Strengths and Challenges at a Glance !

IKIO Lighting –

Q1 FY 25 concall and results highlights –

Sales – 127 vs 108 cr
EBITDA – 17 vs 23 cr ( margins @ 13 vs 21 pc )
PAT – 12 vs 14 cr

Completed Block -1 of Greenfield expansion of 2 lakh sq ft in Q4 FY 24. Commercialised the same in May 24. Expected to complete Block – 2 of another 2 lakh sq ft by Mar 25. Have started construction for block -3 of another 1 lakh sq ft. Combined capex spend for all three blocks is around 200 cr with a total yearly revenue potential of 1000 cr ( incremental. It may take 3-4 yrs to reach optimum capacity utilisation for all 3 blocks )

ODM Listing segment grew both on YoY and QoQ basis. Performance in domestic mkt was flat. Export sales were aided by exports to Gulf region, inventory reduction in US for company’s RV products

EBITDA margins impacted due to front loading of expenses like higher employee expenses ( up 40 pc YoY ) due completion of new Greenfield Capex. Expect significant contribution from this facility in H2. This facility is also producing 2 new products – earphones of various kinds and smart watches

In addition to RV business in US, have started supplying Industrial and Solar products to energy service companies in US

Gross margins were stable Ex-US operations. As US operations stabilise, expect gross margins to normalise going fwd

Company maintains FY 25 guidance of 20-25 pc revenue growth for FY 25 with EBITDA margins ranging between 20-22 pc !!!

Company has already started backward integrating the wearables and hearables segments. Company is also looking at the design aspects in these segments. Aim is to keep the RoCE high, even if there is some margin dilution

Seeing descent pickup in the LED lighting industry in FY 25 after a difficult FY 24

Company believes that they are an electronics manufacturing and design company at heart. Lighting is the biggest chunk of their business – that’s a different matter. It’s their electronics manufacturing and design DNA that makes them confident of venturing into wearables and hearables. Anything to do with – plastics + metals + electronics – they r good at it and they r capable of doing it in-house

Disc: hold a small tracking position, biased, not SEBI registered, not a buy/sell recommendation

Weekly

daily

Gujarat Fluorochemicals has broken out of a triangle consolidation (orange lines in the weekly chart and blue lines in the daily chart) over the last one year approx.

The management has guided for better revenue Q3 onwards of this year.
The LFP plant under the battery segment is going to be commissioned this quarter. The fluoropolymers vertical will start seeing numbers from the second half of this year.

disc: Not invested yet.

I downloaded the latest list of all RDSO approved vendors for KAVACH. I was surprised to see that all vendors, including Medha, HBL and Kernex, are listed as “developmental” vendors and not “approved” vendors.

Among developmental vendors there are 3 different levels of approval:

1. Development Vendor with supply capacity limit – Medha, HBL and Kernex
2. Development Vendor for field trials only – GG Tronics and Quadrant
3. Development Vendor for prototype only – 7 companies. See the table below.

The actual PDF downloaded from IREPS website is attached.
KAVACH Vendor Directory 07-Sep-2024.pdf (2.6 MB). I have extracted and distilled the information in the table below.

Approval Has Capacity Limits

So as you can see, not only are there 3 different levels of approval, the final approval also has a limit on capacity. Apparently RDSO also assesses supply capacity per annum. In one of the interviews the Railways Minister Ashwini Vaishnav also talked about awarding contracts based on manufacturing capacity. So now it all makes sense.

I am not sure how long does the process from field trial to final approval take. GG Tronics and Quadrant received the go ahead for field trials on 29th May 2024. As of today they have approval only for 5 sets of KAVACH (which means KAVACH for 5 station side equipments, 5 trackside and 5 onboard locomotives). So it appears to me that these 2 companies are not competing in the currently released tenders. The other 7 companies – big names like BEL, BHEL, Siemens etc. are not even eligible. I may be wrong, someone needs to cross check.

KAVACH Will Keep on Evolving

Also, as I mentioned before, everyone is a “developmental” vendor now. No one is an “approved” vendor yet. This means the KAVACH systems will undergo further changes. Currently it is at version 4.0 (previous was version 3.2). So it looks like the whoever is on the latest version will always have an advantage as far as eligibility for tenders is concerned. What I mean to say is – lets say a company has approval for ver 3.2 and wants to go for ver 4.0, then there will be some time lag due to RDSO’s testing and evaluation process. The tenders released are always for the latest version and if a new tender arrives before the company has received the approval for the latest version then they will not be eligible for the tender.

What would be the reason behind RailTel signing the “exclusive” MoU with Quadrant? I understand the MoU part, but not the “exclusive” part. Quadrant has a lot to gain out of an exclusive tie up with RailTel, but I am not sure if RailTel has. Logically speaking RailTel should be open to working with any RDSO approved KAVACH vendor. Anyways a MoU is not a binding legal agreement, so I would not read too much into it. The timing is also suspicious, just 1 month before they filed the DHRP.