LWS Knitwear Q3 FY26: Profit Surge Masks Revenue Volatility Concerns

Year-on-year, the picture appears marginally brighter, with net sales growing 7.94% from ₹16.38 crores in Q3 FY25, whilst net profit declined 2.30% from ₹0.87 crores. The company's proprietary Mojo Score stands at a dismal 26 out of 100, firmly placing it in "Strong Sell" territory, reflecting deep-seated concerns about financial sustainability, operational consistency, and technical weakness.

The third quarter results reveal a company grappling with severe revenue inconsistency whilst simultaneously achieving record operating efficiency. This paradox—exceptional margins amid collapsing sales—raises fundamental questions about business sustainability and the quality of earnings in what appears to be an operationally erratic environment.

Financial Performance: A Tale of Two Metrics

LWS Knitwear's Q3 FY26 financial performance presents a stark dichotomy. Net sales of ₹17.68 crores represented a dramatic 46.25% sequential decline from Q2 FY26's ₹32.89 crores, marking the lowest quarterly revenue since Q1 FY26 when sales stood at ₹13.07 crores. This sequential collapse is particularly alarming given the company had posted 151.64% quarter-on-quarter growth just one quarter prior, underscoring extreme revenue volatility that suggests either severe seasonal dependencies or operational instability.

On a year-on-year basis, the 7.94% growth in net sales from ₹16.38 crores in Q3 FY25 provides little comfort, as it merely keeps pace with inflation and represents anaemic expansion for a company operating in the textile sector. The nine-month performance for FY26 (Apr-Dec'25) shows net sales of ₹63.64 crores, representing a 16.63% increase from ₹54.56 crores in the corresponding nine-month period of FY25, though this growth rate has decelerated from the 44.00% annual growth achieved in FY25.

The profitability picture, whilst superficially impressive in Q3 FY26, demands scrutiny. Net profit of ₹0.85 crores represented a 183.33% quarter-on-quarter surge from Q2 FY26's ₹0.30 crores, but this improvement came despite—not because of—revenue growth. The PAT margin expanded dramatically to 4.81% from 0.91% in Q2 FY26, whilst the operating margin (excluding other income) reached a multi-quarter high of 9.45%, up from 2.74% in the previous quarter. This margin expansion of 672 basis points in operating margin and 390 basis points in PAT margin, occurring simultaneously with a 46.25% revenue decline, suggests either exceptional cost discipline or unsustainable one-off benefits.

Interest costs remained relatively stable at ₹0.51 crores in Q3 FY26 compared to ₹0.50 crores in Q2 FY26, though they have nearly doubled from ₹0.27 crores in Q3 FY25, reflecting increased debt burden. The tax rate of 26.72% in Q3 FY26 was more normalised compared to the aberrational 54.35% in Q2 FY24, though the volatility in effective tax rates across quarters raises questions about the consistency of taxable income and the potential for deferred tax adjustments.

Operational Challenges: Inconsistency as the Only Constant

LWS Knitwear's operational performance reveals a company struggling with fundamental business stability. The company's return on equity (ROE) averaged a weak 6.17% over recent years, with the latest ROE at 8.31%—well below the threshold of 15% typically expected from healthy manufacturing businesses. This subpar ROE indicates inefficient capital deployment and limited profitability relative to shareholder equity, a critical concern for a company already operating with a below-average quality grade.

The return on capital employed (ROCE) paints an equally concerning picture at 6.51% on average, with the latest ROCE at 10.79%. These returns barely exceed the cost of capital, suggesting the company generates minimal economic value for stakeholders. The modest improvement in latest ROCE to 10.79% from the historical average provides a glimmer of hope, but sustained improvement is necessary before declaring a turnaround.

The balance sheet reveals mounting leverage concerns. Long-term debt stood at ₹9.29 crores as of March 2025, down from ₹14.48 crores in March 2024, representing a positive deleveraging trend. However, the debt-to-EBITDA ratio averaged a concerning 5.44 times, indicating the company would require more than five years of current EBITDA to repay its debt—a level that constrains financial flexibility and increases vulnerability to economic downturns. The average EBIT-to-interest coverage ratio of just 1.67 times is particularly worrying, suggesting limited cushion to service debt obligations from operating profits.

Working capital management presents another challenge. Trade payables declined from ₹10.75 crores in March 2024 to ₹6.10 crores in March 2025, whilst current assets increased from ₹37.51 crores to ₹50.07 crores. The debtors turnover ratio for the half-year period stood at its lowest level of 2.47 times, indicating slower collection cycles and potential strain on cash conversion. Conversely, the inventory turnover ratio reached its highest at 8.15 times, suggesting improved inventory management or potentially depleted stock levels that could constrain future sales.

