The company's troubles extend beyond a single weak quarter. In H1 FY26, SPL Industries reported a combined revenue of just ₹31.61 crores, representing a catastrophic 63.50% decline from ₹86.62 crores in H1 FY25. This revenue collapse has transformed what was once a profitable operation into a loss-making entity, with operating profit margins turning deeply negative. The apparel manufacturer, which specialises in knitted fabric and garments for export markets, appears to be facing severe demand challenges that are eroding its competitive position.
The company's financial distress is compounded by its technical positioning. Trading at ₹40.42, the stock exhibits a mildly bearish technical trend with virtually all moving averages acting as resistance levels. With a beta of 1.50, SPL Industries demonstrates significantly higher volatility than the broader market, amplifying downside risks during periods of weakness. The stock's year-to-date decline of 32.53% stands in stark contrast to the Sensex's 8.54% gain, highlighting the company-specific nature of these challenges.
| Quarter | Revenue (₹ Cr) | QoQ Change | YoY Change | Net Profit (₹ Cr) | Operating Margin |
|---|---|---|---|---|---|
| Sep'25 | 14.97 | -10.04% | -62.09% | -0.20 | -15.76% |
| Jun'25 | 16.64 | -45.83% | -60.82% | 0.91 | -9.80% |
| Mar'25 | 30.72 | +14.88% | -55.23% | 2.94 | 1.99% |
| Dec'24 | 26.74 | -32.29% | — | 0.30 | -2.09% |
| Sep'24 | 39.49 | -7.02% | — | 3.97 | 4.84% |
| Jun'24 | 42.47 | -38.11% | — | 2.58 | 4.52% |
| Mar'24 | 68.62 | — | — | 4.25 | 5.42% |
Financial Performance: A Collapse in Core Operations
The Q2 FY26 results reveal a company in severe operational distress. Net sales of ₹14.97 crores represent not just a 10.04% sequential decline from Q1 FY26's ₹16.64 crores, but more alarmingly, a 62.09% year-on-year collapse from ₹39.49 crores in Q2 FY25. This marks the lowest quarterly revenue in the company's recent history, suggesting fundamental challenges in order book execution or market demand.
The revenue crisis has cascaded through the entire income statement. Operating profit before depreciation, interest, tax, and other income (PBDIT excluding OI) turned deeply negative at ₹-2.36 crores in Q2 FY26, compared to a positive ₹1.91 crores in the year-ago quarter. This translates to an operating margin of -15.76%, a dramatic deterioration from the 4.84% margin recorded in Q2 FY25. The company is now losing money on core operations before even accounting for interest, depreciation, or taxes.
Interestingly, other income of ₹3.13 crores in Q2 FY26 (compared to ₹3.49 crores in Q2 FY25) has become the primary revenue stream, exceeding the negative operating profit. This dependency on non-operating income to offset operational losses is unsustainable and highlights the fundamental weakness in the core business. After accounting for interest costs of ₹0.17 crores and depreciation of ₹0.68 crores, the company reported a pre-tax loss of ₹0.07 crores. An unusual tax charge of ₹0.12 crores (despite losses) pushed the net loss to ₹0.20 crores.
The half-yearly picture for FY26 is equally concerning. Total revenue for H1 FY26 stood at just ₹31.61 crores, down 63.50% from ₹86.62 crores in H1 FY25. The company generated a marginal net profit of ₹0.71 crores in H1 FY26, but this was entirely driven by other income of ₹6.85 crores, which more than offset the negative operating profit. This represents a fragile profitability structure that could quickly deteriorate if other income sources diminish.
Operational Crisis: The Revenue Implosion
The magnitude of SPL Industries' revenue decline demands deeper examination. A 62% year-on-year revenue collapse in Q2 FY26 is not merely a cyclical downturn—it suggests structural challenges in the company's business model, customer relationships, or competitive positioning. For an apparel export house, such dramatic revenue declines typically stem from lost major customers, order cancellations, quality issues, or competitive displacement.
The company's return on equity (ROE) has deteriorated sharply to just 3.89% in the latest period, down from an average of 9.22% historically. This places SPL Industries well below acceptable profitability thresholds and indicates inefficient capital deployment. The return on capital employed (ROCE) has collapsed to a meagre 0.62%, down from a historical average of 12.87%, reflecting the severe impairment in asset productivity.
