Ambika Cotton Mills


(Kumar Saurabh) #569

Hi Varun , below are my questions:

  1. What proportion of spinning output will be used for knitting in future?
  2. Which is better from profitability and return on capital perspective and why : In house spinning or purchasing from outside
  3. Operating margins have fallen by almost 10% in last 6-8 years. How does company plan to safeguard it in future?
  4. How company safeguards itself from currency risk for importing raw materials?
  5. How is overall textile market doing and any potential chances of supply consolidation due to default etc (I am expecting some of sector players to default as the sector leverage did not come down in best of interest rate times and still sector is in doldrums ,so, now with tide turning, there could be consolidation and would be great to check how management sees it)

(varunm2112) #570

2018 AGM Notes

Capex planned for 130cr has now come down to 115cr, which includes 30,000 spindles & 103 Knitting machines to convert yarn into fabric.The forward integration of Knitting process planned based on customer request.

The land procurement problems have been resolved & construction is going on & production expected to go live by July or August 2019

The higher inventory level is due to stocking of raw materials ie Cotton. The company is sitting on 250cr free cash & uses this to procure high quality cotton when the rates are very cheap due to the seasonality of the prices & they stock the cotton in their own facility for future contracts.

The cotton purchased done by LC payment, ie payment made before shipment reaches the factory

The sales is done through reputed sales agents, Ambika Cotton hasn’t appointed any in-house salesman in its 30 years of business.

Industry might face threats from US anti-dumping, Chinese Silk road construction.

Domestic threats on yarn prices may rise due to Gujarat government’s subsidy o Loans & Power for Cotton Mills in Gujarat.

Family succession plans are going on slowly, the two daughters & son in laws may take over after Mr.Chandran.

The company has liability only on working capital , capex funded by internal accurals.

Interesting part is that the additional 30,000 spindles will be running at full capacity from day one of operation, expected revenue from expansion 150cr.

Regards,
Varun


(Vishant) #571

Sir any thoughts on China’s Silk road threat to the industry? I tried but can’t figure out what might be the threats. Started looking at Ambika just a couple of days ago so don’t have enough knowledge about various aspects of its business, also don’t have enough knowledge about the textile industry itself. Would appreciate fellow boarders view/opinion on it.


(Chandragupta) #572

Adding a few more points from the AGM yesterday, avoiding duplication with whatever @varunm2112 has already written above. Please note some of the points mentioned may be my understanding or interpretation of what was said, rather than the exact words used by the company management. So there may be errors, but written here in good faith.

  1. Knitting: Payback for knitting is just 4 years, may even be less. That’s how they evaluate the investment. Logic for knitting expansion is that we make the best yarn in India. Customers are telling us, why give us yarn, give us raw fabric directly. One of the customers mentioned was Jockey for whom they have developed a special fabric. Quantities are small however. This arrangement is an exception, normally the company does not supply to brands directly. I think Mr. Chandran also said that some of their fabric may also use polyester which they don’t produce. So fabric is not made entirely from in-house material and there will be purchases from outside.

  2. Working capital: Company made Rs.90 crore cash generation last year. Cash is parked in cotton, so the current ratio is strong. There is no Finished Goods inventory. Borrowing is only for working capital, there is no long term debt. After the Nirav Modi episode, banks are not rolling over bills, so they have to necessarily make the payments.

  3. The company buys cotton just when the crop starts coming in into the market, at that time they get the best crop. With the best cotton, they can make the best yarn in India. Mr. Chandran personally supervises the quality of the product. Others buy throughout the year, so their quality is poor. This year cotton prices are expected to firm up, so it is good that the company has stocked up already. Higher cotton prices will translate into higher selling prices.

  4. The actual global production of Supima or Egyptian cotton is not that much. Supplies are falling. Customers are asking for “like Supima” etc. instead of actual Supima i.e. they seem to be downtrading (I think).

  5. Our waste cotton is exported to countries like Germany, Italy etc. and used in Euro currency notes.

  6. Power: Company is setting up 1 or 2 more windmills, which will give additional 5-6 MW of power. Company is also planning for Rooftop Solar, as they have a lot of rooftop space. With additional windmills and rooftop solar, company will become zero emission, 100% renewable energy driven company. This label has lot of value with global brands and will help company in marketing. For rooftop solar, company is exploring the outsourced model i.e. rooftop space will be leased out to private parties who will make the capital investment for setting up solar plant and sell power to Ambika. Plans for rooftop solar are at a very preliminary stage and more details can be shared during the next AGM.

  7. Shareholders will be rewarded with dividends, there will be no buyback. The thinking now is that the company stock suffers from lack of liquidity and buyback further reduces the floating stock. Mr. Chandran does not seem happy with the current share price.

  8. Maintenance capex is around Rs.60-70 lacs per month which is enough. In case of major break downs etc. there is insurance cover which also covers Loss of Profit (LOP). Company is getting very good rates for insurance cover.

  9. Company does not do quarterly concalls, but talks with analysts are happening. Not that they are entirely not happening.


(vikas kukreja) #573

Thanks for sharing some essential highlights and inputs from AGM. I am wondering this step might not be most tax efficient and in best interest for long term. Would have preferred buybacks along with stock split to maintain liquidity. I wish Mr. Chandran reconsiders his decision.


(mayanknagarwal) #574

Can anyone share breakdown of raw materials used in knitted fabric per kg, in terms of % of cotton yarn and % of other materials used?


(bharat19) #575


Management declared total sales till 26th September 2018 even before the Quarterly results. This particular details should have been avoided keeping in mind the best governance practices.


(atishay1) #576

Its a public disclosure accessible to all. Just thinking if it’s poor governance?

