Amarjothi Spinning Mills Ltd Quality Grade Upgrade Signals Mixed Business Fundamentals

Quality Grade Upgrade: What It Means

On 12 February 2026, Amarjothi Spinning Mills Ltd’s quality grade was upgraded from a strong sell to a sell, with the quality parameter moving from below average to average. This change is significant as it indicates an improvement in the company’s underlying financial health and operational consistency, though it still falls short of a positive investment recommendation. The company’s Mojo Score currently stands at 37.0, reflecting a cautious stance by analysts.

Sales and Earnings Growth: Moderate but Stable

Over the past five years, Amarjothi Spinning Mills has recorded a sales growth rate of 3.74% and an EBIT growth of 8.47%. These figures suggest moderate expansion in top-line revenue and a healthier improvement in operating profitability. The EBIT growth outpacing sales growth indicates some operational leverage, but the pace remains modest compared to industry peers. This moderate growth aligns with the company’s average quality rating, signalling steady but unspectacular business momentum.

Profitability Metrics: ROCE and ROE Analysis

Return on capital employed (ROCE) averaged 9.75%, while return on equity (ROE) stood at 7.23% over the same period. These returns are below the typical benchmarks for high-quality garment and apparel companies, which often target double-digit ROCE and ROE figures. The ROCE figure, however, is a positive sign that the company is generating reasonable returns on its invested capital, though the ROE suggests limited value creation for shareholders. The gap between ROCE and ROE may also reflect the company’s capital structure and leverage.

Debt and Interest Coverage: Low Leverage Supports Stability

Amarjothi Spinning Mills maintains a conservative debt profile, with an average debt to EBITDA ratio of 1.80 and a net debt to equity ratio of just 0.06. These low leverage levels reduce financial risk and provide flexibility for future growth or downturns. The EBIT to interest coverage ratio of 2.71 indicates the company comfortably covers its interest obligations, though this margin is not excessively wide. The absence of pledged shares and zero institutional holding further underline a cautious capital structure and limited external investor confidence.

Operational Efficiency and Capital Utilisation

The company’s sales to capital employed ratio averages 0.91, suggesting that for every ₹1 of capital employed, the company generates ₹0.91 in sales. This ratio is moderate and indicates room for improvement in asset utilisation. The tax ratio of 18.72% and dividend payout ratio of 13.09% reflect a conservative approach to profit distribution and tax management, consistent with a company focusing on reinvestment and financial prudence.

Stock Performance: Underperforming Benchmarks

Despite the quality upgrade, Amarjothi Spinning Mills’ stock performance has lagged behind the broader market. The share price closed at ₹142.90 on 13 February 2026, down 4.54% on the day and below its 52-week high of ₹195.00. Over the past year, the stock has declined by 18.55%, while the Sensex gained 9.85%. Even over a five-year horizon, the stock’s 38.54% return trails the Sensex’s 62.34% gain. This underperformance highlights investor concerns about the company’s growth prospects and competitive positioning within the garments and apparels sector.

Peer Comparison: Quality Grade in Context

Within its industry peer group, Amarjothi Spinning Mills now ranks among companies with an average quality grade, alongside names such as R&B Denims, SBC Exports, and Sportking India. Several peers, including Pashupati Cotspinning and Himatsingka Seide, remain below average, indicating a challenging sector environment. Amarjothi’s upgrade suggests it is making progress relative to these competitors, but it still faces significant hurdles to reach the higher echelons of quality and performance.

Outlook: Balanced but Cautious

The upgrade in Amarjothi Spinning Mills’ quality grade from below average to average reflects a company that is stabilising its fundamentals but not yet demonstrating robust growth or profitability. The moderate sales and EBIT growth, combined with conservative leverage and reasonable capital returns, paint a picture of a business that is managing risks effectively but struggling to generate strong shareholder value. Investors should weigh these factors carefully, especially given the stock’s recent underperformance and the sector’s competitive pressures.

Investment Considerations

For investors considering Amarjothi Spinning Mills, the key positives include its low debt levels, improving operational metrics, and a recent upgrade in quality rating. However, the company’s returns on equity and capital employed remain modest, and its stock price has underperformed broader indices significantly. The absence of institutional investors and pledged shares may indicate limited market confidence and liquidity concerns.

Given these factors, Amarjothi Spinning Mills currently fits a cautious investment profile. It may appeal to investors seeking exposure to the garments and apparels sector with a preference for companies showing signs of stabilisation and moderate growth. However, those prioritising strong profitability, consistent earnings growth, and robust market performance might find better opportunities elsewhere in the sector.

Conclusion

The upgrade in Amarjothi Spinning Mills Ltd’s quality grade to average is a welcome development, signalling improvements in several fundamental areas such as debt management and operational efficiency. Nonetheless, the company’s moderate returns and subdued stock performance suggest that it remains a work in progress. Investors should monitor upcoming quarterly results and sector trends closely to assess whether Amarjothi can sustain and build upon this positive momentum.

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