On a positive note, SPL Industries maintains a debt-free balance sheet with negative net debt-to-equity of -0.34, indicating the company holds more cash than debt. This financial cushion provides some breathing room to weather the current operational storm. However, with cash and cash equivalents declining to ₹12.06 crores in H1 FY26 (the lowest in recent periods), the company's financial buffer is eroding. Continued losses could quickly deplete these reserves.
Critical Concern: Unsustainable Business Model
SPL Industries is currently generating negative operating profits of ₹-2.36 crores in Q2 FY26, meaning the core business is destroying value. The company's survival depends entirely on other income of ₹3.13 crores, which comprises interest income and non-operating gains. This structure is fundamentally unsustainable—a manufacturing company cannot indefinitely rely on investment income to offset operational losses. Without a dramatic turnaround in revenue and margins, the company faces an existential crisis.
Industry Context: Apparel Export Headwinds
The Indian apparel export industry has faced challenges in recent quarters due to weak global demand, particularly from key markets like the United States and Europe. However, SPL Industries' 62% revenue decline far exceeds typical industry headwinds, suggesting company-specific issues beyond macro factors. Competitors in the garments and apparels sector have not experienced comparable revenue collapses, indicating SPL's challenges are idiosyncratic rather than industry-wide.
The company's historical performance reveals a troubling pattern. Over the past five years, net sales have declined at an annual rate of 6.01%, whilst operating profit has contracted at a staggering rate of 166.16% annually. This long-term deterioration suggests structural challenges that predate the current crisis. The company has struggled to maintain competitiveness in an increasingly demanding export market.
SPL Industries' employee costs have remained relatively stable at around ₹2.90 crores per quarter, but as a percentage of revenue, they have ballooned to 19.31% in Q2 FY26 from just 7.95% in Q2 FY25. This fixed cost burden amplifies losses when revenues decline, creating negative operating leverage that accelerates profitability deterioration.
Peer Comparison: Trailing the Pack
Within the garments and apparels sector, SPL Industries occupies a weak competitive position. The company's market capitalisation of ₹119.00 crores ranks it amongst the smaller players in the peer group, limiting its ability to invest in capacity expansion, technology, or marketing initiatives that could drive growth.
| Company | Market Cap (₹ Cr) | P/E (TTM) | P/BV | ROE (%) | Debt/Equity |
|---|---|---|---|---|---|
| SPL Industries | 119.00 | 14.34 | 0.56 | 9.22% | -0.34 |
| Jasch Industries | — | 13.69 | 1.74 | 17.53% | 0.45 |
| Shanti Spintex | — | 11.09 | 1.17 | 13.54% | 0.04 |
| Surat Trade | — | 9.03 | 0.61 | 10.57% | -0.28 |
| Fiberweb (India) | — | 7.00 | 0.68 | 5.88% | 0.04 |
SPL Industries' ROE of 9.22% lags behind stronger peers like Jasch Industries (17.53%) and Shanti Spintex (13.54%), reflecting inferior profitability and capital efficiency. The company's price-to-book ratio of 0.56x suggests the market values its assets at a significant discount, implying concerns about the quality and earning power of those assets. Whilst the P/E ratio of 14.34x appears reasonable, it's based on trailing twelve months that include better quarters—the current loss-making status renders the P/E metric less meaningful.
The company's debt-free status (negative debt-to-equity of -0.34) is one area where it compares favourably to peers, but this advantage is offset by its inability to generate operating profits. A strong balance sheet provides limited comfort when the underlying business model is broken.
Valuation Analysis: Value Trap Territory
At ₹40.42 per share, SPL Industries trades at a P/E ratio of 14.34x based on trailing twelve-month earnings. However, this metric is misleading given the company's recent slip into losses. The price-to-book value of 0.56x suggests the market is pricing the stock at a 44% discount to book value, typically a sign of distress or concerns about asset quality.
The company's enterprise value-to-EBITDA multiple of 45.62x appears elevated, but this is distorted by the minimal EBITDA generation. More tellingly, the EV-to-EBIT ratio is negative at -17.41x, reflecting negative operating profits. These valuation metrics collectively paint a picture of a company trading at distressed valuations due to fundamental operational challenges rather than temporary market mispricing.
The company's valuation grade has deteriorated to "Risky" from "Fair" in August 2025, reflecting the market's recognition of the operational challenges. With the stock trading 44.63% below its 52-week high of ₹73.00 and only 32.57% above its 52-week low of ₹30.49, there's significant downside risk if operational performance doesn't stabilise. The absence of dividend payments since September 2007 further underscores the company's inability to generate shareholder returns.
