Global economic overview and outlook
Global economic activity experienced a broad- slowdown, with inflation
higher than seen in several decades. The cost-of-living crisis, tightening financial
conditions in most regions, Russias invasion of Ukraine, and the lingering COVID-19
pandemic all impacted the growth. The growth rate decined to 3.4% in 2022 from 6.4 % in
2021.
The global economic output is expected to witness steady growth, driven
by stabilising inflationary pressures due to central banks policies, reviving
consumer sentiment and investor confidence. The employment scenario in the US and other
advanced economies has recovered from pandemic levels and rising disposable income is also
likely to support growth in the coming years.Emerging and developing countries are also
witnessing growth across multiple sectors, powered by government focus on infrastructure
and manufacturing sectors. China has also recovered from its COVID impact on the economy
and businesses.
The global economy is anticipated to experience a growth rate of 2.8%
in CY23, which is expected to gradually increase and stabilise at 3.0% in CY24. Emerging
markets and developing economies, including India, are powering ahead in many cases, with
growth rates expected to witness a significant upsurge this year.
[Source- IMF World Economic Outlook, April 2023]
Indian economic overview
Despite global challenges, Indias economic activity has remained
robust due to a favourable domestic policy environment and the Governments continued
emphasis on structural reforms and Indian economys growth slowed to 7.2% in the
financial year 2022-23, as compared to a 9.1% rise in the previous fiscal year.
Various high-frequency indicators, such as GST collections, railway and
air traffic, electronic toll collections and E- Way bill volume, suggest a robust economic
recovery in India. This persistent growth momentum has positioned India as an attractive
investment destination. Furthermore, India is expected to retain its status as the
fastest- growing G-20 nation in the coming years.
The Indian governments initiatives, such as the PM Gati Shakti -
National Master Plan, the National Monetisation Plan (NMP) and the Production-Linked
Incentive (PLI), have been instrumental in fostering economic growth. The Reserve Bank of
India (RBI) has also taken prudent and proactive measures to ensure financial stability
and address liquidity constraints. These factors have contributed to the Indian
economys resilience and stimulated substantial investments.
Outlook
India is expected to be among the fastest growing major economies of
the world in 2023- 24, accounting for 15% of global growth—the second largest
contribution, and higher than that of the US and EU put together.
A combination of rising disposable income, easy access to credit and
lowering interest rates in the wake of a stabilising inflation trajectory will bode well
for economic growth of the country, going forward.
Global textile and apparel industry
The global textile industry is valued at roughly USD 985 billion, and
it is expected to grow at a CAGR of nearly 4.2%, reaching approximately USD 1.268 billion
by 2028.
While inflation is the most concerning issue the changing consumer
preferences, rapid population growth, rising preferences for ecofriendly, organic, and
functional textiles, technological advancements, and government regulations and
initiatives are some of the major factors propelling the market.,
Indian textile and apparel industry
India holds the position of being the worlds second-largest
producer of textiles and garments, while also ranking as the sixth-largest exporter of
textiles, encompassing apparel, home, and technical products. Its contribution to the
global trade in textiles and apparel stands at 4%. The textiles and apparel industry
contributes 2.3% to Indias GDP, 13% to industrial production, and 12% to exports.
The sector employs approximately 45 million workers, including 3.5 million handloom
workers. In 2021, the size of Indias textile market reached US$ 223 billion,
exhibiting a compound annual growth rate (CAGR) of 10.23% since 2016.
Outlook
The year 2023 has arrived with high hopes for the Indian textile
industry. Following a period of turmoil and uncertainty, the sector appears to be on track
for good stable development. This positive mood is the outcome of several initiatives
taken by the Union Government to strengthen the prospects of the textile sector. These
actions, which include bolstering technological and MMF textiles through the PLI
programme, developing mega textile parks, signing FTAs and MoUs with other nations, and so
on, are intended to propel the Indian textile sector to new heights.
Indian Cotton Textiles industry
India holds the position of being the largest global producer of
cotton. Estimated cotton production stood at 312.03 lakh bales during the cotton season of
2021-22, and it is projected to reach 330 lakh bales in 2022-23. The cotton textiles
industry encountered several challenges in FY 2022-23, including soaring cotton prices,
disparities between international and domestic cotton prices, and sluggish demand. As a
result, the industry had to reduce production and experienced lower profit margins.
