Sintercom India Ltd (NSE Emerge Platform)

[kunal_patel]

Sintercom India Ltd

Market Cap @ 65/- ~156crs
Revenue 1H18: 36.3crs / FY17 – 66crs
Margins: ~24%

Why to read more about Sintercom

1. One of the three company in India making Sintered products (Auto component) alongside GKN (a MNC), Sundram Fastener.
2. An associate of global market leader ‘Miba’ in Sintered products
3. Strong board/management composition
4. Strong margin profile for a 66crs revenue company.
5. Growing and untapped market

Company Background:
Sintercom India Ltd. is one of the leading automotive sintered components manufacturer located in Pune, India. It specialises in manufacturing medium to high density sintered components for automotive engine, powertrain and exhaust systems as well as sensor components for global customers. Company was started by Mr. Jignesh Raval in 2007 as Maxtech India Pvt. Ltd. Mr. Raval is a technocrat with over 20years of experience in Automotive industry. Prior to starting Sintercom, he was working with Tenneco Inc as ED, Global Supply Chain Management division.

Timeline:
2007 – Started as Maxtech India Pvt. Ltd
2010 – Started manufacturing Stainless Steel Hego Boss (converted forged parts to Sintered products)
2011 – Entered into a JV with MIBA Sinter Austria (converted Forged Gears to Sintered Gears)
2012 – Changed company name to Sintercom India Pvt. Ltd (kept introducing new products)
2013 – Started supplying to Maruti Suzuki
2015 – Developed 6-speed transmissions Syncro Hubs
2016 – Developed a product for Bajaj Auto (Forged shift tower component to sintered)

Board of Directors
Mr. Hari Nair – Chairman, ex-COO, Tenneco, 20yrs experience
Mr. Jignesh Raval – MD, CEO
Mr. Markus Hofer – CFO, Miba AG
Mr. Harald Nuubert – CEO, Miba Sinter Group

Management Team
Mr. Jignesh Raval – MD, CEO
Mr. Pankaj Bhatawadekar – CFO
Mr. Nikhil Chavan – Head, Engineering and Marketing
Mr. Sachin Gunjal – Head, Manufacturing

What is Sintering Technology
Sintering is a process that uses metal powder to make components. Sintered products are highly tensile and density higher than normal casting and foundary products. Please go through the video here to understand more about the process. (Sintering process)

Sintering is a green technology as it uses metals scrap and uses less water and energy compared to Casting and foundaries.

Usage

Market Sizing
Currently market size of Sintered products in automotive segment is pegged at ~950crs. Share of sintered products in PV is ~4kg/Passenger vehicle, however in the US this comes to 17kgs and in EU and Japan, this is around 12kgs. If management is to be believed, this could go up to 7kgs over next 5 years.
Since sintered products are lighter than casting/forging products, hence they are more and more preferred by the OEMs to reduce the weight of the vehicle which helps in increasing efficiency of the vehicle.

If Auto analysts are to be believed then 2W market is expected to increase by 12% per annum to reach 23-24m while PV is expected to go up to 5m over next 2-3 years. Also as BS VI will roll out in 2020-21, usage of sintered products is expected to go up by another 1-1.5kg/PV.

With rough calculation, we can arrive at the market size of ~1500-2000crs over next few years. That roughly doubles the market in next few years.

Sintercom currently has market share of ~6.5% which it expects to increase it to ~10% by 2020-21

Key Customers
Sintercom has long standing relationship with major players in India like Mahindra’s, Bajaj, Maruti, Honda and others. It is also exporting a small portion to Suzuki for products in Japan. Pic below shows how many models of which OEM uses Sintercom products.

Financials & Other operating metrics

4-yr Revenue CAGR – 10.7%
4-yr Sintered Products revenue CAGR – 18.5%

4-yr EBITDA CAGR – 15.2%
4-yr PAT CAGR – 104% (On a low base)

EBITDA margin has improved from 17-18% to 24% in 1H18. This is largely because of discontinuation of sale of Hego Boss (non-sintered product) which was a low margin business. Management had consciously taken this decision to reduce sale of hego boss and as of 1H18 it has been discontinued. Sintered products have higher margins and every new product introduced will improve the margins further.

RoCE has increased from 11% in 2013 to 14% in 2017 & 18% in 1H18.

