Nitin Spinners Limited (NITINSPIN) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Nitin Spinners Limited Q2 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Awanish Chandra from SMIFS Limited. Thank you, and over to you, sir.

Thanks a lot, Suja, and thank you very much, everyone, for joining this call. On behalf of SMIFS Limited, I welcome you all to second quarter, first half 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; and Mr. P. Maheshwari, Chief Financial Officer of the company. 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 ji. Good evening, and a warm welcome to all the participants to this Q2 and FY '27 earnings call of Nitin Spinners. I hope you have had a chance to go through the financial results and the investor presentation available on our website and the stock exchanges. I will start with a brief overview on operational and financial performance for the quarter. Post that, our CMD, Mr. Dinesh Nolkha, will give you an overview of industry and business scenario. Coming to our Q2 FY '27 financial and operational performance. Q2 FY '27 has been another strong all-around quarter for the company. Total revenue for the quarter stood at INR 985.2 crores as against INR 760.1 crores in Q2 FY '26. That is a growth of 29.6% year-on-year. This is our highest ever quarterly revenue, third time in a row, driven by higher yarn realization, stable demand scenario and higher sales volume in fabric business. EBITDA for the quarter stood at INR 175.5 crores as against INR 99.6 crores, that is a growth of 76.3% Y-o-Y, driven by better utilization -- optimum capacity utilization and ongoing going cost saving initiatives. EBITDA margin stood at 17.8% as against 13.1% in Q2 FY '26, that is an expansion of 471 basis points and was sustained at the Q1 FY '27 level of 17.78%. Profit after tax is at INR 88.7 crores as against INR 34.8 crores, that is a growth of 155% Y-o-Y. EPS for the quarter stood at INR 15.77 per share and cash EPS at INR 22.57 per share. In terms of graphical split of revenue, exports contributed about 68% and domestic 32% of the revenue. In Q2 FY '27, the spinning capacity utilization was over 98% and woven fabric capacity utilization was about 90% during the quarter. Now coming to FY '27 financial and operational performance. For H1 FY '27, total revenue stood at INR 1,860.20 crores as against INR 1,553.4 crores, that is a growth of 19.8%. EBITDA stood at INR 331 crores as against INR 210.8 crores, that is a growth of 57%. This EBITDA margin improving by 423 basis points. PAT stood at INR 163.9 crores as against INR 75.8 crores, that is a growth of 116.4%. EPS for half year is INR 29.16 and cash EPS INR 42.65 per share. Regarding CapEx, we are pleased to inform that partial trials have commenced in all the segments of the expansion projects. Commercial commenced production in all the divisions is expected to commence by the end of December '26 as planned. On renewable project investments, progressing per schedule and expected to get operational by end of December '26. This will take our renewable energy capacity from 41 megawatt to about 95 megawatt and meeting about 50% to 55% of power needs post expansion. That is all from my side. I would now request Dinesh ji to share his insights about the industry and business scenario. Thank you, and over to Dinesh ji.

