If I can understand your query correctly, the promotor over the past few calls has been talking about backward integration and operating leverage coming into play. With expanding order books and more sales, their EBITDA margins are poised to expand more. It’s a debt free company as well. So with tailwinds supporting and backward integration likely to add 100-200 bps, the EBITDA is poised to grow further. Plus realisations might inc with defence and more specialised machines order kicking
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Macpower CNC has started the setting up a new assembly unit by constructing 40,000 square ft. area to increase the manufacturing capacity of CNC Machine to 2500 unit per annum from 2000 machines by the end of FY25.
https://nsearchives.nseindia.com/corporate/MACPOWER_13092024092955_IntimationforCapacityaddition.pdf
From Google Map I found that the Company has some vacant space around Unit-II. I think this vacant space will be utilised for construction of a new assembly unit for this capacity addition.
Disclosure:- invested.
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Capex announced for capacity expansion plus backward integration as per plan. For FY 26 the sitting capacity would be 2500 machines which means that capacity would be expanded by almost 1000 machines within this and previous FY. It’s fair to sense that the management is now getting geared up for the next phase of growth.
With defence orders also kicking in and a lot of institutional meetings as well lined up, it’s highly probable that some fund might be waiting on the sidelines to jump in. The stock is low float with high class management.
It wouldn’t be as straightforward to go ahead and do a lot of calculations wrt valuations since a lot of unknowns such as a JV etc might make the proposition even sweeter.
Disc-Is the biggest holding in the portfolio and can be biased
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Positioned for Exponential Growth in a Booming CNC market
The company will add 500 machines by the end of FY25, bringing the total to 2,500 machines. Company has done a CAPEX of 9 crore in FY24 and expects the capex to be in the range of 15-20 crore in FY25E. We estimate an additional 500 machines will be added each year, reaching 3,500 machines by FY29. However, once the new facility becomes operational, capacity could quickly double, and realizations may increase beyond our current estimates. We are taking a conservative approach in our estimates.
As of June 2024 company has an order book of 283 crore, 1.2 times of FY24 revenue. From 1,235 machines sold in FY24, we estimate the company to sell 1,750 machines by FY26 with an average realization of ₹23.5 lakh per machine, slightly below the management’s guidance of ₹24-25 lakh per machine. It’s important to note that the company only started manufacturing double column machines in 2019. Along with double column machines, VMC and HMC machines are high-value products (called Nexa group), with an average realization of ₹60-80 lakh per machine (below order book breakup). The revenue mix from these high-value machines is increasing rapidly.
Breakup of Q1FY25 Orderbook
Based on these trends, we estimate the company’s revenue to reach ₹411 crore by FY26. With similar growth, we expect revenue to double over the next three years, reaching ₹800+ crore by FY29.
So far as margins are concerned, Management has indicated that 25% operating margins could be achievable in next couple of years on the back of rising share of high value machines, backward integration (manufacture 60-70% components in-house) and operating leverage. We estimate that the company will reach 19% operating margins by FY26, gradually increasing to 25% by FY29. With this, we project the company to generate a PAT of ₹58 crore in FY26 and ₹131 crore by FY29.
In terms of valuation , a company with strong industry tailwinds, growing at 35-40% CAGR, should command at least a 40-45x price-to-earnings multiple. The multiples could be even higher if order inflow from the defense sector and government initiatives supporting the manufacturing sector continue. At a 45x price-to-earnings multiple, the company’s market cap could reach approximately ₹2,600 crore on FY26 earnings, nearly double the current market cap (₹ 1,353 crore)
Competitive Landscape
While Jyoti CNC is also well-positioned for growth, however, its current high valuation (123x price-to-earnings TTM) makes it less attractive for investment at this stage. Additionally, with Jyoti already achieving operating margins around 25%, there is limited room for further margin expansion, though it could potentially reach 30%+. In contrast, Macpower has greater potential for margin expansion. Although Jyoti may see higher realizations due to its focus on EMS and defense orders, Macpower’s more favorable valuations and lower base effect suggest it could deliver better returns in the long term.
Disclosure : Please note that I hold this stock in my personal portfolio, and my views may be biased. This is not an investment recommendation, but simply my perspective. I encourage you to think independently and make your own informed decisions before making any investment.
Check the complete note: Macpower CNC: Multifold profit growth for this company
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I have visited the facility 3 months back.
Unit II is a warehouse which holds raw materials. No production happens there.
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2000 Machines at 85% ( not 88% ) capacity utilisation = 1700 machines FY26
1700 no. x 22 Lakhs( avg realization ) = 374 cr
A PAT doubler in FY26 is highly possible as we near the half way mark of FY24 even at an EBITDA margins of 18%
Let’s see.
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As per announcement, capacity for FY 26 would be 2500 machines, depending on whether the same is increased by April 2025 as mentioned in the note. Even a 75-80% blended utilisation can result in more than 400 crores revenue. Of course it depends on how the capex proceeds.
Earlier, the management had told that they’d be doing this 500 machines capex in FY26 and the note came as a welcome surprise that it’ll be commissioned at start of FY26. In case it does and even at 21-22 lakhs realisations 400 Cr top line in FY26 doesn’t look a difficult task particularly with the kind of order book and order intake the company is having.