Industry Context: Swimming Against the Tide

The trading and distributors sector, under which LWS Knitwear is classified, has faced headwinds over the past year, with the sector delivering a -1.64% return. LWS Knitwear significantly underperformed this already weak sector benchmark, posting a -16.32% return over the same period—an underperformance of 14.68 percentage points. This substantial gap suggests company-specific challenges beyond broader industry pressures.

The textile and garment manufacturing industry in India has grappled with multiple challenges including volatile cotton prices, intense competition from imports (particularly from Bangladesh and Vietnam), rising labour costs, and inconsistent domestic demand. Export markets have softened due to global economic uncertainty, whilst domestic consumption has been uneven across urban and rural segments. LWS Knitwear's extreme revenue volatility appears to reflect not just seasonal patterns typical in garment manufacturing, but also potential customer concentration risks or order lumpiness that amplifies industry-wide challenges.

The company's micro-cap status (₹23.00 crores market capitalisation) limits its ability to invest in capacity expansion, technology upgrades, or marketing initiatives that could stabilise revenue streams. Larger peers in the textile sector benefit from economies of scale, diversified product portfolios, and stronger bargaining power with both suppliers and customers—advantages that LWS Knitwear lacks.

Relative to its peer group, LWS Knitwear demonstrates a mixed positioning. Its ROE of 6.17%, whilst weak in absolute terms, exceeds the peer average of approximately 5-6%, placing it in the middle of the pack. The company's P/E ratio of 9.05 appears attractive compared to peers like Asian Tea & Exports (59.74x) and Mah. Corporation (221.82x), though two peers are loss-making. The price-to-book ratio of 0.75x trades below book value, suggesting the market prices in significant scepticism about future earnings potential. The debt-to-equity ratio of 0.55 is moderate compared to Kaiser Corporation's concerning 4.65, but higher than most other peers, indicating relatively higher financial leverage.

Valuation Analysis: Cheap for a Reason

LWS Knitwear's valuation metrics present a superficially attractive picture that belies fundamental concerns. At a P/E ratio of 9.05x, the stock trades at less than half the industry average P/E of 22x, whilst the price-to-book value of 0.75x indicates the stock trades at a 25% discount to book value. The EV/EBITDA multiple of 7.67x and EV/Sales of 0.36x appear reasonable on the surface, but these multiples must be contextualised against the company's weak profitability, high leverage, and operational volatility.

The company's proprietary valuation assessment classifies it as "Attractive," having oscillated between "Very Attractive" and "Attractive" over recent months. However, this valuation grade reflects only relative cheapness compared to historical levels and peers—not fundamental investment merit. The stock's 52-week range of ₹13.50 to ₹22.50 shows significant volatility, with the current price of ₹15.90 sitting 29.33% below the high and just 17.78% above the low, suggesting the market remains uncertain about fair value.

Book value per share stands at ₹20.75, implying a theoretical upside of 30.50% if the stock were to trade at book value. However, this potential upside must be weighed against the 6.17% ROE, which suggests the company destroys value relative to the cost of equity. Trading below book value is justified when returns on equity fall short of required returns, as appears to be the case here.

Shareholding Pattern: Stable but Uninspiring

The shareholding structure of LWS Knitwear has remained remarkably stable over the past five quarters, with promoter holding locked at 58.44% and non-institutional investors holding the remaining 41.56%. This stability, whilst indicating promoter commitment, also reflects the complete absence of institutional interest—a significant red flag for a publicly traded company.

The zero institutional holding—no foreign institutional investors, no mutual funds, no insurance companies, and no other domestic institutional investors—speaks volumes about institutional appetite for this stock. Institutional investors typically avoid companies with weak governance, limited liquidity, poor financial performance, or lack of growth visibility. The absence of even a single institutional investor in LWS Knitwear suggests the company fails multiple institutional investment criteria.

Positively, there is no promoter pledging of shares, indicating promoters are not using their shareholding as collateral for personal or business borrowings. This absence of pledging reduces one potential governance risk. The promoter group is led by Kusum Kapoor (26.23%), Girish Kapoor (23.29%), and Arjun Kapoor (8.15%), with the Kapoor family maintaining effective control of the company.

The non-institutional holding of 41.56% likely comprises retail investors and possibly some high-net-worth individuals, though the low trading volumes (just 1,506 shares on February 13, 2026) suggest minimal active interest even from this segment. The combination of stable but concentrated promoter holding and complete institutional absence creates a shareholding structure that limits liquidity and price discovery.

