Precision Camshafts

Stock Opportunities Untested - but worth a good look
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This is my first report to the forum… your feedbacks are welcome

I want to share about Precision Cam shaft Which can be on the verge of future disproportionate growth. My Background is mechanical engineer and Masters in business currently working in indirect taxation in government. My Humble request to moderators and seniors if same topic is covered elsewhere you are requested to move this to the requisite thread

Company Back Ground :
The Company was incorporated as ‘Precision Camshafts Private Limited’ on June 8, 1992 under the Companies Act, 1956 (“Companies Act 1956”), with the Registrar of Companies, Maharashtra at Mumbai. Pursuant to conversion of the Company into a public limited company, the name was changed to ‘Precision Camshafts Limited’ and a fresh certificate of incorporation consequent upon change of name on conversion to public limited company was issued by the Registrar of Companies, Maharashtra at Mumbai on August 1, 1997. Pursuant to a resolution of the board of directors of the Company dated January 10, 2001, the registered office of the Company was shifted from 51, Sarvodaya Housing Society, Hotgi Road, Solapur, 413 003, Maharashtra, India to E 102/103, MIDC, Akkalkot Road, Solapur 413 006, Maharashtra, India with effect from January 10, 2001 and the relevant filings were made by the Company with Registrar of Companies, Maharashtra at Pune
It was listed in the exchange on 08-Feb-2016 it’s Location is at : E 102/103, M I D C, Akkalkot Road, Solapur - 413006, Maharashtra, India and virtual address is at http://www.pclindia.in/

Fundamental
Industry Type : Engineering / Auto Ancillary Face Value:10 , CMP :110 , P/E ; 22

Manufacturing Facilities:
PCL has set up four manufacturing units at Solapur, Maharashtra out of which two units are 100% Export Oriented Units (EOU).

Weakness/Threats :

• Customer and product concentration Historically, PCL has been dependent on a single product, i.e. camshaft and limited number of customers for significant portion of its turnover. GM (as a group) and Ford Motors (as a group) are PCL’s primary customers, which together accounted for around ~69% of total income in FY16 across various geographies. PCL thus faces the risk of fluctuations in production levels of its key OEM customers.

• Susceptibility of profitability to exchange rate fluctuations PCL derives significant portion of its revenues (~75% and ~79% during FY16 and FY15 respectively) from exports, and its profitability is thus exposed to fluctuations in foreign exchange rates.

• Susceptibility to quality standards: PCL products are subject to strict quality requirements and any failure to comply with quality standards may lead to cancellation of existing and future orders

• Susceptibility of profitability to fluctuations in raw material prices PCL’s major raw materials include resin coated sand, melting steel (M.S) scrap and pig iron. PCL primarily procures them from domestic markets from reputed manufactures. The volatility in commodity prices can significantly affect PCL’s raw material costs and in turn, profitability. Inability to compensate for or pass on increased costs to customers, such price increases could have a material adverse impact on PCL’s financial profile. PCL does not have do not have long term agreements from its suppliers However company is sourcing these from multiple vendors

• Cyclical nature of auto industry The auto components industry is ancillary to the automobile industry. Demand swings in any of the auto segments have an impact on the auto ancillary demand. The demand scenario is impacted by general economic or industry conditions, including seasonal trends in the automobile manufacturing sector, volatile fuel prices, rising employee expenses and challenges in maintaining amicable labour relations as well as evolving regulatory requirements, government initiatives, trade agreements and other factors

• Labour problems: in past in 2013-14 company has faced problems from labour unions but now PCL have hired third part unskilled workers from the contractors

Rationale of investment / Strengths

PCL’s established track record of manufacturing of camshafts, long-standing relationship with globally reputed client base, wide and diversified geographic presence and PCL’s strategic and technology tie-ups with world’s leading camshafts manufacturers and ongoing capital expenditure (capex) without much reliance on debt.

