SPL Industries Q3 FY26: Mounting Losses Signal Deepening Operational Crisis

The micro-cap company, with a market capitalisation of just ₹88.00 crores, saw its stock plunge 4.28% to ₹29.30 on February 13, 2026, extending its brutal 41.16% decline over the past year. Trading at 44.19% below its 52-week high of ₹52.50, SPL Industries exemplifies a company whose accounting profits are divorced from operational reality, with other income of ₹6.61 crores representing a staggering 1,348.98% of profit before tax.

The quarter's results expose a company in operational freefall, with core manufacturing margins deteriorating to unprecedented levels whilst management relies increasingly on non-operating income to mask the underlying business collapse. For investors, the question is no longer whether SPL Industries can recover, but whether the current valuation adequately reflects the severity of its structural challenges.

Financial Performance: A Tale of Operational Collapse

The third quarter of FY2026 laid bare the extent of SPL Industries' operational deterioration. Net sales of ₹14.65 crores marked the lowest quarterly revenue in the company's recent history, declining 2.14% sequentially from Q2 FY26's ₹14.97 crores and collapsing 45.21% year-on-year from ₹26.74 crores in Q3 FY25. This represents a catastrophic erosion of the company's revenue base, with sales now running at barely one-third of the levels achieved just 18 months ago when quarterly revenues routinely exceeded ₹40 crores.

The operating profit picture reveals an even more alarming reality. PBDIT excluding other income plunged to a loss of ₹4.13 crores in Q3 FY26, representing an operating margin of -28.19%—the worst performance on record. This compares to a loss of ₹2.36 crores (-15.76% margin) in Q2 FY26 and a loss of ₹0.56 crores (-2.09% margin) in the year-ago quarter. The sequential deterioration in operating losses, despite relatively stable revenue, points to severe cost structure challenges and pricing pressure in the company's core garment manufacturing and export business.

The gross profit margin of 8.60% in Q3 FY26, whilst positive, represents a significant compression from the 12.10% achieved in September 2024, suggesting either adverse product mix shifts, pricing pressure from customers, or rising input costs that management has been unable to pass through. Employee costs remained relatively stable at ₹2.77 crores, but on a shrinking revenue base, this represents an increasingly unsustainable fixed cost burden.

The reported net profit of ₹2.38 crores, whilst superficially positive, is entirely attributable to other income of ₹6.61 crores, which dwarfs the operating loss. This other income represents a staggering 1,348.98% of profit before tax, indicating that the company's accounting profits bear no relationship to its operational performance. The profit before tax of just ₹0.49 crores, after deducting operating losses, interest of ₹1.22 crores, and depreciation of ₹0.77 crores, was further flattered by a tax credit of ₹1.90 crores (representing a -387.76% tax rate), likely reflecting the reversal of deferred tax liabilities or utilisation of carried forward losses.

Operational Crisis: When Other Income Masks Business Failure

The most troubling aspect of SPL Industries' Q3 FY26 results is the complete dependence on other income to generate accounting profits. With other income of ₹6.61 crores representing more than thirteen times the profit before tax, the company's reported profitability is entirely divorced from its core manufacturing operations. This raises serious questions about the sustainability and quality of earnings, as other income—typically comprising interest on deposits, dividend income, and miscellaneous gains—cannot indefinitely compensate for operational losses of this magnitude.

The company's return on equity (ROE) of 8.21% over the average period masks the current quarter's operational reality, where the business is actively destroying shareholder value through negative operating margins. The latest half-yearly ROCE of 3.43%, described as the "lowest" in recent periods, reflects the deteriorating capital efficiency as the company struggles to generate adequate returns from its manufacturing assets.

The balance sheet position, whilst showing negligible debt (average debt-to-EBITDA of 0.29 and net debt-to-equity of -0.38, indicating a net cash position), provides limited comfort when the core business is haemorrhaging cash through operational losses. Cash and cash equivalents of ₹12.06 crores at the half-year mark, noted as the "lowest" level, suggests that management has been drawing down reserves to fund ongoing losses, raising questions about the sustainability of operations if the revenue decline continues.

