Nitin Spinners is a small-cap company with a market capitalisation of Rs 1500 crore and a free float of Rs 650 crore. It is one of the leading manufacturers of Cotton and Blended yarns, Grey knitted Fabrics and Finished and Printed Woven Fabrics, with a manufacturing model that is fully integrated to convert Fiber to Finished Fabrics. It is future-ready to cater to Global Textile requirements and are committed to providing exceptional service, focused on delivering superior quality through world-class technology.
The Promoters hold 56.41% of the equity capital. Amongst the public, three mutual funds hold 8.44% of the equity capital. Dolly Khanna holds 7,64,793 shares comprising 1.36% of the capital. Dolly’s holding is worth Rs 21 crore at the CMP of Rs 273.
Buy for target price of Rs 380
SMIFS has recommended a buy of the stock for a target price of Rs 380 which is an upside of nearly 59%. It is stated te Company’s Capex is on track, the fundamentals are strong and intact and that the future growth path is clear.
It is also stated that Textile demand should be on track and capacity addition will propel medium term growth. The following salient points are emphasized:
The Indian textile industry has been facing tough times due to a slowdown in demand in the international market and price difference between domestic and international cotton.
Indian cotton prices have stabilized at slightly higher level than desired and hence, spinners are still far from their expected normal margin. Not much capacity is getting added in spinning industry and hence pricing comfort should be there in the future.
Capex plan of Rs9.5bn is on track. The company has already added 2500 MT/PA knitted fabrics and 10 mn Metres woven fabric during Q4FY23. NSPL would be adding 1.5 lakhs spindles by Q2FY24, which will increase yarn capacity from 75,000 MT to 1,10,000 MT.
The company has already started trial production from newly added yarn capacity.
As regards the valuations, SMIFS has stated that with the new capex, Nitin Spinners growth path is clear from here till FY25. The increasing share of processed woven fabric will further improve the margin profile. The Company is assigned 8.5x PE multiple to FY25E earnings as new capacity is coming on-stream to arrive at a target price Rs380 per share, offering ~60% upside from current levels.
As regards the risk, a continuation of the volatile situation in European market and further softness in yarn prices with stable cotton price is highlighted.