With starting of production in new capacities by the fourth quarter of FY17, he expects to a revenue growth in FY18, said Dinesh Nolkha, MD, Nitin Spinners.
Talking about the business outlook going forward, Dinesh Nolkha, MD, Nitin Spinners told CNBC-TV18 that although the domestic cotton prices have increased since March to the tune of 15 percent, international prices are cheaper. So, there is no scope for further increase in cotton prices.
With starting of production in new capacities by the fourth quarter of FY17, he expects to see better revenue growth in FY18.
Below is the verbatim transcript of Dinesh Nolkha's interview with Reema Tendulkar and Mangalam Maloo on CNBC-TV18.
Mangalam: Can you tell us what cotton prices are right now, what the trend has been we understand they have been at a one year high and at the same time what is the concomitant benefit to the company on account of that? What kind of inventory do you carry and at what price right now?
A: Cotton prices at the moment are around Rs 40,000 per candy. This has increased by nearly 15 percent in last three months. This has gone up from around Rs 34,000 per candy to Rs 40,000 from mid of March till mid of June.
Normally, the price trend is increasing because of the delay in the monsoon because sowing is getting delayed. So this should affect the new crop arrival because of which the prices have increased.
Reema: Can we expect prices to increase further from the current 40,000 per candy?
A: We don’t see it going up too much now because now even the cotton from the foreign origin being imported even with all the logistic cost involved is now costing less than Rs 40,000. So we don’t see that further increases will be there what we have seen in the past.
Mangalam: What does higher cotton price at Rs 40,000 mean for you all? What kind of inventory are you all sitting on and at what price?
A: We keep on adding inventories. Normally our inventories are around three months. So, this is what we generally keep but when the prices go up too high, now we are not looking to add up to our inventories. We had inventory of around three months at the end of March and now we are having nearly similar kind of inventory at the moment.
Mangalam: What is the average cost of that inventory that you hold?
A: The average cost of inventory was around Rs 34,500 per candy, which was there in the beginning of April. So accordingly the price is still there.
Reema: Q1 is the quarter that we are in, what will be the benefit to Nitin Spinners in your financials?
A: We don’t see major benefit going into this because we also have the order book. We also have to continuously supply to our customers for which we keep the order of around one to one and a half month. So that benefit is not accrued in direct sense.
Even the yarn prices have been increasing now. After cotton prices have increased by nearly Rs 18 a kilogram, we have also seen the yarn prices increasing by Rs 20-22 per kg in last two months time. So the trends are looking better.
Mangalam: Can you tell us what the cotton yarn differential was in the last year and what it could be in the following financial year?
A: Cotton yarn differential generally for a typical count of 13 is around Rs 60-65 a kg. Last year it went down in second half because of slightly low demand but it has again picked up in during this particular quarter. So looking around Rs 64-65 a kg at the moment.
Reema: You have indicated that the recent rise in cotton prices is on account of the delayed monsoon and therefore the impact on sowing. Is that in anyway going to affect the overall supply of cotton and therefore over a longer-term it can have an impact on cotton prices?
A: Long-term impact we have seen the commodity prices going down so all the commodities have gone down even internationally as well as in India.
We have already seen the bottom of the prices in last one to one and a half year also in the cotton so definitely the prices of raw cotton will improve during this year. So the government has also increased minimum support prices. So definitely the cotton prices will be increased.
So overall we will have an effect towards bullish side only in the cotton. We are bullish on cotton.
Mangalam: You are on a capex spree itself so when does the new capacity come onstream and post that what is the kind of revenue increase we can see in FY17?
A: FY17 we are expecting our capacities online are on schedule. We should be starting our production by the end of this calendar year or early part of the next year. So, we should have some revenue generation in the last quarter of this particular financial year 2017. I don’t see major impact.