Premco Global Q2 FY26: Profit Slumps 53% QoQ Despite Steady Revenue

With a market capitalisation of ₹165.00 crores, Premco Global operates in the competitive garments and apparels sector, specialising in jacquard elastic tapes for underwear manufacture. The company's Q2 performance revealed underlying operational challenges, with operating profit margins excluding other income contracting to 11.40% from 19.85% in the previous quarter. Year-on-year, net profit declined 4.47%, whilst revenue remained virtually flat at -1.00%, signalling a period of consolidation for the micro-cap textile player.

Financial Performance: Margin Compression Drives Profit Decline

Premco Global's Q2 FY26 results revealed a troubling deterioration in profitability metrics despite relatively stable topline performance. Net sales of ₹25.71 crores declined 13.38% sequentially from ₹29.68 crores in Q1 FY26, whilst year-on-year revenue contracted marginally by 1.00%. The sequential decline marked the lowest quarterly sales figure in the past seven quarters, raising concerns about demand momentum in the narrow fabric segment.

The most significant concern emerged from the sharp compression in operating margins. Operating profit excluding other income plummeted to ₹2.93 crores from ₹5.89 crores in the previous quarter, translating to a margin contraction of 845 basis points to 11.40%. This represented the weakest operating performance in recent quarters, suggesting either pricing pressures or cost inflation challenges. Employee costs rose to ₹6.40 crores from ₹5.96 crores, indicating limited operating leverage despite the revenue decline.

Net profit after tax of ₹1.71 crores represented a 52.76% sequential decline from ₹3.62 crores in Q1 FY26. PAT margins contracted sharply to 6.65% from 12.20%, reflecting the cascading impact of margin compression. Interestingly, the company reported a negative tax rate of -23.91% in Q2 FY26, compared to a positive 22.81% in the previous quarter, suggesting potential tax adjustments or deferred tax benefits that partially cushioned the profit decline.

Other income, which has historically been a significant contributor to overall profitability, declined to ₹0.53 crores from ₹1.22 crores in Q1 FY26. This 56.56% drop in non-operating income further exacerbated the profit pressure. The company's profit before tax excluding other income stood at just ₹0.85 crores—the lowest in recent quarters—highlighting the severity of operational challenges faced during the quarter.

Operational Challenges: Profitability Under Pressure

The operational performance in Q2 FY26 revealed significant headwinds facing Premco Global's business model. The company's return on equity (ROE) stood at 8.88% for the latest period, whilst the average ROE over recent years has been 11.99%—indicating moderate capital efficiency but below industry leaders. The return on capital employed (ROCE) of 10.01% in the latest period also underperformed the average ROCE of 15.77%, suggesting deteriorating returns on invested capital.

From a balance sheet perspective, Premco Global maintains a relatively conservative financial structure with minimal debt. As of March 2025, long-term debt stood at ₹2.73 crores against shareholder funds of ₹107.14 crores, resulting in a net debt-to-equity ratio of -0.10. This negative ratio indicates the company is effectively a net cash enterprise, with cash and investments exceeding total debt—a significant strength in uncertain operating environments.

However, the company's working capital management showed signs of strain. Current assets of ₹68.25 crores as of March 2025 declined from ₹75.59 crores in the previous year, whilst current liabilities increased to ₹14.91 crores from ₹10.95 crores. This resulted in a tighter working capital position, potentially constraining operational flexibility. The cash flow from operations for FY25 stood at ₹5.00 crores, down sharply from ₹10.00 crores in FY24, reflecting the challenges in converting profits into cash.

Industry Context: Navigating Textile Sector Headwinds

Premco Global operates in the highly competitive garments and apparels sector, specifically focusing on narrow fabric and elastic tapes for underwear manufacturing. The textile industry in India has faced persistent challenges including raw material price volatility, intense competition from imports, and fluctuating domestic demand. The company's 5-year sales growth of 10.69% and impressive 5-year EBIT growth of 50.96% demonstrate historical resilience, though recent quarterly performance suggests mounting pressures.

