Analysts banking on a textile firm’s long-term growth story; what is keeping them excited?

Nitin Spinners shares have grown more than 50 per cent so far in 2023, having sharply outperformed a 7.6 rise in the headline Nifty index, and analysts are banking on a significant further upside in the company citing the company’s long-term growth prospects. Is it a good time to enter the Nitin Spinners (NITINSPIN) stock at the current juncture? 

Many analysts believe the company’s move to expand its production capacity is set to aid its profitability over the long term. 

Here’s a lowdown on the company’s performance in the recent past, what analysts make of its growth prospects ahead, and where they place their targets:

Nitin Spinners, a long-term growth story?

Brokerage ICICI Direct, which has a 'buy' rating on Nitin Spinners with a price target of Rs 360, is of the view that capacity enhancement is likely to support the company's "long-term growth story". The target suggests an upside to the tune of 13.6 per cent from the current market price. Its target is based on a valuation multiple of nine times its estimate for the company’s earnings for the year ended March 2023. 

The brokerage expects the company to stage a steady recovery from the financial year 2023-24, with revenue and EBITDA estimated to register CAGRs of 15 per cent and 27 per cent, respectively. 

The company began the financial year 2023-24 with a weak quarterly show. For the three months to March 31, 2023, Nitin Spinners reported a 56 per cent year-on-year fall in standalone net profit to Rs 29 crore over a 13 per cent decline in revenue to Rs 617 crore. Its operating margin contracted by 310 basis points to 12.3 per cent for the first quarter of the current financial year compared with the corresponding period a year ago.

The company’s management remained optimistic about its long-term growth prospects while mentioning industry-wide short-term challenges. It also said the company demonstrated a healthy performance in terms of capacity utilisation despite headwinds and would continue to improve its position in key markets in the coming quarters.

Why Nitin Spinners?

Zee Business Analyst Arman Nahar views Nitin Spinners as a quality pick in the textiles space from an operational perspective.

Nahar has a long-term ‘buy’ call on Nitin Spinners, with a 12-month price target of Rs 375 for the stock, which implies an upside of almost 20 per cent from Monday’s close following its stunning performance in the past few years.

Some analysts are even betting big on the growth prospects of the country's textiles market.  

"In order to take advantage of opportunities brought about by the US-China trade war, the Indian textile industry is strategically strengthening its position in important export markets including home textiles and ready-to-wear apparel. India's share of exports in these categories to the US has increased significantly, which is encouraging for the future of the textile industry," Aamar Deo Singh, Head Advisory at Angel One, told Zeebiz.com. 

Nitin Spinners earns a significant chunk of its revenue from exports. For the financial year ended March 2023, exports contributed 55.6 per cent to the company’s revenue of Rs 2,407 crore. 

However, Singh added that the use of cutting-edge technology in conjunction with a competitive advantage will be crucial for textile manufacturers in the coming years.

ICICI Direct, in its research report dated August 29, highlighted that Nitin Spinners has: 

• a sizeable presence in the country’s yarn market, with more than three lakh spindles; 
• undertaken forward integration into knitted and finished woven fabrics in its product portfolio, which contribute about 27 per cent to its overall revenue; 
• invested in capacity building over the last decade; 
• more than quadrupled its spinning capacities, 
• and maintained average utilisation of more than 85 per cent.

Analysts at ICICI Direct believe Nitin Spinners is geared up well to capture robust opportunities, given its brown-field expansion and capex to the tune of Rs 900 crore to boost capacities across segments. The brokerage expects the company’s capex to drive its revenue over the next 2-3 years. 

Currently, Nitin Spinners has a production capacity of 75,000 tonnes of yarn, 11,000 tonnes of knitted fabric, and 40 million metres of finished woven fabric, according to an investor presentation by the company. 

The textile company aims to expand its production capacity by about 47 per cent in yarn to 1,10,000 tonnes, 22 per cent in knitted fabric to 11,000 tonnes, and 33 per cent in woven fabric to 40 million meters.

At optimum utilisations, at an average yarn realisation of around Rs 280 per kilogram, the company could generate incremental revenue of Rs 1,100 crore, wrote the ICICI Direct analysts, who expect efficient asset utilisation coupled with improvement in yarn spreads to enhance the company’s overall profitability. “We expect NSL to generate RoCE of around 15 per cent in FY25E (vs average RoCE of 10-12 per cent) and in-turn lead to higher value creation,” according to the report. 

Nitin Spinners has staged a resilient performance over the past decade, with yarn volumes expanding at a CAGR of 12 per cent from FY14 to FY23, it added.   

Multibagger status 

Just like several other textile makers in the country, Nitin Spinners has been a long-time favourite of many on Dalal Street, having rewarded investors with phenomenal returns in the past. 

Here’s how Nitin Spinners has fared among its peers on the Street: 

*As of Monday

Nitin Spinners is best placed among the mentioned peers from a valuation perspective, according to stock analysis platform Trendlyne. 

The Dolly Khanna connection: Nitin Spinners is part of the ace investor's portfolio 

Nitin Spinners has for long enjoyed a place in ace investor Dolly Khanna’s portfolio. As of the quarter ended June 2023, Khanna held a 1.36 per cent stake in the textile company, as against 1.33 per cent in the previous quarter, according to exchange data. 

Khanna also owns another stock from the textile space: Deepak Spinners. At the end of Q1, Khanna’s shareholding in the company stood at 1.65 per cent. 

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