“E-commerce is growing faster than modern trade, and modern trade is outpacing general trade, a trend that seems secular. E-commerce is segmenting into different models, including beauty commerce, grocery commerce, and quick commerce. E-commerce is about 7% of our overall sales, Q-commerce is one-sixth of that and continues to grow,” Jawa told Moneycontrol.

@Divyanshu_Parganiha, it clearly says Ecom is growing faster than modern and general trade.

Find enclosed my notes from Disa India AGM. Please note that there is possibility of communication error at my side.

Revenue outlook:
The company’s topline has grown at 5 times GDP growth. Expect same growth rate to continue. Forging industry in India is attracting many new players as well as many established players are also looking at expansion, which would drive demand for the company products. The company is leader in Vertical technology and has almost more than 50% market share. In Shot blasting machine, it is improving its technology and has around 20% market share. The Flex technology is giving good output in shot blasting.
Disa product account for 65% of share, while 15% is from shot blasting and 17% is filters. Automotive OEM account for 70% sales while non-automative segments account for balance 30% sales which is mainly driven by Infrastructure spending. The company is also getting parent support and supplying to US market and European market.
The company intend to provide better services to customers by reaching near their location. In order to achieve these objectives, the company appointed 5 distributors at national level which cover 9 locations. Margin in After sale service are higher than margin in equipment supply.
On Digital side, the company in touch with most of large players. All new equipment it supplies now are digital ready. Nearly 80% of products are digital ready. The company expect it is long journey to digitalised all equipment. The large players are still reluctant, while small players would wait for large players to digitalised and then decide about their way forward.
In Aluminium die cast, the company currently does not find merit to start equipment manufacturing due to limited demand. In long term, once Indian market offer scale, it would commence aluminium diecast equipment. Meanwhile, it would continue with prospective customer and import equipment from group companies and meet the Indian customer demand.

Capex:
The company would not hesitate to do capex. With current set up, it can revenue topline of Rs 450 cr. The company is not selling equipment, but it provides solution to client requirement. It has increased outsourcing of non-essential activity. The increase in production not about only company increasing capacity, rather, the whole ecosystem including vendors also need to scale up capacity.

Disclosure:
I have invested in the company and hence my view may be biased. I may increase/reduce and exit from investment without informing forum. I am not SEBI registered advisor. I am not suggesting any investment action to reader.

What sets me off about Laurus Labs?

In the quest of diversifying from an ARV-API focused company, the management has allocated capital all over the place. While the company has scaled CDMO and Generic-FDF business from INR 150 Crs and INR 6 Crs respectively to INR 922 Crs and INR 1,414 Crs during the FY18-24 period, the company has invested roughly around INR 4,000 Crs in putting up capacities. On top of that, the company has made inorganic investments in Richcore (Laurus Bio), JVs (KRKA), and new technologies like cell and gene therapies through ImmunoACT investments. The borrowing has gone up by 2.5x since FY18 as the operating cash flows are not able to fund the rapid expansion. The management talks about improving asset turnover from 0.8x to 1.1-1.2x but at the same time, they have announced INR 1,800-2,000 Crs of Capex for the next 2 years. The gross block is approximately INR 6,000 Crs and even if they manage to improve it to say 1.2x by FY26, that just translates to a 13-14% CAGR in 3 years. Bottom line, unless and until CDMO picks up substantially with large orders, the growth and margins are expected to remain stressed. This can go into a perennial loop of investing in the business as their focus is scattered with APIs, FDF, human health, animal health, crop science, fermentation, new technologies. There is always a new area to invest in. With this kind of reinvestment beyond what internal accruals can cover, free cash flows also remain a distant dream for this company.

To summarize, scattered capital allocation, debt-funded reinvestments, uncertainty around asset utilization, and lumpy revenues of CDMO with not-so-comforting valuations is how I look at this story as of now.

Q1FY25 Concall Summary

Business Updates

• Highest ever Q1 sales recorded during Q1FY25. The first quarter of last year had pre buy included and thus 6% yoy growth over that quarter is great because if that effect is negated growth on a yoy basis is 18% in Q1FY25
• On the power gen side the CPCB IV plus capacity has been ramped up effectively and the company has also got approval for natural gas nodes
• In the B2C segment the relocation of manufacturing facility is happening as per plans
• The AUM in ARKA stood at 5768 crores as on June 2024
• Over the past 2 years the business has been restructured and cultivated a strong company culture which will prepare the company for the long part that lies ahead
• The idea is to change the company from an engine manufacturer to a power and energy solutions provider
• The path for next five years is to be a $2billion enterprise by 2030 and the levers that will be used to achieve this are to manufacture more, the new plant on the B2C side and the company is an engineering company which will continue to invest behind R&D
• The company will evaluate inorganic opportunities only in areas which are core to the company and its operations
• The net cash as on end of Q1FY25 was around Rs 400 crores
• The long term debt rating has been upgraded by CRISIL

Participants

Sancheti Family Office

DSP

Subhkam Ventures

Edelweiss

Macquarie

One up Financial

Motilal Oswal

Oaklane Capital

QnA

• The data centers buy a various type of power backups and power gensets are critical for a data center. The company is developing a range that will allow them to be aggressive in this segment along with maintenance contracts for the same which brings in annuity business
• The life of a genset is 15 years
• The annuity contracts associated with maintenance varies according to scope of work and can vary but the idea is to help keep 24×7 uptime
• From an end customer standpoint not seeing any varied signals and demand continues to be strong without any challenge or softening
• The service channel is being ramped up and capabilities are being built so that after market can be serviced and growth can be maintained
• The 5 year target is an ambition and not a clear number with areas of focus already outlined and most of the growth that will be achieved will be on the B2B side
• On the international business identifying open space where the company can win and working on what kind of channel and distribution network will be needed
• Currently the capital adequacy in “ARKA” is adequate and there are no considerations for new capital addition as the company is not leveraged to that extent
• In power generation the company currently has a market share of 30% and in CPCB IV Plus it has a product range across both diesel and natural gas segment
• On margin front expectation will be to remain in double digits without a firm commitment on any certain number
• The demand is stronger across construction and infrastructure sector. Across railway and defense there are stronger opportunities
• The focus is currently on augmenting capacity of high horsepower gensets and bulk of the execution of this capacity will happen over next 2-3 years
• The company has received the patent for India for hydrogen internal combustion engine gensets
• In the B2C business very close to double digit margins on an annualized basis and idea is to maintain double digit levels going forward as well
• The big improvement in margins in CPCB IV Plus will come from aftermarket and services which will commence once the warranties get over for the products
• The Rs 700 crore capex that the company will incur is a fresh investment over and above the normal capex that the company will incur over the next 2-3 years
• At this point channel will focus on CPCB IV Plus products as the industry has moved to that era

Management keep on fooling the investors by guiding for 7-8% EBITDA margin targets every quarter and every quarter in reality margin keeps on deteriorating. But hopefully we have reached the bottom of margin drawdown cycle.