Atam Valves Ltd (AVL)

Q2 FY ’24 Concall notes

• Infrastructure and Team:
  • Multi-capability manufacturing infrastructure.
  • Dedicated team of 500 professionals.
• Clientele:
  • Serving industries including oil and gas, refining, petrochemicals, marine, mining, and more.
  • Over 300 clients, with top 15 contributing 80% of sales.
• Market Presence:
  • Actively planning expansion into the production of large-size valves.
  • Presence in India, South Africa, USA, UK, and Indonesia (3% international presence).
  • Expanding to the United Arab Emirates, Saudi Arabia, Tanzania, Kenya, Russia, and Canada.
• Global Market Trends:
  • Industrial valves market projected to reach $99.8 billion by 2028.
  • Opportunities for growth driven by healthcare, pharmaceutical industries, smart cities, and connected networks.
• Strategic Initiatives:
  • Extensive distribution network across India.
  • Pursuing opportunities in the US market through strategic partnerships.
  • Forward integration into bathware items under the brand Daley.
• Financial Highlights Q2 FY24:
  • Total revenue: INR12.76 crores.
  • EBITDA: INR2.36 crores (EBITDA margin 18.70%).
  • Profit after tax: INR1.30 crores (PAT margin 10.34%).
• Financial Highlights H1 FY24:
  • Total revenue: INR23.17 crores.
  • EBITDA: INR3.89 crores (EBITDA margin 16.80%).
  • Profit after tax: INR2.16 crores (PAT margin 9.32%).
• Outlook and Future Plans:
  • Optimistic outlook based on strong Q2 performance and strategic initiatives.
  • Consistent growth and financial stability for continued success.

Revenue Target for FY 2030:

• Target: Achieving INR 1,000 crores by FY 2030.
• Caution against assuming a consistent 50% CAGR year-on-year.
• Acknowledgment of challenges due to new product launches and market expansions.

FY24 Revenue Guidance:

• Revenue target for FY24: At least INR 80 crores.

Working Capital and Receivables:

• Strategy: Developing new products and entering new markets.
• Reason for higher receivables: Offering credit to gain market acceptance.
• Working capital days: Expected to decrease by the end of the year.
• Positive market response.

Utilizing Indian Distribution Network for Global Expansion:

• Canada Market Entry:
  • Engaging with a prominent client in Canada.
  • Awaiting API certification for their brand.
  • Potential to penetrate the Canadian market and cater to petroleum industries.
• Product Portfolio Enhancement:
  • Planning a new plant for manufacturing larger valves.
  • Aim to broaden the product range and cater to diverse industry needs.

Geographical and Sector-Wise Revenue Breakdown:

• Geographical Focus:
  • Strong presence in Gujarat with own warehouse and direct sales.
  • Robust distribution network in Karnataka.
  • Significant market share in Haryana, especially among boiler manufacturers.
• Sectoral Contribution:
  • Existing range and upcoming plant cater to diverse sectors.
  • Emphasis on targeting industries like petroleum with the new product range.

Future Market Strategy:

• Focused expansion in Canada as a strategic move.
• Leveraging existing success in Gujarat, Karnataka, and Haryana to propel growth.
• Continued efforts to diversify and strengthen the product portfolio for sector-wise growth.

Expansion and Commencement Delays:

• Reason for Delay:
  • Delay in starting the bathroom faucet plant.
  • Shift from Q2 to Q4 of FY24.
• Decision and Strategy:
  • Focus on expanding existing product range first.
  • Concentration on the Canadian market opportunity.
  • Opting for an asset-light approach for bathroom faucets.

Capex and Expansion Plans:

• Capex Confirmation:
  • Capex required for the new factory for bigger valves.
  • Working capital needed for importing bathroom faucets.
  • Expansion shift from bathroom faucets to larger valves.

Margins and Sustainable EBITDA:

• Margin Pressure Explanation:
  • Margin reduction due to market penetration and increased marketing expenditure.
• Sustainable Margin:
  • Anticipated sustainable EBITDA margin: At least 12% to 13%.
  • Expectation of improvement in EBITDA.

Revenue Growth and Pending Orders:

• H2 Revenue Growth:
  • Expectation of substantial growth in H2, typical for the industry.
  • Confidence in achieving the INR80 crores target.
• Pending Orders:
  • Ongoing process with dealers contributing to a regular flow of orders.
  • Approximately INR60 crores in pending orders.

Dealer Network and Top Clients:

• Dealer Network:
  • Current dealer network: 750 dealers across India.
• Top Clients Contribution:
  • Top 15 clients contribute 80% of sales.
  • Continued strategy with an 80%-20% ratio (Top 20 client, 80% sales)

Product Launch and Marketing Strategy:

• Bathroom Faucet Launch:
  • First shipment expected in January.
  • Initial launch in Gujarat and Karnataka.
• Marketing Strategy:
  • Targeting contractors and builders.
  • Focusing on those already dealing with plumbing segments.
  • Premium segment faucets with an estimated 25% margin.

Return on Investment (ROI) for Capex:

• New Unit for Bigger Valves:
  • Anticipated breakeven in three to four years.
  • Certification process completion crucial for engaging larger clients.

Navigating Challenges and Leveraging Opportunities:

• US Market Strategy:
  • Secured a Canadian client’s brand for manufacturing and selling.
  • Utilizing their established brand recognition in the US market.
  • Leverage existing partnerships to gain entry into other markets.

North American Market Strategy:

• Manufacturing Model:
  • Products to be manufactured in India.
  • Canadian brand to act as the sole customer for North America.
  • Marketing in North America to be done through the Canadian brand.

Risk Factors and Growth Outlook:

• Perceived Risks:
  • No significant risks identified in the valve line.
  • General market downturns and currency fluctuations acknowledged.
• Growth Outlook:
  • Optimistic about growth due to the introduction of innovative products.
  • Over 25 years in the industry without significant setbacks.

Product Focus for North America and Saudi Arabia:

• Product Line for Target Markets:
  • Initially focusing on industrial valves for both North America and Saudi Arabia.

Working Capital Requirements:

• Additional Working Capital:
  • Anticipating the need for INR30 crores for both new unit capex and importing bathroom faucets.

API Certification and Market Entry:

• API Compliance for Market Entry:
  • Working towards API certification for compliance.
  • Expected certification completion in approximately two months.
  • Plan to start supplying to the Canadian brand in Q4.

Sales Order and Market Interest:

• Initial Sales Order:
  • First order expected to be around $2 million.
  • Aiming to build trust and satisfaction for future collaborations

Export Margins:

• Expectation:
  • Anticipating better margins in exports compared to the domestic market.

Timeline for Increased Export Revenue:

• Target Year:
  • Aiming for 23% of revenue from exports in two years.
  • Projected achievement in FY ’26.