Shivalik Bimetal Controls hosted a conference call on May 19, 2023. In the conference call the company was represented by  SS Sandhu, Chairman & ED  and Rajeev Ranjan, CFO

Key takeaways of the call

Over the years the company made significant strides of evolving landscape of technological applications. It offers reengineering products to meet customer needs and delivers tailored solutions to OEMs.  Its focus on manufacturing excellence with consistent quality positioned it as valued partner at various industries and the company will maintain all these same virtues in the future as well.

Shivalik is a global leader in next generation thermo static bimetal/trimetal  electrical contacts and shunt resistors.  Fostering deep relationships with leading system manufacturers & OEMs globally. Establishing reliability with longterm clients. Partnering with clients for bespoke applications. Expanding mandates with existing clients towards more innovative capabilities.

Strong growth in revenue to the tune of 30%YoY in FY23 was led by strong growth in volume with the addition of new mandates from prominent clients. Despite cost pressures the gross margin improved by  69 bps to 50.98% in FY23 through astute management of raw material and processing input costs. EBITDA Margin expanded significantly by 214 bps YoY to 24.84% in FY23, driven by manufacturing efficiencies from greater economies of scale, and effective cost management in a challenging global macroeconomic environment.

Witnessed solid growth across segment. Standalone revenue in value terms of both Shunts and Bimetals grew strongly by 20% and 26% respectively in Q4FY23 and 23% and 37% in FY23.

Europe demonstrates a steady rise for the Shunt Resistor segment for Q4FY23 & FY23. Despite weakness for Q4FY23 Asia/Australia demonstrates a steady rise for the Shunt Resistor segment for FY23. The Americas show a significant rise in the Thermostatic Bimetal/Trimetal segment for Q4FY23 and FY23.

Launched just five years ago, the Shunt Resistors business now grow to contributes around 50% of its total business in value terms. In case of value the share between shunts and bimetal were 50.2:49.8 in FY23. In terms of volume the mix between shunts:bimetal were 48:52 in FY23.

While the Bimetals segment continues to be the long-term growth engine for the Company, Shunts have become a fast growing and meaningful growth driver for Shivalik, and has emerged as an equal to its Bimetals business within a relatively short space of time. With multiple growth drivers propelling Shivalik forward, the Company is ideally placed at the waypoint for the electrification of the Global Economy.

Total Global Addressable Market of the company was USD1.23 Billion as of FY 2022 which is expected to grow at a CAGR of about 9% to USD2.4 Billion by FY 2030.  The shunt resistors, thermostatic bimetals and electrical contacts market is expected to reach USD 650 million, USD 350 million and USD 1400 million respectively by FY2030 from about USD 230 million, USD 350 million and USD 800 million as of FY2022.  Key growth drivers going forward for total addressable markets are - Growing demand for electric vehicles and charging stations; High demand due to exponential growth in infrastructure sector; Growing demand for electric vehicles and charging stations; High demand due to exponential growth in infrastructure sector.

The prices of raw materials procured by Shivalik are index linked thereby reducing the risk of price volatility. Further Shivalik is able to transfer price volatility as it enters into back-to-back contracts with its customers.  The Company has diverse set of suppliers thereby reducing the risk of shortage of raw materials. The Company enjoys an import-export ratio that provides a natural hedge for price fluctuation in case of forex.

Entry into complementary market segments - Shivalik’s strategic acquisition of CHECON’s (USA) stake in SEPPL expands the Company’s offerings to manufacture and design Silver and Silver Alloy based electrical contacts and assemblies.    Shivalik also has a joint venture with Arcleor Mittal Stainless & Nickel Alloys called ICS located in Indore, MP, India.  Both these initiatives broaden Shivalik’s offerings and provide entry into complementary market segments alongside bimetal, trimetal, and shunt resistors.

The company enjoys favourable economic moats such as efficient scale from specialization, High-switching costs for clients and  Contracts structured where price volatility is borne by the client etc.

The company while continue to build organic growth through building niche value added products for high growth market segments, expanding and deepening its geographical reach (using existing reputation and relationships  as well as further penetrating existing markets and entering new markets) for customization from design-stage for products leading to margin improvements, is also analyzing opportunities for meaningful inorganic growth.

Battery management system for every vehicle will be one and roughly about 4 shunts per BMS is the normal application. 

EBITDA margin of Bimetal/shut Reactors was about 20-25% but that of  Electrical Contacts  is about 9-11%. Relative lower margin of Electrical Contacts is largely due to higher RM component.

Growth in thermostatic bimetal is much higher than shut reactors in Q4FY23.  Bimetal is an established product for the company for last so many decades. Starting to domestic market for long period, the company started suppying to global markets for last 2 decades.  Now getting more opportunities from customers globally for thermostatic bimetals and this has resulted in strong growth rate for bimetals compared to shut reactors. 

Larger spread of customer base in FY23 in case of SR compared to previous years.  As far as contract with Tier I for supply of SR, the contract not put any limitations and the company can target all opportunities across globe.

In contacts the company is moving to more value added products with lesser RM component, which will boost margin going forward.

Growth for the company will be sustainable and will continue for the company going forward even though the company don’t want to put a number to it.  The company expects continuation of margin going forward. But with increase in volume there will be some benefit of operating leverage benefits boosting margin.   

The company added new customers who have multiple products and presence across various geographies and the company will introduces its various products.  Certain product the company already started supply and certain its is in testing and there is multiple growth opportunities for the company in terms of supply to these customers.

Of the overall supply to auto-sector by the company, the shunt reactors for BMS is still insignificant even though it is growing strongly. 

Contribution of top 5 customer in case of bimetals and SR is about 30% and 40% in FY23.

Internationally the company have 3 major competitors for bimetal,  in case of shut may be one or two.  In domestic the company has not competitor for the products it have presence.

The company was sole supplier for colour picture tube industry in the country till FY19 and with collapse of that industry the gross margin dropped in FY20.  But over the years the GM moved back to about 50% in FY22.   

Key rawamterial nickel manganese alloys here are 3-4 suppliers globally in in china, Japan and two in Europe. The company is also using copper for which It has developed quality supplier in India.