Shareholding Pattern: Promoter Confidence, Institutional Absence
SPL Industries' shareholding pattern reveals a promoter-dominated structure with minimal institutional participation. Promoter holdings increased from 68.93% in March 2025 to 74.97% in June 2025, remaining stable at that level through September 2025. This 6.04 percentage point increase suggests promoters have been buying shares, potentially signalling confidence in a turnaround—or simply maintaining control during a period of distress.
| Quarter | Promoter | FII | MF | Insurance | Other DII | Public |
|---|---|---|---|---|---|---|
| Sep'25 | 74.97% | 0.13% | 0.00% | 0.00% | 1.45% | 23.44% |
| Jun'25 | 74.97% (+6.04%) | 0.13% | 0.00% | 0.00% | 0.32% | 24.58% |
| Mar'25 | 68.93% | 0.13% | 0.00% | 0.00% | 0.32% | 30.62% |
| Dec'24 | 68.93% | 0.13% | 0.00% | 0.00% | 0.32% | 30.62% |
The complete absence of mutual fund holdings (0.00%) and negligible foreign institutional investor interest (0.13%) is telling. Institutional investors, who conduct rigorous due diligence, have stayed away from SPL Industries, likely due to concerns about the company's operational trajectory and governance. Other domestic institutional investors increased their stake from 0.32% to 1.45% in September 2025, but this remains insignificant.
Public shareholding declined from 30.62% in March 2025 to 23.44% in September 2025, suggesting retail investors have been exiting the stock. This exodus, combined with institutional indifference, reflects a broad-based loss of confidence in the company's prospects. The fact that only one FII holds shares further underscores the stock's limited appeal to sophisticated investors.
Stock Performance: Severe Underperformance Across All Timeframes
SPL Industries' stock performance has been dismal across virtually all time periods, with the company consistently underperforming both the Sensex benchmark and its sector peers. The stock has declined 31.08% over the past year, compared to the Sensex's 9.17% gain, resulting in a negative alpha of 40.25 percentage points. This massive underperformance reflects the market's loss of confidence in the company's ability to reverse its operational decline.
| Period | Stock Return | Sensex Return | Alpha | Sector Return |
|---|---|---|---|---|
| 1 Week | +1.56% | +1.80% | -0.24% | — |
| 1 Month | +4.88% | +3.02% | +1.86% | — |
| 3 Months | +9.42% | +5.30% | +4.12% | — |
| 6 Months | +4.20% | +4.51% | -0.31% | — |
| YTD | -32.53% | +8.54% | -41.07% | — |
| 1 Year | -31.08% | +9.17% | -40.25% | +6.09% |
| 2 Years | -36.17% | +30.61% | -66.78% | — |
| 3 Years | -44.82% | +37.25% | -82.07% | — |
The longer-term picture is equally troubling. Over three years, the stock has declined 44.82% whilst the Sensex has gained 37.25%, resulting in a negative alpha of 82.07 percentage points. The stock has also significantly underperformed its sector, which delivered a 6.09% return over the past year compared to SPL's 31.08% decline—an underperformance of 37.17 percentage points.
The stock's high beta of 1.50 indicates it is 50% more volatile than the broader market, amplifying both gains and losses. However, with consistently negative returns, this high beta has primarily served to magnify downside volatility. The risk-adjusted return of -0.63 over the past year, combined with volatility of 49.52%, places SPL Industries in the "high risk, low return" category—the worst possible quadrant for investors.
Recent short-term performance shows some stabilisation, with the stock gaining 9.42% over three months and 4.88% over one month, outperforming the Sensex during these periods. However, this modest bounce from deeply oversold levels does not constitute a meaningful reversal of the long-term downtrend. The stock remains in a mildly bearish technical trend, with all major moving averages acting as resistance.
Investment Thesis: Multiple Red Flags
SPL Industries' investment thesis is severely compromised by multiple structural weaknesses. The company's Mojo Score of 20 out of 100 places it firmly in "Strong Sell" territory, reflecting the confluence of negative factors across valuation, quality, financial trends, and technical indicators.
The valuation appears "risky" rather than attractive, with the low price-to-book ratio reflecting fundamental concerns rather than opportunity. The quality grade of "average" is generous given the company's deteriorating financial metrics—five-year sales decline of 6.01% annually and operating profit contraction of 166.16% annually speak to structural challenges. The financial trend is unambiguously "negative," with Q2 FY26 marking new lows across multiple metrics. Technical indicators show a "mildly bearish" trend with weak momentum and resistance overhead.
