreciation stayed minimal at ₹0.06 crores, reflecting the company's relatively light asset base.
From a balance sheet perspective, Dhanalaxmi Roto Spinners maintains a strong financial position with shareholder funds of ₹56.91 crores as of March 2025, comprising share capital of ₹7.80 crores and reserves of ₹49.11 crores. The company carries minimal long-term debt of ₹0.60 crores, resulting in a net debt to equity ratio of -0.67, indicating a net cash position. This financial strength provides a cushion against operational challenges, though it doesn't address the fundamental profitability concerns.
The company's return on equity (ROE) averaged 20.11% over recent years, whilst return on capital employed (ROCE) stood at 30.28% on average. However, the latest ROCE of 19.30% and ROE of 17.52% suggest moderating returns. Higher ROE typically indicates better capital efficiency, and whilst Dhanalaxmi's ROE remains respectable, the declining trend warrants attention. The company's ability to generate returns is being challenged by the operational headwinds evidenced in the latest quarter.
Cash Flow Concerns Emerge
For FY25, Dhanalaxmi Roto Spinners reported negative operating cash flow of ₹-6.56 crores, the lowest in recent years, driven by adverse working capital movements of ₹-13.00 crores. This contrasts sharply with the ₹23.00 crores positive operating cash flow in FY24. The company's closing cash position declined from ₹38.00 crores in FY24 to ₹19.00 crores in FY25, reflecting both the negative operating cash flow and investing activities of ₹-16.00 crores. This cash burn raises questions about working capital management and business sustainability.
Industry Context: Garments & Apparels Sector Dynamics
The garments and apparels sector, whilst distinct from Dhanalaxmi's core wood pulp business, provides context for the company's positioning. The sector has faced headwinds from fluctuating raw material prices, global demand volatility, and intense competition. Dhanalaxmi's diversification into wood pulp and paper products positions it slightly differently from pure-play garment manufacturers, though it remains exposed to similar input cost pressures and demand cyclicality.
The company's 5-year sales growth of 30.49% demonstrates historical momentum, though the recent annual performance shows deceleration, with FY25 sales declining 5.60% to ₹185.00 crores from FY24's ₹196.00 crores. The 5-year EBIT growth of 52.98% reflects strong historical profitability expansion, though the current quarter's negative operating profit represents a significant deviation from this trend.
Peer Comparison: Valuation Attractive but Fundamentals Lag
Within the garments and apparels peer group, Dhanalaxmi Roto Spinners presents an interesting valuation profile. With a price-to-earnings ratio of 7.20x and a market capitalisation of ₹71.00 crores, the company trades at a significant discount to the industry average P/E of 23x. The price-to-book value of 1.26x appears reasonable given the company's book value per share of ₹71.63.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Dhanalaxmi Roto | 7.20 | 1.26 | 20.11 | -0.67 | 1.63 |
| Riba Textiles | 9.63 | 0.79 | 8.44 | 0.60 | NA |
| Ashnoor Textile | 6.68 | 0.79 | 14.32 | 0.09 | NA |
| Damodar Industries | 9.25 | 0.52 | 7.22 | 1.22 | NA |
| Sky Industries | 13.84 | 1.53 | 10.98 | 0.25 | 1.09 |
| Bang Overseas | 18.07 | 0.81 | 1.56 | 0.26 | NA |
Dhanalaxmi Roto Spinners stands out with the highest ROE of 20.11% amongst its peer group, significantly ahead of the peer average of approximately 9%. This superior return on equity, combined with a net cash position (negative debt-to-equity of -0.67), demonstrates historical capital efficiency. However, the company's higher price-to-book ratio of 1.26x versus the peer average of around 0.90x suggests the market has historically priced in these quality metrics. The dividend yield of 1.63% provides modest income, with the latest dividend of ₹1.50 per share representing a payout ratio of 13.70%.
Valuation Analysis: Attractive Multiples Don't Compensate for Operational Risks
At the current price of ₹92.00, Dhanalaxmi Roto Spinners trades at a P/E ratio of 7.20x, representing a significant 69% discount to the industry average of 23x. The EV/EBITDA multiple of 5.67x and EV/Sales of 0.19x appear undemanding on the surface. The stock trades 39.63% below its 52-week high of ₹152.40 and 15.00% above its 52-week low of ₹80.00, suggesting it's in the middle of its recent trading range.
