IGI Logo

Nitin Spinners (NSPL) reported EBITDA of Rs1.56bn in 1Q (up ~40%/19% yoy/qoq and ~5% above our estimate), primarily boosted by robust yarn spreads. Yarn volumes declined ~8% yoy owing to deferrals in a few shipments (disruptions caused by the ME crisis) resulting in higher captive consumption. Yarn realization jumped 18%/15% yoy/qoq owing to sharp rise in cotton yarn spreads. Spreads widened to ~Rs130/kg (vs ~Rs110/kg in 4QFY26) leading to gross margin expansion of 380bps/311bps yoy/qoq, which more than offset the fixed cost inflation of 13%/9% yoy/qoq, taking EBITDA margin to ~18% vs 14% yoy. We see spreads sustaining at least through 2QFY27, aided by the cotton import-duty waiver, till 31-Oct-26, while the ~Rs11.2bn expansion commissioning from 3QFY27 drives a structural mix shift toward fabric. We factor in the margin buoyancy in 1Q and raise FY27E PAT by 10% while cutting it by 10% for FY28E due to the recent correction in cotton yarn. We roll forward to 1QFY29E EPS, valuing NSPL at 12x (unchanged) PER while cutting our TP by ~7% to Rs700 from Rs750; maintain BUY

Favorable spreads boost margins; expect current spreads to stay till 2Q at least

Yarn sales volume fell 7.8%/13.4% yoy/qoq to ~21kt, as captive consumption rose to 18.2% (vs 15.4% yoy/17.7% qoq) and quarter-end shipments slipped on vessel unavailability, even as spinning ran at ~98% utilization. Woven & finished fabric volume rose 7.1%/2.5% yoy/qoq to 9.0mmt (~92% utilization), while knitted fabric grew 25.6%/1.5% to ~1.4kt off a weak base, with utilization at 55-60% (vs 60-65% pretariff) on US-market uncertainty. Yarn realization jumped ~18%/~15% yoy/qoq to Rs302/kg, breaking out of the Rs249-263/kg band of the preceding four quarters, lifting yarn revenue 9.0% yoy to Rs6.34bn, while fabric revenue rose 10.4%/6.7% yoy/qoq to Rs1.89bn (21.6% of revenue) on volume. Exports formed 65.2% of revenue (vs 62.0% yoy). Gross margin expanded by 380bps/311bps yoy/qoq to 40.5%. Fixed cost rose 13.1% yoy and 8.7% qoq, which was more than offset by the better gross margin, with EBITDA margin at 17.8% and PAT at Rs753mn (up 84%/31% yoy/qoq).

Capex on track; capacity commissioning expected from 3QFY27

The ~Rs11.2bn brownfield program remains on schedule, with commercial operations expected from 3QFY27 (weaving first, followed by processing and spinning by Dec-26, taking yarn capacity ~20% higher to 132.4ktpa and woven & finished fabric ~88% higher to 75mn mtpa). Management expects expansion to add ~Rs10bn of revenue at full rampup (~Rs4bn yarn/~Rs6bn fabric), of which Rs2-3bn accrues in FY27E, with fabric rising to ~30% of topline (vs 20-21%) and adding 100-150bps to blended margin as ~60% of incremental yarn is consumed captively. Also, 96.4MW of solar and hybrid capacity is on track for commissioning at end-3QFY27, set to yield ~Rs500mnpa savings from 4QFY27.

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354