AYM Syntex (was Welspun Syntex)


(Vishnu Ch) #21

Will do the analysis and revert back.
But thanks for making the clarifications on Debtor days.

Coming to the margin improvement, i think mgmt’s efforts are a bigger factor.
Hopefully the peer analysis should paint the correct picture.


(Ankit Gupta) #22

Hi Vishnu,

I have the data for few of the peers in the synthetic yarn industry updated upto Q2FY16.

Pretty good results by the company. I think on revenue growth, one should consider Abhishek’s statement that they were also into trading last year which they have phased out in current year. Also, Q4 was the period when crude oil prices had plummeted to USD 30/barrel levels. Good thing is that they have started sharing the volume numbers in the concall.

Peer Comparison.xlsx (17.6 KB)


(Prasanna Sankaranarayanan) #23

Management is showing good operating margin growth. One thing I’d add to the discussion is, if the management does a great job and fully moves to an OPM of 15% this year (FY17), we still end up in a fwd PE of 9.11 and if you add the debt, 1-year Fwd EV/NetProfit of 12.5;

This is because the full tax rate will be kicking in.

Assumptions:
7 Cr depreciation and 6 Cr interest payment for all 4 quarters. Last quarter: Depreciation=6.8; Interest=6.2
Tax rate is kicking up fully to 33%; Last quarter tax rate = 33%
Sales growth = 0%; Last year sales growth = -10%


(Vikas Pandey) #24

increase of OPM to 13% is a remarkable thing indeed , it has doubled in 3 years


(JatinK) #25

Went through AYM Syntex concall. Here are my notes-

AYM SYNTEX 1Q17 Concall Notes-
Volumes grew by 5%. EBDITA % slightly gone down QoQ. Commissioned new Nylon line, this is going to be the last one.
Now will spend more time on value addition & product development rather than capacity increase.
Lot of plant up gradation needs to be done, non- revenue increase projects.
Automation, quality improvement, wastage reduction, talent focus – work going on.
Lot of activity on reducing working capital – non productive inventory, debtors. Working on improving quality on BCF.
Company focussed on extreme long term horizon, at cost of short term. Short term might be lots of pain but want to get ready in terms of process, capability, and infrastructure.
1Q17 volume – 14,983 MT v/s 1Q16 volume of 14,110 MT.
Adding fresh talent, brining new skills to company in every department. Added 20 new GET (Graduate engg. Trainee). Expect to continue in near future.
Competitive scenario- higher esp in domestic market, external pressure hurt margins this quarter. Will get tougher. Looking for new products to mitigate this.
Executing trail orders in a few products. Making progress in right direction. Generally 1-3 yrs required for commercialization of new products.
Some upgrade in product mix (compared to last year) helped in EBDITA /kg number.
Putting system in place to start tracing revenue from innovative products.
Current capacity utilization = 90+%
Looking at low/high single digit volume growth.
Want to make core business stronger before looking at other ideas like garmenting. Focussed on yarn only, currently.
For commercialization thresholds mainly look at- opportunity cost (what are doing currently)
Top competitors- Sarla, Century enka, Filatex
China is far ahead of India in synthetic yarn. One- two large plants there are larger than entire India market.
Our USPs- Low labour rates, quality. Right quality at lower prices. On innovation, we are not selling anything too innovative currently.
Expectations from Value added products- margin should be better than current.
Exports- 181 cr (fy15), 197 cr (fy16), 43 crs (1q17)


(JatinK) #26

To me, looks like company needs to work on a lot of internal things in short term, hence can’t expect them to do great in short term.

In long run, they are looking for highly customized, high margin innovative products…
Can do well in long run, if you get success in doing that.

Request guys who are following more closely like @ayushmit, @desaidhwanil to correct my understanding on this.


(Saket) #27

When I was in school, I was often called upon by school teacher whenever my younger brother used to do any mischief. I was at times also scolded due to ‘his mischief’

It is funny that today when welspun has done something in which Aym has no linkages, the market is responding in the same way.

