This article provides a fundamental analysis of APM Industries Ltd and Nitin Spinners Ltd.
In order to benefit the maximum from this article, an investor should focus more on the process of analysis instead of looking for good or bad aspects of the company. She should learn the interpretation of different types of data and transactions and pay attention to the parts of annual reports etc used to get the information. This will help her in improving her stock analysis skills.
Analysis of APM Industries Ltd
Q: Hey Sir. I follow your blog daily and I must say that I have become your disciple.. I am just out of college now and started working in IT since last month.
Anyways I was looking at a small cap that is APM Industries Ltd. It has more than 5% div yield. P/E is less than 5 and P/BV 0.5. Cash flow yield is terrific about 30%. EPS and sales growth are consistent. Net profit margin is growing and consistent. Promoter holding is 61% quite comfortable i guess. Dividend is growing too. ROE is at an adequate position and consistent around 12-13%. Debt to equity is almost 0.
Having said that, why is such a value opportunity not utilized yet in this Bull Run or is this value trap? Am I missing something? I do not have shares of this company. I am just new to this investing. I wish to know your opinion about it. Thank you sir 🙂
Dr Vijay Malik’s Response
Thanks for writing to me!
Financial Analysis of APM Industries Ltd:
The financial numbers speak that APM Industries Ltd is a descent business, which has been growing at a moderate pace of 8-10% per year while maintaining 10-12% operating margins. Net profit margins have also improved over last 4-5 years to 6-8%.
APM Industries is paying its due tax as the rate of tax paid is about 33-35%, which is a good sign.
Operating Efficiency Analysis of APM Industries Ltd:
Profits are being collected in cash and the operating efficiency levels are improving year on year whether we measure it by asset turnover, inventory turnover or receivables days. APM Industries has been generating good cash from operations and has used it for reducing debt. Debt has reduced from INR 62 cr. in FY2011 to INR 13 cr. in FY2014. Debt levels are comfortable and easily serviceable.
APM Industries has been sharing its earnings with shareholders as it has started paying dividend since FY2011, the year since its profitability has shown improvements. Dividends have increased over the years with growth of the company.
Overall, at the face of it, APM Industries seem to be a good business being run by a good management. It is a micro-cap firm and in this segment many company remain undiscovered despite good performance. The company is yet to come up the visibility path as it does not seem to have a website.
I would appreciate that you have done a good job and selected a good company by using different stock selection parameters.
However, you should read the annual reports of the APM Industries for last 10 years to understand its business, management plans, its customer, shareholders and promoters among many other things.
Hope it helps!
All the best for your investing journey! I liked your stock selection approach.
Analysis of Nitin Spinners Ltd
Q: What are your views on Nitin Spinners Ltd (NITINSPIN)? I bought it at 29rs. Its expansion started commercial operation from 9th Feb 2015. Will this uptick in sales boost the price? I am just a beginner in analyzing the stock fundamentals. Few things i felt good are:
- Consistently increasing sales YOY (do not know CAGR, I just saw the numbers from 299 cr. to 488.34 cr.)
- Going to almost double the production by its recent expansion
- EPS is growing
- Bigger change in PBT from 1cr (2010) to 52cr (2014)
- Operating margin is improving
- Debt is coming down every year
- Started giving dividend last year, but do not know its future plans.
I do not know the in-depth analysis of the number.
Please share your view. Thank you
Dr Vijay Malik’s Response
Thanks for writing to me!
Financial Analysis of Nitin Spinners Ltd:
Last decade of Nitin Spinners Ltd (NITINSPIN) can be divided in two phases: FY2005-10 when it focused solely on growth without regard to fundamentals. Sales increased from INR 80 cr. in FY2005 to INR 300 cr. in FY2010. However, this growth came at the cost of deterioration of profitability margins as its operating margins reduced from 22% in FY2006 to 10% in FY2010. Its net profits wiped out and it started to make losses. It went for debt-funded capex and its debt shot up from INR 82 cr. in FY2005 to INR 310 cr. in FY2010. Overall, the business was in bad shape.
However, in the second phase, since FY2012 until now, the Nitin Spinners seems to have realized the issues and started putting its house in order. Sales growth has been moderated but profitability improved. Operating profit margins have improved and reached 19% in FY2014. Net profitability margins also improved to 7%. Company has used the cash generated from operations to reduce debt. Debt decreased from INR 310 cr. in FY2010 to INR 144 cr. in FY2014. It declared its first dividend in FY2014.
Nitin Spinners seems to have got its act right in second phase since FY2012 and improved its capital structure a lot. However, the debt is still high at 1.1 D/E.
An investor needs to study about the different management behavior during the two phases in company’s operations in last decade. Management analysis is crucial in Nitin Spinners Ltd before any investment decision can be taken.
Hope it helps!
Answers to Investors’ Queries
Impact of rupee depreciation, cotton price hike and increase in manufacturing capacity
Hi Dr. Vijay, I read your article on Analysis: APM Industries Limited and Nitin Spinners Limited
Since 83% of the products are cotton textiles and they depend upon cotton yarn, which is an agricultural product and as El Nino is predicted, cotton yarn prices may go up substantially. If it happens, then NPM might be hit badly in 2016.
And INR is depreciating and at ₹63.5 per US dollar (as of now), this may compensate for the losses due to the increase in the price of raw materials as 68% out the output is exported.
Present capacity of 77,616 spindles and 2,936 rotors for cotton yarn with installed manufacturing capacity of 22,650 TPA and 3,900 TPA of knitted fabrics. After expansion spindle count will reach 150,096 and the manufacturing capacity will be 37,800 TPA of cotton yarn and 8,600 TPA of knitted fabrics
As the manufacturing capacity would be almost doubled, how these two factors would affect the profitability?
Need your inputs on this Dr.
If the cotton price hike and rupee depreciation predicted by you actually happens in the proportion assumed by you, then they might nullify each other. And if alongside it, the capacity doubles and assuming the company is able to sell its entire production, then the profitability would increase slightly due to economies of scale.
However, there are many ifs & buts in your assumptions and my explanation. Reality in all probability would be different.
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- The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
- I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
- Currently, I do not own stocks of the companies mentioned above in my portfolio.