Fluidomat - Where perfection meets technology

The 2010-11 AR mentions few points, which I think are important. They are as follows;

1). To meet the requirements of increased production your company is adding to its factory shed & building, new machines, testing facilities and other resources. (page 10)

2). With the reliability confidence earned along with company strong technical capabilities many clients and consultants are ready to work with your company to get higher power range and new type of couplings including for critical applications. Towards this joint effort your company has been able to win order for the largest size of scoop control fluid coupling model SC 1330 and is making continuous efforts to get orders for other critical applications.

(page 12)

3). Further with large population of already installed couplings, your company has high business potential in the spare parts and spare coupling supplies which will add to company business with increased margin.

(page 12)

4). During the current year your company envisages investment from internal accruals to the tune of Rs. 200 lacs in building and new plant and machinery and towards product and quality upgradation.

(page 12)

5). Your company is on strong footing with pending orders surpassing the previous year turnover and being a debt free company alongwith necessary internal accruals of funds to carry the company routine business and new investment without need of any external borrowings.

Analysis:

Though the management mentions (AR 10-11) about increasing production (refer point 1. above), there is no mentioning about the exact figures. (AR 2011-12 would be required to verify the same). Kindly provide 11-12 AR, if any one has it.

Regards,

Jigar

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Hi All,

I recently looked at Fluidomat. These were my thoughts:

)- Backward looking financials might be good but since it depends on the Capex cycle, most likely it is executing past orders. Similar to BHEL. They do not discuss order book position in the Annual report. That is important. I felt thatthe fall in Q1FY13 most likely points to order book weakening.

)- Between FY97 and FY03, the company got killed - They were losses - I read the 6 year annual reports and the losses were due to very bad competition from other players - Reason being since there were few orders, companies booked them at low pricing - This is similar to Voltamp and what the transformer industry is going through now

This led to concerns of the following nature:

)- Does the company have a competitive advantage or is the high margins a function of high demand and low supply (BHEL enjoyed tremendous margins in FY07-12)

)- Are we going to see a repeat of FY97-03 or something like that - That phase tells me the company does not have a great competitive advantage - Has anything structurally changed post that phase?

Financials-Valuepickr.xlsx (20.7 KB)

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I was going through AR of fluidomat, and though short, some interesting pointer

)- Company has established its products for industrial fans products and expects high value sales from this product for many years to come

)- Company has developed high size scoop control fluid coupling for modern power plant which were hitherto monopoly of single company in the world

)- Company has bagged large order for malaysian power plant

)- company has completed partial expansion at 1.3 crores and further capital work in progress is likely to be completed by December 2012. They also plan to undertake expansion of 2 crores all funded with internal accruals.

In short company seems to be on sustained growth path here. after slightly subdued Q1 results, Q2 results have been excellent. Post Q2 numbers, stock has run up quite a bit but even after run up it looks very promising.

Discl: initiated position in fluidomat at around 34. added more post results.

I was going through AR of fluidomat, and though short, some interesting pointer

)- Company has established its products for industrial fans products and expects high value sales from this product for many years to come

)- Company has developed high size scoop control fluid coupling for modern power plant which were hitherto monopoly of single company in the world

)- Company has bagged large order for malaysian power plant

)- company has completed partial expansion at 1.3 crores and further capital work in progress is likely to be completed by December 2012. They also plan to undertake expansion of 2 crores all funded with internal accruals.

In short company seems to be on sustained growth path here. after slightly subdued Q1 results, Q2 results have been excellent. Post Q2 numbers, stock has run up quite a bit but even after run up it looks very promising.

Discl: initiated position in fluidomat at around 34. added more post results.

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the company is hitting upper circuit breaker almost everyday - it makes difficult for people like us to enter !

Fantastic run :slight_smile:

Any update or insight on the order book?

Interesting company. I started looking at it today. Problem is that being a micro cap, there is virtually no information available in the public domain. ARs are also not very detailed or helpful (atleast I did not find them very useful).

The results have been consistently good for over the last 5 years (what I looked at), no debt, high RoE/ROCE, so overall good set of numbers. The question is how long can this continue. Also, the company seems to be a single product segment company (only into fluid couplings), so scale of opportunity is very low. Major companies like Siemens have a small division manufacturing FLENDER couplings (i think from their worldwide acquisition of FLENDER). On the upside, the company should do very well as & when the infrastructure spending kicks back in.

