© Sumpoorna 2012
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Rising Star– Nahar Spinning Ltd. June 25, 2012
Recommendation Buy
Transaction Price Range Rs.49 - Rs.55
Target Rs.68
Time horizon 6 months
1-yr stock price movement (NSE)
Snapshot
CMP 52.45
Date 25-Jun-12
Beta 0.87
52-week High (Rs.) 92.90
52-week Low (Rs.) 45.00
Industry Textiles
FYE March
Adj. EPS (Rs.) -32.5
P/EPS ratio (x) -1.61
Cash EPS (Rs.) -9.1
P/ Cash EPS (x) -5.78
P/ BV ratio (x) 0.34
BV/ Share (Rs.) 152.15
M. Cap/ Sales (x) 0.11
Market Cap (Rs. Cr) 189.16
Dividend yield (%) 0
FV/ share (Rs.) 5
F&O Presence NO
Avg. Daily Trades (Rs. Cr.) 0.14
Bloomberg Ticker NSM IN
NSE Ticker NAHARSPING
BSE Ticker 500296
Return Comparison vis-à-vis Nifty
Particulars (%) 1m 3m 1yr
Nahar Spinning Ltd.
9.6% 4.7% -33.5%
Nifty 5.9% -0.7% -5.7%
Particulars (Rs. Cr.)
FY12 FY12
Q4 9m 12m
Net Sales 470.8 1,308.0 1,691.4
Net Profit 4.7 -27.2 -117.2
Cash Profit 26.2 37.2 -32.8
Profit (%) 1.0% -2.1% -6.9%
Adj. EPS (Rs.) 1.3 -7.5 -32.5
Share Holding Pattern
No. of shares: 36,065,303
Promoter holding (%): 64.02
Institutions (%): 1.86
Non-Institutions (%): 34.12
Free Float (%): 35.98
Business: Nahar Spinning Mills Limited (“Nahar Spinning” or “The Company”), with a capacity of
3,83,296 spindles and 1080 rotors, is the second largest player in domestic cotton yarn
industry and is the largest exporter of cotton yarn. It manufactures cotton, synthetic and
blended yarn. Nahar Spinning is also present in the readymade garments (“RMG”) space,
manufacture knitted and woolen garments. The company has eight weaving units with
seven locations in Punjab and one unit at Mandideep in Madhya Pradesh.
Investment Rationale:
Nahar Spinning along with its group company Nahar Industrial Ltd. is the largest buyer of
raw cotton which helps the company with greater bargaining power and hence, lower raw
material costs. Integrated operations, large scale of procurement, and an efficient
procurement strategy provide the company with greater degree of operational efficiencies.
The company’s revenue have been increasing at a CAGR of over 23 percent; further, we
expect the revenues to increase Rs.2,000 crore by March 31, 2013 (‘FY2012-13’ or ‘FY13’),
in line with previous trends; incremental revenues from the capacity expansion are also
expected to aid revenue growth in FY13. During FY12 the company reported a growth in
top-line of over Rs.300 crore as rupee depreciation has helped in increasing textile
exports. However, the company reported a net loss of Rs.117.20 crore on account of huge
inventories which were procured at previously prevailing higher cotton prices; further, the
company has reduced its inventory cycles to safeguard from fluctuations in raw material
prices.
The company’s share is quoting at a “Price/ Book value” (P/BV) of about 0.34 times and
“Market Cap/ Sales” of 0.11 times; these valuations seem quite attractive considering
Nahar Spinning’s integrated business model. Thus, aided by robust capacity expansions and healthy domestic & global consumption demand going forward. Further, in our view the down-side is captured in the current share price, without accounting for growth expectations from new capacity additions; hence, we strongly recommend a ‘BUY’ for the company’s stock. Business Outlook
Strength: o Secular growth in topline; the trend is likely to continue aided by increased
demand and capacity expansions o Supporting industry trends – growth in domestic demand and increased
export realizations due to weakening of the Indian Rupee. o Operational efficiencies aided by scale of operations and expertise in raw
material procurement. o The company’s reducing inventory cycles to help the company partially
offset raw material price volatility.