Aym is today is a separate legal entity altogether. It is having separate management, Yet it is down 12% for no plausible reason apart from the welspun fiasco.

Requesting Members views

Regards,
Saket

Disc - Not invested, but looking this as an opportunity to buy.


(Ravi) #28

Well it isn’t that simple. I have been discussing the impact on AYM with a fellow value-pickr -

  1. AYM’s sales to welspun is ~80cr or roughly 10% of total sales. And I understand they sell only BCF and not cotton yarn to Welspun. Not too big for AYM to worry. But when one of your large customers to whom you sell is going through distress, it might impact your receivables. Am still ok here.
  2. What about the reputational impact for the group? There are a few companies which always trade at a lesser multiple in the same sector - why? (DHFL vs Peers) This to me could shave off some valuation multiple and could de-rate the valuation multiple permanently for a few years.

I am one of those who has been negatively biased on AYM for the last 1 year (since 150 levels). So take my views with a pinch of salt.

Thanks,
Ravi S
No positions


(Marathondreams) #29

I think most important point to notice over here is what kind of linkages/independence AYM syntex has with Welspun India.Being separate legal entity is of less importance here. If they are two sides of the same coin, then I think market is right. If it is totally independent entity with “arms length” , then this could be buying opportunity.

If not, well as per famous saying " There is never just one cockroach in the kitchen!" . Better to be safe than sorry!

Discl: Not invested but on watchlist


(sagararya) #30

This company looks interesting to me now…they have a good product mix and I like the way the management thinks…it runs completely independent of Welspun India and 75-80% of their revenues coming form the domestic market … so the threat of scruitiny from clients (even if there has to be one) is low

What do the other boarders make of this situation?


(amit anam) #31

http://www.businessinsider.in/Egyptian-cotton-sheets-might-not-be-what-you-think-they-are/articleshow/53915759.cms


(Yogansh) #33

Had a discussion with a fellow VP member on this whole Welspun India-Target fiasco and how one should view AYM Syntex amidst all this panic. Several thoughts and concerns were exchanged and in those 30 minutes he drew my attention to a brilliant point- “Salad oil scandal & Buffet”.

Whenever any big event happens people tend to history- looking for a similar event, so as to understand the current scenario better.

Same way investors are drawing comparisons between the Salad oil-Amex scandal and Welspun-Target fiasco. Using Buffet’s action as the case study. But, the twist here is some investors are looking at Welspun India as the opportunity to enter at low price and not AYM Syntex. What we need to understand here is that in the historic event the core business of Amex wasn’t impacted, it was the non core business which faced the heat and so…Buffet’s action to take substantial position in Amex made sense and benefited him over the course of time. Here, the AYM syntex business stands in a somewhat similar position (as it is a seperate entity and has a different product mix).

I found this above discussion to be interesting and worth sharing with the wider audience.

On the similar note I went through AYM’s Q1FY17 concall, sharing my notes below:

  • Nylon line is now commissioned. It was the last line addition, will now focus on value addition and product development.
  • Total capex outlay will be 80 cr over 12-18 months. These are part of debottlenecking- constructing building/infrastructure, plant upgradation etc, will not yield immediate result and will try to fund via internal accruals and less by way of debt.
  • New product development is a key focus for the co.
  • Co is also increasingly focused on Direct acquisition.
  • Old inventory, non productive inventory etc is blocking WC and co. is focusing to bring these down. Will not be sizable amount but co is focusing to improve WC.
  • Production in Q1FY17 stands at 14,983 MTs.
  • Capex in Palghar dyeing commenced but is still facing issues.
  • Utilization is 90%.
  • Volume growth will not touch double digits.
  • Exports 43 Cr for Q1FY17 .
  • Bringing new skill via recruitment in almost all division. Thus, a rise in employee cost.

