Asian paints does 35,000 crore sales per annum, standard cost of packaging is around 5-12% percent lets take the lower end 5% (1750 crore) Hitachi has 800 crores RPS (Related part transaction) approved for the span 3 years, all paint companies has by default to de risk more than one packagin provider , 70% of hitech (350 corore has been taken by asian paints ), reamaining needs to be serviced by other player ( you can do the math).
Any manufacturing business can be thought of commodity business ( except brand moat, or networking moat or Economies of scale), however they were able to maintain the margin acorss cycles and its pretty stable, so they are not your regular commodity player,
Side Note:
Hitech don’t have plants nearby to all of their customer established, They have their own set of proeblems when it comes to facility expansion
It doesn’t matter, one Moldtek is low cost producter with higher quality ,
Two the main thesis here itself, operating leverage kicking in , because of two things , higher fixed cost absorption, when the revenue is increase, and two FMCG, and Pharma are twice and thrice the margin compared to paints and lubes (even at the lower end) , so eventually, all these things will kick in.
The bottom line will grow quite faster than topline.
The only risk i see in this overall is , how long they are gonna take to bring their pharma FMCG sales to a meaningful percentage of the total revenue, Since Pharma has stringent approvals and time taking process.
Unfortunately it corrected even more around 30 - 35% and now its back to 25% (if the results are not good then it may fall further too ), and i had to buy more, stil the loss is substantial, and yes i am holding it, until my thesis plays out and i ll decide or think about selling at only two instance, one they are unable to scale their Pharma and FMCG business to my liking
and the next one is next capcity constraint (subjected to their ability to use the exisitn capacity to pharma) - currently pharma can generate 100 crore potential revenue (20-25 PAT) .
TLDR; basically next cycle of uptrend peak (if i can spot it)
Explained this in detail in one of my above post