Risks: o Industry risks – high competition aided by low entry barriers o Limited ability to absorb price declines in cotton prices due to high
inventories o Concentration in product mix and clients to affect negatively in case of
reversal in the positive demand trend
*Annualized Investment rating scale: Buy (>15% returns); Add (5% <15% returns); Sell (<-5% returns)
45
55
65
75
85
95
© Sumpoorna 2012
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Rising Star– Nahar Spinning Ltd. June 25, 2012
Legal History & Structure:
Nahar Incorporated in 1980, Ludhiana-based Nahar Spinning is the flagship of the Nahar group of companies. Promoted by
Mr. Jawahar Lal Oswal, Nahar Spinning manufactures cotton, synthetic and blended yarn and cotton and woolen knitted
garments. The company went public in 1985, with a public issue of equity shares at par.
Group Companies: Nahar Industrial Enterprises Limited, Oswal Woolen Mills Limited (OWM), Nahar Investments and Holding
Limited
Management’s Growth Path:
Expansion Plans:
o With the opening of Global Trade company has taken effective steps to increase its exports Markets. Company continues to
make efforts to provide quality products at very competitive rates so that it can compete with International suppliers and
maintain a steady growth of exports. o The company additionally installed 37,200 spindles and 360 rotors in FY11. o On account of heavy losses incurred by the company in Q1FY12, the company is planning further efficiency and cost-
reduction measures.
Manufacturing capacities:
Installed Capacity Unit FY 09 FY 10 FY 11 Cotton/Synthetic Yarn Spindles 3,44,952 3,46,096 3,83,296
Rotors 720 720 1,080
Gas-Mercerizing MT 2,040 2,040 2,040
Actual Production Unit FY 09 FY 10 FY 11
Textile & Hosiery Garments Pcs 55,83,808 7,079,154 7,788,731 Cotton/Synthetic Yarn Kgs 6,25,56,321 6,1,855,507 60,235,337
Gas-Mercerizing Kgs 1,2,341,117 1,681,865 1,976,407 Dyeing & Processing Kgs 8,96,088 4,87,014 1,21,588
Markets:
o The company has an established position in the export markets, particularly in US, Brazil, China, Bangladesh, Egypt, and Korea
and has a status of “Star Trading House” for its cotton yarn exports. Its garments such as T-shirts are exported to reputed
international brands such as GAP, Arrow, Old Navy and Philips Van Heusen, amongst others.
o During FY12, the cotton yarn segment constituted 89 percent of total revenues in, of which maximum was earned through
exports to Brazil, China/Hong Kong, Bangladesh, Egypt and Korea. Majority of garment revenues is earned through exports to
GAP, Philippe Van-Heusen and CHAPS, in the US; which has resulted in high business concentration risk. Its dependence on few
clients reduces its bargaining power and limits its ability to pass on hikes in input prices.
Operations
o Nahar Industrial Enterprises and Nahar Spinning purchase their cotton on a combined basis, resulting in a higher bargaining
power and cost savings for the company. Majority of its cotton procurement takes place from October to April, which is the
cotton season in India. Nahar Spinning maintains an average cotton inventory of seven to eight months.
o The company has also forward integrated into the manufacturing of garments; thereby increasing the realization through value
additions.
o Nahar Spinning follows the strategy of exporting coarser counts (30s to 40s) to Bangladesh, Brazil and Korea, and selling finer
counts (60s to 80s) in the domestic market. Hence, Nahar Spinning’s domestic realizations are higher than that from the export
markets. The type of counts sold depends on the customer’s requirements.
© Sumpoorna 2012
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Rising Star– Nahar Spinning Ltd. June 25, 2012
Segmental Performance:
Segmental Revenue (Rs.crore)
Quarter ended Year ended
Mar'12 Dec'11 Sept'11 Mar'11 Mar'12 Mar'11
Yarn 448.52 390.42 374.30 331.95 1,583.11 1,273.20
Garments 45.70 56.77 52.02 44.86 191.28 209.77
Total 494.22 447.19 426.33 376.82 1,774.39 1,482.97
Less: Inter segment sales 2.34 1.80 1.88 20.93 82.97 94.22
Total 470.79 429.14 407.47 355.88 1,691.42 1,388.75
Segment PBIT
Yarn 25.67 -3.55 -4.36 49.38 -86.25 222.05
Garments 4.35 6.38 4.65 1.85 16.95 14.81
Total 30.03 33.32 0.28 51.23 -69.30 236.87
Less
Foreign exchange hedging 0.00 0.00 0.00 0.00 0.00 10.58
Finance Cost 27.19 25.52 26.16 16.62 110.12 48.62
Unallocable Expenses -4.11 -0.84 -0.40 -0.93 -5.97 -0.27
PBT 6.95 -21.34 -25.48 35.54 -173.44 177.93
Notes:
The majority of the loss earned by the company during FY12 is attributable to the quarter ended June 30, 2011; due to inventories which
were procured at previously prevailing higher cotton prices; further, the company has reduced its inventory cycles to safeguard from
fluctuations in raw material prices.
