Has anyone looked at Hemant Surgical Industries? I had researched on it and looks quite interesting and attractive to me.
Stand-out Point: It is increasing localization/local manufacturing for its core product too 100% which will drive margins and tying up/operating dialysis centers and also entering in newer segments to drive growth in sales.

I would appreciate if anyone can share their views on this as valuation wise company looks attractive too. I have attacked the link of my research below
Disc: Not Invested; Tracking

Hemant Surgical Industries Ltd. (HSIL) – A More Comprehensive Take
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Introduction

• Founded in 1989, a CDSCO compliant co. with 3+ decades of experience in manufacturing/importing/assembly & marketing medical equipment & disposables.
• Products cater to (i) Renal care, (ii) cardiovascular, (iii) respiratory, (iv) critical care & radiology and (v) surgical disposables.
• 1 ISO certified manuf. unit & 2 assembly units.
• Widespread customer base in India & 10+ countries

Exclusive distribution agreements with 8+ MNC cos: (Agreements usually for period of 3-5yrs validity)

A deep dive into collaboration w/JMS Co, Japan

• HSIL began its operations by forming a technical collaboration with JMS to import and market its Meditape (for wound care) in India.
  • Used to import jumbo rolls and then cut/process it before selling
• As JMS gained more confidence over HSIL, they formed another collaboration b/w their subsidiary JMS Singapore for importing intravenous infusion set as well.
  • JMS IV sets are given preference in hospitals due to its accuracy (and in general IV sets are the 1st thing that a patient needs in a hospital)
• Later due to increase in technology transfer & HSIL’s move towards more value addition products – installed a plant and since FY’22 have been manufacturing ~60% of JMS products in India
  • This led to cost competitiveness, increased volumes & profitability
• JMS products contributed ~50% to the revenues of HSIL in FY23 and the key product – Meditape alone accounted for 33% of the total revenues in FY’23
• Current status: Ordered machineries might take ~6mo-1yr for setup/validation from partners to move towards 100% localization of the products

Other Collaborations

• Sole agent of SWS Hemodialysis China to sale & maintain SWS-4000A machines in West India on exclusive basis.
• Mediply: for supply of renal care equipment, medical devices & consumables for marketing in Philippines
• Zoncare Bio-medical Electronics : catering needs of radiology; import & assembly of critical care products viz. ultrasound machine

Apart from agreements w/MNCs, HSIL has created 6 brands (viz. Aero+, Joylife, Safecath, Comfort, Citro-H & Diaclean) of their own under which they sell various products

Products & Services

Products

• JMS Products: Meditape, Infusion set, Transfusion set & Scalp vein set
• Renal Care: (i) Hemodialysis machine (imported from SWS & refurbished machines imported from France & Aus), (ii) Dialysis Solution & (iii) Dialyzer (sold under brand: Dora, JMS & Aero)
• Cardiovascular: (i) ECG machine (imported) and (ii) ECG electrode (sold under brand Aero+)
  • Got approval for 50+ cardiac products, intend to manuf. and launch in Indian & Global markets
• Respiratory: Nebulizer (Aero+)
• Critical care & Radiology: Paramonitors, Ultrasound machines (imported), Ventilator (Aero)

Services

• Turnkey Dialysis Setup & Management
  • Currently operate & manage 5 of own dialysis centers; set up & managed 100+ dialysis centers worldwide
• Imaging & Diagnostic Center Setup
• Modular ICU/MOT Setup
• Oncology Labs & Treatment Centers Setup
• Blood Bank/Dental Clinic Setup

V.successful in turnkey operations for renal care in Africa for creating dialysis centers. Installed more than 200+ turnkey projects (in Philippines & African countries)

This year looking for few turnkey projects which are in pipeline along with govt tenders also in pipeline

Manufactures the above products, rest are imported and assembled; Overall capacity utilization is quite low meaning there is a lot of potential to scale up.

As seen, co. is gradually increasing the scale of manufacturing in order to improve profitability & become more self-sufficient.

Promoter Background

• Promoter has 3+ decades of experience in the medical equipment industry
• Group cos. same line of biz: Ikigai Services, Diaso Diagnostics LLP, Ikigai Medequipments (same promoter) – conflict in operations.
• Hanskumar & Kaushik Shah were disqualified from directorship from Nov’16 to Oct’21 (did not file financial statements for 3 consecutive yrs in previous directorship at Millenium Industries pvt ltd)

Other Key Pointers

• HSIL has a moderate scale of operations with relatively lower value addition which limits its margins, going forward it needs to move towards more value-additive products to improve margins.
• Sales strategy: PAN India digital marketing to create awareness of products. 35-40+ marketing reps & 300+ dealers/distributors wide network.
  • Preference to sales via dealer strategy rather than direct to institutions due to maintaining cash flow cycle and convenience
• Key customers majorly include a network of ~80 dealers/distributors and hospitals, diagnostic centres & individual doctors. Top 10 customers: 41% of total revenue (FY’23)
• Top 10 suppliers: 80% (FY23), 77% (FY22) & 84% (FY21)
• Imports purchases: accounted for 76% (Fy23), 75% (FY22) & 69% (FY23) of total purchases
• Revenue mix: JMS products (40%), Renal Care (20%), Exports (20%), Own brands & other segments (20%)
• Majorly exporting to Africa & Phillipines
• Further expansion: cardiac products registered, critical care & ophthalmology (signed contracts w/reputed german cos. to market their products)

Financial Snapshot

• FY’22 sales higher due to increase in demand of critical care products post-covid & also increased volumes of JMS products sold due to increased in-house manufacturing
• Margins:
  • Cos. margins largely remained in the range of 4–5% earlier due to relatively limited value addition in the nature of its operations and limited economies of scale owing to moderate scale of operations.
  • Improvement in margins in the past 2 yrs driven by driven by widening of the product profile as well as increasing revenue contribution from manufacturing sales. Major component being – ~60% of JMS products were being manufactured by HSIL in India & also started to focus on govt. tenders.
• Good return ratios: 7-yr avg. ROE/ROCE around 24%
• Actively reduced its borrowings and is a net cash company since last 2 yrs.

AR’24 Update:

Interviews: https://www.youtube.com/watch?v=X_4FUmEst9w (better & recent one)
https://www.youtube.com/watch?v=2Q1OGcq0YsQ

Disc: Not Invested; tracking