Hindoostan Mills Q3 FY26: Mounting Losses Deepen as Margins Collapse

The company's Q2 FY25 results reveal a dramatic deterioration in profitability, with net losses widening to ₹1.60 crores from a modest profit of ₹0.52 crores in the previous quarter. This represents a staggering 407.69% quarter-on-quarter decline, signalling severe operational distress. Year-on-year comparisons paint an equally grim picture, with net profit plunging 215.11% compared to Q2 FY24's ₹1.39 crores profit.

Trading at ₹177.85 as of February 10, 2026, the stock has shown recent volatility with a 3.58% gain in the latest session. However, this minor uptick does little to offset the broader trend of value destruction, with the stock trading 20.80% below its 52-week high of ₹224.55 and delivering negative returns across most timeframes.

Financial Performance: Margin Compression and Revenue Stagnation

Hindoostan Mills' financial performance in Q2 FY25 reveals multiple layers of operational weakness. Net sales stood at ₹37.02 crores, declining 2.76% quarter-on-quarter from ₹38.07 crores in Q1 FY25. While the company managed a 19.46% year-on-year sales increase compared to Q2 FY24's ₹30.99 crores, this growth has failed to translate into bottom-line improvement.

The most alarming aspect of the quarterly performance is the complete collapse of operating profitability. Operating profit excluding other income plummeted to just ₹0.42 crores in Q2 FY25, representing a meagre 1.12% margin compared to 3.44% in the previous quarter and 10.06% in Q2 FY24. This dramatic margin compression suggests severe pricing pressure or uncontrolled cost escalation in the company's core textile manufacturing operations.

Employee costs remained relatively stable at ₹3.04 crores, whilst depreciation charges surged to ₹2.12 crores from ₹1.50 crores quarter-on-quarter, indicating recent capital investments that have yet to yield productivity improvements. The company's profit before tax turned deeply negative at ₹-1.60 crores, even after accounting for other income of ₹0.26 crores.

Operational Challenges: Weak Returns and Structural Concerns

The company's operational metrics paint a troubling picture of fundamental business weakness. Return on equity (ROE) stands at a paltry 4.76% on average, with the latest quarter showing a negative ROE of -4.55%, indicating the company is destroying shareholder value rather than creating it. This weak ROE reflects both margin pressures and inefficient capital deployment.

Return on capital employed (ROCE) presents an even more concerning picture at -14.14% on average and -13.72% in the latest period. These negative returns suggest the company's core operations are failing to generate adequate returns to justify the capital invested in the business. For a capital-intensive textile manufacturing operation, such weak returns raise serious questions about long-term viability.

On a positive note, the company maintains a debt-free balance sheet with negative net debt to equity of -0.21, indicating it holds more cash than debt. However, cash and cash equivalents at the half-year mark stood at just ₹4.00 crores, the lowest level in recent periods, suggesting limited financial flexibility to weather ongoing operational challenges.

The debtors turnover ratio has deteriorated to 5.15 times in H1 FY26, the lowest in recent history, indicating either slower collections or potential quality issues with receivables. This working capital strain, combined with weak profitability, raises concerns about the company's ability to fund operations without external financing.

Industry Context: Struggling in a Competitive Textile Landscape

Hindoostan Mills operates in India's highly fragmented and competitive garments and apparels sector, where margin pressures have intensified due to rising raw material costs, labour inflation, and fierce competition from both domestic and international players. The company's inability to maintain pricing power in this environment is evident from its collapsing margins.

The broader textile sector has faced headwinds from volatile cotton prices, energy cost inflation, and shifting consumer preferences towards fast fashion and e-commerce channels. Traditional manufacturers like Hindoostan Mills, with legacy infrastructure and potentially outdated business models, have struggled to adapt to these structural changes.

The company's five-year sales growth of -28.78% starkly illustrates its inability to compete effectively or maintain market share. This sustained revenue decline, combined with margin compression, points to fundamental competitive disadvantages that management has been unable to address.

Peer Comparison: Lagging on Most Metrics

A comparison with sector peers reveals Hindoostan Mills' relative positioning in the competitive landscape. Whilst the company maintains a debt-free balance sheet, its operational performance and profitability metrics lag significantly behind several competitors.

Hindoostan Mills' ROE of 4.76% places it in the middle of the pack, ahead of Mahalaxmi Fabric (1.10%) and Pasupati Spinning (2.89%), but significantly behind Katare Spinning's impressive 46.40%. The company's price-to-book ratio of 0.81x suggests the market values its assets below book value, reflecting scepticism about future profitability and asset quality.

Notably, three of the six companies in the peer group, including Hindoostan Mills, are currently loss-making with negative P/E ratios. This highlights the challenging operating environment facing smaller textile manufacturers. However, Hindoostan Mills' sustained inability to return to consistent profitability distinguishes it as a particularly weak performer within this struggling cohort.

