Active Clothing Co Ltd Downgraded to Strong Sell Amid Technical and Fundamental Weakness

Quality Assessment: Weakening Fundamentals Raise Concerns

Active Clothing's fundamental quality remains under pressure, with the company exhibiting a low Return on Capital Employed (ROCE) averaging 8.93% over recent periods. This figure falls short of industry standards, indicating suboptimal utilisation of capital to generate profits. The company’s ability to service its debt is also strained, with a high Debt to EBITDA ratio of 4.42 times, suggesting elevated financial risk and limited flexibility to manage liabilities.

Quarterly results for Q3 FY25-26 were largely flat, with no significant growth in revenue or profitability. Interest expenses reached a peak of ₹3.12 crores, further weighing on net earnings. Despite a 95.5% rise in profits over the past year, the underlying financial strength remains fragile, as reflected in the stagnant operational performance and high leverage.

Valuation: Attractive Yet Reflective of Risks

From a valuation standpoint, Active Clothing presents an intriguing picture. The company trades at an Enterprise Value to Capital Employed ratio of 1.4, which is relatively attractive compared to its peers’ historical averages. This discount suggests that the market is pricing in the company’s risks and challenges. Additionally, the Price/Earnings to Growth (PEG) ratio stands at a low 0.2, signalling potential undervaluation relative to earnings growth.

However, this valuation attractiveness is tempered by the company’s weak fundamentals and deteriorating technical outlook, which may justify the cautious stance by analysts. Investors should weigh the valuation benefits against the risks posed by operational and financial uncertainties.

Financial Trend: Flat Performance Amid Rising Costs

The financial trend for Active Clothing has been largely stagnant in recent quarters. The company’s Q3 FY25-26 results showed flat revenue and profit growth, signalling a lack of operational momentum. This is particularly concerning given the rising interest costs, which reached ₹3.12 crores, the highest recorded in recent quarters, further pressuring margins.

Over the past year, the stock has underperformed significantly, delivering a negative return of -18.42%, while the broader BSE500 index generated a positive return of 11.06%. This divergence highlights the company’s struggles to keep pace with market expectations and sectoral peers.

Longer-term returns tell a more nuanced story. Over three and five years, Active Clothing has delivered impressive cumulative returns of 159.26% and 951.24% respectively, outperforming the Sensex’s 36.73% and 60.30% returns over the same periods. However, the recent one-year underperformance and flat quarterly results have overshadowed these gains, prompting a reassessment of the company’s near-term prospects.

Technical Analysis: Shift to Bearish Signals

The downgrade to Strong Sell is largely driven by a deterioration in technical indicators. The technical grade shifted from mildly bearish to outright bearish, reflecting weakening momentum and increased selling pressure.

Key technical signals include:

• MACD: Weekly readings are bearish, with monthly trends mildly bearish, indicating sustained downward momentum.
• Bollinger Bands: Weekly indicators show bearish signals, with monthly bands mildly bearish, suggesting price volatility skewed to the downside.
• Moving Averages: Daily moving averages are bearish, confirming short-term weakness in price action.
• KST (Know Sure Thing): Weekly readings are mildly bullish, but monthly trends remain mildly bearish, reflecting mixed momentum signals.
• Dow Theory: Weekly trends are mildly bearish, while monthly trends show no clear direction, underscoring uncertainty in broader market sentiment.

Price action further supports this bearish stance. The stock closed at ₹105.65 on 16 Feb 2026, down 1.12% from the previous close of ₹106.85. The 52-week high stands at ₹161.00, while the 52-week low is ₹82.55, indicating a wide trading range but recent weakness near the lower end.

Shareholding and Industry Context

Promoters remain the majority shareholders, maintaining control over the company’s strategic direction. Active Clothing operates within the Textile industry, a sector currently facing headwinds from fluctuating raw material costs and shifting consumer demand patterns. These external pressures compound the company’s internal challenges, contributing to the cautious outlook.

Investment Outlook: Strong Sell Reflects Heightened Risks

The comprehensive downgrade to a Strong Sell rating by MarketsMOJO reflects a confluence of factors that weigh heavily against Active Clothing’s near-term investment appeal. The company’s weak fundamental quality, characterised by low ROCE and high leverage, combined with flat financial trends and deteriorating technical signals, paint a challenging picture for investors.

While valuation metrics suggest the stock is trading at a discount, this is largely a reflection of the risks priced in by the market. The stock’s underperformance relative to the broader market over the past year further underscores the need for caution.

Investors should consider these factors carefully and monitor developments closely, particularly any improvements in operational performance or shifts in technical momentum that could signal a reversal in the current downtrend.

Comparative Performance Summary

To contextualise, Active Clothing’s returns over various periods compared to the Sensex are as follows:

• 1 Week: Stock -2.36%, Sensex -1.14%
• 1 Month: Stock +2.27%, Sensex -1.20%
• Year-to-Date: Stock +0.96%, Sensex -3.04%
• 1 Year: Stock -18.42%, Sensex +8.52%
• 3 Years: Stock +159.26%, Sensex +36.73%
• 5 Years: Stock +951.24%, Sensex +60.30%

This data highlights the stock’s strong long-term growth but recent underperformance and volatility, reinforcing the rationale behind the current rating adjustment.

Conclusion

Active Clothing Co Ltd’s downgrade to Strong Sell is a clear signal from analysts and market observers that the stock faces significant headwinds. Investors should approach with caution, given the combination of weak fundamentals, flat financial trends, and bearish technical indicators. While valuation metrics offer some appeal, the risks currently outweigh potential rewards, making it prudent to consider alternative investment opportunities within the Garments & Apparels sector.

Upgrade at special rates, valid only for the next few days. Claim Your Special Rate →