Long track record and experienced top management PCL has a long track record of about 25 years in manufacturing of critical engine components and has established strong business relationships with global OEMs. The promoter, Mr Yatin Shah (Managing Director (MD), a first-generation entrepreneur, has a vast experience in the field of engineering and has grown the organization over the years into one of the leading manufacturers of camshafts in India. The promoters of the company are assisted by a qualified and experienced management team which has been associated with PCL for more than 15 years.

Long association with leading global and domestic OEMs with wide geographic reach PCL has developed strong long-term relationships of more than a decade with large OEMs, both within domestic and international markets. Total client base exceeds 40 leading OEMs, and includes reputed names such as General Motors, Tata Motors Limited, Ford Motors, Hyundai, Maruti Suzuki India Limited, Chevrolet Sales India Private Limited, Mahindra& Mahindra Limited, New Holland Fiat India Private Limited, etc. PCL is the preferred supplier of camshafts to General Motors Company Inc. (GM) and Ford Motor Company worldwide. PCL exports camshafts to various global OEMs covering Europe, UK, China, Brazil, Russia and North America. PCL has been constantly expanding its geographic presence and has been increasing the market share at a global level. Exports form a major portion of the total sales and accounted for ~75% of the total sales in FY16. PCL has tie ups with various international marketing agencies. In order to strengthen the business operations in Asia, the Company has promoted two joint ventures in China.

Highly advanced manufacturing facilities, technical collaborations with overseas players PCL has developed strong quality systems and its facilities are certified with ISO TS 16949:2009, ISO 14001:2009 and ISO18001:2007. PCL has also entered into an exclusive agreement with EMAG, a German machining and tooling process company, for transfer of certain know-how and technology for manufacturing assembled camshafts. The technical collaboration with the European and Chinese players has enabled PCL implement advanced machinery which aids in lowering the cost per piece.

Improvement in capital structure and debt coverage indicators, improvement in profitability and strong liquidity position During FY16, the capital structure of the company improved with overall gearing of 0.33x as on March 31, 2016, as compared with 0.83x as on March 31, 2015. Total Debt to GCA (TDGCA) ratio improved to 1.87x during FY16 while Interest coverage remained high at 15.69x during FY16. PCL’s liquidity position improved on the back of proceeds received from the IPO. Current ratio as on March 31, 2016, improved to 2.49x as compared with 1.21x as on March 31, 2015. PCL had a free cash balance of Rs.312.46 crore as on March 31, 2016 (Rs.88.93 crore as on March 31, 2015). Since the capex in near future will be funded using the IPO proceeds, internal accruals will be available for managing the working capital. Furthermore, on January 13, 2017, Rs.62 crore of preference shares held by PCL in CTPL have been fully redeemed, improving PCL’s liquidity profile significantly. During 9MFY17 (unaudited) (refers to the period April 1 to December 31), PCL’s revenue remained flat with TOI of Rs.345.57 crore as compared with TOI of Rs.344.45 crore during 9MFY16. Its PBILDT margin declined to 23.64% for 9MFY17 as compared with 26.29% during 9MFY16 mainly due to higher employee cost. The company reported Profit After Tax (PAT) of Rs.45.24 crore during 9MFY17 as compared with PAT of Rs.48.21 crore during 9MFY16

High Barrier to Entry : Only 5 to 6 major player in the market Business is Oligopolistic in nature however ThyseenKupp who is European pioneer in this field is struggling in Latin American market

Revised Credit rating on dated 24/04/2017 company got revised credit rating from CARE Long-term Bank Facilities : Revised from CARE A- [Single A Minus } to CARE A; Stable [Single A; Outlook: Stable] and Long-term/ Shortterm Bank Facilities : Revised from CARE A-/ CARE A2 [Single A Minus/A Two to CARE A; Stable / CARE A1 [Single A; Outlook: Stable/ A One
Detailed rating report : http://www.careratings.com/upload/CompanyFiles/PR/Precision%20Camshafts%20Limited-04-24-2017.pdf

