Shivalik Bimetal Controls Ltd

(Ankit Gupta) #1

Shivalik Bimetal Controls Ltd (Market cap - Rs.408 crore)
Shivalik Bimetal Controls Ltd (Shivalik) is engaged in manufacturing of Bimetals and Shunt Resistors. The company’s plant is located at Solan, Himachal Pradesh. The company is led by Ghumman and Sandhu families. Mr. NS Ghumman, the MD of the company, is considered to be one of the pioneers in bimetal industry. The company was earlier into manufacturing of cathode ray tube (CRT) but the demand for the product declined significantly post introduction of LED and LCD television.
The break up of sales over the past three years:

Shunt Resistors - I am more excited by the shunt resistor segment and will talk about it more. Over the past two years, whatever growth has happened in the company seems to be mainly on account of shunt resistors. Electronic beam welded (EBM) shunt resistors are primarily used to detect current. The company has developed shunt resistors which are used in battery management system (BMS) of electric vehicles. In BMS, shunt resistor play a key role because if the detection of current is not accurate, the current can damage the battery. Although, there are thousands of shunt resistor manufacturing companies in the world, from whatever research some of us have done, it seems that the ones which make shunt resistors for detecting low ohmic current (in micro amperes) and that have low temperature coefficients (able to withstand high temperature and not loose their current detection capabilities) are hardly few. From whatever research some of us have done, it seems that currently there is limited competition for the shunt resistor used in BMS with hardly few players manufacturing it. Furthermore, the key technology for shunt resistor manufactured by the company is the welding through EBM machines. Although, the contribution of shunt resistors in overall BMS is pretty small, but its is a very important part of it.
The company has an established relationship with one of the large semiconductor companies based out of US and it has been one of Shivalik’s biggest customers. The customer is a diversified electronics company and manufactures range of electronic components like diodes, resistors etc. The customer supplies shunt resistors to BMS manufacturing companies who in turn supply to electric vehicle manufacturers (Shivalik being a tier III OEM supplier to EVs). It seems that the company has been working on shunt resistors for a long time. As per some scuttlebutt, it seems that company has also been trying to supply directly to EV manufacturers. It takes years to get approval from large vendors due to their stringent qualification criteria. The company also has some of the important certification required for supplying such products for Automobile applications like TS 16949. It also follows standards outlined by the Automotive Electronics Council (AEC). Apart from usage in BMS of EVs, the shunt resistors are also used in smart meters used by electricity distribution companies. With increasing automation of cars, the usage of shunt resistor is expected to increase.
Snapshot of discussion mentioned in FY17 AR of the company:

Bimetals: Bimetal refers to an object that is composed of two separate metals joined together. Instead of being a mixture of two or more metals, like alloys, bimetallic objects consist of layers of different metals. Bimetals have application where current or temperature detection is required. Bimetals are mainly used in circuit breakers, trippers, electronic alarms, fire alarm etc. The company is amongst the largest players in bimetals in the world. The company has established clients like Honeywell, Siemens, L&T, Havells etc. The company is one of the few (in some case the only one) local supplier of bimetals to many MNC companies. The sales of bimetals has largely remained flat over the past few years primarily as it is a proxy play on real estate which is facing headwinds over the past few year. Furthermore, the size of the market is also limited. The company is trying to make a headway into export markets but getting vendor approval takes time. The company is also working with defence for supply of some material (hardly any sales now) and disc grade bimetals (used in high end geyser).
The key thing in both shunt resistors and bimetals is to get an entry into an established customer which also acts as an entry barrier. The company’s major raw material is copper alloy which is being imported currently and is in short supply. The company seems to be able to pass on volatility in raw material prices and forex to its customer. On account of increasing demand of shunt resistor, the company has started working on a capex plan to triple its capacity in both bimetal and shunt resistor space.

What attracted me to the company?
Proxy play of EVs: The company has been able to break into the EV space and the demand for the product can be exponential. Furthermore, there seems to be limited competition for the product.
Technocrat promoters and focus on R&D: The company is mainly run by the family members of Ghumman and Sandhu family. Most of the family members have engineering background. Mr NS Ghumman himself is considered to be a pioneer in bimetal space. The company seems to have an established R&D and has continuously come up with new products (in the past the company was supplying CRT tubes and suddenly the demand fell of the cliff due to introduction of LED and LCD TVs, company however bounced back from the setback successfully). The company also has a lab to test its product
Established customer base: The company has an established customer base in both shunt and bimetal segment. Such customer base does act as an entry barrier for other entrants.

