Macfos is a very interesting company. I think for companies at scale of macfos, it is not remunerative to look for moats, but to think more in terms of
(i) execution capabilities & competence
(ii) Tailwinds & base rates of success. How is the ecosystem evolving? With electronics, drone, robotics/automation manufacturing shifting to india, we might have an IT like setup for electronics to explode both in R&D in colleges, government institutes & also private companies.

Sharing my notes from until now which are complied from DRHP, investor presentation, youtube interviews, concall:

Challenges /risks:

1. Past: primarily revolving around two constant supply chain issues. Firstly, there were widespread shortages of materials across all semiconductor product categories. Secondly, the supply chain demonstrated inconsistency, resulting in low availability and high prices of products for both us and our customers.
2. The companies are situated in China. For some companies, it’s a mix where companies not situated in China, but we are still getting material out of China. And I’ll be very frank with you. Like if this question ultimately is directed towards dependency on China. So I’ll be very frank with you. The whole world is.

Business:

1. SPECIALISED ELECTRONIC PARTS E-COMMERCE STORE. Ecom platform. Full solution provider. 12700 SKU inventory holding
2. Specialized Ecom Store of only electronics items including robotic parts, drone parts, E-bike parts, IoT & Wireless items, 3d printer & parts, DIY learning kits, development boards, raspberry Pi (Single board computers & Peripherals), sensors, motors, motor drivers, pumps, batteries, chargers, electronic modules & displays and various other mechanical and electronic components
3. SKU wise breakup
4. 
5. Very insignificant returns & replacement costs
6. 
7. the OEM category or own products revenue. So the revenue is generally 2% of our total revenue right now
8. 90% of our sourcing is based outside India. China is a lot.

Growth:

1. Expanding into new categories, introducing new products, and acquiring new brands.
2. Optimising our supply chain
3. Emphasising the development of our proprietary products
4. Lastly, we successfully implemented a warehouse system during the previous year, enabling us to handle ve times our previous order capacity.
5. Exponential growth in both orders, SKUs, visitors, orders
6. 
7. Growth guidance: I mean, it will be in the same line of, I mean, what we are continuing to do. So it will be in the same line. It won’t be right to disclose the number, but yes.
8. So we have already mentioned that we are more bullish on development boards and drone parts. And also we see the business of IoT machine learning like the wireless stuff that is going to be a good growing sector for us in coming few years
9. B2G: government labs like Bhel, DRDO and all other institutes. So there are educational institutes like IITs where a lot of research is happening. So currently our strategy is getting in touch with them and because of smaller orders already, we have already interacted with them for smaller orders. So we are now getting in touch with them and trying to get these tenders for higher value orders. So we are currently trying to convert the smaller order that, we received into the high value orders
10. Have already created a new fulfilment center which can handle 5x the order volumes. For instance, we have recently obtained a property on lease at Chakan Industrial Area, Phase I, Mhalunge, Khed, Pune, which we plan to use it as fulfillment centre in future, after construction of building premises.

Profitability:

1. Furthermore, we aim to enhance operational eciency and accountability by maximizing the utilization of our ERP system
2. 23% gross margin in B2B, 30% GM in B2C
3. ROCE: 2.5-3 month inventory turnover is awesome. 14% EBITDA + 4x inventory turnover means high ROCE
4. ROCE: Out of Total Inventory (as on 31.03.2023), Only 2.33% Inventory is Very Slow-moving (not sold in last 9 months)
5. Operating leverage: So while our revenue has grown by 45%, some expenses have only increased by say, 10%, 20%, or 25% only. This indicates that we have the potential to leverage our PAT better in the future
6. Expenses: we try to keep our marketing expense below 2.5% of our overall revenue. the bottom line, we know that we want to maintain around 9% to 10%.
7. B2G: WC: Receivables: So even if we deal with them with credit terms, with the portals coming in and purchasing happening online, we see payments happening more or less on time. We will take a week’s delay here and there, but yes, it’s not the old days where, you see the government payments, which will happen, God knows when. So that is the reason with the orders.

Promoter / Management:

1. Atul Dumbre. I am Chairman and MD of Macfos Limited. Present along with me from our side today is Mr. Binod Prasad, who is CFO, and Mr. Nilesh Chavhan, who is a Whole-Time Director
2. When it comes to our expenses, we have been performing well, I’ll say, by keeping them in check and optimizing them continuously, which has become a kind of habit for a company like us, which is a bootstrap company
3. And the backstory of Robu is that, we are four friends first. We are all friends from engineering college, I can say. And before Robu, we have a failed business of doing chapati machines, 2011 to 2013. And that is where like we did one year in the industry, 2010 to 2011. And because of that failed business background, we value every rupee that we spend. And that is how we started from scratch in 2014
4. Being from the technical background helped us. We knew even today we believe that we knew how this segment works and what are the requirements of the customers
5. All 4 were doing robotics in college that is where the passion came from. Also, they now use SOPs, ERM, OKRs, clear division of responsibilities + 4 founders makes it very scalable
6. Understand the difference between personal finance & company finances. Very important to ensure promoter integrity

Strategic thinking:

1. we prioritized the growth of our high-value corporate customers, who are involved in production activities
2. we strategically adjusted our pricing, passing on some of the increased costs to customers while absorbing the remainder in our margins. Our decision was grounded in the belief that shortages are temporary, while customers are long-term
3. we are doing sustained investment and focus on building categories of development board and drone segment for last three, four years.
4. So for example, if you want to make a drone, you don’t just require motors. You require 20-odd products which are compatible with each other. And then you have to keep those products in optimized stock to serve the customer at the right point in time.
5. We are also working on three or four categories in coming year, which will act as a road driver in long term. Names confidential.
6. We tried to calculate the loss sales due to, let’s say out of stock, we call it that. So because the products are not in stock, how Macfos Limited June 07, 2023 Page 9 of 15 much sales we have lost.
7. Capital Allocation: Yes, that situation depends on, how much growth you are targeting. So, if you are targeting, say, 5x growth, obviously you’ll be needing a lot of funds. So our, future forecast and growth are such that, we should be able to maintain the whole thing with our own cash flows, internal accruals and of course, with our bank limit, that we have.
8. Decided to stop using amazon/flipkart (when revenue was 1.6 c, lost 40% of revenue then) so they can build their own brand & ensure alignment of incentives & practices.
9. This is possibly the most important part of their business model. Our ERP software has a function of inventory management system, which allows us to track the inventory level and movement of our SKUs on a daily basis thereby allowing us to control our inventories effectively. We place orders with our suppliers based on the results of our analysis of customer demand and product assortment requirements to fit our customers’ preferences. Orders are placed based on data generated from our ERP system in relation to current inventory levels as well as forecasted and historical inventory and sales data.

Competitive intensity

1. There are some companies & i have covered in separate section. Needs much deeper work to analyze each company along common dimensions.
2. Western companies: element14 or Farnell Group, Arrow. There is Sparkfun, Adafruit.

TAM:

1. Farnell/Element14 are having around 3 lakh products in their portfolio already. UK based co.
2. 
3. The base rate of success goes up when addressable market is growing at 17% CAGR & there is added tailwind of on-shoring/manufacturing of electronics in Bharat
4. BHAG of reaching 1000 cr in few years +10cr served customers by 2025 (my own expectation is might reach 10 cr customers by 2030 but even that would be epic)

Competitive advantages:

1. Currently, we have around INR16 crores, INR17 crores worth of inventory. So it’s just not any inventory. It’s a really curated inventory of what we have 15,000 products. So what product and what quantity, that is really important. And that knowledge that, we have built with our knowledge and experience of years. Right. So our inventory is our strength. That is what, we believe because it is right product in right quantity, which gets rotated in 2.5 months to three months
2. But can they get the website as popular as Robu even if they develop the website? We have developed our website since around eight years and it took that much time to develop all the content of our website, get the SEO right and to reach to the level, where there are five lakh people visiting our website every month, website plus app combined. So it’s just like building a brand. So tomorrow anybody can maybe make TVs, but we cannot assume that, the TV manufacturer will start competing with maybe LG or Samsung right day after. Even though, it looks very simple, anybody can just make some TVs, something like that
3. Quality of clients on B2B side is very good. Under the offline channel, we generally serve Corporates and large enterprises. Some of the esteemed customers which have been served by us include ONGC, M&M, Hindustan Aeronautics Ltd., Tata Power Solar Systems Ltd., Central Electronics Engineering Research Institute, Pilani, Wipro Enterprises Pvt. Ltd., Bharat Forge Ltd., Tata Communications Ltd., Schneider Electric India Private Limited etc.
4. Wide variety of components & services available enable the end user to make fewer context switches & makes their prototyping / R&D process easier.
5. 
6. 
7. 
8. I was chatting offline with dev, & he thinks that Robu’s catalog of choices for each item is wider than some competitors at least that he tried out.
9. Also, Our owned brand portfolio is executed by identifying gaps in the market, both across requirements of diverse consumers and multiple price points, and building brands to suit these needs, with a focus on high quality electronic components. This could potentially be higher margin than corporate & co could have a focus to grow this part of the revenue stream.
10. In addition to creating brands which plug whitespaces in components space, robu also offers value added services which again help complete the purchase order for the client. If client can get all their components & services (like laser cutting, 3d printing, custom li-ion batteries, PCB printing) done under 1 vendor/website, this simplifies life for the client.
11. 
12. One of things which i found quite fascinating about robu is that they are treating this as an ecosystem problem. Only way to build ecosystem is through education. In order to drive widespread product education, we frequently create content based videos and blogs which are displayed on our website and mobile application. Our content is majorly focused on the DIY electronic projects which can be made using the electronic parts available on our platform. We create and film a majority of our content in-house through the internal team. (these videos are shot in-house. Shows focus on austerity)

Bard on Robu:

Robu.in is a great option for buying electronic components in India. Here are some reasons why you should prefer Robu:

• Wide selection of products: Robu has a wide selection of electronic components, including resistors, capacitors, transistors, ICs, sensors, and more. They also have a good selection of kits and modules for beginners and hobbyists.
• Competitive prices: Robu’s prices are very competitive, and they often have discounts and promotions.
• Fast shipping: Robu ships all orders within 24 hours, and they offer free shipping on orders over ₹500.
• Good customer service: Robu has a good reputation for customer service. They are responsive to customer inquiries, and they offer a 30-day return policy.

Here are some additional features that make Robu a great choice for buying electronic components in India:

• Expert advice: Robu’s team of experts can help you choose the right components for your project. They also offer a blog and a forum where you can get help from other electronics enthusiasts.
• Educational resources: Robu offers a variety of educational resources, including tutorials, schematics, and datasheets. This makes it easy to learn about electronic components and how to use them.
• Community: Robu has a vibrant community of electronics enthusiasts. You can connect with other hobbyists and share your projects.

Overall, Robu is a great option for buying electronic components in India. They have a wide selection of products, competitive prices, fast shipping, and good customer service. I highly recommend them!

Competitor Analysis

Distribution Analysis

Robu:

Digikey

Element14 (india)

Key ways to take analysis forward

Right now my competitor analysis table is incomplete. lot of work has to go into filling it up. Lot of it is manual labor since we need to find out things like CIN of the companies etc.

Disclaimer: I am invested & biased, have transactions in last 30 days