The quarter witnessed sequential deterioration across key operational metrics, with operating profit margin (excluding other income) contracting to a concerning 3.62% from 5.20% in the previous quarter. Revenue declined 4.51% quarter-on-quarter to ₹183.60 crores, whilst the company's reliance on other income—which constituted 829.58% of profit before tax—raises fundamental questions about the sustainability of core business profitability.
The textile manufacturer's quarterly performance reflects broader challenges in the garments and apparels industry, where pricing power remains constrained and input cost volatility continues to pressure margins. Suryalakshmi Cotton Mills operates two manufacturing units in Mahaboobnagar District, Telangana, with an integrated business model spanning cotton yarn production through to branded garments, alongside a captive thermal power plant.
| Quarter | Dec'25 | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 |
|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 183.60 | 192.27 | 178.35 | 246.37 | 193.52 | 193.18 |
| QoQ Change (%) | -4.51% | +7.80% | -27.61% | +27.31% | +0.18% | — |
| YoY Change (%) | -5.13% | -0.47% | +12.38% | — | — | — |
| Net Profit (₹ Cr) | 0.52 | 0.31 | 1.46 | 2.82 | 0.92 | -0.53 |
| Operating Margin (%) | 3.62% | 5.20% | 7.69% | 5.66% | 6.16% | 6.49% |
| PAT Margin (%) | 0.28% | 0.16% | 0.82% | 1.14% | 0.48% | -0.27% |
Financial Performance: Deteriorating Core Profitability
The third quarter of FY2026 exposed fundamental weaknesses in Suryalakshmi Cotton Mills' operational efficiency. Net sales declined 5.13% year-on-year to ₹183.60 crores and fell 4.51% sequentially from ₹192.27 crores in Q2 FY26. More concerning is the sharp compression in operating profit before depreciation, interest, and tax (excluding other income), which plummeted to ₹6.64 crores—the lowest level across recent quarters and representing a 44.33% decline from ₹11.93 crores in Q3 FY25.
The company's operating margin (excluding other income) contracted to 3.62% in Q3 FY26 from 6.16% in the corresponding quarter last year, marking a deterioration of 254 basis points. This margin erosion reflects both top-line pressure and inadequate cost management. Employee costs remained elevated at ₹18.06 crores, whilst interest expenses of ₹6.91 crores consumed a substantial portion of operating profits, resulting in an operating profit to interest coverage ratio of just 0.96 times—the lowest on record for the company.
The quality of earnings remains questionable, with other income of ₹5.89 crores accounting for an extraordinary 829.58% of profit before tax. This dependency on non-operating income to sustain bottom-line profitability suggests core business operations are struggling to generate adequate returns. Profit before tax (excluding other income) stood at a negative ₹5.18 crores, highlighting the unsustainable nature of current profitability levels.
On a nine-month basis for FY2026 (April-December 2025), the company reported cumulative net sales of ₹554.22 crores with a net profit of ₹2.29 crores, translating to a meagre PAT margin of 0.41%. The company's gross profit margin for Q3 FY26 stood at 3.06%, marginally improving from 2.81% in Q2 FY26 but reflecting the persistent pressure on pricing power and product mix.
Operational Challenges: Weak Capital Efficiency and High Leverage
Suryalakshmi Cotton Mills' operational metrics paint a concerning picture of capital efficiency. The company's return on equity (ROE) languishes at just 1.96% on average and 1.65% for the latest period—substantially below industry standards and indicative of poor capital utilisation. Return on capital employed (ROCE) stands at 8.21% on average and 5.96% for the most recent period, reflecting weak profitability relative to the capital base deployed in the business.
The company's leverage profile adds to investor concerns. With an average debt-to-EBITDA ratio of 4.53 times and net debt-to-equity of 0.94, the balance sheet carries significant financial risk. Interest coverage, measured by EBIT-to-interest, averages just 1.51 times, leaving minimal cushion for any deterioration in operating performance. The Q3 FY26 operating profit-to-interest ratio of 0.96 times represents a critical threshold breach, indicating that core operations are unable to service debt obligations without relying on other income.
