I attended Technocraft AGM on Sep 27, 2023. Here are my notes –

Scaffolding

• Prospects in US : We did about $48 mn of sales in US in CY22. US business continues to be quite strong and growing. In CY23, well on track to do around $65 mn. Next year CY24 should be able to increase it further to $80 mn. Have expanded distribution setup in US. Recently opened new distribution centre in Miami. Overall we have five different distribution location across the US. We are now the largest scaffolding distributer in US. Will soon be adding Formwork in US once we increase the capacity. Prospects are quite good.

• Competitive Advantage : In scaffolding there is not much of product specialisation. It is more of a commodity product. Unlike drum closures there are 1000s of cos worldwide making scaffolding, primarily in China. Our competitive advantage in scaffolding is sales distribution. We cut across the entire distribution chain and keep stock in countries like US, Australia, NZ, Europe, etc and sell directly to the end user. The competitors in local distributors here get their products made in China whereas we have our own manufacturing facilities so we are able to provide better quality, better reliability and end-to-end service. Also able to command some premium pricing.

• It is well known that steel is more expensive in India than China. We have disadvantage of 15-20% over China. Also the tariffs are gradually pulled away from US. Inspite of these we are able to sell our products at good margins because of our bandwidth, our distribution channel and also China+1 strategy that is going along in the US and other countries

• European Sales : We are not well penetrated in Europe yet; it continues to be small market for us for now. We addressed this by hiring a very senior sales head in Europe in our Poland office from competition. We have little setback in Europe right now because of economic crisis there and market is right now quite dull. We expect this to improve. By end of this year, we will have certification in place for our scaffolding products in Europe. This will be a major breakthrough for us to increase our sales there. By next fiscal year FY24-25 we should see significant pickup in European sales and I think Europe market in FY24-25 and FY25-26 has the potential to be as large as the US market for us. So prospects are very good. Currently the Europe is only about $5-6 mn but it has prospects to be at least 10 times the present size based on we getting the certification which we will get by end of this year and market picking up.

Formwork

• Formwork is far more specialised product than scaffolding. Formwork involves precision engineering, fabrication and site support. The kind of work we are doing in infrastructure in India is very high end Engineering. There is competition in formwork but part of the reason we are putting Aurangabad plant with backward integration of aluminium extrution is to put in place entry barrier. That by itself is quite a significant entry barrier. We will be first co (in India) to have our own aluminium extrusion plant with forward integration of aluminium formwork. Our specialisation is we cater to niche high end Engineering sector like infrastructure.

• Capex and timeline : 350 cr new capex in Aurangabad, primarily for formwork. Will be fully completed by end of next year 2024. Production will start by Feb ’24 in stages. The entire aluminium extrusion plant will be fully commissioned by end of 2024. We should see the full benefit of new plant in FY25-26 and we will see some benefit in FY24-25 as well.

• Sustainable Margins : 15-20% in formwork business is doable in the segments we play. This will increase by 5% to about 20-25% once the Aurangabad aluminium extrusion plant is up and running, specifically for aluminium formwork business. Overall 20% is quite a sustainable margins for formwork business.

• Export Plans : We do have export plans. Currently we do very limited formwork exports in Middle East. As we increase capacity in Aurangabad we plan to increase formwork exports. US is definitely going to be key market for us, so is South America.

• Construction growth is strong in India. In India, we are primarily selling formwork, not scaffolding. And that is the reason why we are doing capex in the Aurangabad to increase the capacity to cater to increasing demand in India.

Scaffolding + Formwork

• Sales breakup : In Fy23, export was 62% and domestic 38% of business segment sales

• Export revenue breakup : North America 70%, Europe 13%, Australia + NZ around 8%, South America 3%, Middle East 1-2% and Asia 1-2%.

• Raw Material : Steel is our main raw material for scaffolding. We buy hot rolled coil steel. We have our own ERW tube manufacturing capacity. So we roll the steel into tubes. We don’t sell tubes at all (used to sell long time back; have come out completely). All our tube product is 100% captive consumption, in making scaffolding. The other raw material is aluminium extrusion used for making formwork panel which we will soon in Aurangabad start making in-house as well, for that the raw material will be aluminium scrap.

• Revenue from aluminium formwork in Fy23 was about 188 cr which is about 20% of Scaffoldings business segment reported revenue of 889 cr.

Textile

• Investing in new mill in Amravati; capital outlay of ~150 cr. Govt incentive : Generous benefit in Amravati; co gets 25-30% capital subsidy. In process of complete shutdown of yarn mill in Murbad as it has high cost of operation (power, wages) causing bleeding in textile division Will continue to producing fabric in Murbad because have process house there and affluent treatment plant which cannot be shifted is also there. Out of the capex plan of 150 cr in Amravati, we have already spent 108 cr. We expect to start the production within couple of months. No immediate future plans of more capex in textile .

• Demerger: No talk of demerger as of now. We keep getting proposals. The board will decide as and when appropriate time comes.

China capacity for Drum Closures

• In China we have 18 mn sets capacity that is on one shift basis of 14 hr. China capacity is fully utilised as of now. China capacity can be expanded if we increase the shift hours. May expand as and when needed.

Defense

• It takes lot of time So far we have total order worth 20-21 cr. In future defence may pickup at faster pace

Technosoft Engineering

• This business is doing very well. We are seeing strong growth in FY24. First qtr was not just the one of qtr. We will see similar or better qtr going forward in each of the qtr this year. We expect FY24 to be very strong year. And going forward for FY25 the prospects for this business is quite strong in the US, UK and in the European market. Post covid even the small and mid size manufacturing cos are very open to outsourcing large part of their Engg work which earlier they were not. We are also expanding our sales staff in US, we got very senior VP of sales who has joined in the US. We are expanding and are now entering into larger accounts. Overall the prospects are quite good.

Disc: Invested. No transactions in last 30 days.

Even i got the same doubt, but i feel that he is talking about the customers and their retailers.
because of the higher interest rate they may postpone the buying.

This is what i understand, any one can please comment and explain

QIP will increase the BV as it may happen at 2.25x book value…
Book value can reach 52-53 by the end of F.Y. 25 if we consider the profits of 7 quaters along with merger and QIP…

I beg to differ with your point of view. PPFAS is probably the most honest fund house in the industry today and they are stating the facts. I don’t this they will bad mouth a segment of the market since they don’t have a fund in that space. Considering the loyalty they have today, they can easily launch a small cap fund may get 10K cr AUM at NFO itself. But they have been saying all along that they don’t launch products unless it provides a solution to the investors and stuck to their ethics for long.

The video posted here is presented at PPFAS FOF summit which is in existence from close to 10 years or so and the people who attend this are very savvy investors and probably some of them are in this industry for 20+ years. It’s a paid subscription and I doubt they would listen to something like that after paying for the service.

Disc : I am not an investor with PPFAS but an admirer of their ethics and the way they keep investor centric approach.