Nitin Spinners Limited (NITINSPIN) Q4 FY22 Earnings Concall Transcript

Nitin Spinners Limited (NSE: NITINSPIN) Q4 FY22 Earnings Concall dated May. 13, 2022

Corporate Participants:

Dinesh Nolkha — Managing Director

P. Maheshwari — Chief Financial Officer

Analysts:

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Awanish Chandra — SMIFS Limited — Analyst

Unidentified Participant — — Analyst

Kirti Jain — Canara HSBC — Analyst

Prerna Jhunjhunwala — Elara Capital — Analyst

Roshan Nagpal — B&K Securities — Analyst

Yash Bajaj — Lucky Investment Managers — Analyst

Niraj Mansingka — White Pine Investment Management Private Limited — Analyst

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

Vishal Goyal — CCIPL — Analyst

Shrikant Sharma — Ishri Consultants Private Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Nitin Spinners’ Q4 FY ’22 Post Results Conference Call, hosted by SMIFS Limited. [Operator Instructions]

Awanish Chandra — SMIFS Limited — Analyst

Good evening to everyone. On behalf of SMIFS Limited, I welcome you all to quarter four FY ’22 conferencecall of Nitin Spinners Limited. We are pleased to host the top management of the company. Today we have with us Mr. Dinesh Nolkha, Promoter and Managing Director of Nitin Spinners; and Mr. P. Maheshwari, Chief Financial Official of the company. We will start the call with initial commentaries on results and then we will open the floor for question and answers.

Now I will hand over the call to Mr. Nolkha, Managing Director of the company. Over to you, Dinesh sir.

Dinesh Nolkha — Managing Director

Thank you, Awanishji. Good afternoon, and a warm welcome to all the participants to the investor meet post our financial — annual financial year results of Nitin Spinners. I hope you all are keeping safe and healthy. I have with me Mr. P. Maheshwari, Chief Financial Officer of Nitin Spinners. I hope all of you must have had a chance to look at our investor presentation that is uploaded on the company’s website as well as stock exchanges.

Nitin Spinners is India’s leading manufacturer of cotton yarn, blended yarn, knitted fabrics and woven finished fabrics. The company’s leadership in cotton and blended yarn, the fabric manufacturing is driven by delivering international quality standard product. It’s a continuous investment in the latest technology. We have achieved the highest ever revenue of INR2,692 crores, making a growth of about 66% along with highest ever profitability during this year.

We have almost doubled our exports in the current year as compared to previous year. We are contributing deeply to the nation’s textile export and not only expanding our business with existing customers, but are also improving our clientele by associating with global and domestic brands. All our factories are operating at nearly optimum capacity, strategically enhancing capabilities in all the segments that is spinning, knitting, woven fabric to meet the increasing market demand, in which we are also increasing our blended yarn production capacity substantially. This expansion should take place with the total project cost of INR955 crores, which will be funded by term loan as well as internal approval.

We aim to capture the benefit of growing market opportunity in International as well as domestic market and strengthen company’s position by widening the product portfolio as well. This project shall be eligible for the interest subsidy and other benefits under the Rajasthan State Investment Promotion Scheme, the expansion project as in-farm [Phonetic] derivatives also is progressing as per schedule.

Nitin Spinners as a company is having distinctly differentiated brand image and is known for long-standing customer relationships and globally accepted quality standards. Our unique R&D for developing value-added products has led to value creation for our clients’ needs in domestic and global markets and made us a preferred supplier to them for a long time. At Nitin Spinners at the end of upcoming year, that’s all the positivity in spite of unprecedented time and input price challenges. With our differentiated strategy marked by innovation and sustainable practice, we’re just trying to maintain our top-line growth momentum, optimizing our capacity utilization and trust on value-added products.

I shall now hand over the call to Mr. Maheshwari to give you the operating and financial highlights of last financial year as well as the Q4.

P. Maheshwari — Chief Financial Officer

Thank you, sir. Good afternoon, everyone, and thank you all for joining the call. I would like to share operational and financial highlights for the quarter and year ended 31 March, 2022.

Revenue for the quarter four FY ’22 increased to INR769 crores from INR512 crores in Q4 FY ’21, that is an increase of 50% on Y-o-Y basis. The full year revenue stood a INR2,692 crores as compared to INR1,624 crores in FY ’21, that is registering a growth of 66% on a yearly basis. This has been our highest ever turnover apart from operational efficiency and value-added products, increased selling rates due to higher raw material prices also resulted in higher revenue.

EBITDA for the quarter stood at INR167 crores as compared to INR104 crores in Q4 ’21, that is a growth of 61%. For the whole year, EBITDA stood at INR652 crores as against INR257 crores in FY ’21, that is a growth of 153%. EBITDA margin for Q4 ’22 is 21.8% against Q4 ’21 margin of 20.4%. The full year EBITDA margin stood at 24.2% against last year 15.8%. Good international demand coupled with operational efficiencies and related products resulted in better margins.

The company had reported PAT of INR86 crores during the quarter as against INR43 crores in Q4 ’21, that is 99% growth on Y-o-Y basis. The full year profit after tax is INR326 crores against INR69 crores in FY ’21, that is a growth of 374%. Earning per share for the year is INR58 per share against last year INR12.25 per share and cash EPS for the year is INR73.56 per share against last year INR28.44 per share. The board has recommended final dividend at the rate of 25%, that is INR2.50 per equity share. The aggregate dividend for the year is INR4 per equity share, including interim dividend of INR1.5 per equity share.

During the year, we have produced 71,850 metric tons of yarn as against 63,973 metric tons in last year. Out of the yarn produced, about 24% yarn is captively consumed in knitted fabric and woven fabric division. Knitted fabric production was to the tune of 8,057 metric tons during FY ’22, while it was 7,375 metric tons last year. Woven fabric production for the year was 269.47 lakh meters against 234.81 lakh meters in FY ’21 and the finished fabric production was 213.73 lakh meters in FY ’22 against 143.02 lakh meters in FY ’21.

That’s all from my side. Now I open the floor for questions and answers.

