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

Good afternoon, everybody. It's our pleasure to have you here today for Shivalik Bimetals Controls Limited Q1 and FY '27. Earnings Webinar now produced by Elev. So I'm Shankhini, I'm the Director of Investor Relations at Dickinson, and I'll be moderating our call today. So joining us from the Shivalik management team is Mr. Sumer Ghumman. He's the whole I'm Director of the company. Before we get into his opening remarks, kindly 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 also download the company's investor deck and press release from the links on the company website or on the NSE. Great. So I'll hand over to you, Sumer, now to begin with your opening remarks.

Thanks, Shankini. Good afternoon, everyone, and thank you for joining us today. Q1 FY '27 is a strong start to the year and gives us further evidence that Shrivalik is progressing higher on the value curve. We are building on our precision materials and process technology base to participate more deeply in higher-value components, integrated assemblies and application-ready solutions. The objective is to grow revenue and to also improve quality of growth, deepen customer relevance and increase the value we capture from our engineering capabilities. This quarter reflects that progress. Consolidated revenue grew 33.4% year-on-year to INR 182.2 crores. EBITDA increased 35.2% to INR 43.2 crores and PAT grew 44.9% to INR 33 crores. Sequentially, revenue increased 13%, EBITDA 23% and PAT 26%, giving us a strong operating start to FY '27. Importantly, this margin improvement was achieved while employee costs increased as we invested in capacity, people and capability, giving us confidence that the underlying operating model is strengthening as we scale. From the quarter, Shunts remains the stronger growth engine with revenue increasing 18.7%, but Biometals grew 7.4%. India delivered broad-based growth across both businesses. Europe grew strongly, led by Shunt's with the Americas also showing early improvement in Shunts with a 30% growth year-on-year this quarter after a softer FY '26. Asia was weaker during the quarter and remains an area where we are focused on building -- rebuilding momentum. At the consolidated level, growth was supported by a higher contribution from our subsidiary platform. As electrical contracts scale, precious metal content can affect reported revenue and gross margin. So we remain focused on EBITDA and cash generation. I would also like to thank Rajeev for his contribution to Shivalik. We will ensure an orderly finance transition and continuity. Subsequent to the quarter, receiving consent to operate for Phase 1 is an important milestone in the operationalization of Pune our Pune facility. The approved capacity provides a scalable manufacturing platform for cell connecting systems and support our strategy of increasing participation in value-added components and assemblies. It represents an important extension of Shivalik's model, bringing together our strengths in the material science precision joining, electronics and application engineering on a single platform. The next phase will focus on completing customer and process qualifications, establishing repeatable production systems and scaling in line with program requirements. Over time, this should enable us to deepen our participation in automotive and electrification applications while increasing the value we deliver to OEM and Tier 1 customers. We look forward to growing our business in cell connecting systems, busbar assemblies and PCBA assemblies in line with customer program schedules. Looking ahead, Q1 positions us well for a positive year. Our priorities remain margin quality, working capital efficiency, cash conversion and selective capital allocation. We will continue to grow the core, recover opportunities in key export markets and execute on our forward integration objectives carefully. In summary, Shivalik is becoming a more integrated, higher value and more resilient precision components and assemblies platform. Q1 shows that this strategic progression is beginning to translate into stronger growth and better earnings quality. With that, let's start with the Q&A session.

[Operator Instructions]. Our first question will be from the line of Dhruv Jain from AMBIT.

Congratulations, guys, for super numbers. I had a couple of questions, right? So you said that Q1 has been pretty strong. And incrementally, if I'm not wrong, a lot of Babar revenue has also not come through. So just wanted to get a sense that for FY '27, what would your guidance be for the full year in terms of top line and margins both? And if you could split that into, say, shunts, contacts, pyMetals and busbars also? That's my first question.

