Lower Debt, Higher Sales: Is This Textile Stock Quietly Strengthening Its Balance Sheet?

The bank facilities of Nandan Denim Limited (NDL) have been rated "IVR BBB/Stable/IVR A3+" by Infomerics Ratings. The company's and the group's established reputation as a major participant in India's textile sector, higher revenues and operating margins, and an improved financial risk profile are all reflected in the ratings reaffirmation.

Nonetheless, the rating continues to be constrained by the competitive textile and denim industries' cyclicality as well as the profitability's exposure to changes in raw material costs. The "stable" outlook is predicated on Infomerics' predictions that NDL will benefit from its well-established position as one of the major denim producers in India, as well as its sound financial risk profile.

Based on the "No Due Certificate" that the bank provided, which NDL shared with Infomerics Ratings, Infomerics has likewise withdrawn its ratings on the Rs 2.68 crore term loan facilities from Karnataka Bank. The withdrawal complies with Infomerics' withdrawal policy.

From Rs 2,010.09 crore in FY24 to Rs 3,546.68 crore in FY25, the company's total operating income (TOI) grew by more than 76%, mostly due to a rise in domestic sales, inspection, and batching work. EBITDA, or earnings before interest, tax, depreciation, and amortization, grew by more than 8% to Rs 128.21 crore from Rs 118.29 crore, while margins shrank to 3.61% (FY24: 5.88%).

Due to higher depreciation, PAT dropped from Rs 44.94 crore to Rs 33.48 crore, with a PAT margin of 0.94% (FY24: 2.20%). Power is entirely obtained on a captive basis and accounts for a substantial portion of manufacturing expenses. Interestingly, more than 36% of this supply is derived from renewable sources, shielding NDL from the exorbitant cost of grid power.

With an adjusted net worth of Rs 608.72 crore as of March 2025 compared to Rs 582.08 crore as of March 2024, NDL's capital structure improved. As of March 2025, the net worth has been adjusted for investments in group firms of Rs 0.55 crore and debts of more than a year of Rs 9.05 crore. As of March 2025, the company's total debt has dropped. As of March 2025, the company's overall gearing ratio on adjusted tangible net worth was 0.41x (as of March 2024: 0.57x), its long-term debt equity ratio was 0.16x (as of March 2024: 0.26x), and its TOL/ATNW ratio was 1.08x (as of March 2024: 1.03x).

"Like most textile companies, Nandan Denim Limited's profitability is highly dependent on fluctuations in cotton prices, its key raw material. The margins of the industry are particularly sensitive to changes in raw cotton prices. Although NDL does not operate under long-term contracts for quantity or pricing, it has established strong, enduring supplier relationships. The industry remains fragmented, with intense competition restricting the bargaining power of individual players. As a result, manufacturers often struggle to fully pass on rising input costs to customers or retain the benefits when costs decline. Consequently, NDL's profitability margins remain exposed to volatility in raw cotton prices," said Nandan Denim in a stock exchange filing.

The company's operating cash flow is still sufficient. In contrast to the planned debt repayment of Rs 12-34 crore during the same period, it is anticipated to earn projected cash accruals of Rs 77-83 crore from FY26-FY28 due to a constant growth in operations.

As of March 31, 2025, the quick ratio and current ratio were 1.16x and 1.49x, respectively. In January 2004, Nandan Denim Limited became a public limited company after beginning as a textile product trader and exporter. With a capacity of 20 million meters per annum (MMPA), the firm began manufacturing denim fabric in FY24. Over time, the capacity was extended to 110 MMPA.