The company's stock has significantly outperformed its sector over the past year, delivering 12.43% returns compared to the Garments & Apparels sector's -3.19% decline—an outperformance of 15.62 percentage points. This suggests that despite operational challenges, investors continue to see value in Premco Global's business model, likely driven by its strong balance sheet, consistent dividend payments, and reasonable valuation multiples.

Looking at longer-term performance, Premco Global has delivered exceptional returns over a five-year horizon, with stock appreciation of 294.78% compared to the Sensex's 98.87% gain—an alpha of 195.91 percentage points. This remarkable long-term performance underscores the company's ability to create shareholder value despite periodic operational setbacks.

Peer Comparison: Competitive Positioning

Premco Global's valuation and operational metrics present an interesting picture when compared to peers in the garments and apparels sector. The company trades at a price-to-earnings ratio of 15.83x, significantly below peers such as Aarnav Fashions (190.06x) and Active Clothing (14.87x), whilst offering substantially higher returns on equity at 11.99% compared to most competitors.

Premco Global's standout feature is its exceptional dividend yield of 9.39%, far exceeding any peer in the comparison set. With a dividend payout ratio of 32.29%, the company demonstrates a commitment to returning cash to shareholders whilst retaining sufficient capital for business operations. The company's negative debt-to-equity ratio of -0.10 also positions it favourably compared to leveraged peers like Active Clothing (1.52) and Winsome Textile (0.74).

From a valuation perspective, Premco Global's price-to-book ratio of 1.54x appears reasonable given its ROE of 11.99%, suggesting the market is pricing in moderate growth expectations. The company's enterprise value-to-EBITDA multiple of 8.92x provides a more comprehensive valuation picture, indicating that at current levels, investors are paying approximately 9 times the company's earnings before interest, tax, depreciation, and amortisation.

Valuation Analysis: Attractive Entry Point Despite Near-Term Concerns

At the current market price of ₹529.00, Premco Global trades at a P/E ratio of 15.83x based on trailing twelve-month earnings, below the industry average P/E of 22x. This discount to the sector suggests the market is factoring in near-term operational challenges and the company's micro-cap status, which typically commands a liquidity discount. The stock's price-to-book value of 1.54x appears reasonable given the company's ROE profile, though it trades at a premium to the book value of ₹324.19 per share.

The company's valuation grade has fluctuated between "Attractive" and "Expensive" over recent months, currently standing at "Attractive" as of the latest assessment. This classification reflects the combination of reasonable earnings multiples, strong dividend yield, and solid balance sheet fundamentals. The PEG ratio of 1.84x suggests that the stock is trading at approximately 1.8 times its expected growth rate, which falls within the acceptable range for value-conscious investors.

The stock's 52-week trading range of ₹366.50 to ₹645.00 provides important context. At ₹529.00, the stock trades 17.98% below its 52-week high but 44.34% above its 52-week low, suggesting it has recovered substantially from recent lows but still offers potential upside to previous peaks. The recent dividend payment of ₹2.00 per share (ex-date: August 26, 2025) translates to the impressive 9.39% yield, making it particularly attractive for income-focused investors.

Shareholding: Stable Promoter Base, Zero Institutional Interest

Premco Global's shareholding pattern reveals a stable ownership structure dominated by promoters, with zero institutional participation. Promoter holding has remained constant at 66.98% over the past five quarters, indicating strong insider confidence and alignment with shareholder interests. The promoter group, led by Ashok B Harjani (43.52%), Lokesh Prem Harjani (13.19%), and Prem Bhagwandas Harjani (8.32%), controls two-thirds of the company with zero pledging of shares—a significant positive for governance and financial stability.

