Result for Q3 19
Q3 19.pdf (1.8 MB)
Presentation Q3 19
Presentation Q3 19.pdf (2.3 MB)
In a weakening market of Indian automobile due to liquidity crunch, one time upfront insurance payment and general lack of consumer confidence, Alicon results are encouraging especially when 81% revenue comes from domestic market.
Their sales break up is 45% from 2W, 22% from 4W passenger vehicle, 20% from CV & LCV and rest from other applications in non automotive segment. The company exports 19% and aims to take overall export to 33% of revenue (on Consolidated basis) over three years. Their present revenue is Rs. 1000 Cr and aim for Rs. 2000 Cr in coming 3 years with about 15% EBITDA Margin.
The Aluminum Casting business may see a structural growth over long term if E-Mobility picks up as in place of Engine the vehicle would be replaced by Battery Housing, Motor Housing and Transmission Housing and all of which are presently being designed by major players on low density Aluminum Manganese alloys and similar other Aluminium alloys. Apart from that Vehicle weight reduction efforts by different OEMs to increase efficiency can improve prospects of Aluminium Castings.
In their road to Rs. 2000 Cr revenue in three years, the company claims to generate 85% of its Rs. 2000 Cr revenue from its current base businesses and 15% from proposed businesses of E-Mobility. Company also comes out with newer products regularly and 24% of present revenue comes from products developed in last 2 years.
In last quarter company added two new customers … Tata Pumps and UQM Technologies (they work in E-Mobility). They would begin supplying Motor Controller Housing weighing about 6 kg per piece to UQM. It’s a small but important development for Alicon. They also have got contracts from Samsung and Bosch for some components to be supplied to E Mobility solutions for JLR and Fiat respectively.
The company will need about 250 Cr capex over next 2 years and take the capacity up from 36000 T to 54000 T and will set up a new facility in Khed, Pune. The debt / equity ratio is not expected to cross 1:1. The project is postponed for 6 - 9 months looking at benign current demand environment in domestic market. But it may be temporary slowdown IMHO.
Asset Turn (Gross Block basis) to be about 1.8 times and EBITDA is expected to be in range of 15% as going ahead the new products may attract higher margins.
There are about 140 companies worldwide working on components of E-Mobility and as yet, the company contacted about 45 players and received RFQ from 25 and converted one (UQM Tech). But since they are working on this space for last about 4 years, there is possibility for them to clinch few deals.
The company has association with Enkei Wheels (they work from adjacent premises) who owns 14% here and took preferential allotment couple of years back.
On the flip side, we feel, the 2W business growth (45% of Revenue) would be muted as growth of 2W in India is projected to be about 7% - 8% only over next few years and not much extra Aluminium component requirement is there in 2W business.
The long term ROE can be expected to be about 18% ++
Present Price is Rs. 522/- (11/02/2019)
Disclosure: Author SEBI Registered Investment Advisory and CEO of https://aveksatequity.com
The stock is owned by close relatives in the family. Purchased at an average price of Rs. 570/-. No trading done is last 30 days.