H P Cotton Tex (502873)

Score breakdown: P/E: 2/3 · ROCE: 1/2 · Growth: 2/2 · Dividend: 0/1

Key Financials

Strengths

• ROE of 21.74% and ROCE of 19.22% indicate efficient capital usage.
• Piotroski F-Score of 7/9 suggests solid recent financial health.
• P/E of 13.30 is optically modest against a 21.74% ROE.
• Latest quarter sales of ₹34 Cr show an established operating base.
• Large reported profit growth of 124.14% has rebuilt earnings from a low base.

Concerns

• Revenue growth is only 2.85%, so profit growth appears driven by margins or base effects, not underlying demand.
• Latest quarter margin is thin: ₹34 Cr sales to ₹1 Cr profit is about 3%, leaving little buffer for input-cost shocks.
• Zero dividend yield and a ₹48 Cr market cap mean investors depend entirely on price appreciation and may face limited liquidity.
• Debt/equity and promoter holding are not disclosed, so balance-sheet risk and insider alignment cannot be fully assessed.

AI Analysis

At first glance, H P Cotton Tex looks like a Graham bargain: price-to-earnings of 13.30, return on equity of 21.74%, and return on capital of 19.22%. The Piotroski F-Score of 7 also tells me recent fundamentals have improved. But I've learned to focus on the source of earnings, not the percentage change in a single year. Reported profit jumped 124.14%, yet sales rose only 2.85%. That is a classic warning flag. A great business compounds revenue; a cyclical or turnaround business often shows a profit spike from margin recovery, low base, or cost cuts. The latest quarter confirms this: sales of ₹34 crore yielded just ₹1 crore in net profit, a razor-thin margin that textiles can easily lose when cotton prices move or competition intensifies. Market cap is only ₹48 crore, so this is a small, likely illiquid player with limited moat. There is no dividend yield to compensate patient shareholders while the story plays out. Book value is ₹41.34, so at ₹122.45 I am paying 2.96 times book for a business whose sales growth is under 3%. The PEG of 0.21 assumes 124% profit growth is repeatable, which I refuse to do; that's the kind of extrapolation that gets value investors hurt. Debt/equity is not provided, so I cannot fully assess financial risk, though the strong ROE and Piotroski score ease some worry. This is not the high-quality compounder I search for. It may be a legitimate turnaround, but I need proof over several quarters: consistent revenue growth, stable margins, and cash flow. Until then, it is too small and too uncertain for my circle of competence.

Data from BSE/NSE filings. AI analysis is for educational purposes only — not investment advice. Scoring methodology · Disclaimer