Precision Camshafts is one of the world’s leading manufacturer and supplier of camshafts, a critical engine component, in the passenger vehicle segment. The company supplies over 150 varieties of camshafts for passenger vehicles, tractors, light commercial vehicles and locomotive engine applications from its manufacturing facilities in Solapur, Maharashtra. The company mainly caters to the passenger vehicle segment. The company’s aggregate capacity is 15.6 million camshafts.

Precision Camshafts

Current price on the date of publishing this report – 123 Rs

Introduction

Incorporated in 1992, company had later changed its name to Precision Camshafts Limited. It is promoted by Mr. Yatin Shah and Dr. Suhasini Shah first generation entrepreneurs who started the business of manufacturing of critical engine component in 1992., with over more than 20 years of experience in the critical engine component manufacturing and have established strong business relationships with marquee global OEMs.

Precision Camshafts is a full solutions supplier for camshafts created by diverse technologies, with a large portion of its revenue coming from direct and indirect camshaft export to various OEMs. With a global market share of roughly 10%, it is a niche competitor in the camshaft area. It is also the largest supplier in the domestic market, with a 70% market share, and the preferred supplier of casting camshaft to some of the global and domestic Original Equipment Manufacturers (OEM), including Maruti Suzuki, Hyundai (India), Tata Motors, and M&M, as well as OEMs such as General Motors and Ford. The company’s focus on technology (product and process) has allowed it to develop a solid presence in both domestic and worldwide markets.

PCL group companies comprise Memco Engineering Pvt. Ltd., MFT Motoren und Fahrzeugtechnik GmbH and Emoss Mobile Systems B.V. The Company is proficient in providing critical automotive, non-automotive parts and electric mobility solutions to world-class automotive OEMs. 

The firm operates two cutting-edge production facilities in Solapur, Maharashtra: an EOU unit and a domestic facility. The EOU unit consists of four foundries and three machine shops, and the majority of the items created at the EOU unit are exported to clients in other countries. The domestic unit consists of one foundry and one machine shop, and this manufacturing plant serves domestic consumers.

To boost its Asian operations, the company has formed two joint ventures with NSPCL: the first, Ningbo Shenglong PCL Camshafts Company Limited, for camshaft machining, and the second, PCL Shenglong (Huzhou) Specialised Casting Company Limited, for the establishment of a foundry in China. In April 2013, the machine shop in Ningbo, China, began production.

In addition, the company has signed an exclusive agreement with EMAG, a German machining and tooling process company, for the transfer of particular know-how and technology in order to reinforce its entry into assembled camshafts and grow its commercial activities in the European market.

Company has the capacity to supply over 10 million units of camshafts and serviced to various customers spread across different geographies including the United States of America, Brazil, the United Kingdom, Germany, Austria, Hungary, South Korea, Spain, Uzbekistan, China besides India.

Business Products

Camshafts

Camshafts serve a significant part in improving an engine’s fundamental operation. Camshafts are widely employed in both modern overhead-cam (OCH) engines and older engines.

The number of commercial vehicles is increasing significantly, particularly in the Asia Pacific area. As a result, demand for automobile camshafts is likely to increase. Furthermore, increased passenger vehicle sales and production in developed and emerging nations are expected to drive up demand for camshafts.

• Ductile Iron camshafts 
• Hybrid camshafts 
• Assembled camshafts
• Chilled cast iron camshafts
• Balancer shaft & Assemblies
• Prismatic components

Stainless steel components

Fuel injector components – : Used for conventional and DRDI engines like nozzle holder body, nozzle retaining nut etc

E-Mobility

EV Trucks – Company designs, develops, produces and tests innovative electric drivelines. With its modular system company is able to convert any vehicle to electric drive from delivery vans to full electric trucks and range extended electric semi trucks.

EV Buses – Company is working on electric public transportation with electric bus without emission, noise or vibrations in order to make public transport more comfortable and environment friendly. The work on the EMOSS e bus which is developed by the company is currently under progress and company is yet to announce the date for its launch as well as the technical details about the product.

