Ambika Cotton Mills

Thanks Vivek. I am tracking Premco the only thing keeping me away are the runway and promoters inability to increase dividend.

Coming back to Ambika, one thing that needs to be understood is their captive wind power generation units. If you look at the AR FY14 these are the important contributions from Wind Power generation:

a) Total captive power generation from windmills is (469.06 lac units) is 70% of the total powergeneration. Cost per unit of power purchased is 6.51 per unit. This makes the total value of captive power produce at 30.53 crores (segment revenue shows this at 27.62 crores). The profitability from windmill segment is shown as 10.58 cr. I thought OPMs ae very high in Windmill business.

b) The impact of depreciation due to Windmill is 12.04 crores.

The power situation in Tamilnadu has had a great impact financially and psychologically in the companies there. It would be important to understand the following:

a) Individual yarn segment performance in terms of capital employed and margins (assuming power is externally procured).

b) Will the company be looking at increasing captive power production with every increase in capacity?

Damodar Industries is better choice

Sales Growth 10 & 5 Yrs > 30%

Profit Growth > 30%

Inventory turns increases from 2.4 to 8 +

Receivables too in tight control

Excellent dividend distribution record and Div yield of 3.89%

Am I missing something ???

It require huge investment to produce Eli twist spinning yarn so most of the companies go with the strategy of expansion than the value addition. They usually think between these 2 thoughts:

go for value addition and improve the bottom line or

go for expansion to improve top line with bottom line.

1).

2).

3).

4).

_ entry-barriers?_
_

Eli Twist spinning

http://www.fibre2fashion.com/industry-article/48/4710/comparative-studies-on-compact-yarn1.asp Link: http://www.fibre2fashion.com/industry-article/48/4710/comparative-studies-on-compact-yarn1.asp

Eli _

** wound.The Corporation.It **

_ yarn.It _

splicing.

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Hi

More info about Suessen elitwist can be found at

http://www.suessen.com/fileadmin/suessen/products/CN/ring-spinning/elite-compactset-v5/brochures-leaflets/elitecompactset_v5_india_slp0108ne06_12.pdf

Ambika is one of the customer of suessen elitwist compact system.

List of customer using suessen elitwist compact system.

Customers of suessen EliTeCompact System

Location Contact details.
Sri nachammai cotton mills ltd chettinad, tamilnadu sncm@rediffmail.com
Norman group of companies dhaka, bangladesh nomangr@bangla.net
Ramco Group Textile Division info@ramcotex.com
Ambika Cotton Mills Ltd Coimbatore,tamilnadu acmills@eth.net
K.P. Textiles Pvt., Ltd Coimbatore,tamilnadu kptcbe@sify.com
Nahar industrial enterprises ludhiana, punjab info@owmnahar.com
GTN Textiles Ltd cochin, kerala mktg.ho@gtntextiles.com

Brands using elite compact yarn are camel active,colorplus,Allensolly,parkavenue,levis,
wills classic, etc

With respect to certifications, As per acmills.in,
Ambika holds the Supima certificate from Supima Association (USA), GOTS Certificate from Control Union (formerly SCAL) for organic yarn, and Oeko-Tex Certificate of Standard 100 Product Class I.

Now the question is,

Since anyone can importhigh quality Giza and Pima cotton from Egypt and US and usesuessen elitwist compact system to generate premium yarn, How does ambika differentiate itself(low cost producer, large capacity supplier, reputation,client relationship etc)?

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Can Donald / Benny Gupta elaborate how the working capital figure of 2014 is arrived? The figures from AR '14 respectively are:

Inventory : Rs. 133 Cr

Receivable:Rs. 5.7 Cr

Payable: Rs. 32.6 Cr

Advance received from Customers: Rs. 1.74 Cr.

Total Sales: Rs. 479 Cr.

What method are you adopting for WC calculation ā€¦ Am I missing something crucial?..

Just missed to add

As per my calculation it is Rs. 100 Cr. + from above figures from AR '14 vis a vis your calculation of WC at below Rs. 40 Cr.

Benny Gupta Sir,

In your spreadsheet, you have put Total Assets of Ambika for 2014 at 454 crore rupees. How did you arrive at this figure? Screener shows total assets at 328 crore. The number for Fixed Assets seem to be right but the total assets number seem to be way off. Can you please check? Thanks.

