The brand exudes style, quality & sophistication. It’s a symbol of luxury. Of premium clothing.

However, Raymond has two other business verticals as well — Engineering & Realty — and in a bid to unlock shareholder value, the management at Raymond decided to de-merge these verticals into 3 distinct listed companies as below:

• Raymond Limited — which houses the engineering division.

• Raymond Lifestyle — which houses the textiles business, the brand that everyone knows.

• Raymond Realty — houses the real estate business, with a primary focus on the Mumbai real estate market. A very lucrative market.

Since the de-merger, the share prices of all 3 companies have heavily tanked. In the last one year — Raymond Limited is down 15%, Raymond Lifestyle is down 25% and Raymond Realty (RRL) is down >60%.

As an investor, when you see a 60% drop in a stock — you could assume several things. Maybe the business isn’t doing well. Projects must be stuck for regulatory approvals. Profitability must be low. Cash flows must be negative. Return ratios must be in low single digits. Management could be involved in fraudulent activity.

In short — you’d assume a management that isn’t equipped to be in the business of running a real estate company. Maybe Raymond should stick to selling premium clothing? [which isn’t doing that great either btw!]

However, if you go through the Q3 earnings transcript a very different picture emerges. The numbers look solid. You meet a management that is confident in their execution capabilities. Promoter buying in the wake of declining share prices. A decent ROCE and a solid order pipeline.

WHAAAT?! These are not signals you get when a stock drops by 60% in a single year!

I was definitely intrigued, and I couldn’t help myself but conduct a deeper dive into the business of Raymond Realty [RRL].

What makes it a value opportunity?

One of the biggest advantages working in the company’s favor — is the 100-acre land bank it owns in Thane. It’s their turf. They don’t have to worry about regulatory clearances. No additional costs need to be incurred to buy this land + Thane is a fast-growing area with a lot of infrastructure being built [read: new metro lines]

The management estimates a [cumulative] revenue potential of INR 25,000 Cr from this 100-acre land bank. Out of this 100-acre land, 55 acres is currently under development with a GDV [revenue potential] of INR 13,200 Cr.

To grow beyond Thane, Raymond Realty is partnering with landowners in other parts of Mumbai — Bandra, Wadala, Sion, Mahim etc. — under a Joint Development Agreement (JDA).

Most of these JDA projects are redevelopment projects — where an old building is demolished and a new building is built in its place.

Under a JDA, the landowner provides land to a developer (like Raymond Realty). The developer doesn’t have to pay to buy land or bear any of the costs associated with buying a land.

The developer takes care of the construction, RERA approvals, sales etc. Profits are split between the landowner and the developer. This is a good strategy to grow without acquisition of land parcels especially in a city like Mumbai where land is scarce.

A JDA project has faster execution; hence developers are able to rotate cash faster leading to higher ROCE %. However, margins are lower compared to a greenfield project.

If you take a look at the table above, you can see that cumulative PAT in the future > current market capitalization. And these are conservative estimates. As per the latest earnings call, the management expects EBITDA to hover in the range of 20%.

Now, the market already knows this. It is way smarter than people like you and me. The market doesn’t care about the GDV or the potential of JDA projects. It strongly feels the management will not be able to execute on its promises. The brand is tarnished?

I don’t have insider knowledge to understand why the stock is beaten down to such levels, but there are a few things which could have contributed to the decline:

• Compression in margins post de-merger — before it’s demerger, the realty business was posting EBITDA margins of 25%+ and post demerger margins have compressed to 13%.

  • Management explained that before the demerger, the realty business was a business unit, and a lot of common costs were not allocated to the realty business — hence elevating the margin % before the demerger.

  • Another thing dampening margins is the upfront investments / expenses required in the current projects — with two JDA projects already launched and 4 more projects in the pipeline. As the projects mature, EBITDA should stabilize.

• All Raymond entities are down post demerger, and the brand name is under a lot of stress — weighing down on the realty business as well, however what’s going on with the Engineering / Lifestyle businesses has no direct implication on Raymond Realty.

Project launches in pipeline

4 launches are planned in Q4FY26 — out of which 2 projects are JDA projects outside the Thane market [Wadala + Sion].