The Q2 results might give a fair idea as to how the current capex is holding since 2000 machines means that per month capacity should be close to 160 machines now. So perhaps this year it’ll be interesting to see whether we have a 400 machines sold quarter.
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While we are focusing on the positives (and they all look good right now -very good order book, capacity addition etc.), I think we should also consider what can upset calculations here.
Can new supply from other CNC makers come in (most critical components are anyway imported and not made by any Indian player)? How long will the demand-supply mismatch sustain? If the demand/gap with supply starts tapering can a bigger player (e.g. Jyoti) withstand by lowering the price better than Macpower?
Just thinking from the other side.
Disc- invested.
Very important point. But requires a more second and third and fourth order thinking before concluding.
Most critical components ( Machine control unit and control panel or even the spindle in some cases etc ) will always be imported as they are manufactured by 3-4 players top in the world, as well known from the con calls. The rest of the critical parts are being backward integrated slowly but surely ( likes of the telescopic rod, the BED itself, its channels etc which they create using their own machines - thats first hand information of my site visit ). The next major step to backward integration is metal foundry that will only be announced in the 35 acre new facility as it requires space and is a specialised unit for a specialised job.
I would not look at the demand supply mismatch as much. Instead i would pay more attention to supply side dominance. Jyoti is not the only player. ACE ( in the unlisted space - IPO coming soon and doing very well with sales over 1250 crores in a year ) is another player doing as much sales as Jyoti and then there are other players who currently don’t seem to be that deeply invested in CNC machines with the likes of Laxmi, Lokesh, but Bharat fridges Warner ( https://bfwindia.com/wp-content/uploads/2023/09/Corporate-Brochure.pdf - that no one talks about and doing very well but quietly ) and others but doing a fairly decent job. All Companies will have to continue to do R&D and be quick to pivot to better technologies and materials in this fast paced precision engineering sector to stay relevant 3 to 5 years from now.
I will soon share a report by IMTMA which will show how import in india has increased recently in the last 2 years. See, my scuttle bud activity tells me that the tech for the really high end machines is not up to the mark in india ( at-least thats what the word that is going around in the private players space ) causing private business in really critical applications ( eg. TATA iPhone, all big automobile manufactures etc ) to use imported machines for E.M.S. Or critical parts of the engine respectively. We will have to keep and eye on how import substitution plays out in the next few years ( not quarters ). Having said that we also see public companies with critical applications ( HAL ) issuing new tenders from india players and giving them preference to imported machines. Clearly the government is pushing the indian tool industry for a brighter future of manufacturing in india ( Gujarat vibrant scheme ). While the indian companies are also trying hard to develop better tech with precision with use of better materials ( opening new R&D facilities and tech centres ), Hence a work in progress. Not many reports available for the indian CNC machine industry today, but this is my humble personal assessment.
I have learnt that a small number of players in a supply side dominant industry with big TAM, growing order books and great support from the government don’t usually have a cut throat completion between each other. ( read the book Capital returns by Edward chancellor ). “ The challenge for everyone here is to improve on tech, materials, precision and be relavent in the future to be part of the massive import substitution opportunity in a growing precision manufacturing sector of india.” Its serious business by any means of imagination.
A wise man and my teacher ( Mr. Ishmohit Arora ) once taught us that in long term investing respect your time horizon and in trading respect your stop loss.
Since i am investing here, I am zooming out even further to say With a 2500 capacity at 80% utilisation, 22 lakh average utilisation, and 22% EBITA margins, when i look 2 year forward P.E. I am in Mid teen 2 year forward P.E. Multiple.
It tells me if i am ready to wait it out for two years i should not loose money in the longer run. Thats my risk analysis.
Good luck to everyone on their investments in MACpower cnc.
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Have recently started tracking CNC machines sector. In small caps the most important factor is promoter. Analysis beyond a point do not yield much. Rupesh Mehta seems a very confident , passionate , hungary and conservative promoter who knows his subject. The stock did not move for a long time but since last year it has gone up 5 times. A breather here would be great before the next leg of journey. Initiated a small position with intention to add at every fall.
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Very informative thread. Happened to look at Crisil report on BFW and ICRA report Ace Designers. BFW and Jyoti have significant revenue from Defense, exports and VMC, HMC.
Macpower has just started entering those segments. Macpower sells in very crowded entry level machines. But management has delivered in last 10 years and has met expectations. Having said that, valuation of some of these microcaps is something I haven’t seen earlier. Lot of optimism and interest on some of these. The sense I get from general reading about sector is that there is lot of visibility on sectoral growth.
Hi everyone, have made a video on Analysis of Macpower 
This is the first time I’ve made a video on a stock. An elementary effort. Would love to know if it adds any value to the thread, else will take it down after 24 hours.
Note: Invested in the stock
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I am not able to join the AGM, can anyone help please
@gauravpersonal ,
if you attended the AGM, can you please share the updates.
Thanks.
very detailed video, thanks and keep making more videos, explanation was very clear
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AGM notes attached within
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