Questions and Answers:

Operator

Thank you so much. [Operator Instructions] We’ll take the first question from the line of Yogansh Jeswani from Mittal Analytics. Please go ahead.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Hi. Thanks for the opportunity, and congratulations on a good set of numbers, sir. We are seeing cotton prices have shot up very high and the yarn prices have also moved up, but there were some articles that yarn prices have also not in line with the increased cotton prices. So currently, what kind of spreads are we seeing between yarn and cotton? And how have they behaved compared to Q4 and Q1?

Dinesh Nolkha — Managing Director

You’re very right that the cotton prices have shot up substantially. The cotton prices are now around INR1 lakh per candy, which was happening at about INR80,000 a candy in last February. So definitely, there is a substantial increase. And rightly mentioned that cotton yarn prices have not moved in tandem as well with the cotton yarn prices — cotton prices have moved up. We believe this increase in prices is more or less speculated instead due to shortage of cotton in the country. And the yarn prices are moving ahead, but not moving to the tune what the yarn — raw cotton has moved. And practically with a lag effect of about one and a half to two months, it is moving ahead. So at this point of time for normal margin, we were able to pass on the prices still INR87,000, INR88,000 a candy. So still that’s a lag of about INR25, INR30 a kg still to be passed on to the customers.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

This you are saying INR25 to INR30 in Q1, right? This is still due to be passed?

Dinesh Nolkha — Managing Director

Yes, exactly.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Okay. And sir, now given the kind of price cotton has seen, of late, what we’re noticing is most of the company’s inventory of cotton has doubled from what it was last year. A lot of it because of the higher price and also a lot of them have stocked up cotton, while in our case we see the increase in absolute value of inventory is hardly INR50-odd crores. So could you share some insights on what is the management’s thinking behind this? Why do we have a lower cotton volume in terms of the year end?

Dinesh Nolkha — Managing Director

Normally, at the end of the year, we stock as per our order book position, which is about — depending on the order book, about three to four months. But this time, we could not book so much of orders because of different geopolitical — difficult geopolitical situations happening in Ukraine and Russia. Due to this order book, people were scared to book the very long-term orders. So we had short-term orders. And accordingly, our inventories are also accordingly kept up with us. So we had at the end of the year about two months’ inventory. And accordingly, the orders were also for that much.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Okay. Sir, are we seeing this demand picking up now or are we still facing any challenges here in terms of order book? Are we seeing more inquiries now?

Dinesh Nolkha — Managing Director

In terms of inquiries and orders, actually normally most of the customers used to book orders in the month of February and March for next four to five months as per the fashion season of the product. So — but because of this war, the war-like situation and also COVID happening in China, people were scared to book very large orders. So they were — just they are booking on a monthly basis. So we are getting the orders on a monthly basis till now. Now people are thinking that maybe this can continue for longer period of time and they have to also run their factories and also run their businesses. So now the orders will start to look-up. But inventories, people were more or less utilizing their own inventories to the maximum possible and reducing the — plus this cost also increased substantially. Everybody at this higher prices raw cotton and higher prices of cotton yarn was slightly scared to buy a very long-term order.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Right. So sir, are we seeing any challenges in terms of our utilization on a monthly basis or the orders are sufficient to keep the utilization at 90%-odd?

Dinesh Nolkha — Managing Director

At this point of time, we are not facing any challenge for utilization of our capacity. That is still going on at full capacity.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

All right. Sir, last question from my end. Given the huge cash flows and the fantastic execution that our company has done over last two-odd years, we have created good cash flows and have reached a lot of debt. So I was just looking at your balance sheet numbers and from INR1,000-odd crores debt level in 2020 to now some less than INR700 crores debt we have. But if I look at the actual finance interest outgo, it is somewhat similar. So we paid out around INR50 crores, INR55 crores in FY ’20 and INR62-odd crores in FY ’21, and this year again it was still INR55 crores, while our debt has reduced by 30%. So what explains this difference?

Dinesh Nolkha — Managing Director

There are some interest like interest on income tax and others which got paid during the last particular — last financial year had to be paid up. So that is amounting to about INR2.5 crores to INR3 crores. Also we have seen that certain interest subsidies which was due, a some small amount of interest subsidies, which was due from the TUF was not forthcoming because very old. So that was also written off. So all that put together, interest cost is slightly higher than what it used to be. Now in the normal circumstances, we should have — means we are saying this is about INR56 crores, we should be in the range of about INR50 crores. INR4 crores, INR5 crores, INR6 crores are the cost which is — which I’ve just mentioned.

Yogansh Jeswani — Mittal Analytics Private Limited — Analyst

Okay. That’s helpful, sir. I’ll get back in the queue. Thank you.

Operator

Thank you. We’ll take the next question from the line of Kaushal from Walco [Phonetic]. Please go ahead.

Unidentified Participant — — Analyst

Yeah, hi. Congratulations for a good set of numbers. I just wanted to understand what was your capacity utilization in 2017, ’18 and ’19 on an average basis. Can you help me with that?

Dinesh Nolkha — Managing Director

We will not be having that data of last ’17, ’18 and ’19 actually with us at the moment.

Unidentified Participant — — Analyst

Okay. And currently the capacity is running at what level?

Dinesh Nolkha — Managing Director

Currently capacity, like our spinning capacity is running at about 96% utilization level for last financial — I’m talking about last financial year. Our weaving capacity is being utilized at about 95%. Our knitting capacity is being utilized at about 85%. And our finished fabric capacity is being utilized at about 83%.

Unidentified Participant — — Analyst

How much is knitting, I’m sorry?

Dinesh Nolkha — Managing Director

It is about 86% — 85%, 86%.

Unidentified Participant — — Analyst

Okay. And in the previous question, you mentioned sir — you mentioned that INR25 to INR30 per kg price is yet to be passed on in tandem with the increases of cotton prices, right?

Dinesh Nolkha — Managing Director

Yeah.

Unidentified Participant — — Analyst

So that’s about — roughly about 8% to 10% increase you’ve not taken, whereas cotton has increased by 10%.

