Nitin Spinners Limited (NITINSPIN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Nitin Spinners Limited Q1 and FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now hand the conference over to Mr. Awanish Chandra from SMIFS Limited. Thank you, and over to you.

Thanks a lot, Muskan, and thank you very much, everyone, for joining this call. On behalf of SMIFS Limited, I welcome you all to First Quarter Financial Year FY '27 Earnings Conference Call of Nitin Spinners Limited. We are pleased to host the top management of the company. Today, we have with us Mr. Dinesh Nolkha, Chairman and Managing Director of the company; Mr. Nitin Nolkha, Managing Director of the company; and Mr. P. Maheshwari, Chief Financial Officer. We will start the call with initial commentary on the results, and then we will open the floor for question and answer. Now I will hand over the call to Mr. P. Maheshwari, CFO of the company. Over to you, Maheshwari, sir.

Thank you, Awanish. Good afternoon, and a warm welcome to all the participants to this Q1 FY '27 earnings call of Nitin Spinners Limited. I hope you have had a chance to go through the financial results and investor presentation available on the company's website and stock exchanges. I will start with a brief overview on operational and financial performance for the quarter. Post that, our CMD, Sri Dineshji, will give you an overview of industry and business scenario. Coming to our financial and operational performance, Q1 FY '27, the company has reported another quarter of strong turnaround performance with improvement in revenue, EBITDA and PAT. Revenue for Q1 stood at INR 875 crores, which is a growth of 10.3% on a year-on-year basis and 1.8% on a quarter-on-quarter basis. It is our highest ever quarterly revenue for second time in a row, driven by improvement in yarn realizations and better demand scenario. EBITDA before other income for the quarter stood at INR 15.6 crores, which is a growth of 39.8% on year-on-year basis and 19.3% on quarter-on- basis. EBITDA margin for this quarter stood at 17.7% against Q1 FY '26 margins of 14.2% is an increase of 76 bps on a year-on-year basis and 26 bps on qu-on-quarter basis. That is due to improved realization and cost saving initiatives. Profit after tax for the quarter stood at INR crores is a growth of 3.6% on year-on-year basis and 31.2% on quarter-on-quarter basis. EPS and EPS for the quarter stood at INR 13.39 and INR 0.08 per share, respectively. In terms of geographical split of revenue, export contributed nearly 65% and domestic 35% of the total revenues during the quarter. In FY '27, our spinning was operating at 98% utilization and woven fabric over 22% utilization. That is all from my side. I now request Sri Dineshji to share his insights about the industry and business scenario. Thank you, and over to Sri Dinesh.

Thank you, Maheshwariji. Good afternoon, everyone. FY '27 has commenced on a positive note for the textile industry. This positive momentum has been supported by an improvement in demand from the last quarter itself following the removal of the additional tariffs by the U.S. Cotton prices increased during quarter 1 by about 8% to 10%, primarily driven by overall lower global production, global supply chain and logistics challenges due to West Asia war Government of India due to this has also removed the import duty on cotton so looking to the higher prices in the domestic as well as international markets. The price parity between international and domestic cotton improved, which was one of the factor for the improvement in the performance of the textile industry. The upstream textile industry also witnessed an improved market scenario with yarn prices increasing higher than the cotton prices, supported by healthy demand from both the domestic and export markets. The increased demand of cotton yarn in export market from China was one of the factors for a better demand scenario for the Indian spinners. The recently implemented India U.K. FTA is also expected to support India's exports by opening up new sourcing and export opportunities for the Indian textile sector. Other trade agreements like EUFA will also play an important role in creating a more level playing field for India against other competing textile nations. India's textile sector continues to have good long-term growth potential, supported by its large manufacturing base, raw material availability, increasing focus on value-added products, innovation and sustainability. Further favorable government initiatives and increasing global interest in diversified sourcing will contribute to the improved -- going forward, the improved demand. We anticipate that the demand for fabric and yarn will continue to be better, supported by demand coming from growth across the downstream sector and the consolidation of the spinning industry. Coming to the company's performance, we are pleased to announce our highest ever quarterly revenue for the second consecutive quarter at about INR 875 crores, driven by improved realizations with better demand environment and optimum capacity utilization. The fabric business witnessed a stable pricing environment compared to the previous quarter. Margins for the quarter improved on both a sequential and on a year-on-year basis as well. This improvement was primarily driven by higher realizations across our products and the cost saving initiatives. Going forward, our -- one of our future growth driver will be our capacity addition, which is going -- progressing as schedule with the expansion of our fab capacity by another 35 million liters and spinning capacity by additional 74,000 spindles. We anticipate closing financial year '27 on a stronger note compared to financial year '26, supported by the partial contribution from the new capacities in the second half of this financial year. The CapEx will further support an expansion of our -- in our blended margins as highlighted earlier as well, driven by an increase in the share of value-added products in overall revenue mix. The renewable power expansion plan is also going as per schedule and expected to be operational by the end of Q3 '27. Upon completion of the same, we are expected to reduce our power costs further. The positive external environment, including the trade measures and improved price parity of cotton gives us the confidence in faster ramp-up of these capacities once they become operational and help us in sustaining the margins. With this, I would like to open the floor for the question-and-answer session. I think we can go forward with that.