Thank you, Maheshwari ji. Good evening, everyone. The first half of financial year '27 has been favorable for the Indian textile industry, particularly from upstream players. Yarn demand stayed healthy with steady buying from major importing countries as well as domestic players amid stable tariff environment. Cotton prices remained firm during the quarter. Domestic prices moved up around INR 67,000 to INR 68,000 per candy. On lower arrivals and concerns, the deficient rainfall in some parts of India to lower the '26-'27 crop. The international cotton prices also firmed up to about $0.80 per pound. The import to the exemption on cotton improved the raw material availability and is extended for the nearly half of this year. Importantly, domestic cotton prices continue to remain more or less at par with international cotton prices. This keeps the Indian yarn competitive globally and helped spinning spreads remaining healthy. For the various credit trade policy measures, will increase competitiveness of Indian textile industry over the long term, especially the free trade agreements, which is happening all around the world by India is going to help all of us in improving the competitiveness of the textile industry. In the near term, the inflationary conditions across commodities and services and liquidity strain in the downstream channels are factors which are closely to be watched. But the long-term outlook -- and medium- to long-term outlook for the industry remains positive. Coming to our company's performance. Q2 of this has been a landmark quarter for the company. We achieved some key milestones together, highest ever quarterly revenue, highest ever quarterly exports and highest ever quarterly revenue for our fabric business. Also, the EBITDA margin was sustained at a reasonable level. The factors that have driven this all-round performance are better realizations, optimum asset utilization, a higher share of exports and other cost-saving initiatives taken by the company over time. As informed by Maheshwari ji, our expansion plans are going on as per schedule. Once these are commissioned and ramped up, a larger share of our yarns will be consumed in-house and will enable us to sell more value-added products and fabric as well as the yarn product portfolio, thereby strengthening our profile further. Further, the renewable power capacities will help us in optimizing our costs going forward. I would like to highlight that the company is steadily moving up the value chain by enhancing the capacities in the finished fabric and the value-added yarns, and we are well positioned to deliver sustainable growth in the coming years with an expanding presence in the higher value yarns. With this, I would like to open the floor for the question and answers. Thank you.

[Operator Instructions] The first question is from the line of Jatin Damania from Svan Investment.

Congratulations on the good set of numbers. Sir, just wanted to understand now since you indicated that the cotton price in the domestic market has firmed up and is in line with the international level. So what was the spread in Q2? And how do you see the spread given the new cotton supply coming in?

In Q2, the average -- if you talk about the average count for the industry was about INR 125 to INR 130 per kg. And it is -- at this point of time also more or less at the similar levels. It has remained at the similar levels at this moment also.

Sure, sir. And sir, just want to understand, like -- if you look all our performance during the quarter across the line items, we outperformed the industry and the growth was good. But when you look at the EBITDA margin on a sequential basis, you are flat. Now since more of the value-added product has come into consideration, just wanted to understand what led to a flat margin or what was the one-off expenses that was pertaining to the new capacity that has hit in the P&L?

In this particular quarter, we have some small revenues coming in from of our trial production and all the cost, et cetera related with that is also being debited to the P&L account only. And that is -- it means about -- the top line is about INR 21 crores, we have also displayed that -- we have produced about 41 lakh meters out of which the revenue was -- some of it was in stock and some were sold for INR 21 crores with the EBITDA I think loss of about INR 1 crores. So if you remove that part of this, the EBITDA would be around 18.5%.

Okay. So that will be almost around 100 bps improvement. And sir, once this capacity ramps up, now that's on the new capacity, which is the fabric -- increasing the yarn capacity, which is more about a backward integration. On an incremental capacity, what will be the EBITDA margin or the ROCE, why should assume once the capacity runs at the optimum level in FY '28, which -- are you coming in?

Actually, as I have indicated many times that normally for the industry like ours, where we have now post this expansion, nearly 28% to 30% of our capacity will be for the -- yarn capacity will be dedicated to woven fabrics. And for the fabric itself and then we should be able to run a margin of about 16% to 18%, where operating margin should be in that range in the normal circumstances. And with some RE power capacity, maybe it is going to make a difference of about 100 to 150 days. So we expect that in the normal circumstances, even with the cost pressures, et cetera, which we have, we should be able to maintain our margins, which we are having at the moment.

The next question is from the line of [ Vishal Prasad from Rajmahal Capital ].

So, Dinesh Ji, there is a fair understanding that government is going to continue with the import duty that they have on cotton and probably we are going to permanently remove it. So I know I mean the discussion is going on and government decides what they do. But is that a fair understanding that this exemption will continue?

If we have to -- on the basis of the whatever information we have and the discussions which we have in the industry, we are given to understand that there is a shortage of agriculture products in our country due to El Nino. Government is very well aware about this fact that there is a shortage already. Even the cotton crop is lesser than last year by about 4% to 5%. So -- and the consumption is increasing consistently, growing the -- overall textile is growing by 5% to 6%. So consequently, so the gap is increasing. So as to bridge that gap, government is definitely going to help us in keeping the agriculture -- this particular product at par with the international prices. So they will be observing the overall scenario. And if there is no major volatile price variations, this should continue, I see.