Dinesh Nolkha — Managing Director

8% to 10%. The yarn prices are in the range of about INR400 crores — INR400 plus. So it is about INR25 to be passed on. It is about 5% to 6% of the yarn price.

Unidentified Participant — — Analyst

Okay. And sir, I just want to understand, do yarn manufacturers in the entire sector, is the pricing power slowly shifting to them because there is not major capacity additions in the last three, four years? And from what we understand is that, one cannot add more than 2 million spindles going forward for the next three to four years. So is the pricing power really in the hands of the yarn manufacturers? Is it shifting? Like if you compare to last five years and the situation currently, is it shifting?

Dinesh Nolkha — Managing Director

I mean, I could not — cannot answer this question emphatically. We’ll have to see this coming up here whether the prices have changed because for last — if you see the history, last year the cotton prices when we started the financial year was about INR46,000, INR47,000 a candy. Now it is INR95,000 a candy. And the yarn prices was about INR240 to INR250 a kg, which is now INR400 a kg. So definitely, spinners were able to pass on the prices. However, our downstream industry in the fabric, in the apparel fabric manufacturing, in the, I would say, home textile industry have not been able to pass on these kind of prices. So — but as we all know, when these kind of companies and this kind of increase happens of 60%, 70% increase in the finished good prices, it takes time to pass it on to the retail customer. So this — the year which is coming up now will decide whether this shift is for us — have been shifted permanently for us or still the downstream industry will play an important role.

Unidentified Participant — — Analyst

Okay. Sir, and just on the capacity utilization question, coming back to it, you don’t have the numbers, I’ll take it from maybe the investor relationships later. But is the capacity utilization for FY ’21, ’22 better than the capacity utilization for FY ’17, ’18, ’19, just on an average basis?

Dinesh Nolkha — Managing Director

Yeah, of course, it is better. We have seen an increase. We had some stoppages due to COVID in year 2021. Also in ’21, ’22, we added some more capacity. We had some debottlenecking done. So accordingly, our production is up by about 12%. Our yarn production last year was in the range of about 63,000 tons. Now it is in the range of 72,000 tons. Definitely, productivity has — production has increased there as well.

Unidentified Participant — — Analyst

So that was mainly due to demand in the last one year, because demand was strong, was stronger than what it was…

Dinesh Nolkha — Managing Director

Basically, we have been utilizing our spinning capacities to the full level. 95% plus is the normal norm in our spinning industry to utilize to that level. So barring unforeseen circumstances during COVID production was stopped. So it was — it is more related with improving on efficiencies, improving — debottlenecking the plants and adding some different kind of products in the market. So that actually has improved our productivity.

Unidentified Participant — — Analyst

Sir, also as you know, for instance, one more point to understand the industry better. Cotton is primarily used for spinning. Cotton is not used for anything else. Majority of the cotton produced in the world is used for spinning. So if cotton prices increase, why can’t you increase yarn prices in tandem to cotton prices?

Dinesh Nolkha — Managing Director

Definitely we have been increasing. It is demand and supply-based situation. If the production of the cotton is less than the consumption of the cotton then the cotton prices basically — and also the speculative element to it. These are all listed on the exchanges. Even in India, we have it on MCX. In U.S., it is on ICE. Various other countries are also having exchanges to deal with. And speculators and hedge fund enter into this kind of product and create their positions, which artificially increases the prices many a times, which is actually — ultimately our customer is — ultimately retail means basically the normal masses is our customer. So we need to increase the cotton prices then yarn prices and then ultimately the finished good prices.

As we all know with the chain going ahead, it takes a bit more time in passing on those prices. But most important thing is, when once the prices are passed on to the end customer, they are irreversible. Normally we do not see anything — the fabric or clothes prices coming down once it is passed on. So that is a permanent advantage to the whole industry once it is passed on.

So as such, it takes — we should — as you say, mathematically it should be possible for us to pass on, but practically it takes slightly more time than what we should be thinking. Also, we should also consider that overall as a cotton industry, we have a total inventory of about eight to nine months in the system from when once the fiber start till the finished goods is sold. So always this inventory is flexible to moving. Sometimes it moves up to 11 months, sometimes it goes down to six, seven months depending on the prices of the product. So accordingly, that is also one of the factors which plays an important role in deciding the final prices.

Unidentified Participant — — Analyst

Okay, okay. And sir, the expansion is in — the expansion will kick in when? The expansion that you announced in January?

Dinesh Nolkha — Managing Director

Expansion, we have here, as I mentioned, we are expanding in various or most of the segments. So this will — part of our weaving and finishing capabilities as well as knitting capabilities will start to come up in Q4 of this financial year, part of it. And spinning capacities will start in Q1 and Q2 of FY ’20.

Unidentified Participant — — Analyst

FY ’20?

Dinesh Nolkha — Managing Director

Sorry, FY ’24.

Unidentified Participant — — Analyst

Okay. And this INR900 crores will be funded, you said partly by internal accruals and partly by debt [Indecipherable]

Dinesh Nolkha — Managing Director

Yes, yes, exactly.

Unidentified Participant — — Analyst

So what do you see the debt number at by the time we start FY ’24?

Dinesh Nolkha — Managing Director

By the end of FY ’24, we are expecting that we should be — debt should — 1:1 debt equity we have seen. And we should be having a debt of about INR1,200 crores in all, inclusive of our all working capital matters.

Unidentified Participant — — Analyst

INR1,200 crores, inclusive of working capital?

Dinesh Nolkha — Managing Director

Yeah, yeah.

Unidentified Participant — — Analyst

By end of FY ’24?

Dinesh Nolkha — Managing Director

Yes. FY ’24, when the project is completed. At the moment on FY ’22, our total debt is about INR688 crores, which was INR960 crores. This will add another — we’ll repay and then we’ll add some working capital and others. So total will be INR1,200 crores.

Unidentified Participant — — Analyst

Around INR1,200 crores. Okay. Thank you.

Operator

Thank you. We’ll take the next question from the line of Kirti Jain from Canara HSBC. Please go ahead.

Kirti Jain — Canara HSBC — Analyst

Sir, thanks a lot for giving the opportunity. Congratulations for excellent set of performance which you delivered. Sir, can you highlight what were the product mix-related changes and product mix-related improvements which we are bringing in our company in the recent times?

