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  • Feb 7, 2022 - This Small-cap Textile Stock Hits a Record High After Vijay Kedia Buys Stake. Here's why it Could Rally More...

This Small-cap Textile Stock Hits a Record High After Vijay Kedia Buys Stake. Here's why it Could Rally More...

Feb 7, 2022

 This Small-cap Textile Stock Hits a Record High after Vijay Kedia Buys Stake. Heres why it Could Rally More...

Are you wondering what sparked a sharp 35% rally in the stock of Ambika Cotton Mills in just three trading days?

It's a classic example of how renowned investors can change the fortunes of a stock.

Renowned investor Vijay Kedia bought 40,007 shares of Ambika Cotton Mills last week at Rs 2,243.12 per share, according to bulk deal data published by the NSE.

This transaction was valued at around Rs 90 m.

But this wasn't the only reason why shares of Ambika Cotton saw a sharp spike. The textile company also posted stellar results last week.

A word about Vijay Kedia...

Vijay Kishanlal Kedia is an Indian investor and trader based out of Mumbai. His company - Kedia Securities - is the largest shareholder (after the promoter) in several listed companies.

Kedia has been involved in the Indian stock market since the age of 19. He has been described by many as a 'market master'.

To point out a few of his investments, he bought ACC at Rs 300 in 1992-93 and sold the stock around Rs 3,000 within a year and a half.

During years 2004 and 2005, he picked several multibagger stocks which gave returns of over 1,000% in the next 10-12 years. Few of these stocks were Atul Auto, Aegis Logistics, and Cera Sanitary.

Why did Vijay Kedia invest in Ambika Cotton Mills?

While we don't know why Mr. Kedia bought into it, there are some reasons we can guess...

The first reason could be the stellar results.

Ambika Cotton Mills reported a 146% jump in its net profit to Rs 518.5 m for the quarter ended December 2021. This compared with a profit of Rs 211 m in the corresponding period last year.

For the first nine months (April-December) of the financial year 2021-22, Ambika Cotton reported an over three-fold jump in its profit due to a 51% growth in sales.

What's more, this is not the first time the textile company is reporting stellar results. In the September 2021 quarter too, the company's net profit spiked around 220%.

Latest Quarterly Results

(Rs m, Standalone) Dec-21 Sep-21 Jun-21 Dec-20 YoY Growth (%)
Net sales 2,521 2,205 1,875 1,927 31%
Total Expenditure 1,759 1,521 1,312 1,561 13%
Operating Profit 779 691 565 348 124%
Net Profit 519 455 358 211 146%
Source: Equitymaster

The company looks fundamentally strong. Have a look at the table below which shows the company's financial performance over the years.

Ambika Cotton Mills Financial Snapshot

(Rs m, Standalone) FY17 FY18 FY19 FY20 FY21
Net sales 5,286.1 5,844.7 6,560.1 6,230.9 6,333.7
Sales growth (%) 7% 19% 33% 27% 29%
Operating profit 1,057.7 1,140.2 1,255.1 1,066.4 1,262.5
Operating profit margin (%) 20% 20% 19% 17% 20%
Net profit 556.9 610.7 631.8 522.6 679.5
Net profit margin (%) 11% 10% 10% 8% 11%
Total Debt 74.9 284.3 886.7 694.3 1.0
Debt to Equity (x) 0.02 0.07 0.19 0.14 0.00
Data Source: Ace Equity

Moving on to the second reason...

Yarn prices have moved up significantly in last few months.

The momentum is likely to continue further as buyers adopt to China plus one strategy. This is directly benefiting Indian textile companies like Ambika Cotton Mills, which focus more on exports.

Ambika Cotton Mills derives nearly 70% of its revenues from exports - 59% in fiscal 2015 which rose to 69% in fiscal 2019.

Earlier, countries like China, Bangladesh, and Vietnam were flooding the global markets with cheap products making it difficult for Indian textile companies.

Now coming to the last and what could be an important reason...

The textile sector was an underperformer for the last three years. It struggled with cheap imports, a consumption slowdown, over capacity, and several other issues.

But now, the situation is different. Just like the PSU sector which was an underperformer but seems to have woken up, the textile sector has also started to move up.

Textile Stocks on a Rise

Company 5-Feb-21 4-Feb-22 Change (%) 52-Week High
KPR Mill 184 716 288% 772
Arvind 55 142 159% 159
Vardhman Textiles 1,081 2,549 136% 2,880
Raymond 341 782 129% 819
SRF 1,114 2,439 119% 2,680
Lux Industries 1,667 3,059 83% 4,644
Grasim 1,186 1,736 46% 1,939
Page Industries 29,293 41,671 42% 45,600
Kewal Kiran Clothing 180 226 26% 299
Data Source: Ace Equity

As consumption is rising, textile players are seeing increased revenues and margins.

Moreover, the lower dependence on China means more demand for Indian companies. Buyers are adopting a China plus one strategy to shift from China and look for other suppliers.

And the GST council's move to defer rate hike on textiles is the cherry on top of the sundae for Indian textile companies.

All these reasons combined together have sent the stock of Ambika Cotton Mills on a roll.

How the stock of Ambika Cotton Mills has performed on the bourses

Today, in an otherwise weak market, Ambika Cotton share price opened 2% higher at Rs 2,770 against Friday's close of Rs 2,725.

As the markets extended fall, the stock came under pressure and fell 3%. It again bounced back to green and ended in the positive.

Ambika Cotton shares hit an all-time high of Rs 2,829 in early trade today.

The company is part of the BSE small-cap index and has a marketcap of Rs 16 bn.

In the year gone by, the stock has rallied a massive 190% with heavy gains in the past 4 days.

At the current price, the stock trades at a price to earnings (P/E) ratio of 12 and a price to book ratio of 2.8.

About Ambika Cotton Mills

Ambika Cotton Mills spins cotton yarn primarily in the finer count range of 60s-100s and also manufactures fabric.

It's not just a regular cotton yarn spinning company. It testifies to the adage - 'Winners don't do different things. They do things differently'.

With its focus on world class processes, the company defies the commoditised business model that most cotton yarn spinning companies are doomed to.

While about 70% of the revenue is derived from exports, the rest is derived from the domestic market.

Mr PV Chandran is the Chairman and Managing Director of the company.

The company stands out in the highly competitive spinning segment where core competence is hard to develop, and even harder to maintain.

Even so, Ambika Cotton Mills has managed to achieve single digit debtor days, low debt-to-equity ratios, double-digit margins, and consistently positive cash flows from operations.

To know more about the company, check out Ambika Cotton's financial factsheet and latest quarterly results.

You can also compare Ambika Cotton with its peers.

Ambika Cotton vs Rajapalayam Mills

Ambika Cotton vs Deepak Spinners

Ambika Cotton vs Trident

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...

Yash Vora

Yash Vora is a financial writer with the Microcap Millionaires team at Equitymaster. He has followed the stock markets right from his early college days. So, Yash has a keen eye for the big market movers. His clear and crisp writeups offer sharp insights on market moving stocks, fund flows, economic data and IPOs. When not looking at stocks, Yash loves a game of table tennis or chess.

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