[Operator Instructions] Your first question is from the line of Madhur Rathi from Counter Cyclical Investments.

Sir, if you could help us understand what were the spreads during Q1 FY '27 and what are current spread right now in Q2?

In the first quarter, I think in the last quarter of the last financial year, the spreads were in the range of about INR 110. And now it is in the range of or INR 130.

130?

Yes.

And sir, are we touching in Q2 as well?

As far as today's condition is there, we are sustaining the same.

Got it. Sir, what -- sir, what has led to this spread improvement? Is it the difference between the pricing of Indian cotton was us international cotton or the demand is much higher than the supply, if you could help us understand?

In fact, there are a couple of reasons, but there is an improved demand scenario and also consolidation of our capacities. We have seen some capacities going out of business in the last 1 and 2 years and then there was a -- and there was a very dull period of demand, especially post the announcement of the U.S. tariffs and the prices went down substantially lower. Now that has corrected itself. And accordingly, there is a stable price regime, maybe we can say we have come back to the similar level what was the 3 U.S. tariff levels. And also, there was a -- and the important -- one of the important factors as we rightly pointed out, was the clarity between the Indian cotton and the international corporate. For good 1.5 to 2 years from 24 end of '23, still the middle of 25%. Our Indian cotton was outpriced they were higher, much higher than the international prices. So now this course correction has happened. So that is also resulting in squeeze improvement.

Got it. Sir, can you quantify what is the premium on international cotton versus Indian cotton currently? And historically, where has it you mentioned that we were at a disadvantage like in '23 and '24. So how is it compared to that right now?

If you have to look at the [ Cotlook ] index, normally, a new cotton -- Cotlook is basically index of 6 larger groups of cotton. So to compare that, normally, Indian cotton was minus the Cotlook index, maybe a couple of, let's say, a couple of percentage points minus the outlook index in view of the quality of the cotton, which we produce in India. So in '23, '24, our coking prices were about 5% to even 7% higher than the Cotlook index. And now it is at this point of time at the similar level, minus 1% or 2% the Cotlook at tax level. So the overall data change has been in the range of 8%.

Got it. Sir, just finally a few questions from mine, sir, we are adding the 35 million meters of capacity in our finishing division. And so is it more towards leading? Or is it more towards printing -- and sir, it seems that the printing -- the textile printing, although the volumes are getting much smaller, sir. So are we moving from rotary printing towards digital printing, if you could help us understand?

First of all, 2 is a very small part of the business. The capacity, which we are adding is both in the regime as well as initial. So we are adding both leaving capacity as well as mission capital. and this new capacity will be for solid dies, solid dike fabrics, also the Yandi fabrics as well. So we are not adding any capacity in the printing segment. Already we have printing segment available where we're already running the thing. So they're not adding any capacity in that particular segment.

Got it. And sir, also considering the demand improvement that you have seen, but the volume, yarn volumes have actually degrown on a Q-on-Q and a Y-on-Y basis. So why was it, I think majority came from the realization improvement? Or so how do we see FY '27 in terms of top line and bottom line. And sir, the volume should we expect these to move up going forward or customers are delaying their purchases because of higher an prices?

There is -- I think there is no degrowth assets. The volume has degrown because our fabric divisions have consumed more. If we go into the detail, our fabric divisions have consumed and slight some stocks were left out at the end of the quarter because of logistics challenges. So there a slight increase in the stock stops with us, which was dispatched later because of the nonavailability of the vessels or other things. Logistics, as I highlighted in my earlier comments also. So because of that, otherwise, there is no reduction in the sales side, in quantum, I would say. Going forward, as our capacity increase, yes, the quantum will also increase, that is also going to increase going better. For the -- what will be the agreement and other things for the financial year. I think in the last conference call also, we have highlighted that we should be already with our new expansion should add another INR 200 crores to INR 300 crores to our revenues going forward -- going in this whatever capacity add, but the existing revenue should be slightly higher than the last year. So it's all put together so that there will be a reasonable increase in our regulators.

