ValuePickr Forum

Ambika Cotton Mills

Q3 and nine month results

Looks decent to average to me.

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What will be impact of following factor on Ambika considering >80% of total sales from export -

(1) Stronger INR against US $ (Forex loss)
(2) Threat of Trump on imposing import duty on products imported from India
(3) overall lower demand of cotton yarn

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Its not clear from the article if cotton yarn is one of the products covered under GSP.

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Ambika exports were 57% last year and exports to North America just 3%. Not sure where you got the 80% figure.

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Approx 45-55% export has happened in last 5 years as a range. Bulk of export happens to Asia and to some extent to Europe if a remember. Here is a small extract from one of notes I had posted few months back “Geographical distribution of revenue includes 50% domestic, 46% APT and 4% Europe where in 2016-17 Europe showed 40% Yoy growth, 10 % growth in domestic and 5% degrowth’m API business”. So, I dont see how you got first 80% and number and second , its export dependence on USA. Could you highlight source of information?

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Hello,

I hold Ambika cotton. I have confidence in the management, but there seem to be very few updates on the company. Don’t you think that while some promoters market their companies excessively, Ambika Cotton is on the other extreme.

Also, could you suggest where I could get more updates on the company.

Thanks

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Sarthak,

This is very typical for such dull and boring businesses, particularly when management doesn’t like to come on media.

However, they have been pro-actively providing updates on capex plans, utilization etc. in the quarterly results. You can also write to management and they generally reply quickly (I had asked them couple of questions earlier and they had published press release for benefit of other shareholders).

Alternatively, you can go to AGM and interact with them to understand various aspects.

Disclaimer: Invested

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Adding to Vivek’s point , I would like to highlight this point that more than count of update, the quality of update n the relevance of information also matters. What I want to highlight is in comparison to lot of coloured PR driven annual reports with big jargons n filings on some petty news etc, what I ve seen in those brief 100 pages of AR , Ambika provides lot of qualitative n operational information around product quantities , price , raw material quantities , price , execution n CapEx plan etc . Some of these information points are very useful to connect operational data with financial data to bring the story out. Many small size companies miss these important aspects . So, though yes, they are not active on concalls n regular updates , they do provide some really useful stuff in AR n as Vivek said , feel free to write to them.
One more thing which has helped me is going through peer concalls like Vardhman to get sense of industry at least if not specific to Ambika . We can always be hopeful and may be in AGM can request for concalls as suggestion

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Some Key Points-

Exports of Ready Made Garments are under pressure. Exports dropped 3.46 per cent to $16.37 billion in 2018-19 from $16.7147 billion in the year-ago period. India’s garments were 10-15 per cent costlier than other competing countries. Indian exporters are also over dependent on a narrow product base. This made matters worse. In the last five years of NDA rule, the year 18-19 was the worst for exporters. Textiles, especially the garments sector, has been a major employment generator with 45 million being employed directly and 20 million being employed indirectly.

Meanwhile, exports from Vietnam and Bangldesh grew 11.19 per and 13.7 per cent, respectively, in 2018-19. Care Ratings said, “Bangladesh, Sri Lanka, Vietnam have low production cost and exporters there enjoy preferential duty access in key markets.” This also contributed to making India’s exports less attractive.

According to Tirupur Exporters Association (TEA), which represents $3.72 billion of knitwear exports, “Under the goods and services tax (GST), there was almost a seven per cent reduction in the incentives that earlier helped exporters to be cost competitive. Incentives were withdrawn after the implementation of GST.”

Exporters feel they would not be able to compete with Bangladesh and Vietnam and are now focussing on diversifying their markets to countries like Japan, Israel, South Africa, Hong Kong and others. However, according to a large corporate exporter, the sector should reduce its over-dependence on cotton casual wear to be able to cater to global markets better and increase exports.

CARE estimates that exports will remain subdued in the near future, growing marginally in rupee terms, and declining in US dollar terms due to competitive pressures from other countries.

India needs to increase its production of MMF-based apparels to remain competitive.

“I feel that we are finally turning the page after about three or four years of stagnancy or slight de-growth. Monthly export charts show a year-on-year growth from October onwards. Support from the government has gone up. Exports from Bangladesh are becoming expensive and Vietnam is showing signs of reaching the peak of its capacity,” added Mehta.

Buyers are getting more stringent on compliance and seeking faster delivery as market dynamics and preferences are changing faster than before. Indian textile exporters have to adjust and deliver products faster if exports are to revive.

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With reference to recent hike in tariff by 25% on import of Textiles under HS Chapters 50 to 60, from China into USA, there is a vast scope for increasing export of all types of fabrics from India to USA.

this should give ambika good scope to expand further into this territory

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Some newbie questions.

What is the % of contribution of China to US Textile exports and currently what % of exports happens from India?
Do we have a price advantage compared to other exporting countries.

disc: Tracking, Not invested

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As per Tijori, in the case of Ambika cotton, only 3.1% of exports out of 57.5% total out of India is to North America. So this may not make a big difference to Sales or P&L for Ambika Cotton.

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i am not sure this is relevant but i recenty visited europe and america (last year) and in primark forever 21 and most of the shops the cloth was either from china or bangladesh vietnam

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Another steady quarter implying steady run-rate of utilization for the company.

Key points to focus:

  • They have invested ~30 crores during the year (16 cr in knitting; 13 cr in spinning and rest in building works)
  • All capex done from internal accruals
  • Good part is they have announced INR 30 for final dividend despite this outflow for capex
  • From fixed assets figures it looks like new capex is almost done and its effect should start from next quarter
  • Their working capital borrowings stand at ~88 cr; I would have liked if they would have repaid this instead of dividend payout

Disclosure: Invested

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Increase in bank balance by more than 15 crs and simultaneously increment in borrowing figures. Can you please share your views on the same…

Thanks for summary.
I feel as this is not a long term loan, it is fine to pay dividend for long term share holders. When I attended AGM few years back, I met lot of investors who wait for these dividends.

Thanks for this update. Do you know the reason behind steady topline despite the capex and capacity increase? Is it because the increased capacity is still not online and hence its effect will start showing from next quarter. Or is it because of decrease in realisation?

The new spindle capacity was scheduled to come online in August 2019 if I remember correctly.

Not sure about realization, very difficult to make out directly from financials.