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 to nearly 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% of the 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 the export 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 seen considerable growth in the Indian textile industry but the next decade has seen considerable growth. Moreover with the Economic Policy of 1991 and the Textile Policy of 1985, the liberalization of trade and economy came into existence that has given 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 and immense production of raw material. In this Cotton textile is the base of Indian textile industry. Cottons share in this industry is 60% whereas other manmade fibers are at 25%. Textile and clothing exports account for one-third of the total value of exports from the country. There are 1,227 textile mills with a spinning capacity of about 29 million spindles. While yarn is mostly produced in the mills, fabrics are produced in the power loom and handloom sectors as well. The Indian textile industry continues to be predominantly based on cotton, with about 65% of raw materials consumed being cotton. 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 to cotton weaving. 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.

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 have invested more than Rs 10 mn but less than Rs 50 mn in plant and machineries, 12% have invested Rs 500 mn to Rs 1000 mn 23% of the companies engaged in manufacturing as well as trading activity have invested Rs 10 mn 50 mn in plant and machinery

companies deal 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 companies operating in cotton segment generate 100% revenue from exports.
73% of the sample textile companies are operating in the cotton sub segment. Approximately 8%

40% of the sample textile companies are utilising 100% of their installed capacity. Another 46% of the companies are utilising more than 60% their installed capacity. 48% of companies are working in one shift only 22% of the companies have shown revenue growth up to 30% in the last two years. 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% of the companies are situated in Tarapur area. 44% of the companies have their plants 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 turnover bracket of Rs 100 mn 250 mn

Growth in the industry

Percentage Growth in Textiles
Products 2005-06 8.5 2006-07 14.8 2007-08 4.3 2008-09 -1.9 2009-10 5.5

1. Cotton Textiles 2. Wool, Silk & MMF Textiles 3. Textile Products (Including Garment) 4. Vegetable Fibber Textiles (Expect Cotton) Total Textile Section (1 + 2 + 3 + 4)

0 16.3

7.8 11.5

4.8 3.7

0 5.8

8.2 8.5

0.5

-15.8

33.1

-10.0

-24.4

6.7

7.0

7.5

0.2

3.7

Textile Exports Statistics

Financial Year 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10

Textile Export US$ Millions 14026.72 17520.07 19146.04 19558.53 18519.96 22418.00

Total Exports US$ Millions 83535.95 103090.53 126262.68 143567.86 153018.22 178751.43

Percentage of Textile Exports 16.79% 16.99% 15.16% 13.62% 12.10% 12.54%

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 apparelmaking enterprises. This unique industry structure is primarily a legacy of government 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, is also 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

India Spinning Industry has gone from strength to strength since a very long time now as it was the hub of cotton manufacturing. Cotton is not only consumed to the highest 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: medium and long staple. But there was a shortfall in the 'extra-long' category that continued for many years. There was a massive downfall in the cotton spinning in India during 2004-2005. The production rate of cotton was about 4 lakh bales that was less by 5 lakh bales from the required rate which was 9 lakh bales. Mr. P. D. Patodia, the Chairman of the Standing Committee on Cotton, CITI-CDRA said that the manufacturing of cotton will rise to 11-12 lakh bales in 2010. The present downfall in the cotton production has witnessed a 50% increase in the price of Indian varieties of ELS, which is detrimental for the spinning industry in India. 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 the India Spinning Industry, CITI-CDRA is conducting a conference with various research organizations such as CICR (Nagpur), JNKVV (Khandwa), UAS (Dharwad), and Regional Textile Mills' Association in R&D activities. It conducted a discussion pertaining to the development of new varieties of seeds and adopting the advanced procedure of cultivation which will add to the profit in the cotton textile sector of the spinning industry. The most important and efficient step towards the resurgence of cotton manufacturing would be to develop the ELS varieties with lesser 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 desired sector of cotton crop. The yarn spinning industry covers almost 25 percent of the total industrial production of one of the world's 10 largest economies. Trends are reviewed every year in accordance with the need and fashion. An elaborate and detailed assessment is made on various sectors of the yarn spinning such as, production, consumption, and materials. The legislative and the political consequences are also reviewed at the same time. In addition to it, other areas that are being reviewed in the yarn spinning sector are exports, imports, prices, advertising, and sales promotion patterns.

Major Players

Major Textile Players:

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

Arvind Mills: Arvind Mills is one of the major and fully vertically integrated composite mills player in India. It has large production in denim, shirting and knitted garments. It is now adding value by manufacturing denim apparel. Its sales are around US$ 300 million. Raymond: Raymonds has the large, diversified integrated business model, which is spread across the value chain from yarn to retail. It is specialized in Diversified woollen textiles. It already supplies to some US retailers.