Okay. So bus bars, as you know, and the cell connecting systems are fairly new. So they're just minimal addition to the revenue in this quarter, and then it's substantially increasing in the current and upcoming quarters. It's a business that, as you know, has just actually just begun. So initially, we were doing some sampling and we were making pilot lots, et cetera. But now full production has started. And a lot of that production has not been a part of this Q1. So it's more of it is -- there has been some revenue addition in this 1 month or so or the last month of the quarter, but most of it is going to start reflecting in the current quarter and the upcoming quarters. With even the current quarter being very, to some extent, quite limited because of -- because our rural manufacturing, the main manufacturing facility for this actually becomes fully operational only in October. Right now, we've got only the first phase running as we've been making clear. So now coming to the expectation of what we -- or what we are seeing from our customers and what forecast we have, we expect that on a Shivalik stand-alone basis, we expect like maybe a 44%, 45% revenue coming from biometal and 54%, 55% coming from shunt, obviously, it's a little bit different from what it used to be. As we've been mentioning that we've converted a lot of our business from ready-to-use strip for resistant manufacturers to final components. So the value there as well as the value added there is consistently increasing. But keeping that in mind, we expect 4% to 45% and 55% between this. On a consolidated level, I think we would be more like maybe around like a 30%, 35% of total consolidated revenue would be from -- somewhere between the 30% to 35% should be from the contacts business, which is the wholly owned subsidiary. And we expect that from these assemblies, the PCB assemblies and these busbar assemblies, we expect like maybe about -- in the first year, maybe about 15%, 16% of total revenue coming from that.

I was -- yes. So this is helpful. I was talking about what's the growth number that you are envisaging in FY '27. So I mean, we can then do the math around the proportions that you've spoken about, but broadly.

I think proportions is something that probably you need to hear from me and then you can work the other way around. Anyway, so growth, we -- if things go as per what we have in forecast, et cetera, what expectations we have from the customers, we could, on an overall revenue basis, be looking at somewhere between that 20% to 30% kind of a number. It depends on a lot of factors. We are still pretty early on in the financial year. But yes, we are working towards and we have expectations of business in that kind of a range.

Got it. My second question, Sumer, was that I was noticing your largest customers' recent earnings announcement. It seems that the category that you're present in, has seen a significant surge in order book. So does that mean that for the next, say, 1 or 2 years, at least in the shunt resistor side, we should start to see that meaningful recovery that you've been speaking about in the last year, 1.5 years actually finally starting to come to fruition and U.S. as a geography starts picking up meaningfully. I understand you're doing for the other geographies as well. But it was interesting to look at that number that your key customer reported. So...

Yes. So we -- that's what the key customers have actually given us an expectation for this year, and those numbers look pretty encouraging. And the good part is that this resurgence that we are experiencing from that customer is now in the form of a much more higher value-added business as compared to what it was a few years ago. And so not only do we go back to those levels, but we expect to go back to those levels with a much higher value add.

Got it. And any key end markets that you're seeing a lot of traction at least with respect to that customer, you want to call out a couple of qualitative aspects there?

Yes. So there are 2 areas where we are seeing a lot of growth coming in or a lot of developments happening at a very fast speed because the market demand is there. One is 2-wheeler EVs and a lot of developments happening there. And then such developments happen at this -- with this kind of a demand increase in demand, then everybody goes into a very fast development mode. So we have a lot of pressure on these opportunities, shunts to be used for that. And then as we produce these cell connecting systems and as we scale in that, that demand will continue. Currently, a lot of that business or a lot of that -- those components are imported. But as we get more into that, we'll see a demand. But even for our shunts as of now as just shunts on their own because they are -- all these 2-wheelers use shunts directly as well. So we're seeing a lot of new developments and a lot of fast developments happening actually in that area. The other place that we're seeing a consistent growth is smart meters. So when we talk of shunts, these 2 -- both these areas, we are seeing -- as an end use case, we are seeing a lot of growth -- expected growth.

We'll move on to the next question. We'll take the next question from Nirali Gopani.

Sir, my question is on the revenue for this quarter. So when I look at Shunts, is it largely driven by the conversion from strip to high value-added products? And how much of contacts revenue would be silver led, the pricing level.

