Hidden Gem: Solar Transformer Small-Cap | SHILCHER TECHNOLOGIES
Hi friends, how are you, I hope you guys are liking the new format of Saadhan which is Saadhan Podcast in which we discuss at length with an expert and try to understand the sector in depth so that we can create multi baggers and This effort may look new to you but we have been doing it for ordinary members. Now we had called Abhinav Manchanda who has tremendous work experience in power financing and in power sector. He told about the transmission sector but our relationship with the instrument. It is much older than the transmission sector and in today's video you will know what thesis we thought and invested in a small transformer maker which has become six as of today. Friends, we have invested in a small transformer maker in May 2023 at a price of Rs 990. It was invested in micro cap
and today its price has become Rs. 000. We all have got returns of more than Rs. 1,000. All of us who had taken early identification of this stock, what is the method of early identification of a multibagger and what is our investment thesis? How much time we spent on anti-thesis, you will get to know all these things through this video, so if you want to create early position on any stock which is 4x 5x type like we talked about Advaita. Also we had discussed about Rs 400 with Sadhan members, today that price is Rs 1600, so this is a sector where if someone understands the sector at the right time, multi baggers can be made there very easily. You have an example of the railway sector in front of you which we have told you through the video that there are more than five multibagger just from railway sector including IRFC Jupiter Wagon Limited Titagarh Wagon Limited Tex Mac Infrastructure Railway theme is decadal theme and transmission Is Also A Decadal Theme So I Want You To Focus On This Video So That You Can Deep Understand The Sector Dynamics And The Individual Stock Dynamics By The Way On This Theme I Would Like To Say That We Are Going To Release A Video On Transmission Theme So stay tuned this week also we are going to bring the part two of the podcast on power sector so stay tuned for that also and if you really want to make bucks out of that investment strategy then you should look at these videos very close and then You can consult your financial advice So Silchar technology is basically into the manufacturing of transformers The special thing in this is in this thesis When I made that time I had 22 numbers so domestic sales was 75 and export was 25 mix has changed now domestic at 60 And exports have gone to 40 per so that is one thing which has changed is the change in the product line is that they have them sales told in their annual report that they are into manufacturing of distribution transformers distribution transformers which is low end It is a transformer which means that if we talk in margin terms then most of the ma is done in transmission transformer and less in distribution so distribution is basically in Delhi only there will be at least 100 manufacturers who are involved in distribution in Delhi NCR. They will be making transformers so so there are many players and this is not very difficult to manufacture so in distribution transformers there is huge supply and that's why pricing is lower earlier they were in distribution transformers but now they have specialized into renewable transformers solar transformers which is A one step above distribution transformer which is slightly complicated is the same but the nature of transformer has changed from distribution to renewable transformer. Here CG power was given in parallel, so their range was 5 KVA to 3000 KVA. CG power which is a market leader, their range
which is It is 3 KVA to 500 MVA, it is kind of similar, that is, like CG Power, it is also in 3.3 kb to 33 kb class. Which is in the box This is CG Power's number so it was a Comparator so that's how I found out that this company is having a wide range of product which is the Comparators leader so I thought yes this is the kind of company it's not just every other company so Their capacity was 4000 MVA which was last developed in fy1 after fy1 they did capex and by 2023 it was 4000 MVA at that time they said it was a bit early days 16 and for wind transformer for renewable energy Sector but focus was there then business model of company stresses on focusing more on customer with need of high quality so this was very important they were focused on customer who have focus on high quality that why they could pay higher and also in export market major Portion of sales was coming from Oil & Gas segment but this has changed now. Recently I attended a con call and this situation has changed in it. Now Oil & Gas is hardly 10th of their overall thing. Major portion in exports too is not Oil & Gas. Gas The company is concentrated on catering the needs of renewable energy that country and I had given some a suggested backing to this thesis by saying that there was a transformer shortage in the USA at that time and that shortage is still continuing that is why their export The Numbers Have Gone Up So This This Thesis Has Played Out Is Still Playing Out Why Transformer Shortages Are Happening in the USA It 's Linked to the Rise in EV Adoption Because There's Why EVs Are the Fastest Growing Segment There's So Reasons Higher The number of EVs will create power short fall in US grid because EV power which is EV requires much more power and there is a fashion for very powerful cars, so the cars there that are much more power are also big. If the areas are wide, there is power shortage due to powerful EVs, because their grid is of 1950, they did not invest in the grid after 1950 , so after 70 years, now obviously something is obsolete. To upgrade that grid,
