What is the reason for consistently high receivables? This cant be good right?

Disc: interested and tracking

While KPI’s cost of equity is more than its cost of debt. I would look at it favourably. One major difference between Waaree ren and KPI is their debt. Waaree has virtually none. A lower debt can ease investor concerns and help in the rerating. Going forward, this will also help the bottom line. This quarter itself it was 23 Cr. 23*0.75=17.75 Cr addition to PAT

Hi @Koustubh1 hope you are well. Are you still holding/tracking avro? Would love to know your thoughts/thesis

Please find below notes from promoter interview and concall transcripts. Key highlights include 6x capacity expansion

• Manufactures fin and tube heat exchangers for HVAC applications which finds applications in cooling systems of Railways, Metros, Data Centers, Air chillers, logistics, cold rooms etc.
• Exchangers form 10% of RAC and may go up to 20% for complex products
• Commercial refrigeration industry is growing at 20-25% CAGR segment where company mainly operates (97% revenues towards commercial)
• 5 types of heat exchangers viz. shell and tube, spiral, plate, special and fin & tube
o Company is mainly into fin & tube and does copper to copper and copper to aluminium
• First to develop air condenser for bus ACs
• Setup new subsidiary and machines for air cooler, oil coolers and new machines
o Plate and bar exchangers
• Focus on export markets viz. US & Europe
• Exports have increased to 15% of revenues and plans to double exports
• Exports have 2.0x margins
• Annual turnover for finned tube heat exchangers is anticipated to grow from USD 133 Mn in 2022 to nearly USD 277 Mn by 2029, almost doubling in size
• Europe and Asia are planning China +1
• In USA, there is ADD on Chinese heat exchangers
o Forecast good export on back on repeat orders plus new product lines plus new customers

Analysis
• Historically gross asset turn has ben 5-6x and with incremental capex of INR 300 Cr which gets fully utilized by H1FY27
o Commercial production from Sep-25 and assume full ramp up in at max a years’ time
o Sep-26 should be operating at overall capacity utilization of 60-70%
• Changing export mix estimated to go up to 30-35% from current 20%
• Export orders have double margin of domestic thereby high chances of PE rerating with both topline growth and margin expansion
• Estimated revenues of c. INR 2,000 Cr revenues (6x asset turn on gross block of INR 340 Cr) with 20% steady EBITDA and 13-15% PAT margins
• In Mar’26, on 1 year forward multiple of 35-40x, estimated Mcap should be INR 10,000 Cr (250 Cr Pat times 35-40x multiple)
• 3x from current levels in 18-24 months’ time (Current Mcap is c. INR 3,650 Cr going to 10,000 Cr)

1. Company Overview

• Incorporation and Business Evolution: Established in 2006, Osel Devices Ltd. (ODL) began as a trading company, transitioning to manufacturing in 2019. The company produces LED display systems and hearing aids, with each segment contributing approximately 36% and 64% of total revenue in FY 2024, respectively.
• Products and Capacity: With a manufacturing facility in Greater Noida, Uttar Pradesh, ODL has an annual production capacity of 15,000 sq. ft. for LED displays and 400,000 units for hearing aids.
• Management: The company is promoted by Rajendra Ravi Shanker Mishra and Jyotsna Jawahar, both of whom bring significant experience in the healthcare equipment industry.

2. Financial Performance

• Revenue Growth: ODL’s revenue has grown at a CAGR of 32% over the past three years, reaching INR 132.25 crore in FY 2024, with expectations of 30-35% revenue growth in FY 2025 due to increasing capacity utilization.
• Profit Margins: Profit After Tax (PAT) increased from INR 5.03 crore in FY 2023 to INR 12.15 crore in FY 2024, with a PAT margin rising from 6.14% to 9.19%.
• Debt and Leverage: The company’s leverage remains moderate, with a gearing ratio of 1.02 times in FY 2024, expected to decline to around 0.8 by FY 2025.

