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Shivalik Bimetal Controls Ltd

Shivalik Bimetals charts shows an interesting flag/pennant like breakout on weekly charts. In the past few months stock price corrected in a sideways manner without showing the collapse shown by a lot of other small caps. This correction took the form of a triangular pattern and subsequently broke out from this triangular formation.
Comments on charts.

disc: Invested (based on fundamentals and the technical picture further boosted the confidence in buying.)

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Hello,

I think this company is quite well-researched in the thread. However, still having some questions to take the research further.

a)
Most of Shivalik’s shunt resistors are of low-ohmic - 0.1 mOhms to 10 mOhms
See products here: http://www.shivalikbimetals.com/product_details.php?pID=3
Upon some googling, I find two more companies in India manufacturing low-ohmic resistors: Hi-Tech Resistors and Intron Resistors.
Is it possible to get access to financials of these two companies?

b)
Also since more than 50% of revenues come from exports, how is the competitive landscape from foreign competitors? I found below companies which are operating in low-ohmic resistors:
http://www.royalohm.com/pdf/product2017/Shunt.pdf
http://www.jrm.co.jp/en/products/products1.html#05_01
https://riedon.com/resistors/current-sense/


http://www.koaspeer.com/products/resistors/current-sense-resistors/psj2/
https://www.deree.com.tw/ammeter-shunt-52728.html
To me, it doesn’t seem that there are only 3-4 players in the low-ohmic niche globally which the management seems to be claiming as per above posts.

c)
Also seen in above posts that approvals to supply to electronic companies take 3-4 years and we have some approval projects completing in a year or two. Has anyone checked if this is true? This is crucial as if approvals really take 3-4 years, then it can act as a good entry barrier for other players.
Edit: After reading Maruti Suzuki’s reports, I got a feeling that getting an order from an OEM is a big deal for the suppliers. So I can believe that it takes 3-4 years to get approvals and hence act as a good entry barrier.

d)
Shivalik uses hot bonding process instead of cold bonding process. If it is advantageous, why are other companies not following the same? Is it difficult to replicate the same technique?

e)
Is anyone aware of any public company which manufactures Hall effect current sensors? This would help us understand its market via their annual reports.

Disclosure: Interested but not invested. Not a buy / sell recommendation.

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A bit old news but relevant to this thread.

was going through conference call of vishay. some points.

Automotive also in 2018 has been the main driver of growth in our industry. Growth in electronic content assures increasing volume of components despite a flat vehicle production in 2018.

Coming to our main product lines, starting with resistors and inductors. Vishay’s traditional and since years, most profitable business continues to grow steadily. With resistors and inductors, we enjoy a very strong position in the industrial, auto, mill and medical market segments. Sales in the Q4 were $262 million, up by $11 million or 4.5% versus prior quarter and up by $50 million or 23% versus prior year, excluding exchange rate impacts. The acquisition of UltraSource contributed $5 million in the quarter. Year-over-year resistors and inductors grew remarkably from $839 million in 2017 to $1.012 billion in 2018 or by 18% again excluding exchange rate impacts. UltraSource contributed $17 million year-over-year.

Book-to-bill in Q4 was 0.94 after 1.02 in prior quarter. Backlog decreased slightly from 5.2 months to 5.0 months, still extremely high backlog. Gross margin in the quarter came in at 32% of sales, after 34% in prior quarter. Gross margin was impacted by inventory reduction, higher repair and maintenance costs and a less favorable product mix. Gross margin for the year 2018 was at fairly excellent 33% of sales, up from 30% the year before. Inventory turns in the fourth quarter improved to a good level of 4.4 as compared to 4.4 for the entire year 2018. Prices went up by 0.4% versus prior quarter and by 0.5% versus prior year. UltraSource proves to be a successful and profitable acquisition, strengthening further our position in thin film networks.

Overall book to bill seem to be coming down for Vishay.

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Q4FY19 Results: https://www.bseindia.com/xml-data/corpfiling/AttachLive/5d71134c-3aa5-4885-808d-0cf4f3e5e760.pdf

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Okayish results.
Unfortunate thing is the rise in inventories! It is up 75% YoY! Something fishy?

Another way to look at is revenues are up by 30 crores and Inventories are also up by 30 crores.
There are two ways to look at it:

  1. If inventories are mainly raw materials, then it means the finished goods were sold without issues and probably they bought a lot of raw materials for new orders. Since they bought a lot of it, it means they expect / have huge orders coming in
  2. If inventories are mainly finished goods, then company’s growth anticipation is off and needs cut to down their internal growth estimates. They can cut down their raw material costs in FY20 as they have lots of finished goods left at the factory. The confidence that these would be sold would come from the fact that the revenue grew 21% this year.