the needed transformers and deatchi are inserted into this company. The Antays Butation System of USA will inevitably be rebuilt. Assisting conductors and transformers are just big enough for the increase in load so they are benefiting through deatchi. That is from the US angle US is giving us opportunity to do well through India Indian conductor manufacturers investing in two companies like Apar and Transformer in Silchar so this US plus Indian renewable energy both the themes are playing out I have seen this one import export data Which is not relevant now, then I had once told that this company has improved its working capital cycle so you can see by March 2023, you will see that if you minus Covid, then their cycle in the first 97 days of Covid was 9750 days. Now he came back to 96 in March 23 and in between
he had a problem with Covid because X import was a trick during his long gestation period and all so there he was facing problems in cash conversion but he has come back on. On track also there was a strong growth in top line and operating profit so in FVA 22 they were making sales of 36 32 46 66 rods but it suddenly jumped from the number of FVA 23 57 60 68 95 around 100 they were doing last year. These means peak numbers, I am talking quarterly numbers, operating profit has gone up from 56 crores and has come in the range of 10 to 20, meaning double triple jump is happening in the operating profit. At this
time, the REC shift framework of the instrument I have In which it is coming out in a very beautiful way This is the ideal candidate In which this which is in blue color This is in blue color This is my Ava 23's ROIC So the performance of a company Internal performance ROIC has to be Sean And This Company Has Increase Their RO IC From 3 Per To 11 And 11 To 18 And 18 to 38 37 par And this one has to be one has to see that when it was 18 par then its no pat margin was 8 par Now the no pat margin had moved to 14 par so 8 to 14 par ka jump in Margin and Velocity Which is the Invested Capital Turnover So one, they are increasing the margin and their velocity of 2.2 types was that they were selling 2.25 times of the capital. Now in FVA 23 it is around 2.75, more than 2.5. They had done velocity so there is an increase of 50 bps from 2.25 to 2.75 kind of jump which is a meaningful jump in velocity means you deployed the invested capital quite well as well as velocity both have gunned up sots why this was the find for Me and it's why I but this stock management was also good From my observation I understood that he had a smiling face and and he was able to answer questions very a commendable so was good enough and he has the background in electronics and engineering and he evolved from him to designing of things during the call also. We had bought this four-five days ago, even then he said, I am also evolved in designing of things so good. Al Shah is also B.Sc in Electrical Engineering from University of Illinois College and Cass
Business School in London, MBA there. So the background of these people is okay means this is the young next generation so I mean Al Shah is the next generation so it seems to be good management to me. Here in the mode calculations I saw that these out of nine parameters are on these five parameters. It is coming on long term basis as well as on short term basis with six parameters which means this bench is a long term mode as well as short term mode. Kind of 6/9 is a good number to start with. Vid to mot bhi hai mot business is now the anti thesis which was that in making the transformer a cold rolled grain oriented steel is used which is CRG which is an imported and thing now in a few years maybe JS dub steel will Try to make it Indian. Actually, they have done it with a company, they
have a partner with a Japanese company, they have done the setup with them, but currently no one is making it in India. Indian company is not making it, outside company like Thyssen Cup. The one which is manufactured by the UK in the US, is exported to India, so that supply chain is still developing, the CRG one, that is why it is one, but it will gradually become India but that is I am talking very long term. Right now in the short term it will have to be dependent on imports, so the cost of CGO, right now the price of steel, you know it has not increased much, steel prices are low, CRG prices are low, so right now it is favorable, a second was a serious thing. Increasing competition from domestic and
foreign players could lead to margin contraction due to pricing pressure Some of the larger global players are already present in India since the industry is not very capital intensive More local and foreign players could enter the market in future This is a risk So I got the opportunity to ask this question Promoter So I asked the question in a slightly twisted way, what is there that why other player like volt which is a bigger than fi 10 times bigger company is five times bigger company is tam who has less by They did a very good quarter three, their quarter three results have also been good, so why Vol Tom will not enter into your market, so and why you are flourishing, and in terms of margins, their margins are better than Vol Tom, much better, so their The margin is around 20, there are 25 types, now it has become 1819, which means earlier they were at 15, so there is a difference of around 89 in the margin of Vol Tom and So I in their margin. Ask This Question To Hi Said Very Smiling Smiling That Brother I Am Not Authorized To Speak On Behalf Of This Time But Still I Feel So That They Are Doing Good Industrial Transformer So That I Am Very Privy To This Information That Their Industrial Transformer Is Very Good If the sales of solar are good then industrial is a bigger chunk meaning industrial is like a main market and this is like a side market so the market leader is as long as it is making money in the main market, it is also a buyer for a Smaller market, so for them right now it is a matter of whether they can do well because right now the focus of whole time is not here, however, the bigger the big companies of I-releases become, the more the focus remains on their main agenda only. Meaning they can't beat the specialist so my play is that I'd rather pick up a niche flair that is doing well than a market leader who can potentially disrupt this business Because both are present in the market for quite some time so they have seen each other so this is kind of game theory in action here that we are investing in a company which if they want volume then their margins will be low. Can do, that is a fact, so I had highlighted this risk at that time , actually there is no problem with foreign flair because nowadays, whatever you make, it requires BIS certification, Made in India certification, so companies shy away from doing that. Main region This is that if you have to share your technology in it, then you have to share the code, so for BIS certification, I have noticed in many industries, dental and any other industry, there are many companies giving back in the name of BIS certification. Or no, I don't want to do BIS, so that will be an entry barrier. If any
