NITINSPIN - Nitin Spinners Ltd. Share Price

Management's outlook for Nitin Spinners Ltd. is cautiously optimistic, despite current challenges in the textile industry driven by global uncertainties such as U.S. tariffs. They anticipate an improvement in industry conditions in the second half of FY26, supported by the Indian government's removal of the import duty on cotton until December 31, 2025. This policy, along with potential resolutions concerning U.S.-India trade agreements, is expected to stimulate demand recovery.

Key forward-looking points include:

1. Revenue Expectations: Management expects the second half of FY26 to demonstrate resilience, with projected revenue improvement as they anticipate a normalization in margins due to lower cotton costs influenced by the import duty removal.

2. Capacity Expansion: The company has outlined a capital expenditure plan of approximately INR 1,100 crores to increase spinning capacity by 25% and fabric division capacity by over 50%. This expansion is expected to contribute an incremental revenue of INR 1,000 crores, with around INR 400 crores expected in FY27.

3. Operational Utilization: Current utilization rates show spinning capacity utilization at over 95% and woven fabric capacity at nearly 90%.

4. Cost Optimizations: The utilization of renewable energy sources for approximately 18 megawatts is aimed at reducing power costs by about 5%, which will enhance overall operational efficiency.

5. Market Diversification: Management emphasizes ongoing efforts to expand into lower tariff regions and solidify export presence across more than 50 countries, mitigating risks associated with reliance on the U.S. market.

In summary, while the company navigates current headwinds, they are positioned for future growth through capacity expansion and marketplace diversification, aiming for enhanced revenue and profitability.

Q&A Section Overview from Nitin Spinners Ltd. Q2 FY26 Earnings Call

• Question: Just wanted to understand when you expect to see a normalization in spinning spreads? And what are the key drivers you expect to help achieve that?

  Answer: Normalization of cotton spreads depends on several geopolitical factors. We expect margins to stabilize within the next 3 to 6 months as uncertainties dissipate. The prolonged compression warrants our anticipation of returns to normal levels in the coming quarters.

• Question: Given it's been a reasonably long downturn in spinning, have we seen smaller capacities closing down?

  Answer: Yes, over 10 million spindles have ceased operations in the last 2-3 years, amounting to around 18-20% of the total installed capacity, primarily affecting smaller-sized mills.

• Question: Are fabric margins also impacted similar to yarn?

  Answer: Fabric margins are normal as yarn prices have declined. The overall margin between yarn and fabric remains stable despite decreases in yarn prices.

• Question: With the duty waiver until December, are you stocking up on inventory?

  Answer: We do not expect the duty to be extended beyond December. Currently, Indian cotton prices are comparable to imported cotton, thus there's no need for additional stocking.

• Question: Could you explain how the falling prices will affect margins if yarn prices are stable?

  Answer: Falling cotton prices have affected margins more than yarn prices. So, any margin restoration will likely only happen if cotton prices stabilize or improve going forward.

• Question: You mentioned government allowing cotton imports duty-free until December; do we expect any changes?

  Answer: As of now, there is no indication the duty waiver will be extended; any review will occur in the upcoming budget.

• Question: What would be the expected impact on revenue from your ongoing capex plan?

  Answer: We anticipate approximately INR1,000 crores in additional revenue once the expansion is complete, partially contributing around INR400 crores in the next fiscal year as we ramp up capacity.

• Question: You mentioned the debt levels; will they increase or decrease?

  Answer: Our debt levels are currently one of the lowest. We aim to maintain a debt-to-equity ratio below 1:1 and intend to manage our leverage prudently.

• Question: Are we concerned about manpower availability due to automation and labor market issues?

  Answer: We've been automating for five years, which has helped mitigate such concerns. There hasn't been a challenge with manpower availability recently despite market growth slowdowns.

• Question: What return do you target from this significant capex expansion?

  Answer: We generally target an IRR of at least 15% on capital expenditures, aligning with historical performance while remaining competitive in the market.

This summary reflects the key questions and responses, maintaining their integrity while adhering to your character limit request.