ASM Technologies - Engineering innovation

Hi @Ashisbabu,

I just double checked to be sure and downloaded the new attachment. At least on my end, I see my new note.

Appreciate your detailed and in-depth analysis Ankit.
@ankit_george

I have a different long term view here , am not focusing on the PE valuations or revenue multiples here. I will briefly outline my thought process for holding on to this stock after multibagger returns.

If you see global semiconductor equipment industry, we will understand that it is an RnD led, design led manufacturing industry most of which is controlled by few US, Europe and Japan based companies. Four companies Applied, Lam research, Tokyo electron and ASML (lithography) holds 80% of market share. This industry has a supporting ecosystem across various segments producing 1000’s of components, research labs and design houses etc.

This is a highly competitive industry any small company with niche capabilities become take over target of biggies. If you go by history all these big companies expanded various capabilities through take overs and aquisitions only. If you talk with any industry personnel you will understand this is much tougher and bigger industry than the defence sector. It is almost impossible for any new organisation to enter into this space due to supply chain and technological challenges. Meanwhile existing players are unable to cop up with rising demand due to expansions and technological advances.

What if Asm tech builds some capabilities and enter the space , then I will not value the company at conventional valuation matrics . Valuation scenario will be few thousand crore marketcap here considering the facts like;

  1. India entering semicon industry, huge opportunity size opens up.
  2. take over probabilities
  3. Geo political importance of semicon industry
  4. Global demand is increasing rapidly.

What if Asm tech not able to scale up semicon equipment manufacturing and continue to do with existing lines of business, growing at 20% and normal 20 PE valuation, then we can see that not much downside from these levels. May be a 10-20% lower than current price is a worse case scenario because of the current performance of existing business units.

But I feel there is a 50% probability for Asm tech to make success in semicon equipment space bcz of the following facts which I believe company will leverage in future to make the JV a big success.

  1. Association with iisc bangalore - two big names Appplied and Lam already present in the same campus, pointing the cutting edge RnD happening in the prestigious Institute of the country.

  2. Existing client relationships - As per recent AR - they have submitted product samples to 25 global equipment companies across the globe.

  3. IOT enabled sophisticated Fixtures/Work holdings are the integral part of a semicon equipment, we allready have a subsidiary doing the manufacturing of fixtures. There was a media report of this company (Rv forms & Gears) might venture into semicon industry - I shared else where in this thread. So basically this is a backward integrated operation for the Joint venture company.

There is execution risks, we need to watch the JV progress carefully. Big upside from here will be depending on the sucess of JV.

Disclosure : Holding since last two years from very low levels, not recommending a buy at these levels. I am not a fan of buy at any price.

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I am glad that you liked the analysis @shanid

You make a good point regarding how concentrated the semiconductor industry is. Whether you’re looking at capital equipment manufacturers, fabrication plants, or any aspect of the semiconductor value chain, there are only a handful of players that are operating at scale. I liked the comparison with the defence industry, and I would agree that the semiconductor equipment industry is a tougher field to compete in.

If ASM keeps innovating and develops some niche and deep domain expertise, it can easily become a takeover target. In that case, it will be valued not based on conventional metrics, but based on what its assets and expertise would be worth to a potential acquirer. In that case, it could be worth many thousands of crores.

Even if we don’t look at an acquisition scenario, I am firmly of the belief that ASM is in the right place, at the right time. With the very nascent stage that India’s semiconductor industry is in, the sky is the limit. So contingent on ASM building on its expertise, having an enviable (and growing) list of clients, and delivering high revenue growth (40% CAGR), we will have a multibagger outcome here as well.

Keep in mind that a JV called ISMC (between Abu Dhabi-based Next Orbit Ventures and Israel’s Tower Semiconductor) has announced a $3B investment to build a semiconductor plant near Mysuru. There is a reason why our PM is spending a good amount of time in the Gulf these days.

While $3B sounds like a lot, Foxconn and Vedanta could be investing $20B in India to build a semiconductor and display manufacturing plant together. I look forward to hearing a favourable announcement from them. Along with these huge capital investments, this will create a massive ecosystem of R&D labs, design houses, equipment suppliers, and a range of support services.

Like you correctly pointed out, the major thing we all need to watch out for is execution risk, especially with the JV with Hind High Vacuum. If they execute well, then we will have a big upside opportunity awaiting.

For now, the company seems to be making all the right moves.

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@ankit_george

I must say its huge efforts to prepare such analysis on a company. Thanks for this report.

I see the company has high trade receivables of Rs. ~53 Cr out of the revenue or ~192 Cr. Though this is quite high (~30% of saless), i see this is the case nearly same for TATA Elxsi and Tanla Platforms. Does anyone now reason for such high receivables for these?

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Thank you @aspireinvestor !

I hope that you got value from the report.

I think that in the IT services and ER&D businesses that better payment terms serve as a bargaining chip when two or more competitors are bidding for the same business. So I am of the view that this is standard practice.