Any visibility of its capex plans for the next couple of years?

Also, has anyone met the management?

A friend had visited the co sometime back and had given a very positive outlook and said that they do expect to maintain 25-30% growth. However, given the slowdown etc, we need to do a check, if possible. Interesting co for sure.

For this financial year mgmt is planning 2 cr capex (from AR). Fixed assets at 5.5 cr are just 40% of the total capital employed. So I am assuming for a 2 cr increase in capex, they need to deploy additional 3.5 cr in working capital to fully utilize the increased capacities.

Also need to get answers to some questions from mgmt like (if somebody happens to meet them)ā€¦

They mentioned some marketing strategy changes to increase salesā€¦Need to get an idea what is the strategy now and the change they are planning/doingā€¦

What are the order sizes of Manjung Project inMalaysiaand Australian Mining Projects.

Traction on entering African, eastEuropeanand pacific regions

whom they are competing withā€¦

Hi Everyone,

Writing on this forum after a long time. It indeed feels good to be back in company of you all. Fluidomat has once again come out with excellent results. Notable part of the result is, that inspite of increased revenue, cost of raw material has gone down! that means that company is not forced to cut down cost inspite of decrease in RM, a happy scenario indeed. Though, it is too early to conclude that it means some pricing power, it is one parameter that I will be closely watching.

Another interesting thing is, company has almost zero debt and 25% of its market cap is available as cash. Considering its consistent track record, improving margins, strong balance sheet, very respectable ROE (Derived from relatively asset light model and decent NPM), prominent position in industry (If we talk to industry people, Pembril and fluidomat are two standard names they refer when they talk about fluid couplings) and increased revenue flowing from replacement market (just search tenders for fluid couplings and one will come to know how many people need spares/fluid for existing fluid couplings installed!) it does look like a compelling buy even post run up ( a tell tale sign of a good business!).

Discl: I hold substantial position at average price of 28 and hence my views may be biased.

Hi dhwanil,

Welcome back. Good to see your comment after a long time.

We have been missing your company.

Regards

Raj

Welcome back Dhwanilā€¦

Awaiting your feedback on GRP alsoā€¦

Thanks, Raj. Hopefully, since I have settled down in new job and city, I will get more time to contribute.

Shanid,

Thanks. Yes, GRP is in passing through tough time. Though, I still believe it is a great company butmay or may notqualify as great investment depending upon time horizon and price one paid for the company.but it will be appropriate to discuss more on that on GRP thread.

Best Regards

Dhwanil Desai

i could not find some info on fluidomat

)- as per past ARā€™s the company was hopeful of good increase in exports but same has not increased by much.

)- in some of the past ARā€™s mgmt had indicated position of order book but now has stopped doing same. sales order booking for fy 11- 31.7 cr, fy 10- 18.8 cr, fy 12- ???

)- Co. seems to be running at full capacity, after the recent capex it is not clear how much capacity has increased. Also will the company need to make further investment in real estate new property for further increase in capex.

)- one small point, promoter stake has increased continuosly over the past years, sometimes buying out other pormoter stake or from market, where has the money come from ? the salary of promoter was recently increased to 30 lacs before it was less.

few good pts as already mentioned

zero debt,Negligible equity dilution since 1994, Growth in revenue is consistent - 20 % for last 10 yrs,No related party transactions other than rent of office ( 1.36 lacs). no associate companies.tax payout is 32 % which indicates that rev might be real.,div payout now almost 25 %, the company paid out the debt to IFCI in the past, improved the balance sheet and has now increased div payout to 25 %.

Indeed, great set of numbersā€¦

Just thinking aloud,Cash on the books have increased substantially, 25% of the mcap, is that normal ? or does that indicate there is not much scope to redeploy that cash because of growth constraintsā€¦What is the revenue share from OEMs and replacement marketā€¦? Though it seems to have lot of value, it doesnā€™t seem to be going anywhere in recent past ?

insights on missing pieces in the puzzleā€¦?

Dhwanil,

As Raj mentioned, Good to see your posts after longsā€¦we miss it.

Hi Dhwanil,

Good to see you backā€¦hope to see more participation from you.

The pleasant surprise is the liberal div of 25% when the industry prospects are weak :slight_smile:

Ayush

The Journey continues. The results are nothing short of great!