@ Raag:

Donā€™t know about the Screener figures, but I input figures from the ARā€™s directly.Iā€™ve checked and attached a screenshot, you can check the figures there. They seem to match.

Pls dont call me Sir, Sir!! :slight_smile:

@Aveek:

WC = CA-CL (156-122 = 34)

This link probably would be of help to understand it better http://accountingexplained.com/financial/ratios/working-capital


Hello Benny/Aveek,

In my opinion WC = CA -CL is mainly an accounting entry. It does not reflect how well company is managing its receivables, inventory and payables. Further short term borrowings or current maturities of long term debt does not in anyway indicate a companyā€™s WC efficiency. These figures are also likely to change significantly once the long term debt matures.

I will totally go with Aveek when accounting for value.

Thanks Benny.

Ayush/Pratyush: Can you please verify Ambikaā€™s balance sheet numbers on Screener. As mentioned by Benny, Annual Report shows total assets and total liabilities for 2014 at 454 crores whereas it is 329 crores on Screener. What could explain the difference?

@Benny

If you all have taken the academic CL number then for valuation purpose then it is wrong for valuation purpose. I presumed that none of you can commit this basic mistake.

The WC requirement of Ambuja is about Rs. 100 Cr plus and about 80 - 90 days of sales. WC reduced by Rs. 10 Cr. or so in Sepā€™ 15 BS by increasing Payables. It seems they need to keep a high stock of inventory (RM+FG) at any point of time. On the positive side, Long Term Loan now stands at Rs. 8 cr in Sep '15 from Rs. 30 Cr. in Mar '14.

After the capacity increase in 2014 beginning, the sales has grown up but it remains at a flattish level for first 3 quarters. Also there is a reduction in operating margin by about 300 basis points in FY '15 till Sep '15.

The sale of waste cotton is at 7.7% and 7.6% of sales in 2013 and 2014. On a cursory look, unable to get the data in Vardman or Indo Count AR.

Industry experts can answer ā€¦ 1) Nature of waste as % of sales; 2) Reasons for keeping high inventory?

@Aveek you mean Ambika and not Ambuja?

[ Comment too short ]

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@ all,

Two ace stock pickers, Prof. Sanjay Bakshi & Kenneth Andrade of IDFC MF have put their trust in Ambika.

More details in the link below

http://rakesh-jhunjhunwala.in/why-are-prof-sanjay-bakshi-kenneth-andrade-ambika-cotton-bullish-about-this-micro-cap-stock/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+RakeshJhunjhunwala+(Rakesh+Jhunjhunwala)

The concern with Damodar Industries is its debt. Also, it has not really reduced its debt. If you look closely, you will find that as and when the long term debt is reduced, there is corresponding rise in short term debt. It seems they are converting the long term debt to short term (which is not really helpful).

Finally some light on the unique producyivity/cost advantages of Elite and EliTwist compact sets - that many Indian Spinning Mills have leveraged on!Nice article that gives us a head-start in trying to understand the compact yarn maze, and ask more questions of yarn manufacturers/professionals.

Article excerpted from the Spinnovation Magazine )- No 26, 05/2012

EliTeCompact Spinning:Raw material saving a A review of Indian situation

By Mathew Jose, Venus Textile System, Coimbatore, India

Indian innovative customers wereinvolved in Suessen EliTeCompactSpinning nearly from the very beginning.

This gave them a unique opportunityto fully exploit this newtechnology in ways the manufacturerof the equipment (Suessen) could nothave dreamed about! They immediatelyunderstood what was meant byMr. Peter Stahlecker, JMD of Suessen,when he stated: Suessen IS merelythe builder of the piano. The Pianoplayers and the creators of new andpreviously unknown symphonies arethe customers only!

The successful installations of around35 Lakhs EliTeCompact Spindles inIndia have opened up numerous avenuesof utilising the EliTeCompactSpinning System. High quality spinnersmake Premium EliTeYarn like

a Ne 100s - 30 RKM, 80 IPI,

a Ne 70s - 31 RKM, 35 IPI,

a Ne 50s - 33 RKM, below 30 IPI.

