Notes from the meeting done in Mumbai. Pardon any typos, sharing running notes as is.
Addressable market for shunt resistors is 230million$ (Shunts and resistors): this is size only of the products we do. 230 million$ mkt size: 60% BMS 40% Smart meter.
We are doing only 250 crores (30million$ i.e 12% market share). Isabellehe (German) is competitor. We are not facing direct challenge from anyone else who is across.
Welding and resistor making are 2 separate things.
There are very few do entire thing : welding and resistor making, we do it. Welding is backward integration.
Out of 250 crores sales (Shunts) : 42% energy meters. 70% Indian customers.
We see it growing as a result of smart meters, lot of relay manufacturers started manufacturing in India (shunts used in this), which were earlier imported so we are now getting good opportunity. Permanent Magnet does it, One German does. We work with meter manufacturer.
Meters smart : growing consistently from long time. 14-15Rs we supply in 1 meter, 1 shunt.
Electrical contacts : relatively new business, actively ramping up capacities. Against 1 15 Rs shunt goes in relay we get 10 times value for this business, so added opportunity with same customer. Relay in India is giving us volumes for shunts and electrical contacts.
It is a unique businesses, high value added part(of energy meters portfolio) we are in, we are not in the generic category
What is a contact : switch turns off due to overheating (some point closing and opening , made of conductive material, silver alloy, that point is electrical contact).
SEEPL JV >> now WOS, contact plant is geared up for US market. Our partners were American, suited for American market. Earlier it was partner control, partner sold business. This market solely ours now.
We are struggling with capacity in contact, take 1 year for new plant (10kms from existing location), building is ready, take 1 year by the time functional.
50 crores of contact: 85% is domestic.
JV was doing the Export market now this ratio will change. How is Lead generation in contact ? The customer base is small, few. Somebody manufacturing switchgear, they have to go to 3-4 suppliers in world, supplier base in not big. Indian switchgear : they switch suppliers so they are familiar, reference business, word of mouth.
Bonding mill : highly customised rolling mill. Cost is high. Custom made. Our equipment came from Sweden company, German mill, after installation, took 1.5 year of trial to get tolerance and dimension right despite us being in 35 years. So takes time to rampup.
Focus on RD :
Our research team has been consistently growing. There are 6 people dedicated. NS Ghumman sir solely working on it passionately on it. Infect automotive shunt is his contribution. Kabir ghumman carbon copy of NS ghumman. Shaping up to do that. He has 2 people under him.
3 vertical : GM 49-50% in bimetal and resistor similar, contact GPM lower than that at 27%.
Capacity after expansion and guidance.
Next 2 years capex : 25-30 crores(in shunt resistors only). Resistors : 20 crores done, 25-30 in next 2 years, mainly efficient finishing methods of resistors high precisions.
3x of bimetals plant (600 crores, 2 shift basis and some processes (nailing) 3 shift basis),
Contacts : 100% 3 shift basis. As soon plant is ready, 10 crores in 1 year ramped up to 3x capacity.
So Potential Revenues post expansion (basically after 2 years).
200cr in Bimetal currently – 600 cr revenues at full. It is in place.
225cr in shunt resistor – 600 cr revenues at full. Will take 2 years.
50-60cr in contract business – 300-400cr revenues. Will be fuctional in 1 year.
We have visibility from customer requirements. These numbers are not aggressive, and more conservative keeping in view the economic conditions.
Contribution from Vishay 20%. It has come down from 35%.
We will grow 20% YoY 5 years. We are at 470 crores. 5-6th year, 1600 crores (all 3 plants fully utilised). Whatever projecting is basis customer study.
Barriers :
Customer switching : approval process, not easy to switch only basis of cost.
Schneider and ABB : They know its our core business, secured supply whereas other supplier (not core businesses, giving lead times 8-12 months and some are downsizing). Competitor’s not core business, they don’t add capacities. Our competitors (Aperam, key competitor brought down bimetals from 1200 to 500 MT, some came to us, some gone EMS, some Fepac in china).
Capacities ramp up takes time for testing, few qualities, 2-3 years, validation in region, so business takes time over 5 years.
Quantitative of Vishay has grown. We are sole supplier to them. Welding shunt we are only suppliers. We also supply bimetals strip to them.
Shunt and bimetal price : price is increasing, keeping in view energy or labor.
Main RM : bimetal nickel alloy, Shunt it is copper. 80% plus RM is imported
Policy of pass through: back to back pass on with customer to avoid commodity volatility.
Automobile sector : We are getting more and more geared up different world. Approval from : continental and Hela(couldn’t get this name) shows our capabilities.
Current revenues: 45% resistor revenues (55% BMS(auto), 40% meter).
GPM variability : We started supplying components in 2021 which is value added and hence GPM improved.
We are making strip and component out of strip. FY23 (more than 70% in component form and 30% in strip from.)
Product approval from OEM : For next 5 years, similar level growth, after 5 years, explosive growth from automotive after that.
We get a year’s forecast, 1 year forecast gives us visibility of 20% growth.
BMS : We work with OEMs in designing stage, Mahindra through their BMS manufacturer (auto guys involved in approval). OEM tests and approves it.
5years : equal product mix in shunts. We target shunts where welding needed that is our core competence. What gives needs to weld : it is more application driven thing, depends on accuracy.
Component we supply to Vishay is different from what Vishay does in house. Vishay doesn’t weld. Cost is huge, technical investment need to made hence Vishay will focus on much bigger opportunities.
Resistor we supply to Vishay he wont to continental.
Margin and WC guidance :
5 months WC will reduce to 4 months, but still is a WC heavy business.
WC days : We have been reducing cycle. WC intensive, RM is tailor made and not off the shelf RM. Not easily available. We have been importing, inventory cycle 4 months. If material started from Japan it takes 45-50 days to reach. Receivable : as we grow all our customer international pay upfront using some instrument, reduce WC cycle. Talks with vendors : more credit terms from them. We are hopeful coming years cycle 150 days to 120 days in 3-5 years.
Peak EBITDA of 26% possible, currently 22%
PAT margin is 16% currently, improve up to 18%
Fund needed ?
No as of now, Capex done.
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