The December quarter results underscore the structural challenges facing Sambandam Spinning Mills as the company grapples with compressed margins, elevated interest costs, and weak operational efficiency. Despite a 7.32% year-on-year revenue increase to ₹65.26 crores, operating profit before depreciation, interest, and tax (excluding other income) collapsed to ₹1.90 crores from ₹3.72 crores in the previous quarter, representing a margin compression of 268 basis points to just 2.91%.
The company's inability to control costs and improve profitability has resulted in three consecutive quarters of losses, with the cumulative nine-month FY26 net loss standing at ₹2.70 crores compared to a loss of ₹7.55 crores in the corresponding period last year. The stock, trading at ₹100.55, has declined 30.27% over the past year and is currently 40.08% below its 52-week high of ₹167.80, reflecting sustained investor pessimism.
| Metric | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 65.26 | 66.56 | 63.91 | 65.39 | 60.81 | 73.54 | 68.75 |
| QoQ Growth | -1.95% | +4.15% | -2.26% | +7.53% | -17.31% | +6.97% | — |
| YoY Growth | +7.32% | -9.49% | -7.04% | — | — | — | — |
| Operating Profit (₹ Cr) | 1.90 | 3.72 | 5.28 | 4.57 | -0.23 | 1.51 | 3.41 |
| Operating Margin % | 2.91% | 5.59% | 8.26% | 6.99% | -0.38% | 2.05% | 4.96% |
| Net Profit (₹ Cr) | -2.16 | -1.06 | 0.52 | 0.20 | -4.11 | -2.33 | -1.10 |
| PAT Margin % | -3.31% | -1.59% | 0.81% | 0.31% | -6.76% | -3.17% | -1.60% |
Financial Performance: Margin Compression Drives Deepening Losses
The December quarter witnessed a significant deterioration in Sambandam Spinning Mills' financial performance, with the company reporting a consolidated net loss of ₹2.16 crores compared to a loss of ₹1.06 crores in Q2 FY26 and a loss of ₹4.11 crores in Q3 FY25. While revenue at ₹65.26 crores showed resilience with a 7.32% year-on-year increase, the sequential decline of 1.95% from ₹66.56 crores in Q2 FY26 points to demand headwinds in the textile sector.
The most concerning aspect of the quarterly performance was the sharp compression in operating margins. Operating profit before depreciation, interest, and tax (excluding other income) plummeted 48.92% quarter-on-quarter to ₹1.90 crores, with the operating margin contracting to 2.91% from 5.59% in the previous quarter. This represents the lowest operating margin in the past four quarters, barring the negative margin recorded in December 2024.
Interest costs remained stubbornly high at ₹2.76 crores, virtually unchanged from ₹2.77 crores in Q2 FY26, reflecting the company's elevated debt burden. With a debt-to-equity ratio of 1.46 times (on a half-yearly basis) and an average debt-to-EBITDA ratio of 11.18 times over the long term, the company's financial leverage continues to constrain profitability. Depreciation charges stood at ₹2.23 crores, consistent with the previous quarter, resulting in a profit before tax of negative ₹2.90 crores.
The tax credit of ₹0.74 crores (effective tax rate of 25.52%) provided some relief, but the net loss of ₹2.19 crores on a standalone basis (₹2.16 crores consolidated) underscores the severity of the operational challenges. The company's PAT margin of negative 3.31% compares unfavourably with negative 1.59% in Q2 FY26, indicating a worsening profitability trajectory.
Operational Challenges: Weak Returns and High Leverage
Sambandam Spinning Mills continues to struggle with weak operational efficiency and poor capital productivity, as evidenced by its anaemic return on capital employed (ROCE) of just 2.15% in the latest period. The company's average ROCE over the long term stands at a paltry 4.11%, significantly below industry standards and indicative of inefficient capital allocation. The return on equity (ROE) paints an even grimmer picture at negative 5.21% for the latest period, with a long-term average of 4.68%, reflecting the company's inability to generate adequate returns for shareholders.
