What is the Business?
Ambika Cotton is a speciality yarn producer based out of Tamil Nadu (Dindigal). It produces speciality compact yarn from long staple cotton procured from the US, Australia and India.

Industry Structure

  • Yarn production is a highly competitive industry with large labour requirement.
  • Wide variation on raw material prices (cotton) cause frequent losses to yarn producers.

What is unique about Ambika Cotton?

  • Ambika has zero loss making quarters in the last 10 years. None of the other yarn producers (including those who also manufacture speciality yarn) have managed this feat.
  • Credit Sales (Receivables) is the lowest in the industry for Ambika Cotton. For an industry known for its low bargaining power with customers, this is a huge achievement.
  • Both of PV Chandran’s daughters have been working for the company for Rs 75,000 p.a. for the last 7 years which is unparalleled in Indian Corporate History.


Financials (10-year record)

  2007 2012 2017
Revenue (Rs Crs) 141 156 528
PAT (Rs Crs) 17 13 55
Operating Margins (%) 30% 20% 18%
PAT Margins (%) 12% 6% 11%
ROCE (EBIT/CE) 8% 11% 15%
Total Debt (Rs Crs) 202 152 0
Net Asset Turnover Ratio 0.68 1.21 1.88
Inventory Days 283 109 100
Inventory Turnover Ratio 1.3 3.3 3.7
Receivable Days 11 15 9                 

Comparison with other textile manufacturers

  Ambika Nitin Vardhman Welspun Trident
Revenue Growth (10 yrs) 15% 22% 11% 19% 18%
ROCE (Avg 10 years) 16.1% 12.7% 12.3% 13.4% 9.1%
Receivables (Days) 9 19 44 32 19
Net Asset Turnover Ratio 1.9 1.9 2.2 2.0 1.1
Inventory Turnover 3.7 7 3.2 5 4
Payable Days 14 6 11 62 21


  • Receivable days have always been abnormally low – Ambika Cotton enjoys great relationships with its customers who are ready to pay up almost immediately. It takes 15-20 days to ship from India to China.
  • Ambika has consistently improved it asset turnover and inventory turnover ratios in the process improving its ROCE.


Concerns or what can go wrong

  • Ambika Cotton already processes about 10% of the US Supima Cotton. How many multiples can it grow is the biggest concern.
  • Organizational Structure – Does it have the capability / intention to forward integration, product expansion?


Market Cap =Rs 783 Crs
Pre-Tax Owner Earnings = 72+(30-7) ~ 95
(Owner Earnings / Enterprise Value) Yield =12.4%
GOI 1 year Treasury yield = 7.7%

Ambika Cotton is available cheap considering the quality of the business


The stocks discussed in the above post are only for educational and illustrative purposes.
The post may not be considered as a recommendation to buy/sell
Do your own study and analysis to decide on your investments or get in touch with us to get professional advise

Details of Financial Interest in the Subject Company:
Currently, I do own Ambika Cotton mentioned above in my portfolio.
I may/may not buy/sell the above mentioned stocks as and when I consider appropriate


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