However, these attractive valuation multiples must be viewed through the lens of deteriorating operational performance. The company's valuation grade of "Attractive" reflects the low multiples, but this doesn't account for the fundamental challenge of negative operating profitability. The enterprise value to capital employed ratio of 1.51x suggests modest valuation relative to deployed capital, though the sustainability of returns on that capital is now in question.
"When a company's profit before tax is exceeded by its other income, you're not investing in an operating business—you're investing in a treasury function with a struggling business attached."
Shareholding Pattern: Stable Promoter Base, Minimal Institutional Interest
The shareholding structure of Dhanalaxmi Roto Spinners has remained remarkably stable over recent quarters, with promoter holding steady at 47.64% across the last five quarters ending September 2025. The promoter group, led by the Inani family, shows no signs of increasing or decreasing their stake, suggesting confidence in the long-term prospects despite near-term challenges. Importantly, there is zero promoter pledging, eliminating concerns about financial stress at the promoter level.
| Quarter | Promoter (%) | FII (%) | MF (%) | Insurance (%) | Other DII (%) | Non-Inst (%) |
|---|---|---|---|---|---|---|
| Sep'25 | 47.64 | 0.00 | 0.00 | 0.00 | 0.00 | 52.36 |
| Jun'25 | 47.64 | 0.00 | 0.00 | 0.00 | 0.00 | 52.36 |
| Mar'25 | 47.64 | 0.00 | 0.00 | 0.00 | 0.00 | 52.36 |
| Dec'24 | 47.64 | 0.00 | 0.00 | 0.00 | 0.01 | 52.36 |
| Sep'24 | 47.64 | 0.00 | 0.00 | 0.00 | 0.01 | 52.36 |
The complete absence of foreign institutional investors (FIIs), mutual funds, and insurance companies signals a lack of institutional interest in the stock. The 0.00% institutional holding is particularly notable—sophisticated investors have not taken meaningful positions in the company. The non-institutional shareholding of 52.36% represents primarily retail and other non-classified investors. This lack of institutional participation likely reflects concerns about liquidity, corporate governance standards, or fundamental business quality that professional investors find unattractive.
Stock Performance: Significant Long-Term Gains, Recent Weakness
Dhanalaxmi Roto Spinners' stock performance presents a tale of two timelines. Over longer periods, the stock has delivered exceptional returns, with a 5-year gain of 763.85% vastly outperforming the Sensex's 93.78% return, generating alpha of 670.07 percentage points. The 10-year return of 1,283.46% versus Sensex's 230.19% demonstrates wealth creation for patient, long-term investors.
| Period | Stock Return (%) | Sensex Return (%) | Alpha (%) |
|---|---|---|---|
| 1 Day | -3.03 | +0.10 | -3.13 |
| 1 Week | -1.52 | +1.62 | -3.14 |
| 1 Month | -5.15 | +3.09 | -8.24 |
| 3 Months | +7.41 | +4.92 | +2.49 |
| 6 Months | -1.08 | +3.97 | -5.05 |
| YTD | -8.00 | +8.22 | -16.22 |
| 1 Year | +1.15 | +9.00 | -7.85 |
| 2 Years | +47.79 | +30.23 | +17.56 |
| 3 Years | +142.74 | +37.22 | +105.52 |
| 5 Years | +763.85 | +93.78 | +670.07 |
However, recent performance tells a different story. Year-to-date, the stock has declined 8.00% whilst the Sensex gained 8.22%, resulting in negative alpha of 16.22 percentage points. The 1-year return of just 1.15% significantly underperforms the Sensex's 9.00% gain. The 1-month decline of 5.15% and 6-month loss of 1.08% indicate mounting pressure on the stock as operational challenges become apparent. The stock currently trades below all key moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—signalling technical weakness.
The stock's beta of 1.50 indicates high volatility, moving 50% more than the broader market. With a volatility of 58.15% versus Sensex's 12.26%, Dhanalaxmi Roto Spinners falls into the "high risk, low return" category based on 1-year risk-adjusted returns. The risk-adjusted return of 0.02 pales in comparison to Sensex's 0.73, suggesting investors are not being adequately compensated for the elevated risk.
Investment Thesis: Quality Metrics Undermined by Operational Reality
The investment case for Dhanalaxmi Roto Spinners presents conflicting signals across key parameters. The company's quality grade of "Below Average" reflects concerns about long-term financial performance despite some positive attributes. The financial trend classification of "Positive" seems at odds with the operational loss reported in Q2 FY26, suggesting the classification may lag the deteriorating reality. The technical trend of "Mildly Bearish" aligns with the stock's recent underperformance and position below key moving averages.