Key Risks

Valuations: This year, the company might do EPS of around Rs.3.5 and is thus trading at PE valuation of 30 times which is not cheap by any means. Furthermore, there seems to be a onetime write off of Rs.6 crore this year (just an assumption) of long term trade receivables (of CRT customers) from P&L out of which around Rs.2 crore seems to have been written off during H1FY18. Despite adjusting that, the stock is richly valued.
Technology obsolescence risk and increase in competition: The company faces technology obsolescence risk for shunt resistors. Although, currently there are not many options available for detection of current in BMS, it seems that some other technology like Hall Effect Sensors can replace shunt resistors. Furthermore, the competition for the product might increase with increasing market size especially from Chinese and Korean companies who are leaders in semiconductor space.

Key Financials

Profit & Loss account

Quarterly Results

Balance Sheet

(Disclosure: Invested. This is not a recommendation or an advice to purchase the stock)

(Kunal Patel) #2


Nice write-up and good job in unearthing such ideas.

Just to simplify and clarify few things, trying ti understand what a shunt resistor is:

Shunts are used in DC circuits. They allow you to ‘sample’ the current flowing through it for metering purposes. For instance, there may be up to a thousand Amperes flowing, and that would be very impractical to route through a dashboard ammeter or other measuring circuit. A shunt takes a bit of that flow in a precise ratio and is much easier to handle for measurement.

Please correct me if I am wrong in my understanding.

Recently I was going through a report from Mckinsey on Electric Vehicle and found this picture

Source: McKinsey

I am sure this shunt resister gets used in one of the processes here.

Coming to Shivalik
Have you done any Porter 5 Framework on Shivalik? Just trying to understand how strong the business is specially looking at the EV phenomena that we are going to witness over the next decade. Particularly I am interested in knowing competitive advantage that Shivalik has over other competitors if any?


(Dhwanil Desai) #3


Thanks for very good and detailed write up on Shivalik. Few more additional points/risks/unanswered questions on Shivalik

  • Competitive landscape: As of now in ultra low ohmic shunt resistors there are only 2-3 players according to Vishay’s product wise competitive landscape sheet (relevant products highlighted in yellow) Vishay_Compettion_Various_Resistors.xls (290.5 KB). Thus, it seems a limited competition market. However, based on the discussions with some industry guys, they say technologically, there are no entry barriers as such. Hence, it is difficult to figure out, what ensures entry of new players in this segment and what are the entry barriers.

  • A significant portion of shunt resistor income comes from Vishay and hence in one of the most promising segment, there remains client concentration risk especially when shunt resistor is likely to be the growth driver for the company

  • We still do not have idea about the overall size of the opportunity. Based on my understanding, shunt resistors of various kind have realization ranging from USD 0.01/piece to USD 1/piece. Probably, given relatively sophisticated nature of the shunt resistor manufactured by Shivalik, it is likely to be in the upper two quartiles. However, even if we take leap of faith assumptions on that, the market size world over may be anywhere from USD 500-750 million dollars if/when all cars turn electric or use low ohmic shunt resistor. There are already at least two very large players with advanced technological capacity (Vishay and Isabellenhütte) catering to large OEM players. Given that Shivalik is a very small player with limited capacity and reach, it may be prudent to assume that for some time at least, they will cater to the demand of larger players and not directly supply to OEMs

  • Risk of alternate product: IMHO, this remains one of the major medium term risk as the technological landscape around electronic product basket has been quite dynamic and as Ankit mentioned, it is very much possible that the technology becomes obsolete over next 5-7 years, as competing technologies mature and cost curve tapers down. Shivalik has experienced this first hand as their CRT business was completely wiped out few years ago and it took them more than 5 years to compensate for lost revenue on CRT side. Similar scenario is quite plausible in shunt resistor too

Some more research material I found helpful in understanding product/industry dynamics:RUB researchers create early warning sy…pdf (207.8 KB)
Power Metal Strip Battery Shunt Resistor_Vishay.pdf (588.6 KB)
roland_berger_tab_powering_ahead_20150730.pdf (545.7 KB)
Automotive Current Sensing.pdf (235.6 KB)
IHH_Bauelementebroschuere_engl_02.pdf (1.4 MB)
Vishay Resistors Automotive.pdf (2.4 MB)

Disclosure: I have a small position at average price of 60. This is not an investment advise or recommendation, Please do your own research/due diligence before making investment decision

(Ankit Gupta) #4

I haven’t looked at Porter 5 framework on Shivalik.