Cash Flows: Company is generating ~10-11crs of operating cash flow and uses it to reduce debt.

Asset turnover is ~ 1.5x and operates at 70-75% capacity. They use rest of the capacity for R&D purposes to bring new prototypes.

Object of the IPO:
Company would be raising ~INR 56.5crs (incl anchor/Preferential allotment).

Total amount Raised – 56.5
Exiting Shareholder – (23.0)
Capex - (16.56)
Debt Repayment - (11.5)
W/C requirement - (3.0)

Remaining for general corporate purposes

Sintercom would be spending ~16.5crs on capacity expansion which would increase its capacity from 1800 tons to ~3800tons (need to confirm this number). Also at the present facility they can increase the capacity to 8000tons by just installing machineries.

Current debt is 35crs out of which they would retire 5crs from operating cash flow and reduce it further by 11.5crs from IPO proceeds. Portion of debt that they are retiring is a high interest debt from Mahindra financials that charges ~14% interest. After the IPO, effective interest rate is expected to be ~11-12% which is likely to reduce further to 9-10%. Interaction with the management indicates they already have an offer from HDFC with effective interest rate of ~9.5%

Valuation
At IPO price, company will have a market cap of ~156crs. In 1H18, company has generated PAT of ~3crs and is likely to cross ~6crs for FY18. It would command a multiple of ~26x at IPO price which is not expensive but not cheap either. Other auto ancilliary companies with similar margin profile trades at higher multiples.

Other Details:
MIBA AG would hold ~20% after the IPO. Company pays 3% royalty to MIBA for the technology/Know-how that they use from MIBA.
Company has an order book of 50crs for New products that it has developed.

To sum up
Sintercom is an interesting company to study. Sintered products demand is increasing globally. It has a strong technology partner in MIBA which is a leading player in the industry. Company is run by a passionate CEO and has strong BoD in place. Further company is only focussing on Auto industry while sintered products finds place in other industries as well. However, management feels they have long road ahead in this industry and hence any diversification will come only when they penetrate this market well.

Key Risks

1. Slowdown in Auto markets
2. Change in technology
3. Increase in royalty to MIBA
4. Increase in raw material prices could affect margins

Investment in SME stocks has its own risk. It is always about growth while investing in SME/micro cap stocks. Please do your due diligence before investing.

Discl: Applied in IPO. This should not be construed as an invest advice. Please take your own decision before investing.

Source: Company presentation, Youtube and RHP

[Prasad_India]

If possible can you post the company presentation.
Good write up and thanks for notifying.
Regards.

[kunal_patel]

Hi Prasad,

I have a hard copy of the presentation which they circulated during investors meet. I have asked for the soft copy from management. Will share as soon as I get it.

Also I am travelling currently. Will scan and upload as soon as I return back.

Best
Kunal

[kunal_patel]

Discl update: Holding now

[kunal_patel]

Presentation as attached.

Sintercom Presentation

[TheRishiK]

Link not working! please reattach

Holding shares now!

[hnk_so]

What moat company has?
Why other established auto-ancillary company can not start production of sintered product?
Who are big player in India in this products?

[kunal_patel]

Hi Rishi,

I am not sure but link is working well for me. I am trying to attach PDF but isn’t working for me. Let me create a link of the presentation and share it again,

K

[kunal_patel]

Moat
First of all its important to understand it is a processor. Company uses metal powder, processes it and makes a Sintered Product. So there is no moat as such. Anyone can make the product using this Sintering Technology. Moat (if at all we call it a moat) comes from the technology that it uses from Miba. Miba is worlds second largest manufacturer of Sintered Products and Sintercom has access to the latest technology that Miba uses globally. Sintercom will always have a first mover advantage in Sintered products in India. So at best I can say it is competitive advantage than using heavy term like Moat

Q-2: Why other established auto-ancillary company can not start production of sintered product?
Ans: Market size of Sintered products is just under 1000crs currently as compared to Auto Ancilliary Industries market size of US$40b (not exact number). So for bigger players I don’t see enough reason for them to spend for this product. Also we have to understand a fact that use of Sintered products in a Passenger vehicle of 1000kgs is just 4Kgs, which is insignificant for any auto ancilliary company. Secondly, competitiors need to have access to the best technology available in the industry to make sintered products and thats the biggest advantage that Sintercom has.

