Damodar Industries (DAMODARIND) Q2 FY27 Profit Halves as Surging Yarn Costs Squeeze Margins
The yarn maker's revenue grew 31% year-on-year, but profit fell by more than half sequentially as raw material inflation bit.
Damodar Industries posted a 31% YoY revenue jump in Q2 FY27, but profit fell 54% QoQ. The textile firm is caught between higher sales and a severe margin squeeze from rising cotton yarn costs.
For a yarn manufacturer, the story is told in the spread between raw material costs and finished product prices. In the September quarter, Damodar Industries saw that spread narrow sharply. Revenue climbed to a record ₹160.05 crore, but profit collapsed by more than half from the previous quarter, showing how quickly input costs can erase top-line gains.
Revenue (₹ Cr)
Profit (₹ Cr)
Net Profit Margin (%)
| Metric | CurrentQ2 FY27 | PreviousQ1 FY27 | Same quarter LYQ2 FY26 |
|---|---|---|---|
| Revenue (₹ Cr) | 160.05YoY +31% | 152.85 | 121.89 |
| Profit (₹ Cr) | 1.23YoY +7% | 2.69 | 1.15 |
| Net Profit Margin (%) | 0.8YoY -11% | 1.8 | 0.9 |
Revenue grew 31% year-on-year and 5% sequentially, marking a new high. Yet net profit fell 54% from the June quarter, and the net profit margin of 0.8% is 100 basis points lower than a year ago.
Why the profit fell off a cliff
The single biggest factor was a surge in raw material costs, specifically for cotton yarn. According to the Apparel Export Promotion Council, cotton yarn prices in India rose about 60% from early 2026. A report from Inve.money notes the company's entire business is exposed to raw-cotton price fluctuations typical of yarn spinning.
This inflation compressed the 'yarn spread'—the difference between fibre costs and yarn realisations. When this spread narrows, revenue can still grow on higher prices, but profit margins evaporate. The result was a net profit margin that is now 100 basis points below its trailing twelve-month average of 1.1%.
The burden that doesn't lift
High costs are not the only pressure. Damodar Industries carries a significant debt load, with a debt-to-equity ratio of 2.22. The interest coverage ratio stands at 1.21, meaning operating profit barely covers interest expenses.
This financial leverage makes the company especially vulnerable during margin squeezes. A Univest.in preview noted that the interest charge is often the single biggest item between operating profit and net profit for a company of this size. With margins thin, finance costs take a larger bite out of the bottom line.
How long will the squeeze last?
The outlook hinges on raw material prices. Trade reports cited by Bennycotts.com in late September noted a recent reversal, with South Indian cotton yarn prices falling on weak demand and volatile futures. However, the official Wholesale Price Index for textiles showed a year-on-year inflation rate of 13.85% in September, the highest of the year.
This suggests the cost pressure may be peaking but is not yet over. The company's ability to pass on costs will be tested in a competitive market where downstream garment makers are also facing margin pressure.
Key Points
- Revenue reached a quarterly high of ₹160.05 crore, up 31% year-on-year.
- Net profit fell 54% sequentially to ₹1.23 crore as raw material inflation crushed margins.
- The net profit margin of 0.8% is 100 basis points below the year-ago level.
- High financial leverage, with a debt-to-equity of 2.22, amplifies the pain from margin compression.
- Recent reports show cotton yarn prices may be easing, but the full impact on margins is yet to be seen.
Hexa Perspective
This quarter illustrates the classic trap in commodity-linked manufacturing: revenue can be strong while profitability vanishes. The 31% sales growth is a positive signal of demand or pricing power, but it was entirely consumed by costs.
The path forward depends on whether the reported easing in yarn prices sustains and flows through to Damodar's cost structure. Until then, with interest coverage at 1.21, the company has little buffer. Investors are weighing robust revenue momentum against a balance sheet that offers no room for error in a volatile input-cost environment.
Also read
Want this applied to your portfolio?
Talk to a HexaWealth advisor, or sync your mutual fund data for insights tailored to your holdings.