Hey readers,
Let’s rewind a bit, back to the days when we were amazed by the idea that we can travel from one place to another in a sleek machine with four wheels, powered by fossil fuels. These vehicles, known as ICE (Internal Combustion Engines) Vehicles, were considered the perfect example or highest achievement of creative and intelligent design in the field of engineering.
But as time passed, we understood that using fossil fuels are harming our beautiful Earth. We need to find alternatives! So, what did we do? We made a switch to cleaner, greener energy sources like electricity. We started traveling on Electric Vehicles (EVs).
But is the shift from ICE vehicles to Electric Vehicles easy? Not quite. The main thing that runs an electric vehicle is the Battery Management System (BMS). It has to function properly to ensure the smooth operation of the entire vehicle. Then what did our Engineers discover? They created the heart of this BMS (i.e., shunts), which are tiny yet crucially important precision-engineered components which play a vital role in helping the BMS and the entire EV run efficiently.
Readers, today we are going to discuss a company that specializes in manufacturing these types of shunts, revolutionizing not only EVs but also various other electrical devices and appliances.
The name of the company is – Shivalik Bimetal Controls Ltd.
1. About Shivalik Bimetal Controls Ltd (SBCL)
1.1 What are the products of Shivalik Bimetal ?
SBCL is one of the leading manufacturers of Shunt Resistors, Thermostatic Bimetals and Electrical Contacts.
These products find applications in Switchgears, Electric Vehicles, Energy Storage, Electrical Appliances, Smart Meters, Power Modules, Medical Devices, Automotive, Wires & Accessories. The company specializes in joining metals to form bimetal and trimetal strips and components which use niche technology such as electron beam welding, hot diffusion bonding, resistance welding, and continuous brazing.
1.2 Initial days: History of Shivalik Bimetal Controls Ltd
Established in 1984, the company initially focused on producing Cathode Ray Tubes (CRT), which were widely utilized in computer monitors and televisions at the time. However, with the global shift from traditional CRT TVs to LED TVs, Shivalik experienced a significant decline in sales. Nonetheless, the growth in the bimetals business helped offset this decline, contributing to the overall company growth.
Later on in 2014, by leveraging the electron beam welding (EBW) technology, the company diversified into manufacturing Shunt Resistors. This turned to be a significant growth driver for the company, as shunts founded applications in electric vehicles (EVs), smart meters, and various electronic devices. Shunts Resistors now form around 45% of the company’s business.
1.3 What are Shunt Resistors ? How does a Shunt Resistor work ?
Shunt resistors are electrical components that help manage the flow of ‘electrical current’ in a circuit.
They are crucial for accurately measuring and managing low currents in electrical systems like Battery Management Systems (BMS), energy meters, and other electronic devices. If these electronic systems can’t handle low currents effectively, they may not work correctly, leading to errors or inefficiencies.
Here’s a video to understand Shunts better:
As u saw in the video, there are 2 metals on the side and an alloy connected between those 2 metals. In a shunt resistor, two metals (often copper) are typically used as terminals on the sides, while a resistive alloy such as manganin forms the central layer. This construction allows for efficient current measurement and heat dissipation, as well as maintaining the required electrical resistance.
1.4 How important are Shunts ?
Electrical circuits often carry high currents, which cannot be directly supplied to electronic devices and appliances as they may not operate properly. Therefore, Shunts are connected to these electrical systems which help in regulating the flow of low currents to ensure smoother operations.
Shivalik, one of the preferred supplier globally, produces a wide range of such highly dependable Resistors that are used in electronics, electrical, and the automotive industry.
- Even though shunt resistors might seem just a small component, but they are a very important part of a battery management system.
- In BMS, a shunt resistor plays a key role because if the detection of current is not accurate, the current could harm the battery.
- So, making this product on a large scale has become the company’s special advantage.
- Only a few other companies are able to make such specialized shunts.
- Apart from usage in BMS of EVs, the shunt resistors are also used in smart meters used by electricity distribution companies.
- With increasing automation of cars, the usage of shunt resistor is expected to increase.
1.5 What is a Bimetal ?
Bimetals are materials composed of two different metals or alloys joined together.
They have different rates of expansion when heated, causing them to bend or deform with temperature changes.
Bimetals are commonly used in temperature-sensitive switches, circuit breakers, trippers, electronic alarms, fire alarms, thermostats and similar devices where their thermal sensitivity allows them to respond to changes in temperature and actuate switches or triggers. They play a crucial role in ensuring safety and reliability in electrical systems, fire detection systems, and various other applications.
1.6 What are Electrical Contacts ?
Electrical contacts are key components which are connecting points when a switch is turned on or off. They are used in electrical switches, connectors, relays and circuit breakers. The contact materials are typically made of different types of precious metal alloys. These materials are then joined on to copper alloy substrates using various methods.
