Shiva Texyarn Q3 FY26: Profit Plunges 72% Despite Stable Margins

The December 2025 quarter results reveal a company grappling with significant revenue volatility and profitability challenges. Despite maintaining reasonably stable operating margins in the 12% range, the sharp sequential decline in topline revenue has compressed absolute profitability. The company's revenue fell 27.25% quarter-on-quarter to ₹76.42 crores in Q3 FY26 from ₹105.05 crores in Q2 FY26, though it managed a modest 1.54% year-on-year improvement from ₹75.26 crores in Q3 FY25.

The textile manufacturer's performance continues to reflect the structural challenges facing India's garments and apparels sector, including raw material price volatility, subdued export demand, and intense competition. With institutional holdings at a negligible 0.01% and promoter holding stable at 74.04%, the company remains largely promoter-driven with minimal institutional interest.

Financial Performance: Revenue Volatility Undermines Profitability

In Q3 FY26, Shiva Texyarn's net sales contracted sharply to ₹76.42 crores, down 27.25% from the previous quarter's ₹105.05 crores. This represents the company's weakest quarterly revenue since June 2024. The year-on-year comparison shows marginal growth of 1.54% from ₹75.26 crores in Q3 FY25, highlighting the persistent challenges in scaling operations sustainably.

Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) stood at ₹9.24 crores in Q3 FY26, translating to an operating margin of 12.09%. Whilst this margin level remains within the company's historical range of 9-13%, it represents a 62 basis point sequential decline from Q2 FY26's 12.71%. The company's ability to maintain double-digit operating margins despite revenue headwinds demonstrates some operational resilience, though absolute profitability has suffered considerably.

Employee costs declined to ₹14.46 crores in Q3 FY26 from ₹15.15 crores in Q2 FY26, reflecting either workforce adjustments or variable compensation structures. Interest costs decreased marginally to ₹3.13 crores from ₹3.38 crores quarter-on-quarter, providing some relief on the financing front. Depreciation remained stable at ₹3.73 crores.

The most concerning aspect is the profit after tax margin compression to just 2.13% in Q3 FY26 from 5.54% in Q2 FY26, reflecting the disproportionate impact of revenue decline on bottom-line profitability. Other income contributed a minimal ₹0.26 crores in Q3 FY26, down from ₹0.78 crores in the previous quarter, further pressuring overall profitability.

On a nine-month basis for FY26 (April-December 2025), the company reported net sales of ₹257.65 crores and consolidated net profit of ₹9.91 crores. Whilst the half-yearly performance (H1 FY26) showed encouraging signs with net profit of ₹8.28 crores growing 64.10% year-on-year, the sharp Q3 deterioration has moderated the overall nine-month performance.

Operational Challenges: Weak Returns and High Leverage

Shiva Texyarn's operational efficiency metrics paint a concerning picture of capital productivity. The company's average return on capital employed (ROCE) stands at a mere 2.44% over recent periods, indicating that the business generates minimal returns relative to the capital deployed. The latest half-yearly ROCE improved to 10.80%, representing the highest level in recent periods, though this remains modest by industry standards.

Return on equity (ROE) averaged 4.38% over recent periods, rising to 11.33% in the latest calculation. Whilst the sequential improvement is encouraging, the absolute level suggests the company struggles to generate attractive returns for shareholders. For context, an ROE below 15% is generally considered suboptimal for manufacturing businesses, as it indicates the company earns less than typical cost of equity.

The company's leverage position presents additional concerns. With a debt-to-equity ratio of 0.70 times and long-term debt of ₹26.77 crores as of March 2025, the balance sheet carries moderate leverage. More troublingly, the debt-to-EBITDA ratio averaged 11.54 times over recent periods, suggesting the company's earnings are insufficient to service debt comfortably. The EBIT-to-interest coverage ratio averaged just 0.73 times, meaning earnings before interest and tax barely cover interest obligations—a significant red flag for financial sustainability.

The company's sales-to-capital employed ratio averaged 1.41 times, indicating modest asset turnover efficiency. Fixed assets stood at ₹162.96 crores as of March 2025, down from ₹172.09 crores a year earlier, suggesting limited capacity expansion or potential asset write-downs. Current assets of ₹122.78 crores exceeded current liabilities of ₹114.41 crores, providing a thin working capital cushion.

The debtors turnover ratio for H1 FY26 fell to 5.61 times, marking the lowest level in recent periods and indicating slower collection cycles or extended credit to customers. This working capital strain further constrains the company's operational flexibility.

Industry Context: Garments Sector Headwinds Persist

The Indian garments and apparels sector has faced sustained headwinds over the past year, with the industry delivering a negative 5.53% return compared to Shiva Texyarn's steeper decline of 27.21%. The sector continues to grapple with multiple challenges: subdued export demand from key markets, elevated raw material costs despite recent cotton price corrections, and intense competition from both domestic and international players.

Shiva Texyarn's product portfolio spans cotton yarn and technical textiles including coated and laminated fabrics, home textiles, and value-added products. This diversification provides some insulation from single-product risk, though the overall weak demand environment has impacted all segments. The company's Coimbatore location positions it within Tamil Nadu's textile hub, offering ecosystem advantages in terms of supplier networks and skilled labour availability.

However, the company's 5-year sales compound annual growth rate of negative 4.43% indicates structural challenges in maintaining topline momentum. Net sales declined from ₹558 crores in FY17 to ₹322 crores in FY25, reflecting either market share losses, product mix shifts, or deliberate business rationalisation. The company's FY25 revenue of ₹322 crores represented a 3.9% decline from FY24's ₹335 crores, continuing the downward trajectory.

Peer Comparison: Valuation Discount Reflects Weak Fundamentals

Comparing Shiva Texyarn against peers in the garments and apparels sector reveals why the stock trades at a significant valuation discount. The company's PE ratio of 13.96x appears reasonable on the surface, sitting below the peer average of approximately 34x. However, this discount primarily reflects weak return metrics rather than attractive value.

Shiva Texyarn's ROE of 4.38% significantly underperforms better-managed peers like Saraswati Saree (16.84% ROE) and Osiajee Texfab (26.85% ROE). The price-to-book ratio of 1.58x sits in the middle of the peer range, suggesting the market recognises some asset value despite weak profitability. The company's dividend yield of 0.34% trails Saraswati Saree's attractive 5.21% yield, reflecting constrained cash generation and limited shareholder returns.

With a market capitalisation of ₹233 crores, Shiva Texyarn ranks sixth among its peer group, firmly in micro-cap territory. This limited scale constrains bargaining power with suppliers and customers, restricts access to capital markets, and limits ability to invest in modernisation or capacity expansion.

Valuation Analysis: Discount Justified by Weak Fundamentals

At the current price of ₹174.70, Shiva Texyarn trades at a PE ratio of 13.96x based on trailing twelve-month earnings, representing a significant 39% discount to the garments and apparels industry average PE of approximately 23x. The price-to-book ratio of 1.58x values the stock at a modest premium to book value per share of ₹104.66.

The company's enterprise value-to-EBITDA multiple of 8.46x appears reasonable for a manufacturing business, though the EV-to-EBIT ratio of 13.52x reflects the impact of depreciation on earnings quality. The EV-to-sales ratio of 0.94x suggests the market values the business at less than one times revenue, typical for low-margin, capital-intensive textile operations.

The stock has declined 29.98% from its 52-week high of ₹249.50, currently trading just 11.17% above its 52-week low of ₹157.15. This price action reflects sustained selling pressure and deteriorating investor sentiment. The valuation grade has fluctuated between "Attractive" and "Expensive" over recent months, currently sitting at "Attractive" since October 15, 2025, primarily due to the sharp price correction rather than fundamental improvement.

The PEG ratio of 0.02x appears superficially attractive, but this metric becomes meaningless when growth rates are negative or highly volatile. With 5-year sales growth at negative 4.43%, the low PEG ratio reflects mathematical distortion rather than genuine value. Investors should focus instead on absolute return metrics and earnings sustainability.

Shareholding Pattern: Stable Promoter Base, Negligible Institutional Interest

Shiva Texyarn's shareholding pattern has remained remarkably stable over recent quarters, with promoter holding steady at 74.04% across the last five quarters from December 2024 through December 2025. This unwavering promoter stake demonstrates long-term commitment from the controlling Bannari Amman group, though it also reflects limited liquidity for public shareholders.