Another point to note is neither the raw materials nor the finished goods are perishable.

Disclosure: Recent entry in April and just 3% holding. Not a buy / sell recommendation.

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@lingalarahul7
Very good efforts to decipher and anlyse available information. Just taking your point futher, I tried to get some more insight from past data. Find enclosed past inventories break up as annual report of FY18
image

As we can see in last three years, substantial portion of inventories are in form of raw material has increased from Rs 15 Cr ( 52% of Total inventories) as on March 31 2016 to Rs 21.25 Cr (being 65% of total inventories) as on March 31 2018.

Now, change in raw material stocks would be adjusted from Total raw material consumed figure, while that of Finiashed goods(FG) and Wok-in-progress(WIP) would shown seperately in P&L account as a seperate line item.

During FY19, total inventories has increased by Rs 28.67 Cr (March 31 2019 Rs 69.27 Cr Less March 31 2018 Rs 40.60 Cr). P&L account show inventories increase in FG and WIP being around Rs 12.78 Cr which is around 45% of Balance sheet increase of inventories during FY19.

Details of Shivalik Inventories
Rs Cr 31-03-2016 31-03-2017 31-03-2018
Raw materials 15.19 14.84 21.25
WIP 5.64 6.64 11.69
Finished goods 1.45 3.26 6.02
Stores and Spare 1.20 1.29 1.51
Scrap 0.01 0.03 0.13
Total inventories 23.49 26.07 40.60
Share of items in Invetories
Raw material 65% 57% 52%
WIP 24% 25% 29%
Finished goods 6% 13% 15%
Stores and Spare 5% 5% 4%
Scrap 0% 0% 0%

In my limited understanding, with no insight from company/other sources, I would infer this as a neutral development. The ratio of FG/WIP being in range of 30% of total inventories as on March 31, 2016, increased to 38% as on March 31 2017, further to 44% as on March 31,2018 and now at around 45% in March 31 2019. So marginal increase in FG/WIP share from 44% in FY18 to 45% in FY19 shall not be seen negatively with inference that company is not able to find customer for goods and finished goods is accumulated at company’s end, in my view.

Discl: Shivalik Bimetal is among of top 10 holdings. I have purchased share in last 3 months. My view may be biased due to my investment. Investors shall do their own due diligence before making any investment.

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Very intelligent way to connect Change in inventories from PnL with Balance Sheet inventory numbers and then linking it to previous years’ inventories breakup. Appreciate your method!

Furthering your research, I’m calculating the ratio of (FG+WIP)/Revenues instead of (FG+WIP)/Inventories.
Since we are estimating that FG, WIP, RM are of similar proportion for FY19 as we had in FY18 in the inventories, I have assumed the same in below table.

Inventories
2019 2018 2017 2016
Raw materials 3626.016828 2125.38 1483.63 1519.47
Work in progress 1994.157416 1168.87 664.39 563.57
Finished Goods 1027.591516 602.32 326.04 144.93
Others 278.9742407 163.52 132.45 120.85
Total 6926.74 4060.09 2606.51 2348.82
Revenues 19877.81 16398.12 12764.06 10934.23
(FG+WIP) / Revenues 0.1520161895 0.1080117721 0.07759521657 0.06479651516

Though (FG+WIP)/Inventories is on similar lines as of last year, (FG+WIP)/Revenues is increasing at an alarming rate.

Now, which ratio among (FG+WIP)/Revenues [OR] (FG+WIP)/Inventories is important is something investors need to decide.

Discl: Same as above

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IMHO the increase in inventory of Raw material points to explosive growth in the current year of we consider a) Major raw materials of the company are imported as can be seen from the Annual Reports. b) The company is starting a new plant next to their existing plant which as per then last AR is to be operational by July 19. am inclined to believe that this build up of inventory points to massive increasing of the companys operation from this year onwards. Of course my views could be biased as SBCL is my top holding.

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@lingalarahul7

Appreciate your revert and efforts. My limited point would be businesses are never linear. My more than two decade credit analyst experience, the most important point is working capital is never static. At times there would higher requirement and at time there would be release except in case of large FMCG. Working capital is like pulse rate in human body. As we excercise our pulse rate would increase and when we relax/sleep pulse rate would be below normal level. Similarly, when business go for value addition/ new products/ new market, at first instance working capital is most likely to increase. Once company establish its credential and supplier/customer develop faith about quality of product and financial strength of the company, the working capital would stabilise to industry norm.

By giving incentive, the company may manage to show figure of better working capital. For instance, many company may discount bills with bank for customer and get advance money with discount. So receivable days would be reduce, but there would contingent liability till the time cusomter of the company make payment to the bank/lender who has discounted bills.