Critical Concern: Unsustainable Profit Structure
Other income constituted 829.58% of profit before tax in Q3 FY26, meaning the company's core textile operations generated negative profitability of ₹5.18 crores before other income. This dependency on non-operating income raises serious questions about business model sustainability and the ability to generate consistent returns from manufacturing operations.
The company's sales-to-capital employed ratio of 1.50 times suggests moderate asset turnover, but this metric loses significance when core profitability remains deeply challenged. Cash and cash equivalents on a half-yearly basis stood at ₹7.38 crores—the lowest level recorded—limiting financial flexibility to navigate operational headwinds or invest in margin-enhancing initiatives.
Industry Context: Navigating Textile Sector Headwinds
The garments and apparels sector has faced a challenging operating environment characterised by subdued domestic demand, intense competition, and volatile raw material costs. Cotton prices, whilst moderating from previous peaks, continue to exhibit volatility that pressures manufacturers with limited pricing power. The integrated nature of Suryalakshmi Cotton Mills' operations—spanning yarn, denim fabric, and garments—theoretically provides vertical integration benefits, but execution challenges have prevented the company from realising these advantages.
The company's five-year sales growth of 14.28% and EBIT growth of 53.51% reflect historical expansion, but recent quarterly trends suggest momentum has stalled. The textile sector's structural challenges include fragmented competition, working capital intensity, and dependence on export markets that remain sensitive to global economic conditions. Suryalakshmi Cotton Mills' underperformance relative to the broader market—with a one-year return of -6.42% versus the Sensex's +10.41%—underscores company-specific execution issues beyond sectoral headwinds.
Peer Comparison: Valuation Discount Reflects Fundamental Weakness
Relative to peers in the garments and apparels sector, Suryalakshmi Cotton Mills trades at a significant discount across key valuation metrics, but this discount appears justified by materially weaker fundamentals. The company's ROE of 1.96% substantially lags peers such as Lambodhara Textiles (12.22%), Shri Dinesh Mills (7.59%), and Fiberweb India (5.70%). This capital efficiency gap explains the company's compressed price-to-book ratio of 0.51 times versus peer averages around 0.80 times.
| Company | P/E (TTM) | P/BV | ROE (%) | Debt/Equity | Div Yield |
|---|---|---|---|---|---|
| Suryalak. Cott. | 30.71 | 0.51 | 1.96% | 0.94 | — |
| Sh. Dinesh Mills | 9.10 | 0.67 | 7.59% | -0.77 | 0.85% |
| Fiberweb (India) | 7.55 | 0.68 | 5.70% | 0.00 | — |
| Lovable Lingerie | 58.26 | 0.68 | 2.39% | 0.01 | — |
| Lambodhara Text. | 14.78 | 0.98 | 12.22% | 0.07 | 0.43% |
The company's P/E ratio of 30.71 times appears elevated relative to its weak ROE profile, particularly when compared to better-capitalised peers like Shri Dinesh Mills (P/E of 9.10 times) and Fiberweb India (7.55 times). The PEG ratio of 2.74 suggests the stock is expensive relative to growth prospects, especially considering the negative financial trend and deteriorating margins. Suryalakshmi Cotton Mills ranks sixth among its peer group by market capitalisation at ₹117.00 crores, reflecting its micro-cap status and limited institutional interest.
Valuation Analysis: Attractive Valuation Cannot Offset Fundamental Concerns
Despite trading at a price-to-book ratio of 0.51 times—representing a significant discount to book value—Suryalakshmi Cotton Mills' valuation appears to be a classic value trap rather than a genuine opportunity. The company's valuation grade of "Attractive" reflects statistical cheapness, but this metric fails to capture the deteriorating quality of earnings and structural profitability challenges.
