Shiva Mills Q2 FY26: Mounting Losses and Revenue Decline Signal Deepening Crisis

The September quarter results reveal a company grappling with persistent operational headwinds. Whilst operating margins improved sequentially to 4.50% from 2.82% in Q1 FY26, this remains a far cry from the company's historical performance. The textile sector continues to face subdued demand conditions, elevated input costs, and intensifying competition, all of which have weighed heavily on Shiva Mills' performance. The company's inability to return to profitability despite margin improvements signals deeper structural challenges that extend beyond cyclical industry pressures.

Following the results announcement, the stock traded at ₹68.90 on November 6, 2025, reflecting a modest 1.80% gain. However, this short-term uptick does little to offset the significant value erosion witnessed over the past year. The shares remain 40.70% below their 52-week high of ₹116.19, and technical indicators point to a mildly bearish trend with the stock trading below all key moving averages.

Financial Performance: Persistent Revenue Decline Amid Margin Recovery

Shiva Mills' Q2 FY26 financial performance paints a concerning picture of a company struggling to stabilise its operations. Net sales of ₹30.44 crores represented a sharp 18.96% sequential decline from Q1 FY26's ₹37.56 crores and a steeper 36.68% year-on-year contraction from ₹48.07 crores in Q2 FY24. This marks the lowest quarterly revenue figure in recent periods, highlighting the severity of demand challenges facing the company.

The silver lining in an otherwise bleak quarter was the sequential improvement in operating margins. The operating profit margin expanded to 4.50% in Q2 FY26 from 2.82% in Q1 FY26, driven by better cost management and a favourable shift in product mix. Operating profit before depreciation, interest, tax and other income (PBDIT) reached ₹1.37 crores, the highest level in recent quarters. However, this improvement was insufficient to offset the impact of depreciation charges of ₹1.75 crores and interest expenses of ₹0.13 crores, resulting in a pre-tax loss of ₹0.28 crores.

Employee costs remained relatively stable at ₹3.87 crores in Q2 FY26 compared to ₹3.81 crores in the previous quarter, suggesting the company has maintained its workforce despite the revenue pressures. The tax credit of ₹0.12 crores helped narrow the net loss to ₹0.16 crores, representing a 74.19% improvement from Q1 FY26's loss of ₹0.62 crores. Nevertheless, the company has now reported losses in four consecutive quarters, with the last profitable quarter being Q4 FY24 when it posted a modest profit of ₹0.45 crores.

Operational Challenges: Weak Fundamentals and Deteriorating Returns

The operational metrics for Shiva Mills reveal a company struggling with fundamental profitability and efficiency challenges. The company's return on equity (ROE) stands at a meagre 5.17% on average, significantly below industry benchmarks and indicative of poor capital efficiency. This low ROE reflects the company's inability to generate adequate returns for shareholders, a concern amplified by the current loss-making status. The latest ROE has deteriorated further to -3.87%, underscoring the erosion of shareholder value in recent quarters.

Return on capital employed (ROCE) paints an equally concerning picture, with an average of 6.55% over recent periods. The latest ROCE has turned negative at -2.37%, highlighting the company's failure to generate adequate returns on the capital deployed in its business. This deterioration in capital efficiency is particularly troubling given the capital-intensive nature of textile manufacturing, where sustained investment in machinery and working capital is essential for maintaining competitiveness.

On the balance sheet front, Shiva Mills maintains a relatively conservative capital structure with no long-term debt as of March 2025. The debt-to-EBITDA ratio of 1.28 and net debt-to-equity ratio of 0.10 suggest low financial leverage, which provides some breathing room during this challenging period. Shareholder funds stood at ₹92.41 crores as of March 2025, down from ₹96.18 crores in the previous year, reflecting the accumulated losses. Fixed assets of ₹59.18 crores represent the bulk of the company's asset base, whilst current assets of ₹55.43 crores provide working capital to support operations.

The company's sales-to-capital-employed ratio of 1.58x indicates moderate asset turnover, suggesting that the company is generating reasonable revenue relative to its capital base, though the quality of this revenue generation is questionable given the persistent losses. The cash flow from operations was positive at ₹4.00 crores in FY25, a significant improvement from the negative ₹17.00 crores in FY24, primarily driven by favourable working capital changes. However, the company's inability to convert this operating cash flow into profits remains a key concern.

Textile Sector Headwinds: Navigating a Challenging Environment

The Indian textile and garment sector has faced considerable headwinds over the past year, with subdued global demand, elevated cotton prices, and intense competition from regional players weighing on profitability. Shiva Mills, operating in the cotton yarn segment, has been particularly vulnerable to these pressures. The company's 36.68% year-on-year revenue decline in Q2 FY26 significantly exceeds the sector's average decline of 3.12%, indicating company-specific challenges beyond the broader industry malaise.

