NITINSPINNSE15 November 2022

Nitin Spinners Limited

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139turns

14analyst exchanges

2executives

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Management on call

Dinesh Nolkha

MANAGING DIRECTOR, NITIN SPINNERS LIMITED

P Maheshwari

CHIEF FINANCIAL OFFICER, NITIN SPINNERS LIMITED

Key numbers — 40 extracted

15%

w cotton crop has come in and we are expecting that this year cotton crop will be higher by about 15% then the last year, maybe back to the normal levels of 2019 and 2020 and prices have started to s

Rs. 373

n our average yarn and cotton price during the quarter? Dinesh Nolkha: Average yarn price was Rs. 373 and average cotton price was about Rs. 263. Abhijeet Anand: And in terms of the CAPEX,

Rs. 263

the quarter? Dinesh Nolkha: Average yarn price was Rs. 373 and average cotton price was about Rs. 263. Abhijeet Anand: And in terms of the CAPEX, you did mention but when can we expect so

20%

ngladesh. Bangladesh used to be the number one country and the quantity was in the range of about 20%+ that was the ratio which was there and then we are exporting to Europe. Europe as European Union

24%

and then we are exporting to Europe. Europe as European Union as a destination was also more than 24% to 25% of our total quantity. So, that is still there and then to smaller destinations is of cour

25%

n we are exporting to Europe. Europe as European Union as a destination was also more than 24% to 25% of our total quantity. So, that is still there and then to smaller destinations is of course. Chi

11%

is substantially down because of the COVID issues in China. So, that has come down from about 10-11% to about 2-3% and the rest is smaller-smaller percentages. Of course, in the US we have about 10%

ly down because of the COVID issues in China. So, that has come down from about 10-11% to about 2-3% and the rest is smaller-smaller percentages. Of course, in the US we have about 10%. We are doing

10%

11% to about 2-3% and the rest is smaller-smaller percentages. Of course, in the US we have about 10%. We are doing about in North America about 10% and Latin America another 10% Abhijeet Anand:

rs,

for us. Dinesh Nolkha: For the retailers or for us? Abhijeet Anand: I am saying from retailers, people keep talking that retailers from US and EU have had a higher entity. So, I am just trying t

19%

u see our last even 10 to 15 years, we have been continued to grow with a very good CAGR of 18 to 19% and will continue to do that, of course, at this point of time in textiles only that is your answ

28%

ou can also see that retail sales in India, for the textiles and apparels have increased by about 28% over 2019 level. So, demand in domestic market is very good and we are also seeing that, due to w

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Guidance — 20 items

Dinesh Nolkha

opening

“For the long term and the medium-term Indian cotton yarn industry will continue to benefit from the various fact of the US ban on exports from the Xinjiang region in China and supply chain de risking by the global customers.”

Dinesh Nolkha

opening

“As far as the current quarter situation is there, we have seen the new cotton crop has come in and we are expecting that this year cotton crop will be higher by about 15% then the last year, maybe back to the normal levels of 2019 and 2020 and prices have started to start moving lower and disparity between international cotton prices and domestic cotton prices are also gradually reducing.”

Dinesh Nolkha

opening

“Capacity utilization levels are being increased gradually by us from this month and we expect the same to come back to the normal level by January 23.”

Dinesh Nolkha

opening

“On the CAPEX front, we are on track with the execution of the same and expect to commence the projects within the timelines originally envisaged and we are determined to have a sharp focus on our business and deliver superior quality numbers going forward.”

Abhijeet Anand

“And in terms of the CAPEX, you did mention but when can we expect some of the capacities are coming this year and from point of view of the spindles, if you can slightly give some more details, when are they expected in a phased manner?”

Dinesh Nolkha

“Weaving and knitting capacities will be ramped up within this year and spinning capacity will be first, some of the capacity will come in first quarter of the next financial year, that is up to June half of the capacity and another half is going to come in the second half.”

Dinesh Nolkha

“So, they started buying less and now that is coming down and they are expecting that after this festive season they will be much lower than the normal levels as well.”

Dinesh Nolkha

“Regarding your question number four I will not be able to elaborate because it will be pretty long to elaborate on our three to five year plan, but of course, would like to tell you that we have been growing at a consistent phase and if you see our last even 10 to 15 years, we have been continued to grow with a very good CAGR of 18 to 19% and will continue to do that, of course, at this point of time in textiles only that is your answer to question number four.”