Some others manufacture productswith higher RKM, lower IPI, low hairinessto meet demands of corporatebuyers for shirting and bed linen.Many of our customers take advantageof EliTe for higher RKM, lowerhairiness along with saving in rawmaterials.

Many knitting yarn producers achievehigher spinning productivity up to15% using EliTeCompact SpinningSystem with less pneumafil wasteand saving in raw material.Our composite customers achievemore value for money by makingyarn suiting their weaving and knittingwith increased efficiency in downstream processes. They have also ad-ditional benefits like higher strengthof the fabric, less pilling, better luster,clearer print, better feel & appearance,endurance of the fabric etc.

Our customers with knitting confirmedthat some products are replacedwith single EliTeYarn constructionin place of normal double.Less spirality, lower fly, and dust liberationin knitting, lower shrinkageof the fabric are some other benefitsbeing experienced by them.

Some special products manufacturerstake advantages of savings in singeingoperation apart from developing newfinal products.The success of EliTwist is also beingmade use of by our customers withfocused marketing efforts. Of courseEliTwist gives the quickest pay back.EliTe and EliTwistTechnology withthe new ACP NT package (ActiveCradle with PINSpacer NT) hasevolved new standards of quality asfar as RKM, Uniformity, IPI values,hairiness etc., are concerned.

We have also come across somecustomers taking advantages of thehairiness reduction alone by substitutingnormal yarn parameters withEliTeYarn and saving the raw materialto the maximum extend. Thereduction in hairiness alone allowssubstantial advantages in subsequentprocesses like warping, weaving andprocessing. This production may notbe meant for the top notch customersbut the spinners are able to havea faster return on investment by takingthis route also.

Below are several examples of whatSuessen EliTe customers are doingeveryday!

Ne 120/140s:

Some of our customers makeNe 120/1 and Ne 140/1 CW from 50%PIMA and 50% either 33 mm MCU5 or DCH. The saving in mixing is tothe tune of Rs.15000 to Rs.20000 percandy. This is around Rs.70/Kg. Theyare achieving production of 20 gmsper spindle shift. According to themaround Rs.5040 savings per machineof 1200 spindle per day.

Ne 100as:

Until a decade back, it was neverthought that Ne 100/1 could be spunfrom 100% MCU5 or by replacingDCH substantially. Chart 1 shows,what is being done today by someIndian spinning mills.The third column of this table showsthat mixing with 10% DCH / 90%MCU5 along with 15% comber noilhas produced EliTeYarn which issuperior in hairiness by 20% andimperfections by 40% in comparisonto normal yarn from 60% DCH / 40%MCU5 with 20% noil. Our customersindicated that in this case theraw material saving due to 50% DCHand 5% comber noil is up to Rs.50/Kg for 100s which is around Rs.6000saving per machine (1200 Spindles)per day. This means the payback ofEliTeCompactSet is less than 2 yearsfrom raw material saving alone afteradjusting the cost of EliTeYarn.

Certain other customers makeNe 100/1 EliTeYarn using 80% MCU5and 20% DCH with same comber noiland managing premium. Dependingupon the strength and imperfectionrequirement the mixing can be variedand the maximum saving is possiblewhen the strength of the normal yarnis the target.

Ne 80/1:

Those who are with Ne 80/1,switched over to 100% MCU5 in placeof 100% DCH saving around Rs.11000to Rs.12000 per candy. In addition tothis there is a saving of 1% combernoil is possible means saving of Rs.37per kg by raw material which is Rs.5300 saving per machine

Ne 60/1:

For Ne 60/1 a combination of Mech+ Sankar 6 replaces MCU5 with additionalbenefit of comber noil 1% to2%, then the difference in mixing costcomes around Rs.15 per Kg. In placeof Shankar a 6 Karnataka Bunny isused by some mills. The yarn producedout of this mixing is superiorin terms of all properties and furtherraw material saving has not beenobserved. But mills prefer higher productionand better price along withthe above raw material saving. Mostof our 60s yarn spinners are cateringto weavers demanding higher RKM.

They have not attempted to save rawmaterial to the tune of equalisingyarn strength with normal yarn as thepay back is comfortable in the abovecombination.