The next question is from the line of Ankit Gupta from Bamboo Capital.

And congratulations for a good set of numbers. and you have been saying that you the respects are sustaining in second quarter also. But let's say, if for most of the spinners for most of the yarn companies, the low price inventory should get over by maximum by Q2. So let's say, how do things look like for our company in Q3 with us also procuring higher cost inventory during Q1, Q2, if you can talk about that?

We are not at all relying on our inventories alone. We are trying to pass on the increase in the raw material as this has happened in the past also. And going forward also, if the prices -- there is no abnormal increase in the raw material prices. I think we should be in a position to pass on the increase on cotton prices also. This quarter itself, in the Q2 itself, we are also seeing an increase in the raw material prices in comparison to the last 6 months, and this is getting passed on.

Okay. Okay. Okay. we have been hearing about China starting to buy procure cotton an onion supplies from India and other country. So is that one of the major reasons why such high demand and high yarn prices are sustaining? And what's your view on continue to be the same?

First of all, it is one of the reasons. I would not say it is the only reason Overall, demand in the domestic market has also been good. If you see there is an incremental increase in the exports we were India was exporting in the range of 90 million to 100 million cases during the whole of year '2. In '26 -- in the calendar year '26, China started to imported they went up 110 million to 150 million. So there is a very large increase of, let's say, the kind of capacity we earlier year in '21, '22. But this is also supporting the overall requirement. So I would say that we are expecting because of the strategy with China is adopting, there is a lower crop expected in China, and they were going for this kind of continuity of the import of angle should continue.

Okay. So given all this, we expect that the current margins for the quarter, let's say, around 17%, 18%, that should sustain going forward, at least for next quarter or 2?

We are expecting same. In of the cost saving initiatives going forward, which is also going to kick in. and also the margins looking reasonable. Unless we have seen an extraordinary changes in global scenarios or something like that, political or geopoloticalthings, we should be able to do.

Okay. maintain and not improved. The margin should stay at around 20%, 18% over?

Improvement I cannot comment upon at this point of time.

Sure. Okay. Okay. But at least it should not go down from the Q1 levels? Or at least not significantly lower than Q1 levels?

No comments on this. I'm just giving you the facts on the figures and the margin will come automatically when it comes.

[Operator Instructions] The next question is from the line of [ Mara Indana ], an Individual Investor.

I hope I'm audible.

Yes, you are. Please.

Yes. So I see that the volumes Q-o-Q down for an around 14% and Y-o-Y that is compensated by increase in the volumes for clot right? -- question. And that is clear from what you just say. And demand perspective, we have not increased in terms of volume, right? I think what you pointed out as a demand perspective, can you please put forward the facts in terms of how the demand has increased and the volumes are actually down? That's the first question. And second question if are these spreads, right, is specifically due to spread increase is due to the cost reduction in terms of inputs. That's how I understand it. correct I'm wrong? And how much is it sustainable, given this China scenario, which you just explain? How do you have the process if you can at please?

Yes. Coming to your first question. there is -- basically, if you see the production capacity, it is running like the similar production capacity. So we are running at 98% capacity utilization. And accordingly, the increase in volumes is not possible beyond the capacity which we have. So last year also, we were running at this level and this year also, we are running a sale. Now out of the capacity the yarn, which is produced, it goes for different applications. Sometimes we have our netting capabilities. We have our billing capabilities. So when it goes more into those in-house consumption, then and the utilization increases here the outside sales slightly reduces. So that is what you are seeing at this point of time. Some quantity reduction, which is left in our stock is also -- which is also reflected in our numbers. is due to the non dispatches of the material from our end because of logistic challenges in the international market. So that is one of the reasons. And that is late already in the month of July and others that has already got dispelled as well. So this is the reason why the volumes you are looking at is changing. So that is -- from our side, there is no major change in the volumes and agreements as it is. So all the increase which has happened is due to increase the realization and there is no reduction in the volumes of the on which we are producing or we are selling at the moment. Now coming to your second question, where you asked about the cost initiatives. In this particular quarter, there is some -- our renewable energies portion has kicked in, the new capacity which we have started. So that has contributed partly for the reduction in the costs. And -- but that is not very substantial, I would say. We have also gone for an effort of saving the energy. So that is also related in the lesser energy consumption per unit of the production. So these 2 things have resulted some automation have also been done, which was also part of our expansion plan. So we have also modernized some of our existing capabilities. So all these 3 things have resulted in some of our cost savings, which is going to continue this cost savings for an indenture and will continue going forward as well.

