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Sika Interplant
Our verdict on Sika Interplant isn’t the consensus take — see where we landed, and the one risk the bull case glosses over.
See the verdict — free →How durable is the business?
The Engineering Systems segment saw explosive growth of 110.73% YoY, increasing its share of total revenue from ~34% to ~40.7%. (2 expanding)
“Sale of Engineering Systems: 4,314.87 (2023-24) vs 2,047.59 (2022-23)”
The Engineering Products segment saw significant growth, increasing its revenue share to 61.5% of total operations, driven primarily by strong sales in Servo Products and Aircraft parts. (1 expanding)
“Because of its in-house R&D efforts the Company was able to deliver the best solutions to the customers in a cost-effective manner, including for participation in import substitution programs for aerospace and defence projects”
The company maintained its focus on in-house R&D for import substitution, with R&D expenditure increasing by 4.88% YoY. (1 stable, 1 expanding)
“The expenditure incurred on Research and Development during the year was ₹ 102.03 lakhs.”
The company's regulatory moat was reinforced by maintaining AS9100 certification and holding Directorate General of Aeronautical Quality Assurance (DGAQA) approval. (1 stable)
“your Company successfully maintained its AS9100 certification... Additionally, the company also holds approval from the Directorate General of Aeronautical Quality Assurance (DGAQA).”
Revenue from Engineering Products grew significantly by 70.18% YoY, though its share of total revenue decreased slightly due to even faster growth in the Systems segment. (1 expanding, 2 contracting across 3 engines)
“2. Engineering Products a. Servo Products 4,507.38 b. Aircraft parts 4,252.11 c. Others 192.56”
See the full cited Business Model analysis of Sika Interplant
What could break the thesis?
The risk is stable; management confirms that progression into long-term programs depends on government decisions, leading to an uneven pattern of sales beyond their control. (1 stable, 1 intensifying, 1 high-severity)
“Further, as many of these projects are initiated by the MoD driven by its own policies and priorities, the continued progression of these into long-term programs with a definitive quantum of orders depends largely on the government’s decisions. This results in an uneven and skewed pattern of sales for the Company, which is beyond the control of the Company.”
The risk remains high as the company explicitly states that delays from the MoD in project execution or shortfalls in defense outlays directly impact revenues. However, the trajectory is stable as the company is actively participating in 'Make in India' and import substitution programs to align with government priorities. (2 stable, 1 high-severity)
“Any delays from the MoD in the execution of AD&S projects associated with it, shortfalls in planned Defence outlays, adverse changes to government policy, etc. could directly have a direct impact on the activities of the Company and consequently on its revenues.”
The risk is stable but remains a concern. The company highlights that revamped offset policies in DAP 2020, such as exemptions for intergovernmental agreements and the omission of offset banking, are likely to have a negative impact on future opportunities. (1 stable)
“Similarly, three surprising aspects of the revamped offset policy as in the draft DAP 2020 are the exemption of procurements under the intergovernmental agreements (IGAs) from the application of the offset provisions and omission of offset banking... all of which are likely to have a negative impact on future opportunities through offsets.”
The risk is intensifying as foreign exchange expenditure significantly outweighs earnings. In FY25, the company spent ₹7,652.99 Lakhs in foreign exchange while earning only ₹113.74 Lakhs, creating a massive net exposure. (1 intensifying)
“Also, your Company’s increasing exposure to international markets brings with it inherent risks like Foreign Currency Risk and Interest Rate risk.”
The risk is intensifying as the company's foreign exchange expenditure significantly outweighs its earnings. In FY24, the company spent ₹4,253.20 Lakhs in foreign exchange while earning only ₹111.84 Lakhs. (1 intensifying, 2 resolved)
“However, certain approval for the project was not received and also it was not the core business of the company. Owing to these reasons the management has decided not to continue / pursue the project further... the project has been abandoned. The effect on profit and loss... has been disclosed in notes 28 under exceptional items.”
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