Atam Valves Ltd (AVL)

Concall notes – Q4 FY ’23

1. Company Overview

• Atam Valves Limited: A leading manufacturer of industrial and plumbing valves.
• Wide range of products including gate, globe, check, ball, butterfly valves, steam traps, boiler mounting, and accessories.
• Key industries served: oil and gas, refineries, petrochemicals, chemicals, pharmaceuticals, marine, mining, water and wastewater, textile, sugar, and HVAC.

2. Company Structure

• Company’s facilities span 63,000 square feet.
• Three foundry shops for different materials.
• 35-year-old entity with three generations working towards becoming a leader in the industry.
• 500 SKUs, 300 clients, and 500 employees.
• Strong pan-India dealer network with plans to expand to 1,000 dealers.
• Key clients mentioned.

3. International Presence

• Current international presence in South Africa, USA, UK, and Indonesia.
• Expansion plans in the United Arab Emirates, Saudi Arabia, Tanzania, Kenya, and Russia.

4. Revenue Breakdown

• Revenue contribution from different business verticals: Boilers (30%), Domestic (40%), Hydro projects (10%), Other products (20%).

5. Expansion Announcement

• Introduction of a new business vertical: bathroom faucets and allied items.
• Planned investment of INR 30 crores in the first or second quarter of FY 2023-24.
• Expectation of a positive impact on overall revenue and growth.

6. Financial Performance

• Q4 FY23: Revenues of INR 19.82 crores (193% increase), EBITDA of INR 4.50 crores (369% increase), PAT of INR 3.30 crores (432% increase).
• FY23: Revenues of INR 49.25 crores (141% increase), EBITDA of INR 11.16 crores (246% increase), PAT of INR 7.67 crores (460% increase).

7. Bathroom Fittings Launch

• Planned launch of bathroom fittings range in the first and fourth quarters of FY 2023-24.

8. Margins and Bill Receivable Trends

• Sustainable margins due to network expansion and product range growth.
• Constant increase in bill receivables YoY, typically 90 to 120 days for payments.
• Plans to introduce cash and turnover discounts to encourage early payments and reduce bill receivable days.

9. Top Customers and Business Concentration

• Top 10 customers collectively contribute 40%-50% of total revenue.
• Faucet business managed as a separate entity with dedicated network and sales teams, mitigating the risk of concentration in the core valve business.

10. Turnover and Seasonality

• Anticipation of INR 25 crores in revenue from the new business.
• Last quarter traditionally the best due to customer demand fulfillment.

11. Property, Plant, and Equipment

• Concern regarding the high ratio of property, plant, and equipment to turnover.
• Assurance that almost everything is manufactured in-house.

12. Working Capital Cycle and Cash Flow

• Plans to improve working capital cycle with cash discount schemes and turnover discounts.

13. Expansion Plan for Bathroom Fittings

• INR 30 crores to be spent on the new factory with trading initially and an in-house facility ready by the end of the third quarter.
• Source of funds: Equity.

14. Top Line Guidance and New Business Capacity Utilization

• Anticipating 25% revenue growth year-on-year.
• INR 30 crores capex expected to generate up to INR 100 crores at 100% capacity utilization, approximately three to four times asset utilization.

15. Margins Profile

• Expected margin profile around 15% to 20% at the EBITDA level.

16. OEM Business

• Initial focus on selling the own brand in the new segment, potential consideration of OEMs.

17. Expansion Plans for Existing Facility

• Consideration of expansion plans for the existing facility.

18. Unorganized Market in Valve Business

• Unorganized market significant, with numerous regional manufacturers.
• Atam Valves’ market share in the organized market around 5% to 6% in India.

19. Contribution of Exhibitions

• Participation in exhibitions contributes to showcasing products and connecting with potential customers, particularly in the boiler manufacturing industry.

20. Product Pipeline and Revenue Potential

• Ongoing product innovation in the valve business, with a focus on new products for nuclear power projects.
• Faucet business is expected to have a higher revenue potential at full capacity utilization compared to the valve business.

21. Future Vision

• Aspires to become the biggest brand known all over India with a presence in major cities, aiming for a revenue target of INR 1,000 crores by 2030.

22. Strategic Move into Faucet Business

• Decision to enter the faucet business led by the third generation.
• Faucets are considered more mass-market and known among the masses.
• Aim to expand the distribution network and take advantage of the prominent growth in the faucet business.

23. Equity Funding for New Business

• Considering preferential equity funding for the new business.

24. Reasons for Sales Growth

• Sales growth attributed to the expansion of the sales network, increased salespeople.
• Introduction of new products, including stainless steel pipe fittings and high-pressure valves.
• Enhanced business relationships with existing clients contributed to sales growth.