Sportking India Q2 FY26: Margin Pressure Weighs on Profitability Despite Revenue Resilience

The September 2025 quarter presented a mixed picture for Sportking India. Whilst net sales recovered 7.10% sequentially to ₹627.39 crores after a weak Q1, the top-line remained 3.72% below the year-ago period of ₹651.65 crores. More concerning was the sharp compression in profitability metrics across the board. Operating profit (excluding other income) fell to ₹65.41 crores from ₹69.50 crores in Q1 FY26, translating to a margin contraction of 143 basis points to 10.43%. The profit after tax of ₹28.27 crores marked a 5.49% decline from Q1's ₹34.10 crores and an identical 5.49% drop year-on-year, with PAT margins slipping to 4.51% from 5.82% in the previous quarter.

The company's half-yearly performance for H1 FY2026 revealed total revenues of ₹1,213.19 crores, marginally lower than H1 FY2025's ₹1,285.70 crores. Operating profit for the six-month period stood at ₹134.91 crores compared to ₹136.43 crores in the corresponding period last year, whilst net profit for H1 FY26 reached ₹62.37 crores against ₹61.74 crores in H1 FY25, showing minimal growth momentum.

Financial Performance: Margin Compression Overshadows Revenue Recovery

Sportking India's second quarter demonstrated the textile sector's ongoing struggle with profitability despite revenue stabilisation. Net sales of ₹627.39 crores in Q2 FY26 represented a sequential improvement of 7.10% from Q1's ₹585.80 crores, suggesting some demand recovery after a weak first quarter. However, the year-on-year decline of 3.72% from ₹651.65 crores in Sep'24 indicates the company hasn't fully regained its growth trajectory from the previous year.

The margin story proved far more troubling. Operating profit excluding other income contracted to ₹65.41 crores from ₹69.50 crores quarter-on-quarter, with operating margins declining 143 basis points to 10.43% from 11.86%. This marked the lowest operating margin since December 2024's 9.35%. On a year-on-year basis, operating margins expanded marginally from 9.60% in Sep'24, but remained well below the company's peak of 11.86% achieved in Jun'25. The gross profit margin similarly weakened to 9.78% from 11.97% in the previous quarter, indicating pressure on realisation or rising input costs.

Employee costs rose to ₹34.33 crores in Q2 from ₹37.59 crores in Q1, whilst interest costs increased to ₹12.09 crores from ₹11.32 crores, reflecting higher working capital requirements. Depreciation remained stable at ₹23.73 crores. Other income provided some cushion at ₹8.04 crores, though this was substantially lower than Q1's ₹11.96 crores. The effective tax rate of 24.87% remained within the company's historical range of 24-29%.

The profit after tax of ₹28.27 crores represented a 17.09% sequential decline and a 5.49% year-on-year drop, with PAT margins compressing to 4.51% from 5.82% in Q1 FY26. This marked the second-lowest PAT margin in the trailing eight quarters, surpassing only December 2024's dismal 2.67%. The consistent margin pressure across multiple quarters suggests structural challenges rather than temporary headwinds.

Operational Challenges: Return Metrics Under Pressure

Sportking India's return on equity (ROE) and return on capital employed (ROCE) tell a story of declining capital efficiency. The latest ROE of 11.19% and ROCE of 10.90% represent significant deterioration from the company's five-year averages of 22.93% and 21.34% respectively. Higher ROE typically signals better capital efficiency and profitability, making this decline particularly concerning for long-term investors. The company's ability to generate returns on shareholder capital has nearly halved from its historical performance, reflecting either margin compression, slower asset turnover, or both.

On the balance sheet front, shareholder funds stood at ₹1,005.82 crores as of March 2025, up from ₹902.43 crores in the previous year. Long-term debt declined to ₹352.67 crores from ₹394.44 crores, demonstrating improved financial discipline. The debt-to-equity ratio of 0.48 times for H1 FY26 marked the lowest level in recent periods, whilst the debt-to-EBITDA ratio of 2.18 times remained at moderate levels. The company's average EBIT-to-interest coverage of 7.60 times provides adequate cushion for debt servicing, though this has weakened from historical peaks.

Fixed assets stood at ₹758.37 crores whilst current assets totalled ₹983.99 crores as of March 2025. The sales-to-capital-employed ratio of 1.67 times indicates moderate asset utilisation efficiency. Current liabilities of ₹373.86 crores were substantially lower than the previous year's ₹624.69 crores, improving the company's liquidity position. However, the declining debtor turnover ratio suggests working capital management remains an area requiring attention.