Dinesh Nolkha — Managing Director

Basically in product mix, we are — since we have also started to manufacture first of all our own woven fabric. So all the fashion-related items with the woven fabric, the yarns which are related with it, have been produced in-house. So that has actually helped us in improving our product portfolio.

So there are various kind of products wherein we have sustainable fiber is being used in this. Also we have been — in our blended yarn segment, we have been able to use our sustainable recycled fibers, recycled cotton, organic cotton and various kinds of different and mix of fiber like viscose, modal, all those kind of mix is being used in our product mix. So that is one part, which is we have started to do on the raw material side.

On the product side, we have tried to optimize our product portfolio looking into the fabric, which is being sold all over the market. Since we have an insight as a fabric manufacturer ourselves, we can preempt some of these manufacturing of those yarns and that helps us in keeping an edge over other producers.

Kirti Jain — Canara HSBC — Analyst

Sir, what would be our proportion of blended yarn, sir, roughly?

Dinesh Nolkha — Managing Director

At this point of time, roughly, our blended yarn is about 12% of our total production.

Kirti Jain — Canara HSBC — Analyst

So will it increase in the given quarter?

Dinesh Nolkha — Managing Director

Yes, of course. With our expansion going up, this should go to more than 20% levels going forward.

Kirti Jain — Canara HSBC — Analyst

Sure, sir. Sir, anything you can highlight about our medium term business strategies apart from this mixed capex for 18 months? Anything you can highlight about medium term capital allocation strategy?

P. Maheshwari — Chief Financial Officer

As we have seen, in past we have been continuously investing in the various technologies. So we wanted to — our objective was to create a site in most — in any business, which we follow. So that is one of our most important UFT. We have tried to — in export business also when we started, we looked at reaching a level where we can go ahead. So what I wanted was that we want that overall whatever businesses we perceive, we reach a leadership position in the maximum number of areas where we operate. So that is our strategy going forward. So we’ll keep on adding some capacity — reasonable capacity exploring and widening our product portfolio to enhance the growth of the company.

Kirti Jain — Canara HSBC — Analyst

Sure. Thanks a lot for the question.

Operator

Thank you so much. [Operator Instructions] We’ll take the next question from the line of Prerna Jhunjhunwala from Elara Capital. Please go ahead.

Prerna Jhunjhunwala — Elara Capital — Analyst

Thank you, and congratulations on good set of numbers, sir. So I just wanted to understand the demand scenario from the domestic market as well as international market perspective given the changes in the raw material pricing scenario and how has the profitability changed today’s market?

Dinesh Nolkha — Managing Director

As you know, the raw cotton prices in India are higher than the international prices. So definitely, there is a challenge in terms of passing on the prices internationally. It is easier for us to pass on the prices in the domestic market because the domestic market has — basically is buying the domestic yarns and which is priced at par with the cotton. So that is one part of the question. So domestic yarn is definitely at the moment better than the international yarn prices.

In terms of how this is changing and how this is going to happen is, most of the international buyers, the changes in their strategies changing from China and coming to various countries like India, Indonesia, Sri Lanka, Bangladesh. They have to look for alternative sources of yarn, which is available at this point of time. Since no additional capacities, as I also informed in my earlier conferences call, that is not forthcoming in the manner in which they would like it to be.

So they will — they have to buy from these — from countries like India. But we have slowed down on it because of such a huge steep increase in the yarn prices. This is also one of the reasons why there is a slowdown — slight slowdown in the increase in the yarn prices. Since the requirement is now tapered off, of course, it is getting lifted, there is no — not a position that the yarns is not getting lifted, but it is slow than what it was earlier.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay, okay. And sir, just a follow-up on this only. China+1 strategy, given that U.S. definitely is looking forward to rationalize the tariff — incremental tariff structures in China. Is the China+1 strategy at risk at this point in time?

Dinesh Nolkha — Managing Director

Yes, it is — basically there is a change in the most of the — buying pattern of most of the international brands. They have already shifted quite a lot of their capacities to other countries than China. And that is the reason why China, if you can see, is not importing cottons as well as plans to the tune what they should — they normally do. So that is — so practically, officially, they do not declare any production data or something like this. We are seeing that they have reduced their production capacity. So that is being diverted to other countries.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. So this shift is permanent irrespective of what happens in China? What we are coming as an [Indecipherable] to Indian Army from international markets, right?

Dinesh Nolkha — Managing Director

Yeah. We expect it to be long lasting. Definitely, we expect it to be long lasting. And definitely — that the business dynamics has definitely changed. Yes, we have to, but we have to compete it still with countries like Bangladesh, Vietnam, Pakistan, Sri Lanka Turkey. So we have to compete with this country. We feel that we are competitive. India as a country is overall competitive in textile in comparison to most of our peers.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. Got it, sir. Sir, my second question is on blended yarn business. You’re expanding capacity in the blended yarn category, how is the demand outlook there? Is the shift from cotton to blended yarn looking more long lasting and the profitability higher there? And how much of the spindles that you are setting will be dedicated to blended yarn?

Dinesh Nolkha — Managing Director

Yeah. Like, first of all, we will be adding about 45,000 spindles out of the total capacity of 1,55,000 spindles which we are adding. So that will be dedicated. We have at this point of about 27,000, 28,000 spindles being dedicated to that part. So practically, we’ll be adding 1.5 times the capacity there.

As far as profitability and the demand is concerned, as the prices of raw cotton has gone up substantially, the delta between the polyester fiber or the viscose fiber through the cotton has substantially changed. This has prompted the blends to change substantially, first of all. So that — the costs can be maintained for the customer. This is an important part where the finished goods prices can remain at a reasonable level and customers can get the goods at reasonable level by changing the blends. That has prompted the use of the man-made fibers and most of the products at the lower end is being used with the blended yarn.

