Proxy Smallcaps to Ride the Electronics Revolution
Summary
TLDRThe video discusses the strong performance of AC manufacturers like Amber Enterprises, PG Electroplast, and EPD Durables, which reported over 70% year-on-year growth due to rising AC demand, especially in tier 2 towns and villages. These companies dominate the original design manufacturing market in India and have expanded capacity, aided by government support. Despite high valuations and potential risks like demand fluctuations, there are investment opportunities in proxy stocks such as Taranis Performance Materials, Bansali Engineering Polymers, and Supreme Petrochem, which supply materials for electronics and home appliances. These stocks are noted for strong balance sheets and market positions.
Takeaways
- π The earning season was exceptionally profitable for AC manufacturers, with leading companies like Ember PG, Electroplast, and E-Pad Durables reporting over 70% year-on-year growth.
- π These companies, known as Original Design Manufacturers (ODM) or Electronics Manufacturing Services (EMS) providers, design and manufacture ACs for major brands like Voltas, Blue Star, Samsung, and others.
- π They hold over 90% of the Aftermarket Domestic (ADM) market share, and with initiatives like 'Make in India' and the PL scheme, they have significantly expanded their production capacities.
- βοΈ Rising heat waves across India have led to an unprecedented demand for ACs, especially from tier 2 towns and villages, turning a luxury into a necessity.
- π Despite the high demand, India's AC penetration level is only 8%, significantly lower compared to 100% in China and 90% in the US and Japan, indicating a vast growth potential.
- πΉ The companies experienced a surge in orders due to supply not keeping up with demand, resulting in substantial profits.
- π Investing in companies like Blue Star and EMS players like Ember PG, Electroplast, and E-Pad Durables could be a way to capitalize on the growing electronics and AC market.
- π However, caution is advised due to the high valuations and price-to-earnings multiples these companies are commanding, which may not be sustainable.
- π A less severe summer next season could lead to a correction in the stock prices of these companies, highlighting the need for careful investment consideration.
- π Three proxy stocks for electronics that could benefit from the rise in electronics demand are Tyrannic Performance Materials, Bansali Engineering Polymer, and Supreme Petrochem, each with a strong balance sheet and notable market positions.
Q & A
What was the performance of AC manufacturers like Ember PG, Electroplast, and E-Pad Durables in the June quarter?
-AC manufacturers such as Ember PG, Electroplast, and E-Pad Durables reported over 70% year-on-year growth in the June quarter.
What are some of the brands for which these companies design and make ACs?
-These companies design and make ACs for brands like Voltas, Blue Star, Samsung, and other leading brands.
What is the term used for companies that design and manufacture products for other brands?
-Such companies are referred to as Original Design Manufacturers (ODM) or sometimes as Electronic Manufacturing Services (EMS) providers.
What is the combined market share of Ember PG, Electroplast, and E-Pad Durables in the Indian AC market?
-Together, these three companies command over 90% of the Indian AC market.
How has the 'Make in India' initiative and the PLI scheme supported these companies?
-The 'Make in India' push and the Production Linked Incentive (PLI) scheme have supported these companies by encouraging them to undertake significant capacity expansions to meet the rising demand for ACs and electronics in India.
What was the new pattern of AC demand observed during the earning season?
-A new pattern of demand was observed with a significant increase in demand for ACs coming from tier 2 towns and villages, where ACs have transitioned from being a luxury to a necessity.
What is the current AC penetration level in India compared to other countries?
-India has an AC penetration level of just 8%, which is significantly lower than 100% in China and 90% in the US and Japan. It is also behind economies like the Philippines and Mexico.
What are the potential risks for investors considering investing in AC and electronics companies?
-Investors should be cautious of the high valuations these companies are commanding, which could lead to a correction in their stock prices, especially if there is a benign summer in the next season and demand does not continue at the same pace.
What are some proxy stocks for electronics that could benefit from the rise in electronic items and ACs?
-Some proxy stocks for electronics that could benefit include Tyrannic Performance Materials, Bansali Engineering Polymer, and Supreme Petrochem.
What are the financial strengths of Tyrannic Performance Materials as mentioned in the script?
-Tyrannic Performance Materials has a strong balance sheet with almost no debt, and its return on equity (ROE) and return on capital employed (ROCE) stand at 24% and 32.5% respectively.
What is the market position of Supreme Petrochem in the PO industry?
-Supreme Petrochem is a market leader in PO (Polyolefin) with a market share of over 50%.
Outlines
π AC Manufacturers Report Record Growth
The video script discusses the impressive performance of AC manufacturers during the earning season, with companies like Ember PG, Electroplast, and E-Pad Durables experiencing over 70% year-on-year growth. These original design manufacturers (ODMs) and electronic manufacturing services (EMS) providers have seen a surge in demand, particularly from tier 2 towns and villages in India, due to rising heat waves. The demand for ACs has shifted from a luxury to a necessity, and despite India's low AC penetration rate of 8% compared to countries like China and the US, there is significant room for growth. The video suggests that investing in companies like these or in EMS players could be beneficial, but cautions viewers to be mindful of high valuations and the potential for market correction in the future.
Mindmap
Keywords
π‘AC manufacturers
π‘Year on year growth
π‘Original Design Manufacturers (ODM)
π‘Electronics Manufacturing Services (EMS)
π‘Make in India
π‘Heat waves
π‘Tier 2 towns and villages
π‘AC penetration
π‘Price to Earnings (PE) multiple
π‘Proxy stocks
Highlights
AC manufacturers reported over 70% year-on-year growth in the June quarter, driven by rising demand and heatwaves across India.
