Ambika Cotton Mills- 156.00

Promoted by P K Ganeshwar, M Rathanasamy and P V Chandran, Ambika Cotton Mills (ACML), was incorporated as Ambika Cotton Mills Private Ltd in 1988 and subsequently converted into a public limited company in 1994. It manufactures high quality contamination free cotton yarn used in hosiery and majority of its production is exported. It has established its name both in the international market and domestic market for its consistency and quality. Lately, it has diversified into manufacturing Compact Spinning Yarn, a premium yarn and the value of such yarn increases when made out of specialty cottons like PIMA (Cotton sourced from USA), GIZA (Cotton sourced from Egypt) and Australian Cotton, which goes into manufacturing premium branded shirts and T-shirts. Being in this lucrative niche market with such value added products, the company enjoys the highest profit per spindle in the whole country. It exports directly to Taiwan, China, Hong Kong, Turkey, Korea, Singapore, Egypt, Israel and through merchant exports to Peru, Germany, Italy etc.

Of its production capacity of 42,000 spindles, 11,000 spindles are of compact yarn and its present capacity utilization is 100 per cent. Recently, it set up Wind Energy Systems for captive power generation which has reduced its power cost substantially. 70 per cent of its power requirements are met by Wind Energy and the balance 30 per cent by the Tamil Nadu Electricity Board (TNEB). To cater to the increasing demand of its products with the removal of quota, the company is expanding capacity by another 21,000 spindles for manufacture of compact yarn (Elite Twist). The first phase involves setting up of 14,000 spindles including a 6.6 MW wind energy systems for 100 per cent captive consumption at cost of Rs67 cr. to be met by a term loan of Rs.50 cr. under the TUF Scheme and the balance Rs17 cr. through internal accruals and the project is expected to be operational by July 2005. After completion of the above first phase, the second phase involves addition of another 7,000 spindles of compact yarn to the total productive line taking its total capacity to 63,000 spindles of which 32,000 spindles will be of compact yarn.

For the six months ending 30 Sept. 2004, its total revenue grew 2 per cent to Rs42 cr. but due to cost reduction. Its NP jumped 78 per cent to Rs5.40 cr. in spite of higher depreciation. For the full year FY05, the company could register sales of Rs95 cr. with net profit Rs12.50 cr. respectively. On its current equity of Rs5 cr., the EPS works out to Rs25 Its CEPS is expected to touch Rs40. The Company has huge reserves and its book value stands at Rs110 as on 31st March 2004. Though the dividend payout is low, the management may reward shareholders with a liberal bonus in the future. For FY 2005-06, its sales and NP will see a substantial jump due to expansion plan. It may even report an EPS of more than Rs40 for FY06. Considering all this, the scrip is trading cheap at 6 PE providing a good opportunity for long term investors to buy. The scrip has the potential to double in 2 years.