The garments and apparels sector has witnessed margin compression across the board, with companies struggling to pass on increased input costs to customers amid weak pricing power. Cotton prices, whilst moderating from their peaks, remain elevated relative to historical averages, squeezing margins for yarn manufacturers. Additionally, the shift in global supply chains and the rise of alternative manufacturing hubs in Southeast Asia have intensified competitive pressures for Indian textile companies.

Domestic demand has also remained lacklustre, with consumer spending on textiles and apparel showing limited growth amid broader economic uncertainties. The wedding and festive season demand, typically a key driver for textile companies, has failed to provide the expected boost. Export markets, particularly in developed economies, have witnessed reduced offtake due to inventory corrections and cautious consumer spending patterns.

For Shiva Mills, these sector-wide challenges have been compounded by its relatively small scale and limited product diversification. With a market capitalisation of just ₹59.00 crores, the company lacks the financial muscle and operational flexibility of larger peers to weather prolonged downturns. The company's focus on cotton yarn, without significant vertical integration into value-added products, leaves it exposed to volatile raw material prices and commoditised product markets with thin margins.

Peer Comparison: Lagging Behind Industry Counterparts

A comparison with peers in the garments and apparels sector reveals Shiva Mills' relative underperformance across key financial metrics. The company's ROE of 5.17% lags behind most comparable companies, with Celebrity Fashion reporting 17.37% and Vinny Overseas at 8.62%. This disparity in return metrics highlights Shiva Mills' inferior capital efficiency and profitability profile.

The price-to-book value (P/BV) ratio of 0.63x for Shiva Mills is the lowest amongst its immediate peers, suggesting the market assigns minimal value to the company's assets. This deep discount to book value reflects investor scepticism about the company's ability to generate adequate returns on its asset base. Whilst a low P/BV might typically signal value, in Shiva Mills' case, it more accurately reflects the market's assessment of impaired earning power and uncertain prospects.

The company's debt-to-equity ratio of 0.10 is amongst the lowest in the peer group, indicating conservative financial leverage. However, this prudent capital structure has not translated into superior operational performance. The lack of debt may also suggest limited access to capital markets or a deliberate strategy to avoid financial risk given the operational challenges.

Notably, several peers including Flexituff Ventures and Celebrity Fashion are also loss-making, indicating the widespread distress in the sector. However, Celebrity Fashion's significantly higher ROE of 17.37% suggests better underlying operational efficiency during profitable periods. Vinny Overseas stands out as one of the few profitable companies in the peer group with a P/E ratio of 11.56x, though its ROE of 8.62% remains modest.

Valuation Analysis: Deep Discount Reflects Fundamental Concerns

Shiva Mills' current valuation metrics reflect the market's deep concerns about the company's financial health and future prospects. Trading at ₹68.90 as of November 6, 2025, the stock is valued at just 0.63 times its book value of ₹106.93 per share. This significant discount to book value indicates that investors are sceptical about the company's ability to generate returns on its assets and view a substantial portion of the book value as potentially impaired.

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 26.15x appears elevated, but this is primarily a function of the very low EBITDA base rather than an expensive valuation. In fact, the negative EV/EBIT ratio of -16.34x reflects the company's operating losses at the EBIT level.

The EV-to-sales ratio of 0.42x suggests the company is trading at less than half of its annual revenue, which might appear attractive in isolation. However, this metric must be viewed in the context of the company's negative margins and inability to convert sales into profits. The EV-to-capital-employed ratio of 0.67x indicates that the market values the company's entire business at a discount to the capital invested, reflecting expectations of subpar returns.

The valuation assessment is further complicated by the absence of dividend payments, with the company having last paid a dividend of ₹0.12 per share in August 2022. The current financial distress makes any resumption of dividends highly unlikely in the near term. The stock's overall valuation grade is classified as "RISKY" by proprietary assessment models, having been downgraded from "Expensive" to "Risky" in May 2023 as the company's financial performance deteriorated.

From a pure valuation perspective, whilst the stock trades at depressed multiples, this does not automatically make it attractive. The deep discounts reflect genuine fundamental concerns about the company's viability and future profitability. Any investment at current levels would be highly speculative, betting on a significant operational turnaround that has yet to materialise despite multiple quarters of management efforts.

Shareholding Pattern: Stable Promoter Commitment Amid Institutional Absence

The shareholding pattern of Shiva Mills has remained remarkably stable over the past five quarters, with promoter holding consistently at 74.94%. This unwavering promoter stake signals continued commitment from the founding group, led by Annamallai Retreading Company Private Ltd with 72.17% and individual promoters holding the balance. Importantly, there is no promoter pledging, which eliminates concerns about forced selling or financial distress at the promoter level.

However, the shareholding pattern reveals a concerning absence of institutional investor interest. Foreign institutional investors (FIIs) hold a negligible 0.32%, whilst mutual funds and insurance companies have zero holdings in the company. The total institutional holding stands at a mere 0.33%, one of the lowest amongst listed companies and a clear indication that sophisticated investors have shunned the stock.

