हिंदी – My new portfolio stock – Ambika Cotton ( Analysis)

हिंदी – My new portfolio stock – Ambika Cotton ( Analysis)


Hello investors , my name is Sagar and in this video we’ll talk about my new portfolio stock we will talk about their business model , financials and valuations Let’s start with the management. The MD is Mr. Chandran The company, incorporated in 1988 was promoted by three people. Two of them exited between 2005 – 2007 and Mr. Chandran stayed. As you may already know , when I make analysis videos , I always like to tell you something more about the management but in this case , there were no articles or interviews about him but I want to share two main points. The first point is remuneration. Sometimes the management is paid very well compared to their profits Ambika Cotton earns 50 – 60 crores of profit and the salary of Mr. Chandran is only 25 lakhs You might be thinking that he is earning from other sources Many times , when the company increases their profits from the previous year , a small percentage is given to the management So, for example , if you earn 100 crores one year and 200 crores the next year a small percentage will be given to the management as they did a very good job but in this case , you can see that Mr. Chandran takes nothing when the company increases their profits and that’s because he holds 10 % shares of this company The second point is the management of debt. In the past , their competitors were taking debt to increase their capacity when the demand was high The textile business is very capital intensive. You need a lots of machines , properties and raw material So their competitors decided to expand with debt. But you also have to pay interest on that debt just like you pay interest on your home loans. In this case , the management didn’t want to take any debt. They used part of the profits to improve their machines instead of adding more. This helped them increase their output. Let’s talk about their business model. They operate in three main segments. First , we have cotton year, which contributes 72 % to their revenues. Knitted fabrics contributes 17 % to their revenues and waste cotton contributes 10 %. You might be asking what do they mean ? Let’s start from the beginning so I can explain you the process Let’s start with the raw material , cotton. We will get this from the cotton plants. Usually , when we talk about cotton, we think there is just one type but in reality there are different types of cotton Cotton is composed of different fibers, also known as staples. We will talk about this later in detail There fibers will go through spinning/twisting to with the help of these big machines this process will help us produce yarn, which is the end product This company earns 72 % of their revenues from this yarn segment. Their clients use this yarn to produce their fabrics. But then they though , why don’t we start doing the next process as well ? Now, they take this yarn and start knitting it. Knitting means making loops with the yarn. This will give us fabric as the end product They sell these fabrics to their clients as well and this contributes 17 % to their revenues The knitted fabrics segment is new and they started some years ago and they are expanding rapidly as the demand is very high But we still have the last segment, which is waste cotton. The whole process we have mentioned produces some waste but this waste can be used for some other products such as mattress , sofa set , cleaning clothes but what’s so special about this company ? The textile industry is not so lucrative or special Let’s understand how the industry works. They buy cotton from the local market they are able to produce yarn with it and they sell it to their clients through agents but if everyone is buying the same cotton from the market , there is nothing special in their yarn. They will be able to sell it at the market price. What’s so special about Ambika Cotton ? As I mentioned before , cotton has many fibers and there are three main types of fibers : short , long and extra – long This is divided according to the fiber length. Their competitors, usually use short and long fibers or staple Short staple is the cheapest and extra – long is the most expensive. Ambika Cotton uses extra – long staple There are many advantages in the extra – long staple. The yarn they produce is very soft , light and breathable among other properties. The yarn they produce is very special. That’s why they import the majority of their raw material from Egypt and US They sell this yarn to companies which have premium products. Now you know the first advantage, Ambika Cotton can sell their product at a higher price compared to their competitors When you look at textile companies, they usually have between 100 – 150 clients. In the case of Ambika they just have 10 – 15 clients and they have been doing business with the same clients for a very long time and that’s because their clients trust them There is one more point. Normally , textile companies produce the yarn first and then they look for the clients to sell. but , if they aren’t able to sell their product , their inventory will increase automatically as they produce before looking for the client and the second issue is their receivables. Even if they manage to sell their product, the client may take 30 or 40 days to pay you back. In the case of Ambika Cotton , it’s totally different. They are able to collect the money very fast. So how is this possible ? Ambika Cotton starts producing yarn once they have taken the orders from their clients. they work directly with their clients instead of working with the agents. This eliminates the issue of high inventory Once they get their orders, they get paid very quickly withing days and that helps them collect the money very fast. But now let’s take a look at their financials. Let’s start with the balance sheet. They have assets of 564 Crores but the interesting part is their debt. They have liabilities of 135 Crores compared to 564 Crores of assets. but out of that 135 crores of liabilities , 60 Crores is in trade payables. Trade payables is amount billed to a company by its suppliers for goods delivered So, their debt levels are very low. Now , let’s talk about their income statement. I will take the last four years to explain you better As you can see , in 2015 they have 495 Crores in Revenue , then 494 Crores , 529 Crores and 585 Crores They have been increasing their revenue consistently together with their profits They started with 51 crores in 2015 and ended with 60 crores in 2018 but I want you to take a look at their margins you can see how they are able to keep it stable at 10 % They had 10 % in 2015 , then 9 % and it came back to 10 % in the next years Textile companies don’t have such high margins usually but Ambika Cotton is able to keep their margins stable as they work in the premium segment Let’s talk about their valuations. We will take a look at their free cash flows. Free cash flows means that if the business is ours , how much money would we earn at the end of the year In 2018 , they had negative free cash flows of 18 crores. This means, at the end of the year, nothing comes in our pockets But that’s because they decided to increase their inventories. They have free cash flows of 38 crores the previous year You might be wondering why did I decide to invest in this company . This company works in the premium segment unlike their competitors and this helps them achieve great margins they also give you a nice dividend I don’t expect to get 30 – 40 % returns ever year but they will give consistent returns with a nice dividend don’t forget to subscribe to see more videos

