Uniparts India Limited

Stock Opportunities
1

Thesis

Uniparts India operates is a ancillary in OHV segment catering to tractor and construction equipment OEMs and aftermarket segments. Most sales are in US and EU. Uniparts stands to benefit from China + 1, Europe + 1, from the $1 tn dollar infrastructure bill in the US and improvement in farmers’ disposable income in EU due to increase in food prices as a result of Ukraine Russia war.

The company has a pricing advantage compared to it’s peers as 95% of production is in India (EM) and sales are mostly at prices in US and EU. Competing with players based in EU and US on pricing, nature of the product being a value added product and long standing relationships with OEM clients gives the company a competitive advantage

Risks

  • Black box in terms of how a competitor from EU or US can set up similar manufacturing and distribution capabilities in India. Since the company is making ROCE of 30%+ and ROE of 27% (set to improve even further), it’s only a matter of time before someone wants a piece of pie of such high profitability
  • Lack of formal competitors making it hard to compare

Questions

|1|Run rate maintenance capex? And for guidance given on growth how much growth capex to be incurred in the next 3 years?
|2|We regularly evaluate existing manufacturing portfolio as well and undertake calibrated relocation of manufacturing any identified products to optimize cost structure and resulting margins - Page 164 of DRHP. Do we have any other examples other than the one undertaken at the US plant?|
|3|Is Warehouse inventory primarily to cater to the aftermarket segment or OEMs? |
|4|Is high number of Inventory days a normal in this business? Some of it is due to the warehousing model - but the number is still very high. What is this compared to peers?|
|5|Why not remove all manufacturing from US and produce in India when there’s a cost advantage? Where is the cost advantage - Raw material, manufacturing, labour, others? If you can quanitfy with respect to a comparison with peers|
|6|For setting up new greenfield capacity.At what quantity of sales can we break even? How much capacity needs to be set up? How long will greenfield capacity take? How much will be the capex? How will this be funded? To acheieve breakeven sales - how big should the dealer network be? How long will take to set up warehousing and distribution? Distribution channel economics? What is the entry deterring price for new competition?|
|7|We’ve developed new products for ATV segment yet there’s no R&D expense in P/L, could you explain how do you look at R&D as a company? And how do we account for such expenses? |
|8|Could you share the succession plan policy? If publicly available, please share where we can access|
|9|In the past, have we endured any downturns? How has working capital moved in those years?|
|10|Number of employees - At the end of the year for the last 6 year including temporary and permanent staff|
|11|What is the cost of 3LP and PMP (AJ) as a % of tractor and construction equipment?|
|12|Unit economics? For both 3PL and PMP - through all channels - whether OEM sales or through dealers|
|13|- What are the terms of trade at different volume levels of business for a customer?|
|14|What is the frequncy of pricing adjustments to be able to pass on falling or rising raw material/any other costs? What is the % of fixed cost contracts vs total contracts in value terms?|
|15|Replacement cycle of the 3PL, PMP and ATV 3PL?|
|16|Who are our top 5 OEM and Retail customers?|

Please do share your inputs - if there’s anything anti-thesis or if you can help me find answers to the above questions
Thanks :slight_smile:

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I don’t know answers for all the questions as i recently took an exposure and still in the studying phase

  1. In almost all the interviews, he said their business is asset light. If i am not wrong, less than 50% of the CFO they will spend on capex
  2. Warehouse model is exclusively meant for the Just In Time supply
  3. Inventory days is high because of the warehouse model(60 days) and inventory on the sea which adds another 60 days
  4. its in low single digit
  5. On a quarterly basis.
  6. They don’t cater into retail directly. They have all the top 10 clients in the Agriculture and top 5 in the CNF.

I had below couple of observations
I saw resignations of 4\5 CS between 2020-2022. And they have accounted past(FY2020) CS salary expenses in the FY22
In FY2017, observed that both the MDs are taking remuneration from the subsidiaries than from the parent company

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Hi Rudresh

Thanks for your inputs, they’re very helpful. Just a few follow up points

Point 1. How can capex be a variable linked to CFO? That’s something they’ve to answer - If they’re eexpecting to grow revenue at 10-12% and profit at around mid teens, shouldn’t capex as a % of CFO come down?
Point 3. DSI has been in the range of 300-400 days in the past years. Any explanation for the remaining days? We have explanation for 120
Point 4 - For R&D expense?

I don’t think the CS resignations is a big concern - We can ask management about this. It could be because they were going to get listed couldn’t find the right fit to guide them through the transition from a unlisted to listed company - that’s my opinion

Thanks

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Good you tube video to get overview about company

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I have asked around about this company - Word on the streets seem to be that people have doubt regarding the high margins and it’s sustainability.

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Management expects improvements in the upcoming fiscal year, specifically from FY 2024-2025. They also plan to maintain the current Healthy Dividend policy.

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