Ambika Cotton Mills

(Vivek Mashrani, CFA) #464

They already have 11 MW windmill powerplant at that location, hence they are not able to shift the location. Also, they don’t wont to depend on govt for their power needs.

As such they have started knitting facility and doing capex (3x of existing facility). They are getting very good demand from Srilanka and they are confident of selling all their incremental capacity (they have mentioned in the AGM circular below about good demand of knitted fabrics)

Overall, I feel knitting and efficiency improvement will take care of growth in coming 1-2 years. Hopefully the land issue gets sorted out till then, which will provide additional growth kicker for the company.

Disclosure: Invested

(rollnball) #465

Ambika annual report just came out
Few initial observations which I had , I wanted to share with you and get your opinions

1)receivable days have gone up
2)share buy back query
The Board of Directors at their meeting held on 11th November, 2016 approved the buyback of equity shares of the Company in
accordance with Section 68 of the Companies Act,2013 and SEBI ( Buyback of Securities ) Regulations ,1998 and the buyback
announcement was made on 22nd November,2016. The Company, as proposed , has bought back through Stock Exchanges,
150000 Equity Shares of Rs. 10/- each ,which have been extinguished subsequently.
The aggregate amount spent on buyback amounted to Rs. 1611.52 Lakhs consisting of (i) Consideration paid towards buyback
Rs.1573.22 Lakhs and (ii) Other transaction cost Rs.38.30 Lakhs.
In terms of Section 69 of the Companies Act,2013, Rs.15.00 Lakhs being the nominal value of Equity Shares bought back was
transferred to Capital Redemption Reserve Account from Share Premium account and the balance cost of buyback Rs.1596.52
Lakhs was also met out of Share Premium Reserve .
So they were able to purchase the share at 10Rs per share only? It means the value of shares of the minority investors like is diluted?

  1. sales almost same ? just 7% increase with same capacity.
    any plans for future scope for sales increase, as their capacity is almost same
  1. Outlook
    The Company, on account of manufacturing specialty cotton yarn, continues to have good demand for its products and has
    created specific markets for its products. This ensures more sustained profitable operations. The company continues to
    strengthen its production base by modernization and adding balancing equipments and improvising production process. The
    Company has installed windmills for 100% of its captive requirements and installed EHT line (110 KVA Sub-Station) for smooth
    flow of quality power. The Company has commenced its operations in Knitting during the year. This would supplement the
    operation of spinning segment and a value proposition. These measures will continue to support the operations of the company

at moment capacty has same

future expansion, which might leads to more sales ? is it right ?
During the year the Company has invested Rs.1752 Lakhs towards strengthening of its manufacturing operations of spinning
segment and has invested Rs.1007 Lakhs in Knitting segment. This knitting facility would knit fabrics upto 8,000 kgs per day as
of now and 90% of the output is exported. This total investment of Rs.2759 Lakhs was fully met out of internal accruals.
The Company is not carrying any long term debt.
The implementation of spinning phase is still pending on account of uncertainty of use of land and appropriate clearance from
authorities. However, the Company has planed to invest further an estimated amount of Rs. 2000 Lakhs in Knitting segment, to
augment the knitting capacity further 16,000 Kgs per day. Th
e investment will be made out of internal accruals.

Ambika Cotton Mills Limited is engaged in manufacturing and selling speciality cotton yarn catering to the needs of
manufacturers of premium branded shirts and t-shirts. Exports constitute significant portion of the operations. The company
operates with total installed spindle capacity of 108288 (Previous Year 108288 Spindles) of compact facility housed in four units
and Knitting facility. The company has installed 27.4 MW wind power capacity for captive consumption of spinning segment.
The Spinning Plants are located at Kanniyapuram, Dindigul and Windmills are located in Tirunelveli, Dharapuram and Theni in
the State of Tamilnadu.
spindel capacity - 108288 spindles compact - 4 units
knitting facility
27.4 mw wind power capactiy

(Vivek Mashrani, CFA) #466

Good morning…the annual report was out on 30 August 2017 :stuck_out_tongue:

They purchased shares in buyback at INR 1100/- (which was above market price for quite sometime) if I remember correctly and promoters did not participate hence promoters increased their stake (and infact technically they were diluted at that price).

They are running at full capacity on spinning so 7% growth was from efficiency increase and small knitting capex. Next year some more growth will come due to knitting capex (read my note on incremental ROCE and profit estimates above), but spinning capacity land approval is still stuck in court as per AGM update.

(Gargvaibhav) #467

Although I am not sure about the ground reality of electricity situation in Tamil Naidu, I think Tamil Naidu must be having a better than average electricity supply as the state is highly industrialised. Secondly, in all the states ‘Net Metering’ is allowed - meaning whatever electricity you would be producing from a renewable source and supplied to the grid would be adjusted against the electricity offtake from the grid. So electricity may not be the right factor for which company would not like to move to other location. Probably it can be the case that company might not be able to achieve full-benefit of economies of scale at a separate location than installing more spindle at the existing land. However, I think company has not clarified or provided sufficient information to understand the issue.