The stock trades at an EV/EBITDA multiple of 7.88 times and EV/EBIT of 12.50 times, which appear reasonable on the surface. However, these multiples lose relevance when EBIT coverage of interest expenses has fallen below 1.0 times, signalling that the company is destroying value rather than creating it. The EV/Sales ratio of 0.48 times and EV/Capital Employed of 0.74 times reflect the market's scepticism about the company's ability to generate adequate returns on its asset base.
The stock currently trades at ₹72.89, representing an 11.54% discount to its 52-week high of ₹82.40 but a substantial 47.25% premium to its 52-week low of ₹49.50. The recent 15.90% surge in share price appears disconnected from fundamental performance, likely driven by technical factors or low liquidity rather than improving business prospects. The company has not paid dividends since August 2017, further limiting total return potential for shareholders.
Shareholding Pattern: Stable Promoter Base, Minimal Institutional Interest
Suryalakshmi Cotton Mills' shareholding structure has remained remarkably stable over recent quarters, with promoter holding steady at 60.93% across the last five quarters. The promoter group, led by L.N. Agarwal (25.73%) and family members including Paritosh Agarwal (10.48%) and various family trusts, demonstrates long-term commitment to the business. However, pledged shares of 1.23% indicate some financial stress at the promoter level, albeit at manageable levels.
| Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoter | 60.93% | 60.93% | 60.93% | 60.93% | 0.00% |
| FII | 0.21% | 0.21% | 0.21% | 0.21% | 0.00% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Insurance | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 1.82% | 0.36% | 0.36% | 0.36% | +1.46% |
| Non-Institutional | 37.04% | 38.50% | 38.50% | 38.50% | -1.46% |
Institutional participation remains negligible, with FII holdings at just 0.21%, zero mutual fund presence, and no insurance company holdings. The marginal increase in Other DII holdings to 1.82% in December 2025 from 0.36% in previous quarters represents a modest positive development, but overall institutional ownership of just 2.03% reflects limited confidence from sophisticated investors. The absence of mutual fund and insurance company participation is particularly telling, as these institutions typically avoid companies with weak governance, poor capital efficiency, or uncertain business models.
Stock Performance: Short-Term Momentum Masks Long-Term Underperformance
Suryalakshmi Cotton Mills' stock has exhibited significant volatility with a concerning long-term track record. The recent surge of 15.90% on February 11, 2026, and strong one-week (+20.18%), one-month (+27.88%), and three-month (+19.51%) returns appear impressive on the surface. However, these short-term gains must be viewed in the context of substantial long-term underperformance and the stock's high-risk profile.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | +20.18% | +0.50% | +19.68% |
| 1 Month | +27.88% | +0.79% | +27.09% |
| 3 Months | +19.51% | +0.43% | +19.08% |
| 6 Months | +8.79% | +4.50% | +4.29% |
| YTD | +20.36% | -1.16% | +21.52% |
| 1 Year | -6.42% | +10.41% | -16.83% |
| 2 Years | -7.38% | +17.65% | -25.03% |
| 3 Years | +29.12% | +38.81% | -9.69% |
The one-year return of -6.42% versus the Sensex's +10.41% represents an alpha of -16.83%, whilst the two-year underperformance stands at -25.03%. The stock has also underperformed its sector, with the garments and apparels index delivering -0.59% over the past year compared to Suryalakshmi's -6.42%. The company's beta of 1.50 classifies it as a high-beta stock, meaning it exhibits 50% greater volatility than the broader market—a characteristic that amplifies both gains and losses.
With an annualised volatility of 43.98% and a negative Sharpe ratio, the stock falls into the "HIGH RISK LOW RETURN" category. The stock currently trades above all key moving averages—5-day (₹61.41), 20-day (₹57.27), 50-day (₹58.22), 100-day (₹60.51), and 200-day (₹64.78)—suggesting technical momentum, but this positioning appears disconnected from deteriorating fundamentals.
