indian textile and nahar spinning

8/3/2019 Indian Textile and Nahar Spinning

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INDIAN TEXTILE INDUSTRY

The textile industry occupies a unique place in our country. One of the earliest to

come into

existence in India, it accounts for 14% of the total Industrial production, contributes tonearly 20% of the total exports. Being the largest foreign exchange earner,

accounting for

more than 5 per cent of GDP and providing direct employment to 38 million people,

primarily the weaker sections, it is the second most important sector only after

agriculture.

The Indian textile industry is one of the largest in the world with a massive raw

material and textiles manufacturing base. Our economy is largely dependent on the

textile manufacturing and trade in addition to other major industries. About 27% ofthe foreign exchange earnings are on account of export of textiles and clothing

alone. Around 8% of the total excise revenue collection is contributed by the textile

industry. So much so, the textile industry accounts for as large as 21% of the total

employment generated in the economy. They include cotton and jute growers,

artisans and weavers who are engaged in the organised as well as decentralised

and household sectors spread across the entire country.

Global textile industry stands at US$ 4,395 bn and the total global trade for textile

and clothing is of US$ 360 bn. The Indian textile industry is expected to be at US$ 36

bn, which makes 27% of total foreign exchange earned by India. Out of this theexport from textile is US bn. The Indian textile industry at global level has many

products as cotton yarn and fabrics, synthetic yarns, man-made yarn, man-made

fabrics, wool and silk fabrics and variety of garments.

For the period of three decades after independence there has been seenconsiderable growth in the Indian textile industry but the next decade has seenconsiderable growth. Moreover with the Economic Policy of 1991 and the TextilePolicy of 1985, the liberalization of trade and economy came into existence that hasgiven boost to the textile industry. So the growth in fourth and fifth decade is

immense. Also India has the huge manufacturing base for the textile industry andimmense production of raw material. In this Cotton textile is the base of Indiantextile industry. Cottons share in this industry is 60% whereas other manmadefibers are at 25%.

Textile and clothing exports account for one-third of the total value of exports fromthe country. There are 1,227 textile mills with a spinning capacity of about 29 millionspindles. While yarn is mostly produced in the mills, fabrics are produced in thepower loom and handloom sectors as well. The Indian textile industry continues tobe predominantly based on cotton, with about 65% of raw materials consumed beingcotton. The yearly output of cotton cloth was about 12.8 billion m (about 42 billion ft).

The manufacture of jute products (1.1 million metric tons) ranks next in importance tocotton weaving. They include cotton and jute growers, artisans and weavers who are


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engaged in the organised as well as decentralised and household sectors spreadacross the entire country.

43% of the sample companies are engaged in only manufacturing activity,and 57% are in manufacturing as well as trading

Approximately 37% of the companies engaged only in manufacturing haveinvested more than Rs 10 mn but less than Rs 50 mn in plant andmachineries, 12% have invested Rs 500 mn to Rs 1000 mn

23% of the companies engaged in manufacturing as well as trading activityhave invested Rs 10 mn 50 mn in plant and machinery

73% of the sample textile companies are operating in the cotton sub segment. Approximately 8% companiesdeal in the manmade segment and 11% of the companies deal in blended segment.

6% of companies deal in the silk sub segment. 35% of the textile companiesoperating in cotton segment generate 100% revenue from exports.


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40% of the sample textile companies are utilising 100% of their installedcapacity. Another 46% of the companies are utilising more than 60% theirinstalled capacity. 48% of companies are working in one shift only

22% of the companies have shown revenue growth up to 30% in the last twoyears. 9% of the companies have shown revenue growth of more than 30%

but less than 100% 39% of the companies that have their plants located at Bhiwandi, Ambernath

and Dombivli area normally operate in single or at most double shifts. 11% ofthe companies are situated in Tarapur area. 44% of the companies have theirplants in the Mumbai area

50% of the sample companies are private limited, 10% are public limited, 26%are partnerships and 14% are proprietary firms

40% of the private limited companies are in the turnover bracket of Rs 40 mn 100 mn. About 22% of the private limited companies are in the turnoverbracket of Rs 100 mn 250 mn