Leading companies like Amber PG, Dixon Electroplasts, and EPE Durables hold over 90% of the AC original design manufacturing (ODM) market in India.
With government support through the Make in India push and PLI schemes, these ODM players have significantly expanded their production capacities.
This year, a surprising increase in AC demand came from tier 2 towns and villages, where ACs are transitioning from luxury items to necessities.
India has one of the lowest AC penetration rates at just 8%, compared to 100% in China and 90% in the US and Japan, highlighting a vast growth potential.
The growing trend in AC and electronics demand is expected to continue, driven by increasing penetration in India, despite potential seasonal fluctuations.
High valuations of leading companies like Voltas and Blue Star suggest caution as some stocks may face corrections if demand doesn't sustain.
Proxy stocks for electronics, such as Tarang Performance Materials, Bansali Engineering Polymers, and Supreme Petrochem, are potential investment alternatives.
Tarang Performance Materials makes engineering thermoplastics used in home appliances, auto, and healthcare, with a strong balance sheet and almost no debt.
Bansali Engineering Polymers manufactures plastics for auto, home appliances, and healthcare with a debt-free balance sheet and strong returns on equity.
Supreme Petrochem, a market leader in polystyrene, has diversified its product line and maintains a debt-free status with significant investable surplus.
Despite their potential, some of these companies face challenges, such as high promoter pledging seen in Tarang Performance Materials.
The extraordinary growth in AC demand was unexpected, catching both leading brands and manufacturers off-guard, leading to supply shortages.
While high valuations might deter long-term investors, the overall electronics and AC market in India remains a growing sector with potential investment opportunities.
This transcript does not endorse any specific stocks but provides examples of companies that could benefit from rising electronics demand in India.
Transcripts
dear viewers this earning season was a
bumper Harvest for AC manufacturers
leading companies like Ember PG
electroplast and epad durables reported
over 70% year on-year growth in the June
quarter these are the companies that
among other things like washing machine
and electronic appliances design and
make ACS for various Brands like voltas
blue star Samsung and other leading
Brands they are called original design
manufacturers or
audience electonic Manufacturing
Services or EMS is another term used for
this in case of AC's itself these three
companies command over 90% of the ADM
market with the Mak India push and pl
scheme support these odm players have
undertaken significant capacity
expansions to cater to the trend of
rising AC and electronics penetration in
India the reason these companies came up
with the Blockbuster results was Rising
heat waves across the country and the
ensuing Dem for AC's so much so that a
new pattern was seen a lot of demand for
AC's this time came from tier 2 towns
and Villages what used to be luxury ons
has become a necessity now this
extraordinary demand was something that
neither the leading Brands nor audience
had anticipated or prepared for yet as a
demand outstrip Supply these companies
were overflowing with orders and made
huge money India despite its harsh
weather in summers is one of the least
penetrated countries in this category
the AC penetration level standed just 8%
versus 100% in China and 90% in the US
and Japan we are also lagging behind as
compared to economies like Philippines
and Mexico in this regard so even if a
similar demand is not seen in the next
season AC penetration in India has a
long way to go now one way to bet on the
rise of electronic items and AC is
betting on companies like vas blue star
and on EMS players like Ember PG
electroplast and epeg dur
exciting at this opportunity is one
should be careful of the high valuations
these companies are commanding almost
price to Perfection some of these
companies are still offering
underwhelming returns despite the
support and yet they're commanding PE or
price to earning multiple that long-term
value investors may not be comfortable
for in fact a benign summer next season
may even lead to correction in some of
these stocks so are there more ways to
play this strength well yes consider
proxy stock for electronics for your
watch list today I'm going to talk about
three such companies first is tyrannic
performance materials a company that
makes engineering
thermoplastics these are used in
manufacturing home appliances Auto
consumer durables and healthcare
industry packaging segment and
stationary its clients include LG
Samsung codr gyin H Compton Hero Honda
baj TVs Ola ether maruti Suzuki Tata
hindra and Ashok Len to name a few the
company enjoys a strong balance sheet
with almost no debt it's return on
equity and return on Capital employes
stand at 24% and 32.5% resp the stock is
trading at a PE of 23 times now do note
that the shareholding pattern shows High
promoter pledging the pledging is for
security of loans which were taken by
the new management to take the majority
state in the company and the management
does intend to bring it down the second
this proxy list is bansali engineering
polymer it makes engineering Plastics
with applications in Auto home
appliances Electronics Healthcare and
kushion Weare with a debt free balance
sheet return return on equity and
capital employers stand at 18% and 24%
respectively at a PE of 23 times this is
a good Electronics proxy stock to have
on your watch list the third in this
list is supreme petran it was formed as
a JV between caparas of Supreme
Industries and Ras of exite pris Johnson
and Sonata software the company is a
market leader in poing with market share
of over
50% the end applications are similar
consumer durable stationary toys
packaging and so on it is entering more
products to broaden the scope of use in
similar Industries the balance sheet is
debt free with investable surplus of
rupees 10 billion and a market cap of
160 billion return on equity and capital
employees standed 18% and 24%
respectively the stock is trading at a
PE of 40 times now please note that this
video does not imply any view on any of
the stocks share these are just some
examples to keep on your watch list that
could benefit from the rise of
electronics share your feedback in the
comment section and let me know to your
likes if you wish to know more about
such opportunity thank you for watching
goodbye e
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