Clientele

Acquisitions 

Precision Camshafts invested Rs 2214 Lakhs in its wholly owned subsidiary business PCL (International) Holdings B.V. Netherlands in 2018. (PCL Netherlands). PCL Netherlands’ equity commitment was used for strategic acquisitions. Because the Company’s present client base is mostly situated in Europe, obtaining future orders and establishing research and development PCL Netherlands would add value to the Company’s company.

Precision Camshafts bought 95% of MEMCO Engineering Private Limited’s equity share capital in Nashik, Maharashtra. MEMCO manufactures fuel injection components for traditional CRDi diesel engines, braking components, high pressure diesel injector connections for navy ships, and high precision instrumentation components. MEMCO has long-standing ties with worldwide brands such as Bosch, Delphi, Endress Hauser, and Giro. On a standalone basis, the Company’s Revenue from Operations for the fiscal year ended 31 March, 2018 was Rs 3472.44 Lakhs and Profit After Tax was Rs 188.09 Lakhs.

In order to grow organically, the company identified a similar allied product such as Camshafts, Bearing Caps, Engine Brackets, and Prismatic Components and acquired 76% of M/s MFT Motoren und Fahrzeugtechnik GmbH, Germany (MFT) in 2018 through its Wholly Owned Subsidiary, PCL (International) Holdings B.V. Netherlands (PCL Netherlands). According to the Share Purchase Agreement, the Company would buy the remaining 24% of the shares in the fiscal year 2021 depending on the performance in the fiscal year 2020.

MFT manufactures Balancer Shafts (completely machined, hardened, and balanced vertical and horizontal Balancer Shafts), Camshafts, Bearing Caps, Engine Brackets, and Prismatic Components (i.e. brake and chasis components, machining of all casting materials). MFT is a financially robust corporation, with a 2017 revenue of around Rs 16000 lakhs. MFT has long-standing relationships with worldwide brands such as Volkswagen, Audi, Opel, Westfalia, Hatz, and Suzuki. With the purchase of MFT, the firm will increase its specialist machining skills and broaden its new product line to better serve clients in European markets.

Financials

For the year ended March 2022

• Revenue of the Company has grown from ₹ 408 crores to ₹ 532 crores, which is 30% year on year on a standalone and has grown from ₹ 734 crores to ₹ 913 crores, which is approximately 24% year on year on a consolidated basis. 
• Consolidated PAT from grew 0.1% in FY21 to + 5% in FY22. 
• The parent business PCL India has grown 30% over the last year by better asset utilization of foundries, as well as machine shops. 
• As a Company, precision camshaft has cast 7.88 million camshafts in FY22 compared to 6.32 million in FY21. 
• Out of this number, the Company machined 2.8 million camshafts in FY22 compared to 2.4 million last year. 
• Net profit for the year ended march 22 stood at around 46 crores against loss of 1 cr in fy 21.
• However despite incurring loss in the fy 21 company had a positive net operating cashflow of around 120 crs in the same year.
• In fy 22 company had Operating cashflow of 88 crores against net profit of 46 crs. The positive cashflow when correlated with the net profit it is found that the increase in OCF is mainly attributable to the depreciation of 92 crs which mainly reduces the net profit of the company.
• As of March 22 company had parked around 180 crs in various short term maturity mutual fund schemes which can be equivalent to cash and equivalents on hand.

For Q1FY23

• Net Sales stood at Rs 240.00 crore in June 2022 up 15.72% from Rs. 207.40 crore in June 2021.
• Quarterly Net Profit stood at Rs. 4.19 crore in June 2022 down 40.44% from Rs. 7.03 crore in June 2021.
• EBITDA stood at Rs. 27.41 crore in June 2022 down 13.15% from Rs. 31.56 crore in June 2021.
• Precision Camsh EPS has decreased to Rs. 0.44 in June 2022 from Rs. 0.74 in June 2021.

