Shivalik Bimetal Controls Limited (513097) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon. Welcome to Shivalik Bimetal Controls Limited's Q1 FY '26 Earnings Webinar produced by Eloise. I'm Shankhini Saha, Director of Investor Relations from Dickinson, and I'll be moderating our call today. So joining us from the Shivalik's management team today are Mr. Kabir Ghumman, Managing Director; Mr. Sumer Ghumman, Whole-Time Director; Mr. Kanav Anand, Head of Sales and Marketing; and Mr. Rajeev Ranjan, CFO. Please note that this conference is being recorded and that some statements in this call may be forward-looking based on current expectations and subject to risks that could cause results to differ materially. You can download Shivalik's investor presentation and press release from the links in the community chat or from the company website or the NSE. I'll now hand the conference over to Mr. Kabir Ghumman, Managing Director of Shivalik's, to begin with opening remarks. Over to you, Kabir.

Thank you. Good afternoon, everyone, and thank you for joining Shivalik Bimetal's Controls' Quarter 1 FY '26 Earnings Call. My name is Kabir Ghumman, Managing Director. With me are Mr. Sumer Ghumman, Whole-Time Director; Mr. Kanav Anand, Head of Sales and Marketing; and Mr. Rajeev Ranjan, Chief Financial Officer. For FY '26, we are executing against a clear strategy to build a durable, high-quality growth engine. First, we are shifting from stand-alone precision parts to assembly level solutions backed by an in-house R&D, advanced tooling and pilot prototyping, tightening our role inside customer platforms and shortening time to commercialization. We are also planning a center of excellence and R&D facility to accelerate product innovation in high-value technology-intensive components. These moves complement our process moat, electron beam welding and diffusion bonding, which gives us control of quality, cost and lead times. Our performance highlights this quarter underscore this strategy. EBITDA grew 32.5% with a 452 basis points margin expansion to 25.26%, driven by mix, cost discipline and operating leverage. Shunt resistors now contribute about 49% of stand-alone revenue, reflecting their scaling relevance in our portfolio. Within shunts, India grew 19.12% year-on-year to INR 20.29 crores, supported by smart metering and industrial demand, while rest of Asia rose 62.81% from a lower base, offsetting softer exports to the West. Working capital efficiency improved with inventory days down 20 to 177 and net working capital days down 29 to 212. Our balance sheet gives us room to invest with discipline. ROCE stood at 24.65% for FY '26, and we carry net cash of INR 77 crores, supporting forward integration, automation and capacity debottlenecking without stretching capital. So in short, platform-led solutions and expanding shunt business segment, improving unit economics and tighter working capital are positioning Shivalik for a sustainable and profitable growth as FY '26 unfolds. With that, we can start the Q&A session. Thank you.

Thanks Kabir. We will now begin with a Q&A session. [Operator Instructions] So we'll start with the first question from the line of [ Nikhil Poktani ]

Sir, my first question is on the macro -- the macro situation has been very tough recently. So what -- how are we planning to grow in FY '26 based on our current order book? And how is order book grown in the shunts and bimetal segment during the quarter?

Can you hear me?

Yes sir.

Yes, the order book for Shivalik in the current year looks good. It looks positive. Of course, as you rightly mentioned, the external conditions are tough. They are very dynamic. But being in the kind of components and the products that we are in, we have a long-term strategy in place with the customers. And the present year looks robust for Shivalik.

Yes, sir, but on the quantitative metric, like how is the order book grown? Like is it growing 5%, 10% year-on-year basis or something like that? If you could just give guidance on that portion?

As committed, we as mentioned previously also, we expect to have a double-digit growth this year. And we are very much aligned to our estimations.

That's great to hear. Sir, my second question would be on the price realization. We have seen an uptick in the price realization for shunt as well as bimetals. So what has driven the price realization growth in the bimetal segment?

There are several reasons for that. Rajeev, do you want to take that?

Yes, of course.

Okay.

