Riba Textiles Q2 FY26: Profitability Surge Masks Revenue Decline

The Delhi-based terry towels and tufted rugs exporter, which operates a manufacturing facility 100 kilometres from New Delhi, demonstrated remarkable margin expansion during the quarter even as topline growth remained elusive. Operating profit margin (excluding other income) expanded to 9.97% in Q2 FY26 from 6.61% in Q1 FY26, whilst PAT margin jumped to 4.21% from 1.43% sequentially. However, the year-on-year revenue contraction and continued technical weakness have kept sentiment subdued.

Financial Performance: Margin Expansion Amidst Revenue Volatility

Riba Textiles' Q2 FY26 financial performance presents a study in contrasts. Net sales in Q2 FY26 stood at ₹69.04 crores, representing a sequential increase of 37.39% from Q1 FY26's ₹50.25 crores but a year-on-year decline of 10.50% from ₹77.14 crores in Q2 FY25. This quarter-on-quarter recovery suggests the company is emerging from the seasonal weakness experienced in Q1, though the year-on-year comparison remains concerning.

The profitability picture, however, tells a more encouraging story. Net profit surged to ₹2.91 crores in Q2 FY26 from just ₹0.72 crores in the previous quarter, marking a dramatic 304.17% sequential improvement. Year-on-year, however, profit declined 1.02% from ₹2.94 crores in Q2 FY25. The PAT margin expanded significantly to 4.21% from 1.43% quarter-on-quarter, though it remains below the 3.81% achieved in the corresponding quarter last year.

Operating profit (PBDIT excluding other income) reached ₹6.88 crores in Q2 FY26, up 107.23% from ₹3.32 crores in Q1 FY26. The operating margin of 9.97% represents a substantial 336 basis points improvement sequentially and 136 basis points year-on-year, indicating enhanced operational efficiency and better cost management. This margin expansion appears to be driven by improved scale benefits as revenue recovered from the Q1 trough.

Interest costs declined to ₹1.34 crores in Q2 FY26 from ₹1.83 crores in the previous quarter, providing relief to the bottom line. Depreciation increased to ₹1.95 crores from ₹1.44 crores sequentially, likely reflecting the company's ongoing capacity expansion from 7,000 tonnes to 12,000 tonnes annually during FY25. The tax rate of 20.55% in Q2 FY26 was lower than the 28.71% in Q1 FY26, further boosting net profit.

Operational Challenges: Revenue Inconsistency and Quality Concerns

Despite the encouraging margin performance, Riba Textiles faces significant operational challenges that warrant investor attention. The company's revenue trajectory over the past seven quarters reveals pronounced volatility, with quarterly sales fluctuating between ₹50.25 crores and ₹82.33 crores. This inconsistency suggests either seasonal demand patterns, lumpy order execution, or challenges in maintaining stable customer relationships in the export-oriented textile business.

The company's return on capital employed (ROCE) averaged 8.04% over recent years, with the latest figure at 10.71%, whilst return on equity (ROE) stood at 8.44% on average and 8.23% most recently. These modest returns indicate that Riba Textiles is not generating particularly strong returns on the capital deployed in the business, which is concerning given the capital-intensive nature of textile manufacturing. Higher ROE typically indicates better capital efficiency and profitability, making Riba's sub-10% average ROE a structural weakness.

The balance sheet reveals moderate leverage with long-term debt of ₹25.74 crores as of March 2025 against shareholder funds of ₹97.90 crores, resulting in a debt-to-equity ratio of 0.26. However, the debt-to-EBITDA ratio of 4.10 times suggests the company would need more than four years of operating profit to repay its debt, which is on the higher side. The EBIT-to-interest coverage ratio of 2.68 times indicates adequate but not comfortable debt servicing capability.

Industry Context: Textile Sector Headwinds

The garments and apparels sector has faced challenging conditions over the past year, with the broader industry declining 2.40% whilst Riba Textiles underperformed with a 9.68% decline. The textile export sector, which Riba operates in, has been grappling with weak global demand, particularly from key markets in Europe and North America where economic uncertainty has dampened consumer spending on discretionary items like home textiles.

Competition in the terry towels and tufted rugs segment remains intense, with pricing power limited due to the commoditised nature of the products. Indian textile exporters face additional challenges from rising cotton prices domestically, currency fluctuations, and competition from countries like Bangladesh, Vietnam, and Pakistan which often benefit from preferential trade agreements with Western markets.

Riba's capacity expansion from 7,000 tonnes to 12,000 tonnes annually represents a significant 71% increase in production capability. Whilst this positions the company to capture larger orders and achieve economies of scale, it also raises questions about demand visibility and capacity utilisation. In a weak demand environment, underutilised capacity could pressure margins and returns further.

