INSUBCONTINENT EXCLUSIVE:
By Dhiraj DaveI like Shivalik Bimetal Controls as an investment idea for 2019.
Shivalik Bimetal Controls is engaged in business of
manufacturing sales of thermostatic bimetal/trimetal strips, components, EB-welded products, cold-bonded bimetal strips and parts.
Promoted
by SS Sandhu and NS Ghumman and incorporated in 1984, company exports its products to over 50 countries around world.
Shivalik caters to
broad spectrum of applications, including switchgears, energy meters, industrial use, electrical applications, besides automotive
Its revenue growth is dependent on electrical, electronics and automative Industries
Despite single-digit revenue growth in main end-use industries in India, Shivalik reported 19 per cent CAGR growth during FY15-FY18 by
improving product mix and increased penetration in export market
The growth in exports could be attributed to high research focus and superior quality of products achieved through experience in some
setbacks as supply to colour picture tube (CPT) part, which contributed around 30% of its revenue in FY11, dwindled due to a change in
technology resulting in virtually no demand for CPT parts
In order to overcome challenges, company managed available cash flows prudently (curtailed dividend to nil from around two annual dividend
payments a year in past, delayed proposed capex for expansion and reoriented production facility manufacturing CRT parts to manufacture new
products under development).
Consistent efforts to improve new products and frugal cash flow management rewarded company
New shunt developed by company found its usage in battery management system for electrical vehicles and that resulted in improved share of
shunt in total revenue.
The management is also venturing into niche applications like overloaded protection and thermostatic Bimetals of
various home appliances through JVs
It has also announced capex plan for manufacturing diverse products to meet growing demand of existing products and new products with
applications in newer fields like smart meters and home appliances.
When company was going through a rough patch, directors had foregone 70
per cent of their entitlement, amounting to Rs 62.64 lakh in director remuneration and opted to avail only 30 per cent of increased
remuneration as approved central government for FY 2011-12
Further, in FY14, due to constrained profitability, management voluntarily proposed to work on same salary for next three year.
However, in
FY18, when company resumed on profitable path, salaries of promoter directors increased to Rs 3.63 crore against a net profit of Rs 15.99
crore, which was higher than total dividend payment of Rs 2.77 crore during year.
The company has few joint ventures like Checon Shivalik
Contact Solutions (Inlay manufacturing facility with Checon Corporation as equal JV Partner) and Innovative Clad Solutions (world-class
A significant quantity of input requirement is imported, which results in input price volatility risks
The company, however, mitigates same by having entering into contracts with customers, who provide for passing of any input cost change
Further, more than 50 per cent exports work as natural hedge against exchange rate movement on raw material cost.
At trailing 12-month P/E
of 20 times, company is reasonably valued in view of expected growth
However, given innovative and diversified product mix, prospect for higher revenue growth may provide scope for price appreciation in medium
term.
(Dave, a Mumbai-based value investor, holds shares in company
He is not a Sebi-registered investment adviser, and this writeup should not be seen as investment advice
Please consult your financial investor before making any investment decision.)
