K P R Mill Q2 FY26: Profit Growth Masks Margin Pressure Amid Valuation Concerns

The Coimbatore-based textile major, which operates state-of-the-art production facilities across Tamil Nadu producing yarn, cotton knitted fabric, readymade garments, and wind power, demonstrated resilience in profitability despite top-line pressure. Net sales for Q2 FY26 stood at ₹1,632.03 crores, down from ₹1,766.27 crores in Q1 FY26, though maintaining a healthy 10.27% year-on-year growth trajectory. The company's ability to expand PAT margins to 13.90% from 12.61% in the previous quarter reflects improved operational efficiency and favourable cost dynamics.

Trading at ₹978.00 as of February 09, 2026, K P R Mill's shares have delivered a strong 13.79% return over the past week and 17.89% over one month, significantly outperforming the Sensex. However, the stock remains 29.91% below its 52-week high of ₹1,395.40, reflecting investor concerns about valuation sustainability and near-term growth visibility.

Financial Performance: Sequential Revenue Decline Offsets Profit Gains

K P R Mill's Q2 FY26 financial performance presents a mixed picture of margin expansion amidst revenue contraction. The company posted net sales of ₹1,632.03 crores, declining 7.60% sequentially from ₹1,766.27 crores in Q1 FY26, though maintaining respectable year-on-year growth of 10.27% from ₹1,480.02 crores in Q2 FY25. This sequential decline marks a concerning trend for a company that had delivered 15.68% quarter-on-quarter growth in Q4 FY25.

Operating profit excluding other income stood at ₹314.23 crores with margins at 20.03%, representing a 163 basis point improvement from Q1 FY26's 18.40%. However, this remains below the 20.60% margin achieved in Q4 FY25 and the 20.76% recorded in Q2 FY25, suggesting the company is yet to fully recover its historical margin profile. The gross profit margin of 20.77% in Q2 FY26 showed improvement from 19.71% in the previous quarter but remained below the 22.61% achieved in Q2 FY25.

Employee costs rose to ₹196.26 crores in Q2 FY26 from ₹188.58 crores in Q1 FY26, reflecting a 4.07% sequential increase despite the revenue decline. This suggests rising wage pressures that could constrain future margin expansion. Interest costs decreased to ₹12.24 crores from ₹13.90 crores in the previous quarter, benefiting from the company's strengthening balance sheet position with minimal debt levels.

The tax rate for Q2 FY26 stood at 19.87%, significantly lower than the 23.79% in Q1 FY26 and the 24.37% in Q2 FY25, providing a meaningful boost to bottom-line growth. This favourable tax environment contributed to the PAT margin expansion to 13.90% from 12.61% in the previous quarter, though it remains below the 14.36% achieved in Q2 FY25.

Operational Excellence: Strong Returns on Capital Despite Margin Volatility

K P R Mill's operational metrics reveal a company with robust capital efficiency, though facing near-term headwinds. The company's average return on equity (ROE) of 21.04% over the long term positions it favourably within the textile sector, demonstrating superior capital allocation and profitability. This strong ROE reflects the company's ability to generate substantial returns for shareholders, a key strength that has underpinned its premium valuation over the years.

The company's average return on capital employed (ROCE) stands at an impressive 25.47%, indicating efficient utilisation of capital resources. However, the latest ROCE of 25.61% masks a concerning trend – the half-yearly ROCE has declined to 19.93%, marking the lowest level in recent periods. This deterioration in capital returns signals potential challenges in maintaining historical profitability levels amidst a changing operating environment.

The company's shareholder funds have grown consistently to ₹5,002.00 crores as of March 2025 from ₹4,358.23 crores a year earlier, reflecting retained earnings accumulation. Fixed assets stood at ₹2,461.08 crores, representing ongoing capacity expansion initiatives. Current assets of ₹3,326.40 crores provide adequate liquidity, though working capital management requires attention given the sequential revenue decline.

Operating cash flow for FY25 surged to ₹1,401.00 crores from ₹677.00 crores in FY24, driven by improved working capital management with changes in working capital contributing ₹364.00 crores positively compared to a negative ₹394.00 crores drain in the previous year. This substantial cash generation capability provides a strong foundation for future growth investments and shareholder returns.