Now coming to the built-up in the future or future capacity, we’ve seen that the polyester fiber as well as viscose fiber have — the properties have improved considerably during last, I must say, three, four years. We have seen that a lot of new finishes, lot of new product development has been done by the fiber suppliers trying to reach near cotton. So wherever there is not a compulsion of cotton being used, people are trying to shift to polyester cotton or let’s say the modal cotton or other kind of fibers, which is helping the blended yarn industry to grow much better.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. And how is the profitability difference within cotton and blended…

Dinesh Nolkha — Managing Director

Since the customer is able to — basically our customers are able to buy them at a reasonable price to adjust to their cost. It is always better — at this point of time it is better. Of course, if you would have talked to me six months back, cotton was much better.

Prerna Jhunjhunwala — Elara Capital — Analyst

Okay. Thank you so much, sir. All the best for future.

Dinesh Nolkha — Managing Director

Thank you.

Operator

Thank you. We’ll take the next question from the line of Roshan from B&K Securities. Please go ahead.

Roshan Nagpal — B&K Securities — Analyst

Yeah. Thanks for the opportunity. So how did demand situation and export outlook for USA coming out?

Dinesh Nolkha — Managing Director

Basically, we have a limited exposure in the U.S. We export some yarns and some fabrics there, which is very nominal. We are doing about 6% to 7% of our total capacity. There the demand is good and we are seeing consistent demand coming in. Since cotton prices internationally is governed by the U.S. Future, the prices also have moved up in tandem in the U.S. We do not foresee any major issues there at this till now.

Roshan Nagpal — B&K Securities — Analyst

Okay. Thanks a lot. And with this capacity increase on the spindle side, do you envisage when the capacity growth could exceed that demand?

Dinesh Nolkha — Managing Director

As one of the participants earlier mentioned, not major. If you see the total capacity which is being added in the country, say about 2 million to 2.5 million spindles every year, and we have a capacity in India of about 50 million spindles. Practically, we’ll be adding only about 4% of the capacity. There are also some scrappage of the old finished also, which we are not considering at this point of time. So the increase in capacity is not very substantial, which may affect the demand-supply scenario.

Roshan Nagpal — B&K Securities — Analyst

Okay. Thanks, sir. That’s all from my side. Thank you.

Operator

We’ll take the next question from the line of Yash Bajaj from Lucky Investments. Please go ahead.

Yash Bajaj — Lucky Investment Managers — Analyst

Hi, sir. Congratulations on a great set of numbers. Sir, I just — I actually missed the part of the capex plan which you have laid out. Can you just repeat that if it’s possible?

Dinesh Nolkha — Managing Director

Yes. Basically, we have announced the capacity expansion during our last — after our last earnings call. So that was to the tune — that is to the tune of about INR955 crores. There will be — this will be funded by INR300 crores of internal accruals and INR655 crores of debt. The capex cost is about INR860 crores and balance is the margin money for working capital. For this, we will be adding capacities in our spinning department, in our weaving and finishing department and knitting departments. We’ll be increasing our spindlage from 3.32 lakh equivalent spindles to about 4.88 lakh equivalent spindles, increasing our capacity from 75,000 metric tons to about 1, 09,000 metric tons per annum. Similarly, our knitting capacity as well as our weaving capacity will also be ramped up by about 35% each.

Yash Bajaj — Lucky Investment Managers — Analyst

Okay, okay. And sir, I just wanted to know what is — what was our average cotton price for Q4?

Dinesh Nolkha — Managing Director

For Q4 our average cotton price, Maheshwariji, can you highlight on this exact number?

P. Maheshwari — Chief Financial Officer

Q4 average cotton price was INR215 per kg.

Yash Bajaj — Lucky Investment Managers — Analyst

INR215? Okay, okay. And sir, if I compare — if you compared how the demand is slowing currently in this year and as compared to suppose 2017, ’18, what is the incremental — where is the incremental demand coming from domestically and in export?

Dinesh Nolkha — Managing Director

Basically incremental demand what we’re seeing is in domestic market. We are seeing that lot of orders for the garments which was earlier being produced in the countries like China, also to an extent in Sri Lanka, are getting — it’s now shifted into India. So that kind of — that yarn — sorry, the garments actually needs more yarn. So demand is more at this point of time in the domestic market in comparison to the export market.

Yash Bajaj — Lucky Investment Managers — Analyst

Okay, okay. And going forward, considering the way the cotton prices are increased, like you said, that you will be increasing your concentration of blended yarn to 20%. So like do you see like the end players in the value chain also changing their preferences from cotton to blended yarn?

Dinesh Nolkha — Managing Director

There is — I think a lot of investments in India is coming up in the PLI, which is primarily for man-made fiber yarns and blended yarns only, which will be using fabrics actually — man-made fabric and blended fabrics. So they will be using more capacity, more yarns for these purposes. So that should help us. So we are seeing that there is a total investment of about INR19,000 crores happening in this segment. So that should help us in this segment as well.

Yash Bajaj — Lucky Investment Managers — Analyst

Okay, okay. Thank you so much, sir, and all the best for the future.

Dinesh Nolkha — Managing Director

Thank you.

Operator

Thank you. We’ll take the next question from the line of Niraj Mansingka from White Pine Investment Management. Please go ahead.

Niraj Mansingka — White Pine Investment Management Private Limited — Analyst

Thank you. I just have two questions. One is on the export market. If I look in the year, it’s showing lot of slowdown in the export of home furnishing in textiles from India in the cotton side. Do you see — because of the excess inventory pile up. So have you seen a slowdown in the consumption of cotton yarn from customers trying to export home textiles to the U.S. market?

Dinesh Nolkha — Managing Director

Actually if you see our profile, about 70% of our yarn is exported out. Only — total 72% is exports and about 28% is domestic market. And we have spread it pretty well in the various domestic with our customers. We are seeing — we are not very much dependent on one particular industry or one particular company as such for the sale of our product. So we have — we are not seeing any major changes. Yes, if there is some lesser demand from some of the companies then we are able to fulfill it by supplying to other companies as well. So that is a flexibility which we have in our system.

However, as per your — as you — I don’t think there is a reduction in the exports from this downstream industries. Their margin is affected, but their production — they are running at full steam. As I have given to understand — till the month of April, I was given to understand that they are all — most of the players in home textiles are running full stream. Of course, margins are impacted because they are not able to increase their prices to their expectation.