Kirthi Jain

“Sir, my first question is with regard to the expected utilization, how is the utilization you expect to shape up over the next two quarters?”

Dinesh Nolkha

“So, we should be about in the range of 85% level and in the next quarter we expect to reach back to 95% levels normal level.”

Risks & concerns — 13 flagged

India as well as globally, textile business environment during the second quarter was relatively weak.

— Dinesh Nolkha

Lower export led to pressure of selling in domestic markets, which led to margin pressures as well.

— Dinesh Nolkha

Now coming to Company's performance during the quarter.: The quarter under review was a difficult quarter for the Company in view of higher cotton prices, lower demand and lower realization leading to steep reduction in the margins.

— Dinesh Nolkha

Global demand, of course, remains a concern but domestic demand is very robust.

— Dinesh Nolkha

We are also increasing our product ranges; as a country we are weak in the blended yarn segment.

— Dinesh Nolkha

So, the deferred tax liabilities as 31st March 2022 recalculate at 25% So, the average impact of about Rs.33 crores is there which will be in this year.

— P. Maheshwari

So, to that extent, there is a risk, but that is not substantial in terms of the total top line as well as the total revenues of the Company.

— Dinesh Nolkha

So, this is definitely a cause of concern for us and we are not also seeing too much traction on this side, but this is in the overall value addition or overall EBITDA margin, the percentage is low on this.

— Dinesh Nolkha

But yes, still it is a cause of concern.

— Dinesh Nolkha

One would be to discuss about Q1 because Q2 was such a volatile quarter where sometimes even the raw cotton prices were equal to the yarn prices because Indian cotton prices were too high.

— Dinesh Nolkha

So, is it safe to assume that the domestic demand is really very robust, but it's only that the fiber companies have unfortunately, got caught in a whirlwind or volatile cotton prices?

— Ajith

This is the expectation and hopefully we do not have another year where the projected cotton is not to the extent what it was supposed to be then it is difficult.

— Dinesh Nolkha

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Q&A — 14 exchanges

Yes sir, First I want to know what has been our average yarn and cotton price during the quarter?

Dinesh Nolkha

Average yarn price was Rs. 373 and average cotton price was about Rs. 263. And in terms of the CAPEX, you did mention but when can we expect some of the capacities are coming this year and from point of view of the spindles, if you can slightly give some more details, when are they expected in a phased manner? In this financial year we are expecting to start up our weaving and knitting capacity. Weaving and knitting capacities will be ramped up within this year and spinning capacity will be first, some of the capacity will come in first quarter of the next financial year, that is up to June ha

This is Muthu Kumar from Tripur. Yes. I have three questions. The first one is regarding that anti-China and China one plus strategy, how it will impact your business and what are the strategies we were drawn to handle this and how many percentages of sales you are expecting growth from this and second question any idea about domestic demand that is you are planning to execute that is in spinning or knitting or weaving three of these? and third question is any idea to diversify your business apart from spinning, knitting and weaving and the last one is earnings outlook for the next three to fi

Dinesh Nolkha

First of all, I will answer your question number three, which is for diversification. At the moment, no, we are into textile having spinning, knitting and weaving and we will continue to remain in this at this point of time. So, that is first. Regarding your question number four I will not be able to elaborate because it will be pretty long to elaborate on our three to five year plan, but of course, would like to tell you that we have been growing at a consistent phase and if you see our last even 10 to 15 years, we have been continued to grow with a very good CAGR of 18 to 19% and will contin

Yes, good afternoon, sir. Sir what is our cotton yarn spread as we speak?

Dinesh Nolkha

As we speak, today, the cotton yarn spread is in the range of around Rs. 85 to 90 per kg around 85 level. I just missed your average yarn price and cotton price for the quarter. So, could you just tell that number. The average yarn price was 373, this Rs. 85 is for particular count which you are talking about normally, the spread is for particular count. And which would that be? 30’s. Our average realization was about Rs. 373 and the average cost was Rs. 263. Okay and sir one more question at this cotton yarn spread are we breaking even or are we making money at 85-90? Of course, making money

Sir, my first question is with regard to the expected utilization, how is the utilization you expect to shape up over the next two quarters? Can you highlight it sir?