foreign company will probably not come into this, anyway there are many players already here, so the chances of new foreign players coming are a little less but local competition is there so that. Was The Antithesis Is Not Soon Going To Play Out So A Very Nice One We Got The Stock And That's Why If We Look At The Present Scenario Now Any Questions On The Existing One Okay So We'll Move Down To The Current Ppt Which I Prepared Today Is a Long Thing It's Not a Very Short Term Thing That Indians Would Benefit Indian Companies Who Have Kind of Inroads to US Market They Will Benefit for a Slightly Longer Period That's an Opportunity This Is Going to Stay for at least One to Two Years So I Invested even two immense was on a life time high and all so on the camp that this will continue for slightly longer term still I feel that this is a long term thing because China has been knocked out so I was the competition to India meaning As cheap as India, no one else can make an athlete apart from Chinese and Chinese are shown door in US so and that is on a policy level so that Indian companies have advantage in both transformers and conductors. I have not even told you about this thesis yet. That evasion thesis then you guys listen then this
was the past now let's talk about the present which company has just spoken about Silchar's update this is that company I told 4000 MBA is the capacity till 23 but they have taken a phase One expansion to start from April 12 2024 from 4000 MBA to 5500 MBA ok that is phase one next phase of expansion will also start from first July after quarter one in quarter two from 55 AB to 75 AB this site etc etc also there they Identification is on going. If we look at the top line, if we look at the top line, there is a significant growth. Nine monthly number is 300 crores. Revenue was 190 crores in 2023. So 190 to 300 crores is like 57. Jump and edge I said that there is a degree in this. Off operating leverage was also very good and there was a significant jump in profit margin as well. There has been a jump from 26 to 66 i.e. 150. In the bottom line, the top line has grown by
57 and the bottom line has grown by 157, 150 so the degree of operating leverage is high and growth in YoY basis has also topped at 72 in quarter three. Line Growth and 100% Bottom Line Growth So Growth is There and Why This Growth is Coming First I'll Talk About the Above Same thing is happening in Something Like Apar also, Kind of So is at 25 to 30 whereas Volt Tom has now gone to 20. If you look at the Volt Tom then what is the region, first it is important to understand why there is such a high margin because the margin has to be Only then we will understand the margin and what we talked about in RO IC shift, why the margin is increasing, we saw in the chart that the margin is increasing from 8 and the No Pat margin which was 8 has increased from 8 to 14 and this is Edda Margin. Also increased from 25 to 30 So why what is the reason of high A big margin that has to be understood So reason was that the transformers that are making this This is renewable energy Transformers these are very difficult to manufacture This is the crux Why they are difficult because they have multiple outputs and lot of other requirements Which company needs to take care in design and manufacturing So basically it has many inputs and outputs and has other requirements due to which it has to be customized. The manufacturer of distribution transformer
does not customize it. Can because they don't have the design capability and this guy the management itself i is good in to design so they can do designing part and that they can do well and i so they are saying that it is very difficult to know Standardize that on MVA price will be so much that there are so many different types of transformers so it varies from different types of transformers to the number of types of transformers, but pricing cannot be done on MVA basis so this is not a commodity. So this is the non commodity transformers the bottom line so now in the last call the company gave three reasons for high profitability margin so it is good now when the profit comes to the bottom line then they made a new plant about five years back Which is a very efficient plant? So the efficiency of the plant is that the plant was newly built f 18 was not far distant in the past just a year ago, their plant is ready, operational and tested, so the efficiency is quite good due to which f is running profit. The strength second is the export has gunned
up with a new plant the system the quality standard and everything improved so since there was a new plan there was a new setup so they got the advantage of newness the second point was that they got more orders from exports than the US one The point has come here, US is helping you here and domestic demand also increased which led to high margin so there is more supply in domestic, they were doing domestic inca at 60 of their total is domestic so I will give you a break up. What do they mean in domestic and in India, revenue mix in broad which is domestic at 60 and export at 40, 80 of this domestic is renewable energy at 80 to 85, renewable means wind and solar both at 80 so all this is going to happen . What is going on in the news is that there is a lot of buzz about solar, this is going on, so this is proxy on solar, so half of the ruffle means half of the one at 60, ruffle at 80 is coming from solar at 50, these are coming from solar plus vint. And the product range is up to 132 kb but most of the orders are under 66 kb so as we move towards 132 kb the pricing will be better but currently they are operating on 66 kb only but decent here only. They are getting the margin and they are leader in solar transformer. They are saying in their own estimate that their market share is at 15. This is their own number. This is not a publicized number. And these solar transformers are basically