Some of our customer save 25% Giza86 by using 75% MCU5 and 25% Giza86 for 60s EliTe mixing in place ofnormal yarn mixing of 50% Giza 86and 50% MCU 5. They have statedthat this will result in a saving of Rs.15/- Kg apart from the Rs. 15/- premiumpossible due to better yarnstrength and quality thus makingaround Rs. 30/- per Kg.

Ne 40/1:

For Ne 40/1 count up to 4% higheryarn realization is achieved whichincludes comber noil saving up to3% along with this 10% productionincrease is commonly achieved. Thetendency of increased Imperfectionsdue to comber noil reduction is overcome by using Suessen ACP package.

The combination of savings in RawMaterial alone Rs.4000 per machineper day and 2 years pay back.In the case of Ne 40/1 combed hosiery15% more productivity and upto3% more yarn realization% is beingachieved.

Ne 30/1:

In case of Ne 30/1 combed hosiery3% yarn realization and 15% additionalproductivity is the most commonlyemployed method.In all the above practical cases thepayback varies between 18 monthsto 24 months by employing differentcombinations of mixing, comber noilsaving, pneumafil waste saving alongwith additional productivity. In majorityof the cases a marginal premium isalso possible for the better hairiness,imperfections even if the yarn is suppliedwith strength matching normalyarn.

A look at the brochures of the manufacturersof compact equipment willshow that they added these advantagesonly AFTER they learned aboutthem from their customers! This is reallya new and previously impossiblesymphony!

It goes without saying that aSomepianos are better than othersa andsurely the one from Suessen is thebest: no other supplier can claim thathis customers have achieved suchimpossible feasts, only EliTe can dothis full range!Of course, there are other anovelsymphoniesa created by our customcustomers,which are not in the core of thisarticle, and be mentioned only inpassing.

With the help of EliTwist and theSuessen PINSpacer NT, customersagain managed to create previouslyimpossible yarns, ultimately creatingprofits for themselves.The tools of raw material savings areat hand which will give a cutting edgein competition and better leverage inmanaging present crisis of spinningmills.

We encourage our SuessenEliTeCompact customers continuebeing innovative, for the advantageand the betterment of the wholeindustry! We encourage them to challengeSuessen to build better pianos!

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@ Irfan

I missed commending you for the table you put up on users of Suessen Elite Compact System in India. Good information

Also you are asking the right questions , if anyone can import high quality US, Egyptian, or Australia Cotton, and if anyone can use these Suessen Compact systems - where is the real competitive edge for Ambika Mills. Thatā€™s the real question!

**Do you want to work on enhancing your Table with the Mills & their installed Compact EliTe and EliTwist spindles? **There are many more large mills/Mill groups like Shanmugavel Mills (400,992 Suessen Spindles, 300 Wind Energy Mills for complete Captive power), LS Mills, Sportking Mills who are extensive users of Suessen Compact sets. Many Mills with Suessen 100,000 compact spindle capacities!!

That will produce a very good preliminary industry-map for us to take forward. Anyone who likes to pitch in may also help Irfan with data points.

Hint: Spinnovation magazines are a good source of info on most Mills using Suessen equipment. Individual websites also might have more information

If some data points (that I casually threw up) have started to make you wonder, hope this will energise those tracking/invested in Ambika to help us dig out more relevant domain information - that will be critical for understanding sustainability of competitive advantage, if any.

Everyone is encouraged to get in touch with textiles/yarn industry friends, and friend of friends. I am hoping to meet someone next week :slight_smile:

Seems Ambika cotton is good story to hold for long term.Based on my little bit of homework some facts about the co

  1. Promoter is a first gen Kerala Nair Entrepreneur with good execution track record and growth mindset.Its rare to find Kerala entrepreneur specially non syrian catholic and Non NRI.Has 2 daughters who are both on board and taking active interest in cos,Son in laws in separate business of their own

  2. He started as a distributor of yarn from NTC and later ventured into manufacturing.Deliberately not chose Kerala due to its union problem

  3. Chandran seems like our venerable SK Poddar of Mayur in many aspects.Both are in 60s yet very fit ,Ethical first gen,workaholics putting in long hours ,both started as distributors hence understanding the industry like back of their hands.Both love tinkering with machines and able to get much better output.

