Ruby Mills Q2 FY26: Margin Pressures Intensify Despite Revenue Growth

The Mumbai-based textile manufacturer, incorporated in 1917, operates three plants at Mumbai, Village Dhamni, and Village Kharsundi at Khopoli. Engaged in manufacturing cotton and blended yarn and fabric, Ruby Mills has witnessed a significant deceleration in its growth trajectory, with revenue growth slowing to just 2.1% in FY25 after posting a robust 30.2% expansion in FY23. More concerning is the sharp contraction in operating margins, which have compressed from 23.2% in FY24 to 18.6% in FY25, reflecting intense competitive pressures and rising input costs in the textile sector.

The company's financial health presents a mixed picture, with net profit declining 4.55% year-on-year to ₹42.00 crores in FY25 despite a marginal revenue increase. This disconnect between topline and bottom-line performance underscores the margin pressures that have intensified across the textile industry. The PAT margin has compressed to 17.4% from 18.6% in the previous fiscal, whilst the company's capital efficiency metrics remain subdued, with ROCE at 3.99% and ROE at 7.16%, both significantly below industry benchmarks.

Financial Performance: Margin Erosion Overshadows Revenue Stability

Ruby Mills reported net sales of ₹242.00 crores for FY25, marking a modest 2.1% year-on-year increase from ₹237.00 crores in FY24. However, this topline stability masks underlying operational challenges. The company's operating profit (PBDIT excluding other income) declined sharply to ₹45.00 crores from ₹55.00 crores, representing a 18.18% contraction. This margin compression is particularly concerning given the relatively stable revenue base, suggesting significant cost pressures across the value chain.

The margin deterioration is evident across multiple profitability metrics. Operating margin (excluding other income) contracted by 460 basis points to 18.6% from 23.2%, whilst PAT margin declined 120 basis points to 17.4% from 18.6%. Total expenditure increased to ₹197.00 crores from ₹181.00 crores, growing at 8.8%, significantly outpacing the 2.1% revenue growth. Employee costs rose to ₹29.00 crores from ₹26.00 crores, reflecting an 11.5% increase, whilst other operational expenses escalated disproportionately.

The quality of earnings also raises concerns. Other income surged to ₹24.00 crores in FY25 from ₹13.00 crores in FY24, an 84.6% increase, contributing significantly to reported profitability. Without this non-operating income boost, the company's operational performance would appear considerably weaker. Interest costs remained stable at ₹4.00 crores, whilst depreciation increased to ₹11.00 crores from ₹8.00 crores, reflecting ongoing capital investments. The effective tax rate stood at 20.8%, marginally higher than the previous year's 20.0%.

Operational Challenges: Capital Efficiency Deteriorates

Ruby Mills' operational efficiency metrics paint a concerning picture of capital productivity. The company's return on capital employed (ROCE) stands at a meagre 3.99%, significantly below the 10-12% threshold typically expected from manufacturing businesses. This weak ROCE reflects poor capital allocation and underutilisation of deployed assets. Similarly, return on equity (ROE) at 7.16% remains substantially below the 15% benchmark for quality businesses, indicating that the company is generating insufficient returns for its shareholders relative to the equity capital employed.

The balance sheet reveals mounting leverage concerns. Long-term debt increased substantially to ₹291.12 crores in FY25 from ₹170.82 crores in FY24, representing a 70.4% surge. This aggressive debt accumulation has pushed the debt-to-EBITDA ratio to 7.54x, well above the comfortable 3-4x range for manufacturing companies. Whilst the net debt-to-equity ratio of 0.34x appears manageable, the absolute debt levels relative to operating cash generation raise sustainability concerns.

Working capital management has deteriorated sharply. Cash flow from operations turned negative at ₹-35.48 crores in FY25, a dramatic reversal from the positive ₹49.00 crores generated in FY24. This ₹84.48 crores swing reflects significant working capital absorption, with changes in working capital consuming ₹77.00 crores during the year. The debtors turnover ratio declined to 8.73 times on a half-yearly basis, indicating slower collection cycles and potential receivables quality issues. Current assets stood at ₹233.57 crores against current liabilities of ₹80.48 crores, maintaining a current ratio of 2.90x, which provides some near-term liquidity comfort.

