Focus Lighting & Fixtures Limited (SME)

Stock Opportunities Untested - but worth a good look
27

Concall notes from 1st 75 minutes of first concall (had to leave after that):

Notes

  1. First concall.
  2. Before 2005 we were traders. We were partners with a german company.
  3. 2005-2015: focussed only on retail stores: shoppers stop etc.
  4. Product designing from German Designers.
  5. 2016: Diversify into Home lighting. Innovative technologies for home lighting. We got Patented tech exclusively for Indian market (paying royalties).
  6. Manufacturing: 80k sqft: 1500 fixtures / day.
  7. Huge biz in railway. Approval from ICF, NCF. 16 products approved. Development source for railway right now. Dont get ore than 20%. After may, commercial source. Can get 80% of value.
  8. Infra lighting: Facade, airport, Kundalpur project (Jain temple in MP). 15.5cr value.
  9. Bagged delhi airport indoor project. Only indian co. German co was unable to do execute.
  10. Recently ventured into outdoor lighting.
  11. Earlier infra lighting was traded. Now we will develop it in-house. Outdoor lighting also there is a gap. German is expensive. Chinese is not reliable. So we want to be there.
  12. Have 3 subsidiaries: 1 in Dubai, 1 in singapore, 1 in delaware (USA).
  13. Standard 5 year warranty for all products.
  14. Summary of financials was discussed.
  15. Were predominantly a retail lighting co. Real jump is coming in Infra, railway, outdoor lighting. Profitability is also higher here.
  16. 24 airports coming up in India. 30 railway stations being refurbished or constructed.
  17. Single infra project could be 30-50% of turnover. Will take time since we have to work with them.
  18. We are only utilising 40k sqft of manufacturing capacities right now.
  19. Now investing in product design & tooling. R&D & manufacturing we invested in for the last 4 years.
  20. Struggled due to covid. Retail is 50% of turnover. In 2019 was 70-80% of turnover.
  21. We have 7 verticals. Retail, home, railway, infra, IoT, trade. Each vertical can go up to 100 cr. Enough growth co can see in the future.
  22. As per Railway norms we dont need to go to RDSO. We can directly go to ICF, RCF, MCF
  23. Developing new technology for railway where we can be sole supplier/monopoly.
  24. Dont see every quarter. See yearly results. WHich quarter it realizes we dont know.
  25. Can sustain 10-15% PAT. Can sustain 30% growth yearly.
  26. Market leaders like reliance are ready to invest in technology. Today, phillips says that they can match quality of Focus. We are using patented technologies. We are investing in technologies which industry might not bring. India is trading hub. THey are selling while label products. We are manufacturing in-house. Havells syska, phillips is giving warranty of 1-2 years. We give 5-8 years warranty.
  27. Lot of ports, temples,
  28. Clients: GMR, L&T, Reliance, Railways, Bombardier, Shopper’s stop, tata Motors, Audi, Folksvagen, Mercedes (India & Middle east), will be approved iN Europe, Ikea (we are sole vendor in India). Will be approved for SE asia, latin america also fo ikea. Approved by japanese brand & exclusive supplier in India.
  29. Earlier Had retail shop in Lovachal. We entered into office lighting in 1998. 2001 started retail lighting biz.
  30. Two Quality areas in lighting: Safety (prime importance) & performance. All large projects require certifications. Light not spreading fire, installer doesnt get shock. THis is a certification which comes at expensive price. CECB, EMEC, every country has certifications. NADL accredited our lab. 5-6 such labs in India.
  31. L&T came to our factory. GMR came to our factory.
  32. Efficiency is a big part. Whenever a client is working with us. We show that there is at least 30-40% cost saving for client (baselining to other LED brands). Becomes big for Infra sector.
  33. 3rd area we have worked hard: Look & feel of technical lighting. Minimalist. Red dot german design award for aesthetic & technical features we have added.
  34. Railway Competition: 13-14 companies working with railway. None of companies have all fulfillment completed. We are only one who have 16-19 products approved with railway. Some have 2-3 products. Consistency (quality) is a big challenge for railway itself. Most are unorganized players. Only 1-2 organised players. Third is demand & supply. Today, demand is more supply is less in Railway. We can have a large biz with railway. Chennai(kerlite), ever green in vasai in mumbai also get quite a bit for railway
  35. Infra: haphazard in india. Large european/german companies who do these. Today make in india is becoming very strong. We dont have very high quality in our country. We can give european quality at 30-40%. GVA, Greven, castaldy, radiant (UK) are some competitors. We dont want to copy anyone. We start from design process. 1-2 years to introduce a new product. Product will last for 10-20 years.
  36. Top 10 companies in india: Orient, bajaj, havells, syska. Major chunk comes from B2C: dealer & distributor led business model. They are into commodity business. There is no technicality. Only 1 year warranty. We don’t come from commodity business. We start from 1500 to 1 lakh rupee product. Lot of technical certifications involved. Architects lighting consultants work with us.
  37. 3 year 30-40 % cagr growth we can do
  38. We dont love to trade but we learn from trading & then learn from it then manufacture. Challenge is time. Railway took 3 years to get approval. 1 year for development to approved source.
  39. Home is 1 area where we are seeing large opportunity. Opening experience centres. Want to open 5 experience centres. Big growth can come in retail if we can get mercedes & ikea as clients. If we can do Europe market for them.
  40. Infra is very difficult to say. Size are so big. 5-120 cr projects. 6 months - 2 years for realisation.
  41. IoT is one area which will be large in India. WIll Focus on IoT also after 1 year
  42. Teams for each vertical. When its small i work on it personally bring it to a particular size then hand it over to a team. Infra has a team. Retail has a team.
  43. Railway: No order booking. Tenders come in on GeM portal. Approved sources margins are 30-40% more than development source margins. In may can become an approved source for railways. In 1st year we should do 20-30 cr additional in railway.
  44. Investing 2 hrs a day to remove production of last day. Investing in Computerised system which can save human time by printing mechanised BOM.
  45. We have got exclusivity for asia & india for patents other companies have invented.
  46. We have 3 designers in Germany, 1 in belgium.
  47. We are starting electronics manufacturing in house. Currently 50% electronics in house. 2 electronics designer. 2 PCB designers.

