Is margin really a confidential info?!! What they have achieved by hiding it? Has market share improved? Has margin improved?
In last 10 years market cap of ambika is hardly doubled, in other hand nitin spinners is more than 10X in same time period even after disclosing that “confidential info”, that fabric margin is 1-2% more than yarn margin.
Disc: Not invested
From what we know (from previous posters), Ambika has been exporting to Bangladesh for some time. Hopefully, with recent developments and the settling down of the country, we will see a smoother flow of transactions. The article is not too positive, but since the country will need to continue to commercially transact, I would assume the business sector will push for the normalcy that was missing so far. From what I know, India is the largest supplier of raw cotton to Bangladesh, fulfilling over 60% of its raw cotton requirements. The Bangladeshi textile industry employs around 4.5 million workers.
Below some numbers, please recheck.
| Type of Cotton | Export Volume (2023) | Export Value (2023) |
|---|---|---|
| Raw Cotton | 1.5 million bales | $1.35 billion |
| Processed Cotton | 1.2 million bales | $0.83 billion |
| Total | 2.7 million bales | $2.18 billion |
The textiles sector is in trend these days. Once the textile companies were not favourites even at P/E below 10 and now the sector has caught attention. Don’t know how long the frenzy goes.
Regarding Ambika , though a great management but a lot of cash is stucked into inventory. The margins were once around 20%+ 4 quarters back but have been below 15% in last 4 quarters. Do not know what gains they got for holding the inventories.
There are reports of early Cotton Crops in South. The sowing area is also increased vis a vis last year. A good Monsoon is seem to be on the table. Cotton prices may cool off. Lets see how Ambika dilutes it’s inventories and reaches back to 20+ Operating Margins. The sector seems to be Street’s favourite right now. Let’s see for how long.
Farmers start sowing early cotton varieties in Indore div - Cotton: Farmers start sowing early cotton varieties in Indore div | Indore News - Times of India
Cotton sowing begins in South India as monsoon advances Cotton sowing begins in South India as monsoon advances - The Hindu BusinessLine
Disc: No Investments in Any textile Stocks. Watching the space and learning.
Disc: Not invested
Summary:
Bangladesh’s garment factories, which account for 90% of the country’s exports, have reopened after a period of unrest, with factory owners assuring Western buyers of their reliability despite recent disruptions. The industry estimates a loss of six days of production due to the instability, which erupted in mid-July following large-scale wage protests last year. While the situation is now stabilizing under the caretaker government led by Nobel laureate Muhammad Yunus, the combination of recurring bouts of instability, higher wages, and long-term infrastructure challenges are raising concerns about Bangladesh’s competitiveness as a garment exporter.
Meanwhile, another low-cost rival, India, is gaining, thanks to its ability to produce its own fabric, which saves production time.
Ambika deals with supima and giza cotton and thus tracking international Cotton prices will be more appropriate
And Global Cotton prices have been plumbing the depths for the last two years.
AGM on 27 Sep 2024
Not invested:
Will we see a turn in the cycle?
The company continues to deliver average results. EBITDA margin continues to be much below the past levels, and this mainly seems to stem from the fact that RM cost as a % revenue has stayed around 67-68% in the last 5-6 quarters as against 60 to 63% levels seen over the past few years.
However, the decline in profit margins is better explained by the volume and realisation data of the last few years.
All figures in Cr
| ACM - Company level | Yarn | Knitted Fabric | Waste Cotton | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year | Total Revenue | EBITDA% | EBITDA/kg | Production | Sale | Revenue | Realisation | Production | Sale | Revenue | Realisation | Production | Sale | Revenue | Realisation |
| 2024 | 823.46 | 13.4% | 43 | 1.65 | 1.22 | 482 | 395 | 0.62 | 0.61 | 231 | 379 | 0.74 | 0.73 | 88 | 121 |
| 2023 | 847.5 | 20.7% | 78 | 1.83 | 1.09 | 527 | 483 | 0.41 | 0.41 | 185 | 452 | 0.79 | 0.75 | 105 | 140 |
| 2022 | 920.52 | 29.4% | 97 | 1.91 | 1.24 | 505 | 408 | 0.72 | 0.71 | 298 | 420 | 0.85 | 0.85 | 76 | 89 |
| 2021 | 633.36 | 19.9% | 46 | 1.63 | 1.16 | 317 | 273 | 0.75 | 0.83 | 240 | 289 | 0.71 | 0.73 | 58 | 80 |
| 2020 | 623.09 | 17.0% | 38 | 1.8 | 1.2 | 323 | 269 | 0.85 | 0.8 | 221 | 277 | 0.78 | 0.76 | 63 | 83 |
It is clear from this data that production and sales volumes have broadly stagnated for last several years and all the revenue growth has come from increased realisations brought about by high cotton prices. A very important thing to note here is that EBITDA/kg (on blended basis), has remained stable over the last 5 years, barring 2022 and 2023, which were years of exceptional profitability caused by inventory gains.
Thus, margin decline might be just optical, and there is no real deterioration in pricing power of the company. ACM seems to be operating on a cost-plus model rather than a fixed-margin model. This means two things -
Finally, the management seems well-intentioned, and to be fair they are dealing with tough external environment. But the idea to look at the business from a perspective of capital efficiency seems to be missing.