Okay. Second is, we have not decided yet that we have mentioned that there is an aspiration to get into garmenting. So is there some thought that we have proceeded with our aspiration to get into garments once this CapEx is done?

I have also indicated in our last conference call that is a logical thing which we should go into. So that was the aspiration. But as of date, we have not done anything. As soon as we get into something like that, we'll definitely let you all know about it.

Okay. And last question, Dinesh ji, I mean, we make fabrics as well. And there are different technologies that are used for printing and there is -- it seems that there is a digital printing which is very heavy in Europe and China is also going that way. So do you see that our industry as well as us moving in that direction?

Of course, that is always possible. We have rotary prints, and we are quite efficient in giving a very -- basically, digital print is being used to give the immediate deliveries just in time kind of things, whereas we have a lot of immediate requirements. We are quite efficient in that, and we are even able to give to our customers delivery of printed goods in within 10 to 12 days. So at the moment, we do not feel any need for that. But going forward, if the need arises, definitely, we are open to that. It is not that kind of investment. It is not a very big investment for us.

[Operator Instructions] The next question is from the line of Harsh Mittal from Emkay Global.

Firstly, congratulations for a strong set of results. So my question -- first question is a continuation of the question from the previous participant. So sir, as you mentioned that any new CapEx into garments or any other segment will be announced subsequently. But any time line which you can attach to it or by latest, when can we expect the new CapEx basically which will hit revenues from FY '29, any guidelines, time lines to it, sir? This is the first question.

Yes. So basically, what we are looking at, we are trying to -- since this is a major CapEx, which we are going to do and we are -- our top priority is to stabilize the production and the revenues for this particular stream, which is quite substantial. And then we are looking already at various parts of our business where we need -- where we can increase our revenues and balance the overall situation. So we are expecting that by going in FY '29, we aspire that we should reach anywhere between INR 4,800 crores to INR 5,000 crores by -- with our existing assets and balancing some of them. So next -- whatever -- next CapEx will be for modernization and balancing of our equipment so as to optimize and reach this target basically.

Understood, sir. Sir, my second question is on the fabric realization growth this quarter, which seems to have fallen by 8% approximately. Any sense on this number, sir, can we expect a higher realization in quarter three?

No. Basically, the realization in this quarter has improved in comparison. It has not fallen back. I think if you compare this with yarn, yes, it is lesser. But yes, fabrics normally has a tendency to pass on later. Our -- the fabric realization has increased year-on-year by about 6%. And yarn realizations have increased year-on-year by about 12.5% to 13%. So yes, in that context, it has fallen back, but normally, fabric takes more time to pass on the overall cost.

The next question is from the line of Prabhat Yadav from Navneet Education.

Sir, I wanted to understand on the yarn business, if I look at the top 7, 8 players in the country today, including yourself, I realize that the investments that are happening specifically in yarn or specialized yarn is significantly lower than the kind of capacity additions that are happening in ready-made garments or fabrics. But eventually, yarn is something which basically is a base requirement across these developments that are happening at an industry level, if I may say so. Is there a situation of today under investments in spinning being the situation given that you operate across all segments of the business, I wanted to get your sense on the same, sir. And then the follow-up question is that the real benefits of these U.K. and EU FTAs that are anticipated to benefit India, how early would you start to see any kind of real gains accruing on the same, sir?

