Karvy's research report on Ambika Cotton Mills
Ambika Cotton Mills Limited (ACML) based out of Coimbatore in Southern India, 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 60% of its revenues.The company was incorporated in 1988 and its 4 manufacturing units are situated in Dindigul, Tamil Nadu with a total spindle capacity of 109872.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. It also prides itself in its zero complaints with clients, shippers and raw material suppliers. The company has installed 27.4 MW capacity of windmills for 100% of its captive requirements and installed Extra High Tension (EHT) line (110 KVA Sub-Station) for smooth flow of quality power. These measures will continue to support the operations of the company.
At CMP of Rs. 835, Ambika Cotton is trading at a P/Ex of 7.9x and 6.6x on FY16E and FY17E earnings respectively, on the back of stable raw material prices, favorable product mix, improving cost efficiency and economies of scale; we initiate coverage on Ambika Cotton with a “BUY” rating with a target price of Rs. 1004, based on 8.0x P/E FY17E, representing an upside potential of 20.3% in a 9-12 months period.
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