Shivalik Bimetal Controls Ltd (SBCL)

In AGM 2018. co. mentioned that ‘’ In shunt resistors we were the first company to enter into shunt resistors. Gear and mechanical approval for vendors take at least 18 – 24 months while electronic approval takes 3 – 4 years. Last 2 years, we have been working on projects which will mature in 2020 – 2022.’’


Above Picture is from the Q2FY22 investor Presentation.
‘’ At least 3 large BMS Automotive Projects are attaining maturity and coming into bulk Production stage in Q1FY22’’

Wanted to highlight these two texts for the following 2 key reasons -

  1. Management is walking the talk on its Promises made 4 years back
  2. It actually takes 5-6 years from 2016 to 2022 to get approval from clients
    atleast in the automotive segment so this acts like a major entry barrier
    which the company has created because of their early entry.
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Yes, this extract of the presentation was very comforting and promising.
Market has been going crazy with unknown small cos just announcing EV plans while Shivalik is one of the very few companies which had been working on a product that goes into EV batteries for more than 7-8 years now and has already got good success and growth over last 3-5 years. Even more exciting is that they have such a strong pipeline of customers (provided that by large they mean something similar to their current largest customer) and they are doing a large capex to triple their capacity and meet the big demand they are seeing.
I also like the part that it takes at least 3-5 years to penetrate such big customers…so it means that the sustainability of such a business would also be very high and that it won’t be easy for anyone to just come in. Despite so much of demand and profitability, it’s good to see that new players have not jumped in to make shunts and resistors and perhaps Shivalik is the only company from India making this product at a big scale.

Given the rich valuations the stock trades at, one wishes to have more insights on sustainability and the competitive landscape. It will be great if we all can try finding more about the industry and competitive landscape. Or I hope the management starts opening up more and shares more about the business.

Ayush
Disc: Invested in family and client acs

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You are absolutely right Ayush bhai, the day we know their order book nos and its contribution to EVs in plane English like many others have communicated, this shall re rate like others. Shivalik is way ahead in its outlook and plans Vs any peer in India. This shall give them early mover advantage when Electronics Manufacturing starts taking big value added leap forward. I see many stocks getting re rated on EV stories where as Shivalik is walking the talk with no stories. I personally like this where story unfolds slowly rather than Ito becomes hope story. I still believe Shivalik shall be getting ready for forward integration to become tier-II supplier from Tier-III now. Great point on number of years required in approvals. Yes it takes 3-4 years to get you first product approved but once approved follow on products start getting designed in R&D so launches are much faster.
Disclosure: Invested

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Shivalik seem to be moving up the value chain, two small shipments to following customers in Q3 - these supplies are in bimetal range.

Source - https://www.importgenius.com/

Both are decent size companies, while it might be initial supplies, scale up possibilities are clearly visible as potential end use industries for Shivalik appears quite big universe.

While shivalik might be getting these through references etc, would be ideal to have own front end/sales setup in key Geo as they scale.

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https://www.globenewswire.com/news-release/2022/01/26/2373689/0/en/Vishay-Intertechnology-Extends-Resistance-Range-of-MC-AT-Precision-Series-Thin-Film-Chip-Resistors-in-0402-0603-and-0805-Case-Sizes.html

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It would be helpful if you can mention how the information mentioned in the article benefits Shivalik ?

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Strong performance continues, 6th straight quarter with QoQ growth, no margin compression visible either - unlike the case of many mfg setups - demonstrates pricing power.
88 cr revenue and 15.5 cr profits and 16.2+ EPS - annualized still available around 25 PE at 1600 cr mkt cap. Wish mgmt starts concall to get better idea on business trajectory.
This could very well continue to benefit from end industries tailwinds for forseeable future( EV, Smart meters, Switchgear etc), look forward to presentation.