Peer Comparison: Valuation Discount Reflects Quality Gap

Riba Textiles trades at a price-to-earnings ratio of 8.82 times trailing twelve-month earnings, below the industry average of 22 times, suggesting a significant valuation discount. The price-to-book value ratio of 0.73 times indicates the stock trades below its book value, which could signal either a value opportunity or concerns about the quality of assets and earnings.

Compared to peers, Riba's ROE of 8.44% lags behind Ashnoor Textile's 14.32% and significantly trails Shine Fashions' exceptional 38.76%. This lower return on equity partly justifies the valuation discount. However, Riba's debt-to-equity ratio of 0.60 is higher than most peers, with only Garment Mantra showing comparable leverage at 0.36. The absence of dividend payments across most peers, including Riba, reflects the capital-intensive nature of the sector and limited free cash flow generation.

Valuation Analysis: Attractive Multiples, Questionable Quality

At the current price of ₹73.61, Riba Textiles appears attractively valued on traditional metrics. The P/E ratio of 8.82 times represents a 60% discount to the industry average of 22 times, whilst the P/BV ratio of 0.73 times suggests the market values the company's assets at a 27% discount to book value. The EV/EBITDA multiple of 5.95 times and EV/Sales of 0.47 times also indicate reasonable valuations.

However, valuation attractiveness must be weighed against quality concerns. The company's below-average quality grade reflects weak long-term financial performance, with five-year sales growth of 11.54% but EBIT growth of just 2.99%, indicating margin compression over time. The absence of institutional holdings (0.0%) and zero dividend payout further reflect limited investor confidence in the business model.

The stock has declined 20.40% from its 52-week high of ₹92.47, currently trading closer to its 52-week low of ₹63.00. Technical indicators show the stock in a bearish trend since January 29, 2026, with the price trading below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day), indicating weak momentum and lack of buying interest.

Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest

Riba Textiles' shareholding pattern has remained remarkably stable over the past five quarters, with promoter holding steady at 61.85% and non-institutional shareholders holding the remaining 38.15%. The absence of any foreign institutional investor (FII), mutual fund, insurance company, or other domestic institutional investor (DII) holdings is striking and reflects the company's limited appeal to professional investors.

The promoter group, led by Asha Garg (23.90%), Amit Garg (10.28%), and Nitin Garg (9.07%), maintains a controlling stake with no pledging, which is a positive indicator of promoter confidence. However, the complete absence of institutional participation suggests the company has not attracted the attention of sophisticated investors who typically conduct thorough due diligence before investing. This lack of institutional validation is concerning and may reflect concerns about corporate governance, business scalability, or financial transparency.

Stock Performance: Consistent Underperformance Across Timeframes

Riba Textiles has delivered disappointing returns across most timeframes, significantly underperforming the broader market. Over the past one year, the stock declined 9.68% whilst the Sensex gained 9.85%, resulting in a negative alpha of 19.53 percentage points. The underperformance has been consistent across shorter timeframes as well, with the stock down 5.14% over one month versus the Sensex's 0.24% decline, and down 8.16% over three months against the Sensex's 0.94% decline.

On a longer-term basis, the stock has delivered superior returns, with a three-year gain of 91.94% versus the Sensex's 37.89%, generating a positive alpha of 54.05 percentage points. The 10-year return of 286.40% also outpaced the Sensex's 264.02% gain. However, these longer-term gains must be viewed in context—they reflect recovery from extremely depressed levels rather than consistent value creation.

The stock's beta of 1.10 indicates it is more volatile than the market, amplifying both gains and losses. With a volatility of 41.97% versus the Sensex's 11.46%, Riba Textiles falls into the "high risk, low return" category over the past year, delivering negative risk-adjusted returns of -0.23 compared to the Sensex's positive 0.86.

Investment Thesis: Value Trap or Turnaround Opportunity?

Riba Textiles presents a complex investment proposition. The company's proprietary Mojo Score of 17 out of 100 and "Strong Sell" rating reflect significant concerns across multiple parameters. The valuation appears attractive with a "Very Attractive" grade, but this is offset by "Below Average" quality, "Negative" financial trend, and "Bearish" technical trend.

The near-term drivers are decidedly negative, with quarterly financial trend turning negative and technical indicators uniformly bearish. The company's latest quarterly results showed a 42.40% decline in net profit and 16.73% decline in net sales in the most recent period available, suggesting the Q2 FY26 recovery may have been short-lived.

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