This Small Cap Textiles Stock Grew 282.92% In 3 Yrs, Buy For 41% Return, Says ICICI Direct

ICICI Direct has placed a "buy" on Nitin Spinners Ltd. (NSL) with a target price of Rs. 290 per share. Given the brokerage firm's estimated target price for the stock, the stock is likely to jump 41% over the year. It is a Small cap company that operates in the Textiles sector, having a market capitalisation of Rs 1,160.38 crore.

Stock Outlook & Returns

The current market price (CMP) of the stock of NSL is Rs 206.10 apiece on NSE. The stock recorded its 52-week high on 8 February 2022 at Rs 345 apiece, whereas, it recorded its 52 week low on 20 June 2022 at Rs 876.95 apiece. The company has delivered an ROE of 37.23% in the year ending 31 March 2022.

The stock has performed well over the past 3 years as it has given 282.93% multibagger return. In the past 5 years, it gave 75.14% positive returns. However, it has fallen 25.16% in the past one year. In 1 and 3 months, it has fallen 4.6% and 25.16%. 

Historical Financial Performance

NSL's revenues have grown at a CAGR of 20% over FY12-22. The quality of revenue growth is balanced with volumes increasing at a CAGR of 13% while realisation has grown by 7% over the period.

Exports, which contribute 65-70% of revenues, have grown 6.5x (21% CAGR) during FY12-22. The yarn segment mainly caters to exports whereas the fabrics division is more inclined towards the domestic market.

Vertically integrated business model with 95%+ of yarn requirement for fabric division being met in-house. Captive consumption of yarn increased from 8% in FY12 to 24% in FY22. Yarn segment recorded 18% revenue CAGR in FY12-22 whereas fabric division reported robust growth of 31% (on a favourable base) during the same period.

Over the last decade, NSL maintained EBITDA margins in range of 15-17%.

ICICI Direct Recommends Buy Stock With a Target Price Of Rs 290

Consistent improvement in financial performance of NSL in spite of cyclical nature of textile industry signifies NSL's ability of optimum asset utilisation leading to sustainable profit growth. In line with its superior fundamental performance, the stock price has grown at 15% CAGR over last five years. "We believe that NSL, with its presence across textile value chain (yarn to fabric) is well poised to capture the export opportunity in global textile trade," the brokerage has said.

It added, "We initiate coverage under I-Direct Nano format with a BUY rating. We value NSL at Rs 290 i.e. 6.5x FY24E EPS of Rs 44.5."

Key triggers for future price performance

The company has demonstrated ability to effectively sweat its assets and maintain average asset utilisation of 85%+, which has led to outperformance in terms of revenue growth over the last decade.

Capacity expansion across segments to drive revenue growth. NSL's planned capex of | 900 crore can generate incremental revenue of ~ | 1100 crore (peak revenue of | 3500 crore).

Government initiatives like signing of FTAs with multiple countries, stability in export incentive policy to provide opportunity for Indian exporters across textile value chain to gain market share in global textile trade.

ICICI Direct said, "We expect NSL to generate superior RoCE of ~16% in FY25E (vs. average RoCE: 10-12%) and, in turn, lead to higher EVA creation."

About the company

Nitin Spinners (NSL) has graduated from a small pure spinning company to a company with a sizeable presence in India's yarn market (3 lakh+ spindles). Forward integration into knitted and finished woven fabrics (~ 25% of revenues) in its product portfolio, which yields more superior margins than spinning has fortified its presence across the textile value chain.

NSL invested in capacity building over the last decade, more than quadrupled its spinning capacities and forward integrated with the addition of fabric capacities. The company has been able to sweat its assets effectively and has maintained average utilisation of 85%+.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.