Nitin Spinners - any takers for textile stocks?


CMP ~ 10 Rs. (FV of 10) and market cap. ~ 45 crs.

Nitin Spinners is a mid-sized (450 crs. turnover) cotton yarn manufacturer located in Bhilwara, a textile hub in Rajasthan. It has an installed capacity of ~ 80,000 spindles and 75% of its turnover is from exports (broad based markets). The company had its IPO in 2006 @ 21 Rs.

P&L snapshot

(A) Last 5 years:

(Crs.) '09 '10 '11 '12 '13
Net Sales 262 302 411 428 446
EBIDTA % 10.3% 11.6% 18.5% 10.5% 19.7%
PBT % -ve 0.3% 2.4% 0.1% 8.1%
EPS -ve 0.2 1.5 0.1 3.1*

(* - FY'13 EPS is after one-time exceptional expense discussed below. Adjusted EPS without this exceptional item comes to 5.3)

(B) Last 5 quarters:

(Crs.) q1'13 q2'13 q3'13 q4'13 q1'14
Net Sales 108 110 111 117 117
EBIDTA % 17.1% 18.9% 19.7% 23.2% 19.8%
PBT % 5.0% 6.6% 7.3% 12.7% 10.3%
EPS 0.8 1.1 1.2 2.2* 1.8

(* - again, q4'13 is adjusted EPS without exceptional item)

Balance Sheet snapshot

(Crs.) '09 '10 '11 '12 '13
Total debt 299 309 284 249 215
D/E ratio 4.0 3.9 3.3 2.9 2.2
Int. Cover 1.1 2.3 3.6 2.2 3.2

Investment Case

Nitin Spinners faced a turbulent phase after the 2008 global crisis and resorted for debt restructuring (CDR) in 2009 due to substantial forex losses. However, in early 2013 the company has been able to voluntarily exit from CDR after paying a recompense amount to its lenders. The company claims that its efforts to successfully turnaround in 3.5 years and voluntarily exit by paying the one-time compensation is a unique feat, and this is also well-documented in CDR related media clips.


  • Company has paid the entire recompense amount of ~ 16 Crs. in 2013, majority of which is shown as exceptional item in q4'13. This will also result in smart reduction in interest cost going ahead.
  • Company has paid down close to 100 Crs debt in last 3 years and the D/E picture looks comfy and is improving. The interest coverage in last 2 quarters is in 4+ range.
  • It is benefiting from a weak Re regime as exports form a major portion of business. Further, benign cotton prices and firm yarn prices driven by export demand are resulting in healthy operating margins.
  • If company can maintain its EPS run-rate of last 2-3 quarters, it can turn out an annual EPS of 6.5-7 Rs., thereby making it ripe for a maiden dividend and cheap on P/E.
  • Promoters have augmented their shareholding steadily, not in large numbers, but around 3% in last 3 years.
  • Paying down debt and recompense amount can only occur from strong cash-flow generation and reflects positively on the management's outlook and integrity. Paying down debt @ 25-30 Crs per year for a company with MC of 45 Crs looks interesting indeed.


  • Current operating margins are at record levels from a 5-year history, and there's always a risk of cyclical downtrend.
  • CDR exit has prompted the company to announce an expansion of doubling its capacity by another 70000 spindles at a capex of 280 Crs (Nitin has been operating at full capacity as is evident from its last 4-5 quarters turnover). That is equivalent to doubling its balance sheet.

Risk Mitigants

  • Company would have hopefully learnt from its past CDR experience, and would probably tread cautiously with its new expansion.
  • If one reads the ARs, company presentations, PRs etc. of major textile companies like Vardhaman, Sutlej etc. there's a common thread of optimism and positive outlook for Indian textile sector at least till the remaining part of the decade. The main reasons cited are - (i) India regaining its competitiveness on cost and quality parameters vis-a-vis other SE Asian countries, and (ii) China moving out of laborious and low-end work like spinning etc.

Closing remarks

Nitin Spinners is not a growth stock. It's just a turnaround with moderate upsides. I'm not sure if there's a separate thread for distressed/ turnaround cases, but for the time-being found it befitting here.

Disclosure - I do have personal holding in last 6 months around these levels, so my views may be positively biased.

Sharing for the interest of fellow boarders, and inviting counter-views.


P.S. Sorry about the longish note, just trying max coverage at one shot.

Hi Keval,

Yes, there has been a major turnaround in several textile cos and many of them seem to be trading at really cheap valuations of just 2-3 PE, half the BV, decent dividends etc. However, having invested in some of the textile cos in past, I feel it will be extremely difficult to make long term compounding…though there are bound to be short term trading opportunities. The current profitability/margins we see today just get washed out in every 2-3 years.

A thought at my end- rather than focussing on the EPS, perhaps BV might be a better indicator and whenever the times are good, the prices of the shares of these textile cos may come to BV and that may be a time to get out. Otherwise one will remain trapped in this sector where the long term returns are very poor.

Some of the cos I’m tracking - Welspun Syntex, Salona Cotspin, Damodar Ind, K G Denim etc.



I agree with what ayush put up… I think these turnaound textile stocks should be looked upon only as bounce back candidates… One u get your returns try and get out…

Nandan exim on basis of its results till date seems interesting.

Seems the fortune of the yarn cos is on the upswing. Mr Poddar of Mayur Uniquoters was complaining abt rising yarn prices being faced by him for his knitting unit.

Read an article in ET yesterday about china buying huge amount of yarn from India recently.

Here's the BV scenario of Nitin in the same period:

'09 '10 '11 '12 '13
BV 18 17 19 19 22*

(* - 2013 BV would be higher if not for the exceptional expense in that year)

@Ayush: I share your views on the below-average historical returns in this industry. However, my view is more of a bottom-up on this company and here is what I shall expect from it over next 2-3 quarters:

(i) improved sales realisation due to weak rupee; (ii) steady op. margins; (iii) reduction in interest cost; and (iv) possible re-rating due to consistent eps in ensuing quarters as well as it's maiden dividend.

This can possibly have a good multiplier effect on the valuation.

The BV trend may appear dull until now, but could change much for the better over next 2 years. Yes, there's no scope for long-term compounding here, but beyond a short-term trading opportunity there appears a potential 2.5x to 3x returns visibility.

What would be your opinion?


I agree. I also feel many of the textile stocks may do well as several of them would report very good EPS etc in coming qtrs. But my opinion is there only for short to medium term…more as a trading opportunity.