Reliance Textiles: Reliance Textiles is one of the major Textile Companies that is in the business of fully integrated manmade fiber. It has capacity of more 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 and processing segment of the industry. It is an approved supplier to global retailers 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

(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 to strengthen 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 of Fashion 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, for the revival of 18 textile mills, US$ 2.21 million worth of machineries has been ordered for the upgradation and modernisation of these mills. Scrapping of the Textile Committee cess being collected from the textile and textile machinery industry under the Textile Committee Act. In a further bid to bolster the envisaged annual growth rate of 11 per cent, the Government 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 Foreign Investment Promotion to attract foreign direct investment in textiles, clothing and machinery; Brand Promotion on Public-Private Partnership (PPP)) approach to develop global acceptability of Indian apparel brands; Trade Facilitation Centres for Indian image branding; Fashion Hubs for creation of permanent market place for the benefit of Indian fashion industry; Common Compliance Code to encourage acceptability among apparel buyers and Training Centres for Human Resource Development on Public Private Partnership (PPP) mode.

Current Scenario

Cotton Scenario: Revised Indian Crop Estimate for 2010-11 Released on Thursday, January 6th, 2011, Indias Cotton Advisory Board (CAB) met in Mumbai 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 is 400,000 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 the states of Gujarat, Maharashtra and Madhya Pradesh is expected to produce 21.3 million bales of 170 kg each. The Southern Zone which comprises of the states of Andhra Pradesh, Karnataka and Tamil Nadu is expected to produce 7.2 million bales. The total acreage in India will be 11.05 million hectares. The central zone is estimated at 7.25 million hectares and the southern zone is estimated at 2.39 million hectares. 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 provisional estimates are available. The total supply during the 2010-11 seasons will be 37.45 million bales. The opening stock for this season will be 4.05 million bales. The total demand during the 2010-11 seasons will be 33 million bales which leave a closing surplus stock of 4.45 million bales. Organized textile mill consumption is expected to be 23.05 million bales. The Cotton Association of India has estimated the production to be 34.75 million bales of 170 kg each, which is higher than the CABs latest estimate. The supply according to CAI will be 40.9 million bales and the demand will be 26.6 million bales which will leave a surplus of 14.3 million bales. Indian Spinning Industry Body Estimates Lower Cotton Production Coimbatore, India based The Southern India Mills Association (SIMA) with over 400 members has recently estimated that the 2010-11 season crop will be less by 2 million bales (170 kg each). According to the recent estimate by SIMA, Indias cotton crop will be 30.9 million bales which is 2 million less than the recent estimate by the Cotton Advisory Board (CAB) of India. The Cotton Advisory Board on January 6th estimated the Cotton production for the 2010-11 season to be 32.9 million bales (170 kg each) and the total domestic consumption to be 27.5 million bales. Most recently, the Textile Minister of India, Mr. Dayanidhi Maran, while laying the foundation stone for a mega weaving complex in the Southern State of Tamilnadu has emphasized that the cotton export limit should be maintained at 5.5 million bales, which should bring down the cotton prices in the domestic mark

The Road Ahead

India's T&C industry has great potential, and is one of the mainstays of the countrys economy. The industry has enormous opportunities for domestic as well as international investors given its consistent growth performance, abundant cheap skilled manpower and growing domestic demand. With the abolition of quotas, India has surged ahead of other countries and positioned itself as a value-added manufacturer with a varied material base, an educated and English-speaking class of executives with high product development and design orientation. On the global front, India is set to become an even bigger participant, both as a consumer and as a producer. The country offers an attractive combination of a large domestic market, and a base for low cost production. The industry has gained a strong position in cotton based products, especially in the readymade garments and home furnishings segment, which are expected to be the key drivers of growth for the industry. Besides this, the T&C industry is contributing towards promoting inclusive growth. It has been contributing to broad based socio-economic development by providing employment opportunities at local level. The government envisions building state-of-the-art production capacities and achieving a preeminent global standing in the textile sector by 2020, which includes manufacture and export of all types of textiles.