100 thoughts on “हिंदी – My new portfolio stock – Ambika Cotton ( Analysis)

  1. Thanks Sagar!! Nice analysis!! Would love to have your view on API segment…and if possible analysis on company like Neuland lab!! Thanks

  2. Hi Sagar. Hope you are doing good. I regularly watch all your videos and I really appreciate the good work you are doing. Please can you tell us how do you find out such important information about business model and about products knowledge and how do you understand and analyze it being from medical background ? I think lot of us invest without understanding business model which I think is most crucial.

  3. nice!!! make a dedicated video about how to gather moats and critical information of company's business model.

  4. Q. Hum jo pesa share market mai pese lagate hn wo pesa company ke pass kese jata hai…??
    Us pese ko NSE kese us company tak pahunchati hai…..
    Ans please

  5. सर आपका बात करने का लहजा बहोत लाजवाब हे plz continue video अपलोड किजीए

  6. You are a good analyst but despite being in Spain you are not able to go out of tamilnadu whether it is manapuram or repco or ambika cotton

  7. Very informative videos Dr Sagar. Much appreciated and great work in the field of financial education. Cheers and Thanks.

  8. Hello Sagar,
    Once again very good observations.
    Can you please give some of your valuable time to analyze Bharat Dynamics Limited

  9. I evaluated this stock few weeks ago and is in watchlist for right entry point, Another interesting stock is Venkys India

  10. Indian textile industry contributes to the national economy through direct as well as indirect employment generation and net forex earnings.
    Ambika Cotton Mills Ltd is one of the established players in supplying yarn to almost all premium manufacturers around the world.
    I found that it is growing at a healthy growth rate while maintaining its profitability margins. It has been increasing its production capacity without deteriorating its capital structure.
    Ambika Cotton has been realizing its profits as cash and utilizing this cash productively in capacity expansion of business model, because its products have good demand in market dealing with lesser buyer still they are established just because of they are always producing qualitative products.
    "Superb video Dr. Sagar keep goin with fabulous job. Keep it up and heartiest respect of your honesty."

  11. Good video, as always. Ambika managemnet is not growth hungry hence I stay away from this co and might be the reason why it has only those 15 clients from 10+years, its not bad but nit good either.

  12. Sir aap management k baare main itna deep knowledge kaha se laate ho? Aesa lgta jaise aapki khud ki company ho aapko sb kch kaise pta hota h?
    Jaise ye baat 2:23

  13. Sagar, few Q's that I came across and thought worth sharing.

    1. Looks the company is completely dependent on Mr. P.V Chandran and there is no clear succession plan.
    2. Growth of Premium yarn is less compared to the growth of yarn industry.
    3. Ambika cotton doesn't go after growth and happy with their existing capacity for years together.