So yes, basically, a lot of the increase and specifically in the value add more than in the revenue itself because see, part of the revenue of even the shunts can be attributed to an increase in material prices from, let's say, last year to this year, there has been a substantial increase in copper prices. And a lot of the materials -- a lot of the cost of raw material that goes into the shunts is copper driven. It's either directly copper or some copper alloys. So some part of it has come from there. But still there is an increase beyond that and especially an increase in the value addition that comes from, as you rightly said, from the conversion of strip to parts. Now between the 2 quarters compared, for example, our strip production has actually -- or our strip sales in shunt has come down to nearly 1/3 of what it was last year, that same quarter. And interestingly, that whatever leftover strip quantity, that 1/3 that's left is actually the higher value-added strip. So in strip also, we had 2, 3 types of strips that we were supplying. And the lowest value-added ones are converted into parts, which have become automatically higher value-add in comparison now. And the leftover strip is actually also a higher value-added strip. So that strip business, if it continues also, it's great for us because it's a higher value-added, more tolerances-wise or dimension-wise, more complicated price. So yes, that's the Dish. And when we purely look at silver pricing affecting the revenue growth, the answer actually lies if you do a sequential comparison between Q4 last year and Q1, between these 2 quarters, silver as a material or silver as a bullion price has actually gone down a little bit. And sometimes it's been similar, but it's actually overall gone down. So -- but we've still experienced growth. Now when we compare this quarter to Q1 last year, there you will see that there's been nearly -- silver is nearly more than double of -- almost just a little bit over double of what it was last year. So I would say about what you purely see as revenue, about half of that revenue growth can be attributed to silver alone.

So to put it in simple terms of this 33% of revenue growth that we see in the quarter, how much of that is sustainable, keeping aside the commodity prices?

I think about what I said earlier, when you -- somewhere in this 20% to 25% -- like I said earlier, if we go as per the developments that are happening, we could somewhere be in between the 20% to 30% range.

Okay. Fair enough. And what would you attribute this increase in the EBITDA margins to?

A lot of that comes from -- again, from 2 areas. One, it is coming from -- first of all, even for a lower growth area like thermostatic biometals, even there, we are seeing an improvement in margins because because we have followed this higher value-add component strategy to some extent even there. So for example, if we were supplying a thicker or a wider material size to certain customers, we have gone with proposals to supply a finished component or add some more value to our process. So we are working on -- so although minimal, but there is still a margin or earnings increase even in the lower-margin business segment. But a lot of it comes from shunts. And because we switched from those strips, those lower value-added strips to components, a lot of that EBITDA margin increase is coming from there. So yes, that part is sustainable because those parts are here to stay. In fact, the strip business is probably sometimes less sustainable because the strip can be sourced from, let's say, a competitor. But when we have developed a very high precision component for a customer, the chances of that business going away other than its life cycle finishing or other than some kind of a major design change happening, which is very unlikely in a short period of time, that usually isn't the case. So that business actually becomes sustainable. So the vast majority of contribution coming into the EBITDA is coming from a sustainable source. Interestingly, some portion of profitability also does come from materials because certain way of costing is such that certain percentages do come in, but that's a very minimal amount. So what we see is that what you'll see that some margin will increase because of materials going up. But that usually ends up showing when the materials have gone up a lot. So with slight increases in materials or slight reduction in materials, we will not see a huge difference. But Materials have been a little bit different than it's the usual trajectory in the last 1.5, 2 years, how things have been, especially in cases of silver, et cetera. So definitely sustainable majority of -- if it was the other way around and a large portion of our profitability was being attributed to materials going up, we would be really worried. We -- large portion is since it's coming from a sustainable source, we feel confident.

Request you to join the queue by raising your hand again. We'll certainly take more questions from you if we have time. So we will go on to the next participant asking quest, Deepan Narayan.

So firstly, one of our large U.S.-based client has delivered very strong growth in the CA-related application with their MOSFET division. So do we expect more volume growth from their higher growth from MOSFET or we supply only to their registered division?

No, we only supply to the registered division, but we expect some increase in -- you see our product is actually something where the customer can give us very black and white numbers because they know that what are the expected volumes of the final product, where our product is going. So we do get in sort of a year-wise or at least for this current year, we know that how many components are expected to be shipped out to them for this and because we actually know where that product is being used in the end. So it's also -- we can also do a sort of an analysis on our own to see where that trajectory is going. Now the volume that we see from that same customer coming in is for -- specifically for 2 or 3 automotive giants, which I'm not at the liberty to talk about because of the NDAs in place. But -- so we have an idea, and they have given us an idea as to what these volumes would be. And so it's easier to estimate.

Okay. So does their MOSFET division also use some kind of shunts in their products?

