Detailed Analysis of Geekay Wires Ltd Market Cap: 316 Cr. 5-year Sales CAGR: 26% 5-year Profit CAGR: 100% ROE: 42% ROCE: 27% PE: 10x
Let’s deep dive into it
]
Business Overview:
-Geekay Wires Limited is an ISO 9001:2008 certified company, located in Hyderabad
-The Company was taken over by the Kandoi Family in 2012
-Geekay Wires has been in the biz of manufacturing high-quality galvanized steel wires & other different wire products
Geekay manufacturers niche quality of
- Galvanized Steel Wires
- Collated Nails
- Bulk Nails
- Stainless Steel Fasteners
- HTGS Earth Wire
- Stay Wire
- Binding Wire
- Cable Armour Wire
- Spring Steel Wire & other types of wires
Catering to vast Industries like:
-Industrial, Power Transmission,
-Cable and conductor,
-Commercial Construction,
-Automotive industries,
-Marine & mine Industries,
-Wind & solar Power Energy &
-agriculture applications
In short, the Proxy to Capex cycle & an FMEG Player
Production Process of Wires:
-Main RM is Wire Rod (High Carbon steel)
-Zinc is used for galvanizing the steel wire
-Acid Pickling removes impurities
-Wire drawing provides shape & density
-Galvanizing to make it rust-proof
-Stranding to make the product perfect
-Final testing
Production Process of Nails:
-Drawn Steel Wire Rod main RM
-Nail-making machines give shape as per requirement
-Nail polishing unit gives finishing to the nail
-Then, Plastic or Wire Nails and Thread Rolled Nails can be made from that polished nail
Raw materials used:
-For steel wires & nails it’s wire rod
-For GI steel wire it’s Wire rod + Zinc
RM is procured from both international & domestic markets
Also, entered into an agreement with Hindustan Zinc Limited & Rashtriya Ispat Nigam Limited for the supply of raw material
Manufacturing units:
Unit 1 at Isnapur Village, Medak District, Telangana
Unit 2 at Shankarampet Village, Medak, Telangana
Geekay has an installed capacity of 30,000 MTS PA of GI Steel Wires in various grades & sizes and 30,000 MTS PA of Nails & 10,000 MTS PA of SS Nuts & Bolts
Cliente Profile:
Preferred vendors of PGCIL(Power Grid Corporation of India Ltd) in most of the State Transmission & Distributions companies across India. Geekay also exports products to various countries including USA, Canada, UK, Australia, Saudi Arabia & Germany
Industry Growth/Driver:
-India’s domestic steel demand is estimated to grow annually by 5-7% in Next 3-4 years
-The construction industry in India is expected to expand by 5% in real terms in 2023
-In the Budget 2023-24 the PM & FM have announced Rs. 10 lakh crore capex plan
Key Competitive Advantage of Geekay Wires:
- ISO Certified Products & Quality products
- Qualified & Experienced team
- Preferred clients of many government & private sector + Recognised & established Client base
- Wide SKUs/Product range
- Order Book Fully Booked
Key Variant Perception playing out:
- Industry Cycle: Capex Phase going in India
- Deleveraging: Debt is reducing
- Capex led growth: Doubled the Capacity of Nails
- Operating Leverage: Scale will increase Profits more than Sales (Currently going on)
- Margin Expansion: Introduction of Quality & Premium Products
- Cost Reduction: Can play in future, if Geekay introduces automation in manufacturing
Sources of Future Earnings:
- Geographical Expansion: Entering new states in India & Expanding further in Export market
- Increasing Distribution Network
- Increase in Manufacturing Capacity
- Introduction of more VAP Products
- Capex cycle in India & PLI Schemes
- Increase in foreign demand
- Fully booked orders
Financial Analysis:
Will Put it Crisp, One can check the screener for a detailed one
-GP Margin has expanded to 21% from 16%
-PAT Margin has expanded from 3% to 6%
Mainly margin is expanded through improvement in GP Margin & Operating Leverage
-Employee intensive production
Segment Analysis:
-Sales growth of Export Vertical is more than Domestic Vertical in last 3 years
-Last FY Director remuneration increased by 91%, but still in a limit when compared to % of PAT
Ratio Analysis:
-D/E reduced from 2 to 1.3 times
-Interest Coverage improves from 2 to 6 times
-ROE expanded to more than 30% led by PAT margin & Operating Leverage
-Asset turnover also improved & now around 2 times
Efficiency Analysis:
-Receivables turnover ratio improves
-Inventory Turnover improves
-WC Days reduces
-Good CFO conversion in FY23
Valuations:
-P/E around 10 times, median PE is 10.6 times
-EV/EBITDA around 6.6 times, median is 7.4 times
-Industry PE is around 20 times
-Available at a discount to median & Industry level valuations with good sales growth, WC improving & good CFO conversion
Peer Comparison:
It’s closest competitor is DP Wires and other competitors in some products are Usha Martin & Bharat Wire Ropes
DP Wires:
-Sales growth is more than Geekay in 5 years (42%) but Profit has been lower (just 33%)
-GP Margin reduce drastically
-ROCE & ROE constant & above 20%
-WC cycle improved & Asset turnover led ROE Growth
-Available at 21x double the valuation of Geekay
Why does Geekay trade at the lower multiple?
Reason
-Continues inclusion in AGM & ESM List (Caps liquidity & trading)
-High Debt can also be the reason
-Might be still market is accession the stability of operations (Margins & Growth)
Anti-thesis:
- Labour intensive Industry
- High Logistics cost (Need to be pan India to have good growth, but Geekay is mainly in South)
- High Inflation impacting input cost (Steel)
- Competitive Industry with highest share of unorganised/Local players
- High Debt (D/E of more than 1)
- WC intensive operations
- High Volume & Low margin type Biz
- Depend upon Government (Can have B2G risk) & CFO conversion risk
Hope you will like it!!
Strictly, No Recommendation
Open for discussion!!
Note: Can’t able to post images because of new member restriction. one can check proper one on twitter
Also, more active on Twitter… if anyone want to connect
https://twitter.com/BansalSwapan
