Thanks @nikhil_chowdhary @dd1474 for sharing detailed notes.
Request @Anirudh_Shetty to share your Notes that adds more granularity/perspectives to above.
While I am sure a few more like @Malhar_Manek and others would pitch in with more granular details, I am doing a different take. Based on what we heard from SBCL Management in Mumbai meet, let’s try and capture what we have added to our understanding of SBCL strengths/opportunity mapping since Sep 2022 AGM.
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Only Company globally to have these 3 verticals under one roof (factory) - Bimetals, Precision Shunts, Contacts
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Largest EBW Capacity in world - 7 existing machines with 8th being commissioned. The next largest EBW capacity is in China (probably 3 machines)
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The first EBW machine was bought by Shivalik from Germany (?) at off-the-shelf prices. Post that they started assembling the machine(s) buying from all the sub vendors, including 3rd party software. Incredibly, SBCL cost now comes to one-fourth or lower of what a new set up costs
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SBCL has another impeccable measure of deeper customer penetration. If SBCL customer count is say 10, for 6 out of this 10, SBCL is the Exclusive Supplier
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SBCL is a preferred global supplier based on cost leadership, customer responsiveness leadership, and Delivery Lead Time leadership
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100% of RM volatility is pass-through on way up/down; 100% of SBCL products are Customised; 100% of RM is Customised (true for all 3 verticals)
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Because of this, SBCL needs to maintain for every month of production - 4 months of additional Inventory.
1 month inventory in warehouse
1 month inventory in custom clearance
1 month inventory in High seas
1 month inventory in dispatches -
Unlike say a Vishay, or a Marquardt or a Rohm who define themselves as Shunt Resistor Suppliers, SBCL defines itself (and it’s addressable market narrowly) as Edge, EBW Shunts Supplier. Applications are primarily Automotive BMS and Smart Meters. Conservatively they peg this global market at $230 Mn today.
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Thus defined, SBCL sees itself as #4 player globally after Vishay, Continental, Hella. Hyundai Mobis is the other one in Top 5. SBCL claims to have taken away 90% market share of Isabellenhutte in its India market segment. According to SBCL Isabellenhutte is more a special alloys player than Shunts
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When quizzed why not do other EV (non BMS) Shunts, SBCL mentioned that these are pure resistor shunts mostly where Shivalik will not have the Bimetal-EBW-Bonding edge and hence prefers to stick to its core strengths. If you want to be a player in pure resistor shunts, then you cant just choose a or b product, you need to have a much wider basket of products (that might mean Shivalik moving off their protected turf)
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Very interestingly, SBCL has thus positioned itself as a win-win ally and NOT as a Competitor to bigger players in this market. Hella and Continental relationships are on solid ground. This is new EV product development for them. Should eventually scale comparable to Vishay, if not more. Significantly Vishay is positioning itself for substantially higher growth [Q4FY22 Transcript]. investing $400 Mn per year for next 3 years (vs $160 Mn annual spend earlier)
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Even as SBCL started off with ICE BMS Shunts, today 90% plus share is for EV BMS shunts. Unlike our previous understanding SBCL does not claim to produce other Shunts used in EVs such as DC-DC Motors, or others. They want to only play the shunts market - that builds on their strengths - Edge, EBW and Bonding - where they are (and will remain) unshakeable!
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Most Customers share annualised forecasts. SBCL expanded capacity (1600 Cr) is based on 6-7 year growth forecasts (non-contractual) shared by some of the majors. 65% Visibility from Customer shared forecasts (35% they will need to find new customers). Fully utilised by next 6 years is a conservative estimate as per SBCL Management
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SBCL Management Team breadth is bolstered by addition of Neville Fernandez. Neville is an investment banker with a rich profile in Corporate M&A & Structured Finance. When asked on his role at Shivalik he mentioned structured finance advisory. He seemed very well-versed with Shivalik strengths/opportunities/challenges and was invited by Chairman to add to CFO comments/answers to some queries, which he handled with aplomb.
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My sense is (for whatever it is worth), since Management has clarified multiple times in unambiguous terms SBCL doesn’t need to raise funds, there is probably a stake sale down the line (maybe someone within promoter family a 5%-10% stake). But that is NOT something that someone like Neville’s expertise is expressly called for. It’s probably the start of a process for a structured base - that allows/enables possibilities down the line. E.g. for M&A (distressed assets in developed markets are more common now), structured JVs with marquee customers (+1 strategies), and/or value-creating spinoffs
PS: Please Note My Take above is based on interactions in the larger late-afternoon group. Please be aware there are nuances (first-exposure ) which might NOT have been accurately captured by me. Please allow us a couple of days to get these vetted and verified.
Disc: Invested from 2018 levels. My views are highly biased.
There is significant valuation risk embedded at current levels, even as Industry Tailwinds are strong (become stronger for bimetal side) and SBCL competitive position has become stronger. No significant Business/Industry Risks I foresee in near/medium term