Key Highlights

Sales components more or less remain the same with electrical equipment accounts for around 35%, power generation and automobiles around 20% and 25% respectively while rest from sectors such as consumables, infrastructure, industrials etc.

Sep 17 quarter was impacted due to GST uncertainty and some orders were postponed and lot of things did not move due to uncertainty. Today, a complete clarity exists on duty, rates etc. Overall GST should be positive for the industry and the company. Due to a low base of last year, the positives will be visible but it will take some time before a structural impact becomes visible in the system.

The company is going big in terms of capex this time. After incurring a total capex of around Rs 12 crore in FY 17, around Rs 15 crore in FY 18, the company has plans to incur total capex of around Rs 48 crore in 2 years ie in FY 19 and in FY 20. The capex will be towards setting up a new Unit for Enamelled Rounding Winding wires which will nearly double the capacity of the wires from the current levels. The capacity will increase by around 8000 MTS p.a.

These new capex will cater to the requirements of 765 KV transformer lines which results in higher value and better realisation for the company. This capacity addition on value added products will drive good growth going forward. Realisation and payment terms are also favourable for the value added products.

The new capex will be operational from end of FY 19 and its full impact will be visible in FY 20. Demand is not an issue for these products as higher KV capacity orders are the new norm of the industry.

The company is a converter and it does not keep any risk of raw material and forex at its end. Entire raw material price increase or decrease and the forex impact is a pass through. However if the spikes happen too much in a short period of time, it may take around a month or so to pass on the full impact in billing. Eventually on an annual basis, everything is passed on.

Higher raw material cost and rupee depreciation will lead to higher requirement of working capital for the company. Thats the only risk that the company carries. Another risk is lower business as clients suffer and decide to adopt a wait and watch approach. However clients themselves are currently booked with sufficient orders.

Overall despite uncertainty company did well in FY 18 as it was able to sell more of value added products and conversion income was good. Management expects the momentum to continue in FY 19 as well despite uncertain rupee and commodity price. It can have some adverse one time effect on a month or so, but overall year will not get affected and business prospects remain bright.