Sambandam Spinning Mills Ltd Upgraded to Sell on Technical Improvement Despite Weak Fundamentals

Quality Assessment: Persistent Fundamental Weakness

Sambandam Spinning Mills continues to exhibit weak long-term fundamental strength, reflected in its modest Return on Capital Employed (ROCE) of 5.65% on average. This figure is considerably below industry standards, signalling limited efficiency in generating returns from its capital base. Over the past five years, the company’s net sales have grown at a moderate annual rate of 8.59%, while operating profit has expanded at 13.63%. Although these growth rates indicate some operational progress, they fall short of robust expansion levels expected in the garments and apparels sector.

Moreover, the company’s ability to service debt remains a concern, with a high Debt to EBITDA ratio of 11.53 times. This elevated leverage ratio suggests significant financial risk, particularly in a sector prone to cyclical fluctuations. The latest quarterly results for Q2 FY25-26 were largely flat, with operating cash flow at a low ₹16.79 crores and no dividend payout (DPS and DPR both at zero), underscoring the company’s constrained cash generation capacity.

These factors collectively justify the retention of a cautious stance on the company’s quality metrics, which continue to weigh on its investment appeal.

Valuation: Attractive but Reflective of Risks

From a valuation perspective, Sambandam Spinning Mills presents a very attractive profile. The company’s ROCE of 2.1% combined with an Enterprise Value to Capital Employed ratio of 0.8 indicates that the stock is trading at a discount relative to its peers’ historical valuations. This undervaluation partly reflects the market’s recognition of the company’s fundamental challenges and elevated financial risk.

Despite the stock’s negative return of -34.78% over the last year, it has reported a 50% increase in profits during the same period. This divergence between earnings growth and share price performance suggests that the market remains sceptical about the sustainability of the company’s turnaround or the broader sector outlook. Investors may find the valuation compelling if they believe the company can leverage its improved profitability into stronger cash flows and deleveraging in the medium term.

Financial Trend: Flat Performance Amidst Sector Challenges

The company’s recent financial trend remains subdued. Sambandam Spinning Mills reported flat quarterly results in September 2025, with no significant improvement in operating cash flows or dividend distributions. The operating cash flow for the year is at its lowest level, ₹16.79 crores, while dividend per share and payout ratio remain at zero, signalling limited returns to shareholders.

Over the last three years, the stock has consistently underperformed the benchmark indices. It generated a negative return of -34.78% over the past year, compared to a positive 7.28% return for the Sensex. Over three and five years, the stock’s returns of -30.73% and 57.67% respectively lag behind the Sensex’s 40.21% and 79.16% gains. This persistent underperformance highlights the company’s struggle to keep pace with broader market and sector growth.

Technicals: Shift from Bearish to Mildly Bearish

The primary catalyst for the recent upgrade in investment rating is the improvement in technical indicators. The technical grade has shifted from bearish to mildly bearish, reflecting a more constructive near-term outlook. Key technical signals include:

• MACD: Both weekly and monthly MACD remain bearish, indicating that momentum is still subdued.


• RSI: No clear signal on weekly or monthly charts, suggesting a neutral momentum stance.


• Bollinger Bands: Mildly bearish on both weekly and monthly timeframes, indicating some downward pressure but less severe than before.


• Moving Averages: Daily moving averages are mildly bearish, signalling a tentative recovery from previous downtrends.


• KST (Know Sure Thing): Weekly KST is mildly bullish, hinting at emerging positive momentum, though monthly KST remains bearish.


• Dow Theory: No definitive trend on weekly or monthly charts, reflecting market indecision.

Price action supports this technical improvement, with the stock closing at ₹108.40 on 5 January 2026, up 1.69% from the previous close of ₹106.60. The intraday range was ₹100.00 to ₹111.95, showing increased volatility but also buying interest near the lower end. The 52-week high remains ₹181.00, while the 52-week low is ₹97.10, indicating the stock is trading closer to its lower range but showing signs of stabilisation.

Comparative Returns: Lagging but Showing Signs of Recovery

When compared with the Sensex, Sambandam Spinning Mills’ returns have been disappointing over most time horizons. The stock outperformed the Sensex marginally over the past week with a 4.08% gain versus 0.85% for the benchmark, but it lagged over one month (-3.21% vs 0.73%) and year-to-date (1.69% vs 0.64%). Longer-term returns remain negative or significantly below the Sensex, with a 10-year return of 15.07% compared to the Sensex’s 227.83%.

This pattern underscores the stock’s cyclical challenges and the need for sustained operational improvements to regain investor confidence.

Outlook and Conclusion

The upgrade of Sambandam Spinning Mills Ltd’s rating from Strong Sell to Sell reflects a nuanced view of the company’s prospects. While fundamental weaknesses persist—marked by low ROCE, high leverage, flat financial performance, and consistent underperformance against benchmarks—the technical indicators have improved sufficiently to warrant a less negative stance.

Investors should note that the stock remains a high-risk proposition given its financial constraints and sector challenges. However, the attractive valuation and recent profit growth offer some upside potential if the company can capitalise on early signs of technical recovery and improve its operational efficiency.

Majority ownership remains with promoters, which may provide stability but also limits liquidity and external influence on strategic direction. The stock’s performance in the coming quarters will be critical in determining whether the technical improvements translate into sustainable fundamental gains.

Summary of Ratings and Scores

Sambandam Spinning Mills Ltd currently holds a Mojo Score of 31.0 and a Mojo Grade of Sell, upgraded from Strong Sell on 2 January 2026. The Market Cap Grade stands at 4, reflecting its micro-cap status within the garments and apparels sector. The technical trend has shifted from bearish to mildly bearish, with mixed signals across momentum and volume indicators.

Given the company’s financial and valuation profile, the Sell rating suggests cautious engagement, with investors advised to monitor upcoming quarterly results and sector developments closely.

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