Any one tracking this stock, Financials look good and with the latest drop stock price is an opportunity to enter?
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But very less information
I recently started tracking this company and based on initial looks, there seems to be many points in company’s favour. However, my biggest concern is future growth potential when the overall FMCG market will grow in single digits in terms of volume especially when big FMCG players would always strive for efficiencies with their fixed assets.
Also, it looks like their customers are majorly big FMCG brands like Mondelez, Nestle, etc. who will have superior pricing power against a 1000 Cr company, so significant margin expansion also seems less possible.
One sectoral tailwind that I feel should benefit Axtel is the emergence of new age D2C brands and if only a few of them turn out to be big players of tomorrow, Axtel with its good quality and better pricing than European players could get their business. I don’t think a scenario where significant growth will come on the back of traditional FMCG giants.
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- Industry scenario is quite robust. There are new entrances, reliance is getting active in food space. Unilever with GSK business. Overall optimistic
- Competition still largely exists from European Markets
- I did some scuttlebutt analysis by visiting foodtec expo. Swiss, German and Italian machines are expensive as compared to Indian brands by 35-45% premium basis.
- Food processing machines industry indeed witness’s customer stickiness. Due to the stickiness, certain parts of market have been captured by players and it is hard to win competitor’s customers. E.g. MDH has been captured by Axtel, Goldiee has been captured by Rieco. (Both MDH and Goldiee are into Spices)
- From our interaction with manufacturers from India, Axtel is known to be leader or brand in what it does. There was a positive review that they are old established players in India who is competing with European counterparts.
- For spices, these new companies who only Focus on one type of machines, do not do cryogenic as it is expensive and only big clients demands it. So, for cryogenic you’ll have to go to players like Axtel
- Overall, the company has a potential to double its revenue in 2-3 years and also its profitability. But one needs to keep in mind that quarterly performance can be volatile depending on the order execution phase. With healthy balance sheet, probability of margin expansion with ramp up in capacity utilisation and robust industry demand scenario, the company is expected to perform well.
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AIL’s profitability is dependent on nature of product manufactured, level of complexity and customisation of the project executed
in the year. Moreover, AIL’s clientele consists of very large and organized players in food processing value chain, hence it has a
limited bargaining power in terms of ability to revise prices in case of steep variation in raw material prices. Procurement of raw
materials is also project-specific and hence, AIL does not have long-term supply contracts with suppliers. Consequently, AIL’s
profitability remains susceptible to raw material price volatility, especially in contracts with a long execution time.
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i see one problem with the company that its operating margin is volatile in nature with limited bargaining power.