What is your outake on this stock,i find it extremely undervalued , change in promoter group might help in borrowing at lower rates and hdfc tie-up will also help reduce npas going further but i still have my doubts if this doesn’t become the next dhfl or something is hidden,i also work in real estate and no one who took loans from indiabulls is happy with the service and hidden charges these guys charged.

Whats your outlook in the stock?

This company recently showed up in my screen. Following is my initial thought process as to WHY CMP WARRANTS A DEEPER LOOK AT THE BUSINESS. It is by no means a concrete research but just a simple back of the envelope kind of calculation with tons of assumptions and pure guess work. Idea is to understand that with logical assumptions and guestimates whether the business looks interesting after providing for a large margin of safety. If it does, our job would be to verify/correct those assumptions and take up a deeper subjective analysis of the business and go through the ARs and other materials.

Ambika Cotton is a well known quality business. This time it looks even more interesting.

Market cap at CMP is roughly 1000 cr. Company has zero debt. Cash is 280cr and inventory is 229. That is net current asset of roughly 500cr. Which means we are paying 500cr for the business as things stands today.

We can not extrapolate the margins though, in fact we have to provide for large room of correction in margins because the cotton prices have increased significantly.

Current OPM is 29%. 10 year average OPM is roughly 20%. Let’s assume that due to increase in RM the OPM would be 15% (this is pure guess).

In year 2022, revenue increased from 633 to 921. Since I don’t know if revenue growth is sustainable, for this back of the envelope calculation I will assume that the revenue will be 650cr which where it has been for last 3-4 years.

So, we have revenue of 650cr at conservative PAT margin of 8% (vs 19% currently) i.e. PAT of 52cr.

Subtracting net current asset from CMP we are getting the business at valuation of 500cr so 52cr PAT would mean PE of 10 which is right at the 10 year median value!

Positives :

1. Company has inventory of 229cr. Increase in RM price might result in higher realization for the company because it has inventories from earlier levels. So temporarily for few quarters we may even see a jump in realization!

2. Company is well known for its well established position in the industry, good management.

3. In ideal scenario, if RM prices goes back to average levels right after company is done selling inventories at current levels then it would be a huge benefit.

This optimistic thesis is enough for me to initiate a deeper look at this business. I will share more notes as I go but I will really look forward to all view points and especially the anti-thesis points. It would be a huge help if those tracking this business would provide corrections in thesis above or add more color to it.

Not invested.

Nestle India has yet to introduce many products available in the US and Europian Markets which has lot of scope in India.Exports of Indian Products like Maggi has huge Potential in Global markets ! They are yet to go aggressive on ready to eat foods . So all in all good rerating awaited !

I read that you sold laurus labs near peak but here i can see you still are tracking laurus labs,do you keep a track of your sold investments and how do you do that?.For me i usually forget about them after i have sold them.

Very good results from the company considering the big negative development due to export duty.
The most commendable thing is the volume growth they have been able to deliver despite the big negative development due to export duty.
Concerns that I could think of:

1. Realisation was about 11,500 for this qtr. Export duty came in around end of may and hence the fall in realisations would be visible in Q2. Given the scenario today, fall would be steep of 20-25% and perhaps net profit will fallen even more.
2. Given the export duty, I think GPIL will now go for integrated steel plant so the large capex outlay will start.
3. The export duty was very steep - personally I feel govt has made it clear that they don’t want to export natural resource - iron ore to promote steel making in India. I don’t think the export duty will be rolled back fully…it will be probably reduced to 20-25%. If so, it’s a long term negative.

I have been a huge fan of GPIL however the govt move to impose such a steep duty was like a black swan event to my mind and I sold quite a bit of my position

Disc: invested with a small allocation, sold over last few weeks.