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Taking a term loan and same time paying dividend . Could have avoided giving a dividend now

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Q3 Results of Shivalik Bimetal Controls -

Revenue grew by almost 13.6% Quater on Quarter wise and 21.6% Year on Year wise

And PBT grew by almost 10% Quarter on Quarter and 40% Year on Year wise

As @Dev_S Sir said that they are consistently growing their top line and bottom line . As you can see in the above image of their Q3 Results

The company also has declared divided , Look at the below attached image

And the company’s management also has approved loan of 8 Crore by DBS Bank

Disclosure - Invested

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Given sizable revenue of Shivalik still ties to Vishay fortune, till other customers scale sizable, Q4 numbers from Vishay and guidance is encouraging

  • Shivalik exports to Vishay are part of Resistor segment, it’s mix in overall pie is increasing ( note Shivalik exports are part of Vishay Dale brand and they are under Fixed Resistor category )

  • Resistor is fastest growing segment in mix - reaching to $200M+ from $150M in a year

  • Margins for Vishay are slightly lower in resistors due to rising input cost and per press release they intend to increase prices in 2022 to bring it back normal ( likely works well for Shivalik as rising input cost for Vishay, reflect healthy biz and realization for Shivalik - as reflected in Q3 numbers )

Other key points

  • ASP incraese healthy for Vishay, pricing power ( helps to pay Vendors like Shivalik well rather than squeezing them)
  • Highest backlog bodes well for future visibility

Question for seniors @Donald , @ayushmit , @dd1474 , @spatel - Given Shivalik is now near 2K cr mkt cap and reasonably discovered ( not at institutions level) - based on your valuable past experiences in finding microcaps and successfully riding on them becoming small/midcap - entire journey would show certain patterns that per you is needed/ to be exhibited by company!!! How is your reading on Shivalik so far and what in your view future should happen for them to continue rising ranks? Key monitorable that you think are important going forward.

Thanks in advance and would be great for newbies to learn from your insights.

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Electronic component projected CAGR

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Did the management inform about any expansion plans and how they will be deploying this loan in the future ?

Some competition info and comparison on capabilities, ROHM is a much much larger player and has a focused offerings around shunt resistor as well in addition to many others( infact it is bigger than Vishay in size and scale and offerings)

Technical capabilities

Conclusion

  • Shivalik supports broader range of Resistance 0.3 to 10 mA, while ROHM is at 5 to 220mA( 5 is still under development) - now in real life case applications- the lower the value, better
  • Temp range - both claimed -55 to 170, however look at next point
  • ROHM only says a range without any options of metals, Shivalik on other hand has given three metal combinations and associated properties
  • Both are AEC certified, Shivalik has some additional certification as well

Above is no way a full blown comprehensive comparison, but it surely position Shivalik technical capabilities at par with a much larger global competitor

Shunt offerings for both below - worth a look, though large no of SKUs( this again establishes that this is a niche area, requiring deep tech expertise, high entry barriers

Again one can see that they are comparable, infact at lower Ohmic Resistance, ROHM is still working on while Shivalik seem to have shunts already.

Key focus area for ROHM as called out in strategy - go forward

Summary

  • Shivalik is the only niche player standing from India, thriving as one might say, opportunity size is huge,being a horizontal product
  • large players like Vishay, Rohm etc own the end clients and industry space, doesn’t mean Shivalik can’t make in roads ( just that it will take time and investment on sales & distribution infra),
  • Visible client expansions by Shivalik
    – we have seen shivalik directly supplying to Robertshaw and Airvent in US
    – Sinh shih claims to be sole distributor for shivalik based in Taiwan
    – Few more names in post by Donald in thread in Asia
  • One risk is metal price, Shivalik is able to pass on and deliver good margins, current earning may have associated inflated nos
  • End industry demand softness could be something to watch for as lot have detoriated in last one month on macro post war, though it would eventually mean heavy push on EV across globe, again a longer term positive for Shivalik.
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While going through 20-21 AR, I came across following information about foreign exchange income and outgo

I was surprised by looking at FC expenditure, which I felt was bit high. P&L shows cost of materials as 113 Cr, does this mean almost entirely all raw material is imported by the company? Investors like @yogansh , @sammy11 who have attended last AGM can throw some light on it.

I was trying to find out how current Russia Ukraine war situation would impact Shivalik.

Acquisition of Joint ventures , checon one looks good capital allocation- $1.5 M for additional 50% stake buyout, ( FY 21 40 cr turnover(45% over FY20), 2.5 Cr profit), margins slightly below current core biz, hopefully scale once integrated. At similar growth FY 22 would be 50 cr+ and 3.5 cr profits.(0.9 cr Qtrly is profit from associate per Q3 - major part will be Checon) approx Biz valued at 22 Cr that is 0.5X sales and IRR of 3-4 years - appears efficient capital allocation

Good clientele.