coiled oil cooled transformers, there are two types of transformers, one is dry transformer and the other is oil cooled, so the dry ones are expensive, so not many people buy them and the other one is oil cooled. These do not require much maintenance, they are not that expensive and like shopping malls and they are installed in such places where the safety hazard is important, that is, it will be in a shopping mall and if the transformer fails and there is a fire, then it will be a disaster. If installed then it is actually safer than oil cooled. So now the real estate which is increasing, malls are opening everywhere, then they need transformers, so this demand is also linked to real estate to some extent, solar transformer is also one. It is the same transformer, that is, solar transformer is also oil cooled but I am saying that as a type oil cooled transformer is also going in malls and hospitals and all so there might be a little demand coming from there too. I guess that is coming from renewables. We know, not that much is coming from Oil & Gas,
just Rs 10 per cent is coming from Oil & Gas, which is also in domestic, so their order book as on 1st January is Rs 355 crore, order position is good because there is a good demand. In the market and it has a good presence in the renewable energy sector especially solar aspect, the same is happening again and again so getting lots of inquiries so now you asked the question that yes will it grow so there have been inquiries which means there is A large quantity expected in coming months so answer is yes price should go up because they will they are stated to do well the guidance given by them has said that turnover of around 800 to 900 crore in two years so where is this coming from The capacity which is coming from the expansion which is increasing from 400 MB to 7500 MB is almost doubling, it will become operational in quarter to on words, so there is a plan up to 7500 MB as well, their going forward, they have not made any plan just now. But on the same land they have land capacity in build for going up to 13000 MV i.e. from here also it can be almost double i.e. almost three to four times the current capacity can be given by that land they have . They will have to buy all the things but still the land cost will not be there so there is scope to do a little brown field expansion there so that is a lever which can be played out some times in future but in 2 years so for now that is the story. It is frozen that only 7500 MB has to be done, now it is 400, its top line is around 300 crores, it is close to 350 for the whole year, now it is 300 in 9 months, in 4 months it will be 400 in 12 months, then the top line of 400 will also work, next to. Next year it will be 800, then there is a scene of doubling in two years. If there is such demand, then
growth is expected and yes, the main thing in this is that design capability is a kind of thing which is not very quantifiable. Companies which I have seen a lot. Earlier, when I had studied, I was not shocked by their management. They have done lots of financial mistakes. As a financial manager, I know what mistake they did. They made corporate finance mistakes and due to that, they
also got into debt trap. The condition had become very bad. I have not seen the whole industry but I have seen a couple of these kind of guys. There were a lot of back rapes. There was a time when people were in a very bad condition. Many people get ruined in the cyclical down turn. So this is The company has a sound balance sheet and I found their management good. It is not that a lot of intelligence is required there but a financial prudence is required, so they are doing it in a phase wise manner, that speaks for itself that yes, these people are directly investing Rs. 13000. They are not jumping on MVA, they are saying that they will get more orders than that, meaning they are saying that they will expect order is much higher than that.
Even 800 900 crores but they are saying that no we will go phase wise only so it seems they are a conservative me so management quality is good to me in 26 full capacity is expected not in FVA 25 in 5 there would be a transition here so The story of 'If it gives opportunity to do and will export' is still going on but they had sold only 3000 MVA in 23, their capacity is 4000 MB but they had sold only 3000 MB so they could have done a better also but Friends, how did you like this video? If you liked this video then do give a thumbs up in the comments because we had done a lot of deep research about Silchar and this company is like this. Which is not even doing con calls then if you also want to invest in such a company which is not even doing con calls but you want to know more about them then having a community based approach definitely helps and that technology because of my network . There were some people at Scuttle Butt who gave me critical input so I was able to back it up When It Was Lolly Priced And Nobody Was Tracking It No Con Calls No Investor Presentations So this way we take efforts on a joint basis through membership So if you really want to develop ten kinds of deeper investing insight then membership is definitely an option you should explore and the links are provided in the description that's all for today please check out our deeper discussions on power sectors including transmission and data center and technical Analysis Under Sadhan Podcast So If You Have n't Yet Checked Out Our Podcast Then Do Check Out The Playlist Here's The Link I'm Providing Thanks For Supporting Us Thank You
2024-06-25 17:03
