LWS Knitwear Ltd Upgraded to Sell on Technical Improvements Despite Lingering Fundamental Concerns

Technical Trend Improvement Spurs Upgrade

The most significant factor behind the rating change was the improvement in the technical grade. Previously classified as bearish, the technical trend for LWS Knitwear has shifted to mildly bearish on a weekly basis, signalling a tentative recovery in market sentiment. Key technical indicators present a nuanced picture: the Moving Average Convergence Divergence (MACD) is mildly bullish on the weekly chart but remains bearish monthly, while the Relative Strength Index (RSI) shows no clear signal on either timeframe.

Bollinger Bands continue to suggest mild bearishness both weekly and monthly, and daily moving averages remain mildly bearish. However, the Know Sure Thing (KST) indicator is mildly bullish weekly, offset by a bearish monthly reading. Dow Theory assessments indicate a mildly bearish weekly trend but no definitive monthly trend. These mixed signals suggest that while short-term momentum is improving, longer-term technicals remain under pressure.

On the price front, LWS Knitwear closed at ₹16.00 on 7 January 2026, up from the previous close of ₹15.40, with intraday highs reaching ₹16.88. The stock remains well below its 52-week high of ₹31.39 but above its 52-week low of ₹13.50, indicating a volatile trading range over the past year.

Valuation Remains Attractive Despite Weak Returns

From a valuation perspective, LWS Knitwear presents a compelling case. The company’s Return on Capital Employed (ROCE) stands at a modest 7.21%, reflecting weak long-term fundamental strength. However, the stock’s Enterprise Value to Capital Employed ratio is a very attractive 0.8, indicating that the market values the company at a discount relative to its capital base. This valuation discount is further underscored by the stock trading below its peers’ average historical valuations.

Despite a challenging year with a stock return of -46.83% over the last 12 months, LWS Knitwear’s profits have risen by 43.6% during the same period. This divergence between earnings growth and share price performance suggests that the market has yet to fully price in the company’s improving profitability, potentially offering value for investors willing to look beyond near-term volatility.

Financial Trend Shows Flat Performance and Debt Concerns

Financially, LWS Knitwear has delivered flat results in the second quarter of fiscal year 2025-26, with no significant growth in revenue or earnings. The company’s ability to service debt remains a concern, with a high Debt to EBITDA ratio of 5.96 times, signalling elevated leverage and potential liquidity risks. Additionally, the Debtors Turnover Ratio for the half-year period is low at 2.47 times, indicating slower collection efficiency and potential working capital stress.

These financial metrics contribute to the cautious stance on the stock, as weak fundamentals and high leverage limit the company’s capacity to capitalise on any market or operational improvements. The stock’s underperformance relative to benchmarks is notable: it has lagged the BSE500 index over the past one year, three years, and three months, with returns of -46.83%, 1.27%, and negative in recent months respectively, compared to the BSE500’s positive returns of 9.10% and 42.01% over similar periods.

Quality Assessment and Shareholding Structure

LWS Knitwear’s quality grade remains low, consistent with its Sell rating. The company’s average ROCE of 7.21% is below industry standards, reflecting suboptimal capital utilisation. The promoter group holds a majority stake, which can be a double-edged sword: while it ensures stable ownership, it also concentrates control and may limit minority shareholder influence.

Despite these concerns, the company’s long-term stock performance has been impressive over extended horizons. Over five and ten years, LWS Knitwear has generated returns of 651.17% and 1042.86% respectively, significantly outperforming the Sensex’s 76.57% and 234.81% returns over the same periods. This historical outperformance highlights the cyclical nature of the stock and the potential for recovery if operational and financial conditions improve.

Technical Upgrade Insufficient to Offset Fundamental Weakness

While the technical indicators have improved enough to warrant an upgrade from Strong Sell to Sell, the overall investment thesis remains cautious. The mildly bullish weekly MACD and KST indicators suggest some short-term momentum, but the persistent bearish monthly signals and weak financial metrics temper enthusiasm. Investors should be mindful of the company’s high leverage, flat recent financial performance, and underwhelming debtor management.

Valuation metrics offer some comfort, with the stock trading at a discount and showing profit growth despite share price declines. However, the stock’s recent underperformance relative to the broader market and sector peers indicates that risks remain elevated. The upgrade reflects a technical bottoming process rather than a fundamental turnaround.

In summary, LWS Knitwear Ltd’s rating upgrade to Sell from Strong Sell on 6 January 2026 is primarily driven by improved technical trends, while valuation remains attractive but fundamentals continue to disappoint. Investors should weigh the potential for short-term technical gains against the company’s structural challenges and high leverage before considering exposure.

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