I went for the physical AGM again this year and somehow I felt even more comfortable about the company and its business model and competitive positioning.
I always used to feel that belt manufacturing would be a simple thing. But only when one goes for the huge plants and infrastructure created by the company gradually over the years and after spending time understanding the whole process, one will realise how many steps are involved and how tough the whole thing is. Management has done really well to automate some parts of the process (rubber mixing plant is highly automated) which gives them efficiency and scale while some processes still involve lot of skilled labor and manual interventions (despite lots of machines etc) and I think this is a great positive…something similar to BKT/Mayur.
Had it been simple and just machine work…lot of cos would had come in and taken away the profit pool. The business is able to make 60%+ gross margins only because of factors such as:
- 90% sales are in their own brand. They don’t want to do OEM business as that would hit margins
- 70-80% sales are to aftermarket. Think about it – how tough it would be to sell belts in after market and to manage such huge no of SKUs
In near term there would be lot of concerns like – high rm cost, slowdown issues in Europe etc…and perhaps cost increase given the large expansion coming onstream. But if the management is able to execute on growth (over next 3-4 years) while retaining nos like today…there is still lot of value creation left.
Ayush
Disc: Invested in family and client acs. Views would be biased and subject to changes 
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