Nitin Spinners' total debt stands at Rs 290 crore, of which it plans to pay back around Rs 50 crore, says its Managing Director Dinesh Nolkha.
Nitin Spinners logged margins of 17.9 percent in FY16, a 160 basis point growth on a year on year basis.
But Dinesh Nolkha, Managing Director, Nitin Spinners, said he expected margins to remain unchanged in the current fiscal.
Nitin's net profit grew by 6.5 percent quarter on quarter in Q4 of FY16 to Rs 11 crore.
The company's total debt stands at Rs 290 crore, of which it plans to pay back around Rs 50 crore.
But it also plans to spend Rs 215 crore for future expansions. "The borrowing cost for the funds needed for the new project is at just 4 to 5 percent," said Nolkha.
Below is the verbatim transcript of Dinesh Nolkha's interview with Reema Tendulkar and Mangalam Maloo on CNBC-TV18.
Mangalam: First up, if you could explain the weakness that we saw in the top line in fact, earlier you said that FY16 top line growth could be around 28-30 percent, but FY16 top line growth has come in just about 24 percent, so why the weakness in the top line and what’s the outlook next year?
A: First of all if you see the total overall growth has been around 24.5 percent for this year. There is a slight reduction in our expected turnovers due to the decrease in the commodity prices. The raw cotton prices have gone down and correspondingly the yarn prices have also been lower, that’s why this particular downfall. Otherwise, the utilisation and other things have been as per our expected lines and if you see our margins, our (earnings before interest, taxes, depreciation and amortization) EBITDA has grown in last year by about 37 percent, last year our gross EBITDA was around Rs 100 crore, this year it is Rs 137 crore. So in terms of performance overall, it has been well in line with what we had planned actually.
Reema: There has been an improvement of 160 basis points in your margin and now stands at 17.9 percent for the full year. How much more of a margin improvement can we see in FY17?
A: As such this is an optimum margin which we are operating at this point of time. Until unless there is a specific product changes and product mix changes in our product line, we don’t anticipate any further improvement in the margin. We would be expecting margin improvement only after our new expansion which is for finer counts and for compact spinning which will come to play by the end of this coming financial year and in the beginning of new calendar year actually, so accordingly that will then improve our margins.
Mangalam: Could you also give us a sense of what the volume growth is in this quarter was and at the same time what the product mix was, what percentage of your revenues came from yarn and how much was the knits percentage?
A: The knits percentage was around 18.5 percent and yarn was just was merely at 18 percent of the yarn. This is more or less in consistent what it was in the previous year, so on our increased top line we have increased our knit fabric production as well.
Reema: Can you give us an update on the debt on the books?
A: Total debt on the books is around Rs 290 crore.
Reema: Plans to pare it down in FY17?
A: Yeah, of course, for FY17 we are going to repay another Rs 50 crore so that will come down, but we will be adding another Rs 215 crore for our new expansion project, which will be under TUF as well as the state investment subsidy.
Mangalam: Also wanted your outlook on cotton price trends? What are the cotton prices like right now and what is the kind of inventory you are sitting on and subsequently what is the kind of effect you are expecting on your margins going forward because of that?
A: At the moment cotton prices are going up. In last one month, the cotton prices in India as well as in the international market which has gone up by nearly 7 percent. This is normal looking to the cotton season and also looking to the overall inventory position all around the world, what we are seeing is that the prices of raw cotton came down substantially in first quarter of this calendar year which should not have been, but now it has come back to a normal position. This has also improved our realisation prices. We have been also able to increase our recent prices by 4-5 percent in last one month, so basically net-net this should be neutral for us with increase in commodity prices. As far as inventories are concerned, we are carrying around 90 day inventory in order book, but we also have some forward sales, so not a major affect on the margin per se as such.
Reema: Let me come back to the debt on the books, you said Rs 290 crore you will pare it down by Rs 50 crore so that will take you to Rs 240 crore, but you will be adding close to about Rs 215 crore on account of expansion, which mean roughly your debt should go up in FY17 to Rs 450 crore. Will that not hurt the total interest costs and therefore will the profit growth margins come down because of a higher interest payout?
A: I would just like to brief you on this that our interest cost is very low. The additional expansion which we are taking, the additional cost of interest borrowing cost is only 4-5 percent. The total interest cost will be only 4-5 percent because of the TUF interest subsidies as well as the state investment subsidies which we are having for investing in the state of Rajasthan, so net interest would be around 4.5-5 percent only, so this as well as the growth in the margins would be much higher than this kind of cost. So overall net-net it will be an EBITDA earnings per share (EPS) accretive for us. So that should not affect our margins or margin growth as such rather in this year if you see our interest cost was around Rs 33 crore which is around 5 percent of our total turnover. This will be brought down to around 3 percent during the next year. So that should be overall if you see from the point of view of turnover to interest that should be quite less.
Mangalam: You have massive organic capital expansion plan in fact, your capital expenditure (CAPEX) is underway. Any plans of any sort of inorganic growth as far as your spinning or other assets are concerned?
A: At the moment no firm plans as of yet, but we are looking at the opportunities, good opportunities come our way, we will definitely look into it.
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First Published on May 4, 2016 02:09 pm