Hence, the limited point is just looking at pulse rate without understand circumstance may lead to wrong diagnosis. Likewise, while the increase in working capital requirement is generally not a good situation, but we also need to look at whether the company is employing resources productilvely or not. I normally consider ROCE(Return on Capital Employed) as the critical ratio. In case of trading companies while asset turnover is high, but margin are thin, as compared with manufacturing value added company where profit margin is high but asset turnover is less, ROCE work as standard parameter across the industries and business in my opinion. I am rather too much simplyfying but it is my understanding.

So when I do calculation of ROCE for Shivalik Bimetal, I find constant improvement in ratio over the years.Enclosing my working for same (data soruce Screener)

Shivalik Bimetal (Rs Cr) ROCE Calculation 31-03-2015 31-03-2016 31-03-2017 31-03-2018 31-03-2019 30-06-2018 30-09-2018 31-12-2018 31-03-2019
PBT 8.43 6.5 13.94 21.86 32.49 8.09 7.92 8.29 8.19
Interest 3.2 3.9 2.54 3.31 3.57 0.79 0.97 0.84 0.97
PBIT 11.63 10.4 16.48 25.17 36.06 8.88 8.89 9.13 9.16
Net worth 60.88 64.99 71.24 85.27 105.54
Borrowing 44.06 42.48 28.64 35.89 40.06
Capital employed 104.94 107.47 99.88 121.16 145.6
Average Capital employed 106.205 103.675 110.52 133.38
ROCE 9.8% 15.9% 22.8% 27.0%

So ROCE (on average capital employed) is improving every year since last 4 years for Shivalik, despite higher working capital. Hence, in my opinion, Shivalik, even can manage more than 20% ROCE (utilising internal cashflow for reinvested at same rate) and growth of 20% on Sales in medium, I would be very happy about investment.

Thanks once again, for bringing out meaningful points. Your reply and concern result in higher working and more conviction in investment for me.

Discl: Invested, added in last 3 months, Not SEBI registered advisor, Interested investor shall do own due diligence before making any decision.

26 Likes

Hi @lingalarahul7, good questions. Just wondering if you were able to find answers to any of your questions. Please share your findings, if you had any.

Thanks,
Amit

Thanks Amit.

Unfortunately not much progress on a) & b).
However, having a feeling that it is a tough business and not too many players can enter easily. Still I believe, we should assert this statement further and not enough research was done in this direction.

c)
I have edited the post after reading couple of Maruti Suzuki’s reports that I do trust the management on their point that it takes 3-4 years to get an entry into an OEM as supplier.
Also have recently been through Motherson Sumi, PPAP Automotive & Endurance Technologies reports and they suggest the same. I will share how I think the deals b/w suppliers and OEMs work.
So typically a supplier starts off with a small contract with an OEM. Like lets say around 0.1% of his capability and slowly increases it to 1% then 10% and finally 100%. This whole process can take around 2 to 4 years depending on the product / suppliers’ reputation / market conditions.
This slow adoption makes sense as it would help avoid huge mistakes in the beginning and also build trust between each other.

d)
Upon some surfing over the internet, I actually got the impression that cold-bonding process is more advanced than the hot-bonding process used by the company. Putting up some resources I could find online. I don’t understand why management / other investors are proud that we use hot-bonding process. Any inputs would be deeply appreciated.

https://www.dynaeng.com.au/dyna/blog/cold-v-hot-vulcanised-bonding/


e)
Again not much progress here too. Actually I have gained confidence on this point after going through the Texas Instruments’ report posted by one of our VP friends. Put it below for reference.
http://www.ti.com/lit/an/sbaa293b/sbaa293b.pdf
Later found more such supporting reports from TI. The first one from below even mentions Vishay.
http://www.ti.com/lit/ug/tidud33a/tidud33a.pdf
http://www.ti.com/lit/an/sbaa324a/sbaa324a.pdf

Disclosure: Recent entry into the portfolio over the past three months. Invested 3% of portfolio. Not a buy / sell recommendation. Not a SEBI registered analyst.

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Do we know why the promoter is selling?

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one set of promoters are selling as they dont have any children and have retired from the co.Price may have reduced in anticipation as they have addl 2.7 lacs of share selling overhang left.

Co otherwise is doing well IMHO

Already answered in this thread.

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Accurate current sensing at the connection between the smart meter and the incoming mains electricity supply holds the key to calculating consumption data in a smart meter. In market there are several options available to take care of this task in smart meters.

  1. Shunt resisters
  2. Hall-effect sensors
  3. Current Transformers

Out of these three, Current Transformers are considered to be the best.

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