Contribution to Top line (FY 12):
Geographical Revenue Breakup:
Notes:
For FY13, we do not see any major shift in contribution of export and domestic business. Further, portion of sales from the RMG segment
is likely to be in line with FY12.
Where a rupee is spent (Standalone data; FY 12):
Yarn89%
Garments11%
Domestic70%
Exports30%
Raw Materials69%
Power11%Employee Cost
7%
Other13%
© Sumpoorna 2012
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Rising Star– Nahar Spinning Ltd. June 25, 2012
Financial Performance (Standalone Basis):
Income Statement (Rs. Cr.)
FY 12 FY 11 FY 10 FY 09 Growth Mar'12 Dec '11 Sep '11 June '11 Mar '11
Annual Annual Annual Annual 08 - '11 3 months 3 months 3 months 3 months 3 months
Net Sales 1691.42 1391.52 1110.47 1000.38 16.89% 470.80 429.76 407.47 385.43 355.89
Growth 21.55% 25.31% 11.00% 9.71% 9.55% 5.47% 5.72% 8.30% -9.54%
Total Income 1705.85 1406.22 1120.82 1007.10 16.87% 477.55 431.95 408.91 387.44 360.19
Growth 21.31% 25.46% 11.29% 9.41% 10.56% 5.63% 5.54% 7.57% -9.41%
Expenses 1684.73 1106.29 925.32 914.67 24.41% 421.91 405.48 387.66 470.15 289.67
Growth 52.29% 19.56% 1.16% 24.61% 4.05% 4.60% -17.55% 62.31% -1.96%
EBITDA 11.80 299.92 195.51 92.43 4.61% 55.64 26.47 21.24 -82.70 70.52
Growth -96.07% 53.41% 111.52% -50.43% 110.20% 24.62% -125.68% -217.27% -30.96%
Int. & Fin. Charges 110.12 52.21 45.04 41.39 57.24% 27.20 25.49 26.17 30.81 16.62
Growth 110.92% 15.92% 8.81% 93.33% 6.71% -2.60% -15.06% 85.38% 64.39%
Depreciation 84.85 69.78 69.86 76.11 4.76% 21.49 22.33 20.56 20.07 18.35
Growth 21.60% -0.12% -8.21% 5.75% -3.76% 8.61% 2.44% 9.37% 2.23%
PBT -173.44 177.93 80.61 -25.08 -156.28% 6.96 -21.35 -25.48 -133.58 35.55
Growth -197.48% 120.74% -421.44% -126.95% -132.60% -16.21% -80.93% -475.75% -52.02%
PAT -117.20 119.73 53.49 -16.63 -155.40% 4.67 -14.60 -17.23 -90.05 24.91
Growth -197.89% 123.82% -421.65% -125.87% -131.99% -15.26% -80.87% -461.50% -52.59%
Cash Profit -32.76 189.51 123.35 59.48 -3.16% 26.16 7.73 3.33 -69.98 43.26
Growth -117.29% 53.63% 107.38% -56.35% 238.42% 132.13% -104.76% -261.77% -38.63%
Common-Size Statement
(% of Net Sales)
FY 12 FY 11 FY 10 FY 09
Cash Flow Statement (Rs. Cr.)
FY 11 FY 10 FY 09 FY 08
Annual Annual Annual Annual
Annual Annual Annual Annual
Expenses 99.6% 79.5% 83.3% 91.4%
PBT 188.52 80.61 -25.08 19.84
Int. & Fin. Charges 6.51% 3.75% 4.06% 4.14%
Adjustments -30.04 36.99 136.69 52.94
Depreciation 5.02% 5.01% 6.29% 7.61%
Operating Cash Flow 158.48 117.60 111.61 72.78
Cash Profit -1.94% 13.62% 11.11% 5.95%
Financing Cash Flow 47.72 -35.28 -73.42 80.13
EBITDA 0.70% 21.55% 17.61% 9.24%
Investing Cash Flow -213.35 -73.42 -39.21 -148.07
Capital Employed 99.59% 143.83% 127.02% 114.78%
Free Cash Flow 57.35 80.04 -64.76 -47.86
Enterprise Value 10.00% 120.50% 100.20% 71.52%
Net Cash Flow -7.15 8.90 -1.02 4.85
Market Capitalization 10% 25.32% 24.76% 8.40%
Closing Balance 11.12 18.26 9.36 10.38
Key Ratios
Mar '12 Dec '11 Sep '11 June'11
Balance Sheet (Rs. Cr.)
