The December quarter results paint a picture of a company struggling with operational efficiency despite top-line improvement. Whilst net sales recovered 12.55% sequentially to ₹34.26 crores after two consecutive quarters of decline, this remains 4.78% below the year-ago period. More concerning is the sharp compression in operating margins, which collapsed from 4.50% in Q2 FY26 to just 1.84% in Q3 FY26, highlighting deteriorating cost management and pricing pressures in the textile sector.
Financial Performance: Revenue Recovery Masks Margin Deterioration
Shiva Mills' Q3 FY26 performance reveals a troubling disconnect between revenue growth and profitability. Net sales of ₹34.26 crores represented a sequential improvement from ₹30.44 crores in Q2 FY26, breaking a two-quarter decline pattern. However, this 12.55% quarter-on-quarter growth failed to translate into improved bottom-line performance, with net losses widening substantially to ₹0.71 crores from ₹0.16 crores in the previous quarter.
| Quarter | Net Sales (₹ Cr) | QoQ Growth | Operating Margin | Net Loss (₹ Cr) | PAT Margin |
|---|---|---|---|---|---|
| Dec'25 | 34.26 | +12.55% | 1.84% | -0.71 | -2.07% |
| Sep'25 | 30.44 | -18.96% | 4.50% | -0.16 | -0.53% |
| Jun'25 | 37.56 | -8.48% | 2.82% | -0.62 | -1.65% |
| Mar'25 | 41.04 | +14.06% | 1.63% | -0.77 | -1.88% |
| Dec'24 | 35.98 | -25.15% | -0.28% | -1.47 | -4.09% |
| Sep'24 | 48.07 | +8.71% | 2.02% | -0.72 | -1.50% |
The quarterly trend analysis reveals alarming volatility in both revenue and margins. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) stood at just ₹0.63 crores in Q3 FY26, representing a 54.01% sequential decline from ₹1.37 crores in Q2 FY26. This translated to an operating margin of merely 1.84%, down sharply from 4.50% in the previous quarter and marginally above the 1.63% recorded in Q4 FY25.
The quality of earnings remains deeply concerning. Despite positive other income of ₹0.39 crores—the highest in three quarters—the company still reported a loss before tax of ₹0.89 crores. High depreciation charges of ₹1.83 crores continue to weigh heavily on profitability, representing 5.34% of revenues and effectively wiping out the modest operating profit. Employee costs remained relatively stable at ₹3.74 crores, accounting for 10.92% of net sales, whilst interest costs declined to ₹0.08 crores from ₹0.13 crores sequentially, reflecting improved working capital management.
Operational Challenges: Weak Returns and Structural Headwinds
The fundamental operational weakness at Shiva Mills is starkly evident in its profitability metrics. The company's average return on equity (ROE) of 5.64% over recent years falls significantly below industry standards, indicating inefficient capital deployment. More alarmingly, the latest ROE has turned negative at -3.30%, reflecting the ongoing losses. Similarly, return on capital employed (ROCE) averaged just 4.92% historically but has deteriorated to -3.92% in the most recent period, underscoring the company's inability to generate adequate returns from its asset base.
Critical Operational Concerns
Profitability Crisis: The company has reported losses for seven consecutive quarters, with no clear path to profitability visible. Operating margins remain anaemic at 1.84%, insufficient to cover depreciation and financial costs. The textile sector's challenging demand environment, coupled with input cost pressures, continues to squeeze margins.
Capital Efficiency: With negative ROE of -3.30% and negative ROCE of -3.92%, the company is destroying shareholder value. The fixed asset base of ₹59.18 crores generates insufficient returns, with heavy depreciation charges of ₹1.83 crores per quarter acting as a persistent drag on profitability.
From a balance sheet perspective, Shiva Mills maintains a relatively healthy financial position with zero long-term debt as of March 2025 and shareholder funds of ₹92.41 crores. However, shareholder equity has been steadily eroding, declining from ₹96.18 crores in FY24 to ₹92.41 crores in FY25, reflecting accumulated losses. Current assets of ₹55.43 crores provide adequate liquidity against current liabilities of ₹23.92 crores, maintaining a current ratio above 2.3x, which offers some comfort on the working capital front.
