Discussion with Shivalik management 29-03-2023
Market opportunity/ growth
Shunts
TAM of 650 Mn$ by FY30
This TAM is specifically for what Shivalik caters to today. This is the basis of current technology. Conservative estimate.
Key applications
Electric vehicles -BMS
Energy Meters
Solar (Nascent stage)
Not sure how this TAM will unfold as no of BMS/Shunts required is evolving
The estimated value as of today for 4W/4 BMS is 10-12$.
Per BMS 4 shunts are used. Therefore for 4BMS 16 shunts will be required.
The estimated value of total shunts required in 2W is 3-4$/2W
2W has a lower shunt requirement
2W opportunity is more than a 4W opportunity
More BMS might come into use, as this space evolves. Range could be 4-8 BMS in 4W
Solar – can this become a large opportunity? Shunts X value per shunt?
Any renewable source will contribute to energy storage. All these applications will require Shunts. Growth can be exponential but a industry today is at a nascent stage.
How do Shivalik Shunts differ from other Shunts?
For Any equipment where current sensing technology is required, Shivalik will play the role.
However where value addition is less, Shivalik does not want to enter. They get such offers from customers but choose to say no.
Shivalik edge?
EBW Technology sets Shivalik apart. This is 1 out of 10 process that needs to be done. Although the other 9 can be done by anyone, the EBW process is key edge.
EBW welding was started by Shivalik because of the existing segments which Shivalik was catering to.
Opportunity is not limited to only EBW welding , but Shivalik specialises in joining of 2 metals , so will find value add opportunities here.
Any new entrant has to first buy critical components, understand the technical know-how of this process which will take 3-4 years and later has to take customer validation which will again take ~2 years. In total it has to spend around 5-6 years. Given gestation period, need to invest ~100crs, small industry size- they will prefer to enter in another vertical where they can cater.
Shivalik Cost is 4-5 times lower
This EBW can be used to cater to other areas too. Like Defence e.g Tanks etc. However, don’t want to enter where demand is uncertain.
Will prefer exploring opportunities in electronics.
Bimetals
Q-Bimetals – historically growth has been in the low double digits here. but we are expanding significantly with 600crs of capacity being set up, so what exactly is the opportunity here? Is there a China + 1? From a cost perspective, how competitive are we versus China?
Is there a China+1?
Yes, the recent validation speed was unexpected.
Companies are actively looking to de-risk from China supplier
Shivalik is competitively placed on cost versus China.
Don’t see China as a competition given that Chinese suppliers are catering more to China itself (Need to understand China + 1 tailwinds better)
Will gain share from Europe and USA suppliers as these players are giants and the bimetals division is too small and not a focus area.
The Sandwick group shut their bimetals division overnight which resulted in supply chain problems for customers- Therefore customers want someone now who will specifically focus on this category like Shivalik caters to.
Bimetals:
Bimetals cost 1-2% of switchgear.
Export growth will largely come from Bimetal.
Already in the advanced Sampling stage with customers in Bimetals.
Shivalik is considered a benchmark globally for Bimetals. that positioning in Shunts is still being developed.
Electrical Contacts:
This is a cross sell opportunity with bimetals
This is a lower margin but higher ROCE Business.
Electrical contacts require precious metal material, lower GM and lower value add components compared to Shunts.
Financials:
Bimetals and Shunts have the same margins. (Why did company level GP margins expand over last few years then?)
10-12% EBITDA margin for electrical components. However, higher ROCE business.
Margins can improve with operating leverage.
Believes ROIC as per expected Margin/asset turns are sustainable. Their products are low cost for customer, they have cost edge, industry structure- not many competitors.
Q -All our 3 plants are in Solan, which is seismic zone IV, so how does one think about supply chain risk from a natural disaster tail risk event? Will the future expansion be done in a different location?
Don’t see risk from this. The only way they manage it is by building robust infra
Delhi is categorized as higher seismic zone
The Plant is on a flat surface. Therefore the risk is less. risk in Dharamshala is higher.
No earthquake has happened near the plant to date.
What explains high GFA turns?
Shivalik’s cost of machinery is 1/4 th less than peers because of their technical know-how expertise. Source machinery parts from different sources and fabricate machinery in house
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