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Nitin Spinners Ltd Management Discussions

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Jul 19, 2024|09:44:55 AM

Nitin Spinners Ltd Share Price Management Discussions

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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