Hi, thanks for valuable points. However, I think for a business like textile both from output as well as raw material perspective , seasonality could be an inherent aspect of business and hence a YoY comparison could be more relevant than QoQ. Also I think 1 quarter is too small to conform any trend on working capital, receivables related things but as you rightly pointed out let us watch this for next few quaryers. The debt could also be for expansion rather than any working capital stretch. So let us watch for few more quarters .
Does anyone know what contributed to higher “Other expenses” this quarter?
Results are in line with expectations. Top line growth is strong but margins have fallen. The newer investments in knitting are lower margin, so this is expected. Yet, overall quarterly EPS has grown by around 15% which is good for this business. Increase in Other Expenses needs to be probed further though.
Balance Sheet also throws up no surprises. Inventories had gone up sharply in March but have come down now despite higher production volumes. As a policy, company discounts its receivables and converts into cash immediately. Hence receivables are miniscule. Cash & bank are around Rs.32 crore of which Rs.20 crore would have gone out for Dividend in October. This Rs.20 crore would also be the main component in Other Financial Liabilities of Rs.26 crore. Bank Borrowing and Trade Payables are interchangeable, and they are down from Rs 89 crore to Rs.61 crore. GST Receivable is the only problematic component (included in Other Current Assets Rs.23 crore) and the main reason for higher bank borrowing and doubling of interest costs.
At a little over 10X TTM EPS, I think the stock is undervalued.
Just my 2 cents on the results:-
- Reasons for the higher other expenses could be that Ambika is expensing the cost related to capex on knitting and spinning. YoY basis the amount of assets are flat in spite of the Capex is down. Question is - is this allowed from an accounting standpoint?
- @Chandragupta: Could you please explain the GST receivable issue here? Does it mean because of GST, Ambika’s WC cycle is longer (also trade payables have reduced massively)
The break up of Other Current Assets is given in the AR, and GST Receivable is the new entrant there. It seems to be the most likely reason for the increase in OCA. I don’t know how much further this will go, but if there are delays in government releasing any refunds, then it surely will strain working capital to that extent.
Can anyone please answer me why inventries is increasing yoy? I found it in Ar 201718 note 6.
Indian Cotton Output may hit 9 year low in 2018-19