Q-3: Who are big player in India in this products?
Ans: There are two other players in Sintered products 1) GKN Sinter Products and 2) Sundaram Fastners (Sundram fastener Powder Metallurgy). GKN plc is worlds largest producer of Sintered products.

Hope this answers your questions.

Best
Kunal

[kunal_patel]

What is Powder Metallurgy Sintering (PM Sintering)

Powder Metallurgy is a process in which solid components are fabricated by consolidation of metallic materials in powder form. Most common methods include conventional press and sinter. Sintering process involves multiple stage heating and cooling cycle. Sintering may be generally defined as the process wherein powder particles develop metallurgical bonding during heating.
There are primarily three steps for sintering ferrous components.

1. During 1st step which is an intermediate heating step, the lubricant is removed and burned. This step is popularly known as ‘de lube’ or ‘dewax’ step.
2. High heat step during which the powder particles fuse together, carbon from the premixed graphite dissolved in the ions and the other alloying elements such as copper, nickel and molybdenum diffuse into solid iron matrix with or without actually melting.
3. The 3rd step of the sintering cycle is the cooling step. Both sintering and cooling are done in controlled atmosphere.

A typical sintering cycle for ferrous powder consists of preheating or dewaxing at 650° C (1202° F), sintering at 1120° C (2048° F) for 25 minutes in reducing atmosphere followed by cooling in the same atmosphere

Please see the videos below to understand more about the process.

Powder Metal Sintering

Powdered Metal Process

Powder Metallurgy
https://www.youtube.com/watch?v=IIcPC73_H14

Considerations that determine whether a component application might be a viable target for Powder Metallurgy

• Product size and weight
Although material utilisation is high in Powder Metallurgy, the powders used are a relatively expensive feedstock material compared with the steel bar or billet used in many competing processes. Powder Metallurgy therefore generally competes best in relatively small and light parts, where material costs can be contained to a relatively small percentage (perhaps around 20%) of total manufacturing costs.

• Product geometry
Powder Metallurgy works best in making “prismatic” shapes with virtually unlimited shape complexity in two dimensions (the radial or plan view in the die), but much more limited complexity in the third dimension, the axial or through-thickness direction.

• Production quantity requirements
Powder Metallurgy requires large production runs in order to be viable. Firstly, the required forming tooling is generally complex and relatively expensive and the tooling cost needs to be amortised over a large number of products. Similarly, the capital costs of PM processing equipment (presses, furnaces) are high and need to be amortised over a large number of products. An issue associated with the equipment capital costs is that downtime between production jobs needs to be minimised and hence batch runs need to be relatively long in order that tool changeover/setting periods are not too frequent.

Why PM manufacturing is beneficial?

Powder Metallurgy’s cost competitiveness against other technologies is based on two major issues – lower energy consumption in the process and superior utilisation of the starting raw material.
According to Powder Metallurgy Review, Powder Metallurgy was estimated as saving around 68% of the total costs of the machined product. Please see the table below:

The estimated cost saving advantages for Powder Metallurgy in a range of other automotive applications are as below

Source:

https://www.gkn.com/en/our-divisions/gkn-powder-metallurgy/about-gkn-sinter-metals/conventional-powder-metallurgy/

Powder Metallurgy Review: PM and metal powder production

[Value_Seeker]

Dear Fellow Boarders,

Being critical equipment supplier to the Powder Metallurgy Industry in India, as well as supplier to Sintercom and all other reputed players in this industry, allow me to share some inputs:

Current Market Size:

Organised segment -

Leading Producers are

GKN Sintermetals, Sundram Fastners Ltd. - Combined Sales of over 700 crores a year.

Speciality Sintered Products, Sintercom, Tenneco Ltd., Pricol Ltd.(own consumption + outside sales), FederalMogul Ltd., Hitachi chemicals (Powder Metal division), Motherson Sintermetal Technology Ltd., and a couple of other emerging producers - all combined sell over 400 - 450 crores per year.

Global Majors like Porite have installed a plant in India, and Sumitomo another giant is looking to setup operations in India.

