LWS Knitwear Ltd Upgraded to Sell on Technical Improvements Despite Mixed Fundamentals

Quality Assessment: Persistent Fundamental Weaknesses

Despite the recent upgrade, LWS Knitwear’s quality parameters remain under pressure. The company’s Return on Capital Employed (ROCE) stands at a modest 7.21%, signalling weak long-term fundamental strength. This figure falls short of industry averages and highlights the company’s limited efficiency in generating returns from its capital base. Additionally, the firm’s ability to service debt is constrained, with a high Debt to EBITDA ratio of 5.96 times, indicating elevated leverage and potential liquidity risks.

Operationally, the company reported flat financial performance in the second quarter of FY25-26, with no significant improvement in core profitability metrics. The Debtors Turnover Ratio for the half-year period is notably low at 2.47 times, suggesting inefficiencies in receivables management and potential cash flow challenges. These factors collectively underpin the company’s continued low Mojo Grade of Sell, despite the technical upgrade.

Valuation: Attractive but Reflective of Risks

On the valuation front, LWS Knitwear presents a compelling case for investors seeking discounted entry points. The stock trades at an Enterprise Value to Capital Employed ratio of 0.8, which is considered very attractive relative to its peers. This valuation discount reflects market scepticism about the company’s growth prospects and financial stability but also offers a margin of safety for value-oriented investors.

Moreover, the company’s Return on Capital Employed has improved to 10.8 in recent assessments, signalling some operational leverage. Despite a negative stock return of -16.78% over the past year, LWS Knitwear’s profits have risen by 43.6%, indicating a disconnect between earnings growth and market sentiment. This divergence may present a contrarian opportunity, albeit tempered by the company’s broader fundamental concerns.

Financial Trend: Flat Performance Amid Mixed Returns

LWS Knitwear’s recent financial trends have been largely flat, with the company reporting no significant growth in the latest quarter. This stagnation contrasts with its longer-term performance, where the stock has delivered a remarkable 616.14% return over five years and an extraordinary 1,040.71% over ten years, far outpacing the Sensex’s 65.60% and 244.38% returns respectively over the same periods.

However, the short-term trend is less encouraging. The stock has underperformed the BSE500 index over the last one year and three months, with a negative return of -16.78% compared to the benchmark’s positive 6.66% over one year. Year-to-date, the stock has gained 10.06%, outperforming the Sensex’s -1.65%, suggesting some recent recovery momentum.

These mixed signals reflect a company at a crossroads, with long-term value creation tempered by near-term operational and market challenges.

Technical Analysis: Key Driver of Upgrade

The primary catalyst for the upgrade from Strong Sell to Sell is the improvement in LWS Knitwear’s technical indicators. The technical grade has shifted from bearish to mildly bearish, signalling a less negative momentum in the stock’s price action. Weekly MACD readings have turned mildly bullish, although monthly MACD remains bearish, indicating a cautious but improving trend.

Similarly, the Relative Strength Index (RSI) on a monthly basis has turned bullish, while weekly RSI shows no clear signal. Bollinger Bands remain mildly bearish on both weekly and monthly charts, suggesting some volatility but limited downside pressure. Moving averages on a daily timeframe are mildly bearish, reflecting short-term caution among traders.

Other technical indicators such as the KST oscillator and Dow Theory readings show a mildly bullish weekly trend, though monthly signals remain mixed or neutral. This combination of technical signals points to a tentative recovery in price momentum, justifying the upgrade in the investment rating despite fundamental headwinds.

On 5 February 2026, LWS Knitwear closed at ₹15.97, up 1.72% from the previous close of ₹15.70. The stock’s 52-week high and low stand at ₹22.50 and ₹13.50 respectively, indicating a wide trading range and potential for volatility.

Sector and Market Context

LWS Knitwear operates within the Textile industry under the broader Trading & Distributors sector. The sector has faced headwinds from fluctuating raw material costs and shifting consumer demand patterns. Compared to the Sensex, which has delivered a 1.79% return over the past week and 6.66% over the last year, LWS Knitwear’s recent underperformance highlights sector-specific challenges and company-specific risks.

Nonetheless, the stock’s long-term outperformance relative to the Sensex and BSE500 indices underscores its potential for value creation if operational and financial issues are addressed.

Shareholding and Corporate Governance

The company’s majority shareholding rests with promoters, which can be a double-edged sword. While promoter control can ensure strategic continuity, it also raises questions about minority shareholder protections and governance transparency. Investors should monitor any changes in promoter holdings or corporate governance practices as part of their ongoing due diligence.

Conclusion: A Cautious Upgrade Reflecting Technical Recovery

The upgrade of LWS Knitwear Ltd’s investment rating from Strong Sell to Sell is primarily driven by an improvement in technical indicators, signalling a potential stabilisation in the stock’s price momentum. However, fundamental challenges remain significant, including weak ROCE, high leverage, flat recent financial performance, and underwhelming short-term returns.

Valuation metrics suggest the stock is attractively priced relative to peers, offering a potential entry point for risk-tolerant investors. Yet, the company’s operational and financial trends warrant caution, and investors should weigh these factors carefully before committing capital.

Overall, the rating change reflects a nuanced view that balances technical recovery against persistent fundamental weaknesses, recommending a Sell stance rather than a more optimistic Buy or Hold rating.

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