Whether they are able to pass on any increase in price of raw material especially rubber to customers?
There seems to be significant reduction in employee cost in past one year which can be mainly due to covid related and may not be sustainable.
After recent run up company is still available at decent valuation, however considering historical averages it seems to be high. Any institutional investor/HNI who have holding in this company as I was not able to find any in shareholding?
Great Note Sahil ( as always). I am wandering what could be the reason for their suboptimal growth rates for last 10 years. Since the product they sell is mission critical and with limited competition they should have demonstrated higher growth rates. @RajeevJ : since you have taken position in pix while back and have known/interacted with Management, would be great to learn your views as well
Mission critical ensures that even in down cycle demand does not go back to 0. But capex cycle (tailwinds) are required to ensure that topline can grow meaningfully.
I have a doubt/query/concern about this business…if anybody here can shed some light on it…
So i am a textile manufacturer…and we have been using rubber belts since a long time in our machines…
I totally agree to the theory that there was always a limited availibility of these belts (back then just fenner and gates) fenner was cheaper but inferior…gates was very expensive but durable…
We always use to keep one belt spare because it was a critical component and not easily available.
So,my concern is…that over the years…we have been upgrading our machines with computer panels and servo motors (which replaces the old mechanical systems) ….and this new technology DOES NOT REQUIRE any rubber belts at all…it works on a cup-link mechanism….
earlier,we always had a stock of many rubber belts in factory…just to avoid breakdown…now we dont keep any spare…since we dont require many…(as we have been upgrading machines…one by one)
My concern is…isn’t there a risk of this technology going obsolete in the coming time???
With the advancement in automation and servo control systems…won’t this business be affected??
Is’nt this a business risk??
i would love it…if someone here can help me clear this doubt…
@sahil_vi ….i would love to hear from you too
i know u have deep dived into this one…
Yes you are right this is a business risk. Since you are from this field Can you please post any link to the version of the machine which you use which does not have any belts ? One would need to evaluate the extent to which such machine exist for alll the end industries which pix serves. One would also need to evaluate the differential in cost and benefit of the new machine and the old machine. One would then need to talk to a representative random set of such manufacturers to understand their rate of upgrade, reasons for upgrading and reasons for not upgrading. That would enable one to predict how fast such a disruption could happen. You’re right that that risk exists. But every business has a risk of technology obsolescence. What needs to be monitored is the hard data around the actual obsolescence caused by upgradation. Without that it is speculative to think that obsolescence might happen and so investment is not worth it.
Imagine if I sold hdfc bank because fintechs are going to disrupt banks. Or because rbi has made it easier to own banks (for corporates).
So we are into warp knitting and we own warp knitting machines by the brand KARL MAYER…(this company holds like 80% market share globally in our line of machines)…
earlier people in our industry…were very used to buying second hand machines ( 2005 n earlier models) and these machines used to run using v-belts…but the newer models of Karl mayer are doing away with most v-belts…and most people in my industry are replacing older machines with new ones (the difference in production and accuracy is significant…and older machines have literally become unviable now)
i am posting a link of that product here…u can read under the heading…”optimizing cost”
its a little hard to explain my viewpoint…(since i am not a mechanical engineer) but what i have written is just an observation over the years from my own circle of competence…and line of manufacturing.
To the best of my knowledge…where speed is priority…v-belts are preffered but where accuracy is priority…servo motors with couplings are preffered…
atleast in my industry…the changes happening are too fast…and they have reduced dependence on rubber belts…
PIX transmission V belts are used in a myriad of industries where risk of obsolescence may still be less. Further it has 2500 SKUs for which moulds hv to be developed over 2 decades giving it a moat like BKT. Increasing exports where margins are much better & revival in industrial capex both in India & abroad seems to be the reasons behind improved performance.
Listing at NSE & mgmt interactions with analysts,concalls sgud rerate this stock. 2nd gen promoter is v well educated at top notch Cornel & Sterns universities and shud be more interested in increasing the market cap.
