Fiberweb (India) Ltd Quality Parameters Deteriorate Amid Mixed Financial Performance

Quality Grade Downgrade and Market Context

MarketsMOJO revised Fiberweb’s mojo grade from Strong Sell to Sell, with a current mojo score of 31.0, signalling a cautious stance on the stock. The downgrade in quality grade to below average stems from a detailed analysis of the company’s financial health, operational efficiency, and capital structure. This change comes despite a 3.51% rise in the stock price on 2 Feb 2026, closing at ₹39.80, up from the previous close of ₹38.45. The stock remains well below its 52-week high of ₹59.44, indicating lingering investor scepticism.

Sales and Earnings Growth: A Worrying Trend

Over the past five years, Fiberweb’s sales growth has been modest at 1.28% annually, signalling a near stagnation in top-line expansion. More concerning is the negative compound annual growth rate in EBIT, which declined by 1.33% over the same period. This contraction in operating earnings suggests rising cost pressures or inefficiencies that have not been offset by revenue gains. Such trends contrast sharply with the broader garments and apparels sector, where peers like R&B Denims and SBC Exports maintain average quality grades supported by steadier growth trajectories.

Capital Efficiency and Returns: Below Par Performance

Fiberweb’s return on capital employed (ROCE) averaged 6.37%, while return on equity (ROE) stood at 5.70% over recent years. Both metrics fall short of industry averages, indicating suboptimal utilisation of capital and shareholder funds. The company’s sales to capital employed ratio of 0.54 further underscores inefficiencies in asset deployment, limiting the ability to generate robust returns. These figures highlight a fundamental weakness in the company’s business model, which has struggled to convert invested capital into profitable growth.

Debt Levels and Interest Coverage: Mixed Signals

On the leverage front, Fiberweb maintains a relatively conservative stance with an average debt to EBITDA ratio of 1.13 and a net debt to equity ratio near zero at 0.01. This low gearing reduces financial risk and interest burden, supported by an EBIT to interest coverage ratio of 10.21, which indicates comfortable ability to service debt. However, the company’s tax ratio is negative, suggesting either tax losses or deferred tax assets, which may reflect ongoing operational challenges or accounting nuances that merit closer scrutiny.

Shareholding and Pledging: Stability Amidst Weak Fundamentals

Institutional holding in Fiberweb is minimal at 0.35%, reflecting limited interest from large investors or mutual funds. Additionally, there are no pledged shares, which is a positive sign indicating no immediate promoter distress selling or collateralisation of shares. However, the low institutional participation may also reflect concerns about the company’s growth prospects and fundamental quality.

Comparative Performance and Returns

Examining stock returns relative to the Sensex reveals a mixed picture. Fiberweb outperformed the benchmark in the short term, with a 25.16% gain over one week and 12.14% over one month, while the Sensex declined by 1.00% and 4.67% respectively. Year-to-date returns also show a positive 11.92% versus a Sensex fall of 5.28%. However, over longer horizons, the stock underperformed significantly. The one-year return is negative at -12.55%, compared to a 5.16% gain in the Sensex. Over three and five years, Fiberweb’s returns of 6.70% and 42.14% lag the Sensex’s 35.67% and 74.40% respectively. Notably, the ten-year return of 253.78% surpasses the Sensex’s 224.57%, indicating some historical value creation but recent performance has been lacklustre.

Sector Comparison and Peer Analysis

Within the garments and apparels sector, Fiberweb’s below average quality grade places it behind several peers rated as average, including R&B Denims, SBC Exports, Sportking India, and Indo Rama Synthetic. These companies generally exhibit stronger sales growth, better return ratios, and more consistent earnings. Peers such as Sumeet Industries and Pashupati Cotspin also share a below average rating, suggesting a cluster of companies facing similar operational or market headwinds. This peer context emphasises the need for Fiberweb to address its fundamental weaknesses to regain investor confidence and improve its mojo grade.

Outlook and Investor Considerations

While Fiberweb’s low leverage and absence of pledged shares provide some financial stability, the company’s deteriorating quality grade and weak growth metrics raise caution flags. The negative EBIT growth and below average returns on equity and capital employed suggest that operational improvements and strategic initiatives are urgently needed. Investors should weigh the short-term price gains against the longer-term fundamental challenges, especially given the competitive pressures in the garments and apparels sector.

Moreover, the negative tax ratio and minimal institutional interest highlight potential risks that could impact future profitability and liquidity. For those considering exposure to Fiberweb, monitoring upcoming quarterly results and management commentary on growth strategies will be critical. The company’s ability to enhance capital efficiency and revive sales momentum will determine if it can reverse the recent downgrade and improve its mojo grade.

Conclusion

Fiberweb (India) Ltd’s downgrade from average to below average quality grade reflects a combination of sluggish sales growth, declining EBIT, and subpar return ratios. Despite a strong short-term share price rally, the fundamental picture remains challenging. Investors should approach the stock with caution, considering alternative opportunities within the sector and broader market that demonstrate stronger financial health and growth prospects.

Unlock special upgrade rates for a limited period. Start Saving Now →