Niraj Mansingka — White Pine Investment Management Private Limited — Analyst

Okay. And the other question is on the capacity capex. Just wanted to know your thoughts that you are seeing lot of growth in the non-cotton side because of PLI investments, so why not have more — significantly more additions, the blended yarn new capacity rather than only the cotton? Just wanted to know your thoughts there.

Dinesh Nolkha — Managing Director

Yeah. We are seeing a reasonable growth and we are also adding up the capacity. We’re already nearly adding 150% of our existing capacity. You need to — and we are also increasing our capacity in the cotton yarn business. Since we look — we are trying to widening our product portfolio. We are going to add some — most of the yards which we are not producing. There are many kinds of cotton yarns which we are not yet in production. So those will also be taken up.

So this we have basically strategically seen that we are not competing against our own existing production and trying to add capacities in cotton yarn business also wherever it is desired, wherever there is a demand. So looking into that, the capacity for cotton yarn has been considered. For polyester cotton or let’s say blended yarn as well, we have also considered various capacities. But this is — let this PLI also fructify, let us also see how the demand moves up. Till now it is good, so we are also adding capacities. And if required, we will add further capacities in this.

Niraj Mansingka — White Pine Investment Management Private Limited — Analyst

Okay. And what are the carrying costs of your inventories for cotton in rupees per candy?

Dinesh Nolkha — Managing Director

We do not calculate the carrying cost actually. Our working capital is for the whole company and not only for cotton. We also have finished goods. We also have work in process, also have debtors. We’re not exactly calculating carrying cost.

Niraj Mansingka — White Pine Investment Management Private Limited — Analyst

The reason I was asking is that optically the yarn margins may look depressed based on the current cotton — raw cotton prices. But because entire industry’s inventory price is much lower than the current prices, don’t you see this current yarn pressures to continue for next two or three quarters, but profitability would remain similar to this quarter? So I just wanted to know your thoughts on that side.

Dinesh Nolkha — Managing Director

Basically — yes, you’re right. The cost of our inventory which we are carrying is lesser than the market price, which is prevailing. Since there is a consistent increase, there is a one-way traffic, we have seen the cotton prices gone up from INR75,000 to INR1 lakh a candy. So definitely, whatever you have purchased during last three, four months will have lesser cost only. Definitely that is there with every industry player. But we need to pass it on — we kept on passing in on the prices, which has slowed down things. Earlier this was moving — the yarn prices were moving exactly in tandem, now this is moving with a lag effect.

If you go back in 2018, ’19, ’17, there was also a lag effect. But in year for — calendar year ’21, we saw that as soon as the cotton prices increased, yarn prices increased. And in some time, yarn prices preceded cotton prices increase as well. So that has resulted in a different kind of margin scenario. Now with this lag effect happening, it will depend — profitability will depend on the kind of order book which you have and also the kind of inventory cost which you have. So it may vary from player to player.

Also, as such, this increase in — this increase which is being taken by the downstream industry player is going to be very, very good for the textile industry as a whole. In this kind of prices, we are able to see kind of raw material prices, if we are able to pass it on to the customer then once you have passed on these are irreversible. Yes, the yarn prices may come down, cotton prices slightly or in — all these things can happen. But overall, the margins of the textile industry will definitely improve.

Niraj Mansingka — White Pine Investment Management Private Limited — Analyst

Got it. Thank you very much.

Operator

Thank you. We’ll take the next question from the line of Nikhil Agarwal from VT Capital. Please go ahead.

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

Good evening, sir. Thank you for the opportunity. Sir, can you tell me the realization per kg for the yarn and knitted fabric and realization per meter for the woven fabrics in Q4 FY ’22 and Q4 FY ’21?

Dinesh Nolkha — Managing Director

Maheshwariji, can you give the exact number, please.

P. Maheshwari — Chief Financial Officer

Yes. In Q4, the average yarn realizaton was INR400 per kg, while this was in Q4 ’21 INR270 per kg.

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

Sorry?

P. Maheshwari — Chief Financial Officer

INR270 per kg in Q4 ’21.

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

INR270 per kg?

P. Maheshwari — Chief Financial Officer

INR380 per kg during this quarter, while Q4 ’21 was INR298 per kg. The ones I break, it was INR171 per meter during the quarter, while it was INR133 per meter in Q4 ’21.

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

So sir, basically, cotton prices over the last financial year increased by almost doubled, but your yarn prices have not actually doubled, they increased approximately 50%. So do you see yarn prices decreasing further? Like you said that about 5% to 6% of the cost is actually power plants, is there space for more?

Dinesh Nolkha — Managing Director

At this point of time, it looks that — I was talking in terms of cotton prices which were there at the beginning of this calendar year and till now. That is what I am talking about. So the scope will be determined by the downstream industry. If they are able to pass it on to their customers, then definitely we will be able to pass it on to them.

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

Sir, but any reason why like cotton prices have doubled, but your yarn realizations have increased by about 50% only?

Dinesh Nolkha — Managing Director

It is about 60%. The increase is about 60% plus. If you see on a quarterly basis, it is — the increase is nearly 60%. So cotton prices are like 55% of — our raw cotton is about 55% to 60% of our total cost structure. So if it is 100%, means it is about 50% only for the silk price. So rest all is additional margins and additional — some additional costs which has been passed on.

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

Okay. Sir, revenues [Indecipherable] like what category of cotton, and will you be importing cotton going forward as [Indecipherable] that the import duty has been cut. So any — will you be importing cotton as well?

Dinesh Nolkha — Managing Director

First of all, I would like to bring to all of your notice that there was no import duty in India on cotton for last 10 years from 2011, ’12 till 2021. In the February ’21 this duty was imposed and then it was removed in the April of 2022. So as a seller we have been importing cotton for last several years in a significant manner. Even when the duty was there, we were already importing cotton under advanced license even that point of time and still we are importing. Yes, the quantity has been substantially increased because we foresee that there is a shortage of cotton in India. So we have been importing quantities in substantial manner.

