Nitin Spinners: Spinning Story (BSE Code: 532698) (CMP: Rs.57) (FV: Rs.10)

Nitin Spinners: Spinning Story (BSE Code: 532698) (CMP: Rs.57) (FV: Rs.10)

The share of Nitin Spinners Ltd (NSL) can be bought for decent gains is in the medium-to-long-term. The share has fallen from its 52-week high of Rs.107 and is now available at a 50% discount from the high. It has the potential to appreciate by 40%. NSL went through a turbulent phase after the 2008 global crisis due to substantial forex losses and resorted to corporate debt restructuring (CDR) in 2009. In early 2013, however, it was able to voluntarily exit from the CDR after paying a recompense amount to its lenders. NSL, a recognized ‘Export House’ was incorporated on 15 October 1992 as Nitin Spinners Pvt Ltd. In 1993, the Company set up its first unit at Hamirgarh in Bhilwara (Rajasthan) for manufacturing coarse cotton yarns. In 2006, it floated its IPO at a price of Rs.21/share. NSL manufactures 100% Cotton Yarns and Fabrics. Its manufacturing range includes open-end yarns, multifold openend yarns, ring spun combed yarns, multifold ring spun yarns, S and Z twist yarns, dyeable cheese cones and organic cotton yarns and blends. It offers ‘grey fabrics’ form in tubular and open width forms, which ranges from single jersey, pique structures, interlock structures, rib structures to three thread fleece. NSL’s products are used to manufacture products such as apparel and garments, under garments, terry towels, woven fabrics, home furnishings, carpets, denim, industrial textiles, medical textiles and socks.

It supplies its products to top textile majors in western and northern India like Arvind Ltd, Raymonds, Decor, Alok Industries, Ashima, Bhaskar, Nandan Exim, Creative Textiles, Shri Lakshmi Cotsyn, VHM, Pratibha, Maral, RSWM etc. EXPERT EYE A Time Communications Publication 16 Post-expansion in FY14-15, NSL’s spinning capacity has gone up to 1,50,096 spindles and 8,600 TPA of knitted fabrics. Its focus on stringent quality controls has enabled the Company to establish a strong foothold in global markets as exports accounting to about 65% revenue. For FY15, net profit rose 18% to Rs.41 crore on 27% higher sales of Rs.620 crore. The EPS stood at Rs.8.9 and a dividend of 10% was paid. In Q1FY16, net profit jumped 34% to Rs.11.8 crore on 47% higher sales of Rs.197 crore over Q1FY15 and the EPS stood at Rs.2.6. Sustained expansion and value addition, better realization due to favorable exchange rates, stricter control on working capital and power cost savings were the key drivers for good results. NSL has successfully completed the expansion project of installation of 72,480 spindles and 19 knitting machines at a cost of Rs.281 crore and the commercial production of the expanded capacity commenced w.e.f. 09.02.2015. The investment in this project is eligible for interest subsidy and other benefits under the Textile Upgradation Fund (TUF) Scheme of the Government of India (GoI) and the ‘Rajasthan Investment Promotion Investment Scheme’ of the Government of Rajasthan. Post-expansion, the production capacity of the Company rose to 37,800 TPA of cotton yarn and 8,600 TPA of knitted fabrics. Moreover, NSL is now equipped to offer a broader and diversified range of yarn and knitted fabrics, thus enhancing its market share. The production on the expanded capacity is reaching its optimum level and NSL will reap the benefits in the current year. With an equity capital of Rs.45.8 crore and reserves of Rs.121 crore, the book value of its share works out to Rs.38. The value of the gross block stood at Rs.621 crore as at 31 March 2015. With Debts of Rs.378 crore, the DER stood at 2.3:1. The high debt is due to the recent expansion project. The promoters hold 64% in the equity capital while the PCBs hold 4.4% leaving 31.6% with the investing public. Despite certain challenges, the cotton yarn industry witnessed a production growth of about 10% and an export growth of about 32%. As per the Ministry of Textiles, annual production of textile goods is expected to increase to US$220 billion by 2020 (Technopak Advisors) from the current level of US$90 billion. China accounts for about 33% share in the global textile market, while India’s share is just 4.5%. China’s focus on other sectors will have a great potential for Indian textiles. The global textile and apparel trade of US $510 billion market in 2009 is expected to touch $1 trillion by 2020. According to the Technopak report, India has the potential to increase its export share in world trade from the current 4.5% to 8% to reach $80 billion by 2020. The global textiles and apparels industry is expected to grow at a CAGR of 6.3% over the next 8-10 years to reach USD1 trillion by 2020. NSL is likely to post an EPS of Rs.13.5 in FY16 and Rs.18 in FY17. At the CMP of Rs.57, the NSL share trades at a P/E multiple of 4.2 on FY16E earnings and 3.1 times the FY17 projected earnings. The NSL share is recommended with a target price of Rs.75 in the medium-term. The 52-week high/low of the share is Rs.107.25/23.65.