IGI Logo

A niche player geared up to capture mfg. opportunities

Shivalik Bimetal Controls Ltd (SBCL) predominantly a bimetal / electrical contacts manufacturer has also ventured into the shunt resistor business from 2014-15. It has gained dominance in the domestic market and is now ready to further expand the export opportunity with capex already done and capacity in place. Shivalik is a simultaneous play in three opportunities – switchgear industry, smart metering and EVs. It also aims to increase its rev. contribution from electrical contacts from current c.10/11% by inorganic expansion and opening up of the global opportunity. Additionally, SBCL has PLI (product linked incentive) in shunts and is constantly exploring newer industries for its shunt applications, which may include mobile, telecom, renewables, etc. Overall, we expect Revenue/EBITDA/PAT CAGR of 25%/29%/29% over FY24-26E, with RoCE/RoE 30.4%/24.1% in FY26E. We initiate BUY coverage on SBCL with TP of INR 730, valuing it at 30x FY26E (currently trading at 22x FY26).

* Shunt resistor the mainstay of revenue: Even though it is the latest addition in Shivalik’s arsenal, the shunt resistor business has grown to be the company’s major revenue contributor. Shivalik has emerged as a monopoly in the domestic market in shunt resistors due to its technology moat in EBW machines. The future opportunity comes from both domestic and export markets in the form of smart meter and electric / hybrid vehicle adoption. We expect these opportunities to significantly contribute to Shivalik’s shunt revenue, which will see a CAGR of 30% over FY24-26E with EBITDA margin of c.23% / 24.2% in FY25/26e. Further, shunts have found increasing application in electronics and renewable sectors (solar, wind, etc.) – basically wherever batteries are used.

* Dominant domestic player in bimetal: Shivalik, which started its business with bimetal in 1984, has now become a brand in the domestic market with overwhelming market share (c.80%). The company is now expanding its presence in the export market and this segment will be more an export story with increased focus on the American markets – foreseeing this, Shivalik has already expanded its capacity to 4x, increasing its share to c.35% of global capacity from the current c.12%. We expect export opportunities to play out, witnessing a overall CAGR of 17% over FY24-26E with EBITDA margin of c.22.9%.

* Electrical contacts poised for strong growth: This is a smaller segment for Shivalik but receives the best from both the major segments – it gains from switchgear as well as the smart meter opportunity. With the joint venture (JV) with Checon Corporation now dissolved, Shivalik has now opened its door to opportunity in USA markets. Further, it has now signed a MoU with Metalor – which will majorly cater to the export market and has the potential to make this segment a major revenue contributor. Consequently, we expect a CAGR of 37% over FY24-26E with EBITDA margins of c.11.5/12%.

* Longstanding customer relationships a key strength: A majority of the company sales is customised and accordingly sets production parameters and equipment. Customers invest in the tooling kit and c.75% of the products is custom-made for customers. Further, no customer has left Shivalik in the last 10 years.

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361