Garment Mantra Lifestyle Ltd Upgraded to Hold on Improved Financials and Technicals

Financial Performance Drives Upgrade

The primary catalyst for the upgrade is Garment Mantra’s very positive financial trend observed in the quarter ended December 2025. The company’s financial trend score surged from 18 to 29 over the past three months, signalling robust operational improvements. Net sales for the quarter reached a record high of ₹98.91 crores, while profit before depreciation, interest and tax (PBDIT) climbed to ₹4.42 crores, also the highest recorded. Profit before tax excluding other income stood at ₹3.66 crores, and net profit after tax (PAT) surged to ₹4.27 crores, marking a remarkable growth trajectory.

Additionally, earnings per share (EPS) for the quarter rose to ₹0.08, the highest in recent periods, underscoring the company’s enhanced profitability. This strong financial performance contrasts favourably with previous quarters and has been a key factor in the revised investment stance.

However, some operational challenges remain. Inventory turnover ratio for the half-year period is at a low 1.98 times, indicating slower stock movement. Cash and cash equivalents are minimal at ₹0.08 crores, and debtor turnover ratio is also subdued at 3.47 times. Furthermore, non-operating income constitutes a significant 35.90% of profit before tax, which may raise concerns about the sustainability of earnings from core operations.

Valuation Metrics Reflect Attractive Opportunity

Garment Mantra’s valuation grade has improved from very attractive to attractive, signalling a more balanced risk-reward profile. The company currently trades at a price-to-earnings (PE) ratio of 8.85, which is modest compared to many peers in the textile industry. Its price-to-book value stands at 1.22, while enterprise value to EBIT and EBITDA ratios are 12.20 and 10.20 respectively, indicating reasonable valuation levels relative to earnings and cash flow.

The enterprise value to capital employed ratio is a low 1.16, and EV to sales is 0.45, both suggesting the stock is trading at a discount compared to sector averages. The PEG ratio is exceptionally low at 0.05, reflecting the company’s strong earnings growth relative to its valuation. Return on capital employed (ROCE) is 5.8%, and return on equity (ROE) is 7.67%, which, while modest, support the company’s current valuation stance.

When compared with peers such as R&B Denims and SBC Exports, which are classified as very expensive with PE ratios above 47, Garment Mantra’s valuation appears more compelling for investors seeking value within the garments and apparels sector.

Technical Indicators Signal Mildly Bullish Momentum

The technical grade for Garment Mantra has shifted from sideways to mildly bullish, reflecting improving market sentiment. Weekly and monthly Moving Average Convergence Divergence (MACD) indicators are mildly bullish, supported by bullish Bollinger Bands on both weekly and monthly charts. The KST (Know Sure Thing) indicator and Dow Theory signals also align with a mildly bullish outlook on weekly and monthly timeframes.

However, the daily moving averages remain mildly bearish, and the weekly Relative Strength Index (RSI) is bearish, indicating some short-term caution among traders. Despite these mixed signals, the overall technical trend suggests a gradual positive shift in momentum, which has contributed to the upgrade in the stock’s rating.

Price action has been strong recently, with the stock price rising 7.60% on the day to ₹1.84, reaching a high of ₹1.88. Over the past month, the stock has delivered a remarkable 54.62% return, vastly outperforming the Sensex’s 0.79% gain. Year-to-date, the stock has appreciated 34.31%, while the Sensex declined by 1.16%, highlighting Garment Mantra’s relative strength in the current market environment.

Long-Term Performance and Industry Context

Over the past decade, Garment Mantra has delivered an impressive 374.13% return, outpacing the Sensex’s 267.00% gain. However, the company’s five-year return of -44.92% lags the Sensex’s 63.46%, reflecting some volatility and challenges in the medium term. Operating profit growth has been weak over the last five years, with a negative compound annual growth rate (CAGR) of -16.23%, and the company’s debt servicing ability remains constrained with a high Debt to EBITDA ratio of 5.60 times.

Despite these concerns, the recent turnaround in quarterly financials and improved technical outlook have prompted a reassessment of the stock’s prospects. The company’s majority shareholders remain non-institutional, which may influence liquidity and trading dynamics.

Summary and Outlook

Garment Mantra Lifestyle Ltd’s upgrade from Sell to Hold is underpinned by a marked improvement in its financial trend, attractive valuation metrics relative to peers, and a cautiously optimistic technical outlook. The company’s record quarterly sales and profits, combined with a low PEG ratio of 0.05 and reasonable ROCE and ROE figures, support the revised rating.

Investors should note the operational challenges such as low inventory turnover and limited cash reserves, as well as the significant contribution of non-operating income to profits. The stock’s recent strong price performance relative to the Sensex and its peers indicates growing market confidence, but the mixed technical signals suggest that some volatility may persist in the near term.

Overall, Garment Mantra presents a balanced investment case with improving fundamentals and valuation appeal, warranting a Hold rating as the company consolidates its gains and addresses operational inefficiencies.

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