Nitin Spinners Ltd Management Discussions

Global economy

The global economy demonstrated remarkable resilience in the year 2023, navigating geopolitical conflicts, energy and food price volatility and rising inflation. By the conclusion of 2023, global growth rebounded to 3.2 percent following a period of decline in late 2022 despite of disruptions due to Israel/ Hamas conflict.

Outlook

2024, the global economy is anticipated to grow steadily and the inflation rate is expected to decline consistently. The manufacturing sector experienced robust growth, expanding at double-digit growth rates, driven by sustained corporate profitability and declining input costs. Despite ongoing challenges in global trade and investment, major central banks are preparing to ease monetary policy. As central banks adopt a less restrictive approach, theres a renewed emphasis on implementing medium-term fiscal consolidation. This entails prioritising investments, rebuilding fiscal space and ensuring debt sustainability. Balancing near-term economic stabilisation with long-term fiscal prudence will be crucial for sustaining economic resilience and fostering inclusive growth globally.

Indian economy

During the fiscal year 2023-24, India achieved an impressive growth rate of about 8.2%, the highest among major global economies, surpassing the previous years 7% despite the global headwinds. This robust performance was driven by strong fiscal management, including a significant rise in capital expenditure from H10.5 lakh crore in FY23 to H12.7 lakh crore in FY24. Indias economic resilience amid global challenges is indeed notable. The emphasis on bolstering domestic consumption and reducing dependence on global demand has proven effective in sustaining growth momentum. Investments in infrastructure, logistics and industrial corridors are pivotal for enhancing competitiveness and fostering long-term growth.

The governments strategy of increasing capital expenditure while aiming for a lower fiscal deficit reflects a balanced approach to stimulating demand without compromising fiscal sustainability.

Outlook

Despite the prevailing geopolitical challenges in Europe and West Asia, the future outlook demonstrates cautious optimism, with the anticipated easing of inflationary pressures and expectations of more accommodative monetary policy measures conducted by Central Banks. Global trade volume (goods and services) is projected to grow modestly by 3% in FY 2024 and 3.3% in FY 2025, respectively. The collective policy responses of governments and the resilience of economies worldwide will be instrumental in shaping a sustainable and inclusive growth trajectory in the months ahead.

Certain factors poised to sustain growth in the upcoming fiscal period as well. The persistent decline in inflation will bolster consumers purchasing power. This assumption relies on a typical monsoon season in 2024, which could elevate agricultural growth from a low starting point. Moreover, a gradual increase in private sector capital expenditure will foster a more widespread investment growth.

Industry overview

Global textile and apparel Industry and Outlook

The present global T&A market value is US $910bn and recorded a steady CAGR of 3% from 2017 - 2022, a testament to its enduring significance in the global economy. Looking ahead, the industry shows no signs of slowing down, as it is poised to accelerate with a projected CAGR of 4% in the coming years. This promising growth trajectory underscores the industrys ability to adapt with the evolving global trade dynamics.

Indian textile and apparel Industry and Outlook

As one of the largest textile industries in the world, the Indian textile industry contributes approximately 2.3% to the countrys GDP, 13% to industrial production and 12% to total exports earnings.

Indias share of trade in the global textiles and apparel sector is 4%. India is one of the largest producers of cotton and jute in the world, as well as the 2nd largest producer of silk. Overall, 95% of the worlds hand-woven fabric comes from India.

The Indian Domestic T&A market has grown from US$ 50 bn in 2010-11 to US$ 110 bn in 2021-22, registering a growth of 7%, and The market is further expected to grow at 10% CAGR from 2021-22 to reach US$ 250 bn by 2030-31, and is a mainstay in the Government target for $5 trillion Economy.

India is the worlds 3rd largest exporter of Textiles and Apparel. Indias T&A exports have grown with a CAGR of 4% since 2010-11 to reach US$ 43 bn in 2021-22 The exports are expected to grow at a CAGR of 10% from 2021-22 to reach US$ 100 bn. in 2030-31.

Indias textiles and apparel industry has various strengths across the value chain such as from fibre to yarn to fabric to apparel. The country has also witnessed a strong trade in technical textile. India has been a net exporter of such apparel. Various Government Initiatives like The Production Linked Incentive PM-MITRA scheme for Textiles parks, which have been designed to create world-class infrastructure for textile production and Other schemes like SAMARTH, aims at skill development in the textile sector, implementation of RODTEP for reimbursing duties and taxes on exports will help make prices of Indian Textiles at par with Global prices and provide a boost for growth of Textiles Industry in India,

Indian cotton textiles industry

Cotton Textiles is a major sub-sector within the Textiles Industry in India, it contributes significantly to Indias exports and employs millions of people. India is the worlds largest producer of cotton. For the cotton year 2023-24, the agriculture ministry projected cotton output at 31.6 million bales. After high volatility in cotton prices in previous year, the prices stabilised during the year and are at reasonable parity with International prices, which has helped in increasing export competitiveness.

