The quarter's performance represents an extraordinary inflection point for Gravity (India), which has struggled with operational inconsistency and financial distress in recent years. The company's synthetic fabrics and shirting business, operating from its facility in Dadra & Nagar Haveli, appears to have secured significant orders that drove the revenue explosion. However, the sustainability of this performance remains highly questionable given the company's erratic historical track record and deteriorating balance sheet fundamentals.
Financial Performance: A Tale of Extremes
In Q2 FY26, Gravity (India) reported net sales of ₹20.44 crores, representing an astronomical 6,493.55% quarter-on-quarter increase from ₹0.31 crores in Q1 FY26. On a year-on-year basis, the growth was equally staggering at 20,340%, though this comparison is distorted by the company's near-dormant operations during Q2 FY25 when sales stood at a meagre ₹0.10 crores. The operating profit before depreciation, interest, and tax (excluding other income) jumped to ₹1.94 crores, yielding a 9.49% margin—a sharp compression from the 48.39% margin in Q1 FY26, suggesting the current quarter's business came at significantly lower profitability levels.
| Metric | Q2 FY26 | Q1 FY26 | QoQ Change | Q2 FY25 | YoY Change |
|---|---|---|---|---|---|
| Net Sales | ₹20.44 Cr | ₹0.31 Cr | +6,493.55% | ₹0.10 Cr | +20,340% |
| Operating Profit (Excl OI) | ₹1.94 Cr | ₹0.15 Cr | +1,193% | -₹1.28 Cr | Turnaround |
| Operating Margin (%) | 9.49% | 48.39% | -38.90 ppts | -1,280% | Positive |
| Net Profit | ₹1.45 Cr | ₹0.07 Cr | +1,971% | -₹1.38 Cr | Turnaround |
| PAT Margin (%) | 7.09% | 22.58% | -15.49 ppts | -1,380% | Positive |
The profit before tax stood at ₹1.96 crores in Q2 FY26, with a tax outgo of ₹0.51 crores (26.02% effective tax rate), resulting in the net profit of ₹1.45 crores. This represents the company's highest quarterly profit in recent history, surpassing all previous quarters tracked. However, context is crucial: the company's operations have been highly erratic, with multiple quarters showing negligible or negative revenues, making meaningful trend analysis exceptionally challenging.
Revenue Volatility: A Critical Red Flag
Gravity (India)'s quarterly revenue pattern reveals extreme operational inconsistency. The company reported zero sales in Q4 FY25 and Q3 FY24, followed by minimal activity in several other quarters. This erratic performance suggests the business lacks sustainable order flow and may be dependent on sporadic, one-off contracts rather than recurring customer relationships—a significant concern for long-term investors.
Operational Challenges: Profitability Under Pressure
Despite the revenue surge, Gravity (India)'s operational metrics reveal concerning trends. The operating margin of 9.49% in Q2 FY26, whilst positive, represents a dramatic compression from the 48.39% achieved in Q1 FY26. This suggests the company secured high-volume, low-margin business—a strategy that may boost top-line numbers but fails to generate sustainable profitability. Employee costs remained relatively stable at ₹0.10 crores, indicating the company has not significantly expanded its workforce despite the revenue jump, which could point to contract manufacturing or trading activities rather than value-added production.
The company's return on equity (ROE) stands at a mere 0.27% on average, placing it amongst the weakest performers in the textiles sector. The latest ROE figure of 75.24% appears distorted by the minimal equity base (shareholder funds of just ₹4.07 crores as of March 2024) and recent profit swing. More concerning is the average return on capital employed (ROCE) of -41.86%, indicating the company has historically destroyed shareholder value rather than creating it. The latest ROCE of -72.94% suggests this fundamental weakness persists despite the recent profit.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 20.44 | 0.31 | 0.00 | 0.00 | 0.10 | 1.11 |
| Net Profit (₹ Cr) | 1.45 | 0.07 | -0.30 | 0.33 | -1.38 | -0.66 |
| Operating Margin (%) | 9.49 | 48.39 | 0.0 | 0.0 | -1,280 | -53.15 |
| PAT Margin (%) | 7.09 | 22.58 | 0.0 | 0.0 | -1,380 | -59.46 |
Balance Sheet Deterioration: Mounting Concerns
Gravity (India)'s balance sheet tells a troubling story of financial distress. As of March 2024, shareholder funds stood at ₹4.07 crores, comprising share capital of ₹9.00 crores offset by negative reserves of ₹4.93 crores. This represents a sharp deterioration from ₹10.23 crores in shareholder funds as of March 2023, with the company having wiped out accumulated reserves through sustained losses. The erosion of net worth raises questions about the company's ability to withstand further operational setbacks.
Long-term debt of ₹0.99 crores and current liabilities of ₹2.51 crores (including trade payables of ₹0.61 crores) further strain the company's financial position. With fixed assets of ₹2.22 crores and current assets of ₹3.08 crores, the company maintains minimal asset backing for its ₹6.00 crore market capitalisation. The debt-to-equity ratio of 1.24 is elevated for a company of this size and profitability profile, indicating financial leverage that amplifies both gains and losses.