What I liked seeing was that receivables growth was much less than net income growth (and revenue growth), which is a good sign. Additionally, when looking at the age of the receivables, the amount that’s been due for 6 months to one year is less than 10% of the amount that’s been due for less than 6 months. Again, this is a positive.

If ASM continues to develop a stronghold in the semiconductor space, along with other sectors identified to be critically important, and providing expertise that few other competitors in India can match, I expect that receivables as a percentage of net income (and revenue, for that matter) will go down over time.

Hello everyone,

It was very nice to attend my first AGM in India today. Also, it was good to see @shanid in attendance. He asked some very good questions to the company’s management.

I took notes during the session, which you all may find below:

AGM Notes

On a high level, I was quite impressed by the quality of the conversation during the AGM. Mr. Rabindra Srikantan did an excellent job with answering a range of questions, and his clarity of thought and confidence when delivering his answers left a good impression in my mind.

There were a few speakers, including Shanid who requested for more frequent conference calls. The management said that they would evaluate the possibility of a call with shareholders every 6 months, and then moving to quarterly calls.

Rabindra sir defined ASM’s business as primarily ER&D (engineering research and development), with a limited exposure to IT services. Unlike most ER&D companies, ASM has strong design-led (and innovation-led) manufacturing capabilities. With this being the case, they do not really have direct competitors in India, as few ER&D companies have manufacturing capabilities as well. He identified Altran as a potential foreign peer.

The company’s core R&D team has a strength of 50 employees, out of a total workforce of around 1200. The company is proud of its association with IISc, and both entities are looking at opportunities in the nanoscience and EV space. ASM intends to productize some of these opportunities in the near future.

With the Forms and Gears subsidiary, it was good to see the company expand its client base outside of the automotive and heavy engineering sector, and winning business in more industries like high tech and consumer electronics.

There was some additional context given regarding their fairly recent Semcon acquisition. The move gave the company new clients and exposure to Nordic countries, as well as new capabilities in the EV sector.

Since the company has a semiconductor practice, which will grow in importance over time, questions were asked whether management applied for the various schemes (PLI, DLI, etc.) on offer from the Government of India. Rabindra sir responded by mentioning that they have applied for all relevant schemes, and that the DLI schemes were of special interest.

To build on their semiconductor practice’s capabilities, ASM entered into a JV with Hind High Vacuum. ASM has expertise in design, while HHV has expertise in manufacturing. The two companies have collaborated in the past, and the JV will result in a tighter partnership. ASM will comment on capex requirements in a few months, and hopes to see revenue from this JV as early as later this year.

I liked how Rabindra sir described ASM Ventures. The division helps the company learn about new and emerging technologies, and allows it to stay on top of these things. ASM co-incubates these companies, and there are a lot of two-way value addition and co-creation that takes place. Being involved with multiple startups helps ASM build on its innovation led engineering credentials and capabilities.

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Please see above video for AGM full session.

Thanks for the detailed note Ankit, many thanks.

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India’s very first semicon equipment/subsystem/component manufacturing company here.

Amazing progress here in short span of time.

I request people with semicon background to check this company wesbite and give their feedback on capabilities and other things.

@rambaranwal @vishalprasad @vikas_sinha

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Reading between the lines, through this JV, ASM will be able to not just offer design expertise, but also provide equipment sub systems to longstanding clients like Applied Materials. If I remember correctly, their relationship with Applied Materials is over 10 years long.

Additionally, while Applied Materials, Lam Research, etc., may only be willing to provide off-the-shelf equipment to semiconductor plant operators, since they are large scale manufacturers, this then creates a whitespace for ASM to supply customized equipment directly to operators, instead of just being a supplier to a supplier.

While this potential exists, all that matters is whether the company can actually win business.

Additionally, while I was thrilled about a $3B semiconductor plant coming up in Mysore, there’s now the possibility of a $22B investment to build a semiconductor and a display plant in Maharashtra, courtesy of a JV between Vedanta and Foxconn. So ASM is in the right place, at the right time.

Fingers crossed, and cautiously optimistic!

See the details of the Vedanta-Foxconn announcement here

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Average performance from the company in Q1.

Topline growth is 23% yoy while degrowth qoq.

Good to see margins climbing back after a terrible Q4.

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Supply chain challenges faced by semicon industry - some intresting data points.

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US chip equipment player Lam Research to open second RnD centre in India. The new unit will have various manufacturing labs, and Lam also looking for setting up a network of local suppliers as per the media report.

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Very first media appearance of Asm tech promoter.

Two big trend going to help this company going forward is Mobile phone manufacturing and Semicon PLI .

Hope for the best.

“Many large semiconductor equipment manufacturers have design engineering facilities in India and are looking to start manufacturing in to supply in the global market, which will help Indian semiconductor industry reach its full potential" -

From the interview.