Yes. So first of all, let me answer your second question first because from there, we'll get to the first question. Actually, the U.K. and EU FTAs are going to benefit most garments and the ready-made garments as well as the made-ups in the home textile and the home textiles. So these are the segments which will be the real beneficiaries. Of course, in EU FTA, a lot of yarn and fabrics also goes there. So there also, it will accrue to them. So in order to get a real benefit out of this, we need to increase our garmenting capacities, including our -- and also our fabric capacities to that extent. And that will translate into a major gain and share over. Now, we are increasing the capacities over -- if you see the capacity increase, it's quite substantial in garmenting and slowly that is moving towards that kind. But as you said in the yarn, there is not a major capacity. The major reason is that is underutilization already of our spinning capacity. We are only utilizing nearly 80% of our spinning capacity, 17% to 18% capacity is already closed. Some of them is permanently closed and maybe something may come up again. Also, we have a share of exports of about 20%, which we are doing to various other countries. So once the garments will come into the business, then maybe we will kill the share of some other countries. So that will transfer from the exports to the domestic market. So overall capacity still remains okay. We feel that industry do not need more capacity for at least 1 or 2 years' time till this is really translated into the benefits of these activities.

The next question is from the line of [ Varun Dinesh ] from SMIFS Limited PMS.

So first of all, congratulation on a very good set of numbers. And I would like to ask a few questions. One is on the margins front. So as we know that we have reached around 17.8% of the EBITDA margin this quarter and we are guided towards 20%, right? So there has been a few of the mix that has been changed in the overall products side. So I would like to know how far are you going to go to the 20% and how will you achieve it for this quarter?

We have not guided for 20%. First of all, Varun ji, I would like to highlight that. We have told that a range is 16% to 20%. So we are in the middle of the range. So I don't -- we are already at a reasonable margin level given the kind of product mix which we have. And we have a balance of fabric as well as yarns. So in this scenario, I think this is quite optimal margin which we are operating at. And our first objective is to maintain this and improve, since we are getting into the RE power, more capacity on the RE that should help us in having some cost saving initiatives. So that should help us in improving this as well. But our first objective at this point of time is to sustain these levels.

All right. And my second question was on the line of that our exports have been the focus point and it has grown by over 40% year-on-year. So which are exactly the geographies that are driving this export growth?

This is all along. We are practically operating in all the geographies, and it is not that one particular geography has improved substantially. It is -- in general, it is -- there is a price increase. We have seen the -- this 40% increase is basically some of -- there is increased depreciation in the dollar. That is one part. Secondly, increase in the yarn realizations of the yarn. This itself has contributed about 20%, 25%. And plus, there is some capacity diversion from the domestic market towards the export market. So all put together, the realizations have improved by 40%, but there is not going to have any major impact on the profitability side at least because of this.

Okay. And in the last quarter, we have heard that there would be some -- there will be some spillover into the next quarter, right, because of the dispatch that was there. So how much of that spillover has come into this quarter is what my question was?

Not much. I think I have informed that some quantity we were not able to dispatch at the end of the quarter. So that has been -- maybe that is to the extent of about INR 35 crores to INR 40 crores, not more than that. So that is a routine plus because in the overall revenue of INR 300 crores every month, INR 300 crores plus, maybe sometimes the shipment doesn't happen. So because of that, INR 25 crores, INR 30 crores plus/minus that can happen at the end of any month or a quarter.

Okay. And was there any inventory gain this quarter?

Inventory gain in what, in terms of...

In terms of the price maybe you purchased that in the last quarter at the level...

No, not much. In fact, our cost of inventory -- cost of our raw material is higher than -- much higher than the last quarter.

Okay. And the last one was with respect to the debt that you have taken for this CapEx. So what is the repayment schedule and what is the peak debt that you have assumed?

First of all, the peak debt which we are going to have will be about our total term debt will peak in this March at about INR 1,440 crores, I think. And working capital, which is at about INR 400 crores at this point of time, can reach maybe about INR 500 crores plus during that time. So total debt could be about INR 1,950 crores at the end of March '26. That is -- and the repayments are every year about in the range of about INR 180 crores to INR 200 crores for the next 6, 7 years.

[Operator Instructions] The next question is from the line of [ Reena Kashyap ], an individual investor.