• The Address by GS [Wadala] — located in Wadala, this project was launched in January 2026 and has a GDV of INR 5,000 Cr. RERA filings indicate a 62:38 split in favor of RRL, so out of the total GDV — around INR 3,100 Cr should be recognized by RRL.

• The Address by GS [Sion] — located in Sion, this project was launched in February 2026 — as committed by the management.

• Launching two other greenfield projects in Thane — one is a project targeting the 2BHK community and the other is a high street retail project with high margins, which the management believes should help the company achieve the revenue numbers & margin profile forecasted.

Guidance

Management expects to grow revenue + pre-sales by 20% YoY. It is targeting a FY26 pre-sale of INR 2,800 Cr, out of which INR 1,500 Cr is booked till Dec’25.

The management was VERY confident on achieving a pre-sale of INR 1,300 Cr in Q4 — and were visibly annoyed when analysts questioned them on this number. If they achieve this number in Q4, that would be a validation of management walking the talk. Accurate forecasts are a rarity.

Post launch of 4 projects in Q4, the company would have 13 projects in total.

Expecting EBITDA to settle in the range of 15-16% by the end of FY26 and to further expand to 20% by FY27.

However, one thing to note here — is that going forward to unlock growth, Raymond is looking towards JDA projects [which are primarily redevelopment projects]. Currently 22% of pre-sale came from JDA projects, which should inch up to 50% of pre-sale by FY28.

JDA / re-development projects have lower margins compared to greenfield projects and it would be interesting to see how the company manages to maintain a margin profile of 20%+ in the foreseeable future with the mix of JDAs increasing.

My take?

I’ve read only a couple of earnings call transcripts — but one thing is clear, the MD & CEO of Raymond Realty — Mr. Harmohan Saini — has character. He is confident about his commitments and forecasts. He’s been in the real estate game for over 30 years, and he isn’t shy to lead from the front.

The stock is down 60% — I don’t see any obvious red flags in the business. They have a massive land bank in Thane, they’re getting into JDAs — yes, its not the sexiest business to be in [like semiconductors / AI / biomedicine] — but at the current valuations, I see limited downside. And I see a LOT of upside.

The Iran-Israel-US war has dampened investor sentiment in general and portfolios are bleeding red. But this is an opportunity to scoop up good businesses at a discount — and I believe RRL deserves a closer watch.

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[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

First concern was management revising its estimates every quarter and the delta between the estimates and actual revenue. Take a look at the summary below:

• Evolution of FY24 forecast — INR 860 Cr → INR 700 Cr → INR 610 Cr → INR 580 Cr [actual FY24 revenue]

• Evolution of FY25 forecast — INR 900 Cr → INR 676 [actual FY25 revenue]

• FY26 guidance — INR 900 Cr → achieved INR 571 Cr upto 31st December [9 months] + needs to achieve INR 329 Cr in Q4FY26 [low probability]

• FY27 guidance — INR 1,350 Cr → guiding 50% growth YoY [I would take this # with a pinch of salt]

When management consistently misses their estimates, it tells you plenty of things. One, that the business might have lumpy revenues. Two, the management doesn’t have a strong grip on execution. Three, management over-promises and under-delivers. Things that don’t instill a lot of investor confidence.

Few other concerns were the high working capital nature of the business and customer concentration [reliance on Bloom Energy].

What’s baffling, is that despite the miss in estimates — the stock price has continued to ZOOM higher and the stock is trading at a P/E of 172 times. There’s a strong reason for this surge, and the markets feel that MTAR could significantly scale in the future.

Growing Order Book

As at 31st December 2025 — MTAR had an order book of INR 2,395 Cr and the management is expecting to close the order book at INR 2,800 Cr [3.5x FY25 revenues]

Clean Energy Fuel Cells

70% of total revenues come from this segment. The company makes various products like hot box assemblies, hydrogen boxes, electrolyzers & sheet metal assemblies. Most of the revenue from this segment comes from a single customer — Bloom Energy.

A hot box is the heart of a fuel cell where the electro-chemical reaction occurs to generate electricity. MTAR is the sole supplier of these hot box assemblies to Bloom Energy.

Bloom Energy is witnessing a strong growth for its solid oxide fuel cells [SOFC units], due to a rise in demand for AI data centres — which are extremely power hungry. The world is looking for clean [and sustainable] sources of energy, hence driving strong adoption of SOFC units.

