Hello Sir,

Hope you are doing well.

Manufacturing cotton yarn seems like a boring business, but based on my reading of various con-calls, it seems like the sector is poised for good times ahead.

I was recently looking at Nitin Spinners. The company manufactures cotton yarn and knitted and woven fabric.

It recently completed 800 crore + CAPEX. In general, the management sounded positive about the prospects of cotton yarn industry with stable cotton prices and good export demand.

Below, we have shared our notes from the Q4 FY 24 con-call of the company to understand the outlook for the business.

 

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  • Improving balance sheet with reduction in net debt and working capital days
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Nitin Spinners – Notes from Q4 FY 24 concall

– Introduction

  • After the challenges which we faced in the previous year, the textile industry in India has undergone a phase of consolidation during the year, 2023-2024, benefiting from stable raw material prices and a gradual increase in demand
  • Our country’s cotton textile exports have demonstrated a healthy rebound
  • This resurgence has led to improvement in capacity utilization and margins within the cotton spinning industry
  • Growth is largely driven by increased demand from downstream sectors such as home textiles and apparel
  • Cotton prices which reached the levels of Rs 1,10,000 at peak have come back to Rs 55,000 to Rs 58,000 per candy recently
  • Company has effectively executed its expansion strategy; both spinning and woven fabric utilization have reached nearly the optimal levels during the last quarter

– Realization

  • Yarn price – Last year it was 338 per kg and this year average price was 274 per kg
  • Fabric price – This year average realization of fabric was 160 per meter. Last year it was about 182 per meter

– Export Demand

  • Demand is definitely improving and it is not a very fast pace. It is a normal pace
  • China has started to re-import large quantities. In March they have increased their imports of cotton yarn substantially
  • Exports from India overall if you see they have improved at a good pace in last 6 months, 8 months

– Operating margins

  • Spreads have definitely improved which is why the reason you are seeing an improvement in the operating margin
  • Our last quarter margin was 14.5%. So, if you are able to maintain that also it should be substantial improvement from the existing levels, yearly levels

– Capacity Utilization

  • Our total production, if you see our presentation, it is about 91,000 tons of yarn which we have done last year
  • Our rated capacity is around 1,10,000 tons per annum. And we can produce, after giving all efficiencies and others, about 1,05,000 tons

– Power Cost and Renewable Energy

  • We have added substantial solar capacity. Now our capacity is about 23 megawatts. If you see at the end of the last year this capacity was about 12, 13 megawatts
  • We’ll further try to add up another 7 to 8 megawatts of power within our own campuses
  • The total generation which we are supposed to have from solar is about 2 crores 70 lakh units

– Debt

  • As of March 24, the company’s debt profile stood at Rs 1,339 crores comprising Rs 811 crores in long-term debt, Rs 383 crores working capital and Rs 145 crores as current maturities of term loan
  • Term debt cost is about 5.5% net of subsidies. Working capital cost is about 7.5%
  • We would like to keep interest costs in the range of 2.5% to 3% of our revenues. As long as that is there, plus debt equity in the range of 1:1.2

– CAPEX

  • Total capex over the last 12-18 months was about Rs 840 crores, out of which nearly 30% has gone to the value-added portion of weaving, processing, and knitting part that has gone there and rest has gone to spinning part

(End)

 

Disclaimer: This is not a recommendation to buy/sell Nitin Spinners. The securities quoted are for illustration only and are not recommendatory.

 

Best Regards,

Ekansh Mittal
Research Analyst
Web: https://www.katalystwealth.com/

 

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