Yes. Firstly, congratulations on a good quarter. I had a few questions on the margin front. One is the new woven fabric capacities that we're looking to add or the trial run of what is happening. When do we see these capacities commercialize fully? And how do we see the impact coming in on margins of this? And like at what point do we see the EBITDA margin sort of normalize after that? This is my first question. My second question is, again, on the margin front, do we see any potential volatility in input cost of freight costs in the near term, it's at 17.8% EBITDA right now, though your guidance is 16% to 20%. Do we see reaching the higher end of 20%? Or do we see ourselves in this -- in the middle of the guidance range because of any volatility of input costs or freight costs in the near term?

First of all, the new CapEx, which we are is on the way, our -- we have already started the trial run and the commercial -- we should be able to roll out the commercial production by the end of -- within this quarter itself. So different segments are operating at different levels. So as they get completed, the same will be commercialized. However, the capacity utilization, we expect that spinning capacity, we should be able to reach the normal 95% level, 95% plus level by the end of March this year. So we should be in that range. As far as the fabric capacity is concerned, our woven fabric, gray fabric normally will also reach in the similar point of time at the top capacity. But the finished fabric capacity due to the marketing constraints and the development of the customers and the products should take a little higher time, and we may reach to that level in next 8 to 9 months. This is around next year, August, September. So this is the schedule of -- plus the RE power definitely that ramps up immediately. So we should be in a full capacity position by the January itself of this year. And now coming to your margin question, so how it will be accretive and what is going to be the impact. Like, yes, there is cost pressures. We are seeing a lot of the input costs going up, including the dyes, chemicals, coal, packaging costs, the freights are increasing. Also, we are seeing the sea freight increase. So that is definitely going to have impact on our margins. And we have to see whether we have to -- how we will be able to pass it on to our customers. But we have certain cost initiatives of scale because we are increasing our scale as well as we have also RE power coming in, which will reduce our power cost. That should be sufficient enough to push in these kind of increases. So we expect that we should be able to retain the margins at what level we have. As far as the upper level or upper -- it is always the endeavor of the company to reach the top brand -- top level of margins. But still, I think we are far from there.

Understood. Just a few follow-ups on your answers. Just one is on the utilization, you said 95%. How do we see it gradually increase? Do we see it start at 65%, 70% and then move to 95%? That's the first follow-up. The second on is going commercial from Q3 is what you mentioned. What is the impact that we see on the top line from this? And third, on the cost initiatives, could you elaborate a little bit more on what are the efforts that you are undertaking for this?

First of all, it is always slow and steady. So you start with 50% and then you reach the 90%, 95%. So it's a gradual step-by-step increase of the productivity as well as the efficiency. So that is a step-by-step process, which happens. And also the product has to be right. So that takes some time. So that is definitely one part. Secondly, second question was regarding -- what was the second question? Can you repeat it? Can you repeat the second question?

Yes. My second question was on the impact of this -- the woven fabric, the trial run that we're doing when we go commercial, right? So do we -- what is the impact or addition that we see to the revenue? And what are the cost initiatives that if you could elaborate a little bit on the efforts that you undertaken?

So second, the total revenue out of this new project, which we are expecting is about INR 1,000 crores. So we're expecting that we should be able to increase the revenues by another INR 1,000 crores.

In what time period?

So this is for 1 year. For annually, this should be in INR 1,000 crores. For next financial year, we expect that we should be able to add INR 1,000 crores to our top line out of this new capacity expansion.

And in FY '27, how much would this be?

Should be around all put together in the range of about INR 300 crores to INR 350 crores.

Understood.

And regarding the cost initiatives, there are many, many minor cost initiatives, which always keep on happening by the way of automation, use of AI in our production capabilities facilities. Also, we do a lot of work on side of energy saving, plus the alternative fuels are also getting developed. So we move on those fuels as well. So these kind of initiatives keep on happening, plus the RE power, which we are going to add. So all these put together normally helps in reducing the cost.

Understood. Understood. Just one last question. Just I wanted to understand your outlook on domestic and international cotton prices for the coming season. How much inventory are you holding currently? And how do we -- how are we positioned in terms of protecting our spreads from the price disparity? If you could just give me your view on this would be very helpful.