    How do you view the above risks and how do you factor in these in their valuation.

    Waiting for your answers to learn more !!! cheers 🙂

  14. Hi I believe company is importing cotton and exporting yarn.But who
    are the premium yarn clients of the company? Pls mention.Couldn't get info from website/annual report.Good to learn that dividend payout ratio is good and there was buyback also in recent past

    I am concerned that the inventories of the company piled up…I am afraid this to be slow moving/dead stock.Cash is also locked up in GST.
    Would be great if you clarify on above.

    It appears you come to know of this company through some friend/local acquaintance.

    Anyways good job done

  15. Also apart from the efficiency of spindles rather than increasing spindles, the company has also set up windmills and now setting up solar panels on roof for fully captive and 100% renewable power ..optimization and efficiency of business seems to be their key aspect

  16. Bro pls do a video on Edelweiss fin. Services. Jhunjhunwala and now Mr. Pabrai also have put money into it.

  17. Hello Sagar! I have been following your channel for the past 2 months and have learned about the various factors to think about before investing in stocks. I would like to share my happiness that today I invested in the first stock of my life. BSE Ltd @ Rs.617/-. Let me know what you think about this stock so that I may understand that our thinking is in same wavelength. And many many thanks to you for sharing good knowledge.

  18. First of all, a great fan. Good work.. Keep it up. And the new editing tricks looks good..

    Honestly, when u said u hav found another stock worth ur portfolio, i was expecting a much better pick. I was expecting a multibagger. I dnt think this one has got anywhere close to my expectations. Even the whole cotton industry seems pretty lame to me. I agree its a nice company. But there are much better companies out there worthy of my money than this, so im gonna skip this one. Even Rain industries seems like a good bet even at this level. Anyway, thanks for sharing buddy. But i think this is gonna be the worst performer in ur portfolio in a medium term. And i believe u r not expecting to hold it more than half a decade or so without much of a return..

    "A well run company need not mean a good investment stock" – Charlie Munger

  19. Excellent. Did you check SP Apparels ltd. .. Founder running the business since 28yrs… looks interesting Try

  20. Nice analysis Sagar. I had bought Ambika Cotton around 4 years back and still holding onto it. You have reaffirmed the reasons for which I bought the stock – Solid management and high quality cotton. Thank you.

  21. I appreciate the way you explain about any company, learnt many new things about this company as well. Still this company seems very costlier to me. Can you tell me how did you value this stock ?

  22. Thanks for ur detail analysis, it was very helpful. Can you also make a video on Natco Pharma please ?

  23. Coromandel international and tata power are strongly undervalued, buy them and you maybook profit for long term.

  24. Good video on the importance of moat when chosing a stock…Interestingly the largest share holder is value India moat fund limited…this video justify their share holding.. 😀😀

  25. Sir, can provide technique , how you collect information, so that we can analysis other company's management .

  26. https://economictimes.indiatimes.com/Ambika-Cotton-Mills-Ltd/stocksupdate/companyid-5598.cms
    third party transaction hura

  27. hey i love ur videos ……will you please make a video on how you make videos…..like what is your process of gathering the information and how an individual like me can gather such information

  28. Hello सागर… THANKS For sharing Man… Can u plz analyse/ evaluate d opportunity in AB capitals & Granules India…if any

  29. Hey Sagar, the price of Ambika cotton right now is attractive, but it keeps a lot of inventory, which shows incapability of not being able to manage it properly. What's your take on this? I disagree to your point on inventory because Ambika has been high on inventory since a considerable period.

  30. Any specific reason for the fall of ambika cotton share price? Coz we don't get much current news about it, it would be great if you could do a video on it and tell us more information about it, thank-you

  31. Ambica textiles is not advised for investment due to the following.
    1. Cotton textile industry depends on availability of raw cotton.
    2. It depends only on very few client base is highly dangerous
    3. Liquidity of stock is very poor
    4. High risk company
    5. Most of Coimbatore based cotton mills are closed. It depends on govt subsidy like TUF.

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