Right, sir. Most of the cost savings is coming due to input prices, the way I understand. And part of it is due to what you not input prices due to the power. Input prices have gone up rather. And accordingly, the finished goods have also gone up. So input prices have not gone down. So if you see -- so the increase in the revenue is more than the order input increases there?

Right. Right.

And that was spread about INR 130 that you just mentioned previously. And sir, the last question from my side. How does it look when the full capacity expansion from saline, and we are posting more FY '20, FY '21, do we see substantial demand to absorb the capacity expansion that we have done?

There's new capacity, which is going to come in will be in the yarn capacity, what we are adding will be more for our fabric business. It will go for out of the new capacity, about 22,000 metric tons we are adding going forward, so which out of which nearly INR 16,000 to INR 18,000 will go for our yarn potion, for our fabric production. Also, we are adding underlying capacity. So some part of the capacity will also be so it's a new product for us. So that will be some of some of the arms will be going for. So in total, we'll be adding very small capacity for our grain business. which could be easily absorbed looking to our programs all around the world and the demand of our products at this moment also. So there is no issue at all for absorbing the yarn capacity. Now coming to fabric capacity. This is going to -- we are also introducing many new products in our range in the fabric. Also, these new markets which are opening for us like with the FTAs happening for the U.K. also going forward for the view, we expect that we'll have more customers coming from these markets. which we are already in discussion. So they will -- that will further enhance our utilization capacity. But the ramping up of subject will take some time to happen. So that is going to take 6 to 8 months' time going forward.

Got it. And the margins from these new products, right, at least we would be matching the margins of yarn, if I'm not mistaken.

Yes, of course, yes.

The next question is from the line of Abhishek Shah from Fortitude Fund Management.

Firstly, congratulations on the set of numbers. I mean, we are very impressed with how we've been able to foresee the upcycle Sir, just a couple of questions. I think last quarter on the con call, you said the price rise in areas not being passed through the way it was getting faster in yarn. So just wanted some clarity. Has that pass-through started now? I mean, are we getting higher margins in fabric as well?

Basically, let's say, we have been able to pass on 100% of the raw material increase in the yarn business or other, in fact, improve it, let's say, the increase we have been able to pass 120% to 125%. I just give you an example. But in the case of Fabric business, only whatever raw material increase actually has happened in the core, that is only getting pasta. We are not able to improve upon the margins as we are able to improve on the margins in the yarn business.

Got it. Sir, do you expect this to sort of improve in the coming quarters?

Definitely, with the settling down of the cotton price higher levels yarn at the level. We expect that definitely in the demand coming from various quarters all around the world. So I think we should be able to do that.

Got it. Sir, in terms of the new capacity that comes in, in addition to the previous person who asked you on the capacity ramp-up. Sir, of the INR 1,000 crores is what we have guided incrementally will be the turnover that gets after. How much of that will be on and how much of that will be. Is it 500-500?

No. Fabric will be about 600 plus.

Okay. Got it. Sir, in terms of ramp-up, what will be the tentative time line for yarn and fabric?

I think we should be -- as far as yarn is concerned, I think we would have ramped up all our capacities by 31st of March of this financial year. So that will be there. And so fabric, 100% ramp-up may take a quarter or 2 more in FY '28.

Okay. Sir, lastly, in terms of the solar capacity, has any of the benefits accrued as yet or all of it will come in Q3?

I think some of it has come into this year -- this quarter also, I think about INR 1.2 crores or INR 1.5 crores is the exact number. It has come in this particular quarter as going to come going forward.

So if I'm not wrong, I think the number is INR 30 crores, INR 35 crores, right, for this savings will start, say, post Q3?

If I think -- and really, it will be about -- it should be in the -- at the EBITDA level, it should be around INR 50 crores.

INR 50 crores. 5 Okay. So on this INR 50 crores, maybe 50 divided by 4 will start from Q4? Is that safe to assume?

Yes, definitely.

The next question is from the line of [ Kushal Sain Gupta ], an individual investor.

Congratulations on a great set of numbers. I just wanted to ask any answer you looking at a buyback at any point in time?

I think at this point of time, we are in a growth phase, where we are deploying our capital for the growth purposes, intra accruals as well as we're also taking some loans as -- so it would not be -- it be prudent for us to go for buyback at this point of time?

[Operator Instructions] The next question is from the line of Varun from SMIFS PMS.