3. Key Operational Highlights

3.1 Diverse Clientele and Market Reach

• ODL serves a reputable mix of clients across private and government sectors, including ISRO, PVR Ltd., Lulu Mall, and Artificial Limbs Manufacturing Corporation of India. This diverse clientele helps mitigate revenue dependency on specific sectors.

3.2 Product Diversification and Technological Advancement

• The company has invested in technology to enhance its hearing aid offerings, incorporating digital and smart technology, and remains focused on advancing product quality in the healthcare equipment industry.

3.3 Manufacturing Capacity Utilization

• The company’s Greater Noida facility has been instrumental in meeting rising demand. Increasing utilization rates will be critical for sustaining the anticipated revenue growth in FY 2025 and beyond.

4. Financial Health and Liquidity

• Debt Protection Metrics: Interest coverage ratio in FY 2024 stood at 6.57 times, indicating strong debt serviceability. Cash accruals are projected to remain healthy, expected to cover annual debt obligations comfortably.
• Liquidity: ODL’s liquidity is supported by moderate bank line utilization (78.5%) as of mid-2024. The recent enhancement of bank lines is expected to support working capital needs and provide a buffer for unforeseen cash flow requirements.

5. Industry Outlook and Market Drivers

The India hearing aids market, estimated at USD 4.23 billion in 2023, is projected to grow at a CAGR of 7.89%, reaching USD 7.18 billion by 2030. Key market drivers include:

• Rising Hearing Loss Incidences: An aging population and increasing awareness of hearing health are expected to drive demand.
• Technological Advancements: Integration of smart technology and digital enhancements into hearing aids is transforming the market.
• Favorable Government Policies: Healthcare policies are encouraging investment and access to affordable hearing solutions, creating new growth opportunities for companies like ODL.

6. Strategic Future Plans

6.1 Capacity Expansion and Technological Investments

• ODL plans to enhance its manufacturing capacity to address growing demand in the hearing aids and LED display markets. This expansion is aligned with the company’s goal to increase capacity utilization and improve operational efficiency.

6.2 Product Innovation and Customization

• In response to competition and the need for differentiation, ODL is focusing on customization and technology integration in its hearing aids, aiming to create a unique selling proposition.

6.3 Strengthening Financial Stability

• Continued focus on debt reduction and prudent working capital management aims to strengthen ODL’s financial position, ensuring liquidity to support growth initiatives.

7. Investment Thesis

1. Growing Market: The expanding hearing aids market in India provides a positive growth outlook, with a steady demand supported by demographic changes and policy support.
2. Experienced Management: The promoters’ deep industry knowledge helps in market navigation, supplier relationships, and strategic partnerships.
3. Diverse Client Base: Serving both government and private sectors mitigates revenue dependency and enhances revenue stability.
4. Operational Efficiency: A high capacity utilization strategy and advancements in production technology will help sustain profitability and drive revenue growth.

8. Investment Risks and Anti-Thesis

1. Technology Obsolescence: Rapid advancements in healthcare equipment technology present a challenge. To remain competitive, ODL must continually invest in R&D to avoid obsolescence.
2. Supply Chain Vulnerability: Heavy reliance on Chinese suppliers for raw materials makes ODL susceptible to supply chain disruptions and material cost fluctuations.
3. Working Capital Intensity: Maintaining sufficient inventory and fulfilling custom orders requires high working capital, posing a challenge for cash flow stability.
4. Competitive Pressure: ODL operates in a competitive landscape, facing established players that could impact market share and pricing flexibility.

9. Conclusion

Osel Devices Ltd. is positioned to capitalize on the growth opportunities within the hearing aids market, supported by experienced leadership, a growing client base, and solid financial health. However, challenges such as technology risk and supply chain dependency require proactive management. With its focus on capacity expansion, technological innovation, and financial stability, ODL shows promise as a resilient player in the healthcare equipment industry.