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Growth in the industry

Percentage Growth in TextilesProducts 2005-06 2006-07 2007-08 2008-09 2009-101. CottonTextiles

8.5 14.8 4.3 -1.9 5.5

2. Wool, Silk &MMF Textiles

0 7.8 4.8 0 8.2

3. TextileProducts

(Including

Garment)

16.3 11.5 3.7 5.8 8.5

4. VegetableFibber Textiles

(Expect Cotton)

0.5 -15.8 33.1 -10.0 -24.4

Total TextileSection

(1 + 2 + 3 + 4)

6.7 7.0 7.5 0.2 3.7

Textile Exports Statistics

Financial Year Textile ExportUS$ Millions

Total Exports US$Millions

Percentage ofTextile Exports

2004-05 14026.72 83535.95 16.79%2005-06 17520.07 103090.53 16.99%2006-07 19146.04 126262.68 15.16%2007-08 19558.53 143567.86 13.62%2008-09 18519.96 153018.22 12.10%

2009-10 22418.00 178751.43 12.54%


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Structure Of Indias Textile Industry

Unlike other major textile-producing countries, Indias textile industry is comprised

mostly of small-scale, non-integrated spinning, weaving, finishing, and apparel-

making enterprises. This unique industry structure is primarily a legacy ofgovernment policies that have promoted labour-intensive, small-scale operations and

discriminated against larger scale firms.Composite Mills:- Relatively large-scale mills that integrate spinning, weaving and,

sometimes, fabric finishing are common in other major textile-producing countries. In

India, however, these types of mills now account for about only 3 percent of output in

the textile sector. About 276 composite mills are now operating in India, most owned

by the public sector and many deemed financially sick.

Spinning: - Spinning is the process of converting cotton or manmade fiber into yarn

to be used for weaving and knitting. Largely due to deregulation beginning in the

mid-1980s, spinning is the most consolidated and technically efficient sector in

Indias textile industry. Average plant size remains small, however, and technology

outdated, relative to other major producers. Indias spinning sector consisted of

about 1,146 small-scale independent firms and 1,599 larger scale independent units.

Weaving and Knitting. Weaving and knitting converts cotton, manmade, or blended

yarns into woven or knitted fabrics. Indias weaving and knitting sector remains

highly fragmented, small-scale, and labour-intensive. This sector consists of about

3.9 million handlooms, 380,000 power loom enterprises that operate about 1.7

million looms, and just 137,000 looms in the various composite mills. Power looms

are small firms, with an average loom capacity of four to five owned by independent

entrepreneurs or weavers. Modern shuttle less looms account for less than 1 percent

of loom capacity.

Fabric Finishing:- Fabric finishing (also referred to as processing), which includes

dyeing, printing, and other cloth preparation prior to the manufacture of clothing, isalso dominated by a large number of independent, small scale enterprises. Overall,

about 2,300 processors are operating in India, including about 2,100 independent

units and 200 units that are integrated with spinning, weaving, or knitting units.

Clothing:- Apparel is produced by about 77,000 small-scale units classified as

domestic manufacturers, manufacturer exporters, and fabricators (subcontractors).

Indian Spinning Industry


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India Spinning Industry has gone from strength to strength since a very long timenow as it was the hub of cotton manufacturing. Cotton is not only consumed to thehighest extent in India but it has also become one of the most profitable textiles in

the export industry. Spinning in India can be classified into 2 categories: mediumand long staple. But there was a shortfall in the 'extra-long' category that continuedfor many years. There was a massive downfall in the cotton spinning in India during2004-2005. The production rate of cotton was about 4 lakh bales that was less by 5lakh bales from the required rate which was 9 lakh bales. Mr. P. D. Patodia, theChairman of the Standing Committee on Cotton, CITI-CDRA said that themanufacturing of cotton will rise to 11-12 lakh bales in 2010.

The present downfall in the cotton production has witnessed a 50% increase in theprice of Indian varieties of ELS, which is detrimental for the spinning industry inIndia. Spinning mills require domestic accessibility of ELS cotton in increased

quantity and of better fiber qualities.