I think there are two major competitive advantage for the company - First is that they seem to have been early entrants in the manufacturing of shunt resistors of BMS for EV which can be on account of technology (looks like welding precision can provide them an edge) or as earlier the market size of the product itself was small that large semiconductor companies did not enter it. The second competitive advantage that the company seems to have is on account of their relationship with customer. For automotive customers, we have seen that with Mayur or other companies, it takes year to get an entry into them on account of their stringent testing and selection processes. Also, it seems that there might be a network effect which can also play out here in sense that if you are already supplying to one big and established customer, it might lead to a headway into other automotive companies. Not sure how easy it is to get the automobile certifications, but they might also give some edge to the company.

(Ankit Gupta) #5

Thanks a lot @desaidhwanil for your inputs. I totally agree with you on the risk part especially the risk of alternate product and how competitive landscape turns out for the product over the next few years. One thing which management told during AGM was that risk of product substitution is low currently (off course no one can predict the future). Also, on market size of the product, one contention I have is that assuming risk of product substitution is low, the demand for the product can grow manifold given the increasing penetration of EVs. Furthermore, what I also understand is apart from BMS of EVs, the increasing automation of cars will also lead to higher demand of shunt resistors.
One more thing I want to highlight is the shortage of passive electronic products in the market currently. Lead time for some products is as high as 6 months. A presentation highlighting the same is attached. VSH_2017_Q4_Presentation_Investor_Q_slides_180206.pdf (313.6 KB)

(Mukesh Tolani) #6

Nice writeup @ankitgupta
Thanks for the addition @desaidhwanil

I went through the detailed write-up put forth by Ankit. I also did little bit of research on the internet regarding the same. Putting forth my views :

This looks like an exciting bread-and-butter product mix. One (bimetals) providing a steady state income., whereas the other (Shunt resistors) providing good future growth prospects & better margins.

What I liked :

  1. When it comes to manufacturing shunt resistors, Shivalik is the leader in the country & among top 10-15 in the world. There is not much competition on the national level in this segment. When it comes to the global market, there are Taiwanese, Chinese & Korean players too.
    In India, there is another Nagpur based company called Hi Tech Resistors, manufacturing low ohmic value shunt resistors. Although, their infrastructure does not seem as developed as that of Shivalik.
    Surprisingly, Shivalik does not appear highly ranked on the Google searches for low value shunt resistors.

  2. With a great amount of shift happening towards Electric Vehicles, Battery chargers will be in good requirement., hence the requirement of shunt resistors will surely see a uptick in the times to come.

  3. Good entry barrier : Not easy for another company to set up a plant. Apart from the money involved., technical expertise is needed. Also, it is difficult to set-up a plant without any firm commitment from a long-term prospective buyer.

Key Concerns :

  1. Lot of dependency on 1 customer : which is Vishay in this case.
    Even the model nos. of shunt resistor displayed on Shivalik’s website are similar to those of Vishay’s.
    There is some juggling done though in the model nos. by Shivalik : They have changed WSL (of Vishay) to SBA (of Shivalik). The rest numerics remaining the same.
    Vishay_power-metal-strip-shunts-current-shunts_pl0005-1801.pdf (1.6 MB)

  2. No direct supply or existing tie-up with any big automotive manufacturer. Good amount of money can be made by supplying to an automotive company directly rather than routing it through Vishay.
    I think., with other global manufacturers of shunt resistors in the space too., Vishay might be playing the dominant role in their relation with Shivalik.

  3. Hall Current Sensors can be the technological alternatives to shunt resistors in the future to come.
    They are basically non-contact type & offer great degree of ease in connecting on the battery charger board.
    In simple terms, connecting a wire carrying high value battery current is not an easy thing to do.
    You have to break it to connect a shunt resistor in between.
    Whereas in Hall Current sensors, it can just pass through the Sensor., without being cut.
    However, Hall current sensors are very costly at the present moment.

