The company's latest financial performance reveals a concerning trend: whilst Gujarat Craft has managed to grow its top line, profitability metrics have deteriorated markedly. The PAT margin contracted to just 1.0% in FY25 from 1.7% in FY24, reflecting mounting cost pressures and operational inefficiencies that are eroding shareholder value.
Financial Performance: Revenue Growth Masks Profitability Crisis
Gujarat Craft Industries delivered net sales of ₹202.00 crores in FY25, representing a 15.4% year-on-year increase from ₹175.00 crores in FY24. This marked the company's strongest revenue growth in recent years, reversing the modest 6.7% expansion recorded in the previous fiscal year. However, this top-line momentum has not translated into bottom-line strength.
Net profit for FY25 stood at ₹2.00 crores, a sharp 33.33% decline from ₹3.00 crores in FY24. This contraction is particularly alarming given the double-digit revenue growth, indicating severe margin compression across the business. The PAT margin deteriorated to 1.0% from 1.7%, whilst the operating margin (excluding other income) declined to 5.9% from 6.3% in the prior year.
| Metric | FY25 | FY24 | FY23 | FY22 |
|---|---|---|---|---|
| Net Sales (₹ Cr) | 202.00 | 175.00 | 164.00 | 170.00 |
| YoY Growth | +15.4% | +6.7% | -3.5% | +15.6% |
| Net Profit (₹ Cr) | 2.00 | 3.00 | 3.00 | 7.00 |
| YoY Growth | -33.33% | — | -57.14% | +133.33% |
| Operating Margin | 5.9% | 6.3% | 5.5% | 8.2% |
| PAT Margin | 1.0% | 1.7% | 1.8% | 4.1% |
The margin erosion stems from multiple factors. Operating profit (PBDIT excluding other income) increased to ₹12.00 crores from ₹11.00 crores, but this 9.09% growth lagged significantly behind the 15.4% revenue expansion, suggesting deteriorating operating leverage. Employee costs doubled to ₹10.00 crores from ₹5.00 crores, whilst interest expenses surged 66.67% to ₹5.00 crores from ₹3.00 crores, reflecting both higher debt levels and rising borrowing costs.
Quality of Earnings Concern
The company reported zero other income in FY25, eliminating any non-operating support to profitability. With operating profit barely covering interest and depreciation charges, Gujarat Craft's earnings quality remains questionable. The profit before tax of ₹3.00 crores represents a 25% decline from ₹4.00 crores in FY24, underscoring the structural challenges facing the business.
Operational Challenges: Weak Returns and Rising Leverage
Gujarat Craft Industries' operational metrics paint a concerning picture of capital efficiency and financial health. The company's average return on equity stands at just 6.98%, whilst the latest ROE has deteriorated further to 3.97%. These figures are substantially below industry standards and indicate that the company is generating minimal returns for shareholders relative to the equity capital deployed.
The average return on capital employed (ROCE) of 8.40% has also weakened to 6.83% in the latest period, reflecting poor utilisation of the company's total capital base. This weak ROCE is particularly troubling given the company's high leverage profile, suggesting that borrowed funds are not being deployed productively.
The balance sheet reveals mounting financial stress. Long-term debt increased to ₹18.33 crores in FY25 from ₹15.59 crores in FY24, whilst total current liabilities surged to ₹67.25 crores from ₹53.83 crores. The debt-to-equity ratio reached 1.06 times on a half-yearly basis, marking the highest level in recent years. This elevated leverage, combined with weak profitability, raises concerns about the company's ability to service its debt obligations comfortably.
⚠️ Critical Warning: Deteriorating Financial Health
Gujarat Craft's average debt-to-EBITDA ratio stands at a concerning 4.05 times, whilst the EBIT-to-interest coverage has weakened to just 2.60 times. These metrics indicate limited financial flexibility and vulnerability to any further deterioration in operating performance or adverse changes in the interest rate environment.
The Profitability Paradox: Growing Sales, Shrinking Margins
The company's financial trajectory over the past five years reveals a troubling pattern. Whilst Gujarat Craft has achieved a respectable 8.69% compound annual growth rate in sales, EBIT growth has lagged significantly at just 4.53% over the same period. This divergence underscores the company's inability to translate revenue growth into proportionate profit expansion.
The operating margin peaked at 8.2% in FY22 but has since declined steadily, reaching 5.9% in FY25. Similarly, the PAT margin has contracted from 4.1% in FY22 to just 1.0% in FY25, a 310 basis point deterioration that reflects the cumulative impact of rising input costs, elevated interest expenses, and operational inefficiencies.