To survive this downfall in the cotton trade which is a highly profitable textile in theIndia Spinning Industry, CITI-CDRA is conducting a conference with variousresearch organizations such as CICR (Nagpur), JNKVV (Khandwa), UAS(Dharwad), and Regional Textile Mills' Association in R&D activities. It conducted adiscussion pertaining to the development of new varieties of seeds and adopting theadvanced procedure of cultivation which will add to the profit in the cotton textilesector of the spinning industry. The most important and efficient step towards theresurgence of cotton manufacturing would be to develop the ELS varieties withlesser duration crops and yield to cost-effectiveness and consistency in cultivation.This will not only motivate the farmers but will also make them stick to the desiredsector of cotton crop.

The yarn spinning industry covers almost 25 percent of the total industrial productionof one of the world's 10 largest economies. Trends are reviewed every year inaccordance with the need and fashion. An elaborate and detailed assessment ismade on various sectors of the yarn spinning such as, production, consumption, andmaterials. The legislative and the political consequences are also reviewed at thesame time. In addition to it, other areas that are being reviewed in the yarn spinningsector are exports, imports, prices, advertising, and sales promotion patterns.


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Major Players

Major Textile Players:


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Following are some major players in the field of Indian Textile Industry.

Arvind Mills: Arvind Mills is one of the major and fully vertically integratedcomposite mills player in India. It has large production in denim, shirtingand knitted garments. It is now adding value by manufacturing denimapparel. Its sales are around US$ 300 million.

Raymond: Raymonds has the large, diversified integrated businessmodel, which is spread across the value chain from yarn to retail. It isspecialized in Diversified woollen textiles. It already supplies to some USretailers.

Reliance Textiles: Reliance Textiles is one of the major Textile Companiesthat is in the business of fully integrated manmade fiber. It has capacity ofmore than 6 million tonnes per year. It has joint venture partners like,DuPont, Stone & Webster, Sinco (Italy) etc.

Vardhaman Spinning: Vardhman deals in spinning, weaving andprocessing segment of the industry. It is an approved supplier to globalretailers like Gap, Target and Tommy Hilfiger. Its sales are little over US$

120 millions

GOVERNMENT INITIATIVES

With a view to raise India's share in the global textiles trade to 10 per cent by 2015


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(from the current 3 per cent), the Ministry of Textiles proposes 50 new textile parks.

Out of the 50, 30 have been already sanctioned by the government (with a cost of

US$ 710 million). Set up under the Scheme for Integrated Textile Parks (SITP), this

initiative will not only make the industry cost competitive, but will also enhance

manufacturing capacity in the sector.Apart from the above, a series of progressive measures have been planned tostrengthen the textile sector in India: Technology Mission on Cotton (TMC)

Technology Upgradation fund Scheme (TUFS)

Setting up of Apparel Training and Design Centres (ATDCs)

100 per cent Foreign Direct Investment (FDI) in the textile sector under automatic

route.

Setting up two design centres in Gujarat in collaboration with National Institute ofFashion Technology.

Setting up a Handloom Plaza in Ahmedabad with an estimated investment of US$24.6 million.

Revival plans of the mills run by National Textiles Corporation (NTC). Already, forthe revival of 18 textile mills, US$ 2.21 million worth of machineries has beenordered for the upgradation and modernisation of these mills.

Scrapping of the Textile Committee cess being collected from the textile and textilemachinery industry under the Textile Committee Act.

In a further bid to bolster the envisaged annual growth rate of 11 per cent, theGovernment will also increase the TUF (Technology Upgradation Fund) from US$124 million in 2006-07 to US$ 211 million in 2007-08.

The Government of India has also included new schemes in the Annual Plan for

2007-08 to provide a boost to the textile sector. These include schemes for ForeignInvestment Promotion to attract foreign direct investment in textiles, clothing andmachinery; Brand Promotion on Public-Private Partnership (PPP)) approach todevelop global acceptability of Indian apparel brands; Trade Facilitation Centres forIndian image branding; Fashion Hubs for creation of permanent market place for thebenefit of Indian fashion industry; Common Compliance Code to encourageacceptability among apparel buyers and Training Centres for Human ResourceDevelopment on Public Private Partnership (PPP) mode.

