I agree partially on that need Vs want senario that you explained here. however using you senario, are we saying that if we used to buy 50 sherwanis every diwali, we are going to buy 0 this diwali and henceforth? I don;t think so. China has a big export market share, now increased duty would mean higher prices and lower demand. But that demand still exists at lower prices and I think that supply chain would get moved elsewhere from china to fulfill the demand at lower price. This might take little bit time but would happen eventually. Take for example toys. China exports majority of toy’s, but increased duty on toys meant that china’s share had to come down. Major toy manufacture’s are setting up factories in India and Vietnam to avoid duties. something like that will happen in case of cotton as well. Just because china has to pay increased taxes doesn’t mean that demand comes to zero forever. Value added stuff moving out of china and actually benefit india and players like Ambika and factoring this, its actually sitting at a very good price right now.
Logic is correct, that demand would get fulfilled some elsewhere. However, when there is a disruption, that too amidst a recession where the overall demand is shrinking, one cannot be certain as to what might happen in the short term. Considering, that it is a working capital sensitive industry.
Market paid 3.5 PE for four full years because textile companies are not much to writhe over.
One mustn’t take too much risk in mid/small caps. Buying at historically safe valuations is best. Whatever buying, that one might want to take should be restricted to large caps of industries one understands.
Agree need to be cautious and not be to too much bullish but these are exactly the times when good business are available @cheap price . For me this whole China duty issue is overAll positive for India and it gives tail wind to move up the chain. Other than this fed is cutting rates , this is very positive for EM. Expect money moving in soon to EMs and India . Temporary issues will get resolved , but it’s difficult for retail like us to come to price targets , overall it’s a good time if you are sitting on cash.
This stock will show a couple years of consolidation, and then an uptrend provided order management remains true.
Buying a good business at at reasonable price is the challenge. Ambika has poor growth, it is less than 5%. Therefore I will not want to pay for the future growth.
I turn to the market itself, to find out how much it wishes to pay for the stock.
Promoter has bought 8000 shares in the market today
This could be a very long term bet. The near future looks grim, to say the least.
This is one sector which has been affected most by Trump-China’s recent stand off
One Big factor to watch out related to textile sector is the cotton prices. Cotton prices are at multi year lows and sitting at multi year support levels. If cotton prices move up from here, coupled with rupee depreciation we could see sustained increase in Operating margin of all companies the sector after cotton cycles start moving upwards. Short term there is pain for sure, but upside potential might be good as well.
@Pragnesh It is on the BSE website. Here ->
https://www.bseindia.com/stock-share-price/disclosures/insider-trading-2015/531978/
Ambikka cotton mills AR 19 Notes
Revenue growth of 11 % to 659 cr .
Gross profit growth of 6 % to 115 cr
export turnover constituted 69.05% of the total turnover as against 57.46% in the previous year
during the year Company has further invested Rs. 1599.05 Lakhs in Knitting segment and Rs. 1316.84 Lakhs in Spinning segment .
The Company has made an application under Single Window Clearance, covered under Investment under Global Investors Meet 2019, Organised by State Government of Tamilnadu, in respect of implementation of envisaged expansion of spinning segment.
The proposal is under the advanced stage of all clearances and the MOU will be signed shortly by the Company and steps have been initiated for implementation of the project.
Dividend of 30 per equity share
Cotton yarn contributed 54 % to turnover of the company
Knitted fabrics contributed 36 % to turnover of the company
Rest was waste cotton
Promoter holding constant at 49.997 %
Total managerial remuneration – 33 lakh( extremely low )
The Company, on account of manufacturing specialty cotton yarn, continues to have good demand for its products and has created specific markets for its products. This ensures more sustained profitable operations
The Company has installed windmills for 100% of its captive requirements
Qty of cotton knitted fabrics sold has increased from 48 lakh kg to 86 lakh kg.
Qty of cotton yarn sold has decreased from 154 lakh kg to 129 lakh kg , as more of it has been captively consumed for making knitting fabric
Sale to top 3 customers amount to 251 cr ( 40 % of sales)
Indian operations have seen a drop-in sales considerably, which is understandable given the state of textile industry in India.
Asia has done pretty well on a big base.
North America has done great but on a small base , can be interesting if the company can scale in this geography in the future.
Overall I believe it was a decent year for the company in a tough environment. Company was able to maintain its wonderful margins . With the expansion coming online company might give some growth in the future . Company is available at interesting valuations , P/B of nearly 1 , with P/E of 8 and a divindend yield of 4 %.