  4. Bimetals is good., & will see a steady demand. But, I see this segment providing stagnant growth or single digit growth in the near future.

  5. There is 1 associate company & 2 JV companies under the aegis of parent company. I personally remain cautious towards such an arrangement as it provides lot of flexibility to the promoters to have inter-party transactions & manipulate the financials in order to get the results they want it to be shown.

  6. Heavy remuneration : Mr. Sandhu & Mr. Ghumman seem to be eating a big pie of the cake. Their present annual remuneration would be Rs. 2 crore + Rs. 2 crore = Rs. 4 crore total. & whereas the company’s FY 17 consolidated PAT is only still Rs 8.79 crore.
    I find this a red-flag.

Disclosure : Not invested.

(Puneet Arora) #8

Most of the family members (promoters’ kids) are settled in Canada. I believe this company is a good acquisition target, since there is no next-gen to take the business forward.

(Ankit Gupta) #9

As per my scuttlebutt, the second generation is part of the company. Few/one of the family members might have left the company and started their own venture in Canada.

(Aveek Mitra) #10

Shivalik Bimetal Controls Limited is in the business of joining materials through different methods such as diffusion bonding, cladding, electron beam welding, solder re-flow and resistance welding. They can manufacture multi-gauge and multi-material strips. They primarily manufacture Shunts and Bimetals since 1985.

Thermostatic Bimetals: A strip consists of two or more layers of different alloys firmly bonded together. One layer of alloy having higher coefficient of thermal expansion compared to other layer. So when heated, alloys of different materials would expand to different lengths and would change the curvature of the strip without causing any damage to the bonding. This simple property can be used in many electrical applications where 1) Temperature Indication is needed; 2) Control of any parameter against temperature is required; 3) Where compensation in circuitry is required in adjustment to ambient temperature; 4) In application where heat is converted to mechanical energy. There are umpteen applications of Bimetals in electrical equipments like Circuit Breakers, Overload Relays, Energy Regulators, Light Flashers, Automatic Fuses, Pressure Gauges, Electric Iron, Coffee makers, Washing Machine, Baking Oven, Refrigerator, Water Heater, Fluorescent Light Starters and many similar areas. In Automotive, it’s used in Exhaust manifold Controls, Turn Indicator, Oil Pressure Gauges, Circuit Breakers, Oil Cooling Regulator etc. Quality Bimetal Strips are made of “Kanthal” Alloys and other specialized alloys as per requirement. “Kanthal” is the trademark of Iron Chromium Aluminium alloys made for wide range of Resistance and High Temperature Applications. Kanthal is the product of Sandvik group and made with specific heating technology provided by Sandvik. Shivalik has the Furnace bought from Kanthal - Sandvik which they purchased in 2010 when Sandvik sold one unit second hand. May visit for more details about the product and technology. It is pertinent to note that Shivalik uses Hot Bonding Process as compared to most volume based Bimetal manufacturer who produce it by Cold Bonding Process. Advantage of Hot Bonding is long coil of material without welding and high bond integrity. Cold bonding needs subsequent sintering process to remove oxides and other impurities from metal interfaces to improve quality of bonding. It is unsuitable for critical high temperature applications.

Shunts: These are also Bimetal Strips only. It acts as a Resistor and made from two or more alloys consist of different Temperature Coefficient of Resistance (TCF). It is defined as “resistance change of a conductor per degree change in temperature”. The lower the TCF, the better the sensitivity (as a thumb rule only) of the shunt as there would be low level of power loss and high level of stability. Shunts can be of many varieties but high precision low TCF Shunts are manufactured from various types of alloys. Some of the major material from which these are made and their thermal or electrical characteristics can be found here:
Resistors are widely used to reduce current flow, adjust signal levels, divide voltages and terminate transmission lines. Main use of these Shunt Resistors are found in Energy Meters, Battery Management Systems (BMS) of Electric Vehicles, AC/DC Converters, Inverters, UPS etc. It is manufactured by Electron Beam Welding method by Shivalik Bimetal. This gives a very high quality bonding needed for critical and high temperature continuous application with precision.

