This is true but I haven’t considered E2E taking on gov projects yet. I liked it when Tarun Dua said they aren’t applying to any gov projects right now. Gov. being the gov comes with its own set of challenges and will probably hold the leverage in terms of payment terms and obviously will be a bidding to the lowest bidder. Promoting it for being a cloud player via programs and incentives is great though.

I think E2E realizes this and considering Dua’s statement that 90% of their capacity on H100 is being utilized, they are pretty happy with the way things are going.

I’d hate and reconsider my position in the company is the Indian Gov. becomes its largest customer.

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I don’t buy into the valuation argument. If company could get back to its pre 2021 profitability, p/e will come down to 20 something. Market has already derated all the chemical companies and current metrics price in that derating so downside is very limited. Whatever the sectoral risks are, market has known them for last two years and market prices in risk in a matter of couple of days. It won’t keep doing that for 2 years.

Regarding your sector commentary, India has a minuscule percentage in global chemical market and many forecasts put our future growth at 9-10%, for next 20 years, which is very healthy. So I don’t believe that there is no more growth left for Indian companies.

Current sector rut is mainly contributed by slowdown in the US and Europe markets due to high interest rates and cheap dumping from China due to their own slow economy. I don’t believe these conditions will last forever.

Nothing has changed in company’s business model fundamentally or its competitiveness. It used to be the darling of the stock market till 2021 as people hailed its market leadership, superior valuation proposition.

Now that sector cycle has changed I can understand reason why people might be bearish on the stock or for that matter a SRF or a Deepak Nitrate which have been massive wealth creators for their investors but have fallen out of favor in last 3 years (same arguments go for them as for Aart Industries). Take a look at the valuation metrics for them and you will think they are expensive as p/e looks artificially high due to depressed earnings.

My investing style is to get into a sector at the bottom of its business cycle as that allows me to capture maximum upside when the cycle turns.

I did the same with IT stocks in 2022 at peak pessimism (same arguments such as high valuations, competition etc). Looking back I think I made the right call generating healthy returns.

Whether I will be able to repeat the same performance with my bets in chemical sector, I’d let the time be judge.

Sandhar technologies –

Q1 FY 25 concall and results highlights –

Revenues – 913 vs 829 cr, up 10 pc
EBITDA – 90 vs 75 cr, up 19 pc ( margins @ 9.85 vs 9.10 pc )
PAT – 29 vs 22 cr, up 35 pc

Geographical breakup of revenues –

Standalone – 74 pc
Indian Subsidiaries – 13 pc
International Subsidiaries – 13 pc

Product wise breakup of revenues –

Locking and Vision systems – 24 pc
Cabins and Fabrications – 14 pc
Sheet metal components – 18 pc
Aluminium Dye castings – 26 pc
Assemblies – 10 pc
Others – 8 pc

Segment wise breakup of sales –

2W – 60 pc
PV – 18 pc
OHV – 15 pc
CV – 2 pc
Others – 5 pc

Schedule for beginning of mass production of EV components –

Motor controllers –
250 W – Aug 24
2000 W – Sep 24
6000 W – Dec 24

Battery chargers –
550 W – Sep 24
750 W – Started in Jul 24

AC-DC converters –
180 W – Dec 24

Company is localising a lot of the parts that go into these EV components. In medium term, company expects margins in these EV products to be as good or better than company level margins

Q1 is typically the slowest Qtr for the company

All of company’s JVs have turned EBITDA positive wef Q1 FY 25 ( including their plants in Barcelona, Mexico, Romania )

Company’s new plant at Pune for making Cabin and Dye Castings to start commercial production by Sep 24. This segment of company’s business is growing rapidly. Hence this capex was urgently required to keep meeting the customer demands

The EV products that the company intends to commercialise this yr should give them 5-10 cr revenues this year. Ramp up in revenues is only expected wef FY 26

The high inventory levels in the system that exist in PVs these days is not the case with 2-Wheelers. The offtake and volume growth in 2 Wheelers has been much better

Company expects revenues from smart locks ( new product line ) to start flowing in from Oct, Nov 24. Company will start supplying Suzuki and Honda. Content per vehicle in case of smart locks is much higher ( each unit should cost @ around Rs 4-5k )

Net debt on books @ 550 cr vs 592 cr on 31 Mar 24. Aim to reduce debt to below 500 cr levels by end of FY 25

In Q1, there was a slowdown in construction equipment segment. From Q2 onwards ( as this segment picks up ) there should be better topline growth for the company

Capex lined up for FY 25 is aprox 250 cr. Capex intensity is likely to reduce wef FY 26

Aim to increase EBITDA margins to around 10.5 pc in FY 25 and 11 pc by end of FY 26

Company expects the number of 2 Wheelers with smart locks can be in double digits in terms of Mkt share over a 2 yr period

Sandhar’s Mkt share in 2 Wheeler locking system stands at 70 pc in the domestic mkt

32 pc of company’s revenues come from TVS, 19 pc from Heromotocorp, 8 pc from JCB. These are company’s top 3 customers. Other important customers contributing 4-5 pc of sales each include Honda, Bosch

Expect the smart locks EBITDA margins to be in line with the mechanical locks business ie @ 13-15 pc EBITDA levels. But the value of business per lock is expected to be 6X to 10X

Opinion : business momentum looks strong. Should result in good to great topline and bottomline growth

Disc: holding, not a buy/sell recommendation, biased, not SEBI registered