Current Scenario


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Cotton Scenario: Revised Indian Crop Estimate for 2010-11 Releasedon Thursday, January 6th, 2011, Indias Cotton Advisory Board (CAB) met inMumbai and released its revised cotton production estimate for the 2010-11 season.Indias cotton production is estimated to be 32.9 million bales (170 kg each). This is400,000 bales higher than the boards August estimate of 32.5 million bales. All

India yield is expected to be averaging about 505.92 kgs/ha.

The Central Zone, which is the largest cotton producing region, comprising of thestates of Gujarat, Maharashtra and Madhya Pradesh is expected to produce 21.3million bales of 170 kg each. The Southern Zone which comprises of the states ofAndhra Pradesh, Karnataka and Tamil Nadu is expected to produce 7.2 millionbales.

The total acreage in India will be 11.05 million hectares. The central zone isestimated at 7.25 million hectares and the southern zone is estimated at 2.39 millionhectares. Gujarat, will have the highest yield per hectare and is estimated to be 665

kgs/ha.

With regard to the supply and demand for the 2010-11 seasons, only provisionalestimates are available. The total supply during the 2010-11 seasons will be 37.45million bales. The opening stock for this season will be 4.05 million bales. The totaldemand during the 2010-11 seasons will be 33 million bales which leave a closingsurplus stock of 4.45 million bales. Organized textile mill consumption is expected tobe 23.05 million bales.

The Cotton Association of India has estimated the production to be 34.75 millionbales of 170 kg each, which is higher than the CABs latest estimate. The supplyaccording to CAI will be 40.9 million bales and the demand will be 26.6 million baleswhich will leave a surplus of 14.3 million bales.

Indian Spinning Industry Body Estimates Lower Cotton ProductionCoimbatore, India based The Southern India Mills Association (SIMA) with over 400members has recently estimated that the 2010-11 season crop will be less by 2million bales (170 kg each). According to the recent estimate by SIMA, Indias cottoncrop will be 30.9 million bales which is 2 million less than the recent estimate by theCotton Advisory Board (CAB) of India.

The Cotton Advisory Board on January 6th estimated the Cotton production for the2010-11 season to be 32.9 million bales (170 kg each) and the total domesticconsumption to be 27.5 million bales.

Most recently, the Textile Minister of India, Mr. Dayanidhi Maran, while laying thefoundation stone for a mega weaving complex in the Southern State of Tamilnaduhas emphasized that the cotton export limit should be maintained at 5.5 millionbales, which should bring down the cotton prices in the domestic mark

The Road Ahead
http://www.commodityonline.com/commodity-market/commodity-prices/cottonhttp://www.commodityonline.com/commodity-market/commodity-prices/cotton


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India's T&C industry has great potential, and is one of the mainstays of the countryseconomy. The industry has enormous opportunities for domestic as well as

international investors given its consistent growth performance, abundant cheapskilled manpower and growing domestic demand. With the abolition of quotas, Indiahas surged ahead of other countries and positioned itself as a value-addedmanufacturer with a varied material base, an educated and English-speaking classof executives with high product development and design orientation.

On the global front, India is set to become an even bigger participant, both as aconsumer and as a producer. The country offers an attractive combination of a largedomestic market, and a base for low cost production. The industry has gained astrong position in cotton based products, especially in the readymade garments andhome furnishings segment, which are expected to be the key drivers of growth forthe industry.

Besides this, the T&C industry is contributing towards promoting inclusive growth. Ithas been contributing to broad based socio-economic development by providingemployment opportunities at local level.

The government envisions building state-of-the-art production capacities andachieving a preeminent global standing in the textile sector by 2020, which includesmanufacture and export of all types of textiles.

NAHAR SPINNING MILLS LIMITED


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Spinning a web of pure enchantment seems to be the aim and objective of NAHARSPINNING, reckoned to be the blue-chip in the NAHAR firmament.

