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.
CAPITAL ALLOCATION RISK( additional speculation thru unlisted equity shares) —The equity markets hype is sooo high that Mr. Chandran who publicly stated that his strategy of parking excess cash in cotton inventories yielded good results for the company changed his views and invested 14 cr in unlisted nse shares along with additional investment in two listed equity shares worth 25 lakhs… This is very concerning u turn as habits like these are dangerous for companies with high cash balance…they can invest in their business or return money to share holders —- speculating in cotton stock itself is risky, now speculating in stock market that too in unlisted shares with company cash is even more risky terrain….. ( this info is in page 82 of 2025 annual report of the company released yesterday) …. I will be more worried if this strategy yields positive result for the company as they may take it as validation and pour additional money into such stuff in future….
Just happen to watch the 37th AGM on YT. It was really fun to watch when one of the long term shareholder asked the management to buy cotton using their own dividend cash and stock their house with cotton but not buy anymore cotton inventory using company’s cash. Lol. He was so furious and intense about the share price performance.
Once again, Mr. Chandran, CMD of the company had declined the shareholder’s request of doing buybacks with excess cash. He says, 18-19% EBITDA is not bad for yarn manufacturer and argues that the company is in good position and looking for future opportunities. Positives - expanding into specialised yarn manufacturing, Tuticorin port expansion will bring down the cost to an extent, Ambika brand positioning is very good, gaining brands traction.
Disc - Invested and biased due to strong balance sheet and confidence on management’s conservative approach.
Glad he declined.
Buyback is the dumbest thing to suggest in the current taxation environment. Infosys directors approved buyback, zero interest from promoters, didn’t help stock price.
I dont understand why people cannot control their language in these calls. We are a minority invetsor, if we dont like management then sell and move on. But on these calls people raise voices and at not respecting the other person. After holding Ambica for over 6 years i feel that Chandran is too conservative and not taking feedback as well. He did not give explanation of why he is buying stocks now same with Cotton. Last 10 years business has not gown and you need to take calculated risk unfortunately in the company there is no next geenration or i dont think they even have next gen mangement so how company will not scale and will become cash flow machine for owners. Holding right now as now EV to Profit is 5 times. but will need to move out eventually.
I understand the management is not ambitious and hence the situation, and buybacks also does not make much sense in today’s tax environment. But what stops them from giving rights issue or if they want to conserve reserves, atleast announce a 1:5/10 Split. That ways liquidity will also improve. Can anyone pls guide, what could be stopping the management from doing this..
I as a minority shareholder wouldn’t mind if they hire a capital allocator to invest cash flows sensibly to make decent returns on their cash as both dividends and buybacks are not efficient because of the taxes.
Companies shouldn’t have taken the tender route paying high premiums when they could in the past. They should have stuck to open market purchases paying discounted prices instead of premium prices.
Unfortunately the avenues to reward shareholders has shrunk. Only two options remain:
For those invesors who want dividends, just sell a few shares and manufacture dividends. If they are long term investors they pay 12.5% capital gains tax and not at their income tax bracket for regular dividends.
Buffet, Buyback and Cocoa Beans Story : Great example of how a company thinks of rewarding shareholders while being tax efficient.
Buffet on why Berkshire doesn’t pay dividends
Also, is it true that NAV growth in ELSS Mutual Funds that reinvest for growth is higher than those that payout dividends?
All that said, I still think Ambika Cotton management should make the case for investing a huge sum in a single company like the NSE. NSE is one player in a duopoly but why not spread out the risk?
While investing in stocks may seem lucrative, it shows either lack of confidence or complacency w.r.to their own long-term growth potential. No doubt their ROE and ROIC are in single digits and PE trading at a huge discount to industry peers.
Maybe. I hope they don’t reinvest in the business or invest in cotton just to signal confidence in their previous strategy and destroy shareholder value.
Maybe Mr. Chandran wants Ambika to go Berkshire Hathaway, he needs a Charlie though.
