Not sure why a change in borrowing (whether short term or long term) should be part of cash flow from operations and not finance.
Pls share the names of some other companies where this is being done.
Regards,
Vivek
You are right. CFO calculation seems incorrect in the Annual report as well as in the Q4 result release. I have already shared the same with the CFO couple of times over email but there has been no response from the company.
D: Invested. 3% weight.
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Hi Vivek, If you are talking about this line item as shown below, then yes, it seems like they are subtracting cash due to short term borrowings from CFO. I am not sure if itās a standard practice and I am not an expert on the cash flow statements either, but my limited understanding suggests that if we add it back to the CFO, wouldnāt that increase the cash generated from operation?
Not able to understand, why would a company want to report lower CFO, although it would have no effect on free cash flow?
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Regarding R&Dā¦
In the AR 2017-18, in chairmanās letter, Mr. Amarpal Seth seems cognizant of the fact that R&D is required in his business to be ahead of the competitionā¦
He says āā¦ The global scenario is changing day by day with cut throat competition and constrained margin is hampering product marketability. The products are marketable if it is innovativeā¦ The product research and development and quality control will only save us in grave situation ā¦ā
However, since the above statemen is said in 2018, there is no R&D expense seen in any of th subsequent yearsā¦ why ?
Someone pointed out above how the belts are bieng replaced by electronics / computer panels etcā¦
In light of such technology already being in us, can the company lag behind in R&D ?
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Do read this previous post for context on Gates.
A quick update on this with Gatesā Q2CY21 performance.
- Highest Q revenue gates has ever clocked (at least in last 9 years) at 915M$. 58% growth in revenues YoY. Some of this is due to low base effect due to covid disruptions last year. Gross margins have also improved QoQ and YoY and are now at 40.1% as defined by tikr.com. Operating margins have also improved YoY and QoQ and stand at 16.8%.
- Robust underlying demand and favorable secular trends across the business. Accelerating market recovery ā industrial end markets contributing most significantly to growth. Above-market growth ā HSD share gains from new products and initiatives.
- Price offsetting significant inflation on materials and logistics.
- Power transmission segment growth is 51.1% (higher than fluid power segment). Adjusted EBITDA margin of 25.4% (+10% YoY). The industrial end market contributed most significantly to our growth.
- Chain-to-Belt sales up over 60%, key wins in warehouse automation, chemical processing, food/beverage and e-mobility applications. we believe that the chain-to-belt initiative (sahilās note: explanatory video: https://unchain.gates.com/us/en/home its amazing to see how market leaderās initiatives expand market and 2nd rung players like pix can also benefit now that market has been created) has added kind of $4 billion to $6 billion to our TAM in a very near adjacency to what we do for our customers and how we solve our problems. We believe that it will be adding some incremental opportunity for us to deliver strong 2022
- Core revenue ahead of Q2 ā19, while reducing automotive OEM participation
- Growth of 41% in NA, 116% in South America, 63% in East Asia & India, 81% in EMEA.
- 21% ROIC.
- Upgraded CY21 growth guidance from 18-21% previously to 20-22%. Upgraded adjusted EBITDA margin guidance from 22-22.8% to 22.2-22.8%. Expect strong growth in Q3 as well.
- Multi-year effort to improve participation in profitable, higher-growth industrial end markets (Sahilās note: increased competition for Pix). In this quarter in Power Transmission, recorded low digits above market growth.
- our book-to-bill ratio remained above 1 exiting the quarter
- Inflation persists throughout supply chain, impacting raw materials & freight. Not expecting the inflationary environment to ease in the near term & have been proactive in responding with broad pricing actions, maintaining a positive price/cost position.
- Looking back at the second quarter of 2019, which is perhaps a more meaningful from a compare perspective, our current results reflect solid core revenue growth of 15.7% in Power Transmission
- the demand for our products in the Diversified Industrial end market is benefiting from accelerating industrial automation trends in manufacturing facilities, warehouses and distribution centers, driven by an increasing focus on efficiency and uptime.
- we believe that we can consistently continue to not only outperform nicely in '21, but over the longer term, be able to grow our business 2% to 3% above the market.
- All of the indicators that we track would suggest that the inventory levels are quite low compared to the demand levels that the channel partners are seeing presently. We are not a backlog business, but we did build backlog, and that would indicate to you that people would like to get more than we can supply.
- I visited the Port of Long Beach to try to understand whatās going on. And thereās a pretty significant congestion there . on occasions where you can get the raw material, you got it from point A to point B. You canāt quite get it from the port to your source factory. it will take some time to work itself through. challenges will remain front and center with us through the second half of the year, and we anticipate that maybe in 2022, we should start seeing some easing on
Sources:
GTES-Q2-2021-Earnings-Release-Presentation-Final.pdf (2.3 MB)
GTES-Q2-2021-Earnings-Transcript.pdf (358.5 KB)
Disc: Invested, biased
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Good results
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Pix appoints M/s MSKA & Associates as joint auditors. Hopefully this improves auditors quality.
