The quarter's dismal performance marks a stark departure from the recovery witnessed in Q1 FY26, when the company had posted a net profit of ₹15.96 crores. The loss in Q2 FY26 reflects mounting pressure across multiple fronts—declining sales realisation, margin compression, and elevated interest costs. Year-on-year, the profit trajectory remains equally troubling, with the company swinging from a loss of ₹17.46 crores in Q2 FY25 to a smaller loss of ₹4.64 crores in the current quarter, though this improvement offers little comfort given the sequential deterioration.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 | Mar'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 779.27 | 819.28 | 875.60 | 812.17 | 775.92 | 820.88 | 815.42 |
| QoQ Change (%) | -4.88% | -6.43% | +7.81% | +4.67% | -5.48% | +0.67% | — |
| Net Profit (₹ Cr) | -4.64 | 15.96 | 22.41 | 0.76 | -17.46 | 6.64 | -0.37 |
| Operating Margin (%) | 3.31% | 7.07% | 7.56% | 4.70% | 0.59% | 6.40% | 4.94% |
| PAT Margin (%) | -0.60% | 1.95% | 2.56% | 0.09% | -2.25% | 0.81% | -0.05% |
Financial Performance: Revenue Stagnates as Costs Spiral
Nahar Spinning's Q2 FY26 revenue stood at ₹779.27 crores, declining 4.88% quarter-on-quarter from ₹819.28 crores in Q1 FY26. On a year-on-year basis, the revenue growth was a meagre 0.43%, reflecting weak demand conditions and pricing pressures in the textile sector. The company's inability to scale sales despite operating multiple manufacturing units in Ludhiana and Mandideep underscores the challenging operating environment.
Operating profit before depreciation, interest, tax, and other income (PBDIT excl OI) collapsed to ₹25.80 crores in Q2 FY26 from ₹57.94 crores in the previous quarter, a decline of 55.47%. The operating margin (excluding other income) compressed sharply to 3.31% from 7.07% in Q1 FY26, indicating severe pressure on gross profitability. This margin contraction was driven by elevated raw material costs, subdued realisation, and operational inefficiencies. Year-on-year, the operating margin improved from a dismal 0.59% in Q2 FY25, but this comparison is skewed by the exceptionally weak base of the previous year.
Employee costs remained elevated at ₹78.31 crores in Q2 FY26, relatively stable compared to ₹81.57 crores in Q1 FY26. However, as a percentage of sales, employee costs increased to 10.05% from 9.96%, reflecting the fixed cost burden amid declining revenue. Interest expenses stood at ₹11.41 crores in Q2 FY26, down from ₹17.19 crores in Q1 FY26, providing some relief. However, depreciation remained steady at ₹22.92 crores, further pressuring the bottom line.
The profit before tax (PBT) for Q2 FY26 stood at a loss of ₹7.03 crores, compared to a profit of ₹21.05 crores in Q1 FY26. The tax credit of ₹2.39 crores (effective tax rate of 34.00%) provided marginal relief, but the company still reported a net loss of ₹4.64 crores. The PAT margin turned negative at -0.60%, down from 1.95% in the previous quarter, highlighting the severity of operational challenges.
Critical Margin Pressure
Operating margin (excl OI) collapsed to 3.31% in Q2 FY26 from 7.07% in Q1 FY26—a compression of 376 basis points in a single quarter. This dramatic decline reflects rising input costs, weak pricing power, and operational inefficiencies. The company's inability to pass on cost increases to customers is a major red flag, suggesting structural challenges in the textile industry. With gross profit margin also declining to 2.04%, the company faces an uphill battle to restore profitability.
Operational Challenges: Weak ROCE and Elevated Leverage
Nahar Spinning's return on capital employed (ROCE) stood at a paltry 2.59% for the latest period, significantly below the five-year average of 9.46%. This weak ROCE indicates poor capital efficiency and underscores the company's struggle to generate adequate returns on its invested capital. The return on equity (ROE) was similarly disappointing at 2.46%, compared to the five-year average of 8.88%, reflecting subdued profitability and shareholder value creation.
The company's balance sheet reveals moderate leverage, with long-term debt of ₹185.08 crores as of March 2025, down from ₹218.06 crores in March 2024. The net debt-to-equity ratio averaged 0.72 over the past five years, indicating manageable but elevated leverage. However, the company's debt servicing ability remains a concern, with the EBIT-to-interest coverage ratio averaging just 3.83 times over five years—well below the comfort threshold of 5 times. In Q2 FY26, the operating profit to interest coverage stood at 3.37 times, the highest in recent quarters, but this improvement is insufficient given the overall weak profitability.