Recent Order: PCL has won a global contract from Ford for the delivery of 8 million camshafts over the life of the program, which is expected to commence supplies from 2018-19

Margin of Safety: IPO price – CMP i.e 180 – 110 =70 which comes out to be (70/180) *100= 38%
Shifting focus from low value product to high value product: Cam shaft casting profit 15- 18 % whereas machined cam shaft offer 30-35% profit which is elaborated by R&D innovation, Capacity Expansion and acquisition, technology collaboration

PCL, which is a leader (40% stack in global market )in chilled cast iron camshafts, is taking steps to climb the technology curve. In 2014 y, it introduced ‘Ductile Iron Induction Hardened’ camshafts (aims from 20% share in global market ) to its portfolio. It has also struck a technical alliance with EMAG of Germany deal was signed in the month of June 2014 beweeen Yatin Shah, CMD, Precision Camshafts, and Dr Andreas Mootz, MD, EMAG Automation, which will help it enter the assembled camshaft market. The pact includes the development of a low-cost version of the technology. PCL will hold a global patent for it for the next five years i.e till 2019 (ref : http://www.autocarpro.in/news-national/precision-camshafts-inks-tech-pact-emag-ag-aims-stop-global-shop-5861)

PCL recently entered into two joint ventures, both with Ningbo Shenglong Powertrain Company Limited (―NSPCL‖), being Ningbo Shenglong PCL Camshafts Company Limited (―NSPCCL‖) for machining of camshafts and PCL Shenglong (Huzhou) Specialized Casting Company Limited (“PSSCCL‖) for setting up a foundry in China

To increase its capacity at the Solapur plant, the company has added a machine shop with proposed capacity of 2 million units annually with a total capex of Rs 230 crore. The capacity addition will be in phases over FY18 subject to the order received from customers. The company says this new capacity addition will expand its product offerings for existing customers as well as target new customers. PCL is also setting up a plant in Brazil for machining of camshafts to General Motors. The GM order includes 6 million units over the life of the programme

Recent acquisition of MEMCO Engineering: The company is Nashik-based precision machining it is a supplier to German component maker Bosch. It is 32 year old company with equipped with a range of CNC turning, VMCs, Deep hole drill machines, Multi-Spindle Automatic lathe, along with other Second operation conventional machines

Copy of original IPO : http://www.sebi.gov.in/sebi_data/attachdocs/1426145620337.pdf

Discl: Currently invested about 5% of my portfolio so views maybe biased do you own research before investing. Inviting reviews and guidance from forum and seniors .Contradicting or questioning is highly appreciated and looking forward for a discussion …

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Hi Yourraj, Nice write up.

Just one question… as you are mechnical engg… are camshafts needed for Electrical Vehicals…?

br//
Gagan

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NO they wont be required, as CAM shaft are used to time the opening and closing of air / fuel mixture valves. So in electric cars they will not be availaible.

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Hi Gagan ,
Thanks for viewing the topic . While searching on net I come to know that the global share of EV mostly Cars will be 40% by 2040 but the cam shaft are integral and critical part of Engine .

EV car won’t require Cam shafts but Fully EV will be part of common man life it reach will take another 20 to 25 years first migration will be Hybrid Cars and it will take next level

As per bloomrange report " The EV revolution is going to hit the car market even harder and faster than BNEF predicted a year ago. EVs are on track to accelerate to 54% of new car sales by 2040. Tumbling battery prices mean that EVs will have lower lifetime costs, and will be cheaper to buy, than internal combustion engine (ICE) cars in most countries by 2025-29.”

Thanks

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Below is extract from my blog post on Precision Camshaft business analysis. You may please google Vikrantblog to find the link to the article (not allowed to put in link as per forum rules).

