Nandan Denim LtdQ4 FY17Textiles & Apparels

Nandan Denim Ltd

Q4 FY17 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 3

Fundraise

Yes

Order

N/A

Capex

Yes

2 of 4 growth signals are positive.

Full analysis

Revenue guidance

Category 3

→Denim demand growth is somewhat restrained; Domestic Denim volumes grew around 3.5% year-on-year, with realizations up by about 8-11%. (Page 5, 8, 9)
→Overall top-line growth is driven by moving up the value chain and adding volume in value-added segments like Shirting and branded fabrics. (Page 5, 9)
→Exports form about 10%, with a strategy to increase share in value-added segments to sustain growth amid subdued overall demand. (Page 13, 14)
→Shirting volumes and capacity are increasing, expected to double over next few years, with stable to improving EBITDA margins on better realizations. (Page 6, 8)
→Future volume growth expected around 6%-7% for Denim in FY17, driven by capacity additions and selective segment focus, though margin pressure persists. (Page 8)
→Management is optimistic for medium-term growth driven by capacity ramp-up, product mix improvement, and realignment toward value-added products. (Pages 9, 14)

Margin guidance

Category 3

→Earnings and EBITDA margins are improving, with EBITDA expanding by 101 bps to 16.7% for 9 months FY16, and PAT margin expanding by 96 bps to 5.4%.
→Q3 FY16 saw gross margin expand by 100 bps and total revenue growth by 3.5% year-on-year.
→Profitability is expected to improve due to the ramp-up of value-added product segments like Denim and Shirting.
→There is a focus on moving up the value chain, with nomination and branded segments contributing to higher margins.
→Working capital margins are expected to remain stable or improve due to close relationship with brands and better inventory management.
→Planned capacity expansions (e.g., Shirting capacity to 124 million meters) are expected to support future revenue growth.
→EPS growth is likely aligned with margin expansion and increased volume sales, supported by operational efficiencies and cost control.
→Long-term growth is cautiously optimistic given industry cyclicality and raw material pricing challenges, but strategic steps are in place to improve margins and profits.

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Fundraise plans

Yes

→The company has raised Rs. 612 crore through a 70% debt-funded warrant issue (Page 4).
→The term loan is sourced from different banks, with total debt close to Rs. 320 crore as of December 31 (Page 7).
→The term loan has a cost of around base rate plus 100-150 bps, with TUF (Technology Upgradation Fund) benefits available (Page 7).
→Working capital loans are also being utilized, with specified repayment schedules (Page 7).
→The CAPEX of Rs. 400 crore planned is being partly funded with these debt instruments (Pages 6-7).
→State subsidies and benefits under TUF are aiding the borrowing cost and repayment schedules (Page 8).
→No specific mention of fresh equity fundraising beyond the warrant issue (Page 4).
→The Company intends to further improve its debt-equity ratio through this planned borrowing and investment (Page 7).

Order book

Based on the transcript excerpts on pages 13-14, the following points summarize the current/expected order book and pending orders for Nandan Denim Limited: - The Denim volumes have shown stable growth, with Q3 volume growing by 8%. - The company has a strategic focus on value-added segments, contributing to improved realization. - While specific quantitative details of pending orders are not explicitly mentioned, the company indicates a positive outlook with a steady flow of orders. - Expansion and capacity additions are aligned with expected demand growth, particularly in Denim and Shirting segments. - There is some discussion on export demand and mix; exports currently form about 10% of business but are expected to grow, indicating an increasing order pipeline. - The market's 8-year cycle and steady demand are motivating pursuit of larger scale and higher realization orders. Overall, the company appears optimistic about order flow and capacity utilization in the near term.

Capex plans

Yes

→CAPEX plan totals around Rs. 612 crores, including spinning, processing, and denim expansion.
→Rs. 250 crores is allocated for spinning capacity expansion (approx. 35,000 spindles).
→Processing capacity is being enhanced with additional finishing machines; total processing capacity near 124 million meters (approx. 70-80% utilization).
→Denim capacity to increase to about 124 tonnes per day, supporting FY17 growth.
→CAPEX includes backward integration initiatives and new processing project commissioning.
→Rs. 100-150 crores earmarked for denim capacity upgrades and diversification.
→Working capital loans and term loans (~Rs. 320-450 crores) are supporting the CAPEX.
→State and central government subsidies/incentives like TUF are being availed to reduce borrowing costs.
→Strategic focus on improving backward integration, technology upgrades, and expanding value-added segments (denim and shirting).

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