Nahar Spinning Mills Q2 FY26: Profit Turns to Loss Amid Margin Pressure

The stock, trading at ₹177.25 as of February 06, 2026, has declined 2.96% in the latest session and remains under significant pressure, down 21.99% over the past year. The company's shares currently trade 43.01% below their 52-week high of ₹311.00, reflecting investor concerns about the deteriorating financial trajectory. With a trailing twelve-month price-to-earnings ratio of 17.48 times and a price-to-book value of just 0.42 times, the valuation appears attractive on the surface, but the weak operational performance raises questions about sustainability.

Financial Performance: Margin Collapse Drives Loss

Nahar Spinning Mills' Q2 FY26 results reveal a troubling deterioration in profitability metrics. Net sales stood at ₹779.27 crores, representing a marginal 0.43% year-on-year increase but a 4.88% sequential decline from ₹819.28 crores in Q1 FY26. Whilst revenue remained relatively stable, the company's ability to convert sales into profits collapsed dramatically during the quarter.

Operating profit excluding other income plummeted 55.46% sequentially to ₹25.80 crores, compressing margins from 7.07% to just 3.31%. This dramatic margin erosion appears driven by elevated operating costs that the company could not offset through pricing or efficiency gains. Employee costs remained elevated at ₹78.31 crores, representing approximately 10.05% of sales, whilst other operating expenses squeezed profitability.

The profit before tax swung to a loss of ₹7.03 crores from a profit of ₹21.05 crores in Q1 FY26. Interest costs declined to ₹11.41 crores from ₹17.19 crores sequentially, providing some relief, but depreciation remained steady at ₹22.92 crores. After accounting for a tax credit of ₹2.39 crores, the company reported a net loss of ₹4.64 crores, translating to a negative PAT margin of 0.60%.

Quarterly Trend Analysis: Volatile Performance Pattern

Examining the quarterly trajectory over the past two years reveals significant volatility in Nahar Spinning Mills' financial performance. The company has oscillated between profits and losses, with margin swings reflecting challenges in maintaining operational consistency amidst fluctuating raw material costs, demand patterns, and competitive pressures in the textile sector.

The data reveals that Q2 FY26's performance represents a sharp reversal from the improvement seen in Q1 FY26 and Q4 FY25. Operating margins have compressed from peak levels of 7.56% in March 2025 to just 3.31% currently, indicating structural challenges in cost management or pricing power. The company's inability to sustain profitability across consecutive quarters raises concerns about the quality and sustainability of earnings.

Operational Challenges: Return Metrics Under Pressure

Nahar Spinning Mills' return on equity (ROE) stands at 10.58% on average over recent years, but the latest ROE has deteriorated to just 2.38%, reflecting the impact of recent losses on shareholder returns. The return on capital employed (ROCE) averaged 10.08% but has similarly declined to 4.12% in the latest period, indicating weakening efficiency in capital utilisation.

The company's balance sheet reveals a shareholder equity base of ₹1,489.36 crores as of March 2025, with long-term debt of ₹185.08 crores. The debt-to-equity ratio remains moderate at approximately 0.12, whilst the average net debt to equity over recent years stands at 0.49. However, the concerning aspect is the debt-to-EBITDA ratio averaging 5.55 times, suggesting the company carries a significant debt burden relative to its operating cash generation capacity.

Interest coverage remains a concern, with operating profit to interest averaging 3.83 times over recent years. In Q2 FY26, the operating profit (excluding other income) of ₹25.80 crores against interest costs of ₹11.41 crores provides coverage of just 2.26 times, below comfortable thresholds. This weak coverage ratio limits the company's financial flexibility and raises questions about its ability to service debt obligations during periods of operational stress.

Industry Context: Textile Sector Headwinds

The garment and apparel sector in India has faced significant headwinds over the past year, with demand volatility, raw material price fluctuations, and intense competition pressuring margins across the industry. Nahar Spinning Mills' performance reflects these broader sector challenges, with the company struggling to maintain pricing power amidst cost pressures.

The company's 5-year sales growth CAGR of 11.47% and EBIT growth of 39.33% demonstrate historical capability to expand operations, but recent quarters suggest this growth momentum has stalled. The textile manufacturing business remains capital-intensive with long working capital cycles, requiring sustained operational excellence to generate adequate returns.

Peer Comparison: Valuation Discount Reflects Concerns

Comparing Nahar Spinning Mills to peers in the garment and apparel sector reveals a mixed picture. The company's trailing P/E ratio of 17.48 times sits below the industry average of approximately 22 times, suggesting a valuation discount that reflects operational concerns and earnings volatility.

Nahar Spinning Mills' ROE of 10.58% positions it favourably against most peers, with only Credo Brands (17.00%) and Voith Paper (10.72%) showing comparable or superior returns. However, the company's price-to-book value of 0.42 times represents the deepest discount in the peer group, suggesting the market harbours significant concerns about the sustainability of book value and future earnings potential.

The company's dividend yield of 0.56% lags behind higher-yielding peers, with the latest dividend of ₹1 per share representing a negative payout ratio of -7.07% due to recent losses. The debt-to-equity ratio of 0.49 sits in the middle of the peer range, neither a significant strength nor weakness relative to competitors.