Disc: Same as before

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Thanks to initial efforts here by @Dev_S,Focus has been on my watchlist. There was an interview few months back which really brought out the uniqueness of the company for me:

Mr. Sheth articulates his company’s position & ambitions very well here. Post the concall lot of things stood out:

→ First & foremost,the ASP of Focus’ products is far higher than the well known peers(starting price of Rs. 1500 vs. Rs. 200 ASP for peers) So is profitability,as seen by far higher EBITDA margins.

→ Clients like BMW imply strong capabilities. It was interesting to note that cos like BMW,Ikea,etc. could deploy Focus’ abilities outside India too…it hasn’t yet happened yet though.

→ For a small company,it was great to see fiscal prudence. CFO mentioned that company isn’t utilizing WC limits,even in the interview earlier non-aggression on debt side stood out.

→ Business seems very scalable,especially on the Infra side. There is a possibility that many more opps for Focus lighting show up…mgt mentioned that Govt is looking to generate revenues from all/majority of historically important sites.

→ Availability of large land space leaves ample room for capacity addition. It was also clear that company is not entering business verticals just to add revenue and profitability is a key benchmark. There is a desire to sweat out existing assets to the largest extent possible.

→ Railway orders & Infra orders both are backed by solid payment terms. So cash flow shouldn’t be an issue & company should continue to have a solid balance sheet & scale revenues.

→ In the interview company mentioned having capacity to do 250 cr manufacturing revenue. Given that own manufacturing in Q3 was 37 cr there is ample operating leverage. Still,even assuming current margins company can easily do 60 cr EBITDA at peak utilization,ex-trading alone.

Overall the concall re-iterated my belief in the management. There is a constant urge to improve on all parameters with a desire to grow at high rates.

Management has also seen adversity during Covid days & should ideally continue to be prudent.

Disc.: Invested. Views are biased.

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Dilution

Approcx 30% dilution done. A new subsidary Xandão’s with only 51% stake of co & another itemised purchase of 25 cr from a promoter co are few CG issues one need to evaluate.

Disc: not invested

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Competitor Klite

Projects by klite

Brief video on competitor klite.

