Ambika Cotton Mills Ltd

Current Market Price-: 1235 Rs

Ambika cotton mills is a completely debt free company based out of Coimbatore in Southern India. Company is engaged in the manufacture of premium quality Compact and Elitwist cotton yarn for hosiery and weaving. It is an established player in the international and domestic yarn market with exports constituting roughly 70% of its revenues.

Incorporated in 1988, ACML manufactures 100% cotton compact yarn counts varying from 20s to 120s combed which goes for the manufacture of premium branded shirts and t-shirts globally. Company has 4 manufacturing units which are situated in Dindigul, Tamil Nadu with a total spindle capacity of 1,08,288 of Compacting System.

Ambika Cotton Mills has the unique distinction of being the number one in the shirting segment and is the preferred client of all top quality shirt manufacturers around the world. Company has a very niche segment in the industry, thanks to its impeccable track record of product quality and delivery fulfillment. Company also takes pride in hvaing zero complaints with clients, shippers and raw material suppliers.

Company is also taking going-green commitment very seriously and produces over 110% of its power requirement by clean wind power with installed capacity of 27.4 MW. Company has 100% governmental and legal compliance record.

Quick refresher on the Quality of cottons.

What’s so great about extra long cotton?

All cottons are not created equal. They’re differentiated by the length of their fiber (or “staple”), the fine little strands that make up a raw piece of cotton. Some cotton species have shorter fibers. Others have longer fibers. Some even have extra-long fibers.

So why are long and extra-long staple cottons so desirable? Because the longer the cotton fiber, the stronger, softer, and more durable the resulting fabric.

Long- and extra-long staple cottons include pima cotton and Egyptian cotton. These cottons are renowned for their superior quality thanks to the length of their fibers. Fabrics made of long-staple cottons fray less, pill less, wrinkle less, and even fade less than fabrics made with their short-staple counterparts.

Business/Products

ACML’s products are made from various imported and indian cotton. Company takes pride in its contamination free cotton yarn that gives it a special niche in the market.

Ambika’s yarn has been widely accepted and appreciated in the industry by prominent top shirt manufacturers and knitted garment manufacturers, domestically and world-wide. It is well reputed for its contamination free 100% cotton ring spun & compact yarn manufactured exclusively for shirting. Hard twist and Soft twist with 4’20 min and cylindrical dye cones for weaving, and S & Z twist yarn from counts 24’s to 140’s for knitting are also our regular notable features.

ACML specializes in manufacturing of premium quality compact and Eli Twist yarn. The company uses extra-long staple cotton in its yarn manufacturing by importing high-quality Giza and Pima cotton from Egypt and the US respectively. This is used in the manufacture of premium branded shirts and t-shirts.

Ambika holds the Supima certificate from Supima Association (USA), GOTS Certificate from Control Union (formerly SCAL) for organic yarn, and Oeko-Tex Certificate of Standard 100 Product Class I.

ACML is also part of the Better cotton initiative Better Cotton Initiative (BCI) stewarding the global standards for Better Cotton, and bringing together cotton’s complex supply chain, from the farmers to the retailer, for Supima, Australian, and Indian cotton of all counts.

ACML ensures that it maintains more than adequate quantities of cotton raw materials in the extra long staple as well as medium and short range through out the year.

ACML’s manufacturing process is thoroughly monitored by its quality control system which is unparalleled in the industry.

Clientele

A lot of companies have hundreds of customers Ambika has select few customers. Company sells its yarn to the end customers instead of selling through agents. In fact some of the customers have been with the company since over last 17-18 years. 

Although company does not disclose the names of their customers and no one should however we were able to get some names from google via various research reports written about the company over the years and we found that domestic customers include Arvind Mills, Raymond, Aashima Textiles and Morarjee etc many more. In the the overseas clientele company has Quannitex Enterprise Corporation, Taiwan, Pacific Textiles, Hong Kong, and Winnitex Investment Company, Hong Kong. Chances are there may be addition of some new clients as well as old clients might have moved but there was no specific authentic source available to verify the same as a result we would request users to do their own research and do not put queries regarding this.

