– Atam Valves Ltd (AVL)

Q4 FY24 Notes

Q4 FY ’24 Revenue Dip and FY ’25 Outlook Summary:

Delays caused by MSME norms and 45-day payment system, resulting in held-back orders.
Optimistic outlook for Q1 FY ’25 with anticipated improved performance from pending orders.
Impact of MSME conditions notable, affecting credit periods and leading to order hold-ups.
EBITDA margin dip for FY ’24 attributed to increased expenditure on exhibitions and expansion efforts.
FY ’25 margin guidance aims to maintain existing margin with slight improvement, expected range between 20% to 25%.

Market Update and Inventory Status:

Pursuing entry into Saudi and U.S. markets through API certification.
Inventory: approximately 10 crore in finished products, remainder in work-in-progress and raw materials. Anticipating 70% liquidation in Q1 FY ’25 post MSME resolution.

Capacity and Expenses:

Current capacity: 96,000 pieces per day, 85% utilized.
30% increase in employee expenses due to expansion efforts.
Delay in CAPEX execution for bathroom faucets due to API focus.
Initial plan to import faucets from China, gradual utilization of CAPEX as market develops.

API Certification and Orders:

API compliance expected in Q1, certification by August/September.
Early-stage talks ongoing for $2 million orders. Anticipate orders upon API compliance.
Collaborating with Canadian partners for API products.

Competitors and Market Positioning:

Competitors in API-related valves include Parveen Industries, Oswal Industries, and Hawa Valves, with revenues ranging from 400 to 700 crore.
ATAM is relatively new in this segment, aiming for significant growth in the next six to seven years.

Competitors in Existing Product Range:

Rotovalve and Centro Valves are competitors in plumbing and firefighting markets.
Rotovalve’s revenue exceeds 300 crore, while Centro Valves’ revenue is around 100 crore.

Export Security:

ATAM Valves does not currently utilize ECGC for export security.
Most exports are on an advanced payment basis, but ECGC may be considered as exports grow.

Impact of MSME Issues on Revenue Projection:

Initial revenue projection of 80 crore for FY ’24 included sales of bathroom faucets, which were deferred due to focus on API valves.
Unforeseen MSME issues emerged in late February, leading to a shortfall in revenue.
Expectation of liquidating 70% of finished stock in Q1 to address the revenue shortfall.

Revenue Forecast for Q1 and MSME Issue Resolution:

Forecast for Q1 revenue is approximately 7 crore, aiming to compensate for the Q4 shortfall.
MSME issue resolution expected by the end of Q1, following recent comments from the Finance Minister indicating a potential adjustment period.

Current Order Book and FY ’25 Guidance:

Current order book stands at 25 crore, with projects on hold due to market uncertainties.
FY ’25 revenue target set at 70 to 75 crore.

Long-Term Revenue Growth and Market Expansion:

Confidence in increasing revenues twentyfold over the next five years attributed to entering the API valves market for oil and refinery industries.
Expansion plans include manufacturing larger valve sizes, aiming to capitalize on a sizable market opportunity.

Export Contribution and Cumulative CAPEX:

Anticipation of exports contributing at least 50% to the projected 1,000 crore topline over five years.
Cumulative CAPEX estimated at around 40 crore for machinery and equipment required for expansion.

Faucet Division Strategy and Revenue Expectations:

Faucet foray currently on hold to focus on building a brand in the plumbing valve range.
No expectation for the faucet division to contribute to the projected 1,000 crore topline by 2030.

Operating Margin and Profit Expectations:

Anticipation of improving operating margins as scale of operations increases, particularly in the larger valve sizes segment.
Expectation of increasing EBITDA and PAT with entry into the larger valve sizes market.

Business Model and Tender Business:

Primarily engaged in direct client business and dealer network, with no involvement in tender business.
No current plans to enter the PSU or oil marketing company markets due to regulatory approval requirements.

Timeline for Faucet Business:

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