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For anyone trying to dig up more on Bartenbach AG (like I did), the top Google result leads you to a German Marketing company. And get lost like I did!

The company that we should be looking for is https://www.bartenbach.com/ a lighting company founded in Austria rather than https://www.bartenbach.de/

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Mgmt walking the talk on infra vertical - reported first win from surat smart city - Heritage cell.

Here is the RFP for curious souls
https://www.suratsmartcity.com/Documents/Tenders/CEO_SSCDL_HeritageCell_LSS_012021.zip

Win announcement - The scope of the project encompasses both the design, supply, erection and testing work worth ₹11.96crore and an additional annual maintenance and operation contract worth ₹1.54 crore for six years. Further, this is the first government project grabbed by the Company and it will bring more opportunities in the government sector in upcoming years.

work is quite interesting and clearly something every city/heritage site needs(hence scalable), payment milestone and terms seem fair per RFP. Another interesting aspect is qualification terms used in Tender kind of explains why Focus might have a right to win for similar deals given their capabilities+ experience+ scale.

Payment milestones - appears tail end money r not big so minimizes the risk typical to infra projects

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D - Invested

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Recent public research report from monarch capital has very interesting details on focus lighting

Screenshot_20230321_201626_Twitter
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Source : http://sales.mnclgroup.com/MNCL-LMS/Images/MNCL_PostConferenceNotes-OpportuntiesUnlimited_Mar2023.pdf

Good details on orders from Mercedes & potentially railways

Disclaimer: invested, biased

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Monthly RSI is at 95 which is extremely overbought. The company is no doubt doing well and has a great future. But I would be wary of making any fresh investment right now and would like some time or price correction.

Mirza also had a similarly overbought monthly RSI and has had a decent correction from those levels. The risk reward looks much better now in that stock.

@sahil_vi bhai tracks both companies. Would request his feedback.

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KLite looks a solid company with many big projects. They also do design and manufacturing, looks quite similar to Focus.

Why does Focus MD then say that Focus is the first one to do design and prod development?

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https://www.klite.in/Default.aspx >> this is the KLite you speak of John ?

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Yes. from the links @vivekp shared.

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My notes from local scuttlebutt ( notes is my interpretation )
Focus lights customers in the city includes Aditya birla, Reliance, Decathlon, Shoppers stop, Jockey, Naamdhari etc…. Focus lights is with all the retail companies from many years across India. Covid did affect retail sales for two years. Now everything is back to normal. All the showrooms of jockey across India, lights are supplied by Focus. Reliance and other big retailers will have more than one vendor. Probably the company gets almost 60% of reliance store business share. Getting repeat business with them means focus lights are doing something right to the customer.
We have done light supply to Ikea stores in India ( bengaluru ,?hyderabad also) . It was a stringent audit and focus lights were preferred by them. Focus lights may get business with them in middle east countries.

Very difficult to put a number for revenue for each retail order as it depends on store area and requirement.

Many retail stores do renovation every 6-7 years and focus lights get some repeat business.
Focus lights is setting up a new customer experience center of 3200 sq feet in a major city. It will separate areas for different displays of light like dark area, shade area…etc. customers will be invited to experience it. Experience centre may take another 2-3 months to complete.
Company entered into residential lighting 3-4 years back. Nothing much to tell you in terms of revenue but this year growth is almost 5 times of last year and continues to grow very well. We are not a known brand in residential lighting. We are building brand by participating in exhibitions( the ACETECH exhibition is one of the biggest ), and building relationships with architects/designers. Company arranges small meetings of 15-20 architects to increase brand awareness. These lights are marketed at a competitive/higher price( definitely not cheap) considering the quality of light is very good and warranty of 5 years.
Philips and many MNCs are major players in residential lighting.
Company doesn’t do installation work. Design( have their own design team and also work with architects/interior designers) and supply the material. Any technical help required during installation will be done by the company.

Plus brand is for retail and residential lights.

Trix’s brand warranty is for 2 years, lesser price and quality compared to plus brand. A well known company in interior space is an important customer for the Trix brand. Focus lights get repeated orders from them in a month. Each order may be from Rs.1000 to Rs 5000.

Mentioned about work done at Delhi T2 terminal, Indore temple and recent order win at Surat.

Company entered Infra lighting just 2 yrs back.