Bloom Energy entered into a $2.65 billion agreement with AEP for supply of SOFC units. The company is expected to grow at a CAGR of 30% upto FY30 + is investing in additional SOFC capacity.

As Bloom grows, so will MTAR — since it is intricately connected to Bloom Energy’s supply chain. Subsequently, MTAR is increasing it’s manufacturing capacity for hot boxes from 8,000 [current] → 12,000 [by end of FY26] → 20,000 [end of FY27] → 30,000 [end of FY28].

Probably why the stock price popped.

The company would incur a capex of INR 100 Cr to achieve this by FY28 — which isn’t a BIG number. What this means is that the company can scale without incurring significant capex. A very positive sign.

Apart from Bloom Energy, MTAR is working with several other customers — GE, Andritz & Voith and recently finalized a deal to supply INR 40 Cr of orders every year to Andritz. A small step in customer diversification.

Nuclear Energy

India is making moves in the nuclear sector — with the Government opening up this sector for private players + evaluating a INR 20,000 CRORE PLI scheme for manufacturing critical nuclear components.

India has a target of achieving 100 GW of nuclear power capacity by 2047 [quite ambitious], with a planned expansion of small modular reactors.

MTAR has received orders worth INR 500 Cr+ for Kaiga 5 & 6 reactors [in Karnataka] and is expecting to play a key role in establishing nuclear reactors by supplying key assemblies.

Currently, revenues from this segment are only 3% of topline. Going forward, with a flux of orders, this mix should change.

MTAR makes critical fuel handling equipment for the core of nuclear reactors — fueling machine heads, coolant channel assemblies, fuel transfer systems etc. The company has been in this business of 40+ years, with close relationship with NPCIL. And the barriers to entry in this business are quite high.

Management expects INR 300 - 500 Cr of orders every year, with order potential of INR 350-400 per reactor. Expects a lot of reactors coming online in the next 5-10 years. Just what the investors want to hear.

Aerospace & Defence

Focusing on next generation technologies and structural assembly orders. The company is working on several prototypes & first articles and is expecting to enter volume production in the future.

Revenue estimate of INR 150-160 Cr [FY27] → INR 350-400 Cr [FY29]

I think the revenue estimates are quite aggressive and it remains to be seen how prototypes convert into production orders.

Concerns

One major concern is decline in promoter shareholding over the years. The management has termed this an exit of non-core family members — however I don’t buy it. Why would you sell a stock IF you know that a company is going to do well in the future?

Some selling is okay, since the stock price has skyrocketed in the last one year. Promoters are human beings and they are permitted to book profits. However, consistent decrease in promoter shareholding could mean deeper structural issues.

9% of the promoter shareholding is pledged, which could lead to selling pressure in case the stock tanks substantially.

High participation from DIIs / FIIs means the stock has become mainstream, hence the high valuation. Once mutual funds buy into a stock, monthly SIPs of retail investor starts flowing into the stock, leaving little opportunity for generating out-sized returns.

Conclusion

Q3FY26 was a really good quarter for the company — with revenue UP 60% YoY. Operating profits UP 88% YoY. Margins expanded from 19% → 23%, due to operating leverage.

The demand surge for fuel cell hot boxes from Bloom Energy + uptick in orders pertaining to nuclear reactors — could lead to significant future growth for MTAR. I’d like to see if margins can further expand from here.

Management has guided for FY26 EBITDA of 21% — and is expecting margins to rise as orders get realised from nuclear & aerospace segments [which have higher margins]

Execution risks remain, as the management has consistently missed estimates. At a P/E of 172 times, the current valuation doesn’t offer a lot of upside. Although, the company is doing some interesting things, and deserves to be tracked closely ;)

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[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

Making a real estate project successful requires a lot of things.

First, you need to buy land parcels in pristine locations — not an easy feat in metro cities. You need a skilled team that can design + build the structures, the layouts, facilities etc. You need regulatory & legal clearances. You need to keep politicians & local activists happy.

Projects can get delayed — a common phenomenon in India — which means your money is blocked. If your money is blocked in an un-constructed building, you’d not be able to sell it. You’d not be able to invest in other more lucrative projects. You’d not be able to repay loans on time.

