Target: ₹304

CMP: ₹216.20

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 ₹1.1lakh/candy to ₹61,000/candy (implying ₹170/kg), upon arrival of the new crop and lower demand environment. The 10 per cent import duty continues on cotton imports.

In contrast to FY22 (₹103/kg), spinning mills experienced significantly lower cotton yarn spread in the early part of FY23. In Q3FY23, cotton-yarn spread (₹90/kg) has improved compared with H1FY23 (₹75/kg), but it continues to hover around ₹80/kg in Q4FY23.

The current cotton yarn spread (₹80-90/kg) has reached 2019 levels on absolute basis, albeit margin % is lower, given higher cotton prices. Spinners have a desirable spread of ₹105/kg, given higher project cost and increased cost levels from earlier times. Nitin Spinners saw 80 per cent capacity utilisation in Q3 and is undertaking ₹950 crore capex, which will increase its capacity by 30-40 per cent across all segments.

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.