Stock Performance: A Decade of Extremes

LWS Knitwear's stock price performance over various timeframes reveals a pattern of long-term gains punctuated by recent sharp declines. Over the past decade, the stock has delivered an extraordinary 1,035.71% return, vastly outperforming the Sensex's 259.46% return by 776.25 percentage points. This remarkable long-term performance likely reflects the company's journey from near-dormancy to operational viability over the 2010s.

However, recent performance tells a starkly different story. Over the past year, the stock has declined 16.32%, underperforming the Sensex by 24.84 percentage points. The two-year return of -49.19% represents a devastating wealth destruction, with the stock underperforming the Sensex by a massive 64.66 percentage points. This recent underperformance has accelerated over the past six months (-14.75%) and three months (-7.99%), suggesting deteriorating sentiment.

The stock's beta of 1.50 classifies it as a high-beta stock, meaning it tends to move 50% more than the market in either direction. Combined with an annualised volatility of 44.66%—nearly four times the Sensex's 11.46%—this creates a high-risk profile. The negative risk-adjusted return of -0.37 over the past year, compared to the Sensex's positive 0.74, indicates investors have been penalised for taking on this elevated risk.

Year-to-date performance shows a 9.58% gain, outperforming the Sensex's -3.04% decline by 12.62 percentage points. However, this positive start to 2026 appears fragile given the stock's proximity to its 52-week low and the mildly bearish technical trend. The stock trades below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), a technical configuration that typically signals sustained downward pressure.

Investment Thesis: Multiple Red Flags Outweigh Valuation Appeal

The investment case for LWS Knitwear is severely compromised by fundamental weaknesses across quality, financial trends, and technical indicators. The company's Mojo Score of 26 out of 100 places it firmly in "Strong Sell" territory, reflecting a confluence of negative factors that outweigh any superficial valuation attractiveness.

From a quality perspective, LWS Knitwear earns a "Below Average" grade, reflecting weak long-term financial performance. Whilst the company has demonstrated healthy long-term sales growth (33.19% CAGR over five years) and maintains zero promoter pledging, these positives are overwhelmed by concerning metrics: average ROCE of just 6.51%, average ROE of 6.17%, weak EBIT-to-interest coverage of 1.67x, high debt-to-EBITDA of 5.44x, and complete absence of institutional holdings. These quality indicators suggest a company struggling with profitability, efficiency, and credibility.

The financial trend assessment shows a "Flat" rating for Q3 FY26, an improvement from previous negative trends but hardly inspiring. Positive factors include 20.49% growth in net sales over the latest six months and the highest inventory turnover ratio of 8.15 times. However, these are offset by the 36.70% decline in quarterly net sales versus the previous four-quarter average and the lowest debtors turnover ratio of 2.47 times, indicating collection challenges.

Technical analysis paints a decidedly negative picture. The stock's "Mildly Bearish" trend, trading below all major moving averages, mixed technical indicators (MACD mildly bullish weekly but bearish monthly, RSI showing no signal weekly but bullish monthly), and high volatility of 44.66% all suggest continued downward pressure. The stock's position 29.33% below its 52-week high and just 17.78% above its 52-week low indicates it remains in a downtrend with limited technical support.

Outlook: What to Watch

For investors monitoring LWS Knitwear, several key indicators will determine whether the company can stabilise operations and justify a more constructive stance. On the positive side, sustained improvement in operating margins above 7-8% for consecutive quarters would signal genuine operational efficiency gains rather than one-off benefits. Consistent quarter-on-quarter revenue growth without the extreme volatility of recent quarters would demonstrate improved demand visibility and operational planning. Reduction in debt-to-EBITDA below 4.0x through either EBITDA growth or debt reduction would ease financial constraints. Any institutional investor entry, even in small quantities, would validate improving fundamentals and governance. Finally, ROE improvement above 10% on a sustained basis would indicate better capital deployment and profitability.

Conversely, several red flags would signal deteriorating prospects. Another quarter of sharp sequential revenue decline (>30%) would confirm systemic operational issues rather than seasonal volatility. Operating margin compression below 5% in coming quarters would suggest Q3 FY26's 9.45% was unsustainable. Any increase in promoter pledging would raise governance concerns and signal financial stress. Further decline in debtors turnover or inventory turnover would indicate working capital management deterioration. Stock breaking below the 52-week low of ₹13.50 would trigger technical selling and potentially test book value support.