Fundamental Analysis of Shilchar Technologies: The stock of Shilchar Technologies, a small-cap power transformers maker has generated a return of a whopping 400% for its investors in the last 12 months.

What makes this power equipment company so interesting? Can investors expect such returns in the future? We’ll attempt to answer these and other questions by performing a fundamental analysis of Shilchar Technologies in this article.

Fundamental Analysis of Shilchar Technologies

Shilchar Technologies logo

We’ll begin our study by reading about the business and products of the company. Next, we read about the global transformer industry landscape followed by the financials of the stock. A highlight of the future plans and a summary conclude the article at the end.

Company Overview

Shilchar Technologies is a small cap company engaged in manufacturing transformers of electronics & telecommunication and power & distribution. It was started 23 years ago in 1990 and is currently valued at a market capitalisation of Rs 1,127 crore.

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The company produces different classes of transformers such as R-corre, El, toroidal, and energy meter CTs which go into various electronic devices like computers, audio/video devices, medical equipments, telecommunication, and more.

Furthermore,  as its primary business, Shilchar has the capability to manufacture transformers of up to 50 MV, 132 KV required for power generation and distribution. Overall, its production facility manufactures high-quality and certified transformers in the range of 3.15 MVA, 33 KV to 15 MVA, 66 KV.

Talking about its revenue spread, Shilchar has a largely equitable distribution of income from India and abroad. It earned revenues of Rs 113.54 crore and Rs 144.83 crore from costumes within India and outside India respectively in FY23. While its domestic sales remained largely unchanged, its export income almost tripled from Rs 45.70 crore in FY22.

The Vadodara, Gujarat-based transformer maker employed 115 on a permanent basis at the end of FY23.

We got a good understanding of the business of the company for our fundamental analysis of Shilchar Technologies. Let us now move forward to read about the transformer industry landscape.

Industry Overview

The international power transformers industry is projected to grow at a CAGR of 7.1% over the next 7 years to become  38.91 billion in value by 2030. Various factors including technical developments and a rise in power consumption across the world will drive the demand for power transformers.

Multiple geographies such as India, the Middle East and Africa are expected to grow at a faster rate because of a lower base and government push towards installation of green and efficient power generation systems.

Thus, the overall outlook for the transformer sector looks strong as transmission networks gradually shift to the use of 100-MVA to 500-MVA power systems.

Shilchar Technologies – Financials

Revenue & Net Profit Growth

The revenues of Shilchar Technologies grew at a fast CAGR of 24% during the past five years from Rs 118.4 crore in FY19 to Rs 280.2 crore in FY23. During the same period, its net profit grew at a much faster annualised rate of 53.6% to Rs 43.1 crore in FY23 from Rs 7.7 crore.

The table below showcases the high operating revenue and net profit growth of Shilchar Technologies for the past five financial years.

Fiscal YearOperating RevenueNet Profit
2023280.243.1
2022180.214.0
2021117.85.5
202071.31.5
2019118.47.7
5-Yr CAGR24.0%53.6%

(figures in Rs Cr except for CAGR)

But how is it that net profits grew faster than the operating revenue? Let us read more on this in the next section on the margins of our fundamental analysis of Shilchar Technologies.

Profit Margins

The profit margins of the transformer maker expanded as higher demand for its products helped it to take advantage of the operating leverage inherent in its manufacturing business. Furthermore, the realisations also improved during the period taking the operating profit margin and net profit margin to their highs of 18.9% and 15.4% in FY23 respectively.

The figures below represent the operating profit margin and net profit margin of Shilchar Technologies over the previous five fiscal years.

Fiscal YearOperating Profit MarginNet Profit Margin
202318.915.4
202210.87.8
20218.14.7
20204.32.1
201912.06.6

(figures in %)

Return Ratios

Higher profits directly increased the profitability of Shilchar Technologies aiding the company to post record RoCE and RoE of 53.9% and 42.9% respectively in FY23. 

The table below showcases the return on capital employed (RoCE) and return on equity (RoE) of Shilchar Technologies for the past few years.

Fiscal YearRoCERoE
202353.942.9
202223.619.2
202112.58.7
20204.52.5
201918.713.5

(figures in %)

RoE lower than RoCE points at low or negligible financial leverage in the company. We shall read about this in the next section on debt of our fundamental analysis of Shilchar Technologies.

Debt Analysis

We’ll keep the debt analysis of Shilchar Technologies brief as it is a debt-free stock with a high-interest coverage ratio of 98 times. Its interest coverage was comparatively lower at 4.81 times in FY19.

The management has done an impeccable job of paying back debt and making the company completely debt free with a debt-to-equity ratio of 0.00 in FY23 from 0.26 previously in FY19.

Future Plans Of Shilchar Technologies

So far we looked at the previous fiscals’ data for our fundamental analysis of Shilchar Technologies. In this section, we’ll try to get some sense of what lies ahead for the company and its investors.

  1. Shilchar is presently investing to set up a research & development facility and multiple testing facilities to enhance its product offerings.
  2. Along these lines, the company spent Rs 55.24 crore and Rs 23.82 crore in FY23 and FY22 respectively as capital expenditure towards property, plant and equipment.

Key Metrics

We are almost at the end of our fundamental analysis of Shilchar Technologies. Let us take a quick look at the key metrics of the stock.

ParticularsAmountParticularsAmount
CMP ₹3,166Market Cap (Cr.)₹1,230.98
EPS₹141Stock P/E22.93
RoE42.9%RoCE53.9%
Promoter Holding66%Dividend Yield66%
Debt to Equity0.0Price to Book Value8.18
Net Profit Margin15.4%Operating Profit Margin18.9%

Conclusion

As we conclude our fundamental analysis of Shilchar Technologies, we can say that the high stock returns for investors came from the fast growth of the top line and bottom line. Going forward, it will be interesting for investors to track if the company can deliver the same growth by tapping more demand in foreign markets. 

Do you think Shilchar can grow its domestic sales as well, as they remained stagnant in FY23? Or will major sales come from outside India? How about we continue this conversation in the comments below?

Written By Vikalp Mishra

By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks also get updated with stock market news, and make well-informed investment decisions.


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