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 last month.
Anyways I was looking at a small cap that is APM Industries Ltd. It has more than a 5% div yield. P/E is less than 5 and P/BV 0.5. The 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. The dividend is growing too. ROE is at an adequate position and consistent at around 12-13%. Debt to equity is almost 0.
Having said that, why is such a valuable opportunity not utilized yet in this Bull Run or is this a 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 decent 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 the 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 dividends since FY2011, the year since its profitability has shown improvements. Dividends have increased over the years with the growth of the company.
Its market capitalization is INR 78cr. which was below INR 30cr. until FY2013. The P/E ratio is currently 4.5.
Overall, on the face of it, APM Industries seem to be a good business being run by good management. It is a micro-cap firm and in this segment, many companies remain undiscovered despite good performance. The company is yet to come up with a visibility path as it does not seem to have a website.
Further advised reading: How to do Business Analysis of Textile Companies
I 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 APM Industries for the last 10 years to understand its business, management plans, its customer, shareholders and promoters among many other things.
You may learn about understanding the annual report of any company here: Understanding the Annual Report of a Company
Hope it helps!
All the best for your investing journey! I liked your stock selection approach.
Regards,
Analysis of Nitin Spinners Ltd
Q: What are your views on Nitin Spinners Ltd (NITINSPIN)? I bought it for ₹29. Its expansion started commercial operation on 9th Feb 2015. Will this uptick in sales boost the price? I am just a beginner at analyzing the stock fundamentals. A few things I felt good about 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
- The bigger change in PBT from 1cr (2010) to 52cr (2014)
- The 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:
The last decade of Nitin Spinners Ltd (NITINSPIN) can be divided into 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 were 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.
Further advised reading: How to do Business Analysis of Textile Companies
However, in the second phase, from FY2012 until now, 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%. The 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 the 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 the different management behaviour during the two phases of the company’s operations in the last decade. Management analysis is crucial in Nitin Spinners Ltd before any investment decision can be taken.
Hope it helps!
Regards,
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% of the output is exported.
The present capacity of 77,616 spindles and 2,936 rotors for cotton yarn with an 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 input on this Dr.
Author’s Response:
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. The reality in all probability would be different.
Regards,
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Disclaimer
Registration status with SEBI:
I am registered with SEBI as a research analyst.
Details of financial interest in the Subject Company:
I do not own stocks of the companies mentioned above in my portfolio at the date of writing this article.