Dinesh Nolkha

First of all, during this last quarter, our spinning utilization was in the range of about 66-67 to 70%. Now, in this coming quarter, we are expecting to ramp. We started increasing our production capacities from first of November itself. So, we should be about in the range of 85% level and in the next quarter we expect to reach back to 95% levels normal level. As far as our weaving capacity is concerned, we are already clocking 90% plus and will continue to do so. Sure sir, when we say we have utilized 65%, but on the sales level, the utilization could have been lower right sir in terms of th

Sir, I would like to know out of the borrowing of 374 crore as of 30th September how much of it pertains to the expansion project?

Dinesh Nolkha

It is only Rs.20 crores. So, what is the reason for the drop in interest costs on a quarterly basis as well as I mean other than the repayment of the loan is there any drop-in interest rate or anything like that. Like first of all utilization has come down. The working capital utilization has been substantially reduced you can see that there has been a substantial reduction in the working capital utilization. This used to be around Rs.280 crores, which has come down to averaging was about Rs.114-150 crores during the last particular quarter. So, that has brought down the interest costs. Second

Sir your utilization rates are likely to improve going forward and even spreads are better than Q2 levels. So, can we expect that these numbers that you have reported are kind of worst and from next quarter there should be improvement in profitability going forward.

Dinesh Nolkha

from our point of view worst is not yet over because until and unless w utilize the capacity fully. That is one part. So, we have to utilize the capacity fully then only we will be able to know exactly how we land up? Of course, I am very hopeful from Q4 because they see posts from next year, we see very good demand. Also getting inquiries where we see that sort of demand is coming from next calendar year. So, from that perspective, I am quite confident on Q4 levels. On Q3 in comparison to Q2, I will not be able to comment as of now. Okay. Understood and sir, are there any write-offs possible

One thing I just wanted to know about knitting division performance where volumes were substantially down. So, how do we see traction in that business and profitability in that business?

Dinesh Nolkha

That is still one of the major concerns at this point of time, but we are able to ramp up in spinning as well as the definitely weaving was already running at a good capacity level, but knitting is still not picking up to the level expected. We are not seeing very good demand in that particular segment, as we are doing only greige fabric. This is also hindering us from selling it to the leading companies. So, this is definitely a cause of concern for us and we are not also seeing too much traction on this side, but this is in the overall value addition or overall EBITDA margin, the percentage

Sir, I have only one question, most of my questions have been answered. Sir just wanted to understand you mentioned inventory. We won't see any inventory loss going for as long as it won't come out very sharply. So, just wanted to understand what kind of inventory days we are having currently like how many days we hold inventory for raw material.

Dinesh Nolkha

Like raw materials as I told you that since we did not buy too much raw materials at the end of last season. So, we had very-very low base of raw materials. So, that was miniscule . For finished goods normally, normal kind of inventories for us is about 10 to 12 days that is normal. However, we were carrying about at the end of September end. We were carrying about 20 to 24 days inventory was there. That is the only difference. Okay, so we currently do not have any high-cost raw material or finished goods inventory. Raw material we do not know, but finished goods, unless is the prices let's sa

Sir as we are undergoing a CAPEX of around Rs.900 odd crores, so, can you please highlight like what would be the peak level of debt we are anticipating post the commissioning of the spinning capacity?

Dinesh Nolkha

Post the capacity expansion the total debt including working capital would be in the range of about Rs.1300 to Rs.1400 crores. And sir could you highlight like what would be the cost of this additional debt we will be taking. The cost of additional debt actually, the long-term debt which is around Rs.650 crores which we are taking. So, most of the debt which is going to be added is going to be the long-term debt and very small, short term debt. So, long term debt is at the rate of about around 7-1/2 to 8%. But that is since we are having some investment subsidies allowed to us. So, the average

Sir just one request, is it possible for you to share some website from where we can track yarn prices or any other source from where we can track it?

Dinesh Nolkha

Practically it is very difficult to track these kinds of prices because the information source has to be very reliable and means different companies have different policies, different markets, but at this point of time see there are many, many. I think daily editions of many newspapers that are just coming in various textile newspapers out there, but some of them are not at all reliable. And there is no website where we can directionally get a sense also? directionally, you can get a sense. I am not able to get the name, but if anything comes through, I will let you know definitely. Let me che

I have two questions. My first question is regarding your new expansion program, the CAPEX cost is I think in the range of Rs.900 to Rs.950 crores. So, will you be able to just throw some light on debt drawdown schedule for that particular project like going forward? What is the debt drawdown schedule?