Managements comments

The Company is developing an electric driveline for a sub 4‐ton LCV for the Indian market . The Company is focused on bringing a high quality reliable product to the Indian market while ensuring cost competitiveness with high localization. Company is in the process of setting up its first EV plant setup in Solapur and has also signed some agreements with large customers. 

Company is planning to be in the LCV category for electric vehicle where it would be a sub‐3 ton GVW type of vehicle with a payload of somewhere between 1 ton to 1.5 ton. The vehicle will be fully electric and company is intending that the use case would be within the intracity use, and the range would be between 100 to 200 km of run per day. The product development cycle has been almost completed in its Dutch subsidiary along with most of the localization efforts in India as well. More news and details will be shared on a later date. However no concrete timeline for the same has been provided by the management as of now. The product development is almost complete.

Whatever CAPEX would be required for this project will be funded through internal generation as well as the cash on hand that Company, has which is sufficient to fund the development of this project and the vehicle. 

Company had faced a lot of challenges on account of Russia Ukraine war as a large number of its customers are based in Europe. Now everything returning back to normalcy company is expecting a good set of numbers in the coming period. However management refrained fro giving any estimates or outlook for the growth but said that they are expecting a similar kind of growth as we have seen in the past.

Management in the company concall said that they had enough orders to keep the growth intact over the next two years till fy 2024 . However they refrained from sharing the order book and gave a reason for the same that it would be a forward looking statement. This is one of the thing that we have found a bit strange about the management as most of the companies don’t hesitate to share their order book numbers. 

(We will be writing the same to the company management, but for now we are going to give the benefit of doubt to the management since they have delivered a solid set of numbers despite lot of challenges such as Covid, Increasing metal prices, high inflation, Russia Ukraine war etc. Therefore in case if you choose to go it other way feel free to decide for yourself. Users are requested to write to the management regarding the same.)

On account of fluctuating prices management has clarified that it takes somewhere around 30-90 days to pass full price increases to the customers. As inquired from the local metal dealers we have come to know that there has been significant drop in the metal prices in this last week and overall the metal prices have softened significantly from all time highs. This we expect the full effect of the same to be felt on the company financials in the next quarter results that is Q3fy23.

Sectorial outlook

The automotive industry is considered to be one of the major drivers of economic growth due to its linkages with multiple industries . According to credit rating agency, ICRA, the Indian auto components industry is expected to clock 8-10 per cent growth in FY 23, owing to easing of supply-chain issues and commodity inflation in the second half of the year. 

As of FY 2021, the auto ancillary market accounts for ~2.3% share of India’s gross domestic product (GDP) and employs more than 5.5 million people. The auto ancillary market in India was valued at Rs. 3,615.78 Bn in FY 2021 and is expected to reach Rs. 7756.98 Bn by FY 2027, expanding at a compound annual growth rate (CAGR) of ~15.35% during the FY 2022- FY 2027 forecast period 

Government announced the Production-Linked Incentive (PLI) Scheme in the Automobile and Auto Components sectors. The PLI scheme (outlay of USD 3.5 billion) for the automobile sector proposes financial incentives of up to 18% to boost domestic manufacturing of advanced automotive technology products and attract investments in the automotive manufacturing value chain 

Conclusion 

Precision Camshafts one of the world’s leading manufacturer and supplier of camshafts, a critical engine component, in the passenger vehicle segment has global market share of around 10% in camshafts as well as company is very well diversified in terms of product as well as customer base where no single customer contributes to more than 20% of revenues. Besides company is planning to foray into electrical vehicles segment through its dutch subsidiary where the product development is almost complete and company plans to do a capex for the same from the internally generated funds. Apart from that company has 180+ crores invested in various short term debt mutual fund schemes almost equivalent to cash and equivalents as well as company has very negligible debt to the tune of D/E ratio of about 0.20. Thus precision camshaft is worth exploring for long term.