Holmarc Opto-Mechatronics - R&D play

@phreakv6 Appreciate your efforts and in-depth works.
I have been invested and tracking this company for last few months.
I have met & spoke with the promoter during last AGM.

Few points i would like to add here.

  1. Promoter is technocrat and a honest person, he knew every micro details about his company especially manufacturing / shop floor.

  2. This company have multi disciplinary capabilities, it requires several years of research and knowledge for setting up a company with same capabilities.

  3. This company can easily pivot existing capabilities to enter into new segments. For example they manufacture motors for the Lab automation equipment’s ,these small motors can be used for Drones with some improvements or tweaking. Scaling up of revenue beyond 100 cr will depend on how they successfully scale up new segments.

  4. Manufacturing & operations is their core strength while marketing is currently zero ,they need to setup a team for marketing, initially it will drag down the margins before it improve with growing revenue.

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@Akash_Chowdhury Could you elaborate on what difference you have noticed in terms of quality. How is the difference in pricing between international players and Holmarc.

Quality issues are pretty much mechanical issues. For example we had ordered our setup inside a glass chamber with two doors which after a few years of operation had jamming issues so maybe low quality hinges or the metal skeleton/cage might have deformed and consequently the doors do get stuck instead of moving smoothly. And few small stuffs inside vibrates which is not a functional issue as far as our operations are concerned. But this sort of mechanical issues usually don’t exist with international players. Also since it is custom made device, so standard pricing does not exist. The other international quotations we got were more than 1.5x higher.

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Point taken but the issues you mention are not related Holmarc’s core competency, it’s a glass door from what I gather.
From what you have seen, do you think Holmarc has the technology to venture into other business verticals like for example: industrial automation if they wanted to? What do you think of the possibility of Holmarc to compete with Kruss or Fisher scientific in the export market. In matters of precision science, is 1.5x difference in rate competitive enough to switch given any reliability differences that may exist in Holmarc’s products? Thanks.

I may not be the right guy to answer this, I’ll give you my viewpoint as a consumer and user of similar products. Firstly regarding expanding to industrial automation, the small mechanical issues cannot be excused anymore as anything minor adding on to process times needs to be fixed so a lot more quality control might be required.

Regarding international venture, more than pricing power and the availability of service also plays a key aspect which will be better for the likes of Zeiss,Kruss and Fisher Scientific. A big lab with good funding would obviously prefer these. The universities also promote sharing of resources so a small lab can access the same instrument from the big lab for limited times until they get some funding and purchase their own. Since microscopes and imaging instruments are like one time purchase, trusting a company based out of India will be difficult. Regarding small precision instruments due to their relatively low price points, 1.5x margin will be tipped off by delivery charges and custom duty if any. So again not worth it.

Now the positive side is the increase in research trend on nanotechnology in the West where microscopy, spectroscopy and lithography are key aspects. If this trend continues into Indian research space as well(Govt has to push for that as well), there will be a natural increase in domestic demand. Might also attract international demand if they can market properly. The organic way is ofcourse when some great research papers by some famous group are published citing the usage of their products.

Disc- Not invested yet. Under consideration

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Since you faced quality issues, did you reach out to them for support as they say they provide support till the end of life and encourage users to maintain/ repair rather than replace. If yes how was your experience.

We didn’t reach out because as I mentioned these are simple mechanical/handling issues which didn’t affect our operation.

Nice discussion over last 10 odd posts that helps understand business better. Its clear that the high gross margins come from customisations. I have seen this tender after tender which they have won. All of them have lot of technical drawings attached (see the ones in my initial post as well for eg.) with clear spec and tolerances and acceptability criteria. I would hazard a guess that its not easy to do these customisations at the cost in which Holmarc operates in. At least in India it doesn’t look like there’s competition - for eg. 35-40% of the tenders they win, they are the sole bidder! This of course is because of “Make in India” and minimum 50% localisation requirement in these tenders which keeps international players out. I think that establishes the domestic moat Holmarc has.