Q1FY14 results:

On a y-o-y basis, Sales up by 7.6% while** PAT up by 90.5%!**

The TTM EPS now stands at 11.3, which means that the company is available at just 4.5x TTM earnings at CMP of 50.9/share. The current market cap of 25 crores is just about 0.8x of TTM sales.

**Other comments:
**

  • For the past six years, the company has generated 44 paise pre-tax profits on every one rupee retained on a five year rolling basis (e.g. FY08-13, FY07-12, etc.). The figures for 10 years, i.e., FY03-FY13 are much better as the company generated 51 paise pre-tax profits on every one rupee retained! Now, thatā€™s some wealth creation!

  • Earlier this year, the management had announced a dividend of 2.5/share (about 25% payout), which offers a div. yield of 5%. In difficult macroeconomic times like these, that is some commitment towards sharing wealth with the shareholders. Thatā€™s also a great way of enabling the shareholders to buy more stake in a wealth creating machine that generates 40-50% pre-tax profits on each rupee retained.

  • Not surprisingly, the management continues to buy from the market - they have increased their shareholding from 49.95% as of Jun-2012 to 52.4% as of Jun-2013.

  • One of my favorite quotes by Warren Buffett is, ā€œ_Only buy something that youā€™d be perfectly happy to hold if the market shut down for 10 yearsā€. _That holds true in case of Fluidomat as well. While people might say that PCAS has affected the liquidity, price discovery, or that it is a microcap or whatever, I guess the numbers speak for themselves here. I remain invested.

Rohit,

a 8% growth in sales doesnt seem too greatā€¦ profits seem to have increased due to raw material costs being low. This might not hold true for all quarterā€¦

Agree about the company being attractive based on pre tax profits on retained earnings. And with close to 5% div yield, it offers attractive entry pointā€¦

But the question is How is the company going to grow going ahead? Is it going to grow its revenues from the currrent 30 crores odd to something like 100 crores in next 3-4 years? What can be the triggers for growth?

5 PE is the norm for most small caps in this market mood but fluidomat might be slightly different from the rest of the pack.

The only risk in this one seems to be opportunity costsā€¦ And if there is somehow a bad quarter, it can be pounded mercilessly.

Hiteshbhai,

One quality that I appreciate the most about your investing style/writing is that it is firmly rooted in ground reality. I have never observed excessive optimismor unwarranted pessimism. youalwaysmaintaina fairly realistic approach.

Fluidomat has, overall come out with very decent numbers but as you rightly pointed out, topline seems to have stagnated around 30-32 crores. Though, their margins are expanding leading to robust growth in bottomline. however same can not continue for long as you said. However, context to stagnated sales number is that company has maintained sales and improved marging in very challenging economy. Especially when some of the major consuming sectors (Power/cement/coal) are in very bad shape. Hence, this further supports that underlying hypothesis that company is into a business with sound economics. Moreover, Fluidomat is one of the well accepted and recognized fluid coupling manufacturer in the industry.

However, I have observed over few years, that true multibaggers are the one where opportunity size is large (considering the base) and company has plans to tap the available opportunity and underlyingbusiness economics is strong and preferably have pricing power. There is no definite information which can give pointers to Fluidomatā€™s managementā€™s views on how they want to tap the available opportunity (which I believe is reasonably large considering range of applications in which fluid couplings can be used and product portfolio that Company has). Even though, past track record suggests that company has consistently scaled up at brisk pace, it will bedangerous to extrapolate the same to project the future.So I draw two scenarios

  1. Company grows at rate of 10% (way below historical average): In this case, considering that it is a small cap and average PE will notbe more than 5-6,theprice appreciation will also be 10% over long period of time. In addition, sincecompany has asset light model,if company is not going big bang expansion,additional cash will be available and hence maintaining at leastexisting dividend payoutmay not be difficult, which is 5-6%.So, inpessimistic scenario, my returns will be 15-16%.However, as you rightly said,the only unknown cost will be the opportunity cost.

  2. On the brighter side, if company grows at 20% (still less than historical average, but reasonably optimistic that growth ishappening overlarger base) for few years and there is re rating in PE, it can give multifold returns.

As I understand from few people tracking the company and who have interacted with management,Company is focusing aggressively on Exports to Australia and middle-east to tap a large market there.In addition, revenue from replacement parts is also going to grow significantly as they sell more and more couplings.

So, looks like a decent opportunity to earn adequate return (if things remain subdued/average)while getting exposure to significant upside. Will be glad to hear your views.

Best Regards,

Dhwanil

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