Working capital management has also deteriorated. Cash flow from operations was ₹6.00 crores in FY25, down from ₹8.00 crores in FY23, despite higher revenue. Changes in working capital absorbed ₹5.00 crores in FY25, indicating that the company is tying up increasing amounts of capital in inventory and receivables without commensurate returns.
| Cash Flow (₹ Cr) | FY25 | FY24 | FY23 | FY22 |
|---|---|---|---|---|
| Operating Cash Flow | 6.00 | 0.00 | 8.00 | 4.00 |
| Investing Cash Flow | -7.00 | -6.00 | -2.00 | -3.00 |
| Financing Cash Flow | 1.00 | 6.00 | -6.00 | 0.00 |
| Net Cash Flow | 0.00 | 0.00 | 0.00 | 0.00 |
Industry Positioning: Underperforming Peers
Within the packaging sector, Gujarat Craft Industries occupies a weak competitive position. The company's market capitalisation of ₹58.00 crores places it at the bottom of its peer group, whilst its operational metrics lag significantly behind better-performing competitors.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Guj. Craft Inds | 22.69 | 0.90 | 6.98 | 1.02 | 0.85 |
| Guj. Containers | 14.29 | 1.80 | 24.65 | 0.14 | 0.89 |
| AMD Industries | NA (Loss Making) | 0.54 | 4.60 | 0.47 | — |
| Orient Press | NA (Loss Making) | 0.91 | 0.0 | 0.94 | — |
Gujarat Containers, a direct peer, demonstrates markedly superior fundamentals with an ROE of 24.65% and a debt-to-equity ratio of just 0.14, compared to Gujarat Craft's 6.98% ROE and 1.02 leverage ratio. Despite Gujarat Craft's lower P/E multiple of 22.69x versus Gujarat Containers' 14.29x, the valuation discount appears justified given the substantial gap in profitability and financial health.
The company's stock has underperformed the packaging sector by 4.86 percentage points over the past year, with Gujarat Craft declining 18.54% whilst the sector fell 13.68%. This relative weakness reflects investor concerns about the company's deteriorating fundamentals and uncertain earnings trajectory.
Valuation Analysis: Attractive Price, Questionable Quality
At the current price of ₹119.50, Gujarat Craft Industries trades at a P/E ratio of 22.69x, below the industry average of 26x. The stock's price-to-book value of 0.90x suggests it is trading below its accounting book value of ₹85.38 per share. Whilst these metrics may appear attractive on the surface, they must be evaluated in the context of the company's weak profitability and deteriorating returns.
The PEG ratio of 2.97 indicates that the stock is expensive relative to its growth prospects, particularly given the 8.69% five-year sales CAGR and the even weaker 4.53% EBIT growth. The EV-to-EBITDA multiple of 8.79x appears reasonable, but this fails to capture the quality concerns surrounding the company's earnings power.
Valuation Dashboard
P/E Ratio: 22.69x | P/BV Ratio: 0.90x | Dividend Yield: 0.85% | Overall Grade: ATTRACTIVE
Despite the "Attractive" valuation grade, investors should note that the company's quality grade is "Below Average," creating a classic value trap scenario where low multiples reflect genuine business challenges rather than market mispricing.
The stock has declined 35.30% from its 52-week high of ₹184.70, currently trading closer to the 52-week low of ₹103.30. This price action reflects growing market scepticism about the company's ability to restore profitability and generate sustainable returns for shareholders.
Shareholding Pattern: Stable Promoter Base, Negligible Institutional Interest
Gujarat Craft's shareholding structure has remained remarkably stable over the past five quarters, with promoter holding consistently at 73.83%. The promoter group, led by Sushma Chhajer (39.33%) and Rishab Ashok Chhajer (14.83%), maintains strong control with zero pledging of shares, which is a positive indicator of promoter confidence.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter Holding | 73.83% | 73.83% | 73.83% | 73.83% | — |
| FII Holding | 0.12% | 0.12% | 0.12% | 0.12% | — |
| Mutual Fund Holding | 0.00% | 0.00% | 0.00% | 0.00% | — |
| Non-Institutional | 26.05% | 26.05% | 26.05% | 26.05% | — |
However, the near-complete absence of institutional investors is telling. With just 0.12% FII holding and zero mutual fund or insurance company participation, Gujarat Craft has failed to attract quality institutional capital. This lack of institutional interest typically signals concerns about corporate governance, disclosure quality, or business fundamentals that make the stock unsuitable for professional investors.
Stock Performance: Persistent Underperformance Across Timeframes
Gujarat Craft's stock performance has been consistently disappointing across most relevant timeframes. Over the past year, the stock has declined 18.54%, significantly underperforming the Sensex's 8.85% gain, resulting in a negative alpha of 27.39 percentage points.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +4.82% | -0.85% | +5.67% |
| 1 Month | +3.64% | -0.90% | +4.54% |
| 3 Months | -11.15% | -1.90% | -9.25% |
| 6 Months | -14.76% | +2.90% | -17.66% |
| 1 Year | -18.54% | +8.85% | -27.39% |
| 3 Years | +46.72% | +37.14% | +9.58% |
| 5 Years | +199.50% | +60.78% | +138.72% |
The stock's risk-adjusted return of -0.41 over the past year, combined with high volatility of 45.25%, places it firmly in the "high risk, low return" category. With a beta of 1.50, Gujarat Craft exhibits significantly higher volatility than the broader market, amplifying downside risk during market corrections.