The company's balance sheet reveals a highly leveraged capital structure with long-term debt of ₹45.84 crores as of March 2025, up from ₹43.21 crores in the previous year. Current liabilities stood at ₹117.58 crores, including trade payables of ₹23.98 crores. With shareholder funds of ₹85.95 crores and a book value per share of ₹201.04, the company's net debt-to-equity ratio of 1.44 times (average) highlights the significant financial risk embedded in the capital structure.
Critical Concern: Debt Servicing Pressure
With an average EBIT-to-interest coverage ratio of just 0.92 times, Sambandam Spinning Mills is generating insufficient operating profit to cover its interest obligations. This weak coverage ratio, combined with a debt-to-EBITDA ratio of 11.18 times, raises serious questions about the company's ability to service its debt burden and invest in growth initiatives. The company's cash flow from operations of ₹16.00 crores in FY25 was entirely consumed by financing activities (negative ₹16.00 crores), leaving no room for capital expenditure or debt reduction.
The company's fixed assets stood at ₹119.65 crores as of March 2025, down from ₹126.03 crores in the previous year, reflecting depreciation charges exceeding capital expenditure. Current assets of ₹123.57 crores provide some liquidity cushion, but the company's working capital management remains a concern, with the debtors turnover ratio at 13.96 times on a half-yearly basis—the highest level recorded but still indicative of elongated receivables cycles in the textile industry.
Industry Context: Textile Sector Headwinds Persist
The textile and apparel industry in India has faced significant headwinds over the past two years, with demand volatility, raw material cost inflation, and intense competition weighing on profitability. Sambandam Spinning Mills' performance must be viewed in this broader context, where even established players have struggled to maintain margins. The company's 5-year sales growth of 8.59% and EBIT growth of 13.63% demonstrate historical resilience, but recent quarters suggest this momentum has stalled.
The company's manufacturing operations span four locations around Salem, complemented by 12.35 MW of wind energy capacity in Tirunelveli district and 9 MW of solar energy plants. This renewable energy infrastructure provides a competitive advantage in terms of power costs, but has proven insufficient to offset broader margin pressures. The company's focus on yarn (cotton, synthetic) and fabric manufacturing exposes it to raw material price volatility and downstream demand fluctuations.
Sector Underperformance: A Concerning Trend
Over the past year, Sambandam Spinning Mills' stock has declined 30.27%, significantly underperforming the Garments & Apparels sector, which posted a modest 1.23% return. This 31.50 percentage point underperformance reflects company-specific challenges beyond broader sector trends. The stock has also underperformed the Sensex by 39.93 percentage points over the same period, with the benchmark index gaining 9.66%.
| Company | P/E (TTM) | P/BV | Avg ROE | Debt/Equity |
|---|---|---|---|---|
| Sambandam Spg. | NA (Loss Making) | 0.55x | 4.68% | 1.44x |
| Jaihind Synth | 4,572.43x | 3.04x | 0.0% | 0.07x |
| Super Spinning | NA (Loss Making) | 0.81x | 0.0% | 0.30x |
| Gokak Textiles | NA (Loss Making) | -0.60x | 0.0% | -3.87x |
Compared to its peers in the garments and apparels sector, Sambandam Spinning Mills stands out for having a positive average ROE of 4.68%, while most peers report negligible or negative returns. However, this relative strength is undermined by the company's high leverage (1.44x debt-to-equity) and current loss-making status. The stock's price-to-book value of 0.55x suggests it is trading at a significant discount to book value, but this valuation may reflect justified concerns about asset quality and earnings power.
Valuation Analysis: Deep Discount Reflects Fundamental Weakness
At the current market price of ₹100.55, Sambandam Spinning Mills trades at a price-to-book value of 0.55x, representing a 45% discount to its book value of ₹201.04 per share. This deep discount is consistent with the company's "Attractive" valuation grade, but investors must recognise that this attractiveness is primarily driven by the stock's precipitous decline rather than improving fundamentals. The company's loss-making status renders traditional earnings-based valuation metrics such as P/E ratio meaningless.