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

Okay. And sir, like any percentage of — like what percent of cotton you import like of your requirements?

Dinesh Nolkha — Managing Director

For confidential reasons, I would not like to share this particular data.

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

Okay. No issues, sir. And just one last question. Any like guidance on the margin outlook and the revenue outlook?

Dinesh Nolkha — Managing Director

Yeah. The situation is very fragile at this point of time. As I highlighted in my earlier conversation, the situation is really fragile. We are — at this point of time, we are seeing that there is a shortage of cotton in India due to which cotton prices is spiking up substantially. Even on a week-to-week basis, this is increasing, which is very worrying for all of us because we cannot change prices on a weekly basis with our customers. So the margins — at this point of time, we would not like to comment on the margin side. But yes, we are working to see that we maintain or try to see a reasonable margin going forward.

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

Okay. Okay, sir. Sir, just one last question. You had mentioned the number of spindles you have dedicated to vendors currently. I missed that number, if you could repeat that?

Dinesh Nolkha — Managing Director

It is about 28,000 spindles.

Nikhil Agarwal — VT Capital Market Private Limited — Analyst

Okay, okay. Thank you, sir. That’s it for me.

Operator

Thank you. We’ll take the next question from the line of Abhishek from [Indecipherable] Private Limited. Please go ahead.

Unidentified Participant — — Analyst

I would like to understand how will the cost of cotton has impact — how the cost of power has impacted the industry?

Dinesh Nolkha — Managing Director

Cost of power basically for us at least this has not impacted at all since last one year. It is going to be impacted now once the tariff is increased by the state electricity boards. For us, it has remained consistent for last one year. In fact, with some renewable power being installed by us, it has come down only for us. But however — and we had a coal-based power plant which we were using to generate power. Since we had scrapped that particular plant in last financial year and stopped using the power, so that has in fact saved us some amount of — on the power side itself.

Unidentified Participant — — Analyst

And I mean, was Sri Lanka a major market for you because of the ongoing disturbances in Sri Lanka?

Dinesh Nolkha — Managing Director

Not substantially. Yes, we were — we are having exposure in Sri Lanka. And just for information that Sri Lankan government as well as their Central Bank has allowed to most of the textile companies who are re-exporting their products to import the various requirement which they have and the working is happening as per schedule.

Unidentified Participant — — Analyst

Thanks a lot for your time.

Operator

Thank you. [Operator Instructions] We’ll take the next question from the line of Rakesh from NR [Phonetic] Family Office. Please go ahead.

Unidentified Participant — — Analyst

Yeah, hi. Good evening, and thanks for the opportunity. An exceptionally good FY ’22. Congratulations on that. When I go through the P&L, what I see is that the volume growth has not been aggressive. However, the revenues have been really very impressive. So I just wanted to understand what could be the volume and the revenue outlook from a 12 to 36 months perspective?

Dinesh Nolkha — Managing Director

Basically, as we are saying that volume we are consistently producing. We are — our spinning capacity is nearly fully utilized. So that will continue to be utilized going forward. But any additional capacity that will come up only from financial year ’24, Q1 of financial year ’24 and Q2 of financial year ’24. And we are expecting that in 24 months from now, we should be running — we should be — we should have increased our capacity by nearly 45% on the yarn side, which is our major revenue earner.

As far as our woven capacity is concerned, that is now running at about 90%, which we are trying to further ramp-up. So we are trying to increase the capacities here, which will be rectified during this financial year itself. And there also, we are adding capacities to the tune of about 30% plus. So that is again going to play an important — that should be available for us during next financial — full financial year. Knitting capacity is also running at about 85% capacity levels, but this keeps on fluctuating depending on the demand and supply of the kind of fashion products. So this will — this should be the base case for the rest of the year. But once we are added up the capacity, we expect another 30% increase there itself also. This is all in terms of volumes adjustments.

Unidentified Participant — — Analyst

From a three year perspective could there be a CAGR you could put to the volume as well as the revenue growth?

Dinesh Nolkha — Managing Director

CAGR means — today in such times where the prices are going out of route, it is difficult to put a number. Since we have seen growth of 65% in the overall last one year itself, which is like — which is contributed by more than 40% by the price hike itself. So where the — how the price is moving, that is very, very important for us going forward to decide the CAGR. But if you see a bunch of five year together for last maybe five years or even 10 years or 12 years, we have grown at a CAGR of about 18%, 19% and we wish to continue with that kind of CAGR going forward for if you want to look at three, four years’ time.

Unidentified Participant — — Analyst

All right, all right. Thank you so much, and congratulations.

Operator

Thank you. We’ll take the next question from the line of Vishal Goyal [Phonetic] from CCIPL. Please go ahead.

Vishal Goyal — CCIPL — Analyst

Sir, I’m trying to understand that as you were saying that once the garment companies pass on this price increase and it will be irreversible, sir, it will be irreversible for the OEM that is the branded companies which are ultimately selling to the retail customer. But for the garment manufacturer, they will have to pass on if the cotton and yarn prices decrease then the OEMs which are the brands, they will ask the garment manufacturers to pass it on to them and they will keep the benefit themselves, the branded company. So then how do it comes back to us? How are we saying that once these prices go up then it will be reversible for us?

And sir, secondly, if you see the steel industry, it’s all about demand-supply of the steel. They don’t worry about the automobile industry that what will happen to them if we increase steel prices. Even if iron ore prices are going up, the steel prices are determined by demand and supply of fee. So in that case — sir basically, I’m trying to understand that this INR20 to INR25 gap that is there in the yarn realization, by when will we be able to pass it on? Whether it will happen this quarter or next quarter? Sir, what is in your judgment when can we pass it on?

Dinesh Nolkha — Managing Director

Yeah. First of all, I would like to comment on your steel industry example. Steel industry has many usages apart from automobile industry. They have maybe eight to 10 different kinds of usages, whereas the textile industry has only one usage that is for the cloth, which is being woven or may be for home textile which is related with the same itself, use it — personal usage. So our usage for cotton is one single that ultimately it goes to the customer which will use it for their own consumption. So that is why it is more, let’s say, linked with the — directly linked with the material price. So that is one part. And we cannot compare this with steel industry.

