Nitiraj Engineers: Electronic Weight Machines

Stock Opportunities Untested - but worth a good look
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Nitiraj Engineers Ltd., established in 1989, is one of the leading Electronic Weighing Scales and Systems and Digital Fare Meters manufacturers. Global Electronic Weighing Scale Market Size was valued at USD 8.7 Billion in 2023. The electronic weighing scale industry is projected to grow from USD 9.24 Billion in 2024 to USD 14.2 Billion by 2032.
The company owns the PHOENIX brand. They also manufacture Currency Counting Machines and a range of Security & Automation Products for homes hotels and offices. Currently, the company have 20 branches across Maharashtra, Odisha and Chhattisgarh. The company produces more than 100,000 scales per year.

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Promoter:

Rajesh Bhatwal completed his BE in Electronics and founded the company in 1989. He has led the company since it was incorporated had a small area and staff of just 3 people, to a huge manufacturing unit with advanced machinery and a staff of more than 250 people. He owns a 45% stake in the company.

Product Range:

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The three broad segments of the company are as follows:

Electronic Weighing Scales: They make up 95% of the revenues. Weighing solutions starting from milligrams to tons include:

  • Person weighing scales
  • Jewellery scales with 10 mg accuracy
  • Tabletop scales upto 30 kg capacity
  • Platform scales upto 5-ton capacity
  • Crane scales upto 20-ton capacity
  • Weigh bridge upto 100-ton capacity are demanded from the market.

The Target Market includes Jewellers, homes, retailers, wholesalers, hospitals and health centres, post offices, banks and paper industries, logistics, dairies, mills and industries, building and construction, Government segment forms a major part of the market.

Currency Counting Machines:

  • Cash counting and counterfeit note detection processes are widely required with high speed and accuracy
  • PLNC 3|4 – Currency counting machine with counterfeit note detection
  • PVC-101 – Mix note value counter with counterfeit note detection is demanded from the market
  • The Target Market includes; Banks, Jewelers, Retailers and Wholesalers, Commercial establishments, and Government segments: post offices, railways Petrol pumps, hospitals and others

Security and Automation:

  • This segment includes products such as Access control systems, video door phones, audio door phones and remote locks for home security and convenience.
  • Wired as well as wireless models are available.
  • Hotel RFID locks, Room number plates and power-saving switches.

The Target Market for this segment is Hotels, Homes and Offices. Both commercial and residential real estate are in high demand. We expect to launch new products in this segment, prototyping
is already done.

Vertical Divisions:

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Turnaround in Financials in the last 1 Year: Sales have increased, OPM has improved and the company has turned profitable. The inventory days have come down in the last year, leading to a better cash cycle and an improvement in ROCE.

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Example of a newly launched product:

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What are the future growth drivers?

  1. The commercial segment under electric weight scales is growing at a huge pace. The company achieved more than 140% growth in revenues from commercial weighing scales in FY24 as compared to last year. The management is expecting revenues to grow by 20-25% on a CAGR basis in the next 3-4 years.
  2. The company is entering the export market. They had a pilot sale in Germany.
  3. The company is expanding distribution to six new states. The new states are Jharkhand, MP, Rajasthan, Punjab and others.
  4. Their Home automation products hold potential. They are planning to enter the Builder market where supply would be in bulk for security and automation products along with new launches. The management expects revenues to grow by 20-25% on a CAGR basis in the next 3-4 years.
  5. Currently the company is at 50% capacity utilization. Management is expecting to improve it to 60-70%.
  6. The company is planning to launch 5-6 new products every year.
  7. The company is venturing into drones. But it’s a new segment and I am not counting it for now. Though, it’s great to see the growth mindset of management.

Risks:

  1. The company has turned around recently. We will have to wait for a few quarters to confirm the turnaround.
  2. It’s a microcap and there is not much information available on the company.
  3. The company is not holding any conference calls.
  4. Competition is intense in this segment.
  5. They do not have an online presence on Amazon.

Disclosure: Invested at the price of 286.
Current MCAP: 277 cr.

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Sales numbers have dropped exponentially.

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https://nsearchives.nseindia.com/corporate/NITIRAJ_16082024132013_InvestorRepresentationQ1FY25.pdf Explained decline of turnover which seems correct considering all time high turnover in Q4 24.

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Management Comments on poor Q1 FY25:

Q1 FY25 presented challenges for our performance, primarily due to two significant factors.
First, the election period led to the suspension of tenders and orders, creating a temporary
slowdown in our business activities. Second, our ongoing factory expansion efforts required
substantial resources and focus, which, while crucial for our long-term growth, also impacted
our short-term performance. Also first quarter for us is always lean due to lower institutional
demand.

However, despite these hurdles, we achieved notable operational milestones. One of the key
highlights was the successful launch of our new product in the security and automation sector:
the GSM Shutter Alarm. This innovative device is designed to enhance security by triggering an
alarm and automatically placing phone calls to pre-saved numbers if any attempt is made to
open the shutter. The trials for this product were highly successful, indicating strong potential
for its market adoption.

In addition to the GSM Shutter Alarm, we made significant advancements in our drone
technology. We successfully manufactured two drones and conducted field trials, both of which
yielded positive results. These drones represent a strategic step forward in our technological
capabilities and position us well in a rapidly growing market.
Moreover, our international endeavours are showing promise, particularly with our projects in
Germany, which is progressing steadily through the pipeline. These projects are expected to
open new avenues for growth and further establish our presence in the global market.
Overall, while Q1 FY25 posed certain challenges, our operational achievements have laid a solid
foundation for future growth. We remain optimistic about overcoming the short-term obstacles
and are confident in our strategic direction moving forward.

My comments:

  1. I feel the company is heavily dependent on government orders. There was a total collapse of sales to 4cr from 52 cr in the previous quarter. All the sales momentum going to drain.
  2. No progress on expanding to other states in the last 3 months.
  3. No further progress on export orders, they have still made the same comment about Germany.

Maybe they will get back to normal business in the next quarter. But there is still going to be a price correction. It can easily touch 200 DMA, a 25% correction from here.

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I agree with the views you presented. But see, the products they’re into are very basic. So there segments are highly competitive.
Even if the sales returned to normal, it’ll still be a govt dependent company. I believe this company should not get more than 8-10 PE in fair scenario.

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The stock has given a technical breakout since last three weeks. There was investor meet by Arjav Partners on 11th March 2025. Price movement is sensing that some investment is coming to company. What are your thoughts?