Market Size: Even though the use of Bimetal is ubiquitous, the market size is small in US$ terms. Hardly there is market of Rs. 1000 cr of Bimetal worldwide as price of a Bimetal strip may be in the range of only Rs. 5/- to Rs. 20/- for manufacturing a gadget costing Rs. 2000/- and component price would be constant even if the higher product range is used. For example, imagine you are buying two electric iron costing Rs. 700/- and Rs. 1000/-. The amount of Bimetal Strip used and its quality would be same in both cases and vary between rs. 5/- to Rs. 6/- only.

The demand of High precision Shunt is higher and growing rapidly. This is a key and basic passive component in Electric Vehicles, Electronics of an automobile, Robotics, Internet of Moving Things, Augmented Reality and vertical Farming. There are wide variety of resistors and many suppliers for it. But the specific shunts Shivalik manufactures are mainly used in battery Management Systems (BMS), Intelligent battery Sensors (IBS) and Energy meters. All three are high growth areas. Presently there is shortage of supply due to high demand as can be found here …

To get an idea of wide variety of resistors and details of their suppliers can be found here

Coming to specifics of Shivalik Bimetal, there is a visible improvement in their numbers over past few quarters and from Shipment records it can be found that they are supplying to Vishay Intertechnologies, a major passive equipment and component supplier in the automotive industry. It is a major achievement for a small player like Shivalik Bimetal in a product range where undisputed leaders are Taiwanese big behemoths. Resistors and Multilayered Ceramic Capacitors (MLCC) are not critical like memory Chips and CPU but a basic building block for completing the passive component basket of supplies. Another major source of supplies would be Medical Equipment market. No precise market size estimate is readily available with me but I consider it to be growing rapidly as seen from shortage of supply and increase of lead time as depicted in above report, Rough estimate is about US$ 24 billion which includes all types of passive equipments.

Shivalik Bimetals is growing its revenue fast in last couple of years and grown from Rs. 98 cr to Rs. 161 cr between 2016 and 2018 (Exports 50% in 2018). Management expects the growth momentum to continue as the specific kinds of shunts they make (among many other varieties), there are only few major suppliers as its a niche product where they developed expertise over many years of in-house efforts in product development. There are many other Tier 1 passive equipment suppliers who are also actively negotiating with them for sourcing their products. Continental Automotive and Hella are two companies along with Mouser who are major names who supply various electronic sensing products in the Automotive industry. We assume, if their supply to Vishay doesn’t constrain them from using their capacity for others then someday in future, they may be able to supply to these guys too.

Presently they have enough capacity to support the growing demand without much capex as we think the Electron Beam Welding machines are versatile and not yet optimally used.

The volume expansion is easier than significant margin expansion. We find no reason why Shivalik Bimetal can’t increase its capacity further and we feel once the present capacity, which is non-optimally used, is fully utilized and they gain trust with Vishay then others may follow suit.

The complexity comes in making the stuff owing to the design specification of the buyers. Here the model followed by Shivalik is to get the required specifications, tools and dies from the buyer and custom build to the stringent requirement of the buyer on a long term contract basis with pass through arrangement of any increase in the cost of alloys which are 100% imported. They are the largest importer to India for these specific alloys.

Number crunching here is easier as main things to monitor are growth in QoQ volume of sales without decreasing the overall margin and corresponding increase in balance sheet, if any.

Relevant Point: The company has an associate company named Shivalik Bimetal Engineers Pvt Limited which had a reported revenue of Rs. 0.59 Lakhs in 2014 (the last available data) and deals in similar product lines and another associate named Sugam Logistics which deals in the Logistics operation of the company. Also the company had a bad un-recoverable loan from its earlier product line of CRT Tubes to the tune of Rs. 6 Cr which they are gradually writing off from its books.

Overall we are quite optimistic about the prospect here. More update would follow once we have incremental insight in the progress of the company.

The brochures of the products are enclosed: Shivalik Shunt Brochure.pdf (350.2 KB)


Disc: This discussion is not a recommendation to Buy or Sell the stock. Author runs a SEBI Registered Investment Advisory and the stock was advised to the members of advisory about a month back. The author and his related entities have the stock in different accounts and total holding is about 5% of the total portfolio value. No purchase or sell of the stock has been made in previous 30 days.