Industry Dynamics: Navigating Global Textile Headwinds

The global textile and apparel industry continues to face challenging demand conditions, particularly in key export markets. K P R Mill's sequential revenue decline of 7.60% in Q2 FY26 reflects broader industry trends of softening demand and inventory destocking by global retailers. The company's vertically integrated model – spanning yarn, fabric, and garments – provides some insulation through operational synergies, though it remains exposed to end-market demand fluctuations.

Cotton prices, a key raw material input, have exhibited volatility throughout FY26, impacting gross margins across the industry. K P R Mill's gross margin of 20.77% in Q2 FY26, whilst improved from the previous quarter, suggests ongoing pressure from input costs. The company's ability to pass through cost increases to customers remains constrained by competitive intensity and weak pricing power in the current demand environment.

The Indian textile industry benefits from government initiatives including the Production Linked Incentive (PLI) scheme and infrastructure development, though implementation challenges persist. K P R Mill's positioning in the value-added garment segment provides better margin potential compared to commodity yarn players, though export market weakness continues to weigh on near-term growth visibility.

Industry Leadership: Premium Valuation Versus Peer Group

K P R Mill commands the third-largest market capitalisation of ₹33,429 crores within the garments and apparels sector, behind retail giant Trent and premium innerwear maker Page Industries. The company's valuation metrics reflect this leadership position, though recent performance raises questions about the sustainability of its premium multiples.

K P R Mill's P/E ratio of 39.88 times positions it at a premium to traditional textile manufacturers like Vardhman Textile (17.41x) and Trident (31.78x), though at a significant discount to retail-focused Trent (88.36x) and Page Industries (51.09x). The company's superior ROE of 21.04% justifies some premium versus peers like Vardhman (11.06%) and Trident (12.31%), though it trails Page Industries' exceptional 45.83% return on equity.

The price-to-book ratio of 6.25 times appears elevated compared to traditional textile peers trading between 1.37x to 3.05x, though considerably lower than retail-focused companies. This valuation gap reflects K P R Mill's hybrid positioning – offering better returns than commodity textile players whilst lacking the premium brand equity of Page Industries or the retail growth potential of Trent.

K P R Mill's net cash position (debt to equity of -0.24) provides a distinct competitive advantage versus leveraged peers, offering financial flexibility for growth investments and shareholder returns. However, the dividend yield of 0.51% remains modest, with a conservative payout ratio of 20.97% suggesting management prioritises capital retention for growth over immediate shareholder distributions.

Valuation Analysis: Premium Multiples Face Growth Sustainability Test

K P R Mill's current valuation of ₹978.00 per share reflects a P/E multiple of 40 times trailing twelve-month earnings, positioning it at the "Very Expensive" end of the valuation spectrum. This premium rating has persisted since early 2024, with the stock oscillating between "Expensive" and "Very Expensive" grades as earnings growth has moderated whilst the stock price remained elevated.

The PEG ratio of 11.30 presents a concerning picture, suggesting the stock trades at a significant premium relative to its growth potential. With sales growing at a five-year CAGR of 16.46% and EBIT growth at 19.11%, the current multiple of 40 times appears difficult to justify unless the company can meaningfully accelerate growth or expand margins substantially from current levels.

The enterprise value to EBITDA multiple of 25.52 times appears stretched, particularly given the recent margin pressures and sequential revenue decline. Historically, textile manufacturers have traded at EV/EBITDA multiples in the mid-to-high teens during periods of strong growth, suggesting the current valuation embeds optimistic assumptions about future performance that may prove challenging to deliver.

The stock's 52-week range of ₹758.80 to ₹1,395.40 illustrates significant volatility, with the current price of ₹978.00 positioned 28.89% above the low and 29.91% below the high. This wide trading range reflects shifting market sentiment about the company's growth trajectory and margin sustainability, with recent price weakness suggesting investors are reassessing premium valuations in the face of moderating fundamentals.

Shareholding: Promoter Volatility Amid Rising Institutional Interest

K P R Mill's shareholding pattern reveals notable fluctuations in promoter holdings alongside steady institutional accumulation. Promoter ownership stood at 67.52% as of December 2025, increasing 1.21 percentage points from 66.31% in September 2025, though remaining below the 70.68% level held in March 2025. This volatility in promoter holdings, which saw a 3.16 percentage point reduction between March and June 2025, warrants monitoring for potential overhang concerns.

