Scoobee Day Garments Q2 FY26: Sharp Loss Raises Red Flags on Operational Viability

The stock has responded with a brutal sell-off, declining 21.69% over the past three months and trading at ₹82.40 as of November 14, 2025—significantly below all key moving averages and just 2.73% above its 52-week low of ₹80.21. With sales collapsing 68.85% quarter-on-quarter to ₹4.84 crores and operating margins plunging into deeply negative territory at -43.60%, the company faces existential questions about business viability.

Financial Performance: A Quarter of Operational Collapse

The Q2 FY26 results represent one of the most alarming quarterly performances in Scoobee Day Garments' recent history. Net sales in the September 2025 quarter plummeted to ₹4.84 crores, down a catastrophic 68.85% from Q1 FY26's ₹15.54 crores and down 26.78% year-on-year from ₹6.61 crores in September 2024. This sequential collapse suggests either severe order cancellations, production disruptions, or fundamental demand challenges that management has failed to address.

The revenue decline was accompanied by a complete disintegration of profitability metrics. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) turned sharply negative at ₹-2.11 crores, resulting in an operating margin of -43.60%—a shocking deterioration from the 14.29% margin posted just one quarter earlier. The company's inability to control costs in the face of collapsing revenues points to significant operational rigidity and poor cost management.

Employee costs remained stubbornly high at ₹3.71 crores despite the revenue collapse, representing 76.65% of total sales for the quarter—an unsustainable cost structure that suggests the company is carrying excess labour capacity with no corresponding revenue generation. This fixed cost burden, combined with other operating expenses, pushed the company deep into loss-making territory with a net loss of ₹2.31 crores and a PAT margin of -47.73%.

Capital Structure Crisis: Drowning in Debt with Negative Equity Quality

Beyond the quarterly performance disaster, Scoobee Day Garments faces a structural balance sheet crisis that severely constrains its ability to navigate operational challenges. As of March 2025, the company carried long-term debt of ₹4.02 crores against shareholder funds of just ₹4.93 crores, resulting in a debt-to-equity ratio of 0.82 times on a standalone basis. However, the company's average debt-to-equity ratio over recent years stands at a staggering 11.62 times, indicating chronic over-leverage and financial fragility.

The company's return on equity stands at an anaemic 2.23% for the latest period, while the average ROE is effectively zero—reflecting persistent value destruction for shareholders. Return on capital employed (ROCE) fares only marginally better at 3.68% for the latest period and 8.48% on average, both well below the cost of capital and indicative of poor capital allocation and operational efficiency.

Cash flow generation has been abysmal, with operating cash flow turning negative at ₹-4.19 crores for FY25—the lowest in recent years. This represents a dramatic reversal from the ₹10.00 crores positive operating cash flow in FY24 and ₹17.00 crores in FY23. The company's inability to convert accounting profits into actual cash, combined with deteriorating working capital management (debtors turnover ratio at a low 5.96 times for H1 FY26), raises serious concerns about the quality of reported earnings and the company's ability to meet financial obligations.

Industry Context: Underperforming Sector Peers Significantly

The garments and apparels sector has shown modest resilience over the past year, with the sector delivering a 0.58% return. However, Scoobee Day Garments has dramatically underperformed, posting a negative 10.43% return over the same period—an underperformance of 11.01 percentage points versus its sector peers. This relative weakness extends across all time frames, with the stock down 21.69% over three months while the broader Sensex gained 4.67%, representing a negative alpha of 26.36 percentage points.

The company's operational metrics lag significantly behind industry standards. While peer companies in the garments sector typically maintain operating margins in the 10-20% range during normal quarters, Scoobee Day Garments' latest margin of -43.60% represents a complete operational breakdown. The company's inability to maintain pricing power, control costs, or generate consistent order flow suggests deep-seated competitive disadvantages that have become more pronounced in recent quarters.

From a market positioning perspective, Scoobee Day Garments ranks fourth among its peer group by market capitalisation at ₹180.00 crores, but trades at valuation multiples that appear disconnected from operational reality. The company's enterprise value to sales ratio of 4.43 times and EV to EBITDA of 54.88 times seem grossly inflated given the deteriorating fundamentals and loss-making status.

Compared to peers, Scoobee Day Garments exhibits the weakest fundamental profile. Its ROE of 0.00% contrasts sharply with Lorenzini Apparels' 18.93% and BSL's 11.05%. The company's debt-to-equity ratio of 11.62 times is multiples higher than any peer, with most competitors maintaining ratios below 4 times. Most alarmingly, the company's P/E ratio of 1604.75 times—driven by minimal earnings—is astronomically higher than the peer average of approximately 31 times, suggesting severe overvaluation relative to fundamentals.

Valuation Analysis: Expensive Multiple Meets Deteriorating Fundamentals

At the current price of ₹82.40, Scoobee Day Garments trades at valuation multiples that appear absurdly disconnected from operational reality. The trailing twelve-month P/E ratio of 1604.75 times reflects the company's minimal earnings base and represents a valuation premium that is impossible to justify given the deteriorating financial performance. For context, the garments and apparels industry average P/E stands at approximately 20 times, making Scoobee Day Garments' multiple more than 80 times the industry norm.