The company's sales to capital employed ratio of 1.61x suggests moderate asset turnover, but this metric is undermined by the negative profitability. With average debt to EBITDA at 1.38x and net debt to equity at just 0.07, leverage is not a concern. However, the fundamental issue remains the inability to generate positive operating cash flows consistently, with FY25 showing operating cash flow of just ₹4.00 crores after adjustments, down dramatically from negative ₹17.00 crores in FY24.
Industry Context: Textile Sector Headwinds Intensify
The Indian textile and apparel sector has faced significant headwinds over the past 18 months, with weak global demand, inventory corrections, and intense competition from countries like Bangladesh and Vietnam pressuring domestic manufacturers. Cotton yarn prices have remained volatile, with raw material costs fluctuating whilst realisation pressures persist due to overcapacity in the spinning segment. For smaller players like Shiva Mills, the challenging operating environment has been particularly acute, as they lack the scale advantages and diversification that larger integrated textile companies possess.
Shiva Mills' performance must be viewed against this difficult sectoral backdrop. The company's 4.78% year-on-year revenue decline in Q3 FY26 reflects broader demand weakness, whilst the margin compression to 1.84% is symptomatic of intense pricing competition and inability to pass through cost increases. The garments and apparels industry has seen consolidation pressures, with smaller, undiversified players struggling to maintain viability.
Competitive Positioning: Struggling in a Tough Market
With a market capitalisation of just ₹51.00 crores, Shiva Mills ranks as a micro-cap player in the textile space, lacking the financial muscle and operational scale of larger competitors. The company's single-product focus on cotton yarn manufacturing limits its ability to diversify revenue streams or capture value-added segments. Unlike larger peers who have integrated operations spanning spinning, weaving, and garment manufacturing, Shiva Mills remains vulnerable to margin pressures in the commoditised yarn segment.
Peer Comparison: Valuation Discount Reflects Fundamental Weakness
Comparing Shiva Mills with peers in the garments and apparels sector reveals why the stock trades at a significant discount. Whilst the company's price-to-book ratio of 0.56x appears attractive on the surface, this valuation reflects the market's assessment of poor earnings quality and uncertain turnaround prospects rather than representing a genuine value opportunity.
| Company | P/E Ratio (TTM) | P/BV Ratio | ROE (%) | Market Cap (₹ Cr) |
|---|---|---|---|---|
| Shiva Mills | NA (Loss Making) | 0.56 | 5.64 | 51.00 |
| Celebrity Fashion | NA (Loss Making) | 5.53 | 30.51 | Higher |
| Arex Industries | 30.08 | 1.98 | 8.59 | Higher |
| Shekhawati Industries | 12.60 | 2.83 | 39.41 | Higher |
| Dhanlaxmi Fabric | NA (Loss Making) | 1.15 | 1.06 | Lower |
The peer comparison starkly highlights Shiva Mills' underperformance. Its ROE of 5.64% lags significantly behind profitable peers like Shekhawati Industries (39.41% ROE) and Celebrity Fashion (30.51% ROE). Even among loss-making peers, Shiva Mills' operational metrics remain weak. The low P/BV ratio of 0.56x—trading at a 44% discount to book value—reflects investor scepticism about the company's ability to generate returns above its cost of capital.
Valuation Analysis: Deep Discount Reflects Risk, Not Opportunity
Shiva Mills' current valuation metrics paint a picture of a deeply distressed asset. Trading at ₹59.47 per share with a market capitalisation of ₹51.00 crores, the stock has declined 35.92% over the past year and 43.79% over two years, massively underperforming the Sensex's 6.44% and 16.15% gains over the same periods respectively. The stock's price-to-book ratio of 0.56x represents a substantial discount to its book value of ₹106.93 per share, but this discount is warranted given the persistent losses and negative return profile.