(chets) #11

@aveekmitra Thanks for the detailed write up.
What could be the reason of poor cash flows?

(Aveek Mitra) #12


I don’t feel the cash flow is poor but appropriate for a growing business with non-growing profit margin. With growth comes higher working capital requirement, higher interest cost to service the working capital, higher maintenance and fixed asset cost and higher tax outgo.

I doubt if Shivalik can substantially improve it’s margin beyond max 20% (EBITDA) going ahead but can improve the scale of operation. That can improve all the parameters of business possibly.

(chets) #13

@aveekmitra thanks…that helps clarify your thought process

(vamsi21) #14

AR 2017
Cost of Materials Consumed : 6,319.96 Lacs (Page 91 - 97% is imported so its all foreign Exchange)
Expenditure in Foreign Exchange: -5,085.22 Lacs (Page 27)
Cash Flow Statement (Trade Payables): -216.25 (Page 78)
Exchange Difference on translation of foreign currency cash & cash equivalent-Loss/ (gain): -0.59 (Page 78)

There is still nearly ~1000 Lacs(ie…10 Crores) difference… am i missing something.

I am still learning… pls let me know if i forgot something.

Other than the above:
The current CFO is only 4 years experienced(you can search linkedin with Rajeev Ranjan Shivallik Bimetal)… .do you think that is enough to be a CFO?!!
Even the remuneration is quite low… for a CFO.

Last year the previous CFO and Company Secretary resigned… i think they surely know the best years are ahead. Why did both resign…in the same year?

just like @mukesh_gt wrote on key Concerns… huge Salary, JV companies begs the question of why and what for?


(Harshit Goel) #15

Hi Karthik.

On the forex issue you are comparing two different things (Imported Product and Payment Structure). The difference could be due to various reasons, I could come up with the following.

  • They are buying directly from the foreign supplier but their payment contract is such that it allows them to make payment in Indian Currency.
  • They are buying through an Indian intermediate company and hence making payment in Indian Currency. For e.g. In Related Party Transaction it is mentioned that they bought Rs. 5 cr goods from their JV. Now this JV could be making payment in Forex while Shivalik making payment to JV in INR.


Disclosure: Invested

(vamsi21) #16

Hi Harshit,

I don’t think buying in indian currency happens generally… we can assume it also has a probability.
Second the if the intermediary(Checon Shivalik Contact Solutions) is just doing the same thing as SBC Ltd which is conflict of interest and lets say they supplied for 5Cr… we couldn’t still account for the rest.

And if they want to do get the raw materials from their subsidiaries… where there is no reason for them to account, thats very comfortable for them to… you know…!

Comparing those numbers to the profits, 5 crore is still substantial…

on page 112 i see 2.13 Forward Contracts i see
c. In respect of Commodity Hedging transactions, gain/ losses on settlement are recognized in the profit & loss account.
That means they are already working on the foreign exchange part and if so, why get them from a JV or associate company.

on page 122 i see a 25. Other Income where Foreign Exchange Fluctuation gain of 230.31 Lacs

Discl: Not Invested… still testing their numbers.

(Ayush Mittal) #17

Thanks @ankitgupta for starting this thread and others for making very valuable contributions.

Its exciting to see a company which was stagnant at 80 Cr turnover mark for few years till 2014, grow rapidly to 160 Cr turnover in 2018 (growth happened over last cpl of years) that also seemingly from a new product which finds usage in the EV battery space and smart energy meters.
The profitability from this new segment seems to be much better than their past business of bi-metals.

The financials look good and the cash flows look strong.

The important questions remain - 1. Scalability of this business or opportunity size 2. Customer concentration risk 3. Can competition increase going forward?

(S_Banerjee) #18

Promoter is continuously selling in market. I do not see any declaration of notification to BSE. Not sure how to interpret thos action.
Disc : Invested

(Prateek Chaudhary) #19

Texas Instrument article on Shunt resistor advantages over other methods.pdf (77.5 KB)
Automotive Current Shunt Sensor Reference Design Sept 2017.pdf (1.1 MB)

(S_Banerjee) #20

Mail sent to [email protected] asking clarification on promoter stake selling in market. Awaiting response.

(Anubhav Agarwal) #21

Any response received?