This institutional vacuum speaks volumes about the investment community's assessment of Shiva Mills' prospects. Mutual funds and insurance companies, which typically conduct rigorous due diligence before investing, have evidently found the company's fundamentals, growth prospects, and risk-reward profile unattractive. The absence of any mutual fund holding is particularly telling, as these investors often seek out undervalued opportunities in the small and mid-cap space.

The non-institutional holding of 24.74% comprises retail investors and smaller entities, a segment that has also remained static across quarters. The lack of any meaningful buying or selling activity suggests limited liquidity and investor interest in the stock. The average daily trading volume remains extremely thin, with some days seeing virtually no trades, making it difficult for investors to enter or exit positions without impacting the price significantly.

Stock Performance: Severe Underperformance Across All Timeframes

Shiva Mills' stock performance has been dismal across virtually all meaningful timeframes, with the company significantly underperforming both the Sensex and its sector peers. Over the past year, the stock has declined 26.64% compared to the Sensex's gain of 3.78%, resulting in a negative alpha of 30.42 percentage points. This underperformance extends across shorter and longer periods, painting a picture of consistent value destruction.

The year-to-date performance is particularly concerning, with the stock down 31.18% whilst the Sensex has gained 6.75%. This 37.93 percentage point underperformance reflects the market's loss of confidence in the company's ability to navigate the current challenges. Over a three-year period, the stock has plummeted 41.63% whilst the Sensex has surged 36.85%, resulting in a devastating negative alpha of 78.48 percentage points.

From a technical perspective, the stock is currently in a "mildly bearish" trend, having changed from "bearish" on November 3, 2025. The stock trades below all major moving averages—5-day, 20-day, 50-day, 100-day, and 200-day—a classic sign of technical weakness. The 200-day moving average at ₹77.65 represents a significant resistance level, approximately 12.7% above the current price, whilst immediate support lies at the 52-week low of ₹62.79.

The stock's beta of 1.50 indicates it is 50% more volatile than the broader market, amplifying both gains and losses. However, given the predominantly downward trajectory, this high beta has worked against shareholders, magnifying losses during market declines. The risk-adjusted return of -0.68 over the past year, combined with volatility of 39.46%, places the stock firmly in the "HIGH RISK LOW RETURN" category—the worst possible combination for investors.

Investment Thesis: Multiple Red Flags Overshadow Turnaround Hopes

The investment thesis for Shiva Mills is overwhelmingly negative, with multiple fundamental, technical, and valuation concerns converging to create a highly unattractive risk-reward profile. The company's proprietary Mojo Score of 9 out of 100 places it firmly in the "STRONG SELL" category, reflecting the severity of its operational and financial challenges.

The quality assessment reveals a "BELOW AVERAGE" company with weak long-term financial performance. The 5-year EBIT growth of -206.33% represents a catastrophic erosion of operating profitability, whilst the average ROE of 5.17% and ROCE of 6.55% indicate chronically poor capital efficiency. The company's sales growth of 4.40% over five years, whilst positive, has been entirely consumed by margin compression and operational inefficiencies.

The financial trend is classified as "NEGATIVE" based on the September 2025 quarter, with revenue hitting multi-quarter lows and losses persisting despite margin improvements. The company has been unable to return to profitability for four consecutive quarters, and there are no clear catalysts on the horizon to suggest an imminent turnaround. The technical trend remains "MILDLY BEARISH" with the stock trading below all key moving averages and exhibiting weak momentum indicators.

The valuation, whilst appearing cheap on a price-to-book basis at 0.63x, is more accurately described as a value trap. The deep discount reflects genuine concerns about asset quality, earning power, and future viability rather than market inefficiency. The absence of institutional investors and the stock's consistent underperformance across all timeframes underscore the challenging investment case.

Key Strengths & Risk Factors

Outlook: What to Watch

Forward Outlook

The outlook for Shiva Mills remains challenging with limited near-term catalysts for improvement. The company faces a difficult operating environment characterised by weak demand, elevated input costs, and intense competition. Whilst the sequential margin improvement in Q2 FY26 provides a glimmer of hope, the persistent losses and revenue decline suggest deeper structural issues that cannot be resolved quickly.

The textile sector's recovery trajectory remains uncertain, with global economic headwinds and shifting supply chain dynamics creating additional challenges. For Shiva Mills to stage a meaningful turnaround, it would need to demonstrate sustained revenue growth, consistent profitability, and improved return ratios—none of which appear imminent based on current trends.

The company's small scale and lack of product diversification limit its ability to weather prolonged downturns or invest in capacity expansion and modernisation. Without access to growth capital—evidenced by the absence of institutional investors—the company may struggle to compete effectively against larger, better-capitalised peers.