Success of your business, depends on how quickly you’re able to rotate money that’s available with you.

It’s a possibility that you’ve taken an advance [pre-sales] from some of your customers, and the pressure is mounting on you to complete the project.

Worst case scenario, you are unable to complete the project. Your clients come after you and you find yourself neck-deep in legal cases. Your reputation goes for a toss. No one is selling land to you again, you’re out of business.

Obviously, this is an extreme scenario.

But, what I am trying to do is paint a picture for you — of what it takes to build a successful real estate company in India.

Enter Arkade Developers.

A real estate company established in 1986 — with a primary focus of delivering projects on time [within 3 years] in the Mumbai Metropolitan Region (MMR). Their track record is amazing, where in some cases they have delivered projects before time.

I have written extensively on this company, in case you’re interested to read more on their business model.

Original Post | Q3FY25 | Q4FY25 | Q2FY26

It has got minimal debt. Average 5 year ROCE of >35%. A mix of re-development & greenfield projects, which keeps it’s business asset light.

The company has still not fully utilized it’s IPO proceeds! One can say that the management is being conservative, but frugality is a lost art these days.

Why am I baffled?

You can see from the stock card above that Arkade is trading at a P/E of 15 times, with a market capitalization of INR 2,252 Cr. The stock is down 16% YoY, in a period of time where it’s order book has expanded.

As at 31st December 2025, the company has a Gross Development Value (GDV) of INR 13,349 CRORE. GDV = Order book = Future revenues.

It has acquired key projects in Goregaon West (Filmistan), Thane & Bhandup and has multiple redevelopment projects lined up.

The management has guided that they’re estimating INR 10,000 Cr of cumulative revenues upto FY30. With a PAT margin of 20% (average), we’re looking at cumulative profits of INR 2,000 Cr upto FY30, which is equal to it’s current market capitalization.

With the Filmistan project alone, the company is projecting a PAT of INR 900-1,000 Cr.

Surely, this calls for a re-rating in valuations? The company’s peers are trading at P/E multiples of 30+, and the stock should at-least double from here?

The market has a different opinion. In trying to understand why the market is not assigning a premium to Arkade, I could conjure up a few things:

• Execution jitters with Filmistan project? — the management at Arkade has started making bolder bets, with acquisition of land at Filmistan (Goregaon West). This will mark Arkade’s foray into the ultra-luxury segment with 3 / 4 / 5 BHK + Penthouses planned at Filmistan. The market is probably thinking that Arkade doesn’t have the appetite to execute projects at this scale. It could be right. We’d get more answers in FY27.

• Corporate governance issues at Arkade? — maybe the markets think that there is some shady business going on within Arkade. It’s not an uncommon thing in the real estate business. I’ve been researching this company for more than a year now, and I haven’t found any major red flags yet. Promoter shareholding has increased QoQ. Plus, the company declared it’s maiden dividend this year — and the promoters relinquished their dividends to enhance shareholder value. Maybe, the markets know something that retail investors don’t?

• Flying under the radar? — Or maybe, a very unlikely scenario — the markets are completely unaware of Arkade’s execution capabilities & future projects. Unlikely but possible, since very few DIIs / FIIs own this stock, which means they don’t have an agenda of pushing this stock into the stratosphere.

Either ways, I am very bullish on this stock. I believe that FY27 is the year we would find out whether the management has what it takes to become an ultra-luxury real estate player, in a hyper-competitive market like Mumbai. At the same time, can they maintain margins + keep an asset light biz + maintain minimal debt + continuously grow the GDV?

I believe current valuations protect investors from any significant downside, and the upside potential is HUGE. Make your moves while the opportunity exists ;)

Disclaimer: Arkade forms around 5% of my total portfolio. I’ve added more to my position during the recent correction.

If you liked this article, share it in your investing network. Comment, like, show some love! I spend a lot of time in research & it would mean the world to me if you could recommend this blog to your friends.

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

It had acquired IDL Explosives — a company which makes industrial explosives & detonators — for INR 107 Cr, enabling Apollo to backward integrate and evolve from a sub-systems manufacturer to a full fledged weapons manufacturer.

India is going BIG on defence spending, with a 15% surge in defence budget to INR 7.85 lakh crore ($93 billion) with a focus on modernization, indigenous manufacturing & military readiness.

