very well summarized. thanks
Posts tagged Value Pickr
Wockhardt – A story with twist and turn (27-09-2015)
With Waluj Plant approval coming in as reported by ET, is there a case for re rating?
Views Invited from people tracking the company.
Disc. - Invested
Ambika Cotton Mills (27-09-2015)
@varundarji Well written. Thanks for sharing.
Nitin Spinner – textile yarn story (27-09-2015)
Did anyone attend the AGM?
POKARNA LTD ( Stock opportunities ) (27-09-2015)
Thanks , we have to find out why CaesaStone cant source more and more from India than Turkey? Is that something you could help with Varadharajan? And also when you try to contact the Hedgefund that did lot of research on CaesarStone and Quart Stone imports to US, if you could gather the names of other exporters from India if any.
Thanks-Mahesh
Energy & Transportation disruptions : Impact on Indian companies (27-09-2015)
I think GOI allows up to $200K investment abroad every year. If you are serious check with your broker
Control Print – Deservers attention? (27-09-2015)
Dhiraj
If OCF is low, how can FCF be higher unless the company is selling non core assets and releasing cash. Free cash flow is the complete surplus available to shareholders after paying financial obligations/investments.
It does matter if you have to spend on capex or on WC, money blocked has no colour. Even EPC companies have no fixed assets but their cash gets locked up in WC,
I only highlighted an issue that's confirmed by my scuttle butt too. I did not understand why this company could not generate cash until my contact helped me understand that they are investing more and more into inventory/WC in search of future growth. If they can break that cycle/squeeze it down, this can generate prodigious cash flows.
Good to discuss with you - we learn from each other.
Ambika Cotton Mills (27-09-2015)
I had the privilege to attend the AGM of Ambika Cotton Mills on Sep 23, 2015 at Coimbatore. Following are the key highlights:
On Mr. P.V. Chandran
• This company is what it is because of Mr. Chandran, he sounded very positive on the growth and future of the company
• Seemed much focused on the Corporate Governance of the company. Doesn't use company transport, drives his self owned car. He said he feels he is robbing shareholders if he uses company assets for personal use.
• Very shareholder oriented. In the AGM, he said that you all shareholders are my partners and have the same right as I do except for the fact that I have an additional duty to run the company
• This year owing to an experiment in Ginning process he is foregoing his annual commission, because he thinks this experiment is critical to safeguard the success of the company. This cost is approx INR 1 crore (last year his commission was ~1.2 crore)
• He doesn’t like debt on his balance sheet. He claims he sleeps peacefully at night if he has no debt
• He is fan of Warren Buffet, gave several one liners of the legendary investor during a candid chat
On the 30,000 new spindles
• This is work in progress for the company. They require some govt approvals for this to install this. He candidly admitted there is slowdown in the approval process, but he won’t use any measure other than the actual process to take approvals from the govt. That speaks volume of his integrity and honesty
• Once the approval is sought, it won’t take much time to ramp up production. He claims he has man/skill/scale/orders
• New 30k spindles will have knitting facility, but the process of installing it would depend on the mkt conditions and demand from his buyers. He said he can’t just install the spindles and start manufacturing yarns. He needs to see and check if the additional spindles would be a net positive for the company, EBITDA/spindle is favourable (explained below)
• These 30k additional spindles would be most probably the last spindle capacity addition. In future, fabric manufacturing and garment manufacturing could be the possible, but would depend on the mkt condition then
• When asked if fabrication and garmenting would be outside his circle off competence, he said that fabric/garment manufacturing is easy because quality of the yarn is the most important --> Sounds like Never ask the barber whether you need a haircut or no!
• Fabrication cost is just INR 6/metre and packing cost is INR 4/metre. Garmenting involves some skill; he said we can do it.
• Any additional task like adding spindles or improving a process he always check if there is net +ve for Ambika
• Ambika's customers were pushing for capacity addition since a long time, but he said owing to the nature of the industry, one should carefully assess the mkt and then take the leap
• New spindles will be provided to the same set of customers, no new customers for now
On customers
• Customers and the qty supplied are an extreme secret owing to the nature of the industry
• Decline to comment on the customers names and their % share in total revenues
• Long lasting customer relationships (some for the last 17-18 yrs)
• He said that the industry is such that you have to be very mindful of the P&Ls. You have to ‘rob’ the profits (yes, rob!) from other stakeholders, else it’s difficult to be successful and profitable in the long run
On Suppliers (Domestic)
• Procures cotton locally through brokers with v v long lasting relationships
• Met one of the brokers, who said that this man is like a God to them. Never cheats them, never directly crosses them and procures directly
• Thinks like a pure gentlemen and gives reasonable profits to his suppliers
• His domestic suppliers are shareholders since its IPO --> Huge positive. One man claimed he will never sell their shares
On Suppliers (International)
• He claims the global supplier for Supima cotton has said that Ambika is his most trusted and favorite customer
• He claims he will always get Supima from them at good terms
On the future
• Sounded extremely confident on his company future
• No comments on growth and profitability in 5-10 yrs down the lines questions, but he said that we can keep doing the right thing and keep everything else to God!