The Indian cotton textile industry is one of the leading exporters in the global textile export market. During fiscal year 2023-24, cotton textiles exports from India grew by 7.34%, from 10.90 billion USD to 11.7 billion USD.

Opportunities

Sourcing shifts

With the ever-changing global geo-political scenario global buyers want to de-risk their sourcing strategy and reduce their dependence on China, which has been the most dominant supplier of textiles and apparel over the years. India stands to gain from this shift and there is a huge opportunity for India to have foot in the door of global buyers and make the most out of this opportunity. Attracting foreign direct investments (FDI) to enhance the value chain and infrastructure will be pivotal in capitalizing on this window.

Sustainable manufacturing

As the world undergoes a transformative shift towards sustainable and innovative materials, India has a golden opportunity to emerge as a key player in these sectors with increase in using organic and recycled materials, water and energy conservation and increased use of renewable energy.

Technological advancements

The textile sector has experienced a significant amount of investment in technology and automation. Productivity can be enhanced by automation, reduced cost and consistent quality. Advanced technologies like AI and machine learning can be introduced for better production planning, inventory management and predictive maintenance.

The recent years have witnessed rapid advancements in digital textile technologies. Advances in digital printing, fabric weaving and other processes have enabled the production of a wide range of fabrics with greater accuracy, consistency and cost efficiency than ever before.

Digital printing has also allowed more vibrant and accurate colours to be printed onto fabrics, and inkjet printing has made production of printed fabrics faster.

Free Trade Agreements (FTAs)

Recent FTAs signed with countries like Australia, and the UAE can be leveraged to boost exports. The potential for new FTAs with the UK, Canada, and the European Union holds the promise of further expanding Indias reach in international markets. While it may be a challenge to establish these FTAs, these will benefit Indian textile and apparel exports as and when they are finalized.

Scope of Self-employment Opportunities

The textile industry offers vast Self-employment opportunities. There is something for everyone, from designing and producing unique clothing to creating custom blankets and upholstery.

The rise of e-commerce

The rise of e-commerce has created new opportunities for the textileindustry.E-commerceallowstextilemanufacturerstoreach a wider audience and sell their products directly to consumers.

Threats

Global Competition

The textile industry in India faces heavy competition from other South East Asian countries such as China, Bangladesh, Vietnam and Indonesia. Lower labour and production costs in these countries make them more cost-effective for buyers. Also competition from synthetic fibres is fierce, as they are cheaper , easy to maintain and more durable.

Uncertainty of prices and availability of Cotton

Indian Cotton Textiles may lose may lose competitiveness and advantage in the Global trade, if the cotton crop is substantially reduced, and if Indian cotton prices are higher than International cotton.

Paucity of Quality Raw Materials

India faces a unique challenge when it comes to cotton production per Hectare. While India contributes more than 25% of the total cotton production area in the world, the annual production is only around 8% of the global value.

Company overview

Established in 1992 in Bhilwara, Rajasthan, Nitin Spinners has emerged as a prominent player in Indias textile industry. Starting with 385 rotors and an investment of INR 3 crore, the Company has significantly expanded its operations. As of today, the Company stands out as one of the leading manufacturers of cotton yarn, knitted fabric as well as finished woven fabric. Its product portfolio has diversified to include knitted textiles, completed woven fabrics, blended yarns, open-end yarns and ring-spun yarns. This reflects its growth and adaptability in the market.

The Company has devised strategies, positioning its manufacturing facilities in close proximity to the regions from which it sources raw materials. Due to its positioning near key markets and ports ensures efficient logistics.

Additionally, the Company constantly invests in cutting-edge technology and focuses on continuous product development, innovation and value addition. It is dedicated to maintaining consistent product quality and prioritises customer satisfaction by ensuring prompt delivery of products.

Financial and product wise performance

Particulars	2023-24	2022-23
Revenue from operations	2905.65	2406.71
Other Income	2.25	3.31
Total income	2907.90	2410.02
Earnings before interest, tax and Depreciation & Amortization	379.30	300.37
Profit for the year	131.52	164.81
EPS (Basic) (in INR)	23.39	29.32

For financial and product-wise performance concerning operational performance, please refer to the ‘Financial Results and ‘Operational Performance section of the Boards Report.