GKN - Global Market leaders with 1 billion USD in sales, have announced that they will sell their Powder Metal Division (Powder Manufacturing + Sintered Parts Division) to focus on emerging areas such as Aerospace. Both Motherson and Sumitomo are rumored to be in the race to acquire GKN Sintermetals. Interesting fact is that both Motherson and Sumitomo have long history of cooperation / JV’s for over 30 years.

Unorganised segment - These are smaller producers mostly producing bronze bushes etc. for the replacement market. Market size rumored to be about 100 to 200 crores per year.

Over 70% of all PM sales globally currently go to the automotive market.

Sintered Products per Car:

Recently, some of the myths about PM usage in cars have been exposed.

A leading Iron Powder Producer Stripped a Toyota, Volkswagen Passat and a Ford Truck to component level to see which parts are actually PM and weigh them as well as see the threats and opportunities for conversion.

Europe and Japan showed usage of 3.3 and 4.4 kgs of PM parts per car as against the near 10 Kg potential that was believed for sometime.

The Ford Truck on the other hand 32 Kgs, so the American Average of 15 to 22 cars for medium range cars is more realistic.

Opportunities are Emerging for use of complex PM Parts for VVT applications with BS 6 norms coming in. These parts are complex, and not every producer can make such parts unless you have very sophisticated CNC closed loop control presses, high quality uniform sintering shop and a very good tool room + good engineering team for re-design allowing conversion of forged parts to Powder Metal Parts where such sales enjoy higher ROE’s and better pricing power due to limited competition! Once a supplier has tied up with an auto producer / TIER 1 supplier - for the supply of particular part for a particular platform, it is very difficult to substitute this supplier since homologation costs for change of supplier are too high.

Sintercom are market leaders for supply of synchroniser hubs in India. In India, given our requirement for low torque applications, these are Fe-Cu-C based parts: Here is a note on synchro hubs:

https://www.quora.com/What-are-synchronizer-hubs

50% of Sintercoms revenues are delivered by Maruti Suzuki and 90% of them are derived from supplies to OEM’s.

Business visibility for such companies are strong, since part programs for the next 2 to 3 years are known and parts are awarded well in advance to complete the Part Approval and Homologation cycle. Of course the standard disclaimer is that should there be a global automotive crisis, then all forecasts are consigned to the dustbin and slowdowns in the past have been dramatic.

The MIBA Brand name has allowed Sintercom the possibility to penetrate the market very well. MIBA is acknowledged as one of the world leaders in technology and they excel at producing very complex parts with high ROE and Profitability.

Sintercom pay MIBA a 3% royalty on turnover, and in addition, they also have a separate technology agreement for know how transfer for VVT / VCT parts complex gears etc. This is a huge advantage, since it allows them to address this growing complex market.

As Sintercom have gained market experience, they have discontinued production of Sintered Parts such as the Stainless Steel Hego Boss. This part was a legacy business from Maxtech. The buyer in United States demanded long credit terms, the business was struggling for profitability, and claims on bad quality etc. were hard to contest, even if the problem may not have been originating in the Hego Boss supplied by Sintercom in the customers Exhaust assembly. They have shown will to step away from low ROE “headache” businesses, and produce complex, limited competition parts. As a result their realisations have gone up from 70 Rs per Kg to 240 Rs per Kg from 2012 - 2016.

Sintercom have guided for an ROCE between 22% to 27% and annual topline growth between 15 and 23% over the coming 3 to 4 years.

Jignesh Raval is a wise and prudent promoter, he is someone who has excellent understanding of risk v/s reward, and also takes pride in running a quality business. His previous stint at Tenneco as an employee where he managed operations at a much higher scale across diverse geographies also makes him very capable of taking the company to the next level over the coming decade.

Sintercom are capable of achieving the targets set by Mr. Raval as the demand for PM parts globally is very strong, and Indian Producers are all quite optimistic about strong growth over the coming 3 to 4 years.

Risk to the Powder Metal industry:

Lightweighting trend is all prevalent in 2 and 4 wheelers, which means that there is potential for sheet metal processed parts as well engineered plastics to substitute some smaller high volume P/M parts.