"When a company's operating profit turns negative whilst other income becomes the primary revenue source, you're witnessing a business model in terminal decline—not a temporary setback."
Key Strengths & Risk Factors
KEY STRENGTHS ✓
- Debt-Free Balance Sheet: Net debt-to-equity of -0.34 indicates the company holds more cash than debt, providing financial flexibility.
- No Promoter Pledging: Zero pledged shares demonstrate promoter confidence and reduce governance risks.
- Established Presence: Three decades of operation in apparel exports with established infrastructure and relationships.
- Recent Promoter Buying: Promoter stake increased from 68.93% to 74.97% in June 2025, suggesting internal confidence.
- Cash Generation Potential: Historical ability to generate operating cash flows in better years (₹20.70 crores annually at peak).
KEY CONCERNS ⚠
- Revenue Collapse: 62% YoY revenue decline in Q2 FY26 to ₹14.97 crores indicates severe demand challenges or customer losses.
- Negative Operating Profits: Operating profit of ₹-2.36 crores in Q2 FY26 means core business is destroying value.
- Dependency on Other Income: Company relies entirely on ₹3.13 crores of other income to offset operational losses—unsustainable model.
- Deteriorating Returns: ROE collapsed to 3.89% and ROCE to 0.62%, indicating severe capital inefficiency.
- Long-Term Decline: Five-year sales CAGR of -6.01% and operating profit CAGR of -166.16% reflect structural challenges.
- Zero Institutional Interest: No mutual fund holdings and negligible FII interest (0.13%) signal lack of confidence from sophisticated investors.
- Severe Stock Underperformance: 31% decline over past year vs Sensex +9%, with negative alpha of 40 percentage points.
Outlook: Critical Monitoring Points
POSITIVE CATALYSTS
- Revenue Stabilisation: Any quarter showing revenue above ₹30 crores would signal demand recovery.
- Return to Operating Profitability: Positive operating profit (excluding other income) would indicate business model viability.
- New Customer Wins: Announcement of significant new export orders or customer relationships.
- Margin Improvement: Operating margins returning to historical 4-5% range would restore confidence.
RED FLAGS TO WATCH
- Further Revenue Decline: If Q3 FY26 revenue falls below ₹14 crores, the situation is worsening.
- Cash Depletion: Continued losses could rapidly erode the ₹12.06 crore cash buffer.
- Sustained Negative Operating Profits: Multiple consecutive quarters of negative operating profit would confirm structural failure.
- Promoter Stake Reduction: Any decline in 74.97% promoter holding would signal loss of internal confidence.
- Working Capital Stress: Rising inventory or receivables days would indicate liquidity pressures.
What Lies Ahead
SPL Industries faces an existential challenge. The company must achieve a dramatic turnaround in revenue and margins over the next 2-3 quarters to restore investor confidence. Without a return to positive operating profits, the current business model is unsustainable. Management's ability to stabilise revenue, win back customers, and restore operational efficiency will determine whether this is a cyclical trough or a terminal decline.
The apparel export industry's outlook remains mixed, with global demand uncertainty persisting. However, SPL's challenges appear more company-specific than industry-wide, given that peers have not experienced comparable revenue collapses. This suggests the turnaround depends primarily on internal execution rather than external market recovery.
For investors, the risk-reward equation is highly unfavourable. Whilst the stock trades at a low price-to-book ratio, this reflects genuine concerns about asset quality and earning power rather than an attractive entry point. The absence of institutional investors, consistent underperformance, and deteriorating financial trends all point to a value trap rather than a value opportunity.
The Verdict: Exit Recommended
Score: 20/100
For Fresh Investors: Avoid completely. The company is loss-making with negative operating profits, deteriorating returns, and no clear path to recovery. The 62% revenue collapse is not a temporary blip but reflects fundamental business model challenges. Wait for at least 2-3 quarters of stabilisation and return to profitability before considering entry.
For Existing Holders: Exit on any bounce towards ₹45-50 levels. The company's operational crisis is deepening, with Q2 FY26 marking new lows across multiple metrics. Continued losses will erode the cash buffer, and without a dramatic turnaround, further downside is likely. The 31% decline over the past year could extend if operational performance doesn't stabilise.
Fair Value Estimate: ₹25-30 (38-26% downside from current levels), reflecting the elevated risk of continued losses and potential further deterioration in asset values.
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, and all investments carry risk of loss.
