Business of Nitin Spinners Ltd.
Nitin Spinners was incorporated as a private ltd. company in 1992 in the state of Rajasthan and is in the business of manufacture of combed and carded cotton yarns which are used in apparels, undergarments, terry towels, denims, medical fabrics, furnishing fabrics and industrial fabrics. The company also has got knitting machines with the capacity of 2000 TPA (tones per annum) with a total of 15 knitting machines while the capacity of cotton yarn is 10000 TPA with a total of 27,216 spindles. The company proposes to expand capacity by adding 50,400 spindles and 12 knitting yarn machines as well as set up a captive power plant of 8.18 MW. Currently Nitin Spinning exports to 18-20 countries.
Financials
The topline of the company has grown consistently over the past few years. While Nitin Spinners clocked revenues of Rs.35.25 crores in the year 2000-01 it had clocked Rs.81.74 crores last year and has in fact clocked in Rs.49.67 crores in the first six months this year. This shows that the demand for the products is robust and the company is operating in a growing market. The bottomline or profit growth has not been as consistent as the revenue growth. This can primarily be attributed to large component of debt in the financial structure, which puts pressure on the net profits and eats away a major part of the profits. While Nitin Spinners clocked in a net profit of Rs.2.11 crores in the year 2000-01 last year it grew to only Rs.2.88 crores. The company so far in the six months this fiscal has already clocked in Rs.3 crores.
One must keep in mind that with the proposed expansion the company plans to take a debt of Rs.86 crores over and above the Rs.73.88 crores it already has on its books which will mean further pressure on the bottomline.
Conclusion
The company is offering its shares in the price band of Rs.18-Rs.21 and the offer starts on January 6 and ends on January 12.
While at the higher end the P/E multiple stands at 14 which is fairly decent the point to note here is that going forward in the next year the interest burden will be higher and the number of shares will also be greater which will push the EPS down and make the stock expensive. Also while this is a growing market the competition is intense and all in all these factors make the issue risky.
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