LWS Knitwear Ltd Upgraded to Sell on Technical Improvement Despite Flat Financials

Quality Assessment: Persistent Fundamental Weakness

Despite the upgrade in rating, LWS Knitwear’s fundamental quality remains under pressure. The company’s long-term financial strength is weak, with an average Return on Capital Employed (ROCE) of just 7.21%, well below industry standards. This low ROCE indicates limited efficiency in generating returns from its capital base, a concern for long-term investors.

Additionally, the company’s debt servicing ability is strained, with a high Debt to EBITDA ratio of 5.96 times. Such leverage levels increase financial risk, especially in a volatile market environment. The recent quarterly results for Q3 FY25-26 were flat, with net sales declining sharply by 36.7% to ₹17.68 crores compared to the previous four-quarter average. The debtor turnover ratio also remains low at 2.47 times, signalling potential issues in receivables management and cash flow.

Valuation: Attractive but Reflective of Risks

On the valuation front, LWS Knitwear presents a mixed picture. The company’s ROCE of 10.8% on a trailing basis and an enterprise value to capital employed ratio of 0.8 suggest a very attractive valuation relative to peers. The stock is trading at a discount compared to its historical valuation averages, which could appeal to value investors seeking bargains in the textile trading space.

However, this valuation attractiveness is tempered by the company’s underperformance in returns. Over the past year, LWS Knitwear’s stock price has declined by 16.32%, significantly lagging the BSE500 index and its sector peers. Despite this, the company’s profits have risen by 43.6% over the same period, indicating some operational improvement that has yet to be fully reflected in the share price.

Financial Trend: Flat Performance Amidst Profit Growth

The financial trend for LWS Knitwear remains largely flat, with the company reporting subdued quarterly results in December 2025. Net sales have fallen sharply, yet profits have shown a notable increase of 43.6% over the past year. This divergence suggests cost control or margin improvement efforts are underway, but top-line growth remains elusive.

Return metrics over various periods highlight the stock’s inconsistent performance. While the five-year and ten-year returns are impressive at 548.98% and 1035.71% respectively, the one-year return is negative at -16.32%, underperforming the Sensex’s 8.52% gain. The stock has also lagged the BSE500 index over the last three years and three months, signalling challenges in sustaining momentum.

Technicals: Key Driver Behind Upgrade

The primary catalyst for the upgrade from Strong Sell to Sell is the improvement in technical indicators. The technical grade has shifted from bearish to mildly bearish, reflecting a subtle but meaningful change in market sentiment.

Weekly MACD readings have turned mildly bullish, although monthly MACD remains bearish, indicating short-term momentum is improving but longer-term trends are still cautious. The Relative Strength Index (RSI) shows no clear signal on a weekly basis but is bullish monthly, suggesting growing buying interest over the medium term.

Bollinger Bands remain mildly bearish on both weekly and monthly charts, while daily moving averages continue to show mild bearishness. The Know Sure Thing (KST) indicator is mildly bullish weekly but bearish monthly, and Dow Theory analysis reveals a mildly bullish weekly trend with no clear monthly trend. These mixed signals point to a tentative technical recovery that has not yet fully materialised.

Price action has been volatile, with the stock closing at ₹15.90 on 16 February 2026, down 1.18% from the previous close of ₹16.09. The 52-week high stands at ₹22.50 and the low at ₹13.50, indicating a wide trading range and potential for volatility ahead.

Comparative Returns and Market Context

When compared to the broader market, LWS Knitwear’s returns have been mixed. The stock outperformed the Sensex over the short term, with a 1-week return of 1.40% versus the Sensex’s -1.14%, and a 1-month return of 1.86% compared to the Sensex’s -1.20%. Year-to-date, the stock has gained 9.58%, while the Sensex declined by 3.04%. However, the longer-term underperformance remains a concern for investors seeking consistent growth.

The company’s majority ownership by promoters provides some stability, but the weak financial fundamentals and high leverage continue to weigh on investor confidence.

Investment Outlook: Cautious Optimism Amid Risks

In summary, the upgrade of LWS Knitwear Ltd’s rating to Sell from Strong Sell reflects a cautious optimism driven primarily by technical improvements. While the company’s valuation appears attractive and some profit growth is evident, fundamental weaknesses such as poor capital returns, high leverage, and declining sales remain significant headwinds.

Investors should weigh the improved technical signals against the company’s flat financial trends and weak long-term fundamentals. The stock’s recent outperformance relative to the Sensex in the short term may offer some tactical opportunities, but the overall risk profile remains elevated.

Given these factors, LWS Knitwear is best suited for investors with a higher risk tolerance who are comfortable with micro-cap volatility and are seeking potential value plays in the Trading & Distributors sector. Those prioritising financial strength and consistent growth may prefer to explore alternative investments.

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