Interview by the Chairman:

Notes:

1. Mentions that EBITDA margin is expected to be around 27-35% for FY25
2. Dip in EBITDA due to property tax and new rules alongside low occupancy
3. Q2 occupancy between 80-85% which has also contributed to 5-7% ARR increase
4. Signed 3 new hotels with 1 in Delhi (I think he meant the Noida one?). 4-5 in pipeline
5. Roundabout answer on 400 Cr revenue and 140 Cr EBITDA target
6. Some talks ongoing for overseas hotels but nothing clear. His son in previous interview said that they don’t have any current plans (conflict?)

If such is the case your concern should be the present land banks of the companies, not how it was divided between the family. You can start a thread on TARC. Best of luck.

I recently Joined The Valuepickr and came across this article on Solitaire machine tools.

As someone who has been in the machine tools industry for past 13 Years and started my career in a company which made surface grinding machines i would like to present my views on the same.

I have visited the both solitaire factories, met with the owners / directors and we are also suppliers to them for cable harness for their CNC machines

I would not go into financials as many experts have given precious inputs here.
I would like to share my views on the process

Let us get into the strengths first

1. Building a grinding machine whether surface or cylindrical requires extreme amount of precision in pre machining of parts for assembly. Sometimes the accuracy required is in the tune of 0.003 mm.
   To achieve these tolerances and fits requires a very experienced team of technicians. Sometimes these technicians are more important than the engineers in the company because the skill they possess is not easily available in the market and hence it is very difficult for someone to become a competition even if they have capital to start a new grinding machine company.

One can google the process of scrapping which is required on casting of the machines which is the heart to the machine’s accuracy. With the introduction of Linear Motion Guideways used in other vertical machining center and general metal cutting machines, scrapping has become a dying art and only technicians working in Grinding industry are available with a very few exceptions.

Solitaire has a team of very seasoned technicians and new ones are being trained under them

2. In the current market, the machines required to pre machine the components of a new machine are very expensive. Solitaire has done a great job in getting some used machines imported and retrofitted them with new CNC controllers because they have the experience to do so to get the job Done. In my experience if you had to buy all the machines at todays price that they have in the shop floor the cost would almost be an estimated 13-15 Crores Rupees.
   This also ensures that a majority of parts are manufactured inhouse which ensures timely delivery and most importantly quality control which is of top priority.
   This also reduces the payback cost of the capital expenditure significantly and improves ROI

3. Machine Tool industry and specifically grinding machines runs on trust and is a very close knit industry. If the machine is successful at the customer end the retention rate is very high almost touching 90% sometimes. For a machine to be successful and for a New customer to be satisfied the machine should run for at least 3-4 years without any major problems and provide committed accuracy. Only then a customer gains complete trust on the company. This is the reason new machine tools company growth curve for the initial decade is very slow because of the trust building exercise and building a good client list. Solitaire is now past that decade and need to see how they capitalize on that trust. A new customer usually takes references from other customers before placing an order.

4. Management is very humble and conservative and focusses on steady growth. Mr Harsh badani (director) who handles day to day operations is young and dynamic and is often seen on the shop floor. He has very senior Directors Mr Ashok sheth and his father who are very well known in the industry to guide him.

5. The strength of a machine tools builder is its vendors and how they empower them to build critical products. From personal experience we have never faced any issues regarding a payment cycle and we almost never do payment follow-ups. With this i assume they must be good with other vendors. This is a very important point as timely payments usually works in this industry and vendors prefer to work at lower costs and ensure a timely delivery which is very important to a lifecycle of the finished machine. Sometimes a 1000 rs part can stop the production stage of a 25 lac machine.

6. Company has already taken up a new land in Halol where building structure is ready and they plan to shift the machines from the current plants to new one and it should be operational by next 6 months.

7. A handful of companies in India build special purpose grinding machines. This gives them an edge as well as risk. An SPM is never tested usually and hence the trials takes a lot of time after the machine is built(This is a drawback). However margins in SPM machines are very high sometimes almost 50-60% in Gross terms

8. Over the last 5 years i have seen a massive upsurge and trust built up in the manufacturing sector where Indian machine tool companies are supplying machines to world class companies who usually preferred German/Japan make or Taiwan make machines. Making in india has reduced the cost . This should be a good boost for Indian machine tool manufacturers in general. If you see the balance sheet numbers of Jyoti CNC, Macpower, LMW which are the usual industry leaders post covid all of them have grown significantly Year on Year till date.

Above is a snippet from their annual report 2024 where they are entered into Atomic Energy department. To get a machine into such govt establishments requires a lot of due diligence and a lot of background checks on capabilities. Once a company successfully enters into such establishments it is also very difficult for the Govt to look for a new partner because the registration process for new vendor will require new due diligence.

There is saying in machine tool industry ” Entering a Govt establishment or a defense company is tough but for that establishment to remove you after you have entered is even tougher “

The risks i see are as below

1. The company is building a very good product but is not able to build a big brand. This can possibly the reason of low sales. The competitors like HILIFE Machine tools limited have built a better brand however their products are almost similar
   

Above screenshot from the website shows lack of attention to these small details.
This is also shows and as i mentioned above a lot depends on trust in this industry and very rarely a customer buys a machine based on data on the website.

2. Grinding machines demand is usually cyclical and a lot depends on which clients you have. The growth of the company depends a lot on the growth of existing customers. Acquiring new customers takes time however a repeat order from existing customer can be a consistent driver for growth. For example centerless grinders are used in bearing industries. If the auto industry falters, bearings industry takes a hit and the capex cycle for new machines is paused.

Having said this Grinding is also usually the last or second last process of any finished product. The only process after grinding could be plating or lapping. The market size of the grinding machines in the whole machine tool industry would be approx 5-7% of the total industry. Not all metal cutting products require grinding as a process. So a lot depends on how solitaire can increase the market share in this very niche segment

3. The exports of this company is limited for now. I would like to see company increase its brand presence in other countries. This could open up a new market and increase the market share multifold.

   

   Above snippet is from their annual report 2024

4. In this industry as whole the lead times for delivery as usually high ranging from 1 to 3 months depending on the type of the machine. Usually these machines cannot be kept in stock as it will increase the capex.

5. The shifting activity to a new plant can be a temporary impact in production cycle for next quarter. However from what is understand the shifting will take place in phases where one machine is shifted and once that is ready for use the another one will be lifted from existing factory. But managing logistics in this will remain a challenge.

Below are some Techo Fundamentals i am tracking

Sales to MarketCap ratio is trading at almost 2 today.
The general industry standard if you for other CNC companies although they are not Grinding machines manufactures like LMW, Macpower trade at almost 5.
A lot will depend on how the demand of Grinding machine increases in the country to improve the sales number. If that happens solitaire is well placed to capture on that.

The current chart structure is making a HH pattern and trading at 52W high levels
The company has posted its best sales this year and could be looking at better numbers in the future.

Some Noted Competitors which may also have extended product range for Grinding Machines

1. Micromatic Grinding
2. Hilife Machine Tools
3. Bhagwansons

Disclosure
My Views may be biased being from the industry and i am invested.

There is no mention of how the land bank was divided among the companies. Any information regarding that?
Also I heard there was some governance issue in the company among the promoters? Was that pre-demerger group issue or post demerger issue only with anant raj?