Amarjothi Spinning Mills Ltd Upgraded to Sell on Mixed Financial and Quality Signals

Financial Trend Deteriorates Amid Weak Quarterly Performance

The company’s financial trend has notably deteriorated, shifting from a flat to a negative trajectory in the latest quarter ending December 2025. Amarjothi Spinning Mills reported a very negative financial performance, with the financial trend score plunging from -4 to -25 over the past three months. Key quarterly metrics highlight this downturn: Profit After Tax (PAT) fell sharply by 34.8% to ₹1.44 crore, while Operating Profit Before Depreciation, Interest and Taxes (PBDIT) dropped to ₹5.02 crore, the lowest in recent periods.

Return on Capital Employed (ROCE) for the half-year stood at a low 8.41%, signalling diminished efficiency in capital utilisation. The operating profit to interest coverage ratio also declined to 2.71 times, indicating tighter margins for servicing debt. Although the debt-to-equity ratio remains modest at 0.27 times, it is the highest recorded for the company, suggesting a cautious rise in leverage. Net sales for the quarter were subdued at ₹28.14 crore, reflecting weak demand or pricing pressures in the textile sector.

Quality Grade Improves to Average on Moderate Growth and Stability

Despite the financial setbacks, Amarjothi Spinning Mills’ quality grade has improved from below average to average. This upgrade is supported by steady, albeit modest, long-term growth metrics. Over the past five years, the company has achieved a sales growth rate of 3.74% and an EBIT growth of 8.47%, indicating some operational expansion. The average EBIT to interest coverage ratio of 2.71 times and a low average net debt to equity ratio of 0.06 times reflect manageable financial risk.

Return on Equity (ROE) averaged 7.23%, which, while low, is consistent with the company’s historical performance and industry peers. The average Return on Capital Employed (ROCE) of 9.75% further supports the quality upgrade, suggesting that the company is generating reasonable returns on its investments. Dividend payout ratio remains conservative at 13.09%, and the absence of pledged shares and institutional holdings points to stable promoter control and limited external pressure.

Valuation Remains Attractive Despite Profit Declines

From a valuation perspective, Amarjothi Spinning Mills continues to present an attractive proposition. The stock trades at ₹142.90, down 4.54% on the day and below its 52-week high of ₹195.00, but above the 52-week low of ₹129.00. The company’s Price to Book Value ratio stands at a low 0.5, signalling undervaluation relative to its peers in the garments and apparels sector.

Despite a 13% decline in profits over the past year and a 18.55% negative return in the same period, the stock’s valuation discount may appeal to value investors seeking turnaround opportunities. However, the company’s underperformance relative to the broader market is stark: while the BSE Sensex has delivered 9.85% returns over the last year, Amarjothi Spinning Mills has lagged significantly, with negative returns over one, three, and five-year horizons.

Technical Indicators Reflect Short-Term Weakness

Technically, the stock has shown signs of short-term weakness. The recent trading range has seen the price fluctuate between ₹140.30 and ₹147.95, with a previous close at ₹149.70. The one-week return of -3.54% contrasts with a positive 0.43% gain in the Sensex, indicating relative underperformance. However, the one-month return of 4.77% suggests some recovery potential in the near term.

Over longer periods, the stock’s returns have been disappointing compared to benchmarks: a 17.76% loss over three years versus a 37.89% gain in the Sensex, and a 94.03% gain over ten years compared to 264.02% for the benchmark. These figures highlight persistent challenges in maintaining momentum and investor confidence.

Comprehensive Analysis Supports the Upgrade to Sell

The upgrade from Strong Sell to Sell reflects a balanced view of Amarjothi Spinning Mills’ current position. While the company’s financial trend has worsened, the improvement in quality metrics and attractive valuation provide some offsetting positives. The low debt levels and stable promoter holding further reduce risk, but the weak profitability and underwhelming returns relative to the market remain significant concerns.

Investors should note the company’s poor management efficiency, as evidenced by a low average ROE of 7.23%, which limits shareholder value creation. The modest sales growth of 3.74% and operating profit growth of 8.47% over five years indicate slow expansion, insufficient to drive a robust turnaround. The very negative quarterly results in December 2025, including a 34.8% drop in PAT, underscore the challenges ahead.

Given these factors, the Sell rating suggests cautious positioning. The stock may appeal to value-oriented investors willing to tolerate short-term volatility in anticipation of a recovery, but it remains unsuitable for those seeking strong growth or momentum plays in the garments and apparels sector.

Outlook and Investor Considerations

Looking forward, Amarjothi Spinning Mills must address its operational inefficiencies and improve profitability to justify a more positive rating. Monitoring quarterly earnings for signs of stabilisation or improvement in margins will be critical. Additionally, any strategic initiatives to enhance sales growth or reduce costs could shift the outlook favourably.

For now, the company’s position as a micro-cap in a competitive textile industry, combined with its mixed financial and quality profile, warrants a Sell rating. Investors should weigh the risks of continued underperformance against the potential valuation upside and consider alternative opportunities within the sector or broader market.

Summary of Key Metrics

• Financial Trend Score: Declined from -4 to -25 (negative)
• PAT (Q3 FY25-26): ₹1.44 crore, down 34.8%
• ROCE (HY): 8.41%, lowest recorded
• Operating Profit to Interest Coverage (Q): 2.71 times
• Debt-Equity Ratio (HY): 0.27 times, highest recorded
• Sales Growth (5 years): 3.74%
• EBIT Growth (5 years): 8.47%
• Average ROE: 7.23%
• Price to Book Value: 0.5 (attractive valuation)
• Stock Price: ₹142.90 (as of 13 Feb 2026)
• 1-Year Stock Return: -18.55% vs Sensex +9.85%

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