Mutual fund holdings have demonstrated strong growth trajectory, rising to 17.43% in December 2025 from 14.84% in March 2025, representing a 259 basis point increase over three quarters. This institutional accumulation, with 33 mutual funds holding positions, signals professional investor confidence in the company's long-term prospects despite near-term headwinds. However, the sequential decline of 10 basis points from September to December 2025 suggests some profit-taking at elevated valuations.

Foreign institutional investor (FII) participation remains modest at 6.49%, with 150 FII holders maintaining relatively stable positions. Insurance company holdings have declined to 1.43% from 1.76% in June 2025, indicating reduced conviction from this investor category. The absence of promoter pledging provides comfort regarding financial stability and alignment of interests with minority shareholders.

Stock Performance: Strong Recent Rally Masks Longer-Term Underperformance

K P R Mill's shares have delivered a remarkable 13.79% return over the past week and 17.89% over one month, significantly outperforming the Sensex's 2.94% and 0.59% returns respectively during these periods. This recent rally has generated substantial alpha of 10.85% (weekly) and 17.30% (monthly), suggesting renewed investor interest following the stock's earlier correction.

However, medium-term performance reveals challenges, with the stock declining 8.98% over three months and 0.72% over six months, underperforming the Sensex by 10.00% and 5.99% respectively. This divergence between short-term strength and medium-term weakness suggests the recent rally may represent a technical bounce rather than a fundamental re-rating.

The one-year return of 9.46% marginally outperforms the Sensex's 7.97%, generating modest alpha of 1.49%. This tepid medium-term performance contrasts sharply with the stock's exceptional long-term track record – three-year returns of 68.16% (alpha: 29.91%) and five-year returns of 420.79% (alpha: 357.01%) demonstrate the wealth-creation potential during periods of strong execution and favourable industry dynamics.

The stock's high beta of 1.20 and volatility of 42.91% classify it as a high-risk investment, with price movements amplified relative to broader market fluctuations. The risk-adjusted return of 0.22 over one year significantly trails the Sensex's 0.69, indicating investors are not being adequately compensated for the elevated volatility they're accepting.

Investment Thesis: Quality Company Facing Valuation and Momentum Headwinds

K P R Mill's investment proposition rests on four key pillars that present a mixed outlook for potential investors. The company's fundamental quality remains excellent, supported by strong historical returns on capital and robust balance sheet metrics. However, near-term financial trends and stretched valuations create meaningful headwinds that cannot be ignored.

The quality assessment of "Excellent" reflects the company's strong long-term financial performance, with average ROE of 21.04% and ROCE of 25.47% demonstrating superior capital efficiency. The net cash position (debt to equity of -0.24) and strong interest coverage of 22.03 times provide financial flexibility, whilst five-year sales CAGR of 16.46% and EBIT growth of 19.11% showcase consistent expansion capability.

However, the "Very Expensive" valuation grade raises significant concerns. Trading at 40 times trailing earnings with a PEG ratio of 11.30, the stock embeds aggressive growth assumptions that appear increasingly difficult to justify. The sequential revenue decline of 7.60% in Q2 FY26 and margin pressures suggest near-term challenges in delivering the growth required to support current multiples.

Technical indicators paint a cautious picture, with the stock in a "Mildly Bearish" trend and trading below all major moving averages (5-day, 20-day, 50-day, 100-day, and 200-day). MACD signals remain bearish on weekly and monthly timeframes, whilst Bollinger Bands indicate mildly bearish momentum. The recent price rally appears to be a counter-trend bounce within a broader corrective phase.

Key Strengths & Risk Factors

Outlook: Monitoring Points for Trend Reversal

The forward outlook for K P R Mill hinges critically on the company's ability to stabilise revenue growth and expand margins from current levels. Management commentary on order book visibility, capacity utilisation trends, and raw material cost dynamics will provide crucial insights into the sustainability of recent profitability improvements. The global demand environment for textiles and apparel remains the key external variable that will determine whether the company can justify its premium valuation multiples.