Industry Context: Textile Sector Headwinds Persist

The Indian textile industry faces multiple structural headwinds that are impacting Ruby Mills' performance. Rising cotton prices, increased competition from synthetic alternatives, and subdued export demand have compressed margins across the sector. The garments and apparels segment has witnessed particular pressure, with discretionary consumer spending remaining tepid amidst broader economic uncertainties. Ruby Mills' 12.07% five-year sales CAGR, whilst respectable, has been accompanied by a mere 2.76% EBIT CAGR, highlighting the margin compression challenge endemic to the sector.

The company's composite textile operations, spanning spinning, weaving, and fabric processing, expose it to multiple cost pressure points. Raw material volatility, particularly cotton prices, directly impacts profitability, whilst energy costs for processing operations have escalated. The shift of fabric processing activity from Mumbai to Village Kharsundi at Khopoli, whilst potentially offering long-term cost benefits, has likely contributed to near-term operational disruptions and capital expenditure requirements.

Peer Comparison: Valuation Premium Not Justified

Comparing Ruby Mills against its peers in the garments and apparels sector reveals a concerning valuation disconnect. Whilst the company trades at a P/E ratio of 16.46x, below the sector average, its price-to-book value of 1.18x appears expensive given its weak return profile. With an ROE of just 6.28%, Ruby Mills trades at a premium valuation relative to its capital efficiency, particularly when compared to peers like Ambika Cotton (ROE: 12.87%, P/BV: 0.80x) and Sarla Performance (ROE: 9.98%, P/BV: 1.46x).

Ruby Mills' dividend yield of 0.78% lags the peer average, reflecting its conservative payout policy with a dividend payout ratio of just 13.83%. The company declared a dividend of ₹1.75 per share for FY25, the highest in recent years, though this represents a modest distribution relative to earnings. The debt-to-equity ratio of 0.34x appears comfortable compared to peers, though the absolute debt levels relative to cash generation remain concerning.

From an operational perspective, Ruby Mills' ROE of 6.28% trails significantly behind better-performing peers like Ambika Cotton (12.87%) and Sarla Performance (9.98%), whilst only marginally outperforming weaker players like Rajapalayam Mill (3.31%) and GHCL Textiles (3.48%). This positioning in the lower half of the peer group, combined with a premium P/BV multiple, suggests limited valuation support at current levels.

Valuation Analysis: Fair Value Masks Fundamental Weakness

Ruby Mills currently trades at ₹224.35, down 30.96% from its 52-week high of ₹324.95 but up 26.32% from its 52-week low of ₹177.60. The stock's valuation grade of "Fair" appears generous given the underlying fundamental deterioration. At a P/E ratio of 16.46x, the stock trades at a discount to the sector average of 23x, though this discount is justified by its below-average quality profile and weak return metrics.

The EV/EBITDA multiple of 22.22x appears stretched for a company with declining margins and negative operating cash flow. The EV/Sales ratio of 3.64x is particularly concerning, given the company's modest 2.1% revenue growth and deteriorating profitability. The price-to-book ratio of 1.18x implies that the market is valuing the company's assets at a premium to their stated book value, despite the company generating returns well below its cost of capital.

Historical valuation trends show the stock has oscillated between "Fair" and "Expensive" grades over the past year, with the current "Fair" classification established since September 17, 2025. However, this classification appears to overlook the fundamental deterioration in operating metrics. Based on a normalised earnings multiple of 12-14x (appropriate for a low-ROE, below-average quality textile business) and FY25 EPS of approximately ₹12.60, a fair value estimate would place the stock in the ₹150-175 range, suggesting 25-33% downside from current levels.

Shareholding Pattern: Stable Promoter Base, No Institutional Interest

Ruby Mills' shareholding structure reveals a highly concentrated ownership pattern with minimal institutional participation. Promoter holding has remained rock-solid at 74.90% over the past five quarters, indicating strong insider conviction and control. The promoter group, led by Manubhai And Sons Investment Co Pvt Ltd (14.29%), Hiren Brothers Investment Co Pvt Ltd (14.29%), and M.C Shah And Sons Investment Co Pvt Ltd (14.28%), maintains a diversified family ownership structure with no pledging of shares.