Whatever automation one does they would need to choose between a coupling or chain/belt based pulley. The usage of one over the other depends on the application.
Pix also makes couplings (apart from belts) in its powerware range and so is relatively insulated from the industry trend that hasmit has highlighted: website
In the textile industry, as per @Guarndian_Nettings many manufacturers are going from belt based to coupling based. Belt based requires lesser up front capex and higher opex (replacement of belts). Coupling based requires higher up front capex and lower opex (no belts).
A basic question: WHy did the company not grow between 2013-18. Any capacity constraints. If not what attributes have changed. Just modernization of the plants? Reason for asking is if the reason for low growth comes again, what has changed in the company to handle that headwind.
Some pro active marketing moves by Pix hghlighting its capabilities in virtual mode. A welcome step indicating some positive changes in this quality small cap company yet leader in its segment.
Here is an update on the remuneration table thanks to the FY21 annual report:
Attribute / Year
FY21
FY20
FY19
FY18
FY17
FY16
Sales
400
304
295
253
239
224
PAT
65
30
29
23
16
7
Employee Costs
75
77.42
69.14
62.03
56.52
54.36
PAT Margins
16
9
9
9
6
3
Promoters Remuneration
7.55
8.87
8.18
7.19
6.52
5
Employee Costs as % of Sales
18.00%
25.47%
23.44%
24.52%
23.65%
24.27%
Promoters Remuneration as % of Employee Costs
10.06
11.45
11.83
11.59
11.53
9.19
Promoters Remuneration As % of Sales
1.88
2.91
2.77
2.84
2.72
2.23
Promoters Remuneration As % of PAT
11.61
29.56
28.2
31.26
40.75
71.42
We can see promoters took a pay cut even though overall employee remuneration was roughly the same. This is despite 30%+ revenue growth. promoter remuneration as % of PAT has come down drastically both due to pay cut and due to huge growth in PAT. Annual_Report_2020-21.pdf (7.6 MB)
Thanks, Sahil for pointing this out. I also noticed this in the annual report, and felt there is some positive development on this front. However, two things that concerned me are as follows:
AR mentions that the promotors got their rents and interest worth 2.54 cr paid by the company. When you are already getting 12cr of salaries altogether, why does company have to pay these things separately?
There is an RPT with Prominent Infrastructure Ltd (Enterprises over which relatives of
Key Management have influence). Again the rent and interest worth 3.7cr were paid by the company. This looks like a serious RPT, which other investors are wary of (way of taking money out of the company).
Interestingly the AR does not have the management commentary about business outlook and future growth prospects. Is there any other document released by the company regarding this?
Although, R&D spend is Zero. We need to understand how they recognise the R&D expense.
All CSR amount spent and nothing is pending
Some highlights from the MD&A. They don’t have an elaborate MD&A and it does not really carry a lot of insights on the industry or the company.
“Exports continued to gather steam in our key markets that ensured we finished the year reporting double-digit growth”
Domestic recovery was extremely robust once restrictions were eased
considerable amount of pent up demand along with the import substitution effect which allowed your Company to make up for lost sales during the succeeding nine months
Sales- 373cr (PY 298cr)
Products- 361cr (PY 290cr) (+24% YoY)
India- 188cr (PY 157cr) (+20% YoY)
Outside India- 184cr (PY 141cr) (+30% YoY)
No single customer represents 10% or more of the Company’s total revenue during FY21 & FY20
Other expenses were 61cr (PY 57cr) out of which the largest item was discount 19cr (PY 14cr). Ideally, the company should deduct this from the sales figure. If that is to be done, OPM looks much higher.
Receivables- 91cr (PY 83cr)
More than 6 months- 6.6cr (PY 6.7cr)
It was good to see Salary go down from 9cr in FY20 to 7.6cr in FY21 for KMP despite revenue and PAT growth.