Key risk to P/M globally Is electrification of automotives. Most P/M automotive parts are linked to the survival of the Internal Combustion Engine. (ICE)

As far as India is concerned, a recent Niti Aayog document questions wide based electrification due to the lack of availability of Lithium with India (and the stranglehold China has on Lithium), and in addition, the fact that generating coal based power to charge these EV’s defeats the purpose of reducing Indias carbon footprint. The government is investing heavily in refining capacity in India, and they also think about methanol blending to 15% to reduce the import bill. I personally believe that the Internal Combustion Engine could have a long future in India, Provided of course - that some new alternative does not emerge in the coming years which poses threat to the ICE.

P.S.: Kunal you have a good write up with the set of articles you put up. Well done!

[kunal_patel]

Aniket, first of all thanks a lot of the input. Very valuable. I was looking for someone who can give industry insights.

Another thing that I am looking for is unit economics in the industry. Will be speaking to a few industry experts soon.

Thanks again for the inputs.

Best
Kunal

[Value_Seeker]

Kunal

I am closely engaged with all PM producers and their techno commercial teams. We are india market leaders for supply of critical german presses

Happy to help… feel free to bounce any queries should you get stuck…

Best regards

[Value_Seeker]

Dear Kunal,

I am responding to your queries serially:

Concerning P/M Processes and producers:

POWDER SUPPLIERS:

Ferrous Powders:

The leading supplier is a Swedish company called Hoganas. They are masters at delivering Fe / Fe alloy powders which can perform consistently and are the world leading producers. The GKN subsidiary Haganaes Corp which is on the block now also produces decent powders. then there are Italian and Indian producers who produce decent quality of base or certain alloy powders. Nobody matches the Hoganas capability to work towards pushing the powders to perform for most demanding applications. Naturally these are the most expensive powders but they enjoy good market share with mentioned Indian customers.

Non Ferrous Powders:

There are a number of local and imported suppliers. For the after market which uses bronze bushes and bearings with low tolerances, local bronze powders are preferred due to low cost (but also lower purity) and for the production of structural components where Fe-Cu alloy powders are used, imported Cu powders may be preferred due to quality consistency (due to better feedstock quality / less impurities)

PRESSING:

I am focusing my response to the pressing of higher complexity structural parts where Fe / Fe alloy based powders are pressed, since we are discussing evaluation of companies that can make money pressing complex parts such as Sintercom:

Typically (but not always), Iron / Iron Alloy Powder components need pressure of 6 ton / cm2 of surface area of the part that needs to be pressed. The tonnage of the press required to press a part is calculated by multiplying surface area x 6.

There are various types of presses available at varied price points.

We sell the “rolls royce” world leading solution, “DORST” Powder Compacting Presses acknowledged as the best in class and global leaders - however there are other competing presses from Switzerland which can also perform well. There are other competitors emerging for lower complexity parts from Italy, Korea, China etc. (In terms of cost - the spectrum is wide: A Chinese 250 ton press will cost a fraction of ours, but will wear out in 5 - 7 years and will not have the capability of producing demanding tolerance parts consistently over a period of time.)

Depending on the shape complexity and dimensional tolerance of the part to be pressed, how commoditised the part is and what real margin the part can command / what longevity the customer can offer / what volumes are up for grabs, the most practical / cost effective powder / pressing solution is chosen by part makers.

SINTERING:

In India the leading Furnace Manufacturer is an Indian Producer called Fluidtherm. Mr. Gopinath who is the owner of Fluidtherm is also the current President of the PMAI. They supply furnaces not only in India but also export these to China, Korea etc.

These furnaces are pretty close in performance to the German furnaces, but they are far more economical. The cost to benefit advantage is clearly with Fluidtherm. the German furnaces tend to use more expensive refractories and some more durable exotically priced materials, so they can claim slightly better fuel efficiency and temperature uniformity across the cross section of the furnace.

Ultimately what is the objective of sintering?
there is a need to reduce the porosity in the pressed part - thus increase the strength of the part. There is a need to prevent oxidation so there will be controlled atmosphere in the furnace.

SECONDARY AND FINISHING OPERATIONS

Sometimes additional operations are carried out on sintered PM parts in order to further improve their properties or to impart special characteristics. Some important operations are as under.

Coining and sizing: These are high pressure compacting operations. Their main function is to impart (a) greater dimensional accuracy to the sintered part, and (b) greater strength and better surface finish by further densification.

