Pix transmissions - low profile microcap company


(Rajeev Jawahar) #45

Pix came out with Q3 results which were affected due to negative other income as opposed to a high other income in the last three successive sequential quarters. Going by the annual report, the other income is constituted by interest & dividend income, besides forex gains.

Another factor is that Pix uses synthetic rubber as its raw material, which has a direct link to crude. With volatility in crude prices, buying raw materials can be tricky, more so when mgts. also try to time their buying. (Only consolation is that its not just investors who fail in timing markets!:blush:). When crude went above 80$, many mgts. probably lost it & decided to buy even more than they would otherwise have, expecting it to cross 100$. This may have been a factor as Pix RM cost went up to 47% of sales in Q2 as opposed to an average of 37.5% in the three preceding qtrs. The Dec qtr has seen the RM cost come down to 41.2%, so hopefully normalcy is being restored gradually.

One positive is that the top line is doing fine. Besides, the next two qtrs, Q4 & Q1 are the business end. Attaching the Dec qtr results.


(Rajeev Jawahar) #46

A fellow investor Manish Parikh of Vibrant Securities has done some wonderful work on Pix. He attended the last AGM at Nagpur and also interacted with the mgt. Manish has been generous enough to share his notes with me. I found the notes very useful & it helped me build conviction in the story. Attaching the notes pertaining to both the AGM as well as the mgt. interaction. Vibrant has recommended Pix to their clients first in October '17 & then again in Oct '18. Also attaching them with permission from Manish. Hope its useful.

Pix - Mgmt Meet-19.09.2018-v4.pdf (108.8 KB)
Pix Transmission AGM 2018 Notes -v3.pdf (92.2 KB)
Pix Transmission - Oct 17.pdf (570.3 KB)
Pix Transmission-Oct 18.pdf (160.0 KB)


(Krupesh Desai) #47

Hi Rajeev, Pix is operating at 80-85% capacity utilisation…What are the expansion plans?Where is the growth in revenues coming from after 90-95% utilisation? Are they setting up new capacities?


(Ayush Mittal) #48

Hi Rajeev,

These reports and notes are pretty useful. I hope you had taken the authors permission to publicly share the same?
Its interesting to see that the company is selling belts of such a huge amount and even more interesting thing to see is that the same is being sold in replacement market and that also through a wide dealer/distribution network.
But given that this would already be a highly penetrated area, won’t the growth potential be limited?


(Rajeev Jawahar) #49

Hi Ayush,

Yes, As mentioned earlier, I have taken permission from Vibrant Securities for using their notes for the benefit of other investors.

As regards growth potential is concerned, for starters there are only a couple of serious players in the non-auto sector where Pix is operating. The other being Fenner. As mentioned in the notes, the fact that all belts are periodically replaced on a regular to avoid unnecessary shut downs makes the business somewhat recession proof. So all large plants, be it power, cement, steel etc. etc. need the belts to be replaced on a regular basis. This itself is huge. Besides, India will continue to grow rapidly at 7-8% a year over the next decade at least, so the opportunity going forward is also big. I also gather that the mgt. is very bullish on the agricultural sector where Pix is the market leader &. the opportunity size is huge given the low base

The fact that for any new player it would take at least 3-5 years to make a mark (details given in the notes), gives the business a moat as there are barriers to entry. To my mind, Pix is clearly a market leader in a specialized business & I am unable to figure out why the valuation are what they are. Either I am missing something or the market is still to appreciate the story.


#50

Briefly, PIX is in a highly commoditized business.


(Chkrishna21) #51

Hi Rajeev,

Agree on your analysis of Pix but concerned about whether these positives will translate to better shareholder gains ?
Even before announcement of the result, pix was down 10% even though it was expected to give good results due to softening of crude prices. How can one explain this ?


(Rajeev Jawahar) #52

As mentioned in an earlier post, the “Other Income” in Pix cannot consists of a) Interest & Dividend and b) Forex gains. Since Forex gains / loses cannot be predicted with any degree of certainty, I decided to ignore other income altogether, even though one part (Int / Div) of it is regular and somewhat predictable. The idea being to better understand / compare the numbers. One interesting point that emerged was pertaining to the operating margins which have been steadily improving from 14.61% in 15-16, to 18.41% in 16-17 to finally 21.25% in 17-18. This should logically mean that any growth in Sales should lead to a dis-proportionate increase in profitability.

The Sales itself have grown @ 25% in the nine months of the current year over the same period last year. This is in contrast to the Sales growth of about 25% achieved over the last 3-4 years!


(Rajeev Jawahar) #53

Being invested in Pix, I do all the scuttle butt I possibly can. I understand that Pix is in the final stages of their current capex, & there is no meaningful capex due for the next couple of years. The Co. hopes to grow @ 20% top line for the next few years. With all the cash expected to be generated in this period, one can expect achhe din going forward! Logically, a hefty dividend or a buyback, or both become a possibility…

The Pix Mgt. is smart & capable. The markets tend to be myopic at times. Nobody seems to remember that Pix sold its Hose division to Parker, a Co. 100 times bigger that itself for about 250 crs. only in the year 12-13, when its own market cap was a mere 90 crs!

I have also checked from multiple sources & can confirm that the notes posted on the AGM & the mgt meet, courtesy Manish Parikh of Vibrant Securities are largely accurate & his efforts are truly commendable!

This video on the Co. website throws some light on its activities.

https://youtu.be/TGWsGtKTOsk_emphasized text_


(vyasln14) #54

Could you please provide the source.
I In the year 2012 the company sold part of its businss for Rs.856 million.
Afterwards I have not come across any such deal.
Thanks in advance


(Rajeev Jawahar) #55

A closer scrutiny of the 12-13 Annual Report reveals that there was an exceptional gain (Sale proceeds less book value of asset) of 133.96 crs. This pertains to sale of the Hose division to Parker Hannifin.

However, the larger point that I was trying to make was that the Pix mgt. have the wherewithal & bandwidth to scale up operations as well as to sell out should the opportunity present itself.


(Rohit S) #56

hi
as per the research rep Fenner is mostly in auto belts supplying to OEMs and not into non-auto belts. Most auto belt mfg cos suffer sue to competition from global suppliers as a result Fenner gets most of the auto sector orders.

Also that Pix shies away from low margin high volume auto-belts business is heart warming as there is no dearth of business and Co can focus only on high margin business. That’s something that cannot be said for many companies across the auto sector.