As you see, as you gave example of steel industry, we see that once the cost of any part or anything increases, we see the prices increased by most of the car companies like we have seen in the past so many years that the car prices have gone up by 20%, 30% whenever the raw materials — whatever they have increased — inflicted the increase on it because of inflation. But when it comes down, nobody reduces the price. Maybe some discounts plus or minuses, but prices actually on the floor does not come down.

Same is the case here, because we are seeing an unprecedented increase in the raw cotton prices, which is ultimately to be transferred to the customer. So what we’re seeing is the farmer is getting today much better prices, but the in between players like spinner as well as weaver, finishers, garmenter and retailer have to sacrifice some part of it if he is not able to pass on the price due to demand-supply situation, if spinner was able to pass on completely the prices barring last one or two months where there is a change in the scenario, slight change in the scenario. But we were — and finisher and garmenter was not able to pass on the kind of prices which they wanted. So they are pushing the prices ahead.

We have seen two increases of — price increases by the retailer. We’ll see one more increase by the prices — by the retailer. Once that price is passed on then the retailer is quite comfortable to give it back his garmenter or downstream. Yes, you are very right. When the prices of yarn will come down, he will also look at increasing his margins or retaining margins to the older levels, but not that he will take up all the margin which is there because of the reduction in the cost. So this is a normal phenomenon.

You can see there are four pockets with the person, one is spinner, one is with weaver or knitter and one is garmenter. So of course, the money will come in these four pockets only maybe. So it will ultimately come to textile industry. I’m not saying that the price increase is irreversible on part of a spinner or a weaver, but as a whole in the industry, money will remain with them.

Vishal Goyal — CCIPL — Analyst

Okay, sir. And sir, also in the papers that came at in the first week of May, the yarn prices have been increased by INR40. So this INR20 to INR25 gap that we were talking about, sir, is it after that INR40 hike that happened in early May?

Dinesh Nolkha — Managing Director

The prices on 30th of April was like when the cotton was about 92,000 or 93,000, at that point of time, this increase was happened. So this INR40 increase is after one month gap. In between, we have already increased the prices. So still — I’m not talking about today’s prices. I’m not talking that today we need to increase the prices by INR25. Yes, it is going to increase by another 4%, 5% going forward. And it is where we are seeing the increase happening regularly on a consistent basis.

Vishal Goyal — CCIPL — Analyst

Okay, sir. Thank you very much, and best of luck.

Dinesh Nolkha — Managing Director

Thank you.

Operator

Thank you. We’ll take the next question from the line of Shrikant Sharma from Ishri Consultants Private Limited. [Operator Instructions] Over to you, sir.

Shrikant Sharma — Ishri Consultants Private Limited — Analyst

Hello?

Dinesh Nolkha — Managing Director

Yes.

Shrikant Sharma — Ishri Consultants Private Limited — Analyst

First of all, congratulations for excellent numbers, sir. My question there is that the garment industry is asking for the export ban of cotton. And on 17 May I think they will be having a meeting with Minister of Textile. So how do you think the revenues will be affected, and specifically, your company, Nitin Spinners, how it will be affected by a cotton ban, if there is a cotton ban, export?

Dinesh Nolkha — Managing Director

The ban is for the raw cotton exports which have been contemplated. I think it is too late because already most of the cotton — now our cotton prices in India are more than the international prices, and anyway, not much exports is happening. Only exports which was committed earlier with lower prices is happening at this point of time. So I don’t foresee any impact happening because of this ban or anything else. And rather it will be detrimental overall to the sentiments in the global arena that we are inconsistent with our policy. That is one part.

Anyway, it is not happening at all. As far as our company is concerned we do not foresee any impact of this particular issue. And the meeting on 17 of May is for all the stakeholders of the industry, not only the garment one. This will be a meeting between the minister with all the stakeholders, including the farmers, the spinners, the traders of the cotton, the multinationals of cotton which are stocking the cotton in India, also spinners along with garmenter and also the downstream players in the apparel as well as the home textile.

Shrikant Sharma — Ishri Consultants Private Limited — Analyst

Okay. Thank you so much, sir. Best of luck for the future.

Operator

Thank you. Ladies and gentlemen, due to time constraints, we are taking one last question from the line of Hiten Boricha from Joindre Capital. Please go ahead. Sir, your line is unmuted. You may please go ahead. Mr. Hiten? There is no response from the line of Mr. Hiten. Thank you. Ladies and gentlemen, due to time constraint that was the last question for today. I now — I would now like to hand the conference over to Mr. Awanish Chandra for closing comments. Over to you, sir.

Awanish Chandra — SMIFS Limited — Analyst

Congratulation, Dinesh sir and Maheshwariji on continued strong performance. Since we are completely out of time, just one comment that in last seven, eight years, we have kind of four times capacity now. So do we foresee the same kind of growth trajectory over next five, six years? Next two years’ picture already you have talked about, so what should we expect? We can have the same kind of journey of last seven, eight years in next four, five years?

Dinesh Nolkha — Managing Director

Awanishji, if you look at our history, we have been growing at 18%, 19% CAGR in revenue terms, not in capacity. I would not like to comment on capacity side. And we expect to continue this journey for the foreseeable future of next four, five years at least. I hope we could multiply the rate at what you mentioned just now. And really, it will be our endeavor to grow at that level, definitely. Everybody wants to grow. So that is something which we all aspire for and hope it fructifies good for all of us.

And also, I would like to thank everyone for joining in the call. And thank you Awanishji and SMIFS Capital for hosting this call. I hope we have been able to answer most of the questions satisfactorily. However, should you need any further clarifications or would like to know more about the company, please feel free to contact our finance team and our Investor Relationship Advisors. And thank you once again taking out time and joining on this call.

Awanish Chandra — SMIFS Limited — Analyst

Okay, sir. Thank you very much, Dinesh sir and Maheshwari sir for spending your valuable time and providing us the opportunity to host the call. Over to Diksha.

Operator

[Operator Closing Remarks]