Edit - Silver based contact material has a sizable market worldwide,( US itself is close to $1B),

Another silver alloy player in India-

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Very interesting to see Shivalik advertising on YouTube for shunt resistors, ad placement was right with relevant content watching( renewables), ad targets two areas BMS and Smart meters




One of the competitors in above post Redbourn Engineering from UK has shut down as well. Usual trend is lesser preference to China players, this leaves field wide open for Shivalik and Isabellenhuette. Smart meter thrust is more relevant in energy crisis that world is witnessing.

A big possibility exists for Shivalik is to up the game with all possible tailwinds, they are making right moves with

  • Adding direct supplies to large customers beyond Vishay,
  • In organic growth with acquisition of Joint ventures from partners, Checon shivalik - attractive valuations, good capital allocation
  • Advertising and brand/awareness building
  • Capacity expansion done in recent past of 2-3X+ ( notes in thread from AGM)
  • Vishay has acquired other small suppliers with similar products as well - guessing Shivalik would have been approached as well - doesn’t look like they are interested in selling off ( Vishay Intertechnology To Acquire Substantially All of the )

What more can help is

  • Direct sales presence in global key markets - given their CFO sits out of Dallas, this may indirectly serves as US feet on the ground
  • Concall by mgmt to provide better visibility to investors community
  • Some clarity on aspirations, succession plans etc given promoters age

With recent incidents of EV catching fire, Shunt quality is likely to be become more important for OEMs, but again Shivalik products have large canvas beyond Auto domain as well. Pretty much all electrical & electronics universe.

With proven entry barriers and supply side being limited players worldwide( those with substantial experience), future looks bright.

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It is for companies like Shivalik bimetal limited that the power of a community like VP comes out. Even when there is very minimal information shared by the company, the community is able to take the small tidbits shared, information around clients, information around the industry, competitive intensity & build an investment thesis which is compelling. For that, my deep note of thanks to the community of VP.

To take Dev’s work forward, i think its useful to analyze Vishay’s numbers & concall commentary for a Q in order to understand shivalik’s execution better (especially in times of distress where even for the best of us, a 30%-40% fall can make one question conviction)

To begin with, VIshay’s overall revenue of 854M$ in 1Q22 is towards the higher end of the guided range in 4Q21


In fact, the gross margins have also expanded to 30% much higher than the guide of 27$% in 4Q21

Now it is important for shivalik investors to understand why Vishay’s gross margins expanded. Was it due to better product mix, higher selling price or squeezing suppliers like Shivalik? The concall gives us a good idea about this piece.

As we can see from the concall, gross margins went up due to better product mix & higher selling prices. But vishay did suffer from higher raw material inflation which has some correlation with shivalik’s ability to pass on prices to vishay in 1Q22 as well.

On to segment analysis. I looked at the last 8-9 Q of data for vishay (resistor revenue) & Shivalik. The correlation in the graphs is brilliant. See the graphs.

Now see the correlation calculated in google sheets:

Attribute Vishay Resistor Revenue Shivalik Total Revenue
2019-Q4 146.4 44
2020-Q1 159.38 46
2020-Q2 139.68 29
2020-Q3 147.2 49
2020-Q4 160.08 59
2021-Q1 183.6 67
2021-Q2 196.56 70
2021-Q3 179.08 76
2021-Q4 193.89 88
2022-Q1 204.96
Correlation (Until 2021-Q4) 0.908304665

The correlation is fairly high. The QoQ growth in Vishay revenues should translate to QoQ growth for Shivalik. In fact, even the slope of the lines are similar.

Another very interesting thing to observe is that while vishay resistor revenues dipped in 2021-Q3, Shivalik did not. This could show one of two things:
(i) Vishay’s supplies from other resistor suppliers reduced, but not from shivalik
(ii) Shivalik’s revenue is getting less dependent on Vishay.

We shall find out in FY22 annual report which one it is, but definitely either conclusion is good well for Shivallik (either it has supplier strength or is diversifying revenues; i prefer the latter though).

Another important thing to note from the sheet is that resistor as % of sales have been in the 22-26% band generally over last 2 years (increase from 22 to 24 was only mean reversion. Can it secularly go beyond 26% in the future? Need to better understand vishay to answer that).

