Starting a new thread on a defence based micro cap Zen technologies

They basically prepare simulators in the defence sector primarily landbased as of now. Here are a set of links all should go
through:

1. Please go through this interview

http://www.moneycontrol.com/news/results-boardroom/to-develop-simulators-worth-rs-6k-crfuture-zen-tech_2625881.html

1. Please read through the future of the simulator industry in India

http://www.defproac.com/?p=820

1. Several videos on the simulator technlogies you will find in the media section on the company website.

Here are some viewpoints to kickstart the discussion.

1. The current sales is just around 80 crores.
2. The land based simulator potential over the next 4 to 5 years is more than 5000 crores.
3. The fastest growing section is in the aviation space. Zen is foraying into it with typing up with Rockwell Collins
   http://www.zentechnologies.com/news/Zen-Technologies-Rockwell-to-unveil-collaborative-effort-at-Aero-India-2015.php
4. The CMD indicated that they are at advanced stage of negotiations for a 500 crore order (5x of current turnover).
5. Huge operating leverage in play (Above 100 crores operating margins go up to 30 percent).
6. The CMD indicated they they could make a stake sale of 24 percent to strenghthen their products especially in the aviation space.
7. The make in india push and defence offset clauses have made a sea change on the environment in the defence industry.

I think no one’s looking at the ballooning receivables – the company now has Rs. 35 Cr. of receivables outstanding – up from Rs. 25 Cr. last yoy.No wonder the company authorized an increase in authorized share capital

Look at operating cash flows – all of the profits go back into inventory of FG that they maintain at customer’s end. I am not sure if this is healthy in the long run. This is reflecting in the increasing WC debt too whch is up 25 % or so.

Yes very well explained by Raj

motherson sumi is B2B business.

It has business in over 80 countries and is the leading suppliers as OEM to all major automobile companies of the world.

Though it’s profit margins are less but this company is generating ROCE of 30-40% consistently over last 10 years.

Currently it has been beaten down by the Volksvagen issue.

Disc : Invested

Hi @Dhinakaran,

Actually it won’t be fair to judge the efficiency of 2 companies based on the margins alone.
Some kind of businesses are more likely to have better margins while other’s don’t and there are multiple factor’s influencing this. One of the factors is, if the business is customer facing (B2C) or business facing (B2B) But even in this factor there are all kinds of case like below…

1. B2B business – low margin. Maybe because they don’t offer anything unique and their product/services are easily replaceable. So the basis of the business is their ability to conduct their operation efficiently and not add too much cost for the value they create in the value chain. Example Motherson Sumi ,Agri commodities company?

2. B2B – high margins – Probably because they create something which is not easy to replace – ex – Shilpa Medicare, AIA ?

3. B2C – low margin – Example: Road side restaurants ?

4. Finally B2C – high margins – because they create something which user doesn’t want to replace with anything else ? Example : Amara Raja (is a mix of B2C & B2B), Eicher etc, Apple …

Among other things industry structure and competition also decides the margins to a large extent.
I humbly suggest, you read more about Michael porter’s work to understand these dynamics better.
Hope I was of help.

Regards
Raja

@Apandey My assumption is that volume growth has come about as mentioned above if we see Half year comparison. Also, I read in blogs that some one off events in both AP/Orissa like back to back “adhika ashadam” has played a role in lower sales growth. I cannot corroborate but I buy the logic as I myself has experienced this lean marriage season during casual family talks.

Basically, this is an undiscovered story with no institutional interest. With name “Virat Crane” no one expects it to sell an FMCG product with an excellent brand name ‘Durga’ and sticky consumers towards this eatery. On top of this, improving financial metrics and possible sales growth (due to volume growth) due to new plant in Orissa and Karnataka foray. As this is a micro cap, quarterly growth would be lumpy and we need to give time for sales growth thesis to play out. Again, I hold the stock so take my opinions in this context.