Ambika Cotton Mills

See recent AGM video on YouTube. The Chairman opined that the slump was almost over and Demand should pick up after December 2023.

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Last three Quarters `Preformatted the EBIDTA for Ambika is down vs their historic 20 %. Working capital interest cost has increased 3 times vs last Dec though they have so much money in FDs. Promoters are not finding use of the cash, they are not expanding or buying. It is good though 1large portion of electricity is now with the wind.

Hope this compression in EBIDTA is due to the high-cost inventory of cotton that they carry not because of loss of margins for good.

Disc: Invested since 2017 here

As per the last BalanceSheet published in Sept23, Cash Equivalent was 234Cr; whereas short and long term borrowings were ‘Zero’. Am not able to understand what is accounting for this Interest cost?

The inventories at 496Cr!! Almost 96Cr rise in last 3 quarters!!
More than 2 quarters of sales is tied up in inventory…

If its raw cotton inventory, why do they speculate and buy so much in advance… Does it show that they are not able to pass down the increased raw material cost and hence consider hoarding cheap raw material as their real moat…

What if the cycle does not turn soon and they are forced to liquidate at the low point of the cycle after holding for long? Why cant they hedge through commodity exchanges. Currently they are not doing the same, check point 6 below from their last annual report.

I was hoping that finished goods would be a small miniscule portion of this inventory, since that would loose value as the fashion fades in future. however the below disclosures in their last annual report (Mar23 data) are a little worrying. Raw Material had increased slightly from 165Cr to 188Cr, however Finished Goods had increased from less than 29Cr to 165Cr. (as per last annual report). Only hope can be that the FG is majorly in yarm form rather than knitted as mentioned by @sunilkumarca3101 above
But pls note that Knitted Fabrics is more than 22% of Revenue while Yarn is 64%; so inventory can be in similar ratio…

Disclosure: Holding since i consider it cheap, however now worried that it maybe cheap given this reason of growing inventory over multiple quarters…


The observed correlation, as illustrated in the diagram provided by @jose, supports the above notion that an increase in cotton prices translates to commensurate gains in market returns.


I would say that the understanding of cotton cycle would be their moat instead of hoarding cotton. And share of Knitted fabrics could be less than the ratio of turnover for last year. Knitted fabrics would be mostly manufactured on order due to the very same reason you mentioned. I think it is to optimise the various costs that the company is converting at a faster pace than they are selling. The company is seen becoming stronger after each cycle.

Hi @Jose, Maybe understanding the cotton cycle is their real moat; but then instead of tying up cash in inventory what stops them from hedging Cotton at Agri exchanges like MCX

Inventories as you very well explained in your previous post have actually seen a steeper rise; As per Dec Qtr results, crossing 60% of annual sales for the first time in the last decade. Proportion of FG inventories have risen which is more worrying;

Wish if we had more details around FG inventory type, Yarn Vs Knitted Fabric…

Why do you think they are becoming stronger in each cycle?

It is not about hedging cotton. It is a mindset. They operate on pull model, do not dilute their brand and sit on Inventory during downtimes. They sell only on certain profitability even if it comes at the cost of holding inventory.


This is one thing I like about this company. They are ethical and whatever may be the situation they won’t sell at lower margins/profitability. But I wonder how the CS and CFO are working with such low compensation. This is a company that when the cycle turns will give handsome profits and the rest of the time will just do okay. This is not the one that will compound profits at 15-16% and it will always give lumpy returns. Risks are very limited in this as well as rewards IMHO.

Disc- Holding for the last 7 years.


Govt have removed duty on extra staple cotton.It will benifit Ambika Cotton


Absolutely, from 11% import duty to Nill. Should help the bottom line of Ambika
India uses 20Lakh bales of extra long staple (ELS) cotton while local manufacturing is only 5L bales. Rest are imported.


The reduce in Import duty would definitely be an improvement going forward , however considering they have a huge stock pile of old inventory on which they have already paid the duty this may be a bit counterintuitive. Their competitors will be producing with the lower cost raw material.