While analyzing a company we have to consider about many factors. For initial filtering you do not have to do a lot of thinking couple of figures from balance sheet or shareholder letter etc will turn you off.
What I mean to say is you need to have some criteria for selecting a company and deciding to invest into. A good term will be Checklist. (Atul Gawande – Checklist Manifesto) is a great book to read.
If a company started to satisfy all your criteria then comes the next set of challenges which are open and depends on how much effort you want to make into finalizing the company.
For me I have though of keeping some buckets of investment.
- Blue chip bucket: So there are less researched blue chip companies in one bucket for quick cash if need be.
- growth bucket: Then I have high researched companies which may have some risk but there is a huge gain side. Basically you really don’t need all your companies to perform superb to make a huge return on your portfolio. In this bucket even if 25-30% companies will make it what I have expected that will make my returns good. But to make it 25% successful I have to lot of research.
Ambika cotton mills seems a promising company. It is doing buy back currently which is really great. I have already made a position in the company some time back. Growth wise there is not a huge benefit and also I have less knowledge about what the companies clients are.
Market Cap. ₹ 599.90 Cr.
current price 1,000
book value: 616 (good )
P/E: 12 (very nice)
Net profit: 44 cr in 2016, 51 in 2015, 48 in 2014, 31cr in 2013, so assume 44 cr
% growth 1.47% from dividend + 12% growth (not a lot)
India inflation is 7-8% so this is not very good return from investment but average types ..
When calculating growth on my investment I also check inflation into account. So in first step you need to decide upon what exactly you want with your money. For me it is different for different bucket. Some you want as cash, some you want to be in FD etc.. So best thing is make buckets of money and see what is best option for each bucket.
Ambika Cotton Mills has great management that is 100% sure. Just skim through shareholder letter and you will know tally it with balance sheet to make sure. For each checklist I have some marks assigned and there is some passing marks (minimum required ) and huge mark in one checklist tends to compensate other given that passing marks are crossed. So for management Ambika has performed really well. Company has plenty of cash (they are doing buyback). Good investing of surplus money.
One thing I am not sure of is market, who are the customer for the company. I don’t think it has pricing power or brand. There are so many great competitors in India in cotton industry. Also the share price is not very cheap. You can buy on dips for stable investment but not much to expect is what I think.
Textiles industry provides second-largest direct and non-direct employment (after agriculture) in India. The industry relies heavily on government support for its survival and government has a special loan scheme (Technology Upgradation Fund Scheme – TUFS) for this particular sector. All the companies in this sector have huge debt on their balance sheet. The companies in this sector keep on diluting their equity to service their debts. No wonder the industry has hardly managed a PE of double digits and have never really participated in any bull market.
- Management: Capable, Great, Thinking in long term
- Good business, nothing going to change in Cotton industry for long
- Not okay with the past growth prospect
- Copy paste: Suggested by great investors
- Valuation: Growth wise okay but Discounted cash flow wise not good.
- Current price
- Not much growth
Final Verdict: Good for stable growth bucket
I am very new to value investing and this is me taking random notes just for myself. Please don’t base any of your decision on these write-ups. That will be foolish.