The enterprise value-to-EBITDA multiple of 12.71x and EV-to-sales ratio of 0.66x appear reasonable on the surface, but must be viewed in the context of the company's deteriorating margins and negative earnings trajectory. With an enterprise value-to-capital employed ratio of 0.81x, the market is effectively valuing the company's assets below their deployment cost, reflecting scepticism about their productive capacity.
The stock's valuation grade has fluctuated between "Very Attractive" and "Fair" over the past few months, most recently changing to "Attractive" from "Very Attractive" on October 14, 2025. This volatility in valuation assessment reflects the stock's price movements rather than fundamental improvements. The company has not paid a dividend since September 2022, when it distributed ₹5 per share, further limiting the stock's appeal to income-oriented investors.
| Quarter | Promoter | FII | Mutual Funds | Insurance | Non-Inst |
|---|---|---|---|---|---|
| Dec'25 | 50.24% | 0.00% | 0.00% | 0.00% | 49.76% |
| Sep'25 | 50.24% | 0.00% | 0.00% | 0.00% | 49.76% |
| Jun'25 | 50.24% | 0.00% | 0.00% | 0.00% | 49.76% |
| Mar'25 | 50.22% | 0.00% | 0.00% | 0.00% | 49.78% |
| Dec'24 | 50.22% | 0.00% | 0.00% | 0.00% | 49.78% |
Shareholding Pattern: Stable Promoter Base, Zero Institutional Interest
The shareholding pattern of Sambandam Spinning Mills has remained remarkably stable over the past five quarters, with promoter holding consistently at 50.24% (increasing marginally from 50.22% in March 2025). The promoter group, led by Devarajan Sambandam (14.69%), Jegarajan Sambandam (11.46%), and Dinakaran Sambandam (9.83%), maintains a controlling stake with no pledging of shares—a positive indicator of promoter confidence and financial stability.
However, the complete absence of institutional investors—foreign institutional investors (FIIs), mutual funds, insurance companies, and other domestic institutional investors (DIIs)—is a significant red flag. Zero institutional holding suggests that sophisticated investors have shown no interest in the stock, likely due to concerns about the company's financial performance, liquidity, and growth prospects. The remaining 49.76% is held by non-institutional investors, primarily retail shareholders.
The lack of institutional participation has implications for stock liquidity and price discovery. With minimal trading volumes (just 248 shares traded on February 16, 2026), the stock is highly illiquid, making it difficult for investors to enter or exit positions without significant price impact. This illiquidity, combined with the micro-cap status (market capitalisation of ₹42.88 crores), amplifies investment risk.
Stock Performance: Persistent Underperformance Across Timeframes
Sambandam Spinning Mills' stock has been a consistent underperformer across virtually all timeframes, reflecting sustained investor pessimism about the company's prospects. Over the past year, the stock has declined 30.27%, underperforming the Sensex by 39.93 percentage points (Sensex gained 9.66%). The underperformance extends to longer timeframes, with the stock down 37.93% over two years and 28.84% over three years, while the Sensex posted gains of 14.98% and 35.81% respectively.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | -8.17% | +0.79% | -8.96% |
| 1 Week | -1.81% | -0.94% | -0.87% |
| 1 Month | +1.87% | -0.35% | +2.22% |
| 3 Month | -11.02% | -1.52% | -9.50% |
| 6 Month | -20.45% | +3.32% | -23.77% |
| YTD | -5.68% | -2.28% | -3.40% |
| 1 Year | -30.27% | +9.66% | -39.93% |
| 2 Years | -37.93% | +14.98% | -52.91% |
| 3 Years | -28.84% | +35.81% | -64.65% |
The stock's technical picture is equally concerning, with a "Mildly Bearish" trend that changed from "Bearish" on February 13, 2026. The stock is trading below all key moving averages—5-day (₹104.15), 20-day (₹101.55), 50-day (₹102.49), 100-day (₹109.06), and 200-day (₹122.70)—indicating persistent selling pressure. The immediate support lies at the 52-week low of ₹95.00, just 5.52% below current levels, while resistance is expected at the 20-day moving average around ₹101.55.