Valuation Analysis: Deep Discount Reflects Fundamental Weakness

Hindoostan Mills' valuation metrics reflect the market's deep concerns about the company's prospects. With a price-to-book ratio of just 0.81x, the stock trades at a 19% discount to its stated book value of approximately ₹220 per share. This discount typically signals either asset quality concerns or expectations of continued losses that will erode book value.

The company's loss-making status renders traditional earnings-based valuation metrics like P/E ratio meaningless. The negative EV/EBITDA of -9.19x and EV/EBIT of -5.55x further underscore the company's operational distress. An EV/Sales ratio of 1.35x suggests the market values the entire enterprise at just 1.35 times annual revenue, implying minimal confidence in the company's ability to generate meaningful profits from its sales base.

The company's overall valuation grade is classified as "RISKY" by quality assessment frameworks, reflecting the combination of operational losses, weak returns, and uncertain turnaround prospects. This risk rating has persisted since April 2023, indicating sustained fundamental concerns rather than temporary cyclical weakness.

From a risk-adjusted returns perspective, the stock has delivered a negative risk-adjusted return of -0.38 over the past year, with volatility of 40.13% placing it firmly in the "HIGH RISK LOW RETURN" category. The stock's beta of 1.50 indicates it is 50% more volatile than the broader market, amplifying downside risk during market corrections.

Shareholding Pattern: Stable but Lacking Institutional Support

Hindoostan Mills' shareholding structure has remained remarkably stable over the past five quarters, with promoter holding steady at 60.48% and showing no signs of change. This consistency provides some governance stability, though the absence of any meaningful institutional participation raises concerns about professional investor confidence in the company's prospects.

The complete absence of foreign institutional investors (FIIs), mutual funds, and insurance companies signals a lack of professional investor interest. Total institutional holdings stand at a negligible 0.12%, comprised entirely of "Other DII" category, suggesting even domestic institutional investors have largely avoided the stock.

Positively, there is zero promoter pledging, indicating the promoter group has not leveraged their shareholding for borrowings. The promoter group includes multiple members of the Thackersey family, with holdings ranging from 0.34% to 10.90% across various family members and investment vehicles.

Stock Performance: Sustained Underperformance Across Timeframes

Hindoostan Mills' stock price performance has been dismal across virtually all timeframes, with the stock delivering negative absolute returns and significant underperformance versus both the Sensex and its sector peers. Trading at ₹177.85, the stock remains 20.80% below its 52-week high of ₹224.55, though it has recovered 15.49% from its 52-week low of ₹154.00.

The stock has shown some resilience in the very short term, with positive returns over one week (+1.63%), one month (+4.31%), and three months (+1.66%), all outperforming the Sensex during these periods. However, this recent strength appears to be a minor technical bounce rather than a fundamental turnaround, as longer-term trends remain deeply negative.

Over the past year, the stock has declined 15.29% whilst the Sensex gained 9.01%, resulting in negative alpha of -24.30%. The three-year picture is even worse, with the stock down 25.27% against a Sensex gain of 38.88%, producing negative alpha of -64.15%. The five-year and ten-year returns are catastrophic, with the stock down 30.77% and 50.57% respectively, whilst the Sensex surged 64.25% and 254.70%.

From a technical perspective, the stock recently changed to "Mildly Bullish" trend on February 9, 2026, after an extended period of bearish trends. However, the stock trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), suggesting the overall technical picture remains weak despite the recent trend change.

Investment Thesis: Multiple Red Flags Outweigh Limited Positives

Hindoostan Mills presents a challenging investment case characterised by fundamental operational weakness, sustained unprofitability, and minimal institutional support. The company's proprietary Mojo score of 33 out of 100 places it firmly in "SELL" territory, reflecting the confluence of negative factors across valuation, quality, and financial performance dimensions.

The company's quality assessment reveals "Below Average" fundamentals based on long-term financial performance. Key quality concerns include negative five-year sales growth of -28.78%, average ROCE of -14.14%, and average ROE of just 4.76%. These metrics indicate a business that has been destroying value over an extended period rather than creating it.

On the positive side, the company maintains a debt-free balance sheet with negative net debt to equity of -0.21, and promoter holdings remain stable at 60.48% with zero pledging. These factors provide some governance comfort and financial flexibility, though they are insufficient to offset the fundamental operational challenges.

Key Strengths and Risk Factors

Outlook: What Lies Ahead

The outlook for Hindoostan Mills remains challenging without clear catalysts for operational improvement. The company faces structural headwinds in the competitive textile sector, combined with company-specific execution issues that have persisted for several years. Management's ability to arrest margin decline and return to profitability will be critical determinants of future performance.

Investors should monitor quarterly results closely for any signs of operational stabilisation. Key metrics to watch include operating margin trajectory, cash flow generation, and working capital management. Without visible improvement in these fundamentals within the next two quarters, the investment case will deteriorate further.