I like the way you introduced Ambika Cotton, highlighting the aspects that caught your attention.I like it more because you say you are new to Value Investing - the investment thesis put up is crisp and on the money. Tells me you are a keen observer
New learners at VP and old hands too - please take note - Chetan has been able to highlight most of the things that are good to note while deciding whether to get interested in a new prospect (or not).
I have heard good things about the business, but as is my wont been lazy about looking it up. I had a quick look just now. Have the following to add to Chetan’s excellent note:
1). Super reduction in debt in last 5 years while achieving steady sales growth - something we always lay a premium on
2). Great reduction in Working Capital in 5 years - from 44% of Sales down to 8% of Sales - something that again tells you something good is playing out here - we need to break this down - Inventory, debtors, creditors - what is the main driver of this super performance?
3). Great improvement in Capital Turns -2.5x in 5 years - from 0.6x to 1.45x - tells us again the business is much more efficient today
4). Now if only Operating Margins had shown similar improvement - One wouldn’t have been able to stop me from jumping up
It’s very rare to find a business where both Operating Margins and Capital Turns both show improving trends. If you do, everyone must sit up and take note - that that could be a very special business. Because as we know - RoIC has only 2 drivers - OP Margins & Capital Turns.
5). While Margins have declined by 4% over 5 years (down to 22% from 26% and much higher 33% earlier), Capital Turns going up 2.5x has made RoIC go up from measly looking 7% to a respectable looking 18%
6). Which leads to EPA/Sales at a very respectable 5% of Sales (being a Textile company I have assumed TUF funds and WACC at 10%. if WACC is 12% EPA would still be a very respectable 3.84% of Sales
The numbers tell a good story - for a Textile Yarns company. Valuations aren’t cheap, probably fair.
Now we guys need to find out the real story - understand the business behind these numbers. What makes a textiles yarn company earn very decent margins - declining but still north of 20%?? Could this be sustainable?? Why?? At what levels??
Disclaimer: No positions; I had a first 15-20 min numbers look-up now; Please cross-check my observations - there could be slips (mis-reads)