Can Nitin Spinners’ Ongoing Expansion Weave Your Portfolio in Green?

  • Stock Market Analysis

India is among the largest producers of textiles and apparel in the world, holding around a 4% share in the global trade in textiles and apparel. The sector contributes around 2% to the country’s GDP and the sector is the 2nd largest employer in the country, providing direct employment to 45 million people and 100 million people in allied industries. One company that is all geared up to take advantage of a sea of opportunities in this space is Nitin Spinners Ltd (NS: NISP ).

It is a pure play in the textile space and manufactures cotton yarn and cotton knitted fabric and has a market capitalization of INR 1,236 crores. The company’s yarn business is the biggest contributor to its revenue (~70%), while woven fabric contributes around 14%. The company is more focused on exports with 73% of revenue coming from exports and currently utilizing more than 90% of its capacity. Hence, the company has planned to expand its manufacturing capacity with land acquisitions near existing plants which would help it to ramp up its economies of scale. 

Nitin Spinners has projected to spend around INR 955 crores on this expansion plan, out of which around INR 650 crores would be funded via debt. It would be paying around 2.5% a year in net interest, all thanks to a subsidy given by the Rajasthan government via its Rajasthan Investment Promotion Scheme. The expansion plan is expected to be completed by Q4 FY24 and in the expanded facilities, the company plans to add 1.51 lakh spindles and expand its knitted fabrics capacity to around 2.5K metric tonnes a year. All of these will increase the total output capacity by 35% - 40%, across business segments. 

FIIs seem to be on a buying spree as they are consistently increasing their stake in the company. As of June 2022, FIIs held around 4.26% interest in the company which was around 1.23% a year ago. Although mutual funds have reduced their stake a bit, from 6.77% in June 2021 to 5% in June 2022, still a 5% MF stake in a company that’s barely above INR 1,000 crores is confidence-boosting.

Even prior to the expansion, FY22 had been the best year for the company as it recorded a 65.66% YoY growth in revenue to INR 2,694.16 crores, which is the highest annual revenue for the company so far. In fact, it has been increasing its revenue at a yearly rate of 23.59%, compared to the industry’s average of a mere 6.42%. This has led to a massive jump of around 373.64% in FY22 net income to INR 326.15 crores, again the first time that it has crossed the INR 300 crores mark.

Coming to the valuations, Nitin Spinners is currently trading at a P/E ratio of just 3.79, compared to peers such as KPR Mill Ltd (NS: KPRM ), Alok Industries (NS: ALOK ), and Welspun India Ltd (NS: WLSP ) which are trading at a P/E of 24.23, -49.03, and 12.23, respectively.  

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