Cash Flow Reality Check
The company's cash flow statement reveals persistent operational challenges. For FY24, cash flow from operations was flat at zero, whilst the company reported a loss before tax of ₹8.00 crores. The absence of meaningful cash generation despite occasional profits suggests working capital pressures and questions about the quality of reported earnings. Investors should note the company's closing cash position has remained negligible across recent years.
Peer Comparison: Lagging Industry Standards
Within the garments and apparels sector, Gravity (India) occupies a precarious position. The company's market capitalisation of ₹6.00 crores ranks it fifth amongst its peer group, reflecting limited scale and investor confidence. Whilst its price-to-earnings ratio of 4.09x appears attractive compared to peers like Suncity Synthetics (80.12x) or Raconteur Global (48.06x), this valuation discount reflects fundamental quality concerns rather than an opportunity.
| Company | P/E (TTM) | ROE (%) | Debt/Equity | P/BV |
|---|---|---|---|---|
| Gravity (India) | 4.09 | 0.27 | 1.24 | 3.08 |
| Peeti Securities | NA (Loss Making) | 6.35 | -0.05 | 0.65 |
| Suncity Synthetics | 80.12 | 0.0 | -0.03 | -8.01 |
| Mafia Trends | 12.75 | 9.13 | 0.17 | 0.66 |
Gravity (India)'s ROE of 0.27% significantly underperforms peers like Mafia Trends (9.13%) and Peeti Securities (6.35%), indicating inferior capital efficiency. The company's price-to-book ratio of 3.08x appears elevated given the weak ROE, suggesting the market may be pricing in optimistic expectations for operational turnaround that may not materialise. The debt-to-equity ratio of 1.24 is amongst the highest in the peer group, adding financial risk to operational uncertainty.
Valuation Analysis: Premium Without Justification
At ₹7.05 per share, Gravity (India) trades at a price-to-earnings ratio of 4.09x based on trailing twelve-month earnings—a significant discount to the industry average P/E of 23x. However, this apparent valuation gap reflects quality concerns rather than opportunity. The company's price-to-book ratio of 3.08x appears expensive given the minimal ROE of 0.27%, indicating investors are paying three times book value for a business that generates negligible returns on equity capital.
The company's enterprise value-to-EBITDA multiple of 8.91x and EV-to-sales ratio of 0.43x provide limited insight given the erratic nature of operations. The PEG ratio of 0.03x suggests growth at a reasonable price, but this metric is distorted by the extreme volatility in earnings and revenue. With no dividend yield and a history of losses, the stock offers no income component to offset capital risk.
"Gravity (India)'s valuation reflects a speculative bet on operational turnaround rather than investment in proven business quality—a distinction critical for risk-conscious investors."
Shareholding Pattern: Promoter Exit Signals Concern
Perhaps the most alarming development for Gravity (India) investors is the dramatic reduction in promoter holding. Promoter stake has plummeted from 24.21% in December 2024 to just 5.99% in September 2025—a reduction of 18.22 percentage points in less than a year. This represents a near-complete promoter exit, with stake declining by 3.91 percentage points in Q2 FY26 alone and 13.47 percentage points in Q1 FY26.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 |
|---|---|---|---|---|
| Promoter Holding | 5.99% | 9.90% | 23.37% | 24.21% |
| QoQ Change | -3.91% | -13.47% | -0.84% | — |
| Non-Institutional | 94.01% | 90.10% | 76.63% | 75.79% |
| FII/MF/Insurance | 0.00% | 0.00% | 0.00% | 0.00% |
The near-complete promoter exit raises serious questions about insider confidence in the company's prospects. Simultaneously, non-institutional holding has surged to 94.01%, indicating the stock is now primarily held by retail investors and speculators. The complete absence of institutional investors—no FII, mutual fund, insurance, or DII holdings—further underscores the lack of professional investor confidence in the company's fundamentals and governance.
Stock Performance: Volatility Dominates Returns
Gravity (India)'s stock has delivered exceptional long-term returns, surging 577.88% over five years and 240.58% over ten years, dramatically outperforming the Sensex. However, these returns mask extreme volatility and are heavily influenced by the stock's low base and thin trading volumes. Over the past two years, the stock has gained 73.65%, generating alpha of 44.53 percentage points versus the Sensex.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | 4.60% | 1.69% | +2.91% |
| 1 Month | 7.47% | 1.19% | +6.28% |
| 3 Months | 10.68% | 5.40% | +5.28% |
| 6 Months | 34.80% | 3.18% | +31.62% |
| 2 Years | 73.65% | 29.12% | +44.53% |
| 5 Years | 577.88% | 93.28% | +484.60% |
Recent momentum has been strong, with the stock trading above all key moving averages—5-day (₹6.59), 20-day (₹6.77), 50-day (₹6.25), 100-day (₹6.28), and 200-day (₹6.25). Technical indicators show a bullish trend that changed on October 31, 2025, at ₹7.21. However, the stock's daily trading volume of just 20,795 shares and thin float make it susceptible to sharp price swings on minimal trading activity, rendering technical analysis less reliable.
