great update by the company
after a slow q1, things have picked up this q2.
Disc- Invested

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

Was just going through this company, seems like any other IT company but what attracted me was that it is still cheaper than other companies even in current market scenario. Another part being good books and also, Ashish Kacholia has invested around 2-3% a year ago.

(Suryavanshi Commotrade’s Director is also Ashish Kacholia)

Do they have any Fortune 500 clients?
How are we expecting growth?

D: Tracking

Step up in pace of project additions :
Arvind has launched 4 projects, and it is expecting to launch min 6-8 projects during FY25 as multiple projects are in active discussion to get signed in the coming quarters
Brand recall
Using its strong brand recall in Ahmedabad & Bangaluru markets as it has managed to quickly ramp-up its foothold in housing market in these regions. They also entered into Surat with a large deal and already scouting for deals in MMR region.

MMR region can be big approx 20% of the project mix.

Personally, i guess we can model Arvind Smartspaces to be at par with other leading listed players. They are asset light and they did show consistent growth in pre-sales, they also have faster turnaround visible via OCF generation.
Pre sales in FY26 43% CAGR over FY24-26E
Embedded margin 27%

Do note OCF conversion ratio here is 50% of collection coz of shorter cycle for horizontal projects.