Investment Call: Nandan Denim By Religare

After huge capex investment plan, NDL will create itself as the biggest denim player in India with exports to many countries. We believe demand for Denim will surge going forward mainly due to improving standard of living, rising population and income levels, online sales, penetration in smaller cities, more women workforce and brand awareness.

India’s share in global textile industry will advance because of problems faced by China and other exporting countries. Also favorable government policies like capital subsidy, interest rate subsidy, lower power tariffs and VAT reimbursement have benefitted our textile industry and we foresee the same to continue in the future.

With strong distribution network, proactive management and growing presence, NDL will be able to escalate its market share in denim segment from existing share of 10%. Out of the total capex investment of Rs. 620 crores, 70% is financed with debt and 30% with fresh equity. We expect debt to peak out in FY16. NDL’s operational margins will improve on addition of spinning capacity and value added products in its portfolio.

Net sales and Net Profit surged at CAGR of 23.9% and 34.7% respectively in last 5 years. We expect NDL to grow around 10-15% in following 2-3 years. At CMP of Rs. 150 the company is trading at FY16E PE of 11 and FY17E PE of 9.1 times. We recommend to buy NDL for long term horizon with price target of Rs. 183.

Nandan-Denim-Religare