This company was on my radar for some time but today decided to study it. A lot has already been written on this thread, so I won’t repeat the same points again.
Q2 FY23 highlights:
Reasonable growth:
Sales up 21% (Y-o-Y) and 11% (Q-o-Q)
EBIDTA up 1% (Y-o-Y) and 9% (Y-o-Y)
For FY23 revenue to grow at 35%, H2 should growth by 32% (Y-o-Y). Q2 growth was 21% (Q1 cannot be considered due to low base).
Company says Q2 margins were low due to “initial commissioning & other one-time startup expenses”. But numbers show that GM was depressed and above mentioned expenses do not impact GM. Clearly, company is unable to pass on RM increase (couldn’t see “1 quarter lag in passing on cost” for last 4 quarters).
EV business is very far fetched. It won’t come overnight. Need to focus more on current challenges in hand. Development timeline for all new EV Products have been pushed further by 1 quarter to 4 quarter.
Net Working Capital stood at Rs. 300 cr marginally lower from Rs. 307 cr on 31st March ’22. This is impressive given the growth in business.
Debt: Company has not provided balance sheet for Q1 FY23. However, interest cost for Q2 FY23 is 20% more than Q1 FY23. So, debt has increased in Q2 too. BS is showing margin increase in debt which can be due to repayment closer to quarter-end. Repayment can be genuine or window dressing (anybody’s guess).
On upcoming project: nothing much has changed except company has started Phase 2 expansion at Halol, Gujarat (5 acre land alloted for the same).
My understanding (not repeating points already covered in thread):
Pros:
Detailing of business is impressive.
JVs are at South Korea, Japan & Taiwan (technologically advanced countries).
Improvement in working capital aided cash flow and subsequently lower need for fresh debt (although debt did increase).
very diversified business catering to multiple product categories.
Cons:
In Q3 FY22 con-call they said input cost is passed on with 1Q lag and double digit margin is doable. Neither of it has happened so far.
Customer stickiness is high but they are not indispensable. Each of the product they make has huge competition. (nothing extraordinary about their product).
Peer comparison:
| Peer comparison | Sandhar | Minda Corp | Fiem Ind | Sundaram | Wheels India | Steel Strip Wheels | Ucal Fuel system |
|---|---|---|---|---|---|---|---|
| Mcap (Current) | 1372 | 4844 | 2396 | 10475 | 1490 | 2650 | 287 |
| P/E (Current) | 22.6 | 21.2 | 18.9 | 16.3 | 20.1 | 13.6 | 12.6 |
| P/S (Current) | 0.5 | 1.3 | 1.3 | 0.3 | 0.3 | 0.7 | 0.3 |
| EBIDTA % (FY22) | 9% | 12% | 13% | 12% | 7% | 13% | 13% |
| D/E (FY22) | 0.7 | 0.4 | 0.1 | 3.3 | 1.2 | 0.8 | 0.6 |
| ROE (FY22) | 7% | 14% | 15% | 16% | 12% | 22% | 9% |
| ROCE (FY22) | 8% | 12% | 21% | 12% | 12% | 23% | 10% |
| WC days (FY22) | 47 days | 65 days | 12 days | 81 days | 65 days | 46 days | 40 days |
This business reminds me of Jab We Met dialogue “saadi to band baj chuki h. Isse bura aur kuch ho hi nhi sakta. Ab sirf acha ho sakta h aur hoga.”
Given the current business condition, there is scope for further correction. But future plans are keeping hopes up. There is lower downside and higher upside. However, A lot depend on management walking the talk.
Disc.: not invested but keenly tracking
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