Decorative lighting and office lighting(like IT offices) are very competitive in which the company is not interested.

In general, margins in residential lighting are better than retail.

Discl: holding …not significant part of portfolio.

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39

Quick Question based on what you shared.

Supplying to these names, such as Reliance etc, what is making them go with Focus ?
Since, these names themselves compete on pricing, and under cutting their competition, they will Not be willing to invest in lighting that erodes their margins - regardless of the high quality of the product (speaking from personal experience). So, everything comes down to pricing, hence im hoping Focus supplies a good products, or atleast a Market-Average-Quality Product but at a less than average-market-cost.

This is the only way I see Focus to stay a relevant partner, any one else who can undercut this price ? they will win these names over.

Same for the Infra-Lighting, specially govt. orders.

So, do we have a clear idea of how well is Focus placed in terms of product pricing AND whether it can keep it that way ?

REST. YOUR INFORMATION IS GREAT. COMPANY IS GREAT AND PERSONALLY LOOKING TO ENTER AT THESE LEVELS. Lets see if it corrects more.

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Based on my limitted understanding Focus lights are preferred because of their quality and 5 year warranty which nobody else seems to offering( need to confirm this). They have been doing sales to retails from many years which should help them get more business when someone like reliance open new stores. Probably every company tells the same about their product quality etc… . We need to work more to understand their products, quality ,service and competitive position before concluding anything.

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41

Great stuff @spartan, thanks for sharing it.

Can you also check from your source about the corporate structure of the company - about the subsidiaries and the group entities?

Focus route raw materials and if i understand correctly, sales (should be for trading) also through group entities like Sheth Vinod Lighting pvt ltd (erstwhile Shantilal Bros), looks like this is a biz established by the MD’s father. They have no plans to merge this.

There are other group entities like Arion, Jay Pharma Exim - with which they have related party txns.

They also have a new subsidiary - Xandos lighting - as a response to my question to the company management they said Focus joined hands with other promoters in some segment. They will solicit business with focus prod/tech behind. Outside promoters necessitate a separate entity with 51% ownership.

Can you check if this is normal like usually in family run business? and nothing shady in it? In my view, this is the major point I want to verify.

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Searching in linkedin with “lighting solutions” give a lot of lighting companies. Spoke to one of them called RIPPL lighting based in bangalore. They are into office lighting. Margins claim to be 20%. They have engineers who work with design firms and then manufacture the lights.

Spoke to another person in a mid-east lighting solution firm called IHG, he hasnt heard about Focus lighting but heard of K-Lite, which he said is the top brand for outdoor lighting. He is however not sure if they have inhouse design team.

With all these, I am confused about Focus’ claims of higher premium/margins, major player in the space and so on.

Any thoughts? or any further info?

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Check by their brand name once - pluslighttech I think. Also they have 2/3 more brands

Their website is also on this brand https://pluslighttech.com/

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I spoke to the BD head of Focus, got the contact through an architect friend of mine (lead arch of a prominent shopping mall in Kochi. Focus was behind him to pitch their products. He told me Focus prods and R&D looks good, he hasnt used them yet though. he was even invited to visit their Ahmedabad factory, but he could not make it). Some points from the BD:

  • The other players like K-Lite are importing components and assembling, not fully manufacturing. They dont have die casts which is difficult to do in India due to pollution control etc.
  • CKD/assembling route is cheaper than manufacturing but Since Focus is fully designing/manufacturing, they can control many things like the focus angle, reflectors and so on. Advantages are better light at lower wattage, higher quality of die casts, covers etc which can fade/turn yellow after some time. This is the reason Focus can provide longer warranty periods. Another one is better heat sinks.
  • They have been working on building relations and cracking Singapore/South East Asia and now started getting enquiries. It is due to their higher quality that they could crack a mature market like Singapore.
  • But he also mentioned that the MD has a private stake in a design firm 2D3D in Europe - this is interesting, why not by the company, and why only MD has a private stake? :thinking:

Also, I spoke to Focus’ IR team Kirin Advisors, they can arrange a call with the management, tentatively next week. Let me know who would like to join.

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Yeah I will join if this works out.
We can put our questions/queries together.

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Also, this 2D3D does not have a website. tried looking them up.