The company's cash flow position has been volatile. For FY25, Nahar Spinning generated positive operating cash flow of ₹93.00 crores, a significant improvement from the negative ₹394.00 crores in FY24. However, the company's working capital management remains a challenge, with negative changes in working capital of ₹33.00 crores in FY25. The closing cash balance stood at ₹33.00 crores as of March 2025, up from ₹1.00 crore in March 2024, providing some liquidity cushion.
Leverage and Coverage Concerns
Monitoring Required: The company's EBIT-to-interest coverage ratio of 3.83 times (five-year average) is below the ideal threshold of 5 times, indicating limited financial flexibility. The debt-to-EBITDA ratio averaged 6.35 over five years, suggesting elevated leverage relative to operating cash generation. Any further deterioration in profitability could strain debt servicing capabilities and limit growth investments.
Industry Context: Textile Sector Headwinds Persist
The Indian textile and garments industry has faced significant headwinds in recent quarters, with subdued demand from key export markets, elevated cotton prices, and intense competition from low-cost producers. Nahar Spinning's weak Q2 FY26 performance mirrors broader sectoral challenges, as manufacturers grapple with margin pressures and sluggish order flows. The company's focus on cotton yarn, blended yarn, and hosiery knitwear exposes it to volatile raw material prices and cyclical demand patterns.
The garments and apparels sector, where Nahar Spinning operates, has delivered a one-year return of 3.24%, significantly outperforming Nahar Spinning's one-year return of -17.85%. This underperformance of 21.09 percentage points suggests company-specific challenges beyond the broader industry trends. Peers such as Ruby Mills and Rajapalayam Mills have managed to navigate the challenging environment more effectively, highlighting Nahar Spinning's relative operational weaknesses.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Debt to Equity | Dividend Yield (%) |
|---|---|---|---|---|---|
| Nahar Spinning | 20.11 | 0.49 | 8.88 | 0.72 | 0.49 |
| Anand Rayons | 160.63 | 13.92 | 10.48 | -0.11 | — |
| Voith Paper | 19.88 | 2.18 | 10.31 | -0.55 | 0.52 |
| Rajapalayam Mill | 14.42 | 0.33 | 3.31 | 0.49 | 0.06 |
| RSWM Ltd | 94.99 | 0.58 | 9.22 | 1.15 | — |
| Ruby Mills | 16.46 | 1.18 | 6.28 | 0.34 | 0.78 |
Peer Comparison: Valuation Attractive But Quality Concerns Persist
Nahar Spinning trades at a price-to-earnings (P/E) ratio of 20.11 times trailing twelve-month (TTM) earnings, which is reasonable compared to peers such as Anand Rayons (160.63x) and RSWM Ltd (94.99x). However, the company's P/E is higher than Ruby Mills (16.46x) and Rajapalayam Mill (14.42x), suggesting limited valuation advantage relative to similarly positioned peers.
The company's price-to-book value (P/BV) ratio of 0.49 times is the lowest among peers, indicating the stock trades at a significant discount to book value. This deep discount reflects investor concerns about the sustainability of the company's asset base and profitability. The book value per share stands at ₹412.50, compared to the current market price of ₹203.90, implying a 50.58% discount to book value.
Nahar Spinning's ROE of 8.88% (five-year average) is in line with peers such as RSWM Ltd (9.22%) but lags behind Anand Rayons (10.48%) and Voith Paper (10.31%). The company's debt-to-equity ratio of 0.72 is moderate compared to RSWM Ltd (1.15) but higher than Ruby Mills (0.34), indicating higher financial risk. The dividend yield of 0.49% is modest, with the company having paid a dividend of ₹1 per share in September 2025.
"Nahar Spinning's deep discount to book value reflects investor scepticism about the company's ability to generate sustainable returns on its asset base—a concern validated by the weak Q2 FY26 results."
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current market price of ₹203.90, Nahar Spinning trades at a P/E ratio of 20.11 times TTM earnings, which is below the industry average of 23 times. The company's enterprise value (EV) to EBITDA multiple stands at 9.58 times, and the EV to capital employed ratio is 0.71 times, suggesting the stock is attractively valued relative to its asset base and cash generation potential.
However, the company's weak operational performance, declining margins, and low ROCE raise questions about whether the current valuation represents a genuine opportunity or a value trap. The stock has declined 35.27% from its 52-week high of ₹315.00, reflecting investor concerns about the company's near-term prospects. The overall valuation grade is "Very Attractive," but this assessment must be weighed against the company's operational challenges and uncertain earnings outlook.
