I have got an opportunity to attend the analyst meet the company planned in Mumbai during Last week of March 2023. Find enclosed my notes from interaction with management.
Shunt Business
The shunt resistor market size estimate of USD 230 mn in FY22 is for relevant segment for the company. Total sales of company from this vertical for company is Rs 230-250 cr (~USD 50 mn, giving approximate market share of 12% in relevant segment). There many types of shunts which are used in Automobile. The company focus is on electric beam welded shunts which are relatively difficult to manufacture.
Smart meter business is currently focused in India and account for 40-45% Shunt business (Note sure on the numbers), while Automobile account for balance shunt business. In Automobile segment, the company has also now got approval from Hella and Continental.
Cost of shunts is around Rs 14-15 in one Smart meter. Previously, Relay in smart meters were imported In India. Requirement for Relay manufacturing need Shunt. However, now few Indian players have started manufacturing Relay in India which would drive shunt demand for Shivalik in Smart Meter. The company is involved from design stage with the meter manufacture, Hence, in case Meter manufacturer wants to change the shunt, one has to go through full approval cycle again and given small cost, unless company provide inferior quality shunt or not able to supply, the chances of being replaced by competitor is very low. Same also affect gaining market share from other players for the company. So despite competitive advantage, the company cannot just gain market share by cost competitiveness in most business.
Vishay account of 40% of shunts business and 20% of total sales of the company.
Bimetal Business:
Ability of develop various type of Bimetal with unique usage is key competitive strength of the company. Bimetal is key raw material which is used in Shunts. Company like Vishay initially started sourcing Bimetal from the company, however from 2021, the company started to supply Component (i.e., Shunt and other value-added products). Having backward integration in bimetal is key strength of the company and provide unique competitive advantage.
Electric Contact business
This business was previously in JV with the partner. The global partner exited this business and sold India equity holding in JV to the company. Silver alloy used in open and close of comer is key area of operations. Previously, JV partner allowed the company only to market in India. However, the plant was equipped with latest technology. With the JV partner constraints being out and the company is scaling up capacity, it expects significant growth in this business. Margin in the business is relatively lower than Bimetal and Shunt but the growth potential is high with long pathway for addressing both local and global (specifically US market) demand. The company in process to add new plant at 10 km from existing facility. That facility shall commence production within 12-15 months. The current sales from this business are Rs 50 Cr (with 85% being Indian market and balance is export). However, with increased focus of US market, over medium term, export growth is expected to higher than domestic business in this segment.
R&D Team:
The company has currently 4 members dedicated team in R&D. Mr. Ghumman and his son Mr. Kabir are leading R&D efforts of the company. While the cash expenditure on R&D is not high, most of key learning from manufacturing and process improvements are kind of skill based competitive advantage which provide edge to the company along with backward integration and scale of operations.
Competition
In Bimetal and Shunts, while there are multiple players in manufacturing various type of shunts and specific Bimetal, the share of Shunts and Bimetal in total revenue for most of global players is small. As a results, many players like Sandvik are looking at exiting business despite higher margin due to relatively small size. That is working additional advantage for Shivalik in global market. The volume it supplies every year in export market are increasing, first due to higher demand and second due to reduced competition.
Capex and finance
The company expect to spent Rs 20-25 cr during FY23 and FY24 for capex. The completed capacity with 2 shifts (some processes assumed 3 shifts) can provide sales of Rs 1,600 cr at full capacity. Over 3-5 year, the company also intend to reduce working capital days by 10-15 days. Currently, there are no plan to raise new equity capital as capex can be funded easily from internal accruals.
Disclosure: Among my Top 2 holding. My view may be positively biased. Not a SEBI registered advisor. Not suggesting any investment action. I may change my investment decision in the company without informing forum
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