With a beta of 1.50, Sambandam Spinning Mills is classified as a high-beta stock, meaning it is 50% more volatile than the broader market. This high volatility (66.97% over the past year) combined with negative returns has resulted in a negative Sharpe ratio, placing the stock firmly in the "HIGH RISK LOW RETURN" category. The risk-adjusted return of negative 0.45 compares unfavourably with the Sensex's risk-adjusted return of 0.84.
Investment Thesis: Below Average Quality Meets Attractive Valuation
Sambandam Spinning Mills presents a complex investment proposition characterised by conflicting signals across key parameters. The company's overall quality grade is "Below Average," reflecting weak long-term financial performance with an average ROCE of just 4.11% and average ROE of 4.68%. The financial trend is classified as "Flat" for the December quarter, while the technical trend remains "Mildly Bearish." Against this backdrop of operational and market weakness, the stock's valuation appears "Attractive" at current levels, though this attractiveness is primarily a function of price decline rather than improving fundamentals.
The company's proprietary Mojo Score stands at a dismal 31 out of 100, firmly in the "SELL" category (scores between 30-50). This score reflects the confluence of negative factors: persistent losses, margin compression, high leverage, weak capital efficiency, and negative technical momentum. The score has remained in the "SELL" or "STRONG SELL" range since at least September 2025, with the current score of 29 (as of the latest update) indicating no improvement in the investment case.
Key Strengths
- Stable promoter holding at 50.24% with zero pledging, indicating promoter confidence and financial stability
- Positive year-on-year revenue growth of 7.32% in Q3 FY26 despite challenging industry conditions
- Diversified manufacturing footprint with four locations and renewable energy infrastructure (12.35 MW wind + 9 MW solar)
- Attractive valuation with P/BV of 0.55x, trading at 45% discount to book value
- Relatively better ROE of 4.68% compared to peer group average of near zero
Key Concerns
- Three consecutive quarters of losses with Q3 FY26 loss deepening to ₹2.16 crores
- Severe margin compression with operating margin collapsing to 2.91% from 5.59% sequentially
- Weak interest coverage of 0.92x unable to service debt obligations from operating profits
- High leverage with debt-to-equity of 1.44x and debt-to-EBITDA of 11.18x
- Anaemic ROCE of 2.15% and negative ROE of 5.21% in latest period indicating poor capital productivity
- Zero institutional holding reflecting lack of sophisticated investor interest
- Persistent stock underperformance with 30.27% decline over past year vs Sensex gain of 9.66%
Outlook: What to Watch
Positive Catalysts
- Return to profitability with sustained positive PAT for at least two consecutive quarters
- Margin expansion with operating margins sustainably above 5% levels
- Debt reduction and improvement in interest coverage ratio above 1.5x
- Improvement in working capital management and cash generation
- Entry of institutional investors signalling confidence in turnaround
Red Flags
- Further deterioration in operating margins below 2% levels
- Continued quarterly losses extending beyond Q4 FY26
- Increase in debt levels or deterioration in debt servicing metrics
- Promoter stake reduction or introduction of share pledging
- Breach of 52-week low at ₹95.00 with continued technical weakness
The Verdict: Avoid This Troubled Textile Play
Score: 31/100
For Fresh Investors: Avoid initiating positions. The company's deteriorating financial performance, weak operational metrics, and persistent margin pressures make it an unsuitable investment despite the attractive valuation. The lack of institutional interest and high volatility add to the risk profile.
For Existing Holders: Consider exiting on any price strength. The three consecutive quarters of losses, collapsing margins, and weak interest coverage suggest the turnaround will be protracted and uncertain. The stock's persistent underperformance and bearish technical trend indicate limited near-term upside potential.
Rationale: Sambandam Spinning Mills' Q3 FY26 results underscore deep-seated operational challenges characterised by margin compression, high leverage, and weak capital efficiency. With a Mojo Score of 31/100, below-average quality grade, flat financial trend, and mildly bearish technicals, the investment case remains unconvincing despite the attractive valuation. The company needs to demonstrate sustained profitability and margin improvement before becoming investable.
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.
