yes source of info is interaction with a seasoned investor of ambika.
I think you may want to take a 20-80 equity-debt ratio and that will help with your free cash flows (as there is no interest on 20%).
Also, with the benefit of learning curve, incremental EBITDA’s should be higher for ambika IMHO as labour, overheads, sg & a all get amortized over a larger base. So, I would add a 10% to it - that in such a capex heavy industry, can make a huge difference to ROCE.
If done this way, ROCE’s could move up to 17-18 % - not the best, but a good play if you get it at say sub 1 PB or so.
Manpower is 5% of sales and most other costs are linear in nature … Only the forex loss may reduce if INR remains steady… Other scale effect may be minimal as they don’t have much sales expense except brokerage which I assume a % of sales. Also, EBITA per spindle remaining at current level is an aggressive assumption (but may be feasible) so I feel any other upside of scale assumption can be offset with this assumption.
Here is a further 5 min update on my earlier 5 mins job assuming equity dilution to fund 20% of the expansion. Refer sheet 2 of the excel…
If they dilute equity by (1 : 5) at 20% discount to market, the cash flow doubles. You may calculate the book value …
AMBIKA EXPANSION.xlsx (13.2 KB)
Any views on why Ambika whose receivables is v low at Rs 6 Cr and payables at Rs 22 Cr has considerable higher ST borrowings of Rs 45 Cr
Must be factoring/bill discounting
ST borrowings are for funding the stock levels, which typically are high from January-June as cotton procurement is done from November - February
The results were out. Overall, in another year where cotton prices fell after the buying season, the company has done well:
Overall numbers (Other operating income taken down to other income:)
ROE numbers for the year: 18.2% (20% in FY14), ROCE: 21.7% (20.7% in FY14)
Dividend @ Rs. 14/share coming to a payout ratio of 16%, and yield of 1.55% at CMP. A lot of the FCF for the year has been used to payoff debt (LT Debt levels down from INR 309 Mio to INR 38 Mio). It looks like the company has also pre-paid some of the long term debt (Reduction in other current liabilities by INR 162 Mio indicates reduction in CPLTD which means loans seem to have been pre-paid during the year). This is surely not very common in textile.
The big question - going ahead, with very little debt where is the FCF going to be used?
interesting to note that board has approved to expand capacity by 30k
spindles at minimum debt. Also to venture into knitting. Not sure on this
part of venture.
overall outlay of 130 crs.
@aveekmitra - Your guess about forward integration was right; the company has (surprisingly?) decided to move to knitting (rather than weaving)
Now knitted fabric is used in making clothes like sweaters, sportswear, socks etc. Will have to get more gyaan on which kind of yarn is used for knitting, the process etc.
@karanmaroo- If they are going to rely less on debt, how do u assume they finance 130 cr. of expansion plans. Also they must be entering knitting only if they find it extremely profitable unlike other companies. Please guide
Re: Nitin Spinner data points/ Peer comparison data
a) We must not forget to include Rotor spindles - Nitin has roughly ~2900 0r 3000 rotor spindles. These are for the couarser 10s-20s counts, which I am told for an efficiently run mill would easily add Rs 130 Cr to topline.
So if any of the other Mills have Rotor Spinners, we should make the necessary additions/account for the same
b) I am told Nitin Spinners is already at 150,000 capacity, not ~77,000 as being reported
Any idea if there is other way to corroborate since when the additional capacity has been available (other than AR?)
I think it should not be too difficult for the company to meet a requirement of INR 1,300 Mio during FY16.
A rough measure for cash flows available - PAT + Depreciation was INR 800 Mio plus for FY15. Assuming some of it goes for debt repayment and some for incremental investments (along with INR 100 Mio for dividends), the company should still have INR 500-600 Mio comfortably from internal accruals for FY16
Over the last two years, the year end working capital positions have been the following for the company:
Clearly, the company has been using its internal accruals to fund the working capital requirements. It can easily use more working capital loans from banks (Limits available - INR 1,850 Mio vs actual borrowing of INR 459 Mio for 31.03.2015). Even if we assume that 75% of requirements are met through bank working capital borrowings, it should generate additional liquidity of INR 500 Mio.
- If we take both 1) and 2) into account, the company would have to borrow only around INR 200-300 Mio in term debt. The gearing, even accounting for the additional WC and term borrowings, still comes to <0.5
Thats the strength of the company - real good accruals, strong profitability and expansion with less amount of debt.
As for knitting, we need to study it in greater detail.
@karanmaroo thanks for explaining. Also please tell in how much time the expanded capacity get operational after incurring capex. Secondly, do look in to this knitting angle as if they are moving up the value chain - can it increase their margins further?
Capex announcement on Ambika is welcome news!
Having said that, with things heating up on Ambika expectations front (30,000 spindles might be atleast 2.5 -3 years away from full effect; it most probably will get done in 2 phases, Ambika always had knitting sales - significant scale-up may be a distance away), we will need to wait for developments, keep FAITH in a quality player, and wait for some of these to play out - for us to guage the effect
it’s the opportune time to step back and enjoy some industry gyan. Do take these with a pinch of salt - this captures a nice 1 hour conversation we recently had with an Industry veteran and an office-bearer of South Indian Mills Association (SIMA).
Please allow for inaccuracies/overstatements - fault lies entirely with me for capturing anything wrongly. Have tried to do as faithful a reproduction as I could.
@Donald Expansion of Nitin Spinners is operational from 9-Feb-15. Spindle increased from 77616 to 150096 and knitting machine from 31 to 49. Nitin incurred a cost of 281cr on this expansion. Expansion was effective before time by energetic management.
Due to this expansion projection revenue and net profit for fy16 should jump by 30% in to 810cr and 54cr respectively.
Is there any notification or update on the expansion and venture into knitting. Not able to see that in BSE notifications. Thanks.
In your earlier table comparing several cos, we were surprised to see Nitin having substantially high numbers per spindles. We tried finding more about it and understood that its because the sales of the company include Fabric sales (which also yields higher margins) and sales from Rotor machines (they have 3000 tonne capacity machine which is used to produce coarser counts but must yielding lower margins). So we have tried removing the impact of these two thing to make the numbers comparable:
- 20% constant margin has been considered for Fabric Sales
- Rotor sales have been assumed at 100 Cr for last 5 years with 10% margin.
*First entry for Nitin is without fabric sales and second entry for Nitin is without fabric and rotor sales.
Thanks Ayush. There is little doubt that Ambika is ahead of pack and Nitin comes second. The fact that Nitin seems to be getting its act together and that it does not have the investor interest that Ambika has, seems to be an advantage in Nitins favour.
Kindly do post these relevant data in Nitins thread too
thanks - how do you know these assumptions are in line with reality - even I got stock at this point and I wanted to understand how you arrived at these. did the company indicate/give you those ball park numbers ?
The value of fabric sales is available in the annual report. For sales from rotor machine, its an assumption based on my interaction with industry people. Please correct if its wrong.