Forging: The sintered PM parts may be hot or cold forged to obtain exact shape, good surface finish, good dimensional tolerances, and a uniform and fine grain size. Forged PM parts are being increasingly used for such applications as highly stressed automotive, jet – engine and turbine components.

Impregnation: The inherent porosity of PM parts is utilized by impregnating them with a fluid like oil or grease. A typical application of this operation is for sintered bearings and bushings that are internally lubricated with upto 30% oil by volume by simply immersing them in heated oil. Such components have a continuous supply of lubricant by capillary action, during their use. Universal joint is a typical grease – impregnated PM part.

Infiltration: The pores of sintered part are filled with some low melting point metal with the result that part’s hardness and tensile strength are improved. A slug of metal to be impregnated is kept in close contact with the sintered component and together they are heated to the melting point of the slug. The molten metal infiltrates the pores by capillary action. When the process is complete, the component has greater density, hardness, and strength. Copper is often used for the infiltration of iron – base PM components. Lead has also been used for infiltration of components like bushes for which lower frictional characteristics are needed.

Heat Treatment: Sintered PM components may be heat treated for obtaining greater hardness or strength in them.

Machining: The sintered component may be machined by turning, milling, drilling, threading, grinding, etc. to obtain various geometric features.

Finishing: Almost all the commonly used finishing method are applicable to PM parts. Some of such methods are plating, burnishing, coating, and colouring.

Plating: For improved appearance and resistance to wear and corrosion, the sintered compacts may be plated by electroplating or other plating processes. To avoid penetration and entrapment of plating solution in the pores of the part, an impregnation or infiltration treatment is often necessary before plating. Copper, zinc, nickel, chromium, and cadmium plating can be applied.

Burnishing: To work harden the surface or to improve the surface finish and dimensional accuracy, burnishing may be done on PM parts. It is relatively easy to displace metal on PM parts than on wrought parts because of surface porosity in PM parts.

Coating: PM sintered parts are more susceptible to environmental degradation than cast and machined parts. This is because of inter – connected porosity in PM parts. Coatings fill in the pores and seal the entire reactive surface.

Colouring: Ferrous PM parts can be applied colour for protection against corrosion. Several methods are in use for colouring. One common method to blacken ferrous PM parts is to do it chemically, using a salt bath.

Joining: PM parts can be welded by several conventional methods. Electric resistance welding is better suited than oxy- acetylene welding and arc welding because of oxidation of the interior porosity. Argon arc welding is suitable for stainless steel PM parts.

Lets come back to your question about cost of equipment / lifespan etc.

Kunal it completely depends on the type of machine used. For eg. a 50 or 70 ton DORST Press will cost more than 3 crores, a Chinese Press will cost 50 lacs.

However, if our presses are installed they press with accuracy consistently over time - and they last decades. We have several DORST presses running in India today - which were built over 50 years ago. A Chinese press in contrast does not last more than 5 to 7 years.

Of course, in order to run equipment for decades certain preventive maintenance and wear part replacement is required.

In principle it is not possible via linear math to understand operational efficiency of PM manufacturing just based on nameplate equipment. There are several aspects.

A complex part can be made in different ways by P/M. A company may choose from different alloys, which have their own pros and cons, they can choose a simpler press and more machining to make the part or a very complex press to have minimal machining - totally dependent on their cost dynamics and tolerances that the part demands. Here are some pointers to evaluate a P/M prospect:

• How much of the plant / key capital intensive equipment such as presses is currently depreciated by the user?
• How complex parts can they make (relative to competition)? what is their history of timely delivery / quality of sales force engagement / ability to get RFQ’s for money making complicated parts? How robust is this pipeline of complex parts - and how much of these parts are coming from OE leaders such as Maruti Suzuki / Hyundai?
• How well do they understand metallurgy?
• How good is their design-engineering team and does this team engage with and enjoy the customers confidence to allow for design changes that assist with lightweighting as well as make life easier for production of the P/M part?
• How well can they design their tools to allow production of complex shapes with minimal machining and high accuracy?
• What is the quality of their machine shop?
• What kind of maintenance practises do the plant have? How well do they extend the longevity of their equipment?
• Does the company have access to world class technology, materials and practises which allows them to bid for complex and challenging parts?
• Are they able to sell their parts globally? Or do they have restrictions when addressing markets?
• What are their debtor days / how well do they recover their payments?
• Is the company practising optimal value pricing / or are they “cost warriors” throwing too much money on the table for the customer while depressing current margins to gain “market share”?
• Is the company able to retain key personnel with techno commercial competencies?

