Q3FY25 concall gave very interesting glimpses on the direction that the management wants to take with regards to shunts. I would highlight those as
- Backward Integration
- Forward Integration
- customer profiles
Backward Integration
It is good that the company has started to integrate backward to develop suppliers for metals and alloys for their specification. This is a long journey and can lead to many wonderful results. The most obvious is the Inventory days can reduce from 200 odd days to say less than 50 days ( This is my assumption). This allows the company to handle demand and supply shocks which puts them on a better footing via their Partners especially in a down cycle.
The second benefit of backward integration is the expertise in alloying which I believe is the heart of shunts. If they are able to make alloys and generate various material for different applications, they would be in a much stronger footing and this would also make them similar to issabellanhutte. Knowledge of alloy in this business is important as shunts are sensitive to temperatures and environment conditions. The more a shunt remains unaffected in the operating range ( i.e. the resistance does not change ) the accurate it becomes for current measurement.
But making alloys are tough but hopefully SBCL will be able to make some headway.
Forward Integration
This is what excites me the most, and I observed the excitement in the con-call participants as well. At present Shivalik buys alloys of a certain dimension, cuts them into strips, join the alloy with copper and then machines them.
Then they send this shunt to a Tier 2 or Tier 1 who would fit them in a module to make a current sensing module ( for larger batteries) or it can be directly put as a part of BMS ( usually in smaller batteries)
for more reading on this topic
What Shivalik said was that they will start to produce some of these modules which puts them in the league of the TIER - 2 s. Off course it is not clear if they will also buy the PCB or start to work on the PCB. I would go with the buying part as it seems that the management is taking small but focused steps towards value addition.
The obvious benefits of such forward integration is increase in Topline . A shunt sells for say 50 rupees and a module would sell for say 500. The margins of the shunt is 20% but the margin for modules probably would not be 20%, maybe close to 10% ( I am telling this from experience, but management thinks otherwise ). Also in case of very low volumes of say 5000 components, margins can be huge (25-30%) but that is materially insignificant to the company. I would put that as prototyping.
What interests me is that this gives them the opportunity to be a part of the product development cycle. Shivalik is already well known to work with Tier-1s to improve shunt designs and reduce cost ( 10 rupee reduction in cost for a volume of 1 Cr is 10 Cr in savings , In high volume business such small innovation can really impact the entire value chain ). I believe that as they give themselves more time towards the forward integration they will start to build more knowledge as a contract manufacturer and who knows at some point develop shunt modules themselves.
Now why would the customers want such capability from Shivalik. The obvious one is that it reduce their hassle of procuring parts from multiple vendors and then have quality assessments in every place. The activity from shunt to module will require at this stage only to do some soldering and fitment activities. Shivalik is probably very well placed to do so and is happy to do it. For quantities below 10000 it is probably a no brainer as the customer will most likely buy a out of the box BMS / Current sensing module.
My Concerns
- Solan as a location is not very convenient. Yes they might get cheap labor but in such a high margin and TAM business, should labor cost be your concern. I feel they should have facilities around Industrial hubs of South and North India.
- They should have their design centers in Bangalore / Hyderabad / Gurgaon . They must attract high quality talent if they want to do good in both metallurgy and EMS
- Hope they do not get distracted from the core objective of making shunts and start to build narrative about forward and backward integration.
Also my BIASED view of the Industry
At present the adoption of EVs has sort of plateaued ( and in some cases declining ) but this change is inevitable from a technological stand point. Imagine our Cars which are becoming technology rich with every passing day, these electronics needs power and the current source of power is the 12V Lead acid battery. The easiest way to increase power is to replace the lead acid battery by lithium ion batteries. Thus you need a BMS ad hence a shunt
The next part of the puzzle is the regulation and narrative around clean air and PM2.5 particles. Again, the hardest way is that you have a great exhaust system and filter the air out. This is expensive and beyond a point not effective
The easiest way is that you can simply improve the quality of emissions by the ICE engines by running it in the most optimum range. You can adjust the optimum range using battery as a source of power. When car is is idling you can charge your battery, when the car demands power you can discharge your battery . Thus you need a battery and motors and inverters → 6+ shunts
Finally 2W EV in domestic space has been quite popular and convenient, which would also keep a demand for shunts. As charging infra gets set up ( I am observing that as I am using an ev ) a lot of range related issues will go away. On top of that there is the battery as service ( BASS ) into play. I feel entrepreneurs can be really creative when it comes to EVs and there could be 2 and 3 W in different form factors suiting to customer needs. This segment will drive the usage of custom modules and I hope Shivalik will be able to capitalize on that oppurtunity
So my view still is that it is not gloom and doom and some regulations will start to kick in like CAFE Norms and CARB norms which will make it impossible to sell pure ICE cars.
