Trying to join this conversation and to keep it as simple as possible. -
1. Ambika Cotton is a commodity provider.
2. There seems to be a global slowdown, specially in China and Europe, US also has tepid growth.
3. Domestic demand in india is slowing down..
4. Due to 1 above, Ambika Cotton would be a cyclical.
5. Due to 2,3 above Ambika Cotton would have a rise in inventories (about the same levels as in 2010 and 2011 is seen in the balance sheet). Last 4 quarters show flattening revenue growth and I would suspect declining revenues going forward.
6. Due to slowdown in Commodity and Consumer Demand, people might want to switch to cheaper alternatives.

Which means headwinds ahead, Sales Slowdown and therefore Earnings/CFO slow down. So this should have an impact on Ambika stock prices going forward. Inventories going up and flattening sales means lack of demand..supply side constraints don't apply if demand is slow. One way to check this would be to find out who the clients of Ambika Cotton are and see their income statements for the last 10 quarters...

I know this is simple without elaborate calculations....but I am trying to understand whether this is worth my time before diving deeper. If I have made any mistakes here pls. point out and I will be grateful.

@suns It is unfair to compare a entity with another entity in my opinion. In fact, MOST track record in Indian Equity may have been better than Morgan Stanley for all we know

Hi @shyamiy,thanks for the update.I wrote to them 2 weeks back with a long list of questions and did not get any response.I too called their investor relations and quizzed them with my set of questions today.What a coincidence.

**Some of them may be repeated of what you have already said***

1.GRANITE:
a.Raw materials:
For granite,70% of the raw materials are being sourced from their captive quarries and 30% are imported,their current quarry would last for decades as estimated by the geologists.Have a total of 15 quarries. And getting new license for a granite quarry is really tough for a new entrant but if you are an established player with a good track record it is a bit easier.

Company has to pay royalty to the government (As per AR 2015,there is a mention of Royalty on quarry land of Rs.7.45 lakhs and Government royalty and dead rent of Rs.7.15 crores) on a total granite sales of around Rs.193 crores.)

(Unprocessed granite is currently under import restricted list and if you own a quarry abroad only then you are allowed to import unprocessed granite,not sure how the company is able to import 30% of their raw materials without owning any quarry outside India).

b.Capacity:
Current total capacity for granite is 5 lakhs sq meter,located in Hyderabad.There are 2 units one with 1.5 lakhs sq.meter and another with 3.5 lakhs sq.meter.

And the current capacity utilization is around 70% on both units.

c.Clients:
In India,Shobha is one of their clients which uses granite countertop in their high-end residential projects.But most of the sales are coming in from exports through B2B sales.

d.Price realization:
It is around $6 per sq.foot and it does not vary much with slab sizes.

2.QUARTZ:
a.Raw materials:
Currently compay has applied for quart license and does not have any captive quarries.All of the quartz is sourced from a quarry owned by chettinad group(from Tamil Nadu) in Vizag.No risks with raw materials even if the quarries are not approved.
Company calls this quarry as strategically located because of the proximity to the port and its manufacturing facility.This reduces transportation costs as well.

7% of polymer resin is added to the quartz slabs during processing.Generally,ploymer is expensive however Prices of polymer is directly linked to crude and falling crude will help in improving margins this year.

b.Capacity:
Total installed capacity is six lakhs sq.feet and the current utilization is around 50%.Until last year they used to run it 5 days a week and this year it is running 24*7 because of the demand in US and other markets.

It is fully automated unit and in case if the pattern/color or something needs to be changed,the downtime is only 4 hours.

c.Breton
Breton has a policy of one company in one country for its exclusive license,they dont want to dilute their exclusivity by offering it to multiple payers.He also mentioned Pokarna had an exclusive relationship with Breton before and now it is lapsed (not sure what it means).

To set up a new line with Breton,it needs atleast 2 years.Currently the company has only one line established,its competitors like Caesarstone has 8 lines running.It has provision to add second line within the current facility(brownfield expansion).Even if a new company tries to get Breton tech,it takes 2 years to establish the line.Hence,threat of other companies getting in quickly is low.

Globally 12-14 sizeable manufacturers are producing quartz with Breton technology.Breton's chairman flew to Vizag once to see pokarna's facilities.

Running this line 100% is realistically not possible,they are aiming for 80% utilization.

d.Price Realizations
Higher the slab size,better the price realizations.3 major sizes they produce (12 mm,20 mm and 30 mm).

Avg.price realization is $10.

e.Client Base:
Pure B2B ,there are plans to sell directly to end customers like Caesarstone through their branding(B2C).
One of the large customers cancelled their tie up with Caesarstone and selected Pokarna as preferred supplier in EU last year.

f.Debt:
Promoters have injected their own money to the tune of Rs.70 crores and bank loans of around Rs.160 crores which is availed at 14%.There are plans to get foreign currency loans to reduce the interest costs.Current strong cash flow generation would be enough to service the debt and slowly retire it.

Future:
Upside is huge with uptick in demand for housing in US and other markets.US is still underpenetrated with quartz compared to other developed countries.No CAPEX for the next 2 years.

Operating margins are around 30% for quartz and 20% in granite.

Please feel free to add any other questions if you have,I will try to get the answers.

Disclosure: Invested.

Let me tell you a true story.

I wanted to get my house painted. Big house. 4500 sq feet. 250000 worth of paint.

I called Dulux first. no response.

I called their call center. They said someone will contact me. No one did.

I left an email. no revert.

I called Asian Paints once, and they did everything from that point on.

I was holding Akzo...sold all my holdings.

If you think this team will make you money, forget it.

Dont be confused mates. The situation is simple for ADI Finechem.

Their competitive advantage comes when crude oil prices are high as they make their product from edible oil waste while their competition makes the same product from crude.

So now when Crude is at multi year lows and has fallen from $100+ (this was when ADI was flying due to competitive advantage) to $40-$44 range...its has completely killed their product competitiveness internationally.

Tough days ahead for ADI...because with China's slowdown, Iran sanctions lifted, US Shale boom.....looks like Crude will be in 30-50 range for sometime.

Question is whether ADI can sustain this low crude environment. It will become interesting if the stock price goes to 100-150 odd and if Crude can rise to 75-85 range.

Cheers
Neil Bahal