Forward And Backward Integration With European Expansion Will Elevate Operations

Key Takeaways

• Strategic expansion and partnerships aim to drive significant revenue growth through market diversification and increased product value.
  
• Backward integration and domestic strategies focus on cost efficiency and liquidity, positively impacting margins and earnings over time.
  
• Heavy reliance on international raw materials and few large markets exposes Shivalik Bimetal Controls to significant global economic and operational risks, potentially hindering growth.

Catalysts

Engages in the process and product engineering business in India, the United States, Europe, and internationally.

• Shivalik's push into value-added components and forward integration strategies are anticipated to drive revenue growth. These strategies involve making existing products more valuable and initiating partnerships with leading global OEMs, which should increase the top line significantly.
  
• The company is exploring backward integration to reduce dependency on international raw material suppliers and improve cost efficiency. This initiative is expected to positively impact net margins by reducing operational and material costs.
  
• Establishing domestic supplier relationships and enhancing working capital management aims to reduce inventory cycles and improve liquidity, likely leading to enhanced earnings performance over time.
  
• Shivalik's strategic expansion into new geographies and setting up wholly-owned subsidiaries, such as in Europe, represents a potential catalyst for increased revenue through market diversification and tapping into new customer bases.
  
• Investments in technological capabilities to manufacture higher precision components and opportunities for inorganic growth could increase product offerings and customer share, thereby potentially boosting earnings and revenue growth in the long term.

Shivalik Bimetal Controls Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shivalik Bimetal Controls's revenue will grow by 18.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.2% today to 18.6% in 3 years time.
• Analysts expect earnings to reach ₹1.6 billion (and earnings per share of ₹27.26) by about May 2028, up from ₹816.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.4x on those 2028 earnings, up from 34.2x today. This future PE is greater than the current PE for the IN Metals and Mining industry at 22.1x.
• Analysts expect the number of shares outstanding to decline by 0.23% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.56%, as per the Simply Wall St company report.

Shivalik Bimetal Controls Future Earnings Per Share Growth

Risks

• Shivalik Bimetal Controls faces global economic complexities and supply chain challenges, particularly with 75% of their raw materials sourced internationally. This reliance could impact their revenue sustainability due to potential global trade disruptions or increased transportation costs.
  
• The company has experienced flat revenue growth in the past quarters, with revenue remaining between ₹120 crores to ₹125 crores, raising concerns about their ability to achieve significant revenue growth in the near term.
  
• Despite efforts to improve working capital efficiency, the increase in net working capital days and inventory days suggests potential liquidity risks and strains in maintaining operational margins.
  
• The forward integration and value-added component strategies bring execution risks and uncertainties regarding customer adoption and market competition, which could impact revenue targets and margin projections.
  
• Dependency on a few large markets, like the Americas, for segmental growth exposes the company to regional economic fluctuations and tariffs, potentially affecting their forecasts for growth and profit margins.

Valuation

• The analysts have a consensus price target of ₹757.0 for Shivalik Bimetal Controls based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹8.4 billion, earnings will come to ₹1.6 billion, and it would be trading on a PE ratio of 40.4x, assuming you use a discount rate of 13.6%.
  
• Given the current share price of ₹484.95, the analyst price target of ₹757.0 is 35.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.