Long-term Loans of 24cr (PY 27cr) provided by KMP and Related Parties. They have charged interest of 3cr (PY 3.2cr) on this. This works out to be around 12% which is higher that the prevailing market rate.
Subsidiary Financials-
Pix Middle East (100%)- Sales- 11.9cr (PY 11.4cr)
PBT- 98L (PY 87L)
Pix Europe (100%)- Sales- 60.5cr (PY 48.4cr)
PBT- 5.3cr (PY 2.9cr)
The company made Fixed Asset Purchases of 25.6cr (PY 28.8cr)
Land- 6.1cr (PY nil)
Factory Premises- nil (PY 11.6cr)
Plant & Machinery- 12.8cr (PY 20.2cr)
Vehicles- 4.3cr (PY 1.6cr)
One should understand the nature of the Land, Factory Premise, P&M, and vehicle purchases from the management.
2 other things which really stood out for me from the AR.
The company is not going to have an online AGM. Not sure how are shareholders supposed to reach Nagpur and attend the AGM in person during these times. Plus there is very little given in the AR to determine the business prospects etc. Extremely curious and shareholder unfriendly decisions.
Another very funny thing is that in the Cash Flow Statement, the changes in working capital borrowing have been shown as part of Cash Flow from Operations instead of Cash Flow from Finance. Not sure this is the correct treatment and have not seen it anywhere else.
Possible sign of auditor quality or lack of thereof, especially when one combines it with the financial shenanigans of the Ajmera group entity noted in the thread above.
All in all, not very convinced about both the company’s future prospects once things normalise, as well as the management attitude towards minority shareholders given various issues raised in this thread by all as well the 2 additional points I have noticed from 2021 AR.
I don’t think BL Ajmera Co is related to the Ajmera Group that the ED is investigating. Ajmera Group happens to be a very common name apparently
1. Let’s look at BL Ajmera Co and related Ajmera Group
If you look at BL Ajmera Co’s website, you are directed to - Under Construction Website (blajmeraco.in)
and there is another website for the related company Ajmera Group which has the same logo shown on the above website - Ajmera Group
It appears Satish Ajmera is the promoter for this group company. And this is based out of Jaipur
2. Now let’s look at the company that ED is investigating
I can’t locate a website but as per press articles - Ajmera ponzi scam: Chargesheet filed, properties frozen- The New Indian Express, this is a Bangalore based company. Further, this company was only set up in 2017 as per the article. One of the founders is named Tabrez Pasha and he is just 30 years old. Our auditor BL Ajmera Co is a Jaipur based company, and is much more established.
As a side note - there is another Ajmera Group which appears much bigger and does just real estate work. Ajmera Group | About us
@sahil_vi please see if the above makes sense since you had also researched into these companies.
Now, to the second concern around management salaries plus rents, I have seen this to be a common case across multiple nano and micro caps. It depends on the individual’s risk assessment, but do note that these costs tend to be broadly fixed in nature - i.e. if revenues become 2x, these costs (related party rents + management remunerations) are unlikely to become 2x. As investors, we have to settle with a few imperfections like this, but as long as they are being disclosed, it is still better than siphoning out without disclosures.
I am not sure if the changes in working capital should be a part of the CFI. I have seen it under CFO section all the time. Not sure if I am missing something or interpreting your comment in a wrong way, for which I apologize in advance.
However, since you directed my attention to the cash flow statement, one thing that I have been noticing and forgot to point out in my earlier comment, is that although the company has been compounding its profit at 40-43% CAGR for last 10yrs, it has not been able to compound CFO anywhere close to this rate (CFO CAGR~0% in the last 10yrs). It’s not generating free cash flow either in a consistent way. This is mainly due to rising inventories and trade receivable, which shows company doesn’t have any edge over its suppliers.
On the inventory issue, I read Gates Annual report and they mentioned that the customer wants the replacement part asap, and that helps the company maintain good customer relationship, but from the financial vantage point, I am not sure if it’s sustainable. This also doesn’t give me a lot of comfort.