The company's valuation grade has been classified as "RISKY" since May 2023, reflecting the fundamental challenges and uncertain turnaround prospects. With an EV/EBITDA multiple of 19.16x despite minimal profitability, the valuation appears stretched on an operating profit basis. The absence of dividend payments (last dividend of ₹0.12 per share was paid in August 2022) further reduces the investment appeal for income-seeking investors.
Technical indicators provide little comfort, with the stock in a sustained bearish trend since October 2025. Trading below all key moving averages—5-day (₹55.77), 20-day (₹57.67), 50-day (₹61.15), 100-day (₹65.67), and 200-day (₹70.87)—the stock shows no signs of technical recovery. The 52-week range of ₹51.65 to ₹97.05 highlights the significant value destruction, with the current price 38.72% below the 52-week high.
Shareholding Pattern: Stable Promoter Holding Amid Retail Exodus
The shareholding pattern reveals a stable promoter base but virtually no institutional interest, which is a significant red flag for potential investors. Promoter holding has remained constant at 74.94% across the last five quarters, demonstrating commitment from the founding group led by Annamallai Retreading Company Private Ltd (72.17% stake). Importantly, there is zero promoter pledging, which removes one potential risk factor.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 74.94% | 74.94% | 74.94% | 74.94% | 0.00% |
| FII | 0.32% | 0.32% | 0.32% | 0.32% | 0.00% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 0.01% | 0.01% | 0.01% | 0.01% | 0.00% |
| Non-Institutional | 24.74% | 24.74% | 24.74% | 24.74% | 0.00% |
The complete absence of mutual fund holdings and negligible institutional participation (just 0.33% combined FII and DII) speaks volumes about professional investors' assessment of the company's prospects. With just one FII holding a minuscule 0.32% stake and zero mutual fund interest, Shiva Mills lacks the institutional sponsorship that typically supports stock valuations and provides liquidity. The 24.74% non-institutional holding represents largely retail investors who may lack the resources or information to exit their positions.
Stock Performance: Persistent Underperformance Across All Timeframes
Shiva Mills' stock performance has been dismal across virtually all meaningful timeframes, with the company massively underperforming both the broader Sensex benchmark and its sector peers. The stock's 35.92% decline over the past year compares unfavourably to the Sensex's 6.44% gain, representing a negative alpha of 42.36 percentage points. This underperformance extends across longer periods, with two-year and three-year returns of -43.79% and -35.71% respectively, whilst the Sensex gained 16.15% and 36.94% over the same periods.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +10.03% | +0.91% | +9.12% |
| 1 Month | -5.60% | -2.49% | -3.11% |
| 3 Months | -15.51% | -0.17% | -15.34% |
| 6 Months | -20.71% | +3.23% | -23.94% |
| YTD | -1.52% | -2.24% | +0.72% |
| 1 Year | -35.92% | +6.44% | -42.36% |
| 2 Years | -43.79% | +16.15% | -59.94% |
| 3 Years | -35.71% | +36.94% | -72.65% |
The sector comparison is equally damning. Over the past year, the garments and apparels sector declined 5.53%, but Shiva Mills underperformed this already weak sector return by a massive 30.39 percentage points. The stock's high beta of 1.17 indicates greater volatility than the broader market, but this volatility has been overwhelmingly to the downside. With a volatility of 52.77% and negative risk-adjusted returns of -0.68, the stock falls squarely into the "HIGH RISK LOW RETURN" category—the worst possible quadrant for investors.
The only bright spot in the performance data is the recent one-week gain of 10.03%, which appears to be a technical bounce from oversold levels rather than any fundamental improvement. This short-term uptick should not distract from the broader pattern of value destruction and consistent underperformance that has characterised the stock over multiple years.
Investment Thesis: Multiple Red Flags Warrant Caution
The investment case for Shiva Mills is fundamentally challenged across all key parameters. The company's Mojo Score of just 12 out of 100 places it firmly in "STRONG SELL" territory, reflecting weak fundamentals, negative financial trends, bearish technicals, and risky valuation. Each of the four key investment pillars presents significant concerns rather than opportunities.