One more thing, the company is betting on new Knitting facility for next leg of growth in 2 years (as per Vivek’s post). Any information which company might have shared or from industry standard - what is the EBITDA margin company would generate from the knitting facility. Logically, it should be more than what company is able to generate from exiting spinning business. What is the contribution of Knitting business to the overall revenue?

Third and last question- The company’s expected annual Cash Profit would be close to 60 crore and capex would be 27 crore. Since there is no other expected capex/debt repayment for the existing year, what are the plans of the company for the extra cash - a special dividend or share buy back? any indication from the management during AGM

(rollnball) #468

Mostly the things look great, but im concerned about the future expansion plans ? how the company is going to grow and provide increase PAT/ Earnings more than 10% cagr from now on ? any hint of doing that
(apart from increasing knitting capacity ,which we are unsure of how much percentage weight it carries towareds the current earnings ), the core business of spinning? no future expansion as of yet ?

important to see the plan layouts for future

(Kumar Saurabh) #469

2-3 years back ,power situation was very bad n textile industry suffered n in that regard ,self dependence on power helped them a lot. Tamilnadu state discoms ve a poor financial history due to politicization of electricity

(Vivek Mashrani, CFA) #470

They did not disclose EBIDTA and margins stating confidential info. It would be in-line with existing knitting capacity.

They indicated to pay another dividend this year for distributing cash. Thanks.

(avi) #471

I’m not able to download the excel sheet…on clicking I’m led to a page which says it’s private…is it because I’m new to the group and don’t fullfill the criterion to download from the site…

(rollnball) #472

reults just came out

(Vivek Mashrani, CFA) #473

Great to see consistent result in the backdrop of events like GST and problems in the sector. This speaks volumes about earnings power of the company.

If we observe the balance sheet. They have now repaid short term borrowings as well. Hence, going forward the incremental cashflow would be deployed in capex or dividend/buyback.

(rollnball) #474

any ideas on succession planning of ambika …after mr.chandran(now 67 years )… i know he has two daughters ? but are they really involved in the company ? how will the company fare in future, in relation to managment ?

(Vivek Mashrani, CFA) #475

Mr. Chandran is very healthy as of now. As such one of her daughter and son-in-law are also handling part of operations. They both were present in AGM as per my knowledge.

(shunz) #476

Any latest update on land approval for spinning?

(rollnball) #477

operation is just one of the part, succession planning means looking at key financials, cash flow managment, vision for company! i hope there is someone to take care, or learning from him to step into his role for future coming years ?

(KalyanKool) #478

Mr. P.V. Chandran has introduced his two daughters into the board of directors. Mrs. Bhavya Chandran was inducted in FY2008 and Mrs. Vidya Jyothish was inducted in FY2012 in the board as directors. Mr. Chandran is currently about 65 years of age and it is assumed that he would be able to train his daughters in the business before he takes retirement from active management of the company.

As per FY2014 annual report, Mrs. Bhavya Chandra and Mrs. Vidya Jyothish were paid remuneration of INR 60,000 and INR 45,000 for the year, which is not exorbitant by any means.

Source article:

(rollnball) #479

giving renumeration does not mean…that they are working properly … it does not gurantee that… just concerned for succession planning… if anybody has more info , on top of would be a good insight of this good company

(KalyanKool) #480

I don’t think it’s easy to figure out that part using information available in public domain, it’s something we need to wait and see. Being paid remuneration doesn’t have to mean they are doing good work of course but looking at the figures, we can infer that good values are being inculcated into the next generation. Being ethical is the starting point and we can deduce that part more or less from this piece of info.

(Kumar Saurabh) #481

Can you be more specific exactly what specific information you are looking for? As you are aware that management does not hold concalls or talk much in public domain,so, it would be difficult. Also, one things I have learnt that in investment not all the information will be crystal clear and available in front of us, we have to join many dots to create a creature which may not be exactly same but similar. Many times we are given dots to build a fake image also which promoters wants us to make. So, the task is also to decide which dots to consider.
I believe, when Mr Chandran who has so far set very high ethical standards has highlighted that both daughters are being actively involved in business, he would try his level best to delegate all roles and responsibilities which an able CEO must deliver. However, there are enough examples among current companies where on one side CEOs are giving bullish impression on their company and his total commitment going forward and on backside looking to sell off and exit business. One must take his own call based on info available in public domain or try to seek as much as private info as possible. Would be glad to know if someone on forum has deeper information and willing to share.

(vikas kukreja) #482

Can you share which company are you referring here. Is it manappuram?

(Vivek) #483

Manappuram promoter isnt selling. I guess he is referring to MCLEOD RUSSEL INDIA LTD