2. Industry Outlook: Why these industries can do well, going forward
2.1 Smart Meter Industry
The global Smart Meter sector is projected to grow at a CAGR of 8.1% from 2021 to 2028, reaching a market size of USD 36.00 billion by 2028. Factors driving this growth include rapid urbanization, the rise of smart cities, and the increasing use of renewable energy sources.
The Government of India has launched the “Smart Meter National Program” aiming to replace 25 crore conventional meters with smart meters. This presents a significant opportunity for companies like SBCL.
2.2 Automotive Industry
Shivalik Bimetal Controls Ltd. is actively involved in both the Internal Combustion Engine (ICE) and electric vehicle (EV) markets within the automotive sector. With the increasing integration of electrical and battery management systems in vehicles, Shivalik’s shunt resistors play a crucial role in both ICE and electrically powered vehicles.
The Indian EV market is forecasted to expand at a remarkable CAGR of 36% until 2026, with the EV battery market expected to witness a robust CAGR of 30% during the same period. Globally, the Electric Vehicle Market size is projected to grow from 8,151 thousand units in 2022 to 39,208 thousand units by 2030, at a CAGR of 21.7% (2022-2030).
2.3 Switchgear Industry
Shivalik Bimetal Controls Ltd. holds a robust position in the global switchgear market, driven by the growing demand for electricity generation. With a strong presence in the Asia-Pacific region, particularly in India, Shivalik is strategically positioned to leverage opportunities in both domestic and global switchgear markets.
The Indian government’s infrastructure development schemes, including Smart Cities, Make in India, Digital India, and Housing for All, are expected to fuel a CAGR of over 9% in the Indian switchgear market. Additionally, rising per capita income and the demand for electrical appliances further contribute to the increased need for switchgear.
Shivalik anticipates a significant surge in demand for its components in response to these market trends. Projections suggest that the global switchgear market will reach a value of $114.89 billion by 2027, with a CAGR of 7.7%.
3. SBCL’s Competitive Edge: A global leader in making ?
3.1 Competing on a Global Scale with Limited Domestic Competition
Shivalik Bimetal has made its mark globally, challenging established giants from the USA and Europe. In India, Shivalik faces no significant domestic competition, dominating the niche bimetal segment as a preferred vendor to numerous OEMs since last 30 years.
SBCL’s long experience of operating in the area of precision engineering has enabled it to develop shunt resistors that are qualitatively better than those of its competitors and across a more diverse product range.
Domestic and Export Sales Mix:
- In FY 2018, export sales accounted for 52% of the company’s total sales, while domestic sales constituted the remaining 48%.
- By FY 2023, there was a notable shift in the sales mix, with export sales increasing to 65%, while domestic sales decreased to 35%
3.2 Strong Relationship with Marquee Customer Base
With over 35 years in the bimetal/tri-metal and shunt resistor industry, Shivalik Bimetal has built a strong reputation for itself. Due to its long track record of operations and deep experience in critical technologies like electron beam welding and diffusion bonding, the company has a strong and credible client base comprising all key international and domestic players.
Customer approval is a lengthy process (usually 3-5 years) and this acts as a natural barrier to entry for its competitors.
3.3 Experienced Technocrat Promoters and Seasoned Management
The company is run by the Ghumman and Sandhu family. Mr. Kabir Ghumman and Mr. Sumer Ghumman, sons of Shri N.S. Ghumman (Managing Director), have dedicated 15 years to SBCL.
Mr. Kabir, a mechanical engineer, oversees all technical and process engineering aspects of the company’s manufacturing unit. Meanwhile, Mr. Sumer, a graduate in Accounting & Finance, brings expertise in Corporate Strategy, Governance, Finance, Regulatory/Legal, and Risk management. Additionally, he holds the position of Managing Director at SEPPL.
4. Why Shivalik Bimetals?
4.1 High Barriers to Entry & High Switching Costs
Shivalik Bimetal is a niche technology-based business, accumulating expertise over decades in metallurgical innovations. With its unique business model based on proprietary bimetal technologies and niche solutions that OEMs demand, the company thrives in an industry with high entry barriers.
Also the products are so critical that it would be difficult for a customer to move from one supplier to another (which would be able to match the same technology and costs of Shivalik Bimetal)
4.2 Largest Shunts capacity
SBCL Management indicates they have the largest shunts capacity today and another 60% expansion is underway to address the requirements for next 2-3 years.
4.3 Reference industry standard
Various products of SBCL have become the Reference industry standard. It basically means that the customer asks new vendors that want to participate in the orders to first match the level of Shivalik Bimetal’s product specifications.
4.4 Proxy to EV & Electrification theme
Shivalik Bimetal is a proxy to the auto ancillary industry that will benefit highly from the electrification of the global vehicles market. Everything going the electrical way is going to utilize Shivalik’s devices; EVs, EV infrastructure, and storage solutions.