Textile Sector Dynamics: Navigating Challenging Waters

The Indian textile and apparel sector has faced significant headwinds in FY2026, with demand volatility, raw material cost fluctuations, and intense competition impacting profitability across the value chain. Sportking India's performance mirrors broader industry challenges, with yarn manufacturers particularly affected by pricing pressures and overcapacity in certain segments. The company's diversified product portfolio spanning grey and dyed yarns for both domestic and international markets provides some insulation, but hasn't been sufficient to offset margin compression.

The company's 5-year sales compound annual growth rate (CAGR) of 14.87% and EBIT CAGR of 22.51% demonstrate historical growth capability, though recent quarters suggest this momentum has stalled. The full-year FY2025 performance showed net sales of ₹2,524.00 crores (up 6.20% year-on-year) and net profit of ₹109.00 crores (up 55.71% year-on-year), indicating strong annual results. However, the quarterly trajectory in FY2026 has been less encouraging, with both top-line and bottom-line growth decelerating significantly.

Industry Leadership: How Sportking India Compares to Peers

Within the garments and apparels sector, Sportking India occupies a distinctive position with its focus on yarn manufacturing rather than finished garments. The company's valuation multiples and return metrics provide insight into its competitive standing amongst textile peers.

Sportking India's P/E ratio of 11.31 times positions it at the lower end of the peer spectrum, significantly below Rupa & Co's 19.69 times and dramatically cheaper than Raj Rayon Industries' 60.06 times or Pashupati Cotsp.'s 90.05 times. This valuation discount could reflect either market scepticism about near-term earnings sustainability or an attractive entry opportunity for value investors. The company's price-to-book ratio of 1.27 times is also modest compared to peers, particularly Indo Rama Synthetics (4.17 times), Raj Rayon (11.45 times), and Pashupati (10.26 times).

More impressively, Sportking India's average ROE of 22.93% substantially exceeds most peers, with only Indo Rama Synthetics approaching comparable returns at 16.54%. Himatsing. Seide's 6.68%, Pashupati's 9.41%, and Raj Rayon's 3.00% pale in comparison, suggesting Sportking India has historically demonstrated superior capital efficiency. The company's debt-to-equity ratio of 0.58 is moderate and better than several peers, indicating prudent leverage management. The dividend yield of 1.00% provides some income support, though it trails the sector's higher-yielding opportunities.

Valuation Analysis: Attractive Entry Point or Value Trap?

At the current market price of ₹99.45, Sportking India trades at a P/E multiple of 11.31 times trailing twelve-month earnings, representing a significant 53% discount to the garments and apparels industry average P/E of 24 times. The stock's price-to-book value of 1.27 times compares favourably to its historical range and peer valuations. The EV/EBITDA multiple of 7.15 times and EV/EBIT of 11.04 times suggest reasonable valuations relative to earnings generation capability.

The company's PEG ratio of 0.33 indicates the stock trades well below its growth rate, typically considered attractive territory for growth-at-a-reasonable-price investors. However, this metric must be viewed cautiously given the recent deceleration in quarterly performance. The EV-to-capital-employed ratio of 1.17 times suggests the market values the company's deployed capital close to book value, neither commanding a significant premium nor trading at a deep discount.

The stock's valuation grade has oscillated between "Attractive" and "Very Attractive" over the past year, most recently settling at "Attractive" since August 2025. The 52-week trading range of ₹69.91 to ₹140.00 shows significant volatility, with the current price sitting 28.96% below the 52-week high but 42.25% above the low. This positioning suggests the stock has corrected substantially from peak levels but hasn't revisited the depths of its yearly lows.

Shareholding: Stable Promoter Base, Minimal Institutional Interest

Sportking India's shareholding pattern reveals a tightly held ownership structure with limited institutional participation. Promoter holding has remained rock-solid at 74.36% across the last five quarters, with no sequential changes, demonstrating strong promoter commitment and confidence in the business. The promoter group is led by Sobhagia Logistics Private Limited (24.03%), Munish Avasthi (17.33%), Angel Finvest Pvt Limited (14.63%), and Sobhagia Sales Private Limited (12.74%), amongst others. Notably, there is zero promoter pledging, eliminating concerns about forced selling or financial stress at the promoter level.

Foreign institutional investor (FII) holding stands at a negligible 0.01% as of September 2025, down from 0.07% in June 2025, with just three FII entities holding stakes. Mutual fund and insurance company holdings are effectively zero, indicating minimal interest from large domestic institutional investors. Other domestic institutional investor (DII) holdings have also declined to zero from 0.23% in September 2024. The non-institutional shareholding of 25.63% has remained relatively stable with minor fluctuations.

