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Last Updated : Nov 21, 2016 04:35 PM IST | Source:

Buy Nitin Spinners; target of Rs 155: East India Securities

East India Securities is bullish on Nitin Spinners has recommended buy rating on the stock with a target price of Rs 155 in its research report dated November 09, 2016.

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East India Securities' research report on Nitin Spinners

The company’s utilisation level continued to remain at 100% while realisation growth led to an increase in top-line by 8.8% to Rs 2,069 mn, better than our estimates. On sequential basis also utilisation levels sustained at full capacity while increase in yarn realisations resulted into to a revenue growth of 6.8%. For H1FY17, top-line grew by 3.6% to Rs 4,005 mn. EBITDA for the quarter de-grew by 8.2% on YoY basis to Rs 320 mn while margins contracted by 286 bps to 15.5%. Major contraction in EBITDA was on account of increasing Raw Material as a % of sales, from 58.9% to 62.1%, a 319 bps increase. Other manufacturing expenses and power costs as a % of sales decreased marginally from 17.0% to 16.4%, a 60 bps decrease. Employee cost as a % of sales increased marginally from 5.8% to 6.1%, a 27 bps increase. Sequentially, due to continued raw material costs pressure, the EBITDA margins have declined by 50 bps. For H1FY17, EBITDA de-grew by 13.4% to Rs 629 mn while margins have contracted by 309 bps.

The company has commenced trial run on 72,960 spindles during Q3FY17 as against our estimate of Q4FY17. Hence we can expect a better top-line growth from Q3FY17 onwards. However, trail run revenues will not add much to the operating profits as trail phase margins are negligible. Overall the industry situation was tough during Q2 on account of sharp increase in cotton prices as compared to yarn prices. However, the recently trend seems to be reversing. Cotton prices have declined at a faster pace as compared to yarn prices. Based on these trends, we expect the margins to improve in the coming quarters. At CMP of Rs 72, the stock is trading at 4.9x FY18E EPS. We have maintained our target price of Rs 155 per share, 10.5x FY18E EPS. The stock of the company offers 115% gain from current levels. Thus, we maintain our Buy rating.

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First Published on Nov 21, 2016 04:35 pm
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