Valuation Analysis: Attractive Multiples Mask Operational Risks

At the current price of ₹177.25, Nahar Spinning Mills trades at a P/E ratio of 17.48 times trailing twelve-month earnings and just 0.42 times book value. The enterprise value to EBITDA multiple stands at 7.43 times, whilst EV to capital employed is 0.61 times, both suggesting attractive valuations on traditional metrics.

The valuation grade has been assessed as "VERY ATTRACTIVE" by proprietary scoring models, reflecting the significant discount to book value and historical earnings multiples. However, this attractive valuation must be viewed in context of deteriorating operational performance and negative financial trends. The PEG ratio of 0.07 appears compelling on the surface, but the sustainability of historical growth rates remains highly questionable given recent results.

The stock's 52-week range of ₹150.00 to ₹311.00 illustrates significant volatility, with the current price sitting 43.01% below the high and just 18.17% above the low. This positioning suggests the market has already priced in substantial operational concerns, but further downside remains possible if profitability does not stabilise.

Shareholding Pattern: Stable Promoter Base

The shareholding pattern reveals a stable promoter holding of 67.43% as of December 2025, unchanged over the past three quarters. This strong promoter commitment provides some confidence in the company's long-term prospects, though it also means limited free float for public investors.

Foreign institutional investor (FII) holding has declined to zero in December 2025 from 0.09% in September 2025, suggesting international investors have exited positions following the disappointing quarterly results. Mutual fund holding remains steady at 0.58%, representing just four mutual fund schemes with exposure to the stock. The total institutional holding of 0.59% is notably low, indicating limited institutional interest in this micro-cap name.

Non-institutional shareholders comprise 31.98% of the equity, marginally increasing by 0.09% in the latest quarter. The absence of promoter pledging is a positive factor, eliminating concerns about forced selling or financial stress at the promoter level. Key promoters include Nahar Capital And Financial Services Ltd. (46.47%) and Nahar Poly Films Limited (19.14%), both group entities providing stable ownership.

Stock Performance: Sustained Underperformance

Nahar Spinning Mills' stock has delivered disappointing returns across most timeframes, significantly underperforming both the broader Sensex and its sector peers. The stock declined 21.99% over the past year against the Sensex's 7.07% gain, generating negative alpha of 29.06 percentage points.

The stock's beta of 1.07 indicates higher volatility than the broader market, with a volatility measure of 41.99% compared to the Sensex's 11.53%. This high volatility combined with negative returns places the stock in the "HIGH RISK LOW RETURN" category, an unfavourable risk-reward profile for investors. The risk-adjusted return stands at -0.52, significantly below the Sensex's risk-adjusted return of 0.61.

Comparing to the garment and apparel sector, Nahar Spinning Mills has underperformed by 16.06 percentage points over the past year, with the stock declining 21.99% against the sector's 5.93% decline. This relative underperformance highlights company-specific challenges beyond broader sector headwinds.

Technical Analysis: Bearish Trend Dominates

The technical picture for Nahar Spinning Mills remains decidedly bearish. The stock entered a bearish trend on February 05, 2026, at ₹182.70, following a brief period of mildly bearish sentiment. Multiple technical indicators align in signalling downside momentum, with the stock trading below all key moving averages.

The stock trades below its 5-day moving average of ₹179.26, 20-day MA of ₹170.27, 50-day MA of ₹185.87, 100-day MA of ₹196.55, and 200-day MA of ₹224.05. This positioning below all major moving averages confirms the sustained downtrend. Immediate support lies at the 52-week low of ₹150.00, whilst resistance is encountered at the 20-day MA area around ₹170.27, with stronger resistance at ₹196.55 and ₹224.05.

Delivery volumes have shown interesting patterns, with 1-month delivery volumes increasing 186.86% compared to the previous month, suggesting some accumulation by longer-term investors despite the price decline. The latest session saw delivery volume at 61.71% of total volume, above the 5-day average of 43.94%, indicating conviction in trades.

Investment Thesis: Quality Concerns Outweigh Valuation Appeal

Nahar Spinning Mills presents a complex investment proposition characterised by attractive valuation metrics but concerning operational trends. The proprietary Mojo Score of 31 out of 100 places the stock firmly in "SELL" territory, reflecting the confluence of negative factors overwhelming the valuation appeal.

The company's quality grade of "AVERAGE" reflects mixed fundamentals. Whilst the 5-year sales CAGR of 11.47% and EBIT growth of 39.33% demonstrate historical growth capability, recent deterioration in return metrics (latest ROCE: 4.12%, latest ROE: 2.38%) and weak interest coverage (3.83 times average) raise sustainability concerns. The high debt-to-EBITDA ratio of 5.55 times limits financial flexibility during operational stress periods.

Outlook: Critical Monitoring Points

The investment outlook for Nahar Spinning Mills hinges on the company's ability to stabilise operations and restore profitability in coming quarters. Investors should monitor several critical factors that will determine whether the current valuation discount represents a genuine opportunity or a value trap.

For the stock to re-rate meaningfully, the company must demonstrate sustained operational improvement over multiple quarters, not just a one-time recovery. Given the textile sector's cyclical nature and the company's historical volatility, investors require evidence of structural improvements in cost management, pricing power, and margin sustainability before assigning higher valuations.