Starting out as a tiny worsted spinning & hosiery unit in Ludhiana, it wasincorporated as Private Limited Company in December 1980 & became a Public

Limited company in 1983. The steady growth in manufacture & export ofwoollen/cotton hosiery, knitwears & woollen textiles enabled the company to earnthe recognition as an Export House followed by a Recognized Trading House bythe Government of India in a short span of 8 years. Its turbo-charged performancebrought them a host of fresh laurels they include the National Export Trophy and"Gold Trophy" by the Apparel Export Promotion Council and "Gold Trophy" by'Cotton Textile Export Promotion Council' in recognition of its excellent Exportperformance.

In 1992, as a measure of backward integration, the company diversified into theSpinning Industry. Today it has an installed spindlage of 346096 spindles.

Simultaneously the company also established an ultra modern facility tomanufacture 12.5 Million pieces of Hosiery Garments. Today Nahar Spinnings T-shirts are being exported to reputed international brands such as GAP, Arrow,Chaps, Old Navy, Pierre Cardin, Philips Van Heusen, Izod, Quicksilver, PriceCostco etc.

As a measure of further value addition Nahar Spinning has put up a plant for themanufacture of fine count mercerized yarn & fabrics catering to both, the domestichosiery garment market as well as export markets.

To make use of the emerging opportunities on the Global Textile Scenario and alsoto have a focused business approach, the company went in for the Scheme ofDemerger and Arrangement to restructure its businesses. The Scheme wasapproved by the Honble Punjab & Haryana High Court vide its Order dt. 21stDecember, 2006. As per the scheme, companys Investment Activities standdemerged and transferred to Nahar Capital and Financial Services Limited. Thishas drawn a visible line between two segment i.e., One Industrial (Textile) businessand Secondly Investment and Financial Activities.

Further as per the scheme Textiles Business of Nahar Exports Limited stand

demerged and transferred to the company (post demerger of investment business)in accordance with the terms of the scheme. Thus upon implementation of theScheme the spindlage capacity of the company stand increased to 3.46 Lacksspindles.

The Company's mantra "World is our markets" is truly reflected in its operations.The Company is one of the largest integrated textile players in India. TheManagement vision coupled with company's inherent strength in terms of cost andquality has enabled the company to become the second largest Cotton Yarnmanufacturer in India.


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Regd. Office:

Nahar Tower, 373, Industrial Area-

A

Ludhiana-141 003.

Phone: +91-161-2600701-05,

2606977-80

Fax: +91-161-601956, 2222942Email:[email protected]

Works:

Industrial AreaA, Ludhiana, (Punjab)

Dhandari Kalan,

G.T.Road, Ludhiana (Punjab) Village

Simrai,

Mandideep, Distt. Raisin (M.P.) Village

Lalru, Distt. Patiala (Punjab) VillageJabalpur, Distt. Patiala (Punjab)
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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MANAGEMENT

Board of Directors:

Sh. Jawahar Lal Oswal (Chairman)

Sh. Dinesh Oswal (Managing Director)

Sh. Kamal Oswal

Sh. Dinesh Gogna

Sh. S.K. Sharma

Dr. (Mrs.) H.K. Bal

Sh. Amarjeet Singh

Dr. O.P. Sahni

Prof. K.S. Maini

Dr. Suresh Kumar Singla

Finance Controllers:

Sh. Anil Kumar Garg

Sh. P.K. Vashishth

Company Secretary:

Sh. Brij Sharma

Auditors:

M/s Gupta Vigg & Co.

Chartered Accountants

101, Kismat Complex, G.T. Road,

Miller Ganj, Ludhiana-141 003.


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Geographic mix of clients in the yarnsegment

Bangladesh is one of the major manufacturing destinations of garments and one ofthe largest importers of cotton yarn. However, few weavers in Bangladesh havebackward integrated to producing yarn from cotton and hence importing higherquantities of cotton.

