Aeron composites limited

mitansh · November 20, 2024, 8:36pm

Market Cap: 214 Cr.
Stock P/E: ~19
ROCE: 36.5 %
ROE: 33.2 %
CMP: 126
Debt to equity: ~0.35
CMP: 126
Promoter holding: 73.63%

Note: have taken most of the data from the company’s website, annual report, investor presentation and drhp.

• Introduction:

Aeron composites limited was Established in 2011, manufactures and supplies Fiber Glass Reinforced Polymer (FRP) products, including FRP pultruded products, FRP molded gratings, and FRP rods, tailored for various industrial applications. Basically the company makes products which are a potential replacement to traditional building/construction materials like steel, wood etc.

• Clients:

• Industry and product:

In recent years, fiber-reinforced polymer (FRP) has become a widely accepted alternative to traditional building materials like metal and wood. The composite consists of a polymer resin matrix reinforced with fibers, which results in a durable but lightweight material. These qualities make it suitable for use in a wide range of structural applications, from bridges and boardwalks to poles and piles.

FRP is available in many variations, each of which exhibits unique characteristics that make it suitable for particular applications. Additionally, the material can be worked in a variety of ways to suit different structural requirements and restrictions.

One can read this document from the dcmsme government website to understand in detail, the economics of frp business

DOC-20241121-WA0000…pdf (45.3 KB)

Key benefits of FRP Products include:
Corrosion Resistance, Impact Resistance, Light Weight, Better Ergonomics, Easy Installation, low maintenance, long lasting, High Strength, Electrical Non
Conductivity,Thermal Non
Conductivity, Termite
Proof, Less Environmental
Impact.

The production methods used by Aeron Composite Limited are Pultrusion and Moulded Gratings.

Pultrusion is the process of pulling fiberglass reinforcements such as mats and strands through a proprietary resin and heated die. The result is a specific complex profile that can be cut to any length. This process offers speed and consistency making it the best method for producing high-volume linear fiberglass products that require constant cross sections.

Poltrusion process:

GRP/FRP Gratings are produced by wet moulding and hot curing in a heated mould. The reinforcement consists of continuous fibreglass rovings in alternating layers, so the loads are distributed evenly in all directions. Regularly Moulded GRP Gratings have a polyester resin matrix. Glass content is approximately 35%.

Frp molded grating process:

Global frp industry market size analysis:

According to aeron composites promoter the market size of frp products/ composites in india is ~16,000 crores

• Ipo details and Objects of the issue:
It was a fresh issue of Rs 56.10 crores at a price of rs 125 per share.

• Financial statements:

P&l

Balance sheet

Cash flow statement

• No listed peers to compare

•Valuation:
Pe ratio: ~19
Market cap to sales ratio: ~1
EV/EBITDA: ~ 10.7
Peg ratio: ~0.5

Management:

Aeron Composite Limited is a part of ‘A GROUP’

‘A GROUP’ is in business of Ceramic refractories, FRP/ GRP Composites, Ceramic Tiles, Waterjet & Laser Cutting machine, Paints and Lime.

Less info available on management.

Investment thesis/ key triggers/ positives

Strong financial growth
From FY2021-FY2024
Revenue cagr: ~36%
Net profit cagr: ~50%
Available at ~19pe
(Growth at reasonable valuations).
Increase in capacity utilisation over the years and ~36% volume growth cagr from FY2021-2024 which means that increase in revenue was completely led by volume growth and not price/value growth.

Percentage of export revenue is increasing. In H1 FY25 domestic revenue grew by ~13%, export revenue grew by ~48%.

Strong sectoral tailwinds can arise due to increase in capital expenditure in various industries and increased investment in infrastructure, huge potential market as it can potentially replace traditional materials like steel,wood etc. in some of the infrastructure applications.
Deleveraging

Increase in Employee benefit expense and recent hiring posts on LinkedIn (positive considering the size of the company)

Capital expenditure and potential revenue: if we remove installation of solar power plant cost , the company will still be doing 28cr worth of capex (building,plant and machinery), for comparison the company’s gross block as on FY24 was 29cr , according to the drhp they will complete the capex and start commencement by December 2025. This means if everything goes as planned the capacity will almost double within 1-1.5 years.

