Q3 FY 25 Concall highlights:
•Bimetals saw growth in americas,while shunt showed degrowth.India saw good growth in shunt business owing to increased domestic manufacturing of relays.
•Looking for Forward integration in shunt business
1)Component to subassembly
2)Shunt strip to component
This will start contributing from next FY
•US customers are giving guidance on gradual recovery from Q4 in shunt business.
•Our customers wanted us to do Forward integration as subassembly is not their core business.
•Revenue from subassembly is 10x of that from shunt.Margins are similar to current ones in some category while in others they are higher.Due to this,we expect shunt revenue to more than double over next 2 years.
•There will also be newer customers who are willing to procure only as subassembly.
•Strip to component forward integration:
Expect revenue to be 2x(from 60 cr existing to 120 cr) with margins increasing by 4%.supply to start from April.
•Doing backward integration in some components to reduce cost and lead time.Not looking at forward integration in bimetals as it is commoditized.
•Almost 30% relays are now made in India ,rest are imported.Import should go down as more domestic capacity is coming up.we are sole supplier of shunts to domestic players.
•Even if EV 4W does not grow, we expect shunts to grow as even today majority of our shunts go into ICE,hybrid and 2W EV.Expect India 2W EV segment to show good growth .
My take:
1)Forward integration will create new chapter in company’s growth story.
But it will take time. They will not be able to convert all component sales to subassembly as currently component sales are 140 cr and if all were to get converted to subassembly,revenue guidance over next 2 years would have been 3-4x.but they have guided for 2x.so I feel forward integration will be limited
2) Smart meter have done really well and should continue this trajectory.
3)If they say that Indian 2W EV market should give good growth,even in past 3-4 years,2W EV have seen very good growth but shivalik did not have any growth in domestic shunt business apart from smart meter.why is it so?
Disclaimer:Invested at average price of 35.No transaction in past 30 days