Regards,
Yogansh Jeswani

Disclosure: Invested


(Vikas Pandey) #34

You have created a hope again ,


(hrfacebuk) #35

Sharing link to a Pre-feasibility report that was submitted by AYM to the environment ministry for environment clearance in March 2016. It says it is for the proposed expansion plan for manufacturing of Polyester Filaments Yarn and Partially Oriented Yarn,Synthetic Filaments Yarn and POY Mater Batch (Colour).

The document also says that “Now the company has planned to go into expansion of its existing unit by addition of new products manufacturing “ Synthetic Filament Yarns @ 150000 TPA and POY Master Batches (Colour) @ 600 TPA“ of various properties using Polyester and Nylon Chips as raw materials within the premises of existing unit.”

Its a good project document giving a peek into manufacturing process etc. I don’t think I heard the mgmt. talk about this in last couple of concalls. Capex that management has been talking about on concalls was mainly for debottlenecking etc. rather than capacity expansion.

This looks like mgmt. gearing up and keeping all approvals/clearances in place so that they can expand rapidly whenever they feel the time is right.

Environment ministry in July 2016 has asked for some addtional information (link) on the above proposal.

Few other links

  • Covering letter submitted by AYM for the above pre-feasibility report

  • Some Form1 containing project details on the environment ministry website

Discl. and Disclaimer: Forms 5% of PF after today’s purchases. This is not a recommendation to buy or sell. Please do your own due diligence.


(Ayush Mittal) #36

Hi, I don’t think we should draw a parallel. This seems to be very serious and concerning issue for the welspun group…it’s breakage of trust and can lead to bitter customer relationship which is not good for long term. Reputation once lost is not easy to regain. Though this may not impact AYM directly but it does bring a question mark and may make it harder for the company to make new overseas clients. In the case of American express case, the fraud happened on them and not the other way round. So we shouldn’t draw parallel. How the welspun group handles the whole problem will be critical going forward.


(Saket) #37

I raised a Query with the management as to whether they have received any problems from their Customers. For this Query I received a reply directly from Mr. Abhishek (Wholetime Director) -:

"We are in the business of synthetic yarns and not bedsheets and towels. Our customers are different from those of WIL. None of our customers have stopped business with us in the context of the WIL issue. "

Though One could have assumed that there is no issue with AYM… but coming from Management, I guess this is a bit assuring.

Best,
Saket


(hrfacebuk) #38

Hi Saket,

Management reply is on expected lines, but still good to hear something from them. Such a scenario if at all can have an impact, then it would have while bidding for new orders or while acquiring new clients.

Becomes all the more important for companies to stay close to their client during such situations.

Lets see how it pans out for AYM. I personally feel that it wouldn’t have any major impact on AYM (atleast in the long term).

Cheers.


(Yogansh) #39

Sharing the links of latest credit rating reports.

Aug 12, 2016
http://www.careratings.com/upload/CompanyFiles/PR/AYM%20SYNTEX%20LTD-08-12-2016.pdf

Feb15, 2016
http://www.careratings.com/upload/CompanyFiles/PR/AYM%20SYNTEX%20LTD-02-15-2016.pdf

Regards,
Yogansh Jeswani

Disclosure: Invested


(Apurva Shah) #40

Hi,

Has any of you guys met the management recently? Just wanted to know their assessment due to group company impact on their business.

My personal belief is that they try to connect with investors through conference calls and meetings, but still they need to improve their communication. Investors will fed up hearing similar things.

We have been hearing of expansions (strangely more on warehouse and other infra buildup), new product development and vision / strategy for future since more than 8-10 months but still they refuse to talk more for product development (If i am not wrong they supposed to do some announcement in Feb 16). Undoubtedly the margins are improved in recent quarters but which products has contributed to it apart from commodity benefit, no proper justification. So I have observed mix thoughts.

These are my personal thoughts, any comments are most welcome.

Regards.


(anoop) #41

Looks like Walmart might stop selling Welspun products http://www.reuters.com/article/us-welspun-india-walmart-idUSKCN11G02A