Bangladesh has added 5.2 mn spindles between 2000 and 2008, which is only~20% of Indias (36.8 mn) spindleage capacity. Nahar Spinning is well positioned tocater to the growing demand in Bangladesh, given that it has established itspresence in that region over many years. However, if players in Bangladesh continueto backward integrate, Nahar Spinnings ability to shift focus to other countries andattract clients in new geographies will be key in maintaining export revenues.

Nahar Spinning follows the strategy of exporting coarser counts (30s to 40s) toBangladesh, Brazil and Korea, and selling finer counts (60s to 80s) in the domesticmarket. Hence, Nahar Spinnings domestic realisations are higher than that from theexport markets. The type of counts sold depend on the customers requirements.

In Bangladesh, clients demand a higher proportion of course counts as it is used tomake denim fabric and other cotton garments. Given the competition in the exportmarket, we believe the company has so far been able to export to Bangladesh due toits competitive pricing. The company has one of the lowest cotton procurementprices due to its large size. Hence, competitive pricing could be sustainable in the

medium term.


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FEW COMPETITORS


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Segment wise or Product wise performance

PERFORMANCE REVIEW

As per the disclosure requirements of Accounting Standard AS17 issued by the

Institute of Chartered Accountants of India, company's activities can be classified

under two segments namely "Yarn Segment" and "Garment Segment". The working

performance of each Segment which is as under:-

YARN SEGMENT

During the year under review, company has installed37200 spindles and 360 rotors

and thus company's spindlage capacity stand increased to 383296 spindles and

1080 rotors. The company's expansion plan of balance spindles is being

implemented as per schedule and is likely to be completed by Dec., 2011. On its

completion, company's spindlage capacity will increase to 4.36 lacks spindles and1080Rotors.

Yarn Segment performed exceedingly well during the year under review. The

recovery in the U.S., Europe and Asian economies coupled with higher export

realization enabled the Segment to achieve revenue of Rs. 1275.28 crores showing

an increase of 29.03% over the previous year. The financial performance too,

improved significantly and it earned a profit before interest and tax of Rs. 221.74

crores as against Rs. 95.88 Crores showing an impressive increase of 131.27% over

the previous year.

The segment could have further improved its performance had the Government not

imposed cap on the export of cotton yarn to 720 Million Kg. on 30th Nov., 2010, for

the financial year ending 31st March, 2011. Thus the Government put the Cotton

Yarn export under 'licence category' and because of restrictions company could not

export anything from 15th Jan., 2011 to mid March, with the result the stocks of

finished goods got piled up in the Mills.

Though the Indian Government lifted the restrictions and put the Cotton Yarn under

'Free list' category w.e.f. 1st April, 2011 but the export orders needs to be registered

with the Directorate General. This is hampering the free export of Cotton Yarn.


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GARMENT SEGMENT

During the year, the segment went through a tough phase due to unprecedented

price hike and volatility in the raw material prices. Inspite of the above, segment

improved its performance and achieved revenue of Rs. 210.47 crores showing an

impressive increase of10.08% over previous year. However the higher cotton prices,

stiff competition in the global markets and ever increasing labour and power cost

affected the realization and thus the company could earn only Rs. 14.64 crores as

against Rs. 22.43 Crores in the previous year.

OVERALL PERFORMANCECompany's performance has been excellent in the first nine months as is evident

from the excellent results achieved by the company during the period. The company

achieved an operating income of Rs. 1043.74 crores with a net profit of Rs.

105.40crores. Imposition of cap on export, resulted a severe blow to the Industry

having a long term ramifications. Because of export restrictions, company could not

export its products from 15th Jan., 2011 to mid March, 2011 which severely affected

its performance in the last quarter of the year under reference.

However looking at yearly performance, company put up a splendid performanceduring the year under review. The company achieved an operating income of Rs.

1391.52 crores (net) showing an increase of 25.31% over the previous year.

