Buy Nitin Spinners; target of Rs 304: Emkay Global Financial

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26 Aug, 2025 12:21

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Emkay Global Financial's research report on Nitin Spinners

We recently interacted with Mr. Dinesh Nolkha (MD) of Nitin Spinners. Following are the key highlights regarding the textile sector at a macro level and update at the company level: Cotton prices easing: Cotton prices (Shankar 6) have corrected from their peak levels of Rs1.1lakh/candy to Rs61,000/candy (implying Rs170/kg), upon arrival of the new crop and lower demand environment. The 10% import duty continues on cotton imports. Cotton-yarn spread normalizing: In contrast to FY22 (~Rs103/kg), spinning mills experienced significantly lower cotton yarn spread in the early part of FY23. In Q3FY23, cotton-yarn spread (~Rs90/kg) has improved compared with H1FY23 (~Rs75/kg), but it continues to hover around ~Rs80/kg in Q4FY23.The current cotton yarn spread (Rs80-90/kg) has reached 2019 levels on absolute basis, albeit margin % is lower, given higher cotton prices. Spinners have a desirable spread of Rs105/kg, given higher project cost and increased cost levels from earlier times. Indian cotton prices vs. international prices: Indian cotton price premium over international cotton slid from ~36% in Q2FY23 to ~24% in Q3FY23. The premium, which had dwindled to almost a single digit in early part of Q4FY23, has inched up, with international cotton prices having further corrected. For Q4FY23, the average premium stands at ~16%.Domestic news, indicating hoarding by farmers to rake in higher profit from cotton, had led to further pricecorrection halting. A higher premium of Indian cotton prices has been hurting spinners, as it makes them less competitive globally. Cotton arrivals in March witnessed an improvement; eventually prices are expected to fall and align with international cotton prices.

Outlook

We maintain our BUY rating with Dec-23 TP of Rs304, based on 8x P/E. We believe the cost pressure with respect to high raw-material cost, freight cost, and differential of Indian cotton over international cotton have turned positive, though (especially international) it remains a major concern.

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Nitin Spinners - 24 -03 - 2023 - emkay