Industry Context: Struggling in a Challenging Apparel Export Environment

SPL Industries' operational struggles must be viewed against the backdrop of a challenging global apparel export environment. The garment and apparel sector has faced headwinds from weakening demand in key export markets, rising competition from low-cost manufacturing hubs, and persistent raw material cost inflation. However, the severity of SPL's revenue decline—45.21% year-on-year—suggests company-specific challenges that extend beyond broader industry trends.

The company's historical strength in knitted fabric and knitted garments manufacturing appears to have eroded significantly, with quarterly revenues now running at less than half the levels achieved in FY24. This dramatic revenue compression, coupled with the inability to maintain positive operating margins, points to potential loss of key customers, pricing pressure from remaining clients, or operational inefficiencies that have rendered the company uncompetitive.

The five-year sales growth rate of -6.15% and EBIT growth of -185.81% underscore the structural nature of SPL's challenges, indicating that this is not merely a cyclical downturn but a fundamental deterioration in the company's competitive position within the garment export industry. The company's sales-to-capital-employed ratio of 0.99x suggests underutilisation of manufacturing capacity, a common symptom when order books thin and production volumes decline.

Peer Comparison: Valuation Discount Reflects Fundamental Weakness

SPL Industries' valuation metrics reflect the market's deep scepticism about the company's prospects. Trading at a price-to-book value of just 0.41x, the stock commands one of the lowest valuations in the garment and apparel peer group, substantially below the peer average of approximately 0.70x. This discount is well-deserved given the company's negative operating margins and deteriorating financial trends.

The P/E ratio of 21.51x appears reasonable on the surface but is misleading given that trailing twelve-month earnings are heavily inflated by other income rather than operating performance. Peers such as Vippy Spinpro, trading at 6.81x earnings with a superior ROE of 14.54%, offer substantially better risk-adjusted value propositions for investors seeking exposure to the garment sector.

SPL Industries' ROE of 8.21% lags the better-performing peers, whilst its current operational losses suggest that future ROE will deteriorate further unless management can reverse the revenue decline and restore operating margins to positive territory. The company's net cash position (debt-to-equity of -0.38) provides some downside protection but offers little comfort when the core business is destroying value at the current rate.

Valuation Analysis: Risky Classification Justified by Fundamentals

SPL Industries carries a "RISKY" valuation classification, a designation that accurately reflects the fundamental challenges facing the company. The stock's price-to-book value of 0.41x, whilst appearing cheap on an absolute basis, represents a value trap rather than a genuine opportunity, as the book value fails to account for the ongoing destruction of economic value through persistent operating losses.

The company's enterprise value metrics paint an even more troubling picture. With an EV/EBITDA of -1.51x and EV/EBIT of -0.87x, the negative multiples reflect the fact that the company is generating negative operating profits, rendering traditional valuation frameworks meaningless. The EV/Sales ratio of 0.07x suggests that the entire enterprise is valued at just 7% of annual revenues, an extraordinarily low multiple that reflects the market's view that these revenues are largely unprofitable.

The stock's 44.19% decline from its 52-week high of ₹52.50 to the current price of ₹29.30 represents a significant derating, but the valuation remains risky given the absence of any clear catalyst for operational improvement. The dividend yield is not applicable, as the company last paid a dividend in September 2007, nearly two decades ago—a telling indicator of the long-standing challenges facing the business.

Shareholding Pattern: Promoter Stability Amidst Institutional Absence

The shareholding pattern reveals a promoter-dominated structure with minimal institutional participation, a common characteristic of distressed micro-cap companies. Promoter holding stood at 74.88% as of December 2025, declining marginally by 0.09% from the previous quarter's 74.97%. This minor reduction, following a significant 6.04 percentage point increase in June 2025 (from 68.93% to 74.97%), suggests that promoters remain committed to the company despite its operational challenges.

The complete absence of mutual fund holdings (0.00%) and negligible FII participation (0.13%) reflects institutional investors' avoidance of the stock, likely due to concerns about liquidity, governance, and operational performance. The total institutional holding of just 0.45% places SPL Industries firmly in the category of stocks that sophisticated investors have abandoned.