Discl. Invested


(Kumar Saurabh) #579

Can you highlight which SEBI law has got violated ? Have not companies reported to exchange when - an IT company signed a deal with a client with X amount, a builder recently informed that they have done bumper sales of X units in Y projects ? Would be really interested to see which clause if SEBI bards a company from reporting numbers to the exchange till that day if it has been reported publicly not selectively as I am not aware. Considering the kind of governance standards this company has shown in last 10 years, I consider them in top 1% based on memory recall n whatever companies I ve studied so far. Hence keen to know the specific clause for governance lapse and would like to approach management to correct if this have done this mistake knowingly or unknowingly


(BAPILL71) #580

Many thanks for compiling this. Really appreciate the effort that has gone into it. I am trying to collate a few numbers and are not able to corroborate the 250 crore figure. Will be much obliged if you could help me. Thanks


(Vijayk) #582

Just noticed that net profits has barely doubled in last 5 years, but stock price is up 6x in same time period.
It means 80% of the gain in mkt Cap is because of PE expansion and not because of earnings growth.
Also, the dividend payout has been very low for last 10 years… On an average probably 12% of profits.
Any reason, why the company got re-rated by 3 times despite such a low dividend payout?


(Kumar Saurabh) #583

I am looking for the SEBI clause . As I said in my example , many companies do that indirectly with deals news reporting, project sales numbers reporting and hence looking for exact SEBI guidelines . It would be a good to have exact guideline so that management can be pointly asked


(Kumar Saurabh) #585

Saw Vijay Pahwa tweeting the same , so, m not sure originally from where it came but why company deserves these valuations r -

  1. Please go through whole thread in detail to get better view of company
    2 . One of few companies in textile to be debt free
  2. Generates 80 cr of cashflow and having 700 cr of market cap which is less than 10
    4 . Go through last 10 years of numbers in terms margins , working capital, receivables , return on capital ,free cash flows ad you would find this is relatively one of the most stable companies among the sector players . I ve a post on Vardhman textile thread with a head on comparison between Vardhman n Ambika
  3. Growth has been okaish but efficienxy per unit spindle has been almost best in industry
  4. Despite of regulatory roadblocks company could show some growth n now with regulatory road block clearance , double digit growth looks a possibility
  5. The credit rating is best among peers in a week industry.
  6. Company focused on clearing debt than distributing dividend n wherever possible did wisely.
  7. Company did buyback and promoter did not participate in the buyback , again , a replacemrnt for dividend.
  8. Based on the analysis posted n attached in various excels by few members including me , this year company is expected to generate 80-100 cr profit . I hope a 9 times cash profit market capitalization is not so bad though it’s market and anything can happen, we need to find our own comfort.
    Thanks

(Kumar Saurabh) #586

Request you to go through the whole thread, there are very finer aspects of governance and business quality has been discussed in some 400+ posts n this thread still remains one of the best learning threads for me on VP on how to dissect businesses. In case you have already gone through and still have this opinion , then sure , we all have rights to have opinion and respect your opinion.


(Deepak Venkatesh) #587

Hi

The company makes its AGM proceedings announcement with such details always.

Here is 2018, 2017, 2016 AGM

In all 3 they have p&l figures. This is followed by declartion of financial results.

All this in my opinion is abiding to the SEBI regulations. Suggest to go through Clause 33.2 and 52.

Here is the screenshot of 2017 and 2016

acm2016agm acm2017agm

image

This kind of stuff in such times is in real bad taste. I see some people tweeting also on this. I hope SEBI is taking notice.

Rgds
Deepak

Disc: I don’t even track this company.


(Kumar Saurabh) #588

Have mailed to company and have also approached SEBI on twitter. Lets hear from them.

I am amused that two Vijay, here and on twitter (vijay pahwa) JUST now noticed and posted exactly same content on business model issues, not sure if they are same vijay pahwa on twitter n vijayk here.Would love to know :). But as reporting thing could lead to controversy let us hear from management and SEBI as none of them could provide a link that this is flouting regulation and I am not sure and i failed to get any good answer on google


(bharat19) #589

I said these details could have been avoided keeping in mind the best practices followed. If a company can declare it’s numbers any time then what is the need for quaterly filings.

It gives the deal value , not the sales value
Also it is mandatory for Auto Companies to declare Monthly numbers but that too does not disclose total amount involved.
Also Companies like NBCC give monthly updates on winning of order amount but again they do not tell how much revenue they get in that particular quarter.

I think it was a kind of unintentional mistake by the company side (As benefit of doubt to company looking at great Past).
Edit: Not mistake , i will correct myself as they have done it in Past too disclosures too but does not sounds good. Do post the response you get from the company

Disc: Invested


(bharat19) #590

Thanks for highlighting these details of past filings of 2016 and 2017… Looks like it is legal but still i feel it can be avoided by company. Does not give a good impression.
Also i too replied to many of Mr. Vijay’s tweets in that particular thread. He deleted all his tweets and so then i too have to as those tweets were lying alone unaddressed to anyone.


(Roy) #591

The SEBI requirement to file quarterly results exists so that companies share their financial reports at least once per quarter. As far as I know, there is no rule prohibiting companies to share this data more frequently. The more data shared with shareholders, the better it is for all stakeholders. I don’t see how sharing this information could be harmful to the interests of the shareholders of the company.


(bharat19) #592

I had a long chat with him on twitter DM after some exchange of tweets. His final conclusion was that the cotton sector is not good for investment and money should be deployed in financials , Pharma and consumer space. He told me that many textile companies trade at 5 PE. I asked few names but did not get any from his side. Also i said that even after this great run in past , company is still cheap looking at the past and various other factors.