Investment Thesis: Multiple Red Flags Outweigh Valuation Discount
The investment case for Suryalakshmi Cotton Mills rests primarily on statistical valuation cheapness, but this single positive factor is overwhelmed by multiple structural concerns. The company's quality assessment of "Average" and financial trend classification of "Negative" reflect the deteriorating business fundamentals. The proprietary Mojo score of 37/100 places the stock firmly in "SELL" territory, having previously occupied "STRONG SELL" status in December 2025.
The company's PEG ratio of 2.74 suggests overvaluation relative to growth prospects, whilst the absence of dividend payments since 2017 eliminates any income component to total returns. Management efficiency metrics remain deeply concerning, with ROCE of just 8.21% and ROE of 1.96% indicating poor capital allocation and execution capabilities. The high debt-to-EBITDA ratio of 4.53 times and weak interest coverage leave minimal margin for error should operating conditions deteriorate further.
Key Strengths & Risk Factors
Key Strengths ✓
- Integrated Business Model: Vertical integration from yarn to garments provides theoretical cost advantages
- Captive Power Plant: In-house thermal power generation offers energy security and potential cost benefits
- Stable Promoter Holding: Consistent 60.93% promoter stake demonstrates long-term commitment
- Historical Growth: Five-year sales CAGR of 14.28% and EBIT growth of 53.51% show past expansion capability
- Attractive Valuation: P/BV of 0.51x represents significant discount to book value
Key Concerns ⚠
- Margin Collapse: Operating margin fell to 3.62%, lowest in recent history, down 254 bps YoY
- Unsustainable Profitability: Other income at 829.58% of PBT; core operations loss-making
- Weak Capital Efficiency: ROE of 1.96% and ROCE of 8.21% indicate poor returns on invested capital
- High Leverage Risk: Debt-to-EBITDA of 4.53x with interest coverage below 1.0x in Q3 FY26
- Negligible Institutional Interest: Just 2.03% institutional ownership; zero mutual fund participation
- Deteriorating Cash Position: Cash reserves at ₹7.38 crores—lowest level recorded
- No Dividend Policy: No dividends since August 2017 despite promoter control
Outlook: What to Watch
Positive Catalysts
- Margin recovery above 6% operating margin threshold
- Core business profitability without dependence on other income
- Interest coverage improvement above 1.5x sustainable level
- Institutional investor participation or mutual fund entry
- Working capital cycle improvement and cash generation
Red Flags
- Further margin compression below 3% operating margin
- Interest coverage remaining below 1.0x for consecutive quarters
- Continued revenue decline or loss of market share
- Increase in promoter pledging beyond current 1.23% level
- Deterioration in debt metrics or covenant breaches
The path forward for Suryalakshmi Cotton Mills requires urgent operational restructuring to restore core business profitability. The company must address margin compression through better product mix management, cost optimisation, and improved asset utilisation. Without meaningful improvement in ROCE and interest coverage metrics, the company faces continued value destruction for shareholders despite statistical valuation cheapness.
The Verdict: Fundamental Concerns Override Valuation Discount
Score: 37/100
For Fresh Investors: Avoid initiating positions. The combination of deteriorating margins, unsustainable profit structure dependent on other income, weak capital efficiency (ROE 1.96%, ROCE 8.21%), and high leverage risk (debt-to-EBITDA 4.53x with interest coverage below 1.0x) presents an unfavourable risk-reward profile. The attractive valuation (P/BV 0.51x) represents a value trap rather than opportunity, as fundamental business quality continues to deteriorate.
For Existing Holders: Consider reducing exposure or exiting positions. The negative financial trend, operating margin compression to 3.62% (lowest on record), and core business loss-making status (PBT excluding other income at ₹-5.18 crores) signal structural challenges unlikely to reverse quickly. The recent 20% price surge appears technically driven rather than fundamentally justified, potentially offering an exit opportunity before further deterioration materialises.
Fair Value Estimate: ₹55-60 (18-25% downside from current levels), based on normalised earnings capacity assuming margin recovery to 5-6% levels and sustainable core profitability—outcomes that appear increasingly unlikely without significant operational restructuring.
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.