Key financial ratios

Particulars	2023-24	2022-23	%change	Reason to change
Inventory turnover	5.50	5.36	3%	Marginally Improved due to higher sales
Interest coverage ratio	4.55	7.97	-43%	Reduced due to higher Interest of new Capex
Current ratio	1.54	1.5	3%	Improved marginally
Long Term Debt equity ratio	0.83	0.65	28%	Increased due to new loans for capex
Debtors turnover	10.68	10.39	3%	Marginally Improved
Operating profit margin	13.04%	12.46%	5%	Improved due to better capacity utilisation
Net profit margin	4.53%	6.85%	-34%	Reduced due to higher Tax
Return on Avg net worth	12.09%	17.31%	-30%	Reduced due to lower PAT
Earnings per share	23.39	29.32	-20%	Reduced due to lower PAT

Risks and concerns

Risk management is an important part of the governance system. It contributes to the achievement of strategic objectives and protects the value, assets and reputation of the organisation. Below are some risks identified by Nitin Spinners along with their corresponding mitigation strategies:

Risk	Impact	Mitigation
Competition risk	Heightened competition poses a potential risk to return on invested capital, market share, and margin profile.	The Company mitigates risks through a focus on value addition, quality, customer service, a wide product portfolio, and cost and production efficiencies.
	Indian Rupee might reduce income	The company follows a forex
Foreign currency exchange rate risk	given that exports account for [59] % of total revenue.	hedging policy to avoid any losses due to adverse currency fluctuations
Raw material price Inflation risk	A rise in cotton prices might have a negative effect on the Companys profitability	The company continuous monitors prices of cotton prices and adheres to a consistent stocking policy to avoid speculation and hedge against sharp price movements.
Reputation risk	Late payments to lenders or suppliers or the delivery of subpar products might erode consumer confidence in its integrity and could have a detrimental impact on business success.	The company continuously makes conscious efforts to meet all stakeholder expectations and maintains strict quality control procedures.
Customer concentration risk	If one significant client fails, any concentration of customers may lead to revenue loss.	The company continuously strives to acquire new customers across various geographical regions to diversify its customer base.

Environment and safety

Nitin Spinners ensures that its operations are environmentally sustainable and safe. It focuses on Energy conservation through use of Renewable Energy, water conservation through recycling of water and use of sustainable fibres. All initiatives taken by the Company focuses on the well-being of all the stake holders. The Company adheres to statutory and industrial environmental protection requirements and strives to conserve natural resources wherever feasible.

Moreover, the Company has been accredited by Intertek for its OHSAS 18001:2007 management system. This demonstrates its commitment to occupational health and safety standards.

Human resources

Human resources are one of the most important assets for a companys success. To attract, retain and develop its talent pool, the Company consistently identifies potential, provides training opportunities and recognises performance.

The Company puts high priority on employee safety and well-being. Furthermore, Nitin Spinners puts utmost importance to eradicating workplace discrimination including gender, age, ethnicity, political affiliation and religion. The Company also places special care and emphasis on professional and gender equality, as well as the inclusion of individuals with disabilities. Additionally, the Company has been certified by BSI with S.A. 8000:2014 accreditation, reflecting its adherence to the Social Accountability System. The company has total employee strength of 7390, as of 31st March 2024.

Internal control and their adequacy

Nitin Spinners maintains effective internal control systems, which are consistently enhanced and adjusted to adapt to evolving business landscapes, as well as statutory and accounting standards. The Company possesses a strong Management Information System, which plays a vital role within this control framework. The Audit Committee of the Board of Directors regularly evaluates the efficiency and efficacy of these internal control systems, offering recommendations for enhancement and reinforcement where necessary. During the past year, the internal control system underwent testing, revealing no significant flaws in either design or implementation.

Segment wise performance

The Company operates in a single segment of textile

Cautionary statement

The passages found in the Management Discussion and Analysis, which outline the Companys goals, forecasts, assessments, anticipations, or forecasts, might qualify as forward-looking statements according to relevant laws and regulations. Actual outcomes might significantly deviate from what is either directly stated or indirectly implied. Key determinants that could impact the Companys activities encompass the availability and costs of raw materials, fluctuating demand and pricing trends in the Companys main markets, alterations in governmental regulations and tax structures, economic shifts within India and the nations where the Company operates, along with other ancillary factors.