Apollo Micro Systems has a presence in every indigenous missile program of DRDO and is poised to be a MAJOR beneficiary in the future with the management shifting gears to capitalize on future opportunities.

Unit III Manufacturing Facility

The company is investing INR 250Cr+ in building a new manufacturing facility which will lead to an 8X increase in capacity.

This will allow Apollo to scale + take larger production orders + build its export portfolio.

• Phase 1 of Unit 3 is completed and partial production in Phase 1 has begun. Phase 2 civil structure is in process. Expecting Unit 3 to be fully operational by June 2026.

• Currently, the company relies on DRDO for testing of weapons systems. Going forward, once Unit 3 is set-up, testing will be done in-house. This will save time & increase project execution speed. Capex of INR 60 Cr planned for procuring testing equipment.

Financial Performance & Future Guidance

Several products are in transition from development / prototype to production. This is important, since a lot of working capital gets blocked in prototype development (NWC = approx. 450 days)

Currently, 30% of the order book pertains to production orders and the rest (~70%) pertains to prototype development. Management expects large production orders in the next few quarters — taking production orders to 45-50% of the order book.

Production orders = less working capital requirement + higher margins = better ROCE %

• The company posted a robust H1FY26 with revenues UP 43% (INR 359 Cr) and EBITDA up 82% (INR 100 Cr). EBITDA margins expanded to 28% and PAT margins to 13.3%.

The management has forecasted 45% revenue growth for FY26 AND FY27 (excluding revenues from IDL Explosives) and is expecting EBITDA margin to be in the range of 26-28%, however margins would fluctuate quarter on quarter.

This means that revenue would double in the next 2 years. PAT might not expand at the same rate, since the company is incurring significant CAPEX to scale operations.

• Revenues from IDL Explosives will be consolidated with Apollo from Q3 onwards. It is loss making currently and the management is taking various initiatives to ensure IDL achieves break-even by Q2FY27.

• The idea behind acquiring IDL Explosives was to integrate explosives within current weapon systems + manufacturing critical high energy explosives for different calibers of artillery.

Existing Order Book

As at 30 September 2025, the company had an Order Book of INR 785 Cr [~1.4 times FY25 revenue]. However, going through the recent press releases [upto 08 February 2026] — Apollo added another INR 695 Cr in orders.

• INR 420 Cr order from Coal India to IDL Explosives for supply of bulk explosives. Execution timeline not defined.

• INR 150 Cr from a private company, execution timeline not defined.

• INR 100 Cr from a private company for supply of UAVs [drones], to be executed within 4 months.

• INR 25 Cr from a defence PSU, execution within 18 months.

Apollo received transfer of technology from DRDO for Laser based Directed Energy Weapon (DEW) which uses high powered laser beams to destroy targets. Could be a big opportunity for the company.

Programs & Development Projects

Apollo is working on a LOT of projects at various stages of development. Highlighting some of the key projects below:

• Multi-Influence Ground Mine (MIGM) — is an underwater mine developed by DRDO & Indian Navy, designed to detect and destroy stealth ships & submarines. Order potential of INR 4,000 CRORE to be split between BDL & Apollo. BDL would bid for this order and then sub-contract part of the order to Apollo. Exact value of order inflow to Apollo not revealed.

• Torpedos — received approval from Ministry of Defence for advanced light weight torpedos (ALWT). Expecting order flow of electronic heavy weight torpedos (EHWT) to BDL. BDL would sub-contract part of the order to Apollo.

• Naval projects — working on anti-submarine rockets, underwater mines, ground to air guided rockets, torpedo decoy systems, torpedo homing systems.

• GRAD rocket — entered in a partnership with an American company for developing a rocket motor, where the GRAD rocket is being developed by Apollo.

• BrahMos — working on one sub-system + participated in 5-6 projects of which technical evaluation is ongoing. Expecting orders in this segment in the next few months.

  

Management is expecting 12-13 full fledged weapon systems to move to production in the next 2-3 years on a LARGE SCALE basis.

Some concerns

Shareholding pledge — Promoters have pledged part of their shareholding (35%), to raise money to invest back into the business — which is quite a risky strategy. They are planning to reduce pledge % to ZERO in the next 6 months.