See, shunts are a very -- it's a general product. There are many different types of shunts. What we manufacture very specific EV welded strip shunts, which is a very, very small portion of the many hundreds or thousands of different types of shunts that exist. So although we don't have any such development with them happening at this point, we have some other developments in areas, but they're only linked to their resistor unit or resistor portion of their business.

Understood, sir. On the biometal side, so what is our expectation or when do we expect the growth to be turned around in this segment because Sam has been doing well for some time. Now biometal has been struggling across regions. So do we expect growth to return in '27?

Yes. Interestingly, just in the last few days, actually, we've been getting a lot of from our existing customers, we are getting a lot of information about increase in quantities, expected quantities. And a lot of that, I think, is coming from real estate as well as from infrastructure development. For the first time in actually quite a few quarters now, like 4 or 5 quarters, we are actually getting this kind of a feedback from the customers wherein -- and we are actually seeing it in this current quarter that biometal is, for the first time, seeing an uptake in terms of not value or anything, but specifically in terms of quantities. So we expect -- and we do find that information from our customers very accurate because 70% to 80% of thermostatic biometal consumption is kind of evenly split between 4 or 5 large players. So it's fairly easy to get the right amount of data about what's going on. And we -- and this -- by the way, all this time, all this increase or expected increase that I'm talking about is specifically more towards the Indian market. So for the first time, we are seeing an uptake or an expected uptake, including for this month for the domestic market. We are -- we do have a few developments in place that could add decent volumes for thermostatic biometal for some export opportunities, which I don't know if you've been following, which had sort of taken a bit of a backseat during the tariff issue with the U.S. A lot of those -- I'm happy to say that a lot of those developments have restarted and with some customers. And by the way, those customers are all our existing customers. So with them, we are working on a couple of larger volume opportunities. Now those, of course, are not something that we foresee are going to add a lot of revenue in the coming, say, 1 or 2 quarters, but let's say, slightly longer term, like 4 quarters or so or a year from now, we should see added revenue coming from those developments as well. So if we see a substantial Indian growth and then by then, by 2 or 3 or 4 quarters, we start seeing an increase in those developments, which are in the middle of testing, et cetera, right now, we should see BiMetals going in a growth direction as well finally.

Our next question will be from the line of Rishit Shukla.

I just wanted to ask a question regarding the new side of the business that is the system that we are manufacturing. So I just wanted to know what is the runway and currently how much of orders that we have received from how many OEMs? And also what is the guidance that management gives for FY '27 as a whole?

Okay. So this product, actually, you see we don't -- we develop it sometimes for certain types with the OEMs, but our customer actually is the supplier to the OEM. So again, we have the final user of the -- the first product that we started in the cell contacting system division is for a specific customer end user, which, again, due to NDA-related issues, I cannot take the name of that customer. But it's through the supplier to that customer. And that -- actually, the NDA is with that company. So it's -- I can tell you that it's a 2-wheeler -- major 2-wheeler OEM, 2-wheeler manufacturing OEM that has gone in a very big way into EV 2-wheelers. And that same company that has developed this -- the final battery pack for the end user is also doing it for 3 or 4 major other brands as well. So although it started with that one OEM for us, but we are currently working with another 2 or 3 designs. And the steady production as well as sale is right now only for one OEM. By the end of this year, we should -- those other developments should start converting into business as well. As it's sort of -- the 2 things are going hand in hand. Our plant needs to be 100% ready to be able to get more of that business. And right now, the capacity or the first phase that we talk about in Pune for which we have the CTO or the consent to operate, that is only specifically can cater only to that one particular model. So in any case, even if we had more developments, we would not have been able to add more revenue from it before the end of the year. So -- but developments are in place. In this -- we expect the kind of business that we are looking at or the value of that business that we can gain from this Pune facility for this particular thing somewhere in the range of INR 300 crores to INR 400 crores in about 3 years' time, out of which we see about maybe about 10% to 15% revenue coming in year 1, maybe about INR 150 crores to INR 200 crores in year 2 and then INR 300 crores onwards thereafter. These numbers obviously are subject to change a lot because this is also a product that India as a country is still absorbing. It's not caught -- for example, to give you some context, if an OEM tells us they're planning to sell 10,000 2-wheelers of a certain model and the product is not accepted as well and it turns out to be only INR 5,000, that changes everything. Because if you follow the 2-wheeler EV market, it's a product that people are still in the process of gaining confidence. it's a lot better than where it was 2 or 3 years ago where people were still not accepting this as a product. It's a lot better the situation now. And thanks to these -- some other things that have been recently happening, the push has happened actually faster now. The adopting of 2-wheelers and EV 2-wheelers is speeding up. So subject to those things, this is the kind of revenue we could expect. And we also feel that once the Avanta facility is running, which has a fairly enough extra room for expansion, we can also look at certain other assemblies, which can be used alongside these products along with some specialization of ours. For example, we supply shunts for the BMS as well for these -- all of these 2-wheelers. We have an opportunity there. If from the same facility, we start supplying like an integrated assembly that adds even more revenue. So I think this Pune facility is one step with the revenue that I mentioned. But then looking at these other opportunities that could also be serviced from there, that could add more revenue. But this is a sort of a 3-year, 4-year, 5-year plan.

