Introduction
In today’s blog, we will discuss the fundamentals of a small cap company that is a global leader in its niche. Shivalik Bimetal, a company established in 1984, specializes in joining metals to manufacture precision components used in various high-growth sectors. The interesting aspect of Shivalik Biometal is that its products are used in three big themes: EV (Electric Vehicle), smart meter, and energy storage.
The Business Model Of Shivalik Bimetal
Shivalik Bimetal’s business model is a bit complicated, but we will simplify it as much as possible. The company manufactures shunt resistors, which are used for measuring current in sophisticated electronic devices. These shunt resistors find usage in multiple sectors such as smart meters, EV cars, switch gears, and power storage modules.
The Forefront of Innovation
Shivalik Bimetal Controls Limited takes pride in its ability to provide precise engineering solutions. With an impressive market share of 85-90% in the domestic market, the company is at the forefront of innovation in the field of bimetal parts. Additionally, being a leading exporter of shunt resistors, Shivalik Bimetal Controls Limited has positioned itself as a key player in the global market.
Benefitting from Electrification
As the world moves towards electrification, Shivalik Bimetal Controls Limited stands to benefit from this shift. The company is well-positioned to experience further growth and development within the industry. With its expertise and cutting-edge technology, Shivalik Bimetal Controls Limited solidifies its position as the front runner in the manufacturing of laminated shunt resistors
Smart Meters
Shunt resistors are used for accurate monitoring and control of energy consumption in smart meters. With the Indian government’s plan to install 25 crore smart meters in Indian households, the demand for shunt resistors is set to increase.
EV (Electric Vehicle)
Shunt resistors are also used in EV cars for battery management, current sensing, and monitoring. As the world moves towards electric vehicles, the demand for shunt resistors in this sector is expected to grow.
Energy Storage
Shivalik Biometal’s products, such as current sensors and electrical contacts, are critical in ensuring the efficient and safe operation of renewable energy systems and power storage modules. As the demand for energy storage from renewable sources like solar and wind increases, the market for Shivalik Bimetal’s products in this sector is expected to grow.
Market Potential and Growth Opportunities
Shivalik Bimetal operates in a global market, with a market size of $1.2 billion in 2022. This market is expected to grow to $2.4 billion by 2023. The shunt resistors segment is the fastest-growing segment within this market, with a 14% CAGR. The thermostatic bimetal and electrical contact segments are expected to grow at a 7% CAGR.
Shivalik Bimetal has a significant growth opportunity in the EV and energy storage sectors, as well as in electrical appliances, smart meters, medical devices, and switch gears. The company is also planning to forward integrate into current sensing modules, which can increase their value addition by five times. Additionally, Shivalik Bimetal played a significant role in Europe’s 5G rollout, and the Indian 5G network rollout could also create a spurt in demand for the company’s products.
High Entry Barriers and Customer Stickiness
One of the reasons why MC Pro favours Shivalik Bimetal Controls Limited is the presence of high entry barriers. The company’s customized products and customer stickiness contribute to its competitive advantage. Shivalik Bimetal Controls Limited is a global leader in manufacturing laminated shunt resistors, thanks to its utilization of Electron Beam welding technology. However, the company faces challenges with a lengthy product approval cycle spanning four to five years. Despite this, its cutting-edge technology and expertise continue to solidify its position in the industry.
Competitive Advantage
The key competitive advantage of Shivalik Bimetal lies in its precision welding techniques. The company uses Electron Beam welding technology, which is a fusion welding process that allows for the precise joining of metals. This technology is used to manufacture low ohmic shunt resistors, and there are only four players in the world who can manufacture these shunts using Electron Beam welding technology.
Shivalik Bimetal has one of the largest capacities in the world for Electron Beam welding, with eight machines that have been customized and optimized in-house for maximum productivity. The company also uses diffusion bonding technology to manufacture customized products for their customers. This specialization in technology, combined with over 35 years of experience and in-house R&D, gives Shivalik Bimetal a competitive edge in the market.
Leadership and Financials
Shivalik Bimetal’s success can be credited to its strong leadership team. The company was started by first-generation entrepreneur Mr. SS Sandu and NS Guman. The current leadership team consists of Mr. Kabir Guman, Mr. Anan Suir Guman, and Rajiv Ranjan.
In terms of financials, Shivalik Bimetal has shown consistent growth in both its top line and bottom line. The company’s sales have grown from 26 crores to 55 crores, with margins consistently improving from mid-teens to now in the 20s. Shivalik Bimetal has also generated cash from operations and has a strong balance sheet with a debt to equity ratio of 0.14.
Sufficient Capacity for Revenue Milestones
Shivalik Bimetal Controls Limited has sufficient capacity to achieve a revenue milestone of INR 1,600 CR. Between FY21-23, the company has made significant investments totaling INR 75 CR. Looking ahead, an additional allocation of INR 20-30 CR is planned within the next two years. With these investments and post capacity expansion, Shivalik Bimetal Controls Limited is poised to unlock substantial revenue potential.
Share Price and Investment Potential
Shivalik Bimetal’s share price has experienced significant growth, with a zoom from 3 rupees to 90 rupees between 2014 and 2018. However, it has been consolidating for the past year. The slowdown in the North American market and softness in commodity markets have contributed to this consolidation. Despite this, the company’s growth potential is significant, and the valuations are decent with a P/E ratio of 42.
Factors to Watch Out For
While considering an investment in Shivalik Bimetal Controls Limited, there are certain factors to watch out for. Rising competitive intensity, high customer concentration, with the top five customers contributing to 30-40% of their revenue, and the possibility of a longer than expected extension of inventory destocking in the global market are all factors that need to be considered.
Risks Investment Stock
While Shivalik Bimetal has a strong market presence and competitive advantage, there are some risks to consider. These include client concentration risk, raw material price risk, margin volatility, technology substitution risk, and competition risk. Additionally, the company’s manufacturing plants are concentrated in one area, which poses a potential risk.
Conclusion
Shivalik Bimetal is a small cap company that has established itself as a global leader in the shunt resistors and bimetal segment. With its specialized technology, strong leadership team, and solid financials, the company is well-positioned to take advantage of the immense growth potential in the EV, energy storage, and other high-growth sectors. While there are some risks to consider, Shivalik Bimetal’s competitive advantage and market presence make it an attractive investment opportunity.
Disclaimer: The information is only for information purpose only. It is always recommended to consult with certified financial experts before making any investment decisions. Follow busymoneyfreak.com .