Working capital — Receivables have significantly increased to INR 360 Cr (equal to H1FY26 revenue). Management believes this should reduce in Q4. Going forward, as more production orders flow (which have payment terms of 30 days), receivables should go down. This is a very important metric to track, as an investor.

FDI — Government of India has allowed foreign companies to setup Indian wholly owned subsidiaries (WoS) to qualify as vendors for defence projects. There are certain criterias like Indigenous content (IG) that needs to be adhered to. This could increase competition in general for defence players in India.

Conclusion

At a market capitalization of INR 8,500 Cr, the company is trading at a P/E of 100 times. Not cheap by any stretch and the market seems to have priced in the growth upto FY27.

What would be important to track in the next 3-5 years:

1. How much can revenue grow beyond FY27? Can Apollo tap into the export market? Can it truly transform into a Tier-1 OEM? Can it bag large orders? (>1,000 Cr)

2. How many projects convert from prototype > production? Can margins expand further?

The Government is serious about the defence sector and they’re serious about Make in India and indigenous technologies.

Apollo is making the right moves.

Expanding capacity. Working on various technologies that could go into production in the next 2-3 years. Expecting more production orders in the future. Promoters have increased their stake in the company, which is a positive sign.

As investors, this is a company [and a sector] that deserves to be tracked.

If you liked this article, share it in your investing network. Comment, like, show some love! I spend a lot of time in research & it would mean the world to me if you could recommend this blog to your friends.

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

Revenue has been flat YoY. Margins have compressed significantly. The company’s export business has taken a hit due to Trump’s tariffs.

So why should we be spending our time [and energy] reading about this company? Well, because it might be sitting on a BIG opportunity when it comes to rare earth magnets.

You see, rare earth magnets are essential components in manufacturing everyday objects like phones, electric cars & missiles. And there is one country which has a monopoly on these rare magnets — yep, you guessed it right. China.

This gives them leverage against the entire world. And they’re using it. Last year China placed export restrictions on rare earth magnets as a response to Trump’s tariffs. The world’s supply chains were in disarray, and the tremors were felt in India too.

The Government of India didn’t sit idle — and on 26th November 2025 — launched a PLI scheme with an outlay of INR 7,280 Cr to promote domestic manufacturing of rare earth permanent magnets (REPMs) in India.

This is a tiny drop in the ocean of what’s required to combat China’s dominance in this space — but a step in the right direction.

So, where does Permanent Magnets feature in all of this?

The Rare Earth Magnet Opportunity

On 28th August 2025, Permanent Magnets entered into an agreement with Lorentic Pte Ltd to set up a JV for manufacturing, marketing & distribution of neodymium magnets.

• The proposed plan is to set up capacity to manufacture 5,000 tons of these magnets by FY30, with an expected revenue of INR 3,700 Cr upto FY30 with estimated capex of INR 550-750 Cr split between Permanent Magnets & Lorentic. Total EBITDA expected of INR 550 Cr upto FY30.

Even if we assume that the company gets INR 1,850 Cr upto FY30 from this business (since it is a JV and the revenue would be split 50/50) — this is around 2.5x of the company’s current market capitalization. This opportunity, has the potential to change the trajectory of the company.

And the company’s current revenue run rate is around INR 200 Cr. So, we’re talking about exponential revenue growth + we’re looking at a decent EBITDA margin of 15%.

• The company plans to source rare earth metals locally + import if required. The idea is to use domestic supply chain in a phased manner. Currently it is in pilot phase where the company is absorbing technology and setting up equipment.

• In Phase 1, capex of INR 50-100 Cr will be required to set up capacity of 500 tons. Equipment orders have been placed. The next phase (Phase 2) would be block cutting onwards to magnet production. Expecting Go-Live by 2027 — date unconfirmed as of now, but I am guessing towards the end of 2027.

• Applications — these neodymium magnets have multiple applications in automotives, consumer electronics, mobile phones, windmills, motors etc. The management is targeting applications in the premium segment with high quality products, where it could compete with China on pricing.

My take? I think the FY27 target is quite aggressive, given that they are still in Phase 1 setting up equipments. Plus, they would be reliant on Chinese imports for rare earth minerals until India can gradually build up it’s own supply chain.

