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India Equity Research Reports, IPO and Stock News
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Investment Rationale
Current capacity and expansion plans
Revenue Visibility
Lower debt on books
Valued Clients
Yarn & cotton prices and global outlook
Company Background
Nahar Spinning Mills Limited is a Ludhiana based and an
export oriented company. The company basically operates
in the product portfolio of two segments: yarn and garment.
Yarn contributes 80% to the revenue and Garments
segment contributes balance 20% to the revenue.
Nahar Spinning T-shirts are being exported to reputed
international brands. It is also known for its brands Monte
Carlo and Cotton Country.
Valuation
The company has shown a very good performance in FY11
till date. On the future order book size and the expansion
plans with lower debt on books the company looks
attractive at this level. The company is currently trading at
~3x PE. We expect FY11E EPS of 40.21 and 62.40 for FY12
with a conservative PE band of 3x-4x for FY11-12 for a
targeted price of Rs. 126.
Investment Rationale
Current capacity and expansion plans
In terms of capacity it has 3.55 lacs spindles currently for
Yarn segment where 60000 are under installation and are
expected to complete by CY 2011. They also have plan to set
up another additional capacity for next year which may take
the total to 4.56 lac spindles for FY12. This expansion will
gradually add on to the top line for the company going
forward after streamlining of process completely. It
generally works on 95-100% utilization levels.
Revenue Visibility
The company is booked for orders till June 2011 giving
revenue visibility for the coming quarters. The companies
work on the quota system to export and government has
given a limit for the quota. This quota should be renewed
from the next FY where the demand potential increases for
the company.
Lower debt on books
The debt to equity ratio stands at 1.41 for FY10 which is
lower compared to its peers. Currently it has reduced
below 1 as repayments are on track.
Valued Clients
Nahar Spinning’s T-shirts are being exported to reputed
international brands such as GAP, Arrow, Old Navy, Pierre
Cardin, Philips Van Heusen, Izod, Quicksilver, Price Costco.
Its exports consist of ~80%.
Yarn & cotton prices and global outlook
Cotton prices have been on up trend for some time now and
from last few months yarn prices have also been increasing
and the producers are also able to pass on the input cost
hike to the consumers as well. It is seen that domestically
the increasing prices are still lower than the international
prices and therefore it shows good potential in the export
market. On the other hand the biggest market China is not
adding any spindle capacity going ahead which gives the
Indian market the extra edge and increase in exports will
help the company to post good margins as the international
prices are more lucrative then the domestic pricing.
Industry Scenario
Cotton Yarn, fibre and garment exports to increase over 5%
CAGR between 2010-2014 owing to growing appetite in
developing countries, consumption pickup in developed
nations and structural shift of the Indian consumer
behavior.
With increasing demand in developing countries (China,
Bangladesh, Pakistan and Korea) and pickup in consumption
in developed nations (US and Europe), we expect India to
benefit the most.
With most of the capacity expansions at their completion
stage coupled with China (the largest exporter) gradually
converting to a net importer due to growing domestic
demand, we believe India to emerge as a leader yarn
exporter. We expect direct cotton yarn exports to increase
at 4.5% CAGR between 2010-2014.
Valuation
The company has shown a very good performance in FY11
till date. On the future order book size and the expansion
plans with lower debt on books the company looks
attractive at this level. The company is currently trading at
~3x PE. We expect FY11E EPS of 40.21 and 62.40 for FY12
with a conservative PE band of 3x-4x for FY11-12 for a
targeted price of Rs. 126.
Concerns
Fluctuating raw material prices (cotton) may impact the
operating level margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Rationale
Current capacity and expansion plans
Revenue Visibility
Lower debt on books
Valued Clients
Yarn & cotton prices and global outlook
Company Background
Nahar Spinning Mills Limited is a Ludhiana based and an
export oriented company. The company basically operates
in the product portfolio of two segments: yarn and garment.
Yarn contributes 80% to the revenue and Garments
segment contributes balance 20% to the revenue.
Nahar Spinning T-shirts are being exported to reputed
international brands. It is also known for its brands Monte
Carlo and Cotton Country.
Valuation
The company has shown a very good performance in FY11
till date. On the future order book size and the expansion
plans with lower debt on books the company looks
attractive at this level. The company is currently trading at
~3x PE. We expect FY11E EPS of 40.21 and 62.40 for FY12
with a conservative PE band of 3x-4x for FY11-12 for a
targeted price of Rs. 126.
Investment Rationale
Current capacity and expansion plans
In terms of capacity it has 3.55 lacs spindles currently for
Yarn segment where 60000 are under installation and are
expected to complete by CY 2011. They also have plan to set
up another additional capacity for next year which may take
the total to 4.56 lac spindles for FY12. This expansion will
gradually add on to the top line for the company going
forward after streamlining of process completely. It
generally works on 95-100% utilization levels.
Revenue Visibility
The company is booked for orders till June 2011 giving
revenue visibility for the coming quarters. The companies
work on the quota system to export and government has
given a limit for the quota. This quota should be renewed
from the next FY where the demand potential increases for
the company.
Lower debt on books
The debt to equity ratio stands at 1.41 for FY10 which is
lower compared to its peers. Currently it has reduced
below 1 as repayments are on track.
Valued Clients
Nahar Spinning’s T-shirts are being exported to reputed
international brands such as GAP, Arrow, Old Navy, Pierre
Cardin, Philips Van Heusen, Izod, Quicksilver, Price Costco.
Its exports consist of ~80%.
Yarn & cotton prices and global outlook
Cotton prices have been on up trend for some time now and
from last few months yarn prices have also been increasing
and the producers are also able to pass on the input cost
hike to the consumers as well. It is seen that domestically
the increasing prices are still lower than the international
prices and therefore it shows good potential in the export
market. On the other hand the biggest market China is not
adding any spindle capacity going ahead which gives the
Indian market the extra edge and increase in exports will
help the company to post good margins as the international
prices are more lucrative then the domestic pricing.
Industry Scenario
Cotton Yarn, fibre and garment exports to increase over 5%
CAGR between 2010-2014 owing to growing appetite in
developing countries, consumption pickup in developed
nations and structural shift of the Indian consumer
behavior.
With increasing demand in developing countries (China,
Bangladesh, Pakistan and Korea) and pickup in consumption
in developed nations (US and Europe), we expect India to
benefit the most.
With most of the capacity expansions at their completion
stage coupled with China (the largest exporter) gradually
converting to a net importer due to growing domestic
demand, we believe India to emerge as a leader yarn
exporter. We expect direct cotton yarn exports to increase
at 4.5% CAGR between 2010-2014.
Valuation
The company has shown a very good performance in FY11
till date. On the future order book size and the expansion
plans with lower debt on books the company looks
attractive at this level. The company is currently trading at
~3x PE. We expect FY11E EPS of 40.21 and 62.40 for FY12
with a conservative PE band of 3x-4x for FY11-12 for a
targeted price of Rs. 126.
Concerns
Fluctuating raw material prices (cotton) may impact the
operating level margins.
The Indus cotton industry was well developed and some methods used in cotton spinning and fabrication continued to be used until the modern Industrialization of India.
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