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.
At the heart of Shivalik Bimetals is the process of Electron beam welding (while they do follow other welding processes too, this is one of the important ones). Perhaps then it is useful to understand the process itself.
Here is a short video:
A few key takeaways:
This is a fairly technical process. The chamber where welding occurs has to be emptied off air & water molecules (better the vaccum, better the outcome). This is needed because otherwise the electron beams collide with the air/water & lose their energy.
process uses kinetic energy of electron beam to produce heat energy (when electrons collide with metal atoms).
This process requires extreme skill. The direction & exact angle of electron beam is controlled by a human using a lens. One can now imagine why this is called “precision” welding. The skill with which the human operator has to gyrate & move the lens & thus the direction of electron beam is not any less than the sort of skill a surgeon requires to do surgery. The biggest entry barrier thus is the person doing the electron beam welding. This is a technical know-how moat. The experience they have received by welding many kilometers cannot be aquired with money alone (of course people’s allegiances can be bought or sold).
The cathode filament in the electron gun is heated to 2500C for continuous emission of electrons. For comparison, surface temperature of our host star (commonly known as Sun) is 5,505C (so the equipment operates at half the temperate of our host star surface. This shows us how dangerous this equipment is & how much are one must pay in operating it.
Electron beam welding is also used in nuclear, ship building, medical devices. Looks like there exist a lot of adjacencies whenever (X years down the line) they might want to expand their core competency (which is not shunts, it is welding of bimetals or trimetals).
Here are some “disadvantages” of electron beam welding:
Do those sound like disadvantages? Sound like entry barriers to me, each & every one of them.
This also answers one of most IMP questions to me personally. This business can run itself, promoter competence was needed to jump-start envision then early execution. Now that they have skilled people doing the actual welding (pretty sure Mr ghuman does not do welding on factory floor), this is the sort of business buffett would want to own (anyone can operate). Promoter competence would definitely still be needed in doing new R&D developing new core competencies (new materials to weld, new process, new applications). But the opportunity size is so huge even for existing products, one cannot go too wrong buying at 20 times earnings imho.
Link to see the shipments of Shivalik to US. Can think of Patterns by which i mean
the qty which Shivalik is giving to Vishay over time. Have been following this link for
a while and it clearly shows that Shivalik is the biggest supplier to Vishay for its shunt
resistors and the qty supplied to them has only gone up over time.
The only question is how much more can it supply if it is already the most dominant supplier,
no company would want to Procure all it’s material from one supplier considering the
current environment where supply stability is key.
It does not need to grab larger share of wallet of vishay because vishaya own resistor sales are growing. See the post i shared yesterday. Vishay sales are growing around 5% QoQ
Also, shivalik has already diversified it’s revenue stream away from vishay to a good extent i think. The actual numbers will come probably in AGM. Also, shivalik already has 3 scaled bms contracts, maybe more in pipeline.
My appreciation to sahil-vi for his commendable works on Shivalik. Kudos to you. Would like to mention here my apprehension for margin squeeze in Q1 & 2 due to unprecedented rise in raw materials price, which may not be 100% pass through. Also logistic and freight issues may have a bearing on its performance, as it is dependent both on imports(raw materials) and exports. Inspite of it, Dec21 result was good, which speaks well on its management. Matter will be cleared on concall after yearly result.
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