P

P

Lord Jesus Christ Says...

I have received abundant grace and the gift of righteousness and reign in life through Jesus Christ (Romans 5:17).

29 Aug 2018

SHARE MARKET-- AN UNIDENTIFIED GEM FOR LONG TERM BET/TRY--


Shivalic Bimetal Controls -- A niche player in electronics set for higher growth

The financials also back the story. The company never reported losses in any of the last 15 years of its history and maintained an average 12 percent operating margin.
    
The small chips, circuit or a small regulator that we often see on any of the electronic appliance requires joining several materials made from metals like copper and others. And Shivalik Bimetal Controls (SBCL), which is catering to this industry since 1984, is well placed to take advantage of a surge in demand. Shivalik specialises in joining materials and has been a dominant player in this space supplying its products to clients across sectors such as electronics, automotive and home appliances.

A small but niche player
While it’s small and operating in a niche segment, the company enjoys leadership and faces little competition. "Shivalik has a leading position  in the bimetal sector owing to technical expertise, integrated automated  production facilities and a wide range of products. SBCL has low competition in the domestic market as other players in the domestic market have limited technical expertise and production capabilities," said CARE Ratings in its credit rating report.
The financials also back the story. The company never reported losses in any of the last 15 years of its history and maintained an average 12 percent operating margin.
The long-term drivers
Make in India, digitalisation, indigenisation of defence electric procurements, smart cities, industrial recovery, solar mission, electrification of villages, development of electric vehicles, railways modernisation and housing for all are some of the secular growth drivers of the business.
Improvement in fundamentals
Shivalik’s latest annual report reveals that the company has initiated two strategic initiatives. First, it is keen to become a process, people and performance driven organisation with a strong focus on cost-cutting and leveraging its existing basket of portfolio and capabilities to drive efficiencies. This has already started to reflect in the total expenses as a percent of sales falling by 320 basis points to 80.6 percent in June 2017 quarter compared to March quarter. Year-on-year expenses fell 453 basis points.
Second, it will leverage its infrastructure and capabilities to add new applications and venture into new projects based on the assessment of addressable market. For instance, it is working on new technologies in the solar-based and hybrid products.
Strength of the balance sheet
The company has been conservative with very little reliance on debt (historical average of 0.8 times). Over the last three years the company has invested heavily with the gross fixed assets moving up from Rs 38 crore in FY14 to Rs 73 crore in FY17. In this period, the debt has actually fallen on an absolute basis. With the current debt to equity of 0.5 times with the interest coverage ratio of 5.4 times, the company is well placed to leverage the up-cycle.
The export edge
Some of these initiatives have started to pay off with the company now having presence in 40 export markets. Exports, which accounts for 46 percent of the total revenue of the company grew by 50 percent to Rs 60 crore in FY17. Because of a spurt in exports, the company reported 34 percent increase in standalone sales to Rs 38.9 crore and 150 percent increase in standalone profits to Rs 3.8 crore in Q1FY18.
Valuations
While some of the benefits of past efforts are already visible, growth in the coming years could be relatively better as a result of cost reduction benefits, product extension, recent expansion of capacities, opportunities in the export markets and possible revival in the domestic investment cycle. Meanwhile, at the market capitalization of Rs 260 crore (price of Rs 63 a share) the stock is trading at 16 times annualized standalone earnings of FY18, which may not be cheap but considering the growth and opportunity this idea could be worth accumulating gradually.
Consult with you share advisor and consider for long term buy.  Good luck.

No comments:

Post a Comment