I trust I have given you a flavour of the soft / intangible factors that apply when assessing a PM company.

Concerning the PM Conference:

This is an annual event.

The PM industry comes together to discuss emerging trends and assess the past year - part makers and suppliers like us, government organisations such as DMRL, DRDO, BARC as well as educations institutions such as IIT, COEP, NIT etc.

We work together with the government to address issues the industry faces, as well as with educational institutions to groom PM education and talent.

It is a clean, non political and efficient and close knit organisation.

Feel free to ping me for more inputs.

Best regards,

Aniket.

[TheRishiK]

Sintex01.pdf (2.7 MB)
Sintercom Presentation attached…

The company expects 1,842.5 crore of market in 2020-21and its market share being 9.44%. That means its expected sales in FY21 is ~174 crores… It’ll be prudent to give 20% discount to this calculation, so the conservative forecast will be Rs. 139 crores

Presently the margin is ~8%. I’ll assume the margin to remain constant with the improvement in efficiency and increase in tax outgo (when MAT credit will finish). This gives the PAT of Rs. 11.1 cr

Maintaining the current PE of 25, the market cap will be 11.1*25 = ~280 crores (vs present mkt. cap of <170 crores) i.e. 64% upside in 3 years

However, it should be noted that this is very conservative calculation, and I believe that once BSVI will be rolled out, a phase will come when sintering companies will become hot stocks just like chemical companies were in 2017, and there will be PE expansion. Any positive surprise in margin will further fuel the stock valuation.

Views invited, but I am invested as I am comfortable even with the conservative valuation with the hope that it CAN give far higher returns.

@ayushmit Please share the outcome of ‘New India Conclave 2018’ where you must have met with the promoters of the company. Thanks in advance.

[TheRishiK]

@ayushmit your insight from yesterday’s meet is solicited (on Sintercom and other stocks if you can)

[kunal_patel]

Fantastic Aniket. Your replies helped me to understand more about the processes, competitors and suppliers. Thanks and keep enlightening us about the Industry.

[Value_Seeker]

You are welcome Kunal. Glad I could add value!

[Value_Seeker]

Dear Rishi,

Input for your consideration:

A 20 - 30 % reduction on projected estimate is OK for a FMCG product company, where one can try to look at reduction in per capita demand / factor in a reduction scale accounting for “management optimism”. However, for the product pipeline of a sintered company other variables will apply.

Assumptions on turnover achievement will totally depend on:

• Which platforms / projects promised by Customers materialise / how well the market accepts these cars.
• Any global crisis has deep impact on demand for vehilces, and sales slowdowns tend to be more drastic.

Sintercom is still a young company with plenty of scope to scale. Based on the current scenario, there should be sufficient margin of safety for patient investors…

Best regards…

[kunal_patel]

Rishi,

I would rather value the company based on the potential it has with much longer time frame. Firstly, we should look at what kind of cashflows company can generate with present capacity and with total capacity that they can potentially have at their present facility.

Their Present capacity is 3600tons which they can increase it to 8000tons at the present location. To increase this capacity they would need to spend around 30crs on the machineries. Now this actually enhances the value of the company as by spending 30crs they could increase the topline by 2.2x and they can cover the entire money in the 12-24months itself. RoIIC can push RoIC significantly.

Company can operate at full utilisation (on 3600tons capacity) in the year FY21-22.
As per my interaction with the management and industry experts average realisation per kg is expected to increase from current 470/kg to 625/kg in next 3-4years. Even if we take the median of 550/kg and margins of 27% (as a result of higher realisation), company can generate very attractive EBITDA. OCF as a % of EBITDA should be around 70% (if not less). Thinking on these lines should help you to calculate what could be the value of this business that we are planning to invest in

As per my estimate, Sintercom should generate cumulative EBITDA of ~130-150crs/OCF & FCF of ~100-110crs over next 4 years and much higher if they plan to increase the capacity in 2021.

Best
Kunal

Discl: Invested hence biased. Do your own due diligence before investing