The complete absence of institutional investors is particularly noteworthy. FII holding has declined from 0.05% in December 2024 to virtually nil in September 2025, reflecting a systematic exit by foreign investors. Mutual funds and insurance companies hold zero stake, indicating no domestic institutional interest. This lack of institutional ownership suggests limited research coverage, poor liquidity, and concerns about corporate governance or business quality that deter professional investors.

The non-institutional shareholding of 25.09% comprises primarily retail investors and non-promoter entities. The marginal 0.01% quarter-on-quarter increase in this category suggests minimal fresh buying interest. The absence of pledging is a positive, indicating promoters are not using their shares as collateral for borrowings. However, the lack of institutional participation limits the stock's liquidity and discovery of fair value through informed trading.

Stock Performance: Underperformance Reflects Fundamental Weakness

Ruby Mills' stock price performance across multiple timeframes reveals consistent underperformance relative to broader market indices. Over the past year, the stock has delivered a modest 3.63% return, significantly lagging the Sensex's 9.00% gain, resulting in a negative alpha of -5.37%. This underperformance has been particularly pronounced over longer timeframes, with the stock generating negative alpha of -33.26% over two years and -35.57% over three years.

The stock's high beta of 1.50 indicates significantly higher volatility than the broader market, with a volatility measure of 50.41% compared to the Sensex's 12.26%. This high volatility, combined with modest returns, places the stock in the "High Risk Low Return" category—an unfavourable risk-reward profile for investors. The risk-adjusted return of 0.07 is substantially lower than the Sensex's 0.73, indicating poor compensation for the elevated risk undertaken.

Technical indicators present a mixed picture. The stock recently shifted to a "Mildly Bullish" trend on November 14, 2025, reversing from a "Mildly Bearish" stance. However, this technical bounce appears fragile, with the stock trading below its 20-day (₹222.96), 50-day (₹225.20), 100-day (₹232.08), and 200-day (₹218.16) moving averages. The MACD remains mildly bearish on both weekly and monthly timeframes, whilst RSI shows no clear directional signal. The Dow Theory indicator suggests mildly bullish momentum, though this conflicts with the bearish KST indicator.

Investment Thesis: Below-Average Quality Limits Upside

Ruby Mills' investment thesis is undermined by multiple structural weaknesses. The company's overall quality grade of "Below Average" reflects long-term financial underperformance, with weak return metrics and deteriorating operational efficiency. The five-year sales CAGR of 12.07% appears respectable, but the EBIT CAGR of just 2.76% highlights severe margin compression. Average ROCE of 4.45% and ROE of 6.28% are well below acceptable thresholds, indicating the company destroys value rather than creates it.

The company's proprietary Mojo score of 41 out of 100 places it firmly in "SELL" territory, reflecting concerns across multiple dimensions. The debt-to-EBITDA ratio of 7.54x is alarmingly high, indicating limited debt servicing capacity. The negative operating cash flow of ₹-35.48 crores in FY25 raises serious questions about business sustainability and the company's ability to fund operations without external financing.

Outlook: Limited Near-Term Catalysts

Ruby Mills faces a challenging outlook with limited near-term catalysts for improvement. The textile sector headwinds are likely to persist, with margin pressures continuing amidst elevated raw material costs and subdued demand. The company's weak capital efficiency metrics suggest structural issues that cannot be resolved quickly. The negative operating cash flow and high debt levels constrain the company's ability to invest in growth initiatives or weather extended downturns.

The company's financial trend indicator showing "Positive" for the recent quarter provides limited comfort, as this appears to reflect quarterly volatility rather than sustainable improvement. The technical trend of "Mildly Bullish" is fragile and could easily reverse given the weak fundamental backdrop. Investors should closely monitor the company's ability to stabilise margins, generate positive cash flows, and improve capital efficiency metrics before considering any position.