The price-to-book value ratio of 35.81 times is equally concerning, especially considering the company's book value per share stands at just ₹3.61. This implies the market is valuing the company at more than 35 times its net asset value despite negative returns on equity and a crumbling operational base. By comparison, peer companies trade at P/BV multiples ranging from 0.50 times to 3.67 times, with an average around 1.90 times—highlighting how grossly overvalued Scoobee Day Garments appears relative to sector standards.

The company's overall valuation grade has been classified as "EXPENSIVE" by proprietary screening models, with the grade having oscillated between "Expensive," "Fair," and "Risky" over recent months—reflecting the market's struggle to appropriately price a business with such volatile and deteriorating fundamentals. The enterprise value to EBITDA multiple of 54.88 times and EV to sales of 4.43 times further reinforce the overvaluation thesis, particularly as the company is currently generating negative EBITDA.

Given the company's negative operating cash flow, deteriorating margins, high debt burden, and loss-making status in the latest quarter, a fair value estimate is extremely challenging to derive. However, using a conservative price-to-book approach and assuming the company can stabilise operations (a significant assumption), a fair value in the range of ₹15-20 per share appears more realistic—implying a potential downside of 75-80% from current levels. This estimate factors in the weak ROE, high leverage, and operational challenges that are unlikely to resolve quickly.

Shareholding Pattern: Stable but Lacking Institutional Confidence

The shareholding pattern of Scoobee Day Garments has remained remarkably static over the past five quarters, with promoter holding steady at 74.99% and showing no sequential changes. While stable promoter holding typically signals confidence, the lack of any institutional participation raises significant red flags about the investment quality and governance standards of the company.

Foreign institutional investors (FIIs) hold zero stake in the company, as do mutual funds and insurance companies. Other domestic institutional investors (DIIs) maintain a minimal 1.48% holding, which has remained unchanged across quarters. The total institutional holding of just 1.48% represents one of the lowest levels of institutional participation among listed companies and reflects the investment community's lack of confidence in the company's prospects.

The absence of institutional investors is particularly telling. Sophisticated institutional investors typically conduct rigorous due diligence and avoid companies with weak governance, poor financial health, or questionable business models. The complete absence of FII and mutual fund participation in Scoobee Day Garments suggests these investors have identified fundamental issues that make the stock uninvestable by professional standards.

Positively, there is no promoter pledging of shares, which eliminates one potential risk factor. However, this single positive cannot offset the broader concerns raised by the lack of institutional interest and the company's deteriorating financial performance.

Stock Performance: Severe Underperformance Across All Timeframes

The stock's price performance has been dismal across virtually all relevant timeframes, reflecting the market's growing recognition of the company's fundamental challenges. Over the past year, Scoobee Day Garments has declined 10.43%, significantly underperforming the Sensex's 8.74% gain and generating a negative alpha of 19.17 percentage points. This underperformance has accelerated in recent months, with the stock down 21.69% over three months versus the Sensex's 4.67% gain—a negative alpha of 26.36 percentage points.

The year-to-date performance is particularly brutal, with the stock down 40.55% compared to the Sensex's 7.97% gain—a negative alpha of 48.52 percentage points. The stock currently trades at ₹82.40, just 2.73% above its 52-week low of ₹80.21 and 42.55% below its 52-week high of ₹143.44. This price action reflects sustained selling pressure and a complete loss of investor confidence.

From a technical perspective, the stock is in a confirmed bearish trend, trading below all key moving averages including the 5-day (₹83.06), 20-day (₹84.48), 50-day (₹86.78), 100-day (₹95.39), and 200-day (₹99.40) moving averages. The MACD indicator shows bearish signals on both weekly and monthly timeframes, while Bollinger Bands indicate continued bearish momentum. The stock's beta of 1.50 classifies it as a high-beta stock, meaning it tends to be more volatile than the broader market—amplifying losses during downturns.

Risk-adjusted returns paint an even grimmer picture. Over the past year, the stock has delivered a risk-adjusted return of -0.21 with volatility of 50.82%—falling into the "HIGH RISK LOW RETURN" category. This contrasts sharply with the Sensex's risk-adjusted return of 0.71 and volatility of just 12.26%, highlighting how Scoobee Day Garments offers inferior returns with dramatically higher risk.

Investment Thesis: Multiple Red Flags Outweigh Limited Positives

The investment thesis for Scoobee Day Garments is overwhelmingly negative, with multiple structural and operational issues that appear unlikely to resolve in the near term. The company's proprietary Mojo score of just 17 out of 100 places it firmly in the "STRONG SELL" category, reflecting weak fundamentals across all key parameters including valuation, quality, financial trend, and technical indicators.

Key Strengths & Risk Factors

Outlook: What to Watch