Quick update if anyone is interested - All the results are out. Its been a mixed bag with VBL, PML, Apar with spectacular numbers, Esab with great set, Honda good margin expansion possibly due to localisation but flat topline, Pricol flat apparently due to supply constraints and Vimta flat with delay in rampup of samples at JNPT lab, Techno poor, again due to supply constraints and Dynemic possibly into its last quarter of poor numbers.
The charts too reflect the mood with VBL, PML, Apar trading strongly above result week. Esab pulling out but faces very stiff resistance at 4200. Pricol and Techno doing OK post flat numbers. Dynemic and Honda have to form a long base around 250-300 levels and 2000-2200 level (and fill 1800-2000 gap) respectively for any credibility to runups.
This is clearly playing out (There’s a nice book called ‘The Grid’ - summarized here which is a good read on the sector). However, unlike my earlier assumption that everybody will benefit, it has been a mixed bag and the winners are now standing out clearly. Players who are exporting are at a distinct advantage vs those that don’t. Also non-commodity busisses with strong govt. spending. (Cummins, Thermax, Apar, transformer guys, cables guys, turbines guys done well while Skipper, Savita oil, Hitachi energy havent done well)
Apar Inds, Weekly - The runup here since Q3 numbers has been something else. It has strongly broken out of that trendline (in my last post) last week.
Pre-results it had broken down post Savita oil’s dismal show - because market continues to remember this as a transformer oils business when it is no more just. The impact due to oils business was a mere 30 Cr (in the past this may have been huge)
There’s a lot of detail on the business in the call with Antique and call with Nuvama . In short, the tailwinds are very, very strong and company is talking about sustaining this for few years due to power capex around the world. The margins abroad are bigger and demand for quality products it produces as well higher. In India products are made to cost since you don’t have to please the EPC players but abroad its the lifecycle cost and not product cost alone that’s under consideration
Valuation differential vs Polycab and Kei is big and its trading less than what the cables business alone will be worth today when compared with these. No one will be surprised if this trades 2x sales with 18-19% RoE which would be a 3x from here.
In terms of technology as well, Apar appears well ahead being able to supply to developed markets in US, Europe and Australia - be it conductors or cables or its own premium products in elastomeric cables used in renewables (approved by Siemens, Gamesa and every major wind power supplier), OPGW where conductors used by railways or powergrid are also used to transfer data, electron-beam cross-linked cables, covered conductors to prevent electrocution of animals and preventing forest fires etc. Any bridging of this valuation gap might bring reasonably good returns.
Shilchar, Monthly - While looking for transformer companies to play the same theme above, I was confused between Voltamp, TRIL, Shilchar and Bharat Bijlee. While all of them make distrbution transformers, Shilchar has highest exports among the lot and better return ratios. It doesn’t have working capital issues since its business with govt. here is less. (There’s an acute transformer shortage as well. Lead time is almost 1 year)
Daily - Post Q3 numbers there was a gapup and a sideways channel consolidation above the gap and a breakout since then.
Q3 numbers were the best of the lot as well and valuation the cheapest too and felt a nobrainer. It is still trading cheap despite the runup.
Disc: Have positions in all mentioned. No recent transactions in VBL, PML, Dynemic, Honda (last two are small positions to be scaled). Increased Apar and Shilchar. Reduced Vimta but contemplating increasing at these valuations around 300. Reducing Esab, Techno, Pricol - Nothing strongly against but as a trader, have to make sure money is riding on best bets. Not an advisor and very much a novice. Writing to clear things to myself.