On decline in Pima and Giza Cotton production decline
• He said ppl look at the textile spinning companies at the wrong way, it should be looked at EBITDA/spindle rather than top line growth since raw material cost as % sales is high. Gave the example of Gold manufacturing companies’ vs silver manufacturing companies.
• EBITDA/Spindle is the highest in the industry and nobody comes even close. Growth of Ambika should be measured by this metric rather than absolute growth. There are companies in India which do INR 300 crs of turnover with 150-200k spindles (vs INR 500 crs of Ambika with 110k spindles), this is lower because yarn spinning is extremely skilful and not everybody can do it
• They manufacture only if they have an order. The buyer knows about the availability of the raw materials. He will undertake an order only if he thinks there is a profit
• In future, if there is a shortage of Supima/Giza, the buyer will understand and Ambika can blend other cotton varieties as per the requirement of the client.
• He in fact admitted that he will be happy if there is a shortage of Supima and Giza Cotton because spinning these cottons is very very skilful and very few ppl in the world (even fewer in India) can do it.
• My opinion: I wasn’t convinced by his explanation on above points especially the decline in Supima and Giza cotton production
On the yarn and cotton industry in India
• He admitted that the cotton/yarn industry in India, especially in TN, is in a mess.
• Dr. Venkatachalam (Independent director on Ambika’s board) who is an advisor to 600+ yarn companies in India, said there will be many mills (~30%) that be insolvent by the end of the year. He had mighty praises for Mr. Chandran and Ambika. He said that this is one of the best managed companies in India in this industry.
• India is closely watching China, since its steps to tackle a slowdown could affect yarn companies in India
• Chinese companies could possibly start operating at prices below cost to eliminate competition from India. For now, its wait and watch
• Power shortage is a critical problem for the industry in TN. However, the TN govt is committed to this problem and by next year TN will be a power surplus state. The industry is negotiating very hard with the discoms for a better rate and claim that they are on the verge of a solution. Starting next year, power situation would not be an issue for the industry
On Local competition
• Hardly any players in India who makes what Ambika does. He admitted that he is facing stiff competition from Gujarat based spinning companies (not sure which companies he was referring to)
• His view is that their business model isn’t sustainable because they supply to yarn traders (and not the end customers like Ambika does) which operate on 1-3% margins. Given how wildly yarn prices fluctuate, one swing and they will out of the mkt.
• He said that Guj based companies have access to cheaper power (~INR 5/unit) because Guj state govt grants them power subsidy (~INR 1/unit), but with the improving power situation in TN plus the windmills of Ambika has, this advantage isn’t material enough for the Guj based companies vs Ambika
• Additionally, companies in Gujarat work for 330 days a year vs 362 days for Ambika (Not sure how he arrived at 362 a year figure). This additional 32 days of operation in year covers a good proportion of cost of Ambika vs the Guj based companies
On debt
• He reiterated that he doesn’t like debt for two reasons. 1) He can sleep well at night if he is BS is debt free. 2) The T&Cs under which banks give loans in India isn’t what he likes. He would like to take loans under much favourable conditions than that they presently do
• One of the shareholders asked why he is repaying debt when the TUFS loan can be availed at 5%. He countered by saying that he would be happy to place surplus money in deposit at 8-9% vs the 5% loan cost and would continue to that in future
• By the end of FY16, Ambika will be almost debt free (LT debt of only INR 3 crs by end of FY16)
On Spindle life
• I asked him, what is avg life of the spindle of the new 30k spindles and existing spindles? He said that the actual life is 22-23 yrs but they take a conservative view and depreciate it over ~19 yrs (stated in AR)
On succession plans
• Frankly, this is one of the concerns which I have and unfortunately, I have no good news. There wasn’t a talk of a succession plan
• He has 3 daughters (incl. 2 twins) and the eldest one is actively playing a role in company. She is with Mr. Chandran from 10am to 6pm day in and day out. Other 2 twin daughters have no interest in running the company.
• I spoke with one of his suppliers, he said that Mr. Chandran is in the pink of his health and for now we shouldn’t worry
NOTE: The above information is for INFORMATION PURPOSE ONLY. This is my first attempt at writing detailed notes for a AGM. Other members who have attended pls add points which I may have missed.
Views/Critics most welcome!
Indian terrain—play on consumption (27-09-2015)
I hold the stock from 500 levels and track it actively. I went for the AGM here are notes
- IT boys has been launched - targeting the teens and the sub 20s
- e commerce is now 10% of the business from 10 % a couple of years back
- they plan to work closely with myntra, jabong to launch SKU's
- they have an analytics team to work with e com
- they will grow 10-15 % this year with a 200 bps increase in margins and hope to continue the same.
discl: I invested thinking the company has a moat but now realize the company does not have one, as yet looking at their WC cycle. Unlike other brands, they want to integrate forward to claw back margins of 150-200 bps by investing into WC, which with the benefit of hindsight I have realized is quite capital inefficient. Adding 30-40 lakhs of inventory to add about 200 bps on about Rs. 1 cr. of sales is only about an incremental ROCE of less than 10%. I raised this in the AGM but the management talked around it.
Discl: invested but avoiding confirmation bias by poking holes in the thesis myself.