Disc - Invested
It is interesting that the company has already achieved the turnover of ~Rs.231 cr. in FY19 from knitted fabrics. The realization has increased from Rs.204.85 / kg in FY18 to Rs.266.8 / kg. in FY19. This is significant increase of 30% in realization for knitted fabrics.
The company has also increased the knitting facility from 30,000 kgs per day in FY18 to 40,000 kgs per day in FY19. As per last year’s AR, the target was to increase it to 37,000 kgs. per day.
If the company is able to sustain the increased realization in knitting and operate at 90% capacity then the sales from Knitting could be approx. Rs.336 Cr. in FY20.
Agree, the company has shown resilient performance during tough year. On expansion front, I believe broadly if we assume 30% increase in spindles (roughly 30k on base of 1.1 lac spindles currently), and if capacity is fully utilized in say next 1 year - the marginal increase in bottom-line won’t be much. Reason being depreciation. The new capacity will be at current cost and will start adding to depreciation. This will broadly offset the increase in EBIDTA due to new capex. So, we will definitely see spike in terms of EBIDTA and thereby EV/EBIDTA valuation multiple will improve.
However, PAT might optically look low (though operating cashflows will improve). In eyes of investor therefore it might not be seen as growth implying reduced re-rating probability. Would be good to see how they use this incremental cashflows (incremental capex or buyback would be ideal).
Free Cash Flow has not been generated for past two years, this will cause the Debt to rise. Probably due to the mill increasing production capacity. If they are serious about growth then they should ease out on the paid dividends.
Share prices are on a downward momentum, and has corrected 40% from the top. Dividends too should reduce.
another 10k shares bought by P.V.CHANDRAN yesterday.
What I can see is they have repaid huge amount of trade payables (c.51crores extra paid) and are now left with only 7 cores of trade payables, which affected their CF from operations.
This coupled with capex spend (30crores) increased their debt position (88 crores). Debt I think will come down going forward even if they maintain same level of dividend due to enhanced Operating cash flow arising from new capacity and no major upcoming capex
My concern stems from another set of numbers.
I see the numbers in the quarterlies and they are inline, from whatever little I understand. But, there is another set of data which I want this thread members to look into.
I tend to rely a lot more on what the market thinks about a company more than what I ascertain of it. A few years ago, the same business was given a rating of 4 PE by the market. From, 2007 to 2014, ACM traded below 5 PE. There has not been any dramatic change in the business dynamics since. Then why is it now alright to pay 10 PE which is double as much?
Market knows about the vagaries that come about in the textile industry. There are ups and down, which are even more prominent in Small and MId caps. As investors we ought to take advantage of it. Apparently now we are in the Up. It is wise to wait for the Down.
Finally speaking. This is a good small cap stock, inspite of that I will wait for PE 5 levels. At that point, this will be buy-and-forget kind of a stock. 5PE may happen as EPS increases or price falls. I am counting on the latter.
Normally when you integrate vertically from yarn to fabric, margins should rise as you are capturing a greater share of the farm-to-fabric value chain. But Ambika’s margins have continued to fall. My guess is that the foray into fabric uses ordinary cotton sourced locally, while the premium yarn business is on a decline. The knitting foray is thus not a forward integration in true sense. Premium cotton is not produced in India and Ambika’s imports have fallen from Rs.352 crore in FY18 to Rs.260 crore in FY19. Premium yarn was Ambika’s moat, and gave it the high margins it commanded at the marketplace. Not any more.
There are other signs as well that the fortress is being breached. After being almost zero debt two years ago, interest costs have begun to rise once again. Most importantly, cash flows have dwindled from Rs.67 crore in FY17 to Rs.16 crore in FY18 and Rs.10 crore in FY19. Even the dividend (Rs.20 crore outgo) will now be paid out of borrowing, leave alone have money for capex. Obviously, the proposed greenfield facility in Dindigul will be debt financed. But in the absence of its traditional moat, what economics the new plant will have is anybody’s guess.
The story is changing, and is no longer what it was when I invested five & half years ago. With great regret, I exited the stock this week.
That kind of PE levels came after 5 years of bear market following a major major high … with complete pessimism . If at all some day we see good stocks back to same 2013-14 levels … that would only be after a very prolonged bear market. If you have an opinion that 2018 was a decade kind of top we might see good stocks at 2013 levels in 2-3 years from now . The bet that we are playing is that if this current slowdown is going to prolong even more and if you we wait that out.
I think we have already bottomed out and we won’t go much down here. Banks have completed provisioning and liquidity should come back in system… even these prices will become history in a years time.