Extract from the post:

PCL’s goal is to be the world leader in camshafts manufacturing, with 20% share in the global camshaft market for passenger cars. Its a niche auto ancillary company in a oligopolistic business with relatively high margins. Company needs to reduce its dependency on GM and Ford. PCL got headway in Japanese market with chilled ductile camshaft technology.

Camshaft Market:

Global market for personal vehicle camshafts is estimated to be ~100 mn units worth Rs. 7,000 cr per annum. The market for camshafts is oligopolistic in nature with only 4-5 major players. Key players are ThyssenKrupp, Federal Mogul Goetze, Linamar, and Mahle AG.

Historically, OEMs used to cast and machine camshafts in-house. With increasing volumes and focus on lowering costs, OEMs have majorly outsourced casting. Around 33% of camshaft casting & machining is still done in-house by OEM’s.

Mahle and Riken Corp are the main competitors for PCL in domestic market.

PCL’s revenues have grown at CAGR of 10% over last 5 years at consolidated level. PAT growth has been higher at ~27%. The primary reason for PAT growth is the shift towards higher margin machine cast camshafts. Machine cast camshafts yield operating margins of ~35% against 18% from forged cast camshafts. The contribution of machine camshaft is around 20% to overall mix in terms of volume. This is expected to increase to 45% as per management, which should push the operating margins closure to 30%. PCL has the reputation of the highest operating margin auto-ancillary business.

EV presents a grave challenge to the business model going forward.

Disclosure: Not invested.

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but it needed in hybrid vehicle which works on electric + mechanical

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During further digging in to internet I found another report which I want share amoung the VC community by edelweiss which covers company’s detailed report

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Yourraj,

I find it disappointing that the report does not discuss the threat posed to the company’s hold by electrical vehicles. EVs are on their way.

How will the company be able to handle the disruption. How long will camshafts serve the industry.

https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/bertelschmitt/2016/12/06/toyota-wants-to-double-hybrid-sales-thinks-outlook-for-battery-electric-cars-still-limited/&refURL=&referrer=#2aa1d29442a7

This is an article from last year where it seems Camshafts will continue to be used, however it looks like this is a sunset company. I would love to hear arguments to the contrary given the strength this company has in the business.

Sanjay
disclosure: small investment.

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Hi Sunray ,
Thanks for visiting the thread , as I mentioned EV dream is no more near however firstly PCS is an engineering firm that means it has capability of producing precision and critical products.secondly PCS has moulding and casting facility with technical know how it means in futures they can create any product only die need to change .

.PcS’s recently acquired company which had more than 3 decade of producing precision auto-components gives hints that it will also creating other streams of business expansion .

My call is developing an critical engine component like cam shaft take product cycle of 2-3 years may be more depend upon company . The cost and time of finding alternative suppliers for the critical component is much higher .

Basically cam shaft is an component which is central shaft of engine and regulate the timing of the valve opening in individual cylinders of engine .

Another Toyota is talking of Hybrid cars first than to fully EV and as per my knowledge engine works on otto cycle and Atkinson / miller cycle . And I am sharing this from quora,"
I can only describe Atkinson cycle on basis of Toyota/Lexus technologies, as different manufacturers use a bit different tecniques at this point. In fact if you read about the original Atkinson engine then you will find it is a totally different thing. Toyota has no so called Performance hybrids so they use different camshafts and engine block heads. Toyota hybrid engines are capable of only Atkinson cycle. Lexus Performance hybrids use different camshafts and multiple injection (port and direct) and are capable of working in both Otto and Atkinson cycles thus achieveing both economy and high engine power output when required.

Mind that Atkinson cycle engine has idling speed of 1200 to 1800 rpms as a single engine it will not work as its output on lower rpms is poor but it is compensated by electric motor/s in a hybrid vehicle. And at high rpms it is the other way around. Atkinson cycle engine is usually paired with CVT or E-CVT to further optimize consumption and power output.