Mojo Score: 34/100 - SELL Rating
Overall Assessment: The proprietary Mojo score of 34 out of 100 places Dhanalaxmi Roto Spinners firmly in "SELL" territory, reflecting the significant concerns about operational sustainability. Whilst the valuation appears attractive on surface metrics, the fundamental deterioration in core business profitability outweighs the low multiples. The score has improved from a previous "Strong Sell" rating of 29 in August 2025, though this appears to reflect stock price decline rather than fundamental improvement.
Key Strengths & Risk Factors
KEY STRENGTHS
- Strong long-term track record with 763.85% returns over 5 years, demonstrating historical wealth creation capability
- Net cash position with debt-to-equity of -0.67, providing financial flexibility and eliminating solvency concerns
- Superior ROE of 20.11% compared to peer average of ~9%, indicating historically efficient capital deployment
- Attractive valuation at P/E of 7.20x versus industry average of 23x, representing a 69% discount
- Zero promoter pledging with stable 47.64% promoter holding, demonstrating promoter commitment
- Modest dividend yield of 1.63% provides some income whilst maintaining low payout ratio of 13.70%
- Strong H1 FY26 revenue growth of 96.27% year-on-year indicates topline momentum
KEY CONCERNS
- Operating loss of ₹-1.37 crores in Q2 FY26 with -2.03% margin represents first negative operational performance in recent quarters
- Other income dependency at 157.82% of PBT means company would be loss-making without non-operating income
- Negative operating cash flow of ₹-6.56 crores in FY25 versus positive ₹23.00 crores in FY24 signals working capital stress
- Complete absence of institutional investors (0.00% FII, MF, insurance) suggests professional investors see fundamental concerns
- Volatile quarterly performance with 15.17% QoQ sales decline in Q2 FY26 indicates business instability
- High volatility (58.15%) with beta of 1.50 places stock in "high risk, low return" category based on recent performance
- Year-to-date underperformance of 16.22 percentage points versus Sensex reflects mounting investor concerns
Outlook: Critical Monitoring Points Ahead
The path forward for Dhanalaxmi Roto Spinners hinges on management's ability to restore operational profitability. The company must address the fundamental question of whether Q2 FY26's operating loss represents a temporary aberration or the beginning of a structural decline in the core business. Investors should closely monitor whether the company can reduce its dependence on other income and generate sustainable profits from wood pulp and paper operations.
POSITIVE CATALYSTS
- Return to positive operating margins in Q3 FY26 would signal temporary nature of Q2 challenges
- Improvement in operating cash flow and working capital management in upcoming quarters
- Sustained revenue growth with margin expansion would validate the business model
- Entry of institutional investors would provide validation and improve liquidity
- Clarification on sources and sustainability of other income streams
RED FLAGS TO WATCH
- Continuation of negative operating margins in subsequent quarters would confirm structural issues
- Further deterioration in operating cash flow or increased working capital requirements
- Declining other income without corresponding improvement in operational profitability
- Sequential revenue declines indicating demand weakness or market share loss
- Any promoter share sales or pledging would signal loss of confidence
The Verdict: Operational Crisis Outweighs Valuation Appeal
Score: 34/100
For Fresh Investors: Avoid initiating positions until the company demonstrates at least two consecutive quarters of positive operating profitability. The attractive valuation multiples are a value trap given the fundamental deterioration in core business economics. The complete absence of institutional investors and high volatility make this unsuitable for most portfolios.
For Existing Holders: Consider using any strength towards the ₹95-100 levels to reduce exposure. Long-term holders who entered at significantly lower prices may hold a small position whilst monitoring Q3 FY26 results closely, but should prepare for further disappointment if operational metrics don't improve. The risk-reward profile has shifted unfavourably.
Fair Value Estimate: ₹75-80 (18% downside from current levels), reflecting the operational challenges and sustainability concerns around reported profitability. The current price of ₹92.00 appears to overvalue a business that cannot generate operating profits from its core activities.
Dhanalaxmi Roto Spinners' Q2 FY26 results expose a critical flaw in the investment thesis: a company that reports profits only because of other income is not an operating business—it's a treasury function subsidising a struggling enterprise. Until management demonstrates the ability to generate consistent operating profits, investors should remain on the sidelines despite the seemingly attractive valuation multiples.
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.