The absence of institutional investors is a double-edged sword. On one hand, it limits potential selling pressure during market downturns and keeps the stock under the radar of retail investors. On the other hand, it deprives the stock of the liquidity, research coverage, and validation that institutional participation typically brings. For a company of Sportking India's size (₹1,263.73 crores market capitalisation), the lack of institutional interest suggests either limited awareness or concerns about business scalability, governance, or growth prospects that have deterred professional investors.

Stock Performance: Underperformance Across Timeframes

Sportking India's stock price performance has been lacklustre across most timeframes, with the company significantly underperforming the broader market. Over the past year, the stock has delivered a meagre 0.31% return compared to the Sensex's 8.44% gain, resulting in a negative alpha of 8.13 percentage points. The underperformance has been even more pronounced over shorter periods, with the stock down 14.23% over six months against the Sensex's 3.44% gain, and down 8.07% over three months whilst the Sensex rallied 4.38%.

Longer-term performance paints a more encouraging picture. Over two years, the stock has delivered 31.25% returns, marginally outperforming the Sensex's 29.56% with a positive alpha of 1.69 percentage points. The three-year return of 46.67% significantly beats the Sensex's 36.51%, generating 10.16 percentage points of alpha. This suggests that whilst recent performance has disappointed, the stock has created value for patient, long-term holders who bought in at lower levels.

The stock's year-to-date performance shows a decline of 4.49% against the Sensex's 7.66% gain, underperforming by 12.15 percentage points. However, recent momentum has shown signs of stabilisation, with the stock up 3.81% over the past month compared to the Sensex's 2.56% gain. The stock's high beta of 1.50 indicates it is 50% more volatile than the broader market, making it susceptible to larger swings in both directions. With a volatility of 51.65% compared to the Sensex's 12.26%, Sportking India falls into the "high risk, low return" category based on one-year risk-adjusted metrics.

Technical indicators present a mixed picture. The stock recently shifted to a "mildly bearish" trend on November 13, 2025, after briefly turning "mildly bullish" in late October. The stock trades below all key moving averages—5-day (₹100.22), 20-day (₹99.40), 50-day (₹103.36), 100-day (₹109.66), and 200-day (₹102.23)—indicating a lack of technical momentum. Weekly and monthly MACD signals remain bearish, whilst Bollinger Bands suggest mild bearish pressure. The immediate support lies at the 52-week low of ₹69.91, whilst resistance clusters around the 20-day moving average of ₹99.40 and the 100-day moving average of ₹109.66.

Investment Thesis: Quality Company Facing Cyclical Headwinds

Sportking India's investment case rests on several pillars. The company has demonstrated strong historical return metrics with an average ROE of 22.93% and ROCE of 21.34%, significantly outperforming most textile sector peers. These superior returns reflect efficient capital allocation and operational excellence over the long term. The company's debt management has improved, with declining leverage ratios and strong operational cash flow generation of ₹414.00 crores in FY2025. Zero promoter pledging and stable 74.36% promoter holding provide governance comfort.

However, near-term challenges cannot be ignored. The company's latest ROE of 11.19% and ROCE of 10.90% represent significant deterioration from historical averages, indicating declining capital efficiency. Quarterly financial performance has been flat to negative, with margin compression across operating and net profit levels. The debtor turnover ratio hitting its lowest level at 5.08 times raises working capital concerns. Technical indicators remain bearish, and the stock has underperformed across most timeframes. The absence of institutional investors limits liquidity and discovery of fair value.

The company's Mojo score of 58 out of 100 places it in "HOLD" territory, reflecting this mixed outlook. The valuation is attractive at 11.31 times P/E (53% discount to industry), but the flat financial trend and mildly bearish technical trend offset this appeal. The quality grade of "Average" acknowledges the company's long-term track record whilst recognising recent performance deterioration.

Outlook: What to Watch

Sportking India stands at a crossroads. The company's strong historical track record and attractive valuation provide a foundation for potential recovery, but near-term operational challenges and margin pressures require close monitoring. The next few quarters will be critical in determining whether the company can arrest the decline in profitability metrics and return to its historical performance levels.

The textile sector's outlook remains mixed, with demand recovery dependent on both domestic consumption trends and export market dynamics. Raw material cost stability and the company's ability to pass through price increases will be crucial for margin recovery. The company's strong cash generation capability and improving balance sheet provide a buffer to navigate near-term challenges, but execution on operational efficiency will determine whether the attractive valuation translates into shareholder returns.

For existing shareholders, the stable promoter holding and zero pledging provide comfort about governance and long-term commitment. The company's historical track record of generating superior returns on capital suggests the current weakness may be temporary. However, fresh investors should await clearer signs of margin stabilisation and improvement in quarterly performance before committing capital. The stock's high volatility and lack of institutional support make it suitable primarily for investors with higher risk tolerance and longer investment horizons.