Likewise the exports at Rs. 975.09 crores have also shown an impressive increase

of Rs.33.36% over the previous year. On profitability front, company substantially

improved its performance and earned a pre-tax profit of Rs. 177.93 crores showing

an impressive increase of 120.28%. After providing for Income tax and deferred tax,

the company earned a net profit of Rs. 119.72 crores showing an impressive

increase of 123.82% over the previous year. After appropriation of profits as per

detail hereinabove, an amount of Rs. 122.07 crores has been transferred to General

Reserve thereby increasing Company's Reserves to Rs.647.91 crores as on 31st

March, 2011.

The company suffered a heavy loss of Rs. 133.57 crores because of the sudden

crash in the prices of raw cotton from Rs. 63,000/- per candy in September, 2010 to

Rs.34000/-per candy in June, 2011 because of pure speculative activity in cotton at

the commodity markets. The company purchased the cotton at the high prices during

the season and is currently stuck with the high cost cotton..

Management is putting whole heartedly all its efforts in cost reduction, quality

management, better product mix etc. so as to improve the efficiencies which in turnwill help the company in meeting the challenges ahead


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The quarterly performance for the june2011 was even though negative this was due

to increase in the cotton in previous year, since the price of cotton has decrease the

company will be benefited in the coming quarters.

DIVIDEND

Directors are pleased to recommend a dividend @40% (i.e. Rs.2.00 per equity share

of Rs.5/- each) on paid up equity share capital for the year ended 31st March, 2011.

The dividend, if approved at the forthcoming Annual General Meeting, will be paid

out of the profits of the company for the year under reference to all those

shareholders whose names shall appear in the Register of Members on 20th

September, 2011 or Register of beneficial owners, maintained by the Depositories as

at the close of 9th September, 2011.


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Risk and Concerns

Concentrated product mix-Nahar Spinning earns ~76% (as of FY10) of its revenues through the sale of cottonyarn. In the absence of a diversified product mix, a downturn in the cotton yarnsegment will adversely impact its financial health. For instance, the economicslowdown in FY09 impacted its financial performance; it reported a loss of Rs 166.3mn at the PAT level.

Volatile cotton prices-Price of cotton, the main raw material in the manufacturing of cotton yarn, isinherently volatile. Further, spinners generally find it difficult to pass on the increasein cotton prices as the downstream players such as weavers and garmentmanufacturers enjoy a higher bargaining power than spinners. Raw material forms~68% of the total operating costs for Nahar Spinning. Thus, the companys EBITDAmargins are susceptible to movement in cotton prices.

Exposed to currency fluctuations-Exports are expected to contribute about 70% of Nahar Spinnings revenues. Whilethe company hedges 50% of its total foreign exchange exposure through simpleforward contracts, any sharp appreciation in the rupee will impact the companys topand bottom lines.

Changes in regulatory policies-The government has capped cotton yarn exports to 720 mn kgs for the year 2010-11to protect the domestic weavers and garment manufacturers. Till date, 680 mn kgshave been already exported. If the cap on exports continues, Nahar Spinning willface huge competition as there are a number of smaller players vying to book their

export contracts before the quota is exhausted.


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Future Outlook

Nahar Spinning is in the process of adding 90,000 spindles (30,000 spindles each inthree of its manufacturing units) in a phased manner which is going to complete by inDEC 2011 as the project is going as per schedule . The combined capex of theentire expansion plan is ~Rs 3,500 mn, of which Rs 1,930 mn is funded throughTUFS loans at the rate of 6.6%.

The expanded capacity is expected to become operational in FY12. Post expansion,Nahar Spinning will have a total capacity of 440,000 spindles and 1080 rotors.

The expanded capacity will help Nahar Spinning better capitalise on the healthydemand prospects in the cotton yarn segment.


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Recommendation We would recommend BUY for this company. The expected growth of the company in coming year will be 13.85%

annually. Return on equity will be 14.58% on an average. Expected EPS will be Rs42.29/- in year 2014 from current Rs33.20/-. Even though the debt is increasing all the debt are secured debt, and CRISIL

have given AA and A!+ rating for the current debt. The government earliar kept the limit on the amount of export to the foreign

countries to maintain stability in Indian market, which is to removed by thegovernment in coming year.

Various help from the government through schemes like TUFS.

indian textile and nahar spinning

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