From a quality perspective, the company has been graded "BELOW AVERAGE" since November 2025, reflecting weak long-term financial performance. The five-year sales growth of just 1.38% and alarming five-year EBIT growth of -210.36% indicate fundamental business deterioration rather than cyclical weakness. Average ROCE of 4.92% and ROE of 5.64% demonstrate capital inefficiency, whilst the current negative returns (-3.92% ROCE, -3.30% ROE) highlight the ongoing value destruction.
The financial trend classification of "NEGATIVE" as of December 2025 reflects deteriorating operational metrics. Net sales for the latest six months (H1 FY26) stood at ₹64.70 crores, representing a decline of 23.02% compared to the prior period. Similarly, the half-year loss of ₹0.87 crores shows no improvement trajectory. The only positive factor—highest debtors turnover ratio of 10.76 times—is insufficient to offset the broader operational challenges.
Key Strengths
- Zero Debt: Debt-free balance sheet with no long-term borrowings provides financial flexibility
- No Promoter Pledging: 74.94% promoter holding without any pledging demonstrates commitment
- Adequate Liquidity: Current ratio above 2.3x ensures working capital comfort
- Stable Shareholding: No change in promoter holding over past five quarters
- Recent Revenue Recovery: Q3 FY26 revenue grew 12.55% QoQ after two quarters of decline
Key Concerns
- Persistent Losses: Seven consecutive quarters of losses with no clear turnaround path
- Margin Compression: Operating margins collapsed to 1.84% in Q3 FY26 from 4.50% in Q2 FY26
- Negative Returns: ROE of -3.30% and ROCE of -3.92% indicate value destruction
- Weak Growth: Five-year EBIT growth of -210.36% shows fundamental deterioration
- Zero Institutional Interest: No mutual fund holdings and negligible FII participation
- Massive Underperformance: Stock down 35.92% in one year vs Sensex up 6.44%
- High Depreciation Burden: ₹1.83 crores quarterly depreciation erodes operating profits
Outlook: What to Watch
The forward outlook for Shiva Mills remains challenging, with multiple headwinds and limited near-term catalysts for improvement. Investors should monitor specific indicators that could signal either a potential turnaround or further deterioration in the company's operating performance.
Positive Catalysts
- Sustained revenue growth above ₹40 crores per quarter with improving realisation
- Operating margins expanding beyond 5% on a consistent basis
- Return to quarterly profitability for at least two consecutive quarters
- Institutional investor interest emerging with mutual fund or FII buying
- Debt remaining at zero whilst maintaining adequate liquidity buffers
Red Flags
- Further margin compression below 1.5% operating margins
- Quarterly revenue falling below ₹30 crores consistently
- Need for debt or equity dilution to fund working capital
- Promoter stake reduction or any pledging of shares
- Continued quarterly losses beyond Q4 FY26
- Erosion of shareholder equity below ₹85 crores
The textile sector's outlook remains mixed, with domestic demand showing signs of gradual recovery but export markets continuing to face headwinds. For Shiva Mills, the key challenge will be achieving scale and operational efficiency improvements sufficient to restore sustainable profitability. Without a clear strategic initiative—such as capacity expansion, product diversification, or significant cost restructuring—the company risks remaining trapped in a low-margin, loss-making cycle.
The Verdict: Avoid This Value Trap
Score: 12/100
For Fresh Investors: Avoid initiating any position. The combination of persistent losses, negative return on capital, weak margins, and complete absence of institutional interest makes this a high-risk proposition with limited upside visibility. The 44% discount to book value is a value trap, not an opportunity, as the company continues to destroy shareholder value through ongoing losses.
For Existing Holders: Consider exiting on any technical bounces. With seven consecutive quarters of losses and no clear turnaround catalyst, holding onto hopes of recovery appears increasingly unjustified. The stock's 35.92% decline over the past year and consistent underperformance across all timeframes reflects fundamental weakness rather than temporary cyclical challenges.
Fair Value Estimate: ₹45-50 (24% downside from current levels), reflecting the ongoing value destruction and uncertain path to profitability. Until the company demonstrates at least two consecutive quarters of positive earnings with operating margins above 5%, the investment case remains fundamentally impaired.
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.