Risks:

Investment in microcaps/sme may lead to 100% loss of capital
Fluctuations in the price of raw materials like resins may impact the company’s gross margins.

However chamak polymers has very less revenues compared to aeron composites and the total related party transactions with all the related parties for the year FY24 don’t exceed 15%( management salaries included in rpt)

Group-Company-Financial-Statistics_Chamak-Polymers-Private-Limited (1).pdf (142.4 KB)

Management salaries (total) were high in FY24 ~5.5cr. However it was a private company then and it has recently listed and became public, we must track their remuneration in FY25.
Execution risk, how they manage the capex and will they be able to complete the capex in time. They are Currently in the process of setting up a new
manufacturing unit in Mehsana district of Gujarat, measuring 51,671 sq. mtr,
which is owned by the company. Thier current operations are in ahemdabad, this shifting process may lead to some decline in production and revenues. However imo it won’t be a major impact since they will only shift their operations once everything is ready in place for execution

Disclosure:

Not registered, not a buy/sell recommendation.

Invested.

life_long_learner · November 28, 2024, 1:56am

@mitansh Great summary and analysis. Only thing intriguing is their privately-held group company - Chamak Polymers, in similar line of business. Need to keep an eye on the related party transactions & management remuneration going forward. Plan do research a bit more. Thanks.

sbkv · November 28, 2024, 6:22am

I concur with @life_long_learner great pick and analysis.
I’m curious about them getting into carbon fibre based products. That could lead to improved margins.
Are there any published interviews with management as with most microcaps information is scarce.
Also, if they are moving entire manufacturing to the new facility what do they intend to do with the old one? Any clarity on this?
They also had a meet with select investors a few days ago at their plant after which price has moved up significantly on the back of increased volumes. It would be great if they could share presentation of the same with all relevant information shared. They’ve only said that meeting concluded and no price sensitive information was shared.

Discl: not invested but tracking

mitansh · November 28, 2024, 7:38am

jainendra_tarun · December 5, 2024, 6:42pm

Thanks for the excellent analysis @mitansh . This conversation with the management provides good insight - https://www.youtube.com/watch?v=0pGQ6ma1Iy4&ab_channel=GoIndiaStocks
Management is guiding for 15-20% growth, though they may be conservative, but this is really small for such small company. Their H1 revenue is pretty much in line with this estimate too. It may take a few years for their FRP products to be acceptable at large scale. I feel that management is not aggressive enough, even though the growth potential is huge. Happy to be proven wrong in future.
Not investing at the moment, but this is a very unique company and I will keep tracking.

mitansh · December 6, 2024, 9:43am

@sbkv they are shifting their operations to a company owned facility. Their current operations are taking place in a rented/leased facility. I hope that answers your question.
Some points from go india stocks yt interview which @jainendra_tarun shared

.Company buys glass fibre(raw material) from owens Corning , 3B fibreglass(domestic suppliers). They didn’t name any specific foreign supplier.

.Resins are sourced from india only as they have a fixed shelf life .

. Raw material price monthly variation is less than 10%.

.most of the times they have 45-60 days worth of order book

.Initially Capacity will go from 18800tons to 22000 tons after shifting to the new facility later they will focus on debottlenecking to further increase the capacity . They are manufacturing in a rented facility and will shift their operations to an owned facility before March 2025. They have done similar shifting in 2019. They won’t face any significant losses during this shifting process. New facility will be of 51000 sq mt out of which 30% will be free space/extra area left out.

. EBITDA guidance of 10% which they are planning to achieve in this year itself.

.

My personal opinion on the 15-20% guidance given: It is extremely conservative given that they are going to almost double their capacity before fy27, have started making frp rebars and have plans of introducing more products especially carbon fibre products, their fy24 utilisation was ~61% which means they still have a lot of room to grow. It seems like they are or trying to be that kind of management which under promises and over delivers.

Disclosure
Not a buy/sell recommendation
Invested.

Bhajan_Watwani · December 7, 2024, 4:01pm

May be but lets see H2Fy25 how they perform that will give some conviction rest all is good