As management told in Q4FY23 concall q1fy24 will be soft due to erp implementation. After that sales will grow. So this is mgmt walking the talk

Rev. up 18%

Ebitda up 50%

Ebitda margin 20.8% vs 16.3%

PAT up 66%
Effect of low base + operating leverage.

Disclosure: Invested.

Sixth sense ventures exiting the stock

Well pointed out, the Quadrant business will take some time to turn profitable and hence affect the margins in near turn, but it has the potential to give explosive growth, considering the demand and shortage of magnets.
Good thing is that revenue growth has not been impacted.

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.

Sir, In above reply to my last year question of How to Avoid Big Drawdown, you had mentioned that you had gone through 40% drawdown during 2018. I asked my self ‘how can I avoided that drawdown If I were at your place?’ I found following bearish pattern and chart by which I could have taken cash call to Exit Portfolio during Starting week of March 2018:

First Dark Line of previous support was clearly violated 3 times and index was forming LH-LL on Weekly chart of Mid cap Index and went below 30-40 EMA (Stage 4) (same was the case for Small Cap Index). At that time Most of The Individual Portfolio Stocks must have broken down their previous support and resistance and went below 10-30-40 WEMA and we could have taken exit call on individual stock also (Hypothetical statement but most of the stocks developed bearish chart patterns).

Sir If you had knowledge of Technical Analysis at that time and seen such bearish chart pattern, could you have avoided that kind of drawdown?

I strongly believe that if we observe charts daily or weakly and spot such bearish charts for all of our portfolio stocks along with bearishness in Index Charts, we can take exit calls on portfolio level. (For me its only belief because I have not experienced any large drawdown and implemented this Cash Call for my portfolio.)

You can provide your inputs about my Cash Call Strategy from you experience, so that we can finetune it.