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 electronic devices.
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 processes.
The companys research facility was approved by Ministry of Science and technology in as early as 2002.During FY11-14, company faced major 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.
The share of CPT parts in Shivaliks total revenue fell to almost nil (0.5 per cent of revenue) in FY14.
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 manufacturing facility in field of clad metal with Aperam Group as major partner).Bulk of companys raw material is nickel-based alloys and other alloys.
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.
Thus.
His views may be biased.
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.)