Atkinson cycle programming in Toyota/Lexus engines holds intake valve up to a middle of compression stroke at the same time next firing cylinder intake valve is also opened and air/fuel mixture that is pressed out of one is directed into another cylinder thus reducing pump loss. So when no power needed, engine of 3500 cm3 works as a 1800 cm3 with only half of its capacity… At that point engine is running at idle to take care of charging duties.

High idle is required for charging and Atkinson cycle engine would otherwise be unbalanced and prone to misfiring.

The point is that some of modern Otto cycle engines allready are able to behave as a sort of Atkinson cycle using only Variable Valve Timing techologies. Though for now it is only used for quicker warmup function. Like it was allready mentioned Atkinson cycle engine is more efficient thermodynamically. Toyota/Lexus engines only heat up to 60 C of engine coolant temperature and 93 C is its maximum. Unfortunately that also means they are easily succeptable to overheating damage…"
Also
Atkinson and Otto are very similar. Atkinson uses slightly different timing for valve opening and closing events – in particular, the intake valve stays open as the compression stroke begins. This difference results in increased fuel efficiency, but decreased peak power. It’s common in hybrids because those are the most focused on efficiency, and the electric motors can compensate for the horsepower deficit.

From a mechanical standpoint, the only thing that needs to change between an Otto cycle and an Atkinson cycle is the camshaft(s), along with a corresponding change to the engine computer’so programming to adjust fuel delivery accordingly.

Wikipedia articles regarding the operating cycles may be better help regarding technical explanation

Atkinson cycle has a larger expansion ratio than compression ratio. This leads to more thermal efficiency as more heat is extracted which, otherwise, would have got wasted in exhaust. The power output would be lower in Atkinson cycle engine as compared to a similar sized Otto cycle engine.

In Hybrid vehicles, one engine cylinder is removed to accommodate the electric motor as the electric motor will provide power similar to the one cylinder and the IC engine with one cylinder less will be more efficient than the original engine with all cylinders.

And hybrid vehicle need Cam shafts

Thanks and regards

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I have sent email to their investor relation company and CFO a copy of same is here
King Attn: Mr Ravindra R. Joshi (Chief Financial Officer) Precision Camshafts Limited , Mr. Parin Narichania:-Concept Investor Relations

Dear Sir ,

I am highly thankful to Mr Parin for attending my call in the morning .This email is in continuation of my query.

i am retail investor with horizon of long term in your company and want to increase my portfolio’s share in the company i have some query’s and i hope if you covered these in your presentation the investor confidence will increase

Ques 1: Going forward for future growth How your company will grow in the event of growing market of electrical vehicles .As per my mechanical engineering background i understand that even Hybrid vehicle need the cam shafts .As per recent news Toyota is developing camshaft less engine based on purely Atinkston cycle .

Ques 2 ; PCL’s recent Acquisition of MEMCO Engineering Private Limited (MEMCO) who is having portfolio of manufacturing Key products include fuel injection components for conventional and CRDi diesel engines, brake components, high pressure diesel injector connectors for naval ships and high precision instrumentation components…Going forward what will be the capital investment proposed in this sector to increase the stack in this sector .

Ques 3: PCL’s 2/3rd of sales is generating from exports and highly depend on Major automobile .Do you have any plan to create your separate brand for precision components as you have highly skilled manpower with support of R&D coupled with advanced technological setup .Which will reduce dependence on only Auto Manufacturing companies .

Ques 4: Is PCL is conducting any Conference call with analysts or retail or institutional investors if yes where can I get the transcripts of these, if not in near future do you plan to do any con-call so what will be the date of the same

Thanks and regards
Rajnish

However PCL has recently issued investor presentation you can find below

http://pclindia.in/images/pdf/PCL-Investor-Presentatio_Q2-FY17.pdf

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did you hear back from the CFO?

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I haven’t received any reply I have exited the small position that I hold in the PCL

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Fellas i am still Tracking the compny despite of exiting the stcok and for those who are interested i found another news that

PCL acquires MFT Motoren und Fahrzeugtechnik GmbH, Germany through its wholly owned subsidiary PCL (International) Holding B V. ref : http://www.pclindia.in/featured-news.html

Regards

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i think next opertunity to enter is comming as in my view a turn about is poosible
company had issued investor presentations the latest one can locate the same at below link

http://www.pclindia.in/investor-relations/investor-information/presentations.html

I need your views @Mehnazfatima @devansh_god @hitesh2710 @onlycastel @akbarkhan on the below charts

image
image1069×772 131 KB

Disc: Not holding any position as on date This is not any stock recomendation One who is interesetd should do his / her own research for the investment

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Precision Camshafts is interesting. The company claims that it one of the leaders in making camshafts. It might be true as it enjoys around 15% operating margins.

  • The market leader of Camshafts, Thyssenkrupp which is headquartered in Germany is also producing camshafts in china for the past 13 years. The success of Precision camshaft will depend on how it takes market share of from the leaders of Camshaft. Companies shift production to China and India to lower cost and increase margins.

Shareholder Friendliness

  • I believe the promoters or the management should be friendly. If they feel it is their duty to respond to simple questions asked by minority shareholders who are also truly part owners of the business, then they are friendly. Otherwise they are too busy or they dont care.

  • But equity dilution of 50% would be a stronger reason for assuming there is unfriendly attitude of the management towards powerless shareholders. This has negatively affected them as the earnings on the share they own has reduced proportionately to the rate of dilution.

Uncertainty
Camshafts will be become obsolete if in future, people go for Electric Vehicles. Hence the runway for such industries is threatened or shortened if there is technological disruption in EV market. In fact it would threaten the market for manufacturers of auto engines and ancilliary components if the demand moves from diesel and petrol engines to Electric engines.

The company listed expensive in IPO and the market prices has corrected to lower levels. The question is will the revenues and margins from camshafts be sustainable 20 -20 years from now? We will have to guess.

Disclosure: Not going to put a value nor going buying right now and might look for other good opportunities.

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Sorry…my technical system does not indicate an entry

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yourraj
April 17 |

i think next opertunity to enter is comming as in my view a turn about is poosible
company had issued investor presentations the latest one can locate the same at below link

http://www.pclindia.in/investor-relations/investor-information/presentations.html

I need your views @Mehnazfatima @devansh_god @hitesh2710 @onlycastel @akbarkhan on the below charts

Disc: Not holding any position as on date This is not any stock recomendation One who is interesetd should do his / her own research for the investment

Visit Topic or reply to this email to respond.

In Reply To

yourraj
April 17 |

Fellas i am still Tracking the compny despite of exiting the stcok and for those who are interested i found another news that PCL acquires MFT Motoren und Fahrzeugtechnik GmbH, Germany through its wholly owned subsidiary PCL (International) Holding B V. ref : http://www.pclindia.in/featured-news.h…
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Precision.png812×383 26.7 KB

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I am not someone with charting skills. You have got it from the masters.
Looking at the last year results, there seems to be a lag in performance. What is the reason? Probably because GM and Ford which are its major clients have cut down procurement?

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The tool you are using seems very interesting is it free or paid What is the tool and how can one use it it is really new for me
Regards

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The chart I use is called Point and Figure charting. It is one of the oldest technical charting tools. Simple and easy to learn. Read Point and Figure Charting by Tom Dorsey.
Tony

yourraj
April 18 |

The tool you are using seems very interesting is it free or paid What is the tool and how can one use it it is really new for me
Regards

Visit Topic or reply to this email to respond.

In Reply To

onlycastel Tony Tony
April 17 |

yourraj April 17 | i think next opertunity to enter is comming as in my view a turn about is poosible company had issued investor presentations the latest one can locate the same at below link http://www.pclindia.in/investor-relations/investor-information/presentations.html I need your vie…
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