However, there has been a recent cooling down of cotton prices by approximately 45% from
their peak of Rs 1.1 lakh, and the disparity between international and domestic prices has
also significantly diminished.
Opportunities
China plus one strategy
The ‘China Plus One strategy presents a significant
opportunity for India to enhance its manufacturing capabilities and attract more foreign
investment. Indias textile exports are predicted to increase by 81% to USD 65
billion by 2026. This growth will be supported by the global ‘China Plus One
sentiment. This increase will result in 7.5-10 million new jobs.
Increased retail industry
The retail sector in India is highly distributed and largely
unorganised. This sector contains over 13 million retail outlets and accounts for
approximately 95 to 96 percent of Indias total retail business. However, going forward,
growth in organised retailing is expected due to economic growth, changing lifestyle of
the people and globalisation. Moreover, the Indian retail industry is seeing robust
development as a result of increasing expenditure spending by Indian consumers,
particularly the younger generation, and an increase in disposable incomes Apart from
that, metropolises and small towns are witnessing a significant shift in customer tastes
and lifestyle, and have therefore become attractive markets for merchants.
Rise in per capita income
The demand for textiles and clothing will be driven by an increase in
disposable income and a growing middle class. With new Capex, the textile industry may
concentrate on value-added or premium items. This will assist businesses with the adequate
capacity to meet the upcoming demand early and boost their profitability.
FDI opportunities
Among growing countries, India has the most free and transparent rules
regarding Foreign Direct Investment
(FDI). India is an appealing destination for FDI in the textile
industry. Under the automatic method, 100% FDI is permitted in the textile sector.
Growth in domestic market
The domestic textiles and apparel market in India is one of the
emerging markets in the world. Rising income levels of consumers and rapid urbanisation
are key factors for the increase in demand in the domestic market. The organised retailing
sector flourishing and further inviting FDI into the sector. As a result of this several
international companies are interested in starting up their business functions in India
soon. These all are a clear evidence that the Indian domestic trade is going to touch new
heights.
Threats
Infrastructure bottlenecks
The poor quality of Indian Infrastructure implores serious setbacks in
the textile industry in India. The bulk of Indias cotton textile plants employ outmoded
technology. According to one estimate, more than 60% of the spindles in India are older
than 25 years. Automatic looms make up just 18% of all looms in the country, compared to
the worldwide average of 62% and 100% in the US.
Competition from other exporting countries
The Indian textile business faces competition from nations such as
China, Germany, Bangladesh, Sri Lanka, Turkey, Vietnam, Italy, and others. These nations
have already established their core competencies and well-known USPs in the global market.
Bangladeshs apparel exports have already overtaken those of India. Vietnam has grown its
market share in international trade in recent years. Ethiopia and Myanmar, on the other
hand, are luring foreign customers and investors. All of these nations will be serious
competitors for India in the near future.
Availability and price of cotton
Natural disasters that significantly harm cotton harvests in India may
result in sharp price increases, supply disruptions and unpredictability.
Company overview
Founded in 1992 in Bhilwara of Rajasthan, Nitin Spinners is
Indias leading manufacturer of cotton yarn, knitted fabrics and finished woven
fabrics. Commenced with just 385 rotors and an investment of INR 3 Cr, it has now expanded
which include knitted textiles, completed woven fabrics, mixed yarns, open-end yarns, and
ring-spun yarns.
The Companys manufacturing facilities are strategically located near
the regions where it sources raw materials from. Additionally, it has good access to
important markets and ports. The Companys operations include investments in cutting-edge
technology, ongoing development and value addition, dedication to consistent product
quality, a focus on customer happiness, and prompt product delivery.
Financial and product wise performance
| Particulars |
2022-23 |
2021-22 |
| Revenue from operations |
2406.71 |
2692.32 |
| Other income |
3.31 |
1.84 |
| Total income |
2410.02 |
2694.16 |
| Earnings before Interest, |
300.37 |
653.45 |
| Tax and Depreciation & |
|
|
| Amortization |
|
|
| Profit for the year |
164.81 |
326.14 |
| EPS (Basic) (In INR) |
29.32 |
58.01 |
| EPS (Diluted) (In INR) |
29.32 |
58.01 |
For financial and product-wise performance concerning operational
performance, please refer to the ‘Financial Results and ‘Operational
Performance section of the Boards Report.
