Nitin Spinners

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Key Investment Thesis:

Geared up well to capture robust opportunities:

In a bid to capture long term growth opportunities and to further strengthen the product range, Nitin Spinners Ltd. had embarked on a brownfield expansion and outlined capex worth Rs 900 crore to enhance capacities across segments. It is enhancing yarn capacity by 47% (from 75000 to 110000 tonnes), knitted fabric by 22% (from 9000 to 11000 tonnes) and woven fabric by 33% (from 30 to 40 million meters).

At optimum utilisations (at an average yarn realisation of ~Rs 280/kg), company could generate incremental revenue of ~ Rs 1100 crore (peak revenue: Rs 3500 crore).

Commissioning of weaving and knitting fabric capacities are completed and is expected to be ramped up soon. Yarn capacity is expected to be commissioned by Q2 FY24E.

Higher return on capital employed to create value for longer term:

For FY23-25E, we build in volume compound annual growth rate of 26% for yarn segment (76000 tonnes in FY25E, CU: 87%), 14% for woven segment (37 million meters in FY25E, CU: 93%) and 46% CAGR for knitted segment on a lower base (7800 tonnes in FY25E, CU: 70%).

Efficient asset utilisation coupled with positive improvement in yarn spreads would enhance profitability. We build in Ebitda margins of 14-15% in FY24-25E (versus 12% in FY23) on account of superior product mix and improvement in yarn spreads. We expect Npinners to generate RoCE of ~15% in FY25E (versus average RoCE: 10-12%) and in-turn lead to higher value creation.

Rating and Target Price

Government initiatives like signing of free trade agreements with multiple countries, stability in export incentive policy to provide opportunity for Indian exporters across textile value chain to gain market share in global textile trade.

With steady recovery from FY24E onwards, we build in revenue and Ebitda compound annual growth rate of 15% and 27%, respectively in FY23-25E.

We ascribe 'Buy' rating on the stock.

We value Nitin Spinners at Rs 360 per share (based on nine times FY25E EPS).

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