While correlation between Vishay resistor revenues & shivalik revenues is very strong, the correlation between the vishay resistor gross margins & shivalik gross margins is weaker at 0.37. So it is much harder to predict how shivalik margins can be predicted from Vishay resistor gross margins.

It is also to be noted that the correlation if we consider latest data (2Q-2020 onwards) is much higher at 0.81)
In general thinking from 1st principles, generally the change in margins should actually be correlated not inverse correlated. The reason is that generally pricing changes are absorbed by entire supply chain (OEM, Tier 1, Tier 2, Tier 3, Tier 4) together as a unit. My measured prediction is that VIshay’s resistor pricing power would be shared with Shivalik & we might be GM expansion in q4fy22 (though these things are hard to predict as the weak correlation shows).

There is another very important thing to understand, the right to win here for shivalik is closely tied to Vishay (at least for the time being). Hence, what we should be doing is a vishay vs competitor competitive analysis. Just a glimpse from the investor presentation shows us that Vishay is the only one with a wide range of resistors (power, SMD resistors, Variable, Sensors)

No other competitor (at least as per vishay, we need to do our own due diligence) has the kind of broad line of resistors that vishay has.

Even in general Vishay’s line of semiconductors & passive components is highest. The reason this matters to us as Shivalik interested investors is that to an Apple, Nokia, Sony, ABB, BOSCH, Samsung, GM, ZF, Tesla, it is much easier to deal with 1 supplier rather than dealing with multiple suppliers.

Btw that was not a random laundry list of companies, all of these are clients of Vishay (& thus of shivalik). It is insanely hard for CO of shivalik’s size to bypass vishay because vishay acts as an aggregator of these electronic components & that is their value add. They make supply chain, sales, marketing easy (or non existent) for shivalik. To shivalik an electronic component costs 50 rupees. They sell it at 100 rupees. Vishay sells it at 145 rupees (45 rupees mark up). TO Shivalik, this is the cost of outsourcing their Sales & marketing & complex supply chain management.

Perhaps if shivalik becomes 10x larger in fundamentals it can think about bypassing vishay completely (some OEM might still be interested in tying up for Shivalik directly because that way this 45 rupees can be split between shivalik & OEM or tier-1 supplier.

This complex dynamic of whether & to what extent shivalik can or will bypass vishay to establish direct relations with OEM or Tier-1 supplier needs to be better understood through industry scuttlebutt in my opinion because it can have a heavy influence on where shivalik lies on the growth-profit curve.
Continue to supply larger share of wallet to vishay, growing with them, or bypassing through a difficult, effort consuming process which can lead to better gross margins. Most likely reality will turn out to be somewhere in the middle.

Zooming out a little & looking at Vishay resistor (resistor + inductor pre 2017) gross margins over the years, we see that Vishay’s peak margins here have been around 35%in 2010. Not there yet, but getting there (30% in this Q).

Shivalik’s gross margins would be much harder to predict imo because of changing product mix, changing client mix (tier K vs tier K+1 supplier, smart meter vs BMS) but volume growth should probably not be a problem with a secular switch to EVs throughout the world accompanied with secular shift to smart meters (i expect revenue contribution from former to be much much higher in steady state because people replace cars much more frequently than they replace the electricity meter @ their homes)

link to analysis sheet:

Disc: Have a small position studying.

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Good work yet again, @sahil_vi . I can never do such kind of work.

I think interesting thing to note from your data of co-relation of Shivalik with Vishay is that from recent qtrs, Shivalik is growing faster than the growth of Vishay - this indicates that Shivalik has been able to add more customers (as they indicated in their presentation). It also seems that Shivalik has been able to add some domestic customers.

Disc: Same as before

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Most likely these are customers for coils rather than shunts or registers

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This is really great work @sahil_vi . Gross Margins for Shivalik shall be better than Vishay registers as Shivalik is more backward integrated company. They supply bimetal strips to Vishay who manufacture registers where as Shivalik builds it from scratch from metals. These metals are 100% imported that’s why we see huge expenses in foreign currency. The natural way forward for Shivalik is to design and manufacture BMS systems themselves to unfold full potential. They may not have market today hence perhaps waiting for right opportunity to invest.

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