FY 12 FY 11 FY 10 FY 09
3 months 3 months 3 months 3 months
Annual Annual Annual Annual
Interest Coverage (x) 2.05 1.04 0.81 -2.68
Equity Capital 18.05 18.05 18.05 18.05
PBT Margin (%) 1.47% -4.94% -6.24% -34.48%
Reserves 530.71 647.91 536.57 489.39
PAT Margin (%) 0.99% -3.38% -4.22% -23.24%
Net worth 548.76 665.97 554.62 507.44
ROE (%) 20.28% -63.40% -74.82% -391.01%
Market Capitalization 176.36 352.36 275.00 84.03
ROCE (%) 3.01% 0.31% 0.08% -16.04%
Debt 1135.69 1335.50 855.92 640.76
EPS (Rs.) 1.30 -4.05 -4.78 -24.97
Payable within 1 yr. N/A 62.83 67.89 0.00
Capital Employed 1684.45 2001.46 1410.54 1148.20
Highlights FY 12 FY 11 FY 10 FY 09
Annual Annual Annual Annual
Gross Block N/A 1536.79 1376.49 1324.80
Interest Coverage (x) -1.06 4.41 2.79 0.39
Less: Depreciation N/A 785.50 729.37 676.06
PBT Margin (%) -10.25% 12.79% 7.26% -2.51%
Net Block N/A 751.29 647.12 648.75
PAT Margin (%) -6.87% 8.51% 4.77% -1.65%
Capital WIP N/A 86.50 41.18 23.90
ROE (%) -21.36% 17.98% 9.64% -3.28%
ROCE (%) -3.75% 13.49% 9.82% 1.30%
Investments 8.25 14.09 10.95 17.02
EPS (Rs.) -32.50 33.20 14.83 -4.61
Debtors 381.78 372.30 245.41 237.16
Price/ EPS (x) -1.49 2.94 5.14 0.00
Cash & Bank balance 11.77 11.12 18.26 9.36
CEPS -9.08 52.55 34.20 16.49
Loans & Advances 116.59 206.88 134.02 114.27
Price/ CEPS (x) -5.34 1.86 2.23 1.41
Other Current Assets 0.00 0.00 0.00 0.00
BV/ Share 152.15 184.65 153.78 140.69
Total Current Assets 955.29 1395.56 886.17 562.52
Price/ BV (x) 0.32 0.53 0.50 0.17
Total Current Liabilities 917.23 189.29 119.42 58.58
M. Cap/ Sales (x) 0.10 0.25 0.25 0.08
Net Current Assets 38.06 1206.27 766.75 503.94
Debt/ Equity (x) 2.06 2.01 1.54 1.26
Dividend Yield (%) 0.00% 2.05% 1.97% 2.15%
Contingent Liabilities N/A 297.15 153.25 214.97
© Sumpoorna 2012
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Rising Star– Nahar Spinning Ltd. June 25, 2012
Financial Notes:
o Estimated amount of Contracts remaining to be executed on capital account, net of advances Rs.16034.73 Lacs in FY 11.
o Foreign exchange hedging contracts which were under dispute with ICICI Bank Ltd. have been settled during the year.
Accordingly hedging loss of Rs.1058.46 Lacs has been paid during the year. As reserve created to meet out such liability is no
more required, hence the same has been written back.
o Assets below Rs. 5000 are depreciated at rate of 100 percent.
o In the opinion of the board, the value of Current Assets, Loans and Advances have a value in the ordinary course of business at
least equal to that stated in the balance sheet except in case of those shown as doubtful. No provision has been made for
doubtful debts.
Investment rating scale: Buy (>15% returns);
Add (5% <15% returns); Sell (<-5% returns)
Source:
Sumpoorna Research, Company website and other publicly available data
Document prepared by:
Ishu Mann Nitesh Aggarwala
For further information, please contact
Sumpoorna Global Markets & Economics Research
Phone:
+91 120 4505200
Email: [email protected]
url:
www.sumpoornaonline.com
Note: The information and opinions in this report have been prepared by Sumpoorna and are
subject to change without any notice. Please contact Sumpoorna for more
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investment positions in the investment vehicles recommended in this report.
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