I am not very clear on how the revenues will be booked. The management is saying they will generate INR 3,700 Cr in revenues upto FY30. That’s cumulative revenue. This will be split 50/50, so for Permanent Magnets that’s 1,850 Cr in cumulative revenues upto FY30? And what is the forecast after FY30? What is the confidence of achieving this number? The management was not very explicit on this topic.

The company doesn’t have enough money on the books, so it will need to raise money (via equity / debt) to fund this. There are many variables at play. But, this is something to track as investors — since, Permanent Magnets, might emerge a winner in the rare earth magnets space in India, and if it does, the stock could rapidly zoom UP from here.

Current Business

The company makes various products like magnetic sensors, current sensors, current transformers, magnetic assemblies & alloys — which find applications in electricity meters, automobiles etc.

Smart Meters - transition from shunts to relays

One of the things that I like about the management, is that they’re not shy to adapt to the needs of the market. The company began its journey in 1960, with manufacturing magnets.

As the world moved from mechanical meters to smart meters, the company pivoted to make products to cater to smart meters. The company shifted from making traditional magnets to shunts. It added a new segment in 2021 (automotives & EVs) which has steadily grown over the last 5Ys and now commands 25-30% of total revenues.

Now again, the company is transitioning from shunts to relays. The management observed that in smart meters, customers were buying assemblies of relays which included shunts and therefore the company decided to get into the relays business — to forward integrate themselves.

The company also manufactures current transformers (CT) which are used in smart electricity meters. These CTs are made from nano-crystalline and amorphous cores. Instead of importing these cores, the company has backward integrated to make these cores in-house. CTs are used along with relays in smart meters.

• The company has signed an agreement with REL — a UK based company — using their designs to manufacture relays. A plant is being setup + trials are ongoing with customers. The company will also need to take some certifications.

• Capacity buildout — setting up a 5 million relay units facility, which is expected to be operational by March’26. A capacity of 5 million units, will give revenues of INR 50 Cr at peak capacity.

• Expecting trial orders for relays in Q4FY26, since customers do a lot of testing before on-boarding a product (endurance testing, EOL testing etc). Ongoing discussions with various customers, and the company will be a second supplier — since the first supplier is a Chinese vendor. However, customers want to de-risk their supply chains, hence they are approaching the company.

EV / Automotives

In this business, the company makes customised products for EU customers + Off the shelf (OTS) standardized products.

The company has launched a range of standard current sensors, which are used in automotive applications — some of which are being supplied to EV 2-wheelers. It has started approaching some bigger automotive players in India as well — however, no names were mentioned in the con-call.

The company is seeing demand of current sensors in applications other than the automotive sector — like UPS, Industrial applications etc. Expecting growth in non-automotive applications in the coming years.

Alloys

This is a relatively new segment that the company has entered. It is working with 4-5 customers, with good visibility + repeat orders. Alloys are used in multiple applications like Oil & Gas, powder metallurgy etc.

New furnace for alloy facility is in progress and is expected to be installed by December’25 [needs to be verified once the Q3 earnings release is published]

New product development

Working on manufacturing of stator rotor for one automotive company. Stator rotor is part of a motor — with application in coolant pumps. The management believes the market is quite big for this business, and currently this product is in pilot stage.

Management Guidance

FY26 — expecting revenue growth of 15% for FY26, closing the year at a topline of INR 220-230 Cr. Revenue for H1FY26 is around INR 102 Cr, so in the second half of the year the company needs to generate INR 110-120 Cr to achieve it’s target.

• Expecting additional sales in H2 from alloys — since alloys are running at full capacity and with the new furnace being set-up, additional capacity will be available in Q4.

• EBITDA guidance in the range of 16-18% for FY26.

FY27 — expecting revenue growth of 20-30%, which is not a HUGE jump when your revenue base is as low as INR 200 Cr per year. Growth in FY27 depends on the uptake in the alloys & relays business.

• Revenue guidance of INR 40-70 Cr from alloys in FY27 + INR 20-50 Cr from the relays business. Balance to come from smart meters, automotives & other segments.

• Revenues from rare earth magnets (from the JV with Lorentic) has not been factored in these estimates, which means the management is not expecting any significant revenue in FY27 from this segment.