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Came across one company āInternational Conveyors Ltdā , manufactures of PVC Conveyer (mix of PVC and Fabrics ) belts similar to what is being manufactured by Pix and interestingly Cresta Fund is one of the Investors. Attaching link to their presentation
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Anyone attending AGM tomorrow? Would be great to collate questions if anyone here is attending. I will be happy to share my list of questions. Thanks
I have given the suggestion to company to conduct online AGMs in future.
D: Invested
https://www.amazon.com/Pix-399-A36K-Blue-Kevlar-V-Belt/product-reviews/B004MRI1IU
Reviews on Amazon for their V-Belts
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Thanks for adding. this is very useful. Having worked extensively on reviews, one thing i do want to caution investors about is not to take each amazon review at face value. Some/all of these could be fake reviews.
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Annual Report - JK Fenner - 2019-20
Donāt know if it will add value though
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In our industry (textile) we have personally always used fenner belts (now jk fenner) or gates (imported) ā¦.I have personally never used a Pix beltā¦but yes i agreeā¦these teeth/timing belts r an important element of the machineā¦and we use to keep atleast one spare for each machine alwaysā¦(there usually was a shortage)
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Pix Transmissions - Initiating Coverage - 270821.pdf (998.3 KB)
HDFC Securities initiates a buy on Pix Transmission with a target of 882 (in bull case)
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Hi,
I did attend the AGM recently. Some of the points in brief:
- The co has 3 plants and 1 office in Nagpur. I was quite surprised to see the huge infrastructure that the company is having. Infact it was quite interesting to see the level of automation at each of the different plants. Yet the whole process involves lot of skilled labor and customization at different steps given the huge SKUs the company maintains and services. Its not a easy business and it has been build over the years.
- The MD is 70+ but was super energetic and focused on the business
- The core characteristics of the business are interesting and they want to remain focused on selling more in their own brand name. Co probably sells more than 80-90% of the belts in its own brand and perhaps 70-80% to aftermarket through its dealer network.
- Fennar and gates are very popular names but slowly and gradually the company has bridged the gap and has perhaps overtaken fennar in indian market. They probably have about 30-40% market share.
- Coās products require lot of storage area and its tough to manage so many products/skus spread over different areas. Hence they are investing into a warehouse and will consolidate the same. This will help them free space and do more expansion.
Cheers,
Ayush
Disc: Invested in family and client acs.
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Thanks for this insight, Ayush. I read Gatesā annual report and they mentioned in the belts business, aftermarket and replacement belts is a huge opportunity, but in emerging markets, they have not gained traction in this segment due to the presence of local players like Pix and Fenner. So thatās a good news.
While I think this is great business due to high SKUs, and R&D focused customized solution, the only thing concerns me is the high level of inventory and trade receivables, resulting in high cash conversion and working capital days. Cash flows have not compounded at all in the last decade. I am not sure if the management commented on this in the AGM.
Disc: Invested, with a tracking position.
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I think high inventory is normal in this business and perhaps the key reason for high marginsā¦as one has to keep different SKUs. When someone buys a belt for replacement, he wants availability to restore the machine and perhaps thatās where these cos command good price. Mgmt said that this year inventory was higher to avoid raw material sourcing disruption/problem and also get good prices as the same were increasing rapidly.
Debtor days looks ok inline with past trend so didnāt ask.
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Thanks a ton Ayush for sharing your thoughts about the developments at the AGM & more importantly your insights on the working of the company. Pix AGM is a more demanding experience as it entails an overnight stay in Nagpur.
The Pix story is still in the process of getting recognized. Finally, a big broking house has covered the Company. HDFC Securities has come out with a report on Pix, though their targets are highly conservative. Expect upgrades from them on target price as we go along!
Pix Transmissions - Initiating Coverage - 270821.pdf (998.3 KB)
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Hi Ayush,
Did the management give any guidance/road map in terms of growth in sales, profits and capital required over the next few years?
The company has grown at only single digits prior to FY21 and wanted to understand if this recent growth is sustainable.
Regards,
Vivek
While your question is directed to Ayush, I will attempt to answer this. I had a chance to ask this question. The response from the company was that it takes time to build brand and distribution. Both take lot of time. At the same time, while doing business they had to keep working capital in check which by nature of business is on higher side. Company seems more optimistic as the brand, quality of products and distribution have been established. The same is also evident in capacity expansion plan. Some part of sluggish growth may have to do with capex cycle. Good part is that while sales growth prior to FY21 was not high, it exhibited less volatility and cyclicality, probably a function of them focusing on replacement market.
Going by outlook given by Gates, capacity expansion plan of Pix, growth rate in recent quarters, the fact that company is looking for warehouse, possible pick up in domestic manufacturing all these point towards better growth run rate than shown prior to FY21.
Regards
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