5. Financial Highlights of Shivalik Bimetals
5.1 Segment Share by Revenue
- Thermostatic bimetal/tri-metal strips comprises of 55% of the total revenue,
- While shunt resistors accounts for 45% of overall revenues.
5.1.1 Revenue split for shunt sales:
| Application | Revenue Share (%) |
|---|---|
| Automotive | 65% – 70% |
| Energy Meters | 13% – 14% |
| Energy Storage | 8% |
5.1.2 Revenue split for bimetal sales:
| Application | Revenue Share (%) |
|---|---|
| Switchgear & Circuit Breakers | 65% – 70% |
| Appliance Business | 15% – 20% |
| Gas Metering Applications | 8% |
5.2 9-month FY24 highlights
- Revenues increased by 8.8% over the nine-month period ending in FY24 to Rs.337.64 crores.
- EBITDA for the nine-month period ending in FY24 rose by 4.74% to Rs.81.03 crores.
- Profit after tax improved by 3.56% to Rs.55.64 crores.
- Return on equity (ROE): Over the past few years, SBCL’s ROE has also significantly improved. In comparison to the ROE of 16% reported for the fiscal year 2016-2017, the company reported a ROE of 38% as of March 2023.
5.3 Revenue potential from optimized CAPEX
- Between FY 2021 and FY 2023, Shivalik Bimetal has invested a total of INR 75 crores in capital expenditure.
- Additionally, an allocation of INR 20-30 crores is planned for optimization and productivity improvements from FY 2024 – FY 2026.
- The sales potential post-expansion is anticipated to reach INR 1,600 crores.
(mentioned in Q2 FY24 Investor Presentation)
5.4 Figures & Ratios
5.4.1 Income Statement
| Particulars | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | TTM |
|---|---|---|---|---|---|---|---|
| Sales | 158 | 193 | 187 | 204 | 324 | 420 | 448 |
| EBITDA | 26 | 36 | 21 | 36 | 73 | 105 | 108 |
| PBT | 22 | 32 | 16 | 33 | 70 | 98 | 100 |
| PAT | 16 | 23 | 13 | 24 | 52 | 73 | 75 |
| EPS in Rs | 2.78 | 4.01 | 2.22 | 4.19 | 9.02 | 12.68 | 12.97 |
5.4.2 Cash flow
| Particulars | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|---|
| Cash flow from Operations | 6 | 4 | 41 | 29 | -3 | 61 |
5.4.3 Ratios
| Financial Ratios | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | TTM |
|---|---|---|---|---|---|---|---|
| Ebitda Margin | 16% | 18% | 11% | 18% | 23% | 25% | 24% |
| Net Profit Margin | 10% | 12% | 7% | 12% | 16% | 17% | 17% |
| Debt/Equity | 0.42 | 0.42 | 0.22 | 0.21 | 0.31 | 0.21 | 0.12 |
| Working Capital Ratio | |||||||
| Debtor Days | 78 | 65 | 60 | 77 | 67 | 69 | |
| Inventory Days | 182 | 264 | 172 | 253 | 260 | 216 | |
| Days Payable | 78 | 56 | 41 | 127 | 95 | 61 | |
| Cash Conversion Cycle | 181 | 273 | 192 | 202 | 232 | 224 | |
| ROCE | 23% | 27% | 13% | 22% | 35% | 38% |
ALSO READ: How to Look at a Cashflow Statement: A Comprehensive Guide
6. What are the RISKS in the business ?
- The rising geopolitical tensions leading to supply disruptions of nickel and copper could impact the availability and cost of these essential materials.
- Increasing inflation in prices may reduce purchasing power, potentially affecting demand and margins.
- Ongoing disruptions in the global supply chain pose a threat to the company’s operations.
- Concerns over the economic slowdown in advanced economies like the US and EU could have an adverse impact on business.
7. Valuations:
At current share price of 575, Market cap of 3300 crore – Shivalik Bimetal trades at a PE of 41x TTM FY24 Earnings (which seems expensive)
As the U.S. auto market seems to be in slowdown, it could affect SBCL’s growth in short to medium term.
Valuations depends on individual to individual, on how they like to value a business.
One should study the story independently and arrive at valuations themselves.
8. Conclusion:
This ends our deep dive on Shivalik Bimetals. We hope you found this analysis insightful and informative. If you enjoyed reading about Shivalik Bimetals, please consider sharing it with your colleagues or anyone else who might benefit from learning about their expertise.
Feel free to reach out to us with any questions or feedback, and don’t hesitate to explore more of our other articles.
Thank you for your time!
9. Disclaimers:
- The information provided is for educational purposes only and should not be considered as investment advice or recommendation.
- We are not a SEBI Registered Advisory Firm.
- Conduct thorough research and analysis independently before making investment decisions.
- We do not assume any liability or responsibility for any investment decisions made based on the information provided in this blog.
Sources of the information: Annual Reports, Investor presentations, conference calls.