H P Cotton Textile Mills Ltd Valuation Shifts to Very Attractive Amid Sector Challenges

Valuation Metrics Reflect Enhanced Price Appeal

As of 26 Feb 2026, H P Cotton Textile Mills Ltd trades at a P/E ratio of 12.71, a marked improvement compared to its historical range and significantly lower than many of its industry peers. For context, competitors such as R&B Denims and SBC Exports command P/E ratios of 54.54 and 50.72 respectively, while Pashupati Cotsp. trades at an eye-watering 111.08. This stark contrast highlights H P Cotton’s repositioning as a more reasonably priced stock within the garments and apparels sector.

The company’s P/BV ratio of 2.33 further underscores this valuation shift. While not the lowest in the sector, it remains comfortably below the levels seen in several peers, many of whom are trading at premium valuations reflecting elevated market expectations. The EV/EBITDA multiple of 6.09 also supports the narrative of relative undervaluation, especially when compared to the sector heavyweights whose multiples often exceed 20.

Financial Performance and Returns Contextualise Valuation

H P Cotton’s return on capital employed (ROCE) stands at a robust 17.12%, with return on equity (ROE) at 16.28%, indicating efficient utilisation of capital and shareholder funds. These profitability metrics are crucial in justifying the current valuation, suggesting that the company’s earnings quality remains sound despite recent market headwinds.

However, the stock’s recent price performance has been mixed. Over the past week, the share price declined by 13.15%, significantly underperforming the Sensex’s modest 1.74% drop. Year-to-date, the stock is down 4.76%, slightly lagging the Sensex’s 3.46% gain. Over longer horizons, the company has delivered impressive returns, with a five-year gain of 172.14% outpacing the Sensex’s 61.20%, though the ten-year return of 126.98% trails the benchmark’s 258.10%.

Comparative Valuation: A Clear Advantage

When benchmarked against its peers, H P Cotton Textile Mills Ltd’s valuation stands out as particularly compelling. While several competitors are classified as “Very Expensive” with P/E multiples exceeding 50 and EV/EBITDA multiples above 25, H P Cotton’s multiples are more modest, aligning with its “Very Attractive” valuation grade. For example, Himatsing. Seide, another “Very Attractive” stock, trades at a P/E of 7.52 and EV/EBITDA of 8.57, slightly lower than H P Cotton but within a comparable range.

This valuation gap suggests that the market currently assigns a discount to H P Cotton relative to its sector, potentially reflecting concerns over near-term earnings visibility or broader sector challenges. Nonetheless, the company’s PEG ratio of 0.02 is exceptionally low, indicating that its price is not only cheap relative to earnings but also relative to growth expectations, which may be underappreciated by the market.

Mojo Grade Downgrade and Market Sentiment

Despite the improved valuation parameters, H P Cotton’s Mojo Grade was downgraded from Hold to Sell on 24 Feb 2026, with a current Mojo Score of 44.0. This downgrade reflects a cautious stance on the stock’s near-term prospects, possibly influenced by recent price weakness and sector headwinds. The Market Cap Grade remains low at 4, indicating limited market capitalisation relative to larger peers, which may impact liquidity and investor interest.

Investors should weigh this downgrade against the valuation attractiveness, considering whether the current price adequately compensates for the risks flagged by the Mojo Grade. The stock’s recent intraday volatility, with a high of ₹112.95 and a low of ₹105.00 on the latest trading day, also suggests some uncertainty among market participants.

Sector and Market Context

The garments and apparels sector has faced a mixed environment in recent months, with fluctuating demand patterns and input cost pressures impacting margins. H P Cotton’s valuation improvement may partly reflect market anticipation of stabilising conditions or a re-rating based on its relative financial strength. However, the sector’s overall performance remains subdued, with many stocks trading at elevated multiples despite uncertain earnings trajectories.

Comparing H P Cotton’s returns to the broader market, the stock has underperformed the Sensex over the past year, with a -0.93% return versus the benchmark’s 10.29%. Over three years, however, the stock has delivered an 18.57% gain, though this lags the Sensex’s 38.36%. The five-year performance is more favourable, with a 172.14% return, significantly outpacing the Sensex’s 61.20%, highlighting the company’s capacity for long-term value creation despite recent volatility.

Investor Takeaway

H P Cotton Textile Mills Ltd’s recent valuation shift to “very attractive” presents a compelling case for value investors seeking exposure to the garments and apparels sector at a discount to peers. The company’s solid profitability metrics and low PEG ratio suggest that the market may be undervaluing its growth potential. However, the downgrade in Mojo Grade to Sell and recent price weakness warrant caution, signalling that risks remain in the near term.

Investors should consider the stock’s relative valuation in the context of sector dynamics and their own risk appetite. While the current multiples offer a margin of safety, the stock’s liquidity and market cap constraints may limit institutional interest. A balanced approach, possibly incorporating peer comparisons and broader market trends, is advisable before committing capital.

Conclusion

In summary, H P Cotton Textile Mills Ltd’s valuation parameters have improved markedly, with P/E and P/BV ratios now well below sector averages, enhancing its price attractiveness. Despite this, the company faces challenges reflected in its Mojo Grade downgrade and recent price underperformance. For investors focused on valuation and long-term fundamentals, the stock offers an intriguing proposition, but one that requires careful monitoring of sector conditions and company-specific developments.

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