The complete absence of foreign institutional investors (FIIs), mutual funds, insurance companies, and other domestic institutional investors (DIIs) is noteworthy. This lack of institutional participation likely reflects the company's micro-cap status (₹165.00 crores market capitalisation), limited liquidity, and lower visibility in institutional research coverage. The entire non-promoter holding of 33.02% comprises retail and non-institutional investors, making the stock susceptible to volatility but also presenting an opportunity should institutional interest develop.

The stable shareholding pattern over multiple quarters suggests that both promoters and retail investors have maintained their conviction despite quarterly fluctuations in operational performance. The absence of pledged shares eliminates concerns about potential forced selling or financial distress at the promoter level—a significant comfort factor for minority shareholders.

Stock Performance: Strong Momentum Despite Operational Headwinds

Premco Global's stock has demonstrated remarkable resilience and momentum in recent weeks, sharply outperforming broader market indices. The stock surged 5.60% on November 6, 2025, to close at ₹529.00, following the Q2 FY26 results announcement. More impressively, the stock has delivered a 19.81% return over the past week and 19.53% over the past month, significantly outpacing the Sensex's -1.30% and +1.86% returns respectively during the same periods.

The technical picture has turned decisively bullish, with the stock trending above all key moving averages—5-day (₹472.25), 20-day (₹449.27), 50-day (₹445.06), 100-day (₹445.11), and 200-day (₹436.09). This alignment of moving averages in a bullish configuration suggests strong momentum and technical support. The stock's trend officially changed to "Bullish" on October 31, 2025, at ₹474.00, following a period of sideways consolidation.

However, investors should note the stock's high volatility profile. With a beta of 1.50, Premco Global is significantly more volatile than the broader market, classified as a "High Beta" stock. Over the past year, the stock has exhibited 46.18% volatility compared to the Sensex's 12.45%, resulting in a risk-adjusted return of 0.27—slightly below the Sensex's 0.29. This high volatility makes the stock suitable primarily for risk-tolerant investors with longer investment horizons.

Delivery volumes have surged dramatically, with a 158.99% increase over the trailing one-month period compared to the previous month. On November 4, 2025, delivery volume reached 3,850 shares representing 92.24% of total trading volume—substantially higher than the 5-day average of 81.82%. This surge in delivery-based buying suggests genuine accumulation by investors rather than speculative trading activity.

Investment Thesis: Balancing Value Appeal Against Operational Concerns

Premco Global presents a nuanced investment case characterised by attractive valuation metrics and strong dividend yield, offset by near-term operational challenges and negative financial trends. The company's overall Mojo Score of 54/100 places it in "HOLD" territory, reflecting this mixed picture. The investment thesis rests on four key pillars: valuation, quality, financial trend, and technical momentum.

From a valuation perspective, Premco Global scores well with its "Attractive" grade. Trading at 15.83x earnings with a 9.39% dividend yield, the stock offers compelling income generation potential alongside reasonable capital appreciation prospects. The company's quality assessment stands at "Average," supported by healthy long-term growth (5-year EBIT CAGR of 50.96%), zero debt, and no promoter pledging. However, the average ROE of 11.99% and recent margin pressures prevent a higher quality rating.

The most concerning aspect of the investment case is the "Negative" financial trend classification. Q2 FY26 net profit of ₹1.71 crores represented a 34.50% decline compared to the average of the previous four quarters, whilst net sales hit their lowest level in seven quarters. The profit before tax excluding other income also reached multi-quarter lows at ₹0.85 crores. These deteriorating trends suggest the company faces structural challenges that may require several quarters to resolve.

On the positive side, the technical trend has turned decisively "Bullish" with multiple technical indicators—MACD, Bollinger Bands, KST, and Dow Theory—all signalling positive momentum on weekly timeframes. The stock's breakout above key resistance levels and surge in delivery volumes indicate building investor confidence, possibly driven by the attractive valuation and high dividend yield rather than near-term earnings momentum.

Key Strengths & Risk Factors

Outlook: What to Watch