So in this -- you see our price realization for both the segment is a little bit different. So in shunt, the realization is a bit higher compared to the bimetal. And in this result, also, you can see there is a growth of gross margin approx 215 bps due to this product mix. The one major factor for increasing or improving in the gross margin is the components versus a part. So whenever we are supplying more in components, then we are having a higher realization compared to the parts. So as the composition is changing, our gross margin is improving a little bit.

Yes, sir, Rajeev, sir, I understood that the product mix is changing in the shunt segment. But what led to the price realization growth in the bimetal segment.

So bimetal segment after a certain -- you see the same concept is working in bimetal too. And in this quarter, we have grown in bimetal by a certain percentage, which gives us a margin improvement. And in fact, if you see the operating leverage, which is working because we are not implementing or we are not putting any additional CapEx burden on the product.

Our next question will be from the line of Akash Vohra.

So my first question will be on the domestic bimetal side. Sir, I think in the earlier con calls, you have alluded that, that is an area where we should comfortably grow at around 15%, 20%, considering that the bigger switchgear players kind of ABB, Siemens, Havells, these players are also growing quite well in India. But that somehow hasn't reflected in our numbers. I would like to understand why? And then I'll come on to my second question.

No, I think, Akash, we do expect our domestic bimetal business to also rebound as we have seen it for our export business. As you rightly said, our customers like ABB, Siemens, Schneider, and so on, they have grown. But they have multiple verticals with the -- vertical within which our materials are at the moment going. They're still kind of subdued. The markets are relatively slow than our previous estimation. But as I mentioned earlier, we expect this to rebound, and we would see at the end of the year that our domestic bimetal will also witness growth as anticipated earlier.

So I mean, do we stick to our bimetal -- domestic bimetals growth guidance of 15%, 20% this year, would it be possible?

I mentioned double digit last time as well, and I'm going to stick to that as well for the domestic market as well.

Fair enough. Coming on to my second question, which is related to shunts. So on shunt side, I'd like to understand what's our split for India shunt sales of around INR 20 crores, how much is from smart meter and how much is from automotive?

Roughly 70%, 75% of our domestic shunt is coming from metering applications and that about 25% -- about 20% would be automotive.

Okay. And just a follow-up on that. I mean, so in Shunt, sir, I think I was just observing the trend. So we have lost quite significant business, let's say, in the last 4, 5 quarters in the Americas, right? So while we have also gained some in other geographic locations, but it's not as much how much we have lost in America. So how do we plan to cope up with the same? And what's the situation there?

As you know, America remains a very, I would say, currently, we're in a dynamic situation with them. The markets are kind of relatively difficult to predict what's going to happen in America, but our strategy with the customers has been more to kind of diversify our portfolio to other parts of the world to kind of minimize any threats that the company might have with the current situations that we are all hearing about. And what we are also seeing is that a lot of our forward integrated activities are helping us to kind of move our materials directly to end users, which were earlier going back to the U.S. and getting reaching the end users. So basically, a lot of our revenue that was going into the U.S. has been pulled out and going to the direct OEMs or distribution centers of our current existing customers because of our ability to forward integrate into components and added value assemblies. So that's why you see that revenue is kind of moving towards that graph is moving from -- away from North America and getting into other parts of the world.

Okay. And my last question on margins, sir, if Rajeev sir could answer that. So basically, will we be able to hold these kind of margins for the rest of the year? I mean...

Akash, so this is where we would like to achieve. And at this moment, we have achieved so far. So if the momentum of revenue will continue at this level itself, the margin is sustainable for the year.

Our next question will be from the line of Dheeraj Dave.

Congratulation to team Shivalik for wonderful perform in challenging time. Kabir, if I may ask on Slide 9, there is some mention about Pilot PCBA assembly line prototype. Can you bit elaborate what exactly is our effort and how we shall see and whether it can become a contributor -- major contributor to our future growth journey.