Exports

Company derivers almost more than 70% of its revenues from exports.

Recently due to lockdown across the globe small economies are struggling for business. Countries such as Bangladesh, which have recently emerged as major exporter of textiles products are not able to export and this is directly benefiting Indian companies. Additionally post pandemic global commodity prices are rising and probably ACML has been able to pass all the increase in costs to the buyers as a result we can see the company benefiting significantly where it would be making 30-40% gains on the existing inventory which is about more than Rs 300 crores.

Further, US economy is extremely strong and Europe is also recovering strongly. The company is completely debt free.

Financials

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Q4FY21

• Net Sales at Rs 195.92 crore in March 2021 up 33.47% from Rs. 146.79 crore in March.
• 2020.Quarterly Net Profit at Rs. 28.97 crore in March 2021 up 177.76% from Rs. 10.43 crore in March 2020.
• EBITDA stands at Rs. 48.26 crore in March 2021 up 120.97% from Rs. 21.84 crore in March 2020.
• Ambika Cotton EPS has increased to Rs. 50.60 in March 2021 from Rs. 18.22 in March 2020.

For the year Ended FY21

• For the fiscal ended March 2021, the sales was up by 2% to Rs 633.37 crore. 
• OPM expanded by 290bps to 19.81%.
• OP was up 19% to Rs 125.44 crore. 
• PBT stood higher by 31% to Rs 90.39crore. 
• PAT was up 30% to Rs 67.95 crore.

Other Key Financial aspects

• Company has been able to maintain its operating & net profit margins (OPM & NPM) at healthy levels of 20-22% and 8-10% respectively.
• Ambika Cotton Mills Ltd has outperformed most of its peers over the last 10 years (2005-10) without compromising on its profit margins. Its net profit margin (NPM) is one of the best in the industry.
• Prudent working capital management has resulted in healthy returns on capital employed of 15-20% over the four years through fiscal 2020.

Sectorial Outlook

The Indian textile industry is set for strong growth, buoyed by both strong domestic consumption as well as export demand. The sector is expected to reach US$ 226 billion by FY23. Urbanization is expected to support higher growth due to change in fashion and trends. This is amplified by opening of exclusive stores by the leading brands across the country. Further, for textile industry, the proposed hike in FDI limit in multi-brand retail will bring in more players, thereby providing more options to consumers. It will also bring in greater investments along the entire value chain. 

Cotton yarn accounts for the largest share in total yarn production; India’s growing population has been a key driver of textile consumption growth in the country. It has been complemented by a young population which is growing and at the same time is exposed to changing tastes and fashion. Rising income has been a key determinant of domestic demand for the sector; with income rising in the rural economy as well, the upward push on demand from the income side is set to continue.

The demand distortions caused due to Covid-19 pandemic are getting eased due to most of the global markets opening up with increase in vaccination which might lead to gradual pick up of procurement from global brands over next 9-12 months. Unlike last year, where most of the Q1FY21 was lost due to national lockdown hampering supply and production, this fiscal in second wave of pandemic the effect was less.

Conclusion

Ambika Cotton mills is one of the leading Manufacturer of Organic Yarn, Elitwist Cotton Yarn, 100% Cotton Yarn and Imported And Indian Cotton from India. Company derives more than 70% of its revenue from sales. Company has long standing relationship with clients that date back to as old as 17-18 years signifying huge trust in the company as well as in the company management. Apart from that company is completely debt free and has steady operating profit Margis in range of 20-22%. Compared to some of its peers such as Arvind , Himmatsingka , RSWM etc ACML does not have any debt on the balance sheet. Overall company has posted solid results despite the nationwide lockdown and the Pandemic eases along with the opening of the global economy, along with the governments thrust on Improving the share of Textiles sector contributions in the economy by promotion exports we expect the company to perform significantly better in the coming period and in case if the valuations expands it can be further beneficiary for the company. Thus Ambika Cotton mills is worth exploring for long term.

(Please note Peers have been taken into view considering the broader sectorial view of the companies engaged in the Textile sector. For more detailed peer view comparison users are requested to do their own analysis and not put any queries for the same)