Amarjothi Spinning Mills Ltd Upgraded to Sell on Technical Improvements Despite Weak Fundamentals

Quality Assessment: Weak Fundamentals Persist

Amarjothi Spinning Mills continues to exhibit weak long-term fundamental strength. Over the past five years, the company has recorded a modest compound annual growth rate (CAGR) of 11.46% in operating profits, which is below industry expectations for a growth-oriented textile firm. The average Return on Equity (ROE) stands at a low 7.23%, indicating limited profitability relative to shareholders’ funds. This low ROE suggests that the company is not efficiently generating returns on invested capital, a critical factor for long-term investors.

Recent quarterly results have been flat, with the second quarter of fiscal year 2025-26 showing no significant improvement. Net sales over the latest six months have declined sharply by 24.72% to ₹99.53 crores, signalling operational challenges amid a competitive textile environment. This stagnation in financial performance has contributed to the company’s continued underperformance relative to broader market benchmarks.

Valuation: Attractive but Reflective of Risks

Despite the weak fundamentals, Amarjothi Spinning Mills is currently trading at a very attractive valuation. The stock’s Price to Book (P/B) ratio is a low 0.5, indicating that the market values the company at half its book value. This discount suggests that investors are pricing in the risks associated with the company’s financial health and growth prospects.

The stock’s Return on Equity of 6.2% further supports the notion of undervaluation, as it implies the company is generating some returns on equity, albeit modest. However, the valuation attractiveness is tempered by the fact that the stock has underperformed the BSE500 index consistently over the last three years, with a one-year return of -25.24% compared to the Sensex’s positive 5.16% return. This persistent underperformance highlights the market’s cautious stance on the stock’s recovery potential.

Financial Trend: Flat to Negative Growth

The financial trend for Amarjothi Spinning Mills remains subdued. Over the past year, the company’s profits have declined by 9.3%, reflecting operational headwinds and possibly margin pressures in the textile sector. The stock’s returns over various time frames further illustrate this trend: a negative 25.24% over one year and a negative 16.46% over three years, both significantly lagging the Sensex’s respective returns of 5.16% and 35.67%.

While the five-year return of 41.92% is positive, it still falls short of the Sensex’s 74.40% gain over the same period, underscoring the company’s relative underperformance. The ten-year return of 59.06% also pales in comparison to the Sensex’s 224.57%, reinforcing the view that Amarjothi Spinning Mills has struggled to keep pace with broader market growth.

Technical Analysis: Key Driver of Upgrade

The primary catalyst for the upgrade from Strong Sell to Sell is the improvement in Amarjothi Spinning Mills’ technical grade. The technical trend has shifted from bearish to mildly bearish, signalling a tentative stabilisation in the stock’s price movement. Several technical indicators underpin this change:

• MACD: The Moving Average Convergence Divergence (MACD) indicator is mildly bullish on the weekly chart but remains bearish on the monthly chart, suggesting short-term momentum improvement amid longer-term caution.
• RSI: The Relative Strength Index (RSI) shows no clear signal on the weekly timeframe but is bullish on the monthly scale, indicating potential for upward price movement over the medium term.
• Bollinger Bands: Both weekly and monthly Bollinger Bands remain mildly bearish, reflecting ongoing volatility and price pressure.
• Moving Averages: Daily moving averages continue to be bearish, highlighting that short-term price trends have yet to fully reverse.
• KST Indicator: The Know Sure Thing (KST) indicator is mildly bullish weekly but bearish monthly, mirroring the mixed signals from other momentum indicators.
• Dow Theory: Weekly Dow Theory signals are mildly bullish, while monthly signals show no clear trend, suggesting cautious optimism among technical analysts.

These mixed but improving technical signals have encouraged a more positive outlook from market technicians, justifying the upgrade in the technical grade and the overall Mojo Grade from Strong Sell to Sell. The stock’s current price of ₹138.30, up 1.39% on the day, remains closer to its 52-week low of ₹129.00 than its high of ₹203.00, reflecting the cautious sentiment.

Market Capitalisation and Shareholding

Amarjothi Spinning Mills holds a Market Cap Grade of 4, indicating a mid-sized market capitalisation relative to its peers in the Garments & Apparels sector. The majority shareholding remains with promoters, which can be a double-edged sword: while promoter control can ensure strategic continuity, it may also limit liquidity and influence market perception.

Comparative Performance: Lagging Behind Benchmarks

When compared with the Sensex, Amarjothi Spinning Mills has consistently underperformed across multiple time horizons. Over the past week, the stock returned 4.50%, outperforming the Sensex’s -1.00% return. However, this short-term gain is overshadowed by longer-term underperformance: a one-month return of -2.33% versus the Sensex’s -4.67%, year-to-date return of -2.43% against -5.28%, and a one-year return of -25.24% compared to the Sensex’s positive 5.16%.

Over three and five years, the stock’s returns of -16.46% and 41.92% respectively lag behind the Sensex’s 35.67% and 74.40%. Even over a decade, Amarjothi Spinning Mills’ 59.06% return is significantly below the Sensex’s 224.57%. This persistent lag highlights the challenges the company faces in delivering shareholder value relative to broader market indices.

Outlook and Investor Considerations

While the upgrade to a Sell rating reflects some technical improvement, investors should remain cautious given the company’s weak financial trends and modest profitability. The attractive valuation may appeal to value investors seeking a turnaround opportunity, but the flat recent financial results and consistent underperformance suggest that a recovery is not imminent.

Investors should closely monitor upcoming quarterly results for signs of operational improvement and watch technical indicators for confirmation of a sustained trend reversal. Given the mixed signals, a cautious approach is warranted, with a focus on risk management and peer comparison to identify potentially superior investment opportunities within the Garments & Apparels sector.

Summary of Ratings and Scores

As of 1 February 2026, Amarjothi Spinning Mills holds a Mojo Score of 31.0 and a Mojo Grade of Sell, upgraded from Strong Sell. The Market Cap Grade is 4. Technical indicators have improved from bearish to mildly bearish, driving the rating change. However, the company’s quality grade remains weak due to low ROE and flat financial performance, while valuation is attractive but reflective of underlying risks.

Conclusion

Amarjothi Spinning Mills Ltd’s recent upgrade in investment rating is a reflection of improved technical signals rather than a fundamental turnaround. The company’s weak financial trends and underwhelming profitability continue to weigh on its outlook. Investors should weigh the technical optimism against the persistent fundamental challenges before making allocation decisions.

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