Details of Significant changes in Key Financial Ratios
| Particulars |
2022-23 |
2021-22 |
% change |
Reason for change |
| Inventory turnover |
5.36 |
7.08 |
-24.29% |
lower sales realisation |
| Interest coverage ratio |
7.97 |
11.81 |
-32.51% |
lower operating profits |
| Current ratio |
1.50 |
1.83 |
-18.04% |
Funds Deployed in Expansion project |
| Debt equity ratio |
0.65 |
0.57 |
14.04% |
Fresh term loans taken for expansion project |
| Debtors turnover |
10.39 |
13.25 |
-21.58% |
Debtors realization period increased marginally |
| Operating profit margin |
12.46% |
24.25% |
-48.62% |
lower margins due to high volatility in raw material prices
and lower global demand |
| Net profit margin |
6.85% |
12.11% |
-43.44% |
lower margins due to high volatility in raw material prices
and lower global demand |
| Return on Avg net worth |
17.31% |
45.32% |
-61.80% |
Decrease in operating margins due to volatility in raw
material prices and weak global demand |
| Earnings per share |
29.32 |
58.01 |
-49.45% |
Lower net profits |
Risk and concerns
Risk management measures are essential to a governance system.
Therefore, it contributes to its strategic goals and safeguards its value, assets, and
reputation. Here are some of the risks and mitigation strategies of Nitin Spinners:
| Risk |
Impact |
Mitigation |
| Competition risk |
Increased competition may have a negative effect on return on
invested capital, market share, and margin profile |
Focus on value addition, quality , customer service , wide
product portfolio and cost efficiencies help the company mitigate this risk |
| Foreign currency exchange rate risk |
Stronger Indian Rupee might reduce income given that exports
account for 63% of total revenue. |
The company mitigates this risk by robust currency hedging
mechanism and export pricing |
| Raw material price Inflation risk |
A rise in cotton prices might have a negative effect on the
Companys profitability. |
The company continuously monitors cotton prices and follos a
consistent stocking policy to avoid speculation and hedge against sharp movements |
| Reputation risk |
Any late payments to lenders or suppliers or subpar products
might erode consumer confidence in our integrity and have a negative influence on business
success. |
The company continuously makes conscious efforts to meet all
stakeholder expectations and have strict quality control procedures |
| Customer concentration risk |
In the event that one significant client fails, any
concentration of customers may result in revenue loss. |
The company continously strive to add new customers across
geographies to diversify customer base |
Environment and safety
Clean and safe environmental operations form Nitin Spinners key
priorities. The Company conducts all its operations, ensuring the safety of everyone
concerned, compliance with statutory and industrial requirements for environment
protection, and conservation of natural resources to the extent possible. Additionally,
British Standards India (BSI) has granted the Company accreditation for its
OHSAS18001:2007 (Occupational Health & Safety Management System) management system.
Human resources
Human resources are an essential asset for a company to achieve
long-term success. To recruit, maintain, and grow its talent pool, the Company has
constantly recognised talent, provided training, and rewarded performance. In addition, it
is dedicated to promoting employee safety and well-being, and it takes pride in luring in
the talent required for its further expansion.
Most importantly, it highlights the elimination of all forms of
workplace and professional discrimination (including, but not limited to, gender, age,
ethnicity, political affiliation, and religion). Professional equality, gender equality
and the employment of individuals with disabilities are all given special consideration.
Additionally, the BSI certified it with S.A. 8000:2014 (Social Accountability System)
accreditation.
5229
Total strength (As of 31st march 2023)
Internal control and their adequacy
Nitin Spinners has appropriate systems for internal control. These
systems are continually improved and modified to meet the changes in the business
conditions and the statutory and accounting requirements. The Company also has a robust
Management Information System, an integral part of the control mechanism. The Audit
Committee of the Board of Directors reviews the efficiency and effectiveness of the
internal control systems. It then suggests solutions to improve and strengthen. The
internal control system was tested during the year, and no material weakness in design or
operations was found.
Segment-wise performance
The Company operates in a single segment of Textile.
Cautionary statement
Statements in this Management Discussion and Analysis describing the
Companys objectives, projections, estimates, expectations or predictions, may be
‘forward-looking statements within the meaning of applicable laws and
regulations. Actual results could differ materially from those expressed or implied.
Important factors that could make a difference to the Companys operations include
raw material availability and prices, cyclical demand and pricing in the Companys
principal markets, changes in Government regulations, tax regimes, economic developments
within India and the countries in which the Company conducts business and other incidental
factors.
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