Conclusion

The stock is trading at a P/E of 60 times, which has inched up in the last one year despite a 30% correction in the stock price. This is because margins have compressed. And that is partly due to a decrease in exports in its automotive business - which is a high margins business. Trump tariff’s put a spanner in the works.

However the rare earth magnet opportunity gets me excited about this stock. The world wants to reduce it’s dependency of rare earth magnets on China.

If Permanent Magnets can build the capability to produce these neodymium magnets — which are used in mobile phones, EVs, MRI scanners among other things — I see a lot of potential in the company.

And for this reason, I believe this company should be in your watchlist.

If you liked this article, share it in your investing network. Comment, like, show some love! I spend a lot of time in research & it would mean the world to me if you could recommend this blog to your friends.

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

One of their most famous quotes — that I personally live by — is:

‘Rule #1: Never lose money. Rule #2: Never forget Rule #1’

When I first came across this quote, I thought it was absolutely absurd. The markets are extremely unpredictable. You don’t know what’s going to happen. The tech meltdown of 2001. The 2008 financial crisis. The COVID pandemic. Trump’s tariff tantrums. War in several parts of the world. Trade disruptions.

There’s no way you can accurately predict the movement of the markets on any given day. It’s a game of probabilities - that’s what the stock market is.

In such a market — it would be very improbable that you would never lose money. Heck, even Buffett lost money in some of his investments throughout his illustrious career.

Losing money is part of the process of making money. ~ Baba Siddhartha

What is this rule all about then? What does Buffett mean when he says ‘Never lose money?’

How to decrease the probability of losing money?

This is my interpretation of the quote. When Buffett says to ‘Never lose money’ — what he’s trying to say is to decrease the probability of losing money. What NOT to do in the markets.

#1 Don’t trade in F&Os

One of the easiest ways to lose money — is to trade in Futures & Options. In fact, as per a SEBI study — 91% of individual traders made a loss in the equity derivatives segment in FY25. A similar trend was observed in FY24.

Why? Because firstly unlike investing in equities, F&O trading is a zero sum game — meaning a trader’s profit comes from another trader’s loss. You’re dealing with high frequency traders [like Jane Street]. Complex algorithms. Traders with access to Bloomberg terminals.

A lot of traders are drawn into F&O trading with ‘get rich quick’ schemes. And trust me, most of the times they turn out into a ‘lose money quickly’ scheme.

Unless you’re a genius, or you’ve made your own algorithm or you have a perfect F&O strategy — long term, your portfolio will be in RED. My advice — avoid F&Os. Stick to equities.

#2 Don’t buy into expensive valuations

Another way to lose money — is to buy a stock when it’s trading at crazy valuations — in another words, at a VERY HIGH P/E ratio. In those cases, the upside is limited.

Eternal is a market darling. It is valued at a market capitalization of INR 2.74 trillion and is trading at a P/E of >1,450. Now, this is a crazy valuation.

Simple analysis

• Eternal’s Q2FY26 revenue was 13,590 Cr, on which it earned a PAT of 65 Cr. That’s a PAT margin of 0.5%. The company is investing heavily in build out of dark stores and scaling Blinkit, which means profitability will be compressed in the near term.

• As as investor, if you invest at this price point — for your investment to double — the company’s market capitalization must double to INR 5.4 trillion — which means profits must increase 40x / 50x from here to justify such valuations. This has a very low probability, even after Blinkit scales.

What is the probability of you losing money investing at current valuations in Eternal? Very high. You would be wise to look for other companies trading at fair valuations, with a higher upside potential.

#3 Avoid low ROCE stocks

Return on capital employed [ROCE] is my favourite metric while evaluating companies. Any company which is not able to generate a ROCE of >5% over the long term, shouldn’t be in the business of doing business.

Because, the company is not even beating inflation (in India). It would be a better decision to shut down the business and invest in FDs / Liquid funds and earn a risk free return of 5-6% instead.

What this also means is that the management of the company are probably not good allocators of capital. You can use the ‘5Y ROCE %’ to filter out deadwood from your analysis.

Obviously, this is not applicable to companies undergoing a transformation. It is possible that a company is reporting low ROCE, because it is heavily investing in a new vertical, or a new business — and for a period of time, ROCE + profitability would be compressed.

#4 Don’t buy penny stