▼ 22.33% QoQ
▼ 10.39% QoQ
▼ 11 bps QoQ
▼ 107 bps QoQ
The Q3 FY26 results present a mixed picture for SP Apparels, with year-on-year growth overshadowed by sequential deterioration across key metrics. Whilst the company demonstrated resilience in maintaining operating margins above 14% and achieving double-digit profit growth compared to the prior year period, the sharp quarter-on-quarter decline in profitability raises questions about demand sustainability and operational efficiency heading into the final quarter of FY26.
For the nine-month period ending December 2025, SP Apparels posted consolidated net sales of ₹1,213.73 crores, representing robust 21.87% growth over the corresponding period in FY25. However, the sequential slowdown in Q3 FY26 suggests potential headwinds in the crucial festive and holiday season, traditionally a strong period for children's apparel manufacturers.
| Quarter | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 382.95 | 427.34 | 403.44 | 399.21 | 359.32 | 391.30 | 245.31 |
| QoQ Growth | -10.39% | +5.92% | +1.06% | +11.10% | -8.17% | +59.51% | — |
| YoY Growth | +6.58% | +9.21% | +64.46% | — | — | — | — |
| Net Profit (₹ Cr) | 26.96 | 34.71 | 21.40 | 30.41 | 24.18 | 21.95 | 18.06 |
| QoQ Growth | -22.33% | +62.20% | -29.63% | +25.77% | +10.16% | +21.54% | — |
| YoY Growth | +11.50% | +58.13% | +18.49% | — | — | — | — |
| Operating Margin (Excl OI) | 14.78% | 14.89% | 13.12% | 13.59% | 14.16% | 12.70% | 13.45% |
| PAT Margin | 7.05% | 8.12% | 5.30% | 7.61% | 6.72% | 5.60% | 7.36% |
Financial Performance: Revenue Softness and Margin Compression
SP Apparels' Q3 FY26 financial performance reveals a company grappling with sequential momentum challenges despite maintaining year-on-year growth. Net sales of ₹382.95 crores declined 10.39% from Q2 FY26's ₹427.34 crores, marking the second consecutive quarter of sequential revenue decline. This pattern is particularly concerning given the typically strong demand during the October-December period for children's apparel ahead of the holiday season.
The company's operating profit (PBDIT excluding other income) stood at ₹56.60 crores in Q3 FY26, down 11.06% sequentially from ₹63.65 crores in Q2 FY26, though up 11.22% year-on-year from ₹50.89 crores in Q3 FY25. Operating margins (excluding other income) contracted to 14.78% from 14.89% in the previous quarter, suggesting pricing pressures or unfavourable product mix despite relatively stable raw material costs.
More concerning is the compression in net profit margins, which fell to 7.05% in Q3 FY26 from 8.12% in Q2 FY26, a decline of 107 basis points. This margin erosion occurred despite interest costs declining to ₹10.02 crores from ₹10.32 crores sequentially, indicating that operational factors rather than financial costs drove the profitability decline. The company's tax rate increased to 27.01% in Q3 FY26 from 25.85% in Q2 FY26, further pressuring bottom-line performance.
On a positive note, the company's nine-month performance remains healthy, with net sales of ₹1,213.73 crores growing 21.87% year-on-year and net profit of ₹83.07 crores expanding 29.46%. This suggests the Q3 FY26 slowdown may be temporary rather than indicative of structural challenges, though the final quarter of FY26 will be critical in determining whether the company can regain momentum.
Employee costs rose to ₹99.93 crores in Q3 FY26 from ₹92.37 crores in Q3 FY25, a 8.18% year-on-year increase that outpaced revenue growth of 6.58%, indicating some pressure on labour productivity. However, the company has maintained relatively stable employee cost ratios around 26-27% of sales over recent quarters, suggesting management is carefully balancing workforce requirements with operational efficiency.
Operational Challenges: Return on Capital and Efficiency Metrics
SP Apparels' return on capital employed (ROCE) stood at 14.00% as of the latest reporting period, whilst return on equity (ROE) was recorded at 12.32%. Whilst these returns are respectable and above the company's cost of capital, they remain below the levels achieved by some industry peers and suggest room for improvement in capital efficiency. The company's five-year average ROCE of 13.10% and ROE of 11.83% indicate consistent but not exceptional capital productivity.
The company's balance sheet shows significant capital deployment in recent quarters, with fixed assets increasing to ₹572.86 crores as of March 2025 from ₹427.44 crores in March 2024, representing a 34.00% increase. This substantial capital expenditure, likely aimed at expanding manufacturing capacity and improving operational efficiency, has yet to translate into proportionate improvements in return metrics. The elevated capital intensity raises questions about the payback period for these investments and their impact on near-term profitability.
Capital Efficiency Concerns
Whilst SP Apparels maintains healthy returns on capital, the recent surge in fixed asset investments (up 34% year-on-year to ₹572.86 crores) has not yet yielded corresponding improvements in ROCE or ROE. The company's debt-to-equity ratio increased to 0.45 times in H1 FY26, the highest level in recent quarters, as it funded this expansion. Management's ability to improve asset utilisation and generate higher returns from recent capital investments will be critical for sustaining investor confidence.
The company's working capital management shows mixed signals. Current assets stood at ₹741.27 crores as of March 2025, up from ₹601.16 crores in March 2024, whilst current liabilities increased to ₹508.96 crores from ₹315.21 crores. The significant increase in current liabilities, particularly trade payables which rose to ₹132.17 crores from ₹98.74 crores, suggests the company is managing cash flows carefully but potentially stretching payment terms with suppliers.
On a positive note, SP Apparels' debtors turnover ratio improved to 6.87 times in H1 FY26, the highest level in recent periods, indicating efficient collection of receivables. This improvement in working capital velocity partially offsets concerns about elevated inventory levels and suggests the company maintains strong relationships with its international customers, predominantly in developed markets.
Industry Context: Navigating Global Demand Volatility
The children's apparel export industry faces a challenging global environment characterised by weakening consumer demand in key developed markets, inventory destocking by major retailers, and increasing competition from other Asian manufacturing hubs. SP Apparels, with its focus on infant and children's knitted garments for export markets, is particularly exposed to these macroeconomic headwinds.
The company's sequential revenue decline in Q3 FY26 aligns with broader trends in the Indian textile and apparel export sector, which has experienced subdued order inflows from traditional markets including the United States and Europe. Retailers in these markets have adopted cautious inventory management strategies in response to inflationary pressures and changing consumer spending patterns, leading to longer lead times and smaller order sizes.
However, SP Apparels benefits from its positioning in the premium children's wear segment, where quality and compliance standards create higher barriers to entry. The company's integrated manufacturing capabilities, spanning from greige fabric to finished products, provide operational flexibility and quality control advantages that are valued by international brands seeking reliable sourcing partners.
Competitive Positioning: Integration as a Moat
SP Apparels' vertically integrated manufacturing model, encompassing fabric production through to finished garments, differentiates it from many competitors who rely on fragmented supply chains. This integration enables faster turnaround times, better quality control, and the ability to handle complex orders requiring coordination across multiple production stages. As global brands increasingly prioritise supply chain reliability and sustainability, this integrated approach positions SP Apparels favourably for long-term partnerships despite near-term demand volatility.
Peer Comparison: Valuation and Operational Metrics
SP Apparels' financial metrics and market valuation present an interesting picture when compared to industry peers in the garments and apparels sector. The company trades at a price-to-earnings (P/E) ratio of 16.51x based on trailing twelve-month earnings, below the sector average and significantly lower than peers such as Sangam India (37.11x) and Ganesha Ecosphere (57.81x), suggesting the market is pricing in concerns about growth sustainability or operational challenges.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield (%) |
|---|---|---|---|---|---|
| SP Apparels | 16.51 | 2.03 | 11.83 | 0.40 | 0.27 |
| Sangam India | 37.11 | 2.34 | 10.93 | 1.15 | 0.42 |
| Filatex India | 12.10 | 1.59 | 18.10 | -0.15 | — |
| Ganesha Ecosphere | 57.81 | 1.78 | 9.65 | 0.34 | 0.36 |
| Go Fashion (India) | 27.71 | 2.66 | 14.16 | 0.46 | — |
| Nitin Spinners | 11.24 | 1.37 | 19.31 | 0.66 | 0.90 |
The company's ROE of 11.83% lags behind higher-performing peers such as Nitin Spinners (19.31%) and Filatex India (18.10%), explaining part of the valuation discount. However, SP Apparels maintains a conservative balance sheet with a debt-to-equity ratio of 0.40, lower than most peers and providing financial flexibility for future growth initiatives.
SP Apparels' price-to-book value (P/BV) ratio of 2.03x is in line with the sector average, suggesting the market values its asset base appropriately given current return metrics. The company's dividend yield of 0.27% is modest, reflecting a conservative dividend payout ratio of 9.12% as management prioritises reinvestment in capacity expansion and working capital requirements.
The valuation discount compared to some peers appears justified given SP Apparels' lower ROE and recent sequential performance deterioration. However, the company's integrated manufacturing capabilities, established customer relationships, and conservative financial profile suggest the current valuation may not fully reflect its long-term competitive positioning, particularly if operational momentum improves in coming quarters.
Valuation Analysis: Attractive Entry Point or Value Trap?
At the current market price of ₹728.30, SP Apparels trades at a P/E ratio of 16.51x, representing a 25% discount to the industry average P/E of 22x. The company's enterprise value to EBITDA multiple of 9.85x and EV to EBIT multiple of 12.44x suggest reasonable valuations relative to cash generation capabilities, though these multiples have compressed from higher levels earlier in FY26.
The stock's PEG ratio of 0.58x is particularly noteworthy, indicating the shares trade at a significant discount to the company's five-year earnings growth rate of 28.27%. This metric suggests potential undervaluation, assuming SP Apparels can sustain mid-to-high teens earnings growth over the medium term. However, the recent sequential performance deterioration raises questions about the sustainability of historical growth rates.
The stock has declined 26.43% from its 52-week high of ₹990.00, creating a potential entry opportunity for investors with a medium-to-long-term horizon. However, the shares have underperformed the broader market significantly over the past year, declining 12.57% whilst the Sensex gained 10.41%, resulting in negative alpha of 22.98%. This underperformance reflects market concerns about near-term growth visibility and margin sustainability.
SP Apparels' valuation grade has fluctuated between "Fair" and "Very Attractive" over recent months, currently standing at "Attractive" as of the latest assessment. The company's enterprise value to capital employed ratio of 1.74x, combined with ROCE of 14.00%, suggests reasonable returns relative to the capital base, though there is scope for improvement in asset productivity.
Based on the company's historical average P/E multiple of approximately 20x and assuming normalised earnings of ₹44-45 per share (based on FY26 estimates), a fair value range of ₹880-900 appears reasonable, implying 20-24% upside from current levels. However, achieving this valuation requires SP Apparels to demonstrate sustained revenue growth and margin stability in coming quarters.
Shareholding Pattern: Institutional Confidence Building
SP Apparels' shareholding pattern reveals a stable promoter base and gradually increasing institutional participation, though recent quarters have seen modest fluctuations in mutual fund holdings. Promoter holding has remained constant at 61.93% over the past five quarters, with no pledging of shares, indicating strong promoter commitment and financial stability.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 61.93% | 61.93% | 61.93% | 61.93% | 0.00% |
| FII | 1.83% | 1.48% | 1.83% | 1.81% | +0.35% |
| Mutual Funds | 17.36% | 18.44% | 18.67% | 18.43% | -1.08% |
| Insurance | 0.60% | 0.60% | 0.60% | 0.60% | 0.00% |
| Other DII | 0.76% | 0.75% | 0.65% | 0.65% | +0.01% |
| Non-Institutional | 17.52% | 16.80% | 16.32% | 16.59% | +0.72% |
Mutual fund holdings declined to 17.36% in Q3 FY26 from 18.44% in Q2 FY26, representing a reduction of 108 basis points. This decline suggests some institutional investors may be taking profits or reducing exposure following the stock's underperformance and recent quarterly results. However, the absolute level of mutual fund holding remains healthy at over 17%, with six mutual funds maintaining positions in the company.
Foreign institutional investor (FII) holdings increased marginally to 1.83% from 1.48% sequentially, though the absolute level remains modest. The limited FII participation may reflect the company's small-cap status and relatively lower trading liquidity compared to larger textile exporters. Insurance company holdings remained stable at 0.60%, whilst other domestic institutional investor (DII) holdings increased slightly to 0.76%.
Non-institutional holdings, comprising retail and high-net-worth investors, increased to 17.52% from 16.80% in the previous quarter, suggesting retail investor interest remains intact despite the stock's recent underperformance. The total institutional holding of 20.55% provides a reasonable level of professional investor participation, though there is scope for increased institutional ownership as the company scales and improves liquidity.
Stock Performance: Significant Underperformance Weighs on Sentiment
SP Apparels' stock performance over the past year has been disappointing, with the shares declining 12.57% compared to the Sensex's 10.41% gain, resulting in negative alpha of 22.98%. This underperformance accelerated over the past six months, with the stock declining 11.53% whilst the benchmark index gained 4.50%, indicating sustained selling pressure and deteriorating investor sentiment.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -2.60% | +0.50% | -3.10% |
| 1 Month | +6.88% | +0.79% | +6.09% |
| 3 Months | +2.81% | +0.43% | +2.38% |
| 6 Months | -11.53% | +4.50% | -16.03% |
| YTD | +4.01% | -1.16% | +5.17% |
| 1 Year | -12.57% | +10.41% | -22.98% |
| 3 Years | +145.92% | +38.81% | +107.11% |
| 5 Years | +369.57% | +63.46% | +306.11% |
On a longer-term view, the stock's performance remains impressive, with three-year returns of 145.92% and five-year returns of 369.57%, significantly outperforming the Sensex over these periods. This long-term outperformance reflects the company's successful capacity expansion, market share gains, and margin improvement initiatives implemented over the past half-decade.
The stock's technical indicators present a mixed picture. The shares currently trade below all major moving averages, including the 5-day (₹744.94), 20-day (₹677.18), 50-day (₹699.90), 100-day (₹716.78), and 200-day (₹762.01) moving averages. This broad-based weakness across multiple timeframes suggests sustained selling pressure and lack of buying support at current levels.
The technical trend is classified as "Mildly Bearish" as of February 3, 2026, having oscillated between bearish and mildly bearish classifications over recent months. Weekly MACD shows mildly bullish signals whilst monthly indicators remain mildly bearish, suggesting near-term momentum may be stabilising even as the broader trend remains weak. The stock's beta of 1.37 indicates higher volatility than the broader market, with volatility of 53.19% over the past year placing it in the "High Risk Low Return" category based on recent performance.
Investment Thesis: Quality Business at Reasonable Valuation with Near-Term Headwinds
SP Apparels presents a nuanced investment case characterised by solid long-term fundamentals, reasonable valuation, and established market positioning, offset by near-term operational challenges and technical weakness. The company's proprietary Mojo Score of 58 out of 100 places it in "HOLD" territory, reflecting this balanced risk-reward profile.
The company's quality assessment as "Good" is supported by healthy long-term growth metrics, with five-year sales CAGR of 21.65% and EBIT growth of 28.27%. The balance sheet remains robust with a debt-to-EBITDA ratio of 1.26 times and no promoter pledging, providing financial flexibility to navigate near-term challenges. Institutional holdings of 20.55% reflect professional investor confidence in the business model.
However, the "Mildly Bearish" technical trend and recent underperformance versus the market and sector peers suggest investor sentiment remains cautious. The stock's classification as "High Beta" with elevated volatility indicates it is suitable primarily for investors with higher risk tolerance and a medium-to-long-term investment horizon.
Key Strengths & Risk Factors
KEY STRENGTHS
- Vertically integrated manufacturing model from greige fabric to finished products provides operational flexibility and quality control
- Strong long-term growth track record with 21.65% sales CAGR and 28.27% EBIT CAGR over five years
- Conservative balance sheet with debt-to-equity ratio of 0.40 and no promoter pledging
- Improved debtors turnover ratio of 6.87 times indicates efficient working capital management
- Attractive valuation with P/E of 16.51x and PEG ratio of 0.58x suggesting potential upside
- Stable promoter holding at 61.93% with no pledging demonstrates commitment
- Healthy institutional participation at 20.55% provides investor confidence
KEY CONCERNS
- Sequential revenue decline of 10.39% in Q3 FY26 raises questions about demand sustainability
- Net profit margin compression to 7.05% from 8.12% sequentially indicates operational pressure
- ROE of 11.83% and ROCE of 13.10% lag behind higher-performing peers
- Significant increase in fixed assets (up 34% YoY) yet to translate into improved return metrics
- Stock underperformance of 22.98% versus Sensex over past year reflects weak sentiment
- High beta of 1.37 and volatility of 53.19% indicate elevated risk profile
- Mutual fund holdings declined 108 bps sequentially suggesting institutional profit-taking
Outlook: What to Watch in Q4 FY26 and Beyond
The final quarter of FY26 will be crucial in determining whether SP Apparels' Q3 FY26 sequential slowdown represents a temporary blip or the beginning of a more sustained growth deceleration. Investors should closely monitor order book trends, capacity utilisation rates, and margin trajectory to assess the company's ability to regain operational momentum.
POSITIVE CATALYSTS
- Recovery in export order inflows from key developed markets
- Improved capacity utilisation driving operating leverage and margin expansion
- Stabilisation or improvement in sequential revenue growth
- Higher returns on recently deployed capital investments
- Technical trend reversal above key moving averages
RED FLAGS
- Continued sequential revenue decline in Q4 FY26
- Further margin compression below 7% PAT margin
- Additional decline in mutual fund or institutional holdings
- Increase in working capital days or deterioration in collection efficiency
- Stock breaking below 52-week low of ₹585.00
Management commentary on demand visibility for FY27, capacity expansion plans, and strategies to improve return on capital will be critical in shaping investor expectations. The company's ability to leverage its integrated manufacturing model to gain market share during this period of industry consolidation could provide a sustainable competitive advantage.
From a technical perspective, the stock needs to reclaim the ₹762 level (200-day moving average) to signal a meaningful trend reversal. Until then, the path of least resistance appears to be sideways to lower, with support at the 52-week low of ₹585.00 providing a crucial downside reference point.
The Verdict: Hold for Existing Investors, Wait for Fresh Buyers
Score: 58/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst the valuation appears reasonable and long-term fundamentals remain intact, the sequential performance deterioration, margin pressures, and negative technical trend suggest patience is warranted. Wait for evidence of stabilisation in quarterly performance and technical trend reversal above ₹762 before considering entry. A potential entry point around ₹650-680 would offer better risk-reward, assuming no fundamental deterioration.
For Existing Holders: Continue holding with a 12-18 month horizon. The company's integrated manufacturing capabilities, conservative balance sheet, and attractive valuation provide downside protection. However, monitor Q4 FY26 results closely for signs of sustained weakness. Consider trimming positions if the stock breaks below ₹585 (52-week low) or if sequential revenue/margin decline continues in Q4 FY26. Maintain a stop-loss at ₹565 (approximately 22% below current price) to protect capital.
Fair Value Estimate: ₹880-900 (20-24% upside potential), achievable over 12-18 months assuming return to mid-teens revenue growth, stable margins around 14-15% operating margin, and market re-rating to 18-20x P/E multiple. Near-term target of ₹800 appears more realistic for FY26, implying modest 10% upside.
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. Past performance is not indicative of future results. The views expressed are based on information available as of February 11, 2026, and are subject to change.
