Nitin Spinners Ltd (NSPL) came out with a decent performance in an improving business environment (from margin perspective) during Q4FY24. Recent capacity addition led to ~22%/~64%/~30% growth in sales/EBITDA/PBT on YoY basis. Reported PAT was almost flat YoY as now the company is paying full tax. The company had adopted new tax regime in FY23 onwards and the effective tax rate was very low on account of remeasurement of liabilities in Q4FY23. With cotton prices stabilizing at lower levels, there was a decent margin improvement, but profitability is still far from normal levels. With continued 90%+ utilization, even on expended capacity basis, in yarn and woven fabric segments and some recovery in knitted fabric business, sales performance was strong despite lower realization. All new capacity is now on stream with near optimum utlizations except for knitted fabric. With cotton prices stabilising at current rates and expectation of further demand recovery, we believe QoQ performance improvement should continue here on. We Maintain our BUY with target price of Rs 465 per share, 10.5xFY26e EPS.
Good performance in a challenging environment
During Q4FY24, the company posted a growth of 38.9% YoY at Yarn sales volume front as utilizations remained at elevated levels even on expanded capacity, along with low base effect. Knitted fabric sales volume promised some recovery with a growth of ~84% YoY on low base however de-grew by ~14% on sequential basis.
Woven fabric business remained strong with its sales volume grew by ~16% YoY. With economic activities back on track post covid, demand for woven fabric remains good.
With correction in cotton prices, realization moderated further across product profile but in a very small quantum.
Textile demand should get stronger
The Indian textile industry had been facing tough times due to a slowdown in demand in the international market. But now things are recovering well in various user segments. Demand in the domestic market is yet to recover to the normal levels. Expected good monsoon is expected to help on demand side plus keep the RM price under check.
Not much capacity is getting added in spinning industry and hence product pricing comfort should be there in the future.
Capex plan of Rs9.5bn is now fully executed now and this will propel sales growth in FY25.
Valuation and risks
With new capex, Nitin Spinners growth path is clear from here till FY25. FY26 growth would require further capex which management may announce during mid of FY25.
We assign slightly higher multiple 10.5x PE multiple to FY26E earnings (earlier 10x) as new capacity is now commissioned and hitting good utilization levels, and arrive at a target price Rs465 per share, offering ~36% upside from current levels. BUY.
Risk – Volatile situation in European market and any softness in yarn prices.
Click here to download Nitin Spinners Ltd – Q4FY24 Result Update – by SMIFS Institutional Research
Leave a Reply