A forward! Any views folks?
Somi Conveyor Belts is a BSE Listed 70 Crore Market Cap company. FY15 Topline 75 Cr., OPM 16.5% and Net Profit at 4.5 Cr., currently available at less than 10 times forward, Somi has a decent balance sheet considering the size and nature of businesss.
Recent foray into high margin Steel Cord Conveyor belts is expected to take company into a whole new orbit. With a capex of Rs 35 Cr., it is expected to bring a topline of Rs 350 Cr. with 20-22% Operating Margin, which implies an extremely short payback period.
Current order book already stands at 140 Cr., which includes marqee names like Adani, L&T and some of the most respected MNCs in mining and power sector.
This order book is to be executed over next 6-12 months.
Current #2 in the country, Somi aims to be largest player in the world led by its superior technology and execution capabilities.
There is a huge sectoral tailwind; like aggressive plans of doubling coal output by 2020. The industry itself is expected go up multi-fold over next 4-5 years and Somi seems to be the best way to play this whole mining theme.
The stock has attracted ace stock pickers like Mr. Girish Gulati of Avanti Fame
A forward! Any views folks?
are you sure that revenue of 350 crs is possible? how many years would it take for them to ramp up their operations.
i went through the FY15 annual report and the management has given very aggressive guidance. according to AR, mgmt targets 80% rev growth in FY16 and further 100% in FY17.
But the mgmt has history of giving aggressive guidance and not achieving it.
Here is the transcipt of the interview in Oct 2010 where mgmt gave guidance of 30-35cr revenue for FY11 and Rs. 80 cr for FY12. http://www.moneycontrol.com/news/business/somi-conveyor-beltings-projects-rs-30-cr-revenue-for-fy11-_490428.html
the co managed to achieve sales of 25 cr in FY11 and 36 cr in Fy12. in FY15 revenue stod at 75 cr.
Discl: Not invested
the broader economic slowdown might have been responsible for it but yes you are right we cannot take the management’s word at face value.
Manish can you share who sent you this note? some brokerage house or a stock picker?
One of the earliest discoverer of Avanti feeds who holds more than 1% stake astute HNI investor Girish Gulati had invested in this co
I looked at this recent BSE release where they talk about order inflow from L&T, Bhel & Thyssen for about 40cr a couple of months back -
This looks like a decent opportunistic bet
Any idea why they had a very average(IF NOT BAD) Q1? (whats the likelihood of that repeating again?)
Some things worth considering -
Loans and advances increased 50% ( in addition there is a BMW loan) in a high capex year. For what purpose have these loans been given?
Rubber prices are at an all time low . What happens to margins when trend reverses? Can they pass on the increases?
BTW - the shareholding of the ace investor mentioned has come down by 50% in the last quarter
I bought a small quantity for tracking purposes.
From what they say, looks like a very differentiated play and so not sure why they are not able to scale up the volumes.
Do any of have a ppt explaining the industry scenario - i.e. size, competitors and strengths? I have been trying to talk to them, but haven’t been too successful.
@saeyons, w.r.t business scale this may be helpful…
“The typical lifespan of a conveyor belt product varies from two to five years; after this there is need for replacement of repair work on the conveyor belt or part of the conveyor belt and this provides long term visibility to company revenue generation.India’s Twelfth Five Year Plan (2012-2017) has projected better growth prospects in industries such as Coal Mining, Cement, Steel, and Ports, which are some of the major end-users of conveyor belts in India. The growth in these industries is expected to drive higher demand for conveyor belts in India in the coming years.”
The biggest determinant of performance of small companies is their Management. Do we have a reasonable idea about management competence and integrity?
ok… after multiple attempts, was able to get through to the company folks.
They were forthcoming and here are some of the observations.
-their foray into steel conveyor belts is indeed a big event. The pricing of this @ 3000/m is almost 4times the normal belt. The life is these belts is much better at 4 years as compared to 12-18 months for normal belts makes this more attractive for clients. Also, this requires less maintenance.
there was a delay in getting this product in place and so they had subdued q1 and q2. But they indicated that q3 and q4 should be substantially better and they should easily cross 100 cr for the year.
Also send next year should be much better. Close to their guidance. So perhaps 200 cr at a pat of 12% would mean an eps of close to 20. I think at a minimum u should give at 10 p/e for the growth rates they can sustain, but make ur call.
The industry is still dominated by small players and clients are largely psu’s where price is the most important determinant without major emphasis on quality.
So in pvt sector bids, they easily win, but is not so the case with psu’s like NLC. But the market size is huge (I don’t remember exactly, but I think NLC alone is 200 cr/year). So with their competencies they should be able to scale up.
I checked with some local folks and they had good things to say about Somi and the Bhansali’s. But I don’t know the source all that well and since he is from the local pollution control board, I don’t know what this means.
p.s I hold a position - a medium one.
Please have a look at Somi’s competitor,Continental Belting,a private co. The following article and video provide some vital info on the industry.
I’m trying to understand what is a belting player’s edge over its competition and where does Somi stand on these parameters? Is it the belting fabric? Is it consultation on optimum installation of belts,because its not a plain vanilla application for all and seems lot of customisation is involved? Or is it providing every efficient solution on lowest energy cost/tonne of material handling?
Also,why has Somi given such aggressive targets,we know industry is not so robust both in India and globally? The new product steel cord belts is already being provided by a few players,Continental Beltings being one.
A link describing cartelisation among conveyor belt cos.,
Does presence of cartelisation imply belting is a commoditised industry?
Total income: 14.6 Cr Vs 17.9 Cr Vs 23.6 Cr (Q3FY16, Q2FY16, Q3FY15)
Net Profit: 0.74 Cr Vs 0.90 Cr Vs 1.12 Cr
Management said 80% revenue growth in FY16. But, on YTD comparison they are ~20% down. Why is management projecting an aggressive growth ?
Anyone still tracking this company? The product seems good, so does the management; but the stock has tumbled 60-70%