Shareholding Pattern: Stable Promoter Base, Limited Institutional Interest
Promoter holding in Nahar Spinning remained stable at 67.43% as of September 2025, unchanged from June 2025 but up marginally from 67.07% in December 2024. The promoter group, led by Nahar Capital And Financial Services Ltd. (46.47%) and Nahar Poly Films Limited (19.14%), has maintained a consistent stake, with no pledging of shares—a positive signal for governance and financial stability.
Foreign institutional investor (FII) holding stood at a negligible 0.09% in September 2025, up marginally from 0.08% in June 2025. Mutual fund holding remained unchanged at 0.58% over the past five quarters, indicating limited institutional interest in the stock. Insurance holdings increased marginally to 0.01% in September 2025, while other domestic institutional investor (DII) holdings declined to -0.00% from 0.01% in June 2025.
| Shareholding Category | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 |
|---|---|---|---|---|---|
| Promoter Holding | 67.43% | 67.43% | 67.43% | 67.07% | 67.07% |
| FII Holding | 0.09% | 0.08% | 0.00% | 0.12% | 0.11% |
| Mutual Fund Holding | 0.58% | 0.58% | 0.58% | 0.58% | 0.58% |
| Insurance Holdings | 0.01% | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII Holdings | -0.00% | 0.01% | 0.01% | 0.15% | 0.15% |
| Non-Institutional | 31.89% | 31.90% | 31.98% | 32.07% | 32.08% |
The stable promoter holding and absence of pledging are positive factors, reflecting management confidence and financial discipline. However, the low institutional holding of just 0.68% suggests limited confidence among professional investors, likely due to the company's volatile earnings and weak operational metrics. The lack of institutional buying interest is a concern, as it indicates scepticism about the company's near-term turnaround prospects.
Stock Performance: Prolonged Underperformance Across Timeframes
Nahar Spinning's stock has delivered disappointing returns across most timeframes, significantly underperforming both the Sensex and its sectoral peers. The stock generated a one-year return of -17.85%, compared to the Sensex return of 9.00%, resulting in a negative alpha of -26.85 percentage points. Over the past six months, the stock declined 22.84%, while the Sensex gained 3.97%, reflecting a severe underperformance of 26.81 percentage points.
The stock's underperformance extends to longer timeframes as well. Over three years, Nahar Spinning delivered a return of -27.24%, compared to the Sensex return of 37.22%, resulting in a negative alpha of 64.46 percentage points. Over four years, the stock declined 61.31%, while the Sensex gained 39.34%, highlighting the company's prolonged operational struggles. However, the five-year return of 404.70% significantly outperformed the Sensex return of 93.78%, indicating strong performance in the earlier part of the decade, likely driven by the post-pandemic recovery in textile demand.
| Period | Stock Return (%) | Sensex Return (%) | Alpha (%) |
|---|---|---|---|
| 1 Day | -2.90 | +0.10 | -3.00 |
| 1 Week | +1.19 | +1.62 | -0.43 |
| 1 Month | +2.98 | +3.09 | -0.11 |
| 3 Months | +2.28 | +4.92 | -2.64 |
| 6 Months | -22.84 | +3.97 | -26.81 |
| YTD | -24.00 | +8.22 | -32.22 |
| 1 Year | -17.85 | +9.00 | -26.85 |
| 2 Years | -21.32 | +30.23 | -51.55 |
| 3 Years | -27.24 | +37.22 | -64.46 |
| 5 Years | +404.70 | +93.78 | +310.92 |
The stock's risk-adjusted return over one year stood at -0.41, with a volatility of 43.92%, classifying it as a "high risk, low return" investment. The stock's beta of 1.50 indicates it is significantly more volatile than the broader market, amplifying both gains and losses. The stock currently trades below all key moving averages—5-day (₹206.56), 20-day (₹205.39), 50-day (₹209.24), 100-day (₹228.21), and 200-day (₹231.83)—reflecting sustained selling pressure and weak technical momentum.
Investment Thesis: Attractive Valuation Offset by Operational Weakness
Nahar Spinning's investment case presents a mixed picture. On the positive side, the stock trades at an attractive valuation, with a P/E ratio of 20.11 times (below industry average), a P/BV ratio of 0.49 times (significant discount to book value), and an EV/capital employed ratio of 0.71 times. The company's quality grade has improved to "Average" from "Below Average" earlier, reflecting some stabilisation in long-term financial performance. The financial trend for Q2 FY26 is classified as "Positive," driven by a 237.35% growth in profit after tax (PAT) over the latest six months (compared to the previous six months).