Investment Thesis: Speculation Over Substance
Gravity (India)'s investment case rests precariously on the hope of sustained operational turnaround following Q2 FY26's strong results. The company's Mojo Score of 51/100 places it in "HOLD" territory, with the recommendation explicitly stating it is "not recommended for fresh buy." This assessment reflects the fundamental weakness underlying the recent profit surge—a single quarter of strong performance cannot offset years of operational inconsistency, balance sheet deterioration, and now, promoter exit.
The company's quality grade of "Below Average" and valuation rating of "Risky" underscore the speculative nature of the investment. Whilst the near-term financial trend has turned positive and technical indicators show bullish momentum, these represent tactical trading signals rather than strategic investment rationale. The absence of institutional investors, minimal promoter holding (5.99%), and zero dividend yield eliminate any margin of safety for long-term investors.
KEY STRENGTHS
- Spectacular Q2 FY26 revenue growth of 20,340% YoY to ₹20.44 crores
- Return to profitability with net profit of ₹1.45 crores in Q2 FY26
- Strong five-year sales CAGR of 17.59%
- No promoter pledging of shares
- Stock trading above all key moving averages with bullish technical trend
- Low P/E ratio of 4.09x versus industry average of 23x
- Established manufacturing facility in Dadra & Nagar Haveli
KEY CONCERNS
- Promoter holding crashed from 24.21% to 5.99% in nine months—near-complete exit
- Highly erratic revenue pattern with multiple quarters of zero or negligible sales
- Extremely weak ROE of 0.27% and negative ROCE of -41.86%
- Shareholder funds eroded to ₹4.07 crores with negative reserves of ₹4.93 crores
- Zero institutional investor presence (no FII, MF, insurance, or DII holdings)
- Operating margin compressed sharply from 48.39% to 9.49% QoQ
- Minimal cash generation despite occasional profits—working capital concerns
Outlook: Critical Monitoring Points
For investors considering Gravity (India), the coming quarters will be decisive in determining whether Q2 FY26 represents a genuine operational turnaround or merely a one-off spike. The sustainability of the ₹20+ crore quarterly revenue run-rate is the single most critical factor to monitor. Without evidence of recurring order flow and customer relationships, the current valuation lacks fundamental support.
POSITIVE CATALYSTS
- Sustained quarterly revenue above ₹15 crores demonstrating order book stability
- Operating margins stabilising in 12-15% range with improved cost management
- Reduction in debt levels and improvement in working capital cycle
- Entry of institutional investors or increase in promoter holding
- Disclosure of major customer contracts or long-term supply agreements
RED FLAGS
- Revenue reverting to single-digit crores or zero in subsequent quarters
- Further reduction in promoter holding below 5% threshold
- Return to quarterly losses or negative operating cash flows
- Increase in debt levels or deterioration in current ratio
- Continued absence of institutional investor interest
The promoter exit trajectory deserves particular attention. Should promoter holding fall below 5%, it would signal a complete loss of insider confidence and potentially trigger further selling pressure. Conversely, any stabilisation or increase in promoter stake would provide a positive signal, though this appears unlikely given the aggressive reduction pattern observed.
The Verdict: High-Risk Speculation, Not Investment
Score: 51/100 (HOLD Category, but downgraded to SELL on qualitative factors)
For Fresh Investors: Avoid entirely. The dramatic promoter exit, erratic operational history, weak balance sheet, and absence of institutional investors create an unacceptable risk profile. The Q2 FY26 results, whilst impressive on headline numbers, lack the sustainability markers necessary for confident investment. This is speculation, not investment.
For Existing Holders: Consider exiting on strength. The promoter reduction from 24.21% to 5.99% in nine months represents a clear vote of no confidence from those with the deepest company knowledge. Whilst the stock has delivered strong returns historically, the risk-reward profile has deteriorated significantly. Book profits and redeploy capital into higher-quality opportunities with stronger governance and operational consistency.
Fair Value Estimate: Not applicable given operational volatility and lack of sustainable earnings visibility. Current price of ₹7.05 appears fully valued to overvalued relative to fundamental quality.
Rationale: Despite the impressive Q2 FY26 turnaround, Gravity (India) fails fundamental tests of investment quality. The near-complete promoter exit, chronic operational inconsistency, weak return ratios, and deteriorating balance sheet outweigh any single quarter's performance. The absence of institutional investors and the speculative shareholder base further amplify risk. This remains a high-risk, low-visibility micro-cap suitable only for traders willing to accept complete capital loss, not for investors seeking sustainable wealth creation.
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. The author and publication accept no liability for investment decisions made based on this analysis.