The complete absence of foreign institutional investor (FII) and mutual fund holdings signals a lack of institutional confidence in the company's prospects. Total institutional holdings stand at a negligible 0.01%, consisting entirely of minor domestic institutional investor positions. This institutional void reflects several factors: micro-cap status limiting investability, weak return metrics failing to meet institutional hurdles, and limited research coverage reducing visibility.

Non-institutional holdings comprise the remaining 25.96%, representing primarily retail investors and high-net-worth individuals. The static nature of shareholding across quarters suggests limited trading interest and poor liquidity, with average daily volumes remaining thin. The absence of any pledged promoter shares (0% pledging) provides some comfort regarding financial stress at the promoter level, though this is one of the few positive aspects of the shareholding structure.

Stock Performance: Sustained Underperformance Across Timeframes

Shiva Texyarn's stock performance has been dismal across virtually all meaningful timeframes, significantly underperforming both the benchmark Sensex and its own sector. Over the past year, the stock has declined 27.21% compared to the Sensex's positive 6.44% return, generating negative alpha of 33.65 percentage points. This underperformance has accelerated in recent months, with the stock down 11.66% over six months whilst the Sensex gained 3.23%.

The year-to-date performance shows a decline of 10.41%, underperforming the Sensex by 8.17 percentage points. The one-week return of positive 8.71% represents a brief technical bounce rather than any fundamental improvement, as the stock remains well below all major moving averages. The stock trades below its 5-day (₹171.50), 20-day (₹169.79), 50-day (₹177.80), 100-day (₹180.73), and 200-day (₹190.04) moving averages, confirming the established downtrend.

The stock's beta of 1.50 indicates high volatility relative to the market, with annualised volatility of 57.80% classifying it as a high-risk investment. The risk-adjusted return of negative 0.47 over the past year places it firmly in the "HIGH RISK LOW RETURN" category—the worst possible quadrant for investors. Compared to the garments and apparels sector return of negative 5.53%, Shiva Texyarn has underperformed by 21.68 percentage points, suggesting company-specific issues beyond sector headwinds.

Investment Thesis: Multiple Red Flags Outweigh Valuation Appeal

The investment case for Shiva Texyarn faces significant headwinds across multiple dimensions. The company's Mojo Score of 29 out of 100 places it firmly in "STRONG SELL" territory, with the rating unchanged since early November 2025. This score reflects a comprehensive assessment across four key parameters: valuation, quality, financial trend, and technical trend.

Whilst the valuation grade appears "Attractive" following the sharp price correction, this primarily reflects the stock's fall from ₹249.50 to current levels rather than any fundamental improvement. The quality grade of "Below Average" accurately captures the company's structural challenges: weak 5-year sales CAGR of negative 4.43%, average ROCE of just 2.44%, average ROE of 4.38%, and concerning debt metrics with debt-to-EBITDA at 11.54 times.

The financial trend assessment of "Flat" for Q3 FY26 masks the significant quarter-on-quarter deterioration in absolute profit. The technical trend remains firmly "Bearish," with the stock trading below all major moving averages and multiple technical indicators flashing warning signals. The MACD shows bearish signals on both weekly and monthly timeframes, whilst the RSI provides no clear directional signal.

Key Strengths & Risk Factors

Outlook: What to Watch

The Verdict: Structural Challenges Outweigh Valuation Appeal

Shiva Texyarn presents a classic value trap—superficially cheap valuation metrics masking deep-seated operational and financial challenges. The 72% quarter-on-quarter profit decline in Q3 FY26, combined with persistent revenue volatility, weak return on capital metrics, and inadequate interest coverage, raises serious questions about business sustainability. Whilst the stock trades at a 39% discount to sector multiples, this discount appropriately reflects the company's below-average quality grade, flat financial trend, and bearish technical outlook.

The complete absence of institutional ownership signals that sophisticated investors have avoided this micro-cap textile manufacturer despite its apparent valuation discount. The 5-year sales CAGR of negative 4.43%, average ROCE of 2.44%, and debt-to-EBITDA ratio of 11.54 times collectively paint a picture of a business struggling to generate adequate returns whilst carrying excessive leverage. The stock's high beta of 1.50 and volatility of 57.80% add significant risk without commensurate return potential.