Internationally, 30% of the exports is to developed nations like US, UK, Germany, South Korea etc. Rest is to developing countries investing in research, like Indonesia, Romania, Morocco, Tunisia, Mexico etc. and easily 40% or so is fragmented over 20 other developing/poor countries. I think this is primarily still driven by cost. Exports are so strong that last two years the total was 5 Crs but this year that number is breached already.

Industrial Automation bit - what they are currently doing itself is akin to industrial automation - see this tender for eg. (This is for ISRO)

This is the technical spec for this tender

To me it looked like these aren’t very different from what might be used in industrial automation for precision manufacturing. Since I am no expert, I just asked ChatGPT where this might be used

You can see that these sort of generic components can find use across sectors including industrial automation and semi-conductor manufacturing. Of course you can argue that a simple screw will find use across sectors as well but its still a commodity - but this tender value was 29.7 lakhs, unlike a screw. I think the capability comes across more and more, the more I look. The main thing we need to see is hunger for growth.

Another thing to note is that the design and research roles make up 30% of the payroll by headcount and very likely 50% of total employee cost. This should go down over time as the company hires more workers in fabrication, finishing, assembly, lathe, milling etc. which will also help margins. I don’t believe there’s inherent operating leverage in this business considering the amount of customisations involved in higher value products, but getting to 20% EBITDA margins should be possible over next 2 yrs.

Disc: Invested

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Hi Shree I would really appreciate if you could explain this a little further. Maybe here?
Macfos Limited- A niche E-commerce Company

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I have purchased their equipment in the past. There was a long delay in delivery perhaps due to “sell and produce” mode for specialised items. After delivery the equipment never worked well, after repeated emails they sent a service engineer who did not inspire any confidence. Finally we decided to open the instrument to fix it ourselves, and we’re surprised to find an extensively damaged component inside. The instrument was finally never used for lab experiments.

Their optical tables and some large volume equipment probably are fine, but I would hesitate in buying research grade equipment from them. The focus on quality seems missing. This is very much required when competing internationally.

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Judges Scientific is a similar company … check them out

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I used to be manufacturer of customised machines. By it’s very nature, every custom machine manufacturer will give you late deliveries with quality issues.

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This was not a customised instrument. It was listed on their website when we placed a PO. I wanted to try it because it was cheaper than foreign manufacturers. It was an optical instrument and one of the gratings inside was completely scratched. The software interface was also pretty bad. However, this was purchased before Covid. Now I see that there are better looking models on the website.

The main challenge I see for Holmarc is the competition from Thor Labs and Edmund Optics. Unless Holmarc supplies better quality products at lower price points it will be difficult to sell in global markets.

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Noticed a rather large tender win for Holmarc from IIT, Bhubaneswar for Micro Photoluminescence Spectrometer (spec doc linked) for 67.61 lakhs. This is the biggest order size I have seen so far for Holmarc.

Tender Id: GEM/2024/B/5336593. You can look it up on GEM portal for further details.
Contract: GEMC-511687727461767-10012025.pdf (92.4 KB)

Disc: Invested

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That’s good news for Holmarc. Since you have been following their orders for sometime now, would be nice if you can help us by answering these 2 questions:

  1. How much of this order win can be contributed to Holmarc being the the only player in GeM and IITs being mandated to buy from there?
  2. If you know, can you please share any non-commodity precision instruments(that requires competency) ordered by a private player inside/outside of India.
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Budget focused on new IITs and equipments. Can be a big boost for Holmarc Opto

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The proposed funding will be mainly for building hostels and other academic facilities. Holmarc supplies equipment in a niche area. I don’t think this particular news will have much impact.

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I came across some interesting stats from a portal that auto-generates profiles for companies participating in government tenders and thought I’d share them. (link here)

Holmarc has participated in tenders worth approximately ₹12 Cr so far. Out of this, tenders worth around ₹2 Cr have been awarded, while the remaining ₹10 Cr are still pending.

Here’s why it gets more interesting - of the ₹2.03 Cr in awarded tenders, Holmarc has secured contracts worth ₹1.93 Cr, giving them a winning ratio of 95%! Although this is a skewed number due to recent wins, historically the ratio has been more than 50% for Holmarc.
Disc - invested

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