However, the investment case is significantly weakened by operational challenges and weak profitability. The company's ROCE of 2.59% and ROE of 2.46% are well below acceptable thresholds, indicating poor capital efficiency. The operating margin compression to 3.31% in Q2 FY26 highlights severe profitability pressures, and the net loss of ₹4.64 crores underscores the fragility of the business model. The technical trend remains "Bearish," with the stock trading below all key moving averages and facing sustained selling pressure.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Attractive Valuation: Trading at 0.49x P/BV and 20.11x P/E, significantly below book value and industry average, offering potential upside if operations stabilise.
- Healthy Long-Term Growth: Operating profit has grown at an annual rate of 26.75% over the long term, indicating past success in scaling operations.
- Stable Promoter Holding: Promoter stake at 67.43% with no pledging, reflecting management confidence and financial discipline.
- Improved Quality Grade: Quality assessment upgraded to "Average" from "Below Average," suggesting some stabilisation in financial performance.
- Positive Six-Month PAT Trend: PAT growth of 237.35% over the latest six months (vs previous six months) indicates recent improvement, albeit from a low base.
- Moderate Leverage: Debt-to-equity ratio of 0.72 is manageable, with no immediate solvency concerns.
- Diversified Manufacturing Base: Multiple units in Ludhiana and Mandideep provide operational flexibility and capacity cushion.
⚠ KEY CONCERNS
- Net Loss in Q2 FY26: Company posted a loss of ₹4.64 crores, reversing the profit of ₹15.96 crores in Q1 FY26, indicating severe operational stress.
- Margin Compression: Operating margin collapsed to 3.31% from 7.07% in Q1 FY26, reflecting weak pricing power and elevated costs.
- Weak ROCE and ROE: ROCE at 2.59% and ROE at 2.46% are significantly below acceptable thresholds, indicating poor capital efficiency.
- Low Interest Coverage: EBIT-to-interest ratio of 3.83 times (five-year average) is below the comfort threshold of 5 times, limiting financial flexibility.
- Bearish Technical Trend: Stock trading below all key moving averages with sustained selling pressure, indicating weak investor sentiment.
- Low Institutional Interest: Institutional holding at just 0.68% suggests limited confidence among professional investors.
- Prolonged Underperformance: Stock has underperformed the Sensex and sectoral peers across most timeframes, with a one-year return of -17.85%.
Outlook: What to Watch in Coming Quarters
POSITIVE CATALYSTS
- Margin recovery in Q3 FY26 driven by improved raw material costs and better realisation.
- Sustained revenue growth above 5% QoQ, indicating demand stabilisation.
- Operating margin expansion above 5%, reflecting operational efficiency improvements.
- Return to profitability with PAT margin above 1%, restoring investor confidence.
- Increase in institutional holdings, signalling professional investor interest.
RED FLAGS
- Further margin compression below 3%, indicating structural profitability challenges.
- Consecutive quarterly losses, raising concerns about business viability.
- Decline in EBIT-to-interest coverage below 3 times, straining debt servicing.
- Promoter stake reduction or pledging, signalling financial stress.
- Continued underperformance vs sectoral peers, reflecting company-specific weaknesses.
The Verdict: Hold with Caution—Attractive Valuation Offset by Operational Fragility
Score: 51/100
For Fresh Investors: Not recommended for fresh buying at current levels. While the stock trades at an attractive valuation (0.49x P/BV, 20.11x P/E), the weak Q2 FY26 results, margin compression, and low ROCE/ROE raise serious concerns about operational sustainability. Wait for signs of margin recovery and consistent profitability before considering entry.
For Existing Holders: Continue to hold with a cautious outlook. The stock's deep discount to book value and improved quality grade provide some downside protection, but the recent loss and margin compression are worrying. Monitor Q3 FY26 results closely—any further deterioration in margins or consecutive losses would warrant an exit. Set a stop-loss at ₹185 (near 52-week low) to protect capital.
Fair Value Estimate: ₹225-240 (10-18% upside potential), contingent on margin recovery and return to profitability in coming quarters.
Rationale: Nahar Spinning's investment case is characterised by a stark contrast between attractive valuation metrics and weak operational fundamentals. The company's P/BV ratio of 0.49 times and P/E ratio of 20.11 times offer value, but the Q2 FY26 loss, operating margin compression to 3.31%, and weak ROCE/ROE underscore fragile profitability. The bearish technical trend and prolonged underperformance further dampen the investment appeal. The stock merits a HOLD rating, with existing investors advised to stay put while fresh investors should wait for operational stabilisation before entering.
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.