NAHAR SPINNING MILLS LIMITED

Spinning a web of pure enchantment seems to be the aim and objective of NAHAR SPINNING, reckoned to be the blue-chip in the NAHAR firmament. Starting out as a tiny worsted spinning & hosiery unit in Ludhiana, it was incorporated as Private Limited Company in December 1980 & became a Public Limited company in 1983. The steady growth in manufacture & export of woollen/cotton hosiery, knitwears & woollen textiles enabled the company to earn the recognition as an Export House followed by a Recognized Trading House by the Government of India in a short span of 8 years. Its turbo-charged performance brought 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 Export performance. In 1992, as a measure of backward integration, the company diversified into the Spinning Industry. Today it has an installed spindlage of 346096 spindles. Simultaneously the company also established an ultra modern facility to manufacture 12.5 Million pieces of Hosiery Garments. Today Nahar Spinnings Tshirts are being exported to reputed international brands such as GAP, Arrow, Chaps, Old Navy, Pierre Cardin, Philips Van Heusen, Izod, Quicksilver, Price Costco etc. As a measure of further value addition Nahar Spinning has put up a plant for the manufacture of fine count mercerized yarn & fabrics catering to both, the domestic hosiery garment market as well as export markets. To make use of the emerging opportunities on the Global Textile Scenario and also to have a focused business approach, the company went in for the Scheme of Demerger and Arrangement to restructure its businesses. The Scheme was approved by the Honble Punjab & Haryana High Court vide its Order dt. 21st December, 2006. As per the scheme, companys Investment Activities stand demerged and transferred to Nahar Capital and Financial Services Limited. This has drawn a visible line between two segment i.e., One Industrial (Textile) business and 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 the Scheme the spindlage capacity of the company stand increased to 3.46 Lacks spindles. 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. The Management vision coupled with company's inherent strength in terms of cost and quality has enabled the company to become the second largest Cotton Yarn manufacturer in India.

Regd. Office: Nahar Tower, 373, Industrial AreaA Ludhiana-141 003. Phone: +91-161-2600701-05, 2606977-80 Fax: +91-161-601956, 2222942 Email: secnsm@owmnahar.com

Works: Industrial Area A, Ludhiana, (Punjab) Dhandari Kalan, G.T.Road, Ludhiana (Punjab) Village Simrai, Mandideep, Distt. Raisin (M.P.) Village Lalru, Distt. Patiala (Punjab) Village Jabalpur, Distt. Patiala (Punjab)

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.

Geographic mix of clients in the yarn segment

Bangladesh is one of the major manufacturing destinations of garments and one of the largest importers of cotton yarn. However, few weavers in Bangladesh have backward integrated to producing yarn from cotton and hence importing higher quantities 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 to cater to the growing demand in Bangladesh, given that it has established its presence in that region over many years. However, if players in Bangladesh continue to backward integrate, Nahar Spinnings ability to shift focus to other countries and attract clients in new geographies will be key in maintaining export revenues. 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 Spinnings domestic realisations are higher than that from the export 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 to make denim fabric and other cotton garments. Given the competition in the export market, we believe the company has so far been able to export to Bangladesh due to its competitive pricing. The company has one of the lowest cotton procurement prices due to its large size. Hence, competitive pricing could be sustainable in the medium term.

FEW COMPETITORS

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 and 1080Rotors. 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.

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 PERFORMANCE
Company'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 performance during 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 turn will help the company in meeting the challenges ahead

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.

Risk and Concerns

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

Volatile cotton pricesPrice of cotton, the main raw material in the manufacturing of cotton yarn, is inherently volatile. Further, spinners generally find it difficult to pass on the increase in cotton prices as the downstream players such as weavers and garment manufacturers enjoy a higher bargaining power than spinners. Raw material forms ~68% of the total operating costs for Nahar Spinning. Thus, the companys EBITDA margins are susceptible to movement in cotton prices.

Exposed to currency fluctuationsExports are expected to contribute about 70% of Nahar Spinnings revenues. While the company hedges 50% of its total foreign exchange exposure through simple forward contracts, any sharp appreciation in the rupee will impact the companys top and bottom lines.

Changes in regulatory policiesThe government has capped cotton yarn exports to 720 mn kgs for the year 2010-11 to protect the domestic weavers and garment manufacturers. Till date, 680 mn kgs have been already exported. If the cap on exports continues, Nahar Spinning will face huge competition as there are a number of smaller players vying to book their export contracts before the quota is exhausted.

Future Outlook
Nahar Spinning is in the process of adding 90,000 spindles (30,000 spindles each in three of its manufacturing units) in a phased manner which is going to complete by in DEC 2011 as the project is going as per schedule . The combined capex of the entire expansion plan is ~Rs 3,500 mn, of which Rs 1,930 mn is funded through TUFS 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 healthy demand prospects in the cotton yarn segment.

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 the government in coming year. Various help from the government through schemes like TUFS.