  4. Chandran puts in long hours at plant based in Dindigul and has over the years developed some sort of patented solution over the machines giving much better output.

  5. Like SKP used TUFS loans heavily and now repaid them to make it a zero debt co

  6. Most of its yarn is used in top notch shirting cos based in Japan via a circuitous route of Chine for fabric to Vietnam for stictching and thence to Japan and Europe as premium shirting.

  7. First he gets advance and only then makes the yarn enjoying great demand and pricing power.70% turnover from exports.

  8. Imports all its RM from Egypt & US

  9. Captive power through use of wind mills which were the main capex from his side post 2007.No capex in spinning mills since 2007

  10. Power situation expected to improve in TN post PGCIL new lines which may lead to better margins along with zero interest cost now

  11. Orders placed for new machines expansion expected to be completed by Jan. 17.

  12. Focus seems to be on expanding with out diluting equity and debt and increasing dividend.

  13. Some top notch investors like Sanjay Bakshi,Kenneth Andrade from IDFC and Anil kumar Goel invested since long.

14)Seems to be a ripe candidate for explosion in price rise with both EPS & PE set to rise due to lower interest and power cost,expansion in offing,pricing power,leadership,unique position ,predictability in earning,increase in dividend from 3 Rs to 13 Rs.Max wealth is created in this manner once perception improves for the co.

Discl-Recently invested

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Guys,

Please get the FOCUS back on UNDERSTANDING the business and the specialty cotton/worsted yarn industry.

The strengths of the company have been documented well - at several places, including now at VP.

Let us concentrate efforts on understanding - the Specialty yarn industry manufacturing in India. How many players? existing capacities and plans? Total exports of specialty yarns out of India? What are Industry average margins? Several players seem to be doing really special things ā€¦

Vivek Gautam/Others - please spend your energy & contacts - in mapping the different players in the Specialty Cotton Yarn industry. Only then will a clearer/better perspective emerge on the relative strengths/weakness of a leading player like Ambika Mills.

Hope to see many more hands up in taking this diligence further - while talking to industry professionals, its easy to get lost in the generalities - good honest management, come up from scratch, doing very well, etc - thatā€™s really not useful beyond a point. Whatā€™s useful is to keep asking - not giving up - what are they doing thatā€™s so special? Arenā€™t other, bigger players doing the same already? If not, why havenā€™t they? Why canā€™t they? Many times even the Industry players find it difficult to answer these simple questions properly - we can request them to keep asking themselves, and get back to us :slight_smile:

Most times, these are the REAL answers to persist and find.

Cheers

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What is Yarn Quality?

http://www.cottonyarnmarket.net/OASMTP/Fiber%202%20Yarn%20Conversion%20System%20-%20Yarn%20Characteristics.pdf

In general, the spinner may define yarn quality as an index of appearance, strength, uniformity, and level of imperfections. However, the spinner is much more concerned about how the yarn user views yarn quality. The knitter may have more detailed criteria of yarn quality. These may include:

  • A yarn that can unwind smoothly and conform readily to bending and looping while running through the needles and sinkers of the knitting machine. This translates to flexibility and pliability.

  • A yarn that sheds low fly in and around the knitting machine. This translates to low hairiness and low fiber fragment content

  • A yarn that leads to a fabric of soft hand and comfortable feeling. This translates to low twist, low bending stiffness, and yarn fluffiness or bulkiness.

  • A yarn that has better pilling resistance. This translates to good surface integrity.

The weaver may have a different set of yarn quality criteria:

  • A yarn that can withstand stresses and potential deformation imposed by the weaving process. This translates to strength, flexibility, and low strength irregularity.

  • A yarn that has a good surface integrity. This translates to low hairiness and high abrasion resistance.

  • A yarn that can produce defect-free fabric. This translates to high evenness, low imperfection, and minimum contamination.

In light of these different and often conflicting views of yarn quality, the spinner must customize the yarn to meet its intended purpose. This can be achieved through integration of yarn quality into the overall specification of the end product. This requires establishing appropriate values of fiber attributes and optimum machine settings.

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