Thanks for such a detailed response. So like what we have understood till now internally is that this product can improve both battery life, battery quality and also the range of the electric 2-wheelers. So like this could be a breakthrough for the entire industry. So we expect that we are starting with one giant OEM. But if the industry itself is growing at such a high pace and we can accommodate another 2, 3 OEMs, like obviously, naturally, if the battery life and the kilometer capacity increase, then other OEMs will come. So how does -- how do we plan in terms of capacity expansion, like funding requirement and also handling so much of demand when the product hit the market?

If you look a little deeper into this market, it's -- a lot of 2-wheelers, a lot of EV 2-wheelers are being manufactured as we speak, right? The numbers are already there. A lot of those -- even if you speak of 4-wheelers, this applies to that as well. Now a lot of these existing products in the market import a lot of their major battery components, including the battery pack itself. So what's happening now as a lot of that supply chain for import is already in place. And to switch from that overnight or to switch from that very quickly is not something that a lot of OEMs can do. So for example, they are still establishing their products in the market because EVs themselves are sort of a new thing for a lot of people, first-time buyers, especially. And so they're not going to immediately -- even if there's a substantial cost savings, they're not going to immediately switch to supplier. Even if they say, okay, okay, fine, Shivalik can give us this assembly or that assembly and they're not going to immediately do that. Why? Because the import supply chain is already in place. Where this comes in is when there's a design change or there is something specific that -- like you mentioned that say, range with a new technology range is going up or battery life is going up. In this case, the cell contacting system, which uses our EB welded strip, in this case, the maximum benefit that a user can take from such an assembly is actually not the 2 things -- I mean, not to that extent, the 2 things that you mentioned, where it is actually more on the safety side. And if you see why our product has a possibility of a very high volume consumption in the future is because safety was one of the biggest concerns of people buying 2-wheeler EVs in India because there are a lot of early reports of fires and all these things that were related to safety issues. So I think there, even an import supply chain can be bypassed to be able to design a product that's more suited to Indian conditions, which has been reporting these kind of safety issues. So I think our biggest selling point first comes more related to -- becomes more related to safety.

Rishit, you can raise your hand again to join the follow-up queue. What we will do is move on to the next participant. So our next participant asking a question is Naushad Choudhary.

Congratulations, Sumer and the team for a very good set of numbers. Two questions. First, on the busbar side, you indicated the potential of this product could be INR 300 crores, INR 400 crores of business. Now assuming if we have to reach there, how much incremental investment would require Pune facility to achieve that number?

So the CapEx requirement for this entire project is somewhere in the ballpark of about INR 20 crores to INR 25 crores. But again, we sort of clarified this because it somehow doesn't sound right that with that kind of investment, how do you generate that revenue. So a lot of the high CapEx process or the high CapEx part of this whole product that's there is already there with us, let's say, in Suen, right? So -- and that CapEx is already done. So stand-alone, the incremental CapEx of Pune doesn't fully justify or doesn't paint the right picture. So -- but yes, that -- since that is the case, the Pune project is estimated in this phase. So in this phase where we are talking about a possibility of reaching that. Thereafter, when we talk about making more assemblies or we talk about making more different types of finished integrated assemblies, the number could change. But as of now, what the exact specific product that we're targeting and the exact capacity that we're targeting is expected to be a CapEx of about this much.