Dinesh Nolkha

You want the quarterly debt drawdown or you want to know? I mean, how much would have been drawn down until now and how much is expected over the next one quarter. Since the as I told in the earlier question that by the 30th of September, the debt drawdown was about Rs.20 crores only and in this quarter and we are expecting to draw down about another Rs.70 to Rs.80 crores. So, sir, my related question is that I mean, given that you must have seen various, many such cycles over the last 10-15 years, and obviously, you will have some visibility about the demand going forward. So, is there any ch

So, this is a broad question. So, what is stopping the domestic cotton prices from falling badly given that as it is there is lower yarn demand and the international prices are lower? So, why is the domestic cotton price not fallen as much as they should have to get into parity with international prices?

Dinesh Nolkha

Actually, this is a question which we also want to understand at this point of time because this is also quizzing most of the industry players. We are expecting that cotton prices should fall substantially because our cotton prices are definitely higher. So, export is ruled out number one and our minimum support price is also quite low. So, still we are too far off from the minimum support prices. So, definitely we are expecting the cotton prices to go down. But the arrivals are not picking. The main problem today is in the initial month of October because of a lot of festive season and initia

Yes sir, you did mention that in Q2 yarn the price at which we realise was 373 and 30s con was 325 odd. So, is it fair to understand that our product mix on the yarn side is like at 10 to 15% premium all the time.

Dinesh Nolkha

Basically, this is not a premium. Basically, we produce different kinds of products, different kinds of products are being made out of by us, like in the fine count ranges we go up to 60s and 80s count. So, this price will vary as per the product mixes. So, but ideally if it has to let's assume in a particular year there should be some because we make different types of yarns as you said in terms of count it is not the 30s it could be 80s and 60s as well. So, if we get 30s count price, we should assume that our product profile would be earning more than that, is that a right assumption? Yes, d

So, sir very quickly one thing we are completely out of time. On the cotton price and international cotton price parity, we are still 10% off. So, in your view, do you think we will go down 10-15% and we will get the parity or international cotton price will go up with demand recovery and then Indian market and that way we will get parity which possibility do you see more?

Dinesh Nolkha

Awanish ji both ways. But this cotton prices are still stagnating 60 to 63 currently to 65 can be so that is why I am asking. Exactly where we have the new York futures have gone down in between to 70 to 73 cents also and then bounce back to 85 cents and from 100 cents we have come down to 94-95 cents. So, I think we will reach somewhere in the middle to match the parity. Anyway we cannot go below MSP so that is we do not expect the ICEs futures to go below the MSP level as well. Okay, sir, thank you very much Dinesh sir and Maheshwari sir for spending your valuable time and providing us this

Speaking time

Dinesh Nolkha

Moderator

Phalguni Datta

Abhijeet Anand

Abhineet Anand

Kirthi Jain

Vikram Suryavanshi

Hiten Boricha

Ajith

Awanish Chandra

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Opening remarks

Awanish Chandra

Thank you Vivian. Good afternoon, everyone on behalf of SMIFS Limited. I welcome you all to Quarter 2 FY23 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 – Promoter and Managing Director of the Company and Mr. P Maheshwari – CFO of the Company. We will start the call with initial commentary on Results and then we will open the floor for question and answers. Now I will hand over the call to Mr. Nolkha – Managing Director. Over to you Dinesh sir.

Dinesh Nolkha

Thank you SMIFS and Awanishji for hosting the call. Good afternoon and a warm welcome to all the participants, the Investor Call post our Second Quarter FY23 Results. I extend greetings to all of you for festive season and the New Year ahead. I have with me Mr. P. Maheshwari – Chief Financial Officer of Nitin Spinners. I hope all of you might have had a chance to look at our investor presentation that is uploaded on Company’s website as well as stock exchanges. Let me begin with the industry and business scenario. India as well as globally, textile business environment during the second quarter was relatively weak. The indicators for order intake, order backlog and capacity utilization rate fell globally and particularly the cotton textile sector in India has witnessed unprecedented situation in terms of heavy fluctuation in cotton prices in international and domestic markets, shortage of cotton in domestic markets and the demand disruption due to high volatility. The quarter under rev

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