Other domestic institutional investor (DII) holdings declined from 1.45% in September 2025 to 0.32% in December 2025, a 1.13 percentage point reduction that signals institutional selling pressure. Non-institutional holdings increased marginally to 24.66% from 23.44%, but this likely represents retail investors trapped in a declining stock rather than fresh accumulation based on conviction.

The absence of promoter pledging (0.0% pledged shares) provides some comfort regarding financial stress at the promoter level, but offers little insight into management's strategy for reversing the operational decline. The promoter group, led by Kiran Aggarwal (22.87%) and Mukesh Kumar Aggarwal (20.01%), faces the challenge of stabilising the business whilst maintaining shareholder confidence in an increasingly difficult operating environment.

Stock Performance: Severe Underperformance Across All Timeframes

SPL Industries' stock performance has been catastrophic across virtually all timeframes, with the shares underperforming both the Sensex benchmark and the broader garment and apparel sector by substantial margins. The one-year return of -41.16% compares to the Sensex's gain of 8.52%, resulting in a negative alpha of -49.68 percentage points—a performance gap that reflects the market's complete loss of confidence in the company's prospects.

The three-month return of -27.73% coincides with the period of most acute operational deterioration, as quarterly revenues collapsed and operating losses widened dramatically. The stock's underperformance versus the garment and apparel sector (-39.52 percentage points over one year) indicates that SPL's challenges are company-specific rather than sector-wide, with peers managing to navigate the difficult environment far more successfully.

The risk-adjusted return profile is particularly unfavourable, with a volatility of 50.96%—more than four times the Sensex's volatility of 11.46%—and a negative Sharpe ratio indicating that investors have been penalised rather than rewarded for taking on this elevated risk. The stock's beta of 1.50 classifies it as a high-beta security, meaning it amplifies market movements, but this leverage has worked entirely against shareholders during the market's recent strength.

Technical indicators across the board flash bearish signals, with the stock trading below all key moving averages (5-day, 20-day, 50-day, 100-day, and 200-day) and the overall trend classified as "BEARISH" since February 12, 2026. The weekly and monthly MACD, RSI, Bollinger Bands, and KST indicators all point to continued downward pressure, whilst the On-Balance Volume (OBV) shows only "mildly bullish" sentiment on a weekly basis—hardly sufficient to suggest a meaningful reversal.

Investment Thesis: Multiple Red Flags Justify Cautious Stance

The investment thesis for SPL Industries is fundamentally challenged by the convergence of negative factors across all four key parameters: valuation, quality, financial trends, and technical indicators. The company's proprietary investment score of 15 out of 100, placing it firmly in "STRONG SELL" territory, reflects the severity of these concerns and the absence of any near-term catalysts for improvement.

The "BELOW AVERAGE" quality grade reflects the company's weak five-year sales growth of -6.15% and catastrophic EBIT growth of -185.81%, indicating a business in structural decline rather than cyclical downturn. Whilst the company benefits from zero promoter pledging and a net cash position (average net debt-to-equity of -0.38), these positives are overwhelmed by the operational reality of widening losses and collapsing revenues.

The "NEGATIVE" financial trend classification, unchanged since the previous quarter, captures the deterioration across multiple metrics: lowest quarterly net sales (₹14.65 crores), lowest PBDIT (₹-4.13 crores), lowest operating profit-to-net-sales ratio (-28.19%), and non-operating income representing 1,348.98% of profit before tax. These are not marginal concerns but fundamental indicators of a business model that has broken down.

Key Strengths & Risk Factors

Outlook: Critical Monitoring Points for Any Potential Stabilisation

For SPL Industries to arrest its decline and provide any basis for investment consideration, management must demonstrate tangible progress on multiple fronts. The company stands at a critical juncture where continued deterioration could threaten the viability of operations, whilst any stabilisation would require a fundamental restructuring of the business model and cost structure.

The next two quarters (Q4 FY26 and Q1 FY27) will be decisive in determining whether SPL Industries can stabilise its operations or faces an accelerating decline. Investors should monitor quarterly revenue trends, operating margin progression, and cash burn rates closely. Any investment consideration should be contingent on clear evidence of operational stabilisation, which is currently absent from the company's performance trajectory.