Yes. So what this is basically covering in a nutshell is something that Kanav also touched on, which is the forward integration from the -- specifically from the automotive and certain nonautomotive applications where generally, what happens is that a shunt is primarily used for current sensing. So eventually, the end user or the Tier 1 customer would do some sort of a subassembly, which would allow the end user to extract the voltage sensing potential from the shunt. Now by putting a PCB onto the shunt, along with a few other components that provide other data, you are creating a one-stop solution where you're getting accurate cut and sensing along with other sensors that are mounted onto the shunt. So it's cutting a couple of steps in the supply chain and putting that all into one ready-to-use solution, which reduces the overall error in the system rather than having 2 or 3 individual components with their own margins of errors. This is built as a single unit, which is then calibrated and -- calibrated for certain errors within that unit as a ready-to-use part. Now this obviously has to take into account many factors other than just the shunt. There are other PCB mounted components, which have to be selected, fine-tuned, calibrated and then tested for long-term stability and there are certain automotive standards that have to be met. So that's the nutshell of the application, which we have been actively working on. We are on third series of prototypes now, which we should be closing very soon. And these would then be tested at the application level with various customers, which will then lead to small fine-tunings, after which we should see these going into commercial production.

And if I may ask, what would be the typical time line from the prototype -- pilot prototyping to getting end consumer? Would it be along 16, 18 months or more than that?

It should be less than 16 months. We've already covered quite a bit of legwork on this. The overall design is, I would say, at about 85% maturity level. At this point, you can understand that these are automotive applications and especially when you're moving from just a mechanical product to an electromechanical or even on the boundary of an electrical product, the quantum of test requirements and safety requirements exponentially increase. So keeping that in mind, there will be certain time lines associated with long-term application testing as well as design validation, as well as part validation testing. So there will be first a series of tests which are going on right now, which are design validation where these parts are subjected to various conditions that an automotive application will go through over 15 years of wear and tear. After which provided all of these tests pass, these will move on to a part level validation where they're actually mounted on to -- into an engine way or on the battery management system. And then they undergo a certain series of tests. These usually can go in anywhere from 9 to 12 to 13 months, which changes from customer to customer. Some customers have a basic certain set of tests. Some will do some additional testing that can go into an additional 3 to 4 months of exposure. So I'm expecting this to be less than 14, 15 months tentatively is when we should be done with most of this testing.

And all the subassembly -- when we are doing assembly, whatever component we require, are we trying to make all those in-house? Or do we need to procure something from outside vendor as well?

No. Some of these will be bought out parts. Some of the parts will be built in-house. Some parts that go into the PCB will be standard bought-out parts because in many cases, these are predetermined by the end customer. There are specifications that are already put in place. They may be using those sensors already in other applications. So they prefer to have the same component use. For example, I would give you an example of a thermistor. Thermistor is just doing simply temperature measurement on a PCB. So those are standard thermistors, which are already prequalified at an end user. So we would use the same specification rather than reinventing the wheel.

Okay. And the second question I had is a small one. Basically, we see a significant jump on shunt business, another investor also raised this question. So do we see -- which is the region, particularly in Asia because now, in fact, it made sense that at least you break up into Japan and China, if that is a kind of detail, which segment or which part of geography in Asia because now, in fact, that is larger than Europe, India and other Asia, rest of world is kind of larger than U.S. market for. So -- because this year, we see a significant jump in that region.

Yes, we've significantly grown our business in Japan, in Korea, as well as China. And of course, our constant push is always to kind of maximize our revenue within India as well. So these are the Asian countries where our current focus is and our revenue -- increase in revenue is coming from.

Our next line of questions will be from Dhruv Jain.

First question is on the smart meter opportunity, right? So while the potential remains immense, could you just spell out what are the challenges to scalability here? And by when do you think it will become a significantly large for Shivalik in terms of numbers?

Good question. I think we've already started seeing that the numbers are rapidly increasing. In fact, we expect this year to be good for us, specifically in this specific application side. And I see that next year will continue to show us -- this year and next year will continue to show us good revenue growth when it comes to the smart meter side of the business.

How large can it be in your opinion, for Shivalik? I mean, say, in 3 years, are we looking at, say, INR 100 crores kind of a revenue from this segment?

I think ahead.

Go ahead, Sumer. Go ahead.