Whilst longer-term returns appear more favourable—with the stock delivering 199.50% returns over five years—recent performance suggests the company's best days may be behind it. The three-month and six-month returns of -11.15% and -14.76% respectively indicate accelerating negative momentum.
Technical Outlook: Mildly Bearish Trend with Limited Support
From a technical perspective, Gujarat Craft's stock remains in a "Mildly Bearish" trend as of February 13, 2026, having changed from "Bearish" on February 9. The stock trades below all major moving averages, including the 5-day, 20-day, 50-day, 100-day, and 200-day moving averages, indicating persistent selling pressure.
Key technical indicators present a mixed picture. The MACD shows "Mildly Bullish" on a weekly basis but "Mildly Bearish" monthly, whilst Bollinger Bands signal "Mildly Bearish" across both timeframes. The KST indicator remains "Bearish" on a weekly basis, suggesting continued downward momentum.
Immediate support lies at the 52-week low of ₹103.30, whilst resistance is expected at the 20-day moving average area of ₹115.06, followed by major resistance at the 100-day moving average of ₹125.47. The stock would need to decisively reclaim the 200-day moving average at ₹137.39 to signal a meaningful trend reversal.
Investment Thesis: Below Average Quality Meets Attractive Valuation
Gujarat Craft Industries presents a classic investment dilemma: statistically cheap valuation metrics overlaid on fundamentally weak business quality. The company's overall quality grade of "Below Average" reflects structural challenges that are unlikely to resolve quickly.
Mojo 4 Dots Assessment
Valuation: ATTRACTIVE ✓ | Quality Grade: BELOW AVERAGE ✗ | Financial Trend: FLAT ⚠ | Technical Trend: MILDLY BEARISH ✗
With three out of four key parameters showing concerning signals, the investment case remains weak despite the attractive valuation.
Key Strengths & Risk Factors
✅ KEY STRENGTHS
- Stable promoter holding at 73.83% with zero pledging demonstrates management confidence
- Consistent revenue growth with 8.69% five-year CAGR shows market acceptance
- Attractive valuation with P/BV of 0.90x trading below book value
- Established presence in HDPE/PP woven fabrics and tarpaulin manufacturing since 1984
- ISO 9001:2008 certification and focus on eco-friendly, recyclable products
⚠️ KEY CONCERNS
- Severely weak ROE of 3.97% indicates poor capital efficiency and value destruction
- PAT margin contracted to 1.0% from 4.1% in FY22, a 310 basis point deterioration
- High leverage with debt-to-equity of 1.06x and weak interest coverage of 2.60x
- Complete absence of institutional investors (0% MF, minimal FII) signals quality concerns
- Negative operating leverage with EBIT growth (4.53%) lagging sales growth (8.69%)
- Flat financial trend in recent quarter with multiple metrics at multi-quarter lows
- Stock in mildly bearish technical trend, trading below all major moving averages
Outlook: What to Watch
POSITIVE CATALYSTS
- Margin improvement through better cost management and operating leverage
- Reduction in debt levels and improvement in interest coverage ratios
- Sustainable improvement in ROE and ROCE above 10% levels
- Entry of institutional investors signalling improved confidence
- Successful capacity utilisation improvements driving profitability
RED FLAGS TO MONITOR
- Further deterioration in PAT margins below 1% levels
- Increase in debt-to-equity ratio beyond current 1.06x
- Any decline in promoter holding or emergence of pledging
- Working capital deterioration requiring additional borrowings
- Stock breaking below 52-week low of ₹103.30 on high volumes
The Verdict: Value Trap in a Structurally Challenged Business
Score: 20/100
For Fresh Investors: Avoid initiating positions. The combination of deteriorating profitability, weak returns on capital, elevated leverage, and absence of institutional interest creates an unfavourable risk-reward profile. The attractive valuation is a reflection of genuine business challenges rather than market mispricing.
For Existing Holders: Consider exiting positions on any technical bounce towards the ₹125-130 resistance zone. The company's structural profitability challenges, margin compression despite revenue growth, and weak capital efficiency metrics suggest limited upside potential and significant downside risk.
Rationale: Whilst Gujarat Craft has demonstrated revenue growth capability, its inability to convert sales expansion into proportionate profit growth, combined with deteriorating returns (ROE of 3.97%, ROCE of 6.83%) and elevated leverage (debt-to-equity of 1.06x), indicates a business struggling with fundamental operational challenges. The flat financial trend, mildly bearish technical setup, and complete absence of institutional investor interest reinforce the weak investment case.
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.
