Shivalik Bimetal Controls Ltd (SBCL)

Q1 FY24 Conference call Key Highlights:

1. Shut Resistor Automobile: Demand from Export was relatively weaker during Q1FY24 due to normalisation of investory levels. While company has added many new cusomters in last 3-4 years, the scaling up with new customer would take time. Anticipate demand to recover in Seond half of FY24
2. Shunt Resistor Meters: In single phase meter, Shivalik has around 65-70% of market share for Shunts. With new GOI policy about implementation of Smart Meter (around 250 mn), demand for shunts is likely to increase. Shivalik already have capacity now at place. However, implementation speed as suggested in GOI appears very agressive if one compare same with past experience. Only 2 mn smart meter (as against plan of 250 mn) are currently installed. Further, Smart meter use Relay as input, which was imported in past. Now many German/Indian and Chinese reputed players have installed relay capacity. That would drive demand for Shivalik Shunt as well as Shivalik Silver Connect.
   Shivalik potential market in Smart meter is from 45-50 (in case only shunt is used) to Rs 150 (in case all products of Shivalik are used). The demand growth form Shivalik would be mainly determined by scaling up of Relay Capacities, for which Shivalik is optimistic. Hence, during FY24 and FY25 Shivalik see Smart meter demand from India being a main growth driver for revenue.
3. Birmetal: Demand for Bimetal has improved mainly from Indian market. Export market reported lower growth than Indian market.
4. Capacity expansion and Capex: The company has already spent 80% of Capex for Bimetal/Shuts. Post completion of capex, the company could achieve Rs 1500-1600 Cr sales. The company expect same would be achived over period of 6-7 years. First three years, Smart meter would lead demand for new production and subsequently it expect Automobile sector to be growth driver. Operating leverage from new capex could result in 2-3% improvement EBITDA margin from current level of 25% to 28%.
5. Silver Connect: The company in process to triple its capacity over next 24-28 months. Next 12-14 months, phase I would be complete and capacity would be doubled and further 12-14 months, Phase II would be complete with total installed capacity being 3X of current capacity. Increase Relay production in India for Smart meters would be main demand driver for Silver Connect. Previously, Silver connect business was in JV but now it is part of Shivalik Group.Hence, they are looking at getting synergies from existing Shivalik skills set and client network.
   Other information:
   In exports of Bimetal,nearly 100% of of customer are Tier I supplier to Automobile companies, while in Shunt nearlt 30-35% customers are Tier I supplier and Balance 60-65% are Tier II Supplier
   FY24 Outlook: Anticipate 15-20% Growth over FY23 revenue. Since the capacity are now operational and Domestic enviroment is good, do expect Indian market to drive growth in FY24 and may be FY25. While the company expect export market to peak up from H2FY24, still expect growth rate to be lower than Indian market in short to medium term (say upto FY25).

Disclosure: Shivalik Bimetal is my largest holding and hence my view may biased. There is scope for communication error at my side. I am not SEBi registered advisor. I am not recommemding any investment action in Shivalik. I may exit fully from my investment without informing forum.