Yes, Dhruv. So basically, I think what we are looking at -- and to go back to your previous question also for a second, our biggest challenge related to smart meters was about the relay, the latching relay being manufactured here, which has been a welcome change in the last 1 year or so that a lot of this manufacturing has started taking place in India. A lot is still under development. So we foresee this growth. Now what we are experiencing in smart meter growth is disproportionate. We're experiencing a much faster growth than what the market is. Market is also growing really fast, but what we're experiencing is something faster because what we are supplying to is this change of the relay being manufactured here. So it's a little disproportionate, and we expect it to remain disproportionate as we see more and more of the large volume players moving their relay production to India and which, by the way, some of the largest users even today are importing from China. So what you will be seeing in this number of this -- what you mentioned, we should be seeing probably in a much sooner time than 3 years. So the overall potential, we feel that if all government policies remain as expected, the overall potential for Shivalik can be upwards of INR 140 crores, INR 150 crores. But in a very, very short term in that INR 100 crore level or so, we should be touching because this year, anyway, this number is expected to be in the INR 70 crores, INR 75 crores range. So maybe another couple of quarters into the next financial year, it should be averaging to reach that INR 100 crore number.

You're including both contacts and shunts, right, in this?

That's right. And the same thing applies to the contacts as well. Our opportunity for contacts only opens up if the relays are manufactured here, which is what is happening again. A slightly different thing in this -- when it comes to contacts is that we have -- this is not just something that we alone as a manufacturer make. So there are -- we have certain level of competition. So of course, we can get a large share of the business because we make the shunt and because we have that advantage. But of course, we have some level of competition. So of course, there's value addition difference, et cetera. But the opportunity is very, very big for the silver contacts as well. And we are doing that. We already -- wherever we are supplying, we are already either already supplying silver contacts or developing them.

Sure. My second question is on the new products. And I think related to the previous question as well, what we've seen is you spoke about the testing and validation, but I remember in the last earnings call, you said that there is a potential of about INR 150 crores sort of number coming from the PCB bit next year. Has the time line changed? Or do you still feel that it can go full throttle in the next year?

No, it can certainly go full throttle. It's just that at this point, again, we are in the prototyping phase. We are actually beyond the prototyping phase, we are doing smaller lots also at this point. So we feel that, yes, we are still discovering some applications in the market, which some of them we hadn't even anticipated or expected. So they're there. And we feel that in this year, we -- if it goes more and more into development, the year after, which is financial year '26, '27, is where we feel we can look at revenue numbers related to that. And it's not just the PCB-mounted assembly, but that also includes certain other forward integration initiatives, but they're very similar. So for example, when we are turning some of our shunt business into parts and then some of those parts into PCB assemblies as well as other types of subassemblies. So when we combine all of those forward integration activities, that's what can take us to a potential added revenue of INR 150 crores in the financial year after this one.

So but it's safe to say that nothing will come in this year. Everything is going to be in F '27.

No, no, no. There will be a certain percentage. I wouldn't say it would be more than what we target in that year. It should be in the range of maybe 10%, 15% of it because most of this year goes by in the development part of it. So we've taken that some business will come in the last quarter, and then those quantities will increase in the quarter -- in the financial year after. So it will not be an absolute no revenue, but it will be probably 10% to 15% of what we expect in '27 -- '26, '27.

On the Americas business, right, so obviously, there is that disruption or the potential risk of tariff, but that business has been under pressure for quite some time. So if I have to just take tariff off for the moment, right, do you think that, that business can recover if tariffs were to normalize and go back to the kind of numbers that you guys were doing in, say, F '23, F '24?

Yes, absolutely. And in fact, we are absolutely in that direction of doing so. We have seen recovery signs. In fact, I would say that we are in a far better position today than we were 2 years ago. Why I say that is because our exposure to one customer and one market specifically for these kind of products was a lot more at that time. And as we speak now, that has been spread out a lot more, which means any large customer of ours, if their business was to drastically get affected, it's not going to hurt us as much as it did a few quarters ago. So we are actually in a much more sustainable kind of a position when it comes to this particular area. And U.S. definitely would be -- would continue to be a huge market for us. But the exposure again to that geographical region has reduced drastically, not just -- not in value terms, but in percentage terms because a lot of -- like Kabir mentioned earlier right now that a lot of our development and even Kanav mentioned that a lot of our development for shunts has been in other regions, including Japan, Korea, -- and what we are currently developing also, a lot of that development is coming from Japan. So as maybe another few quarters go along, we will notice that our geographic region will be spread out even more evenly.

Our next line of questions will be from Vikram Sharma.

So my first question is regarding I wanted to understand the size of domestic smart meter market opportunity and the potential margins will maintain same margins in that segment like context is lower margin business? And also what kind of forward integration we are planning on the smart meter side? I think we have mentioned a few times earlier.

Good question, again. Roughly, I would say, at the moment, we are, I would say, roughly between 40% to 50% market share. So there's still the possibility of doubling our existing share of business. And as the situation becomes more favorable and with the capacity, as Sumer mentioned, with the localized capacity to build more relays, we'll have a lot of potential market available for our products. And we are already seeing existing as well as new players building those kind of capacities. So we are very positive about that. And on the assembly side, we have already kind of started working. And in fact, some of them have also started going into commercial production. We have forward integrated some portion of our shunt and contact business, and that assembly work has already initiated, and we'll see more of that coming into our revenue starting third and fourth quarter of this year.

Okay. And what is like -- when we guide double-digit growth, so could you give a breakup of what could be growth in domestic market and export market?

I think what we are targeting is somewhere between 12% to 15% overall growth. Of course, certain export markets, as we just mentioned, the situation is a little dynamic. So it's a little difficult to predict and bifurcate in terms of how it would be between exports. But what we're looking at, at the moment is the overall growth of anything between the number I just mentioned.

Okay. So this even like just 12% to 15% growth on overall numbers, I think we are expecting through smart meter market. So we are assuming like other global environment is still not very good for market for other products.

Yes, we're projecting that in the existing conditions. Of course, if things change going forward. But at the moment, as we said that we have a robust order book and development activities going on. So we are quite confident that we should be able to deliver what we are mentioning here right now.

Also, and I'd like to add one thing. You see, of course, everything, as Kanav also mentioned and you also mentioned that things are very unpredictable when it comes to what's happening and mainly what's happening in the U.S. Now even if those things were to normalize, we don't know what the impact could be, and nobody knows that, right? Maybe this puts an entire slowdown kind of a situation in the market and things slow down. So we have to be prepared for the worst. But where we find ourselves in a more comfortable position is definitely that our business is a lot more spread out among product types, among industry, different types of industry within the shunt and bimetal business. So we feel that if drastic thing changes happen in one area, we still feel a lot more secure at this point of time. Rest, of course, if global things, whatever happens to the U.S.-related issues, et cetera, nobody can, at this point, predict the outcome of that. And let's all hope that, that remains -- that does not get worse than what it already is.

Our next line of questions will be from Prateek Jain.

Sir, my first question is on the bimetal segment. We have been speaking in the past that there is an international peer who has been marketing the market, and it was expected that a good chunk of that business will create an opportunity for us. So any update on that piece?

I think if you see that our international business on bimetal side is already seeing good results. We've grown in most geographies, and we continue to grow and we continue to expect to grow in this direction. We have some very positive development activities happening in different regions. And our product is drawing a lot of preference over our competitors. And I think we -- our current results are already showing that this is well in place now.

Got it. So let's say, if INR 100 of business is being vacated, are we able to get a good -- like a good pie of it.

If you see, we are very much at an 18%, 20% market share. So every INR 100 generating, we are basically capturing INR 20, INR 25. Our target is to kind of get a lot more than that. And with the capacity and capabilities that we have, we have this opportunity to grow even further.

Got it. And sir, my second question is like you had explained and also mentioned in your press release that the impact of tariff on shunt business is not there because it's in the exemption product, right? I wanted to understand that is it same applicable for the assembly business because the incremental growth, which we are thinking about of INR 100 crores, INR 150 crores by next year, is there any impact of tariff on that piece?

Actually, we released our press release on tariff when there was a base tariff imposed by America initially. And then there are so many changes has come up from American side as far as tariff is concerned. So currently, if you see as far as India is concerned, for exporters, there are some flat tariff, even reciprocal has increased from 10% to 25%, and they have imposed 25% another due to Russian oil purchase. So eventually, the total tariff for any exporter from India becomes 50%. The situation has changed now when we have released the press release and the time we are discussing the subject. As of now, today, our product falls under 50% tariff and earlier, there was an exemption notification, but now they have withdrawn those notifications. But we are not seeing any change in business, and we are hopeful that the business will continue in the near term.

Got it. And given now our product maybe 50% higher. So what's the price difference? If theoretically, I just assume that there is a tariff that's going to stay. What's the difference between our price on the landed cost versus the other supplier for them?

See, at this point of time, so I'll address it in a slightly different way. Now the thing is that if you split -- if you separate this discussion into shunts and bimetal, when it comes to bimetal, you see the only damaging effect we foresee if these tariffs were to stay, assuming that they don't get negotiated or don't fall down or if they were to stay like this, then one threat that we see is related to our new developments, which, of course, because makes us 50% more expensive as compared to -- although having said that, the other supplier who's based in the U.S. also has to import raw materials because -- and that raw material, their raw material also falls into this category. So the difference is not going to be purely 50%, but it's going to be less than that because since the material cost is a major cost -- major part of the overall cost, and that is going to attract duty as well. And plus a slightly higher manufacturing cost over there, then you see the total difference will be less, which means that it could be -- it could have a damaging effect on new developments, the future development. But when it comes to existing business, as of now, from our primary customers for bimetal, we have been told that as of now, there's going to be no change, first of all, because even they don't understand at this point whether this is going to stay or not. So they can't take any immediate actions. But assuming like you asked that if these were to stay, yes, it can have an impact on new developments. But we see at this point a minimal impact on existing business because the cost of switching to another supplier and developing with another supplier also is significant. So -- and even beyond that -- even if it continues beyond that into a very long term, then what we have already started discussing with our customers is that in order to keep the scale benefit or the volume benefit, we have -- if some of our U.S. business was to -- we were to lose it because of these tariffs, we must get some in exchange from some other geographical region. Since as you probably already know, most of our customers for bimetal are international large electrical players. So if Schneider, for example, or even if some of the U.S. business reduces in order to keep the same pricing, we can work out a deal with them to give us something from another geographic region because that's how it has a centralized system of working. So that's what our other strategy is in the worst-case scenario to try and ensure that we retain as much business as possible even if it doesn't come from the U.S. and comes from some other region. So when it comes to the shunts, there, as we had initially mentioned that a lot of our development and Kanav had mentioned as well that a lot of our development is now for these components is directly going to customers. A lot of 80% to 90% of that business actually is with Asian-based customers. So what our U.S.-based customers want us to do now, and we've already signed these agreements with them is to supply finished components directly to those customers, why even have the U.S. involved in between. Because of these tariffs, all of those developments of those conversions and changes have multiplied in speed because obviously, now nobody in the U.S., our customer will not want to pay such heavy tariffs, especially when the final product is anyway going out of the U.S. So I would say in the shunt side, these tariffs have been a sort of a blessing in disguise for us because all of these developments, which had a 18- to 24-month conversion process have now been multiplied. Of course, we have a lot of pressure from the customer, and we have to work -- people are working day and night trying to make it happen in a shorter period of time. But in the long run, it's good for us because all that development speed has been multiplied.

Our next line of questions will be Bhargav Buddhadev.

Congratulations on a strong performance. My first question is on this PCB-related revenue potential of INR 150-odd crores that we are targeting next year. So how much of this are we targeting especially to U.S., if you can spend some time on that...

Most of this is not at the moment for U.S.-based customers. It's basically for other parts of the world.

And actually, some of it that was initially being talked about for the U.S. market, as I just mentioned, also is converting into where its final use is going to be.