Nitin Spinners Q1 FY27 earnings call

Nitin Spinners Limited reported a robust Q1 FY27, achieving its highest-ever quarterly revenue for the second consecutive time at ₹875 crores, marking a 10.3% YoY and 1.8% QoQ growth. This strong performance was primarily fueled by improved yarn realizations and a favorable demand scenario. EBITDA before other income surged by 39.85% YoY to ₹155.6 crores, with the EBITDA margin expanding significantly by 376 basis points YoY to 17.78%. Profit after tax also saw substantial growth, increasing by 83.63% YoY to ₹75.3 crores, resulting in an EPS of ₹13.39.

The company's profitability was significantly boosted by improved spreads, which increased from approximately ₹110 in the previous quarter to ₹130 in Q1 FY27, and are expected to sustain in Q2. This improvement is attributed to better demand, consolidation in the industry, and favorable parity between Indian and international cotton prices. Furthermore, cost-saving initiatives, particularly in power consumption through renewable energy and automation, are permanent in nature and are expected to continue contributing to margins. The fabric business, however, is currently only passing through raw material increases, unlike the yarn business which has seen margin improvement.

Nitin Spinners is actively progressing with its capacity expansion plans, which include adding 35 million meters of fabric capacity and 74,000 spindles for spinning. The renewable power expansion plan is on schedule to be operational by the end of Q3 FY27. Weaving capacities are expected to commence in a couple of months, processing capacities around Diwali, and spinning capacity by December. The full yarn capacity ramp-up is targeted by March 31, FY27, while fabric capacity ramp-up may extend into Q1/Q2 FY28. These new capacities are projected to add approximately ₹500 crores to the company's revenue, with the fabric business alone targeting ₹1,200 crores in FY28 from ₹700 crores in the last fiscal year.

The company's new capacities will focus on value-added products such as solid dyes, solid dyed fabrics, and yarn-dyed fabrics, which are expected to enhance blended margins. The share of fabric in total revenue is anticipated to increase from the current 20-21% to 30%, potentially adding 100-150 bps to overall margins. Nitin Spinners is also exploring new markets, leveraging trade agreements like the India-UK FTA and potential EU-FTA to open new sourcing and export opportunities. In the long term, the company is seriously considering venturing into garmenting, contingent on favorable market conditions and successful ramp-up of its fabric division.

Cotton prices increased by 8-10% in Q1 FY27 due to lower global production and supply chain challenges^🌐, but the company successfully passed on these increases. While yarn volumes showed a slight de-growth QoQ and YoY, management clarified this was due to higher internal consumption by the fabric division and temporary logistics challenges that caused delayed dispatches, rather than a reduction in sales. The quality of cotton for FY27 appears promising, although the monsoon rains over the next four weeks will be crucial in determining the final quality and yield.