And they have indicated to increase the capacity by 4X, should the present demand scenario persists. Given the management pedigree and their CMD Alay Shah’s technical prowess, Shilchar will catapult to higher orbits in the days to come.
Invested
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700Cr for FY25 looks tough.
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Indeed. May be due to delay in capacity expansion. Nevertheless, now capacity is expanded to 7500 MVA and running. OPM have increased and likely to sustain or might go up a little due to operating leverage and exports. I think they can still do 625 crores around. Assuming 11 lakh per MVA (may go up further in exports), they can do around 400 crores in H2 in case of full capacity utilisation. 237 already in H1 and not to forget this is H2 heavy business. Waiting for concall for more clarity.
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Shilchar reported fabulous numbers yesterday. Most notably(for me),GMs are at 40% now. This is head and shoulders above any peer in the sector. EBITDA margins are at 31-32%. Company’s concall was held today. Some KTAs:
→ Demand continues to be very strong mainly led by renewable sector in India. Foresee no oversupply or margin issues for atleast 1 more year. Demand should last 4-5 years atleast.
→ CRGO imports have become an issue owing to BIS norms implemented recently. There is no shortage in market just that new regulation has created some temporary hiccups. Shilchar is not facing any issue in this regard…as of now.
→ New capacity came online in Q2 and Sep was first month of operations. Co expects to be at full utilization in H2.
→ As mentioned earlier,company has enough land to go to 30,000 MVA capacity.
→ Export demand also continues to be very strong. Mgt believes owing to certifications and stringent approval norms,it will take atleast a few years for a new entrant to break in.
→ Company expects to do 550 cr revs in FY25 and 750-800 cr in FY26 with similar margins.
→ Call on next round of capex will be taken in a few months.
Overall company continues to be on a very strong wicket. I continue to believe there is adequate upside from here given peers like TRIL are trading near 60x FY25 earnings. Shilchar’s unit economics is superior in every regard and growth rates are also comparable,if not better. If current margins can sustain we can expect a PAT of ~200 cr at full capacity. Moreover,550 cr seems conservative since H2 should see a run rate of 180-200 cr revs leading to revenue nos. of 600 cr or more. My only issue is that inspite of capital and land being abundant,mgt is being a little conservative in adding capacity. One may note that till Q2 for 4 quarters co was stuck in the same revenue band. I hope co is able to aptly utilize this high growth period.
While the concall was good,it seemed most participants haven’t read this thread 
There were some issues with management’s internet & Mr. Shah dropped out for a few minutes while some participants couldn’t unmute themselves on time. One would prefer better management of calls in the future.
Disc.: Invested. Views are biased.
27 Likes
Good chance that the next capex will be for 5000 MVA and will be targeted to be completed by Q3 26-Dec25. Sounded like it’s already cooking as the mgmt. indicated in one of the answer about timeline of execution of Capex, if planned.
2 Likes
Yes but one thing order book only stands at 450 cr at the moment. Not enough to justify any more capex as of now. At current 7500 mva capacity 720 cr of topline is expected. So at any given time company should have order book of 700 plus cr.
So if management is thinking about more capex then they might be in advanced stages of some big orders.
Every thing seems solid except 2 issues for me
1: Low order book
2: Over concentration in renewables
disclamer : Invested
4 Likes
The management has been consistently under promising and over delivering. Their margin profile and assurance that they would retain these margins is very comforting.
For every GW of installed capacity, similar transformer capacity needs to be added. So the TAM in India itself is huge and then there’s huge opportunity knocking in US and EU.
3 Likes
But as they have said if operating at full capacity they can only achieve as much as 750-800cr of revenue in an year. To get benefitted from this increasing TAM they need to rapidly expand their production capacity, but then they also need to address the fact that this demand may not last forever, so when it actually dries out what are they going to do with the incremental capacity they have added through these years. Many companies depending on the Energy Transition boom are in this stage where they need to address this before deciding how fast they can expand.
2 Likes
Shilchar announced previous expansion in February which got commissioned in Aug mid. There’s a likelihood that they might announce another post q3 results or before and that might get commissioned in next mid FY. The management also alluded to that.
The management can be called conservative but the reality is that they are excellent when it comes to operational metrics as well. Fully aware that they’d probably hit 100% capacity next FY, they’d have a capex done sooner than we can put a finger on. What remains to be seen is q3 numbers and q4 numbers.
Ideally if demand is robust they should easily hit a revenue of 600 crores this year.
Note: Second biggest holding in portfolio
6 Likes
I think they are going the right way and building capex as per the requirements once the already built capex is ensure to run with optimum capacity and have good order book in hand rather than going bust during some slow down… We have seen many a times in past in other industries like chem pharma very recently.
2 Likes
The management was clear when they mentioned that they will announce capex when they have future orders in hand, hence they are waiting for two months before they announce. The cautious approach is in fact very comforting for an investor as the management will take very calculated call on capex.
As an optimistic investor, I feel that the AI boom and manufacturing power that the country is striving to become, putting up power generation capacity is an inescapable requirement.
Cautious investors must wait for the capex announcement as valuations are rich.
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Does something like this leads to increase in revenues as well as margins? Or the increase in revenue is offset by the increase in RM cost?
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For Shilchar, management is not concerned about CRGO shortage, although voltamp clearly struggled with the shortage. Yes, increased demand always leads to increased topline, although not sure about margins, Shilchar is already sitting on industry leading margins not sure how much they can stretch from here. As soon as they get order they book the RM eliminating RM price fluctuations so increased prices of RM are already factored into order value.
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The article suggests that the transformer companies will need massive capex to meet the demand.
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Sometimes the price action is a very good indicator of fundamentals and upcoming developments.
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Continuing on point number 2 it really does not look very promising right now. Might do well for a few quaters but. Just being dependent on one thing hurts. With current political changes around the world. Things might slow down in this sector. Maybe shilchar should distribute thier eggs.
Power requirements are bound to grow and transformer shortage will be there but how much of that would attribute to renewables.
Maybe its time management rethinks the stratergy.
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Hi Vivek, In your views, whats your comfortable valuation ? Any specific PE in mind and rational behind this. As most of stocks are down by 20-30% but its still not gone down as compared to peers. Appreciate your views,
Thanks,
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Please refer my post above Shilchar Technologies - Power & Distribution Transformers - Sunrise Sector? - #193 by vivek_17
As lot is priced in, for someone starting to buy now, one shouldn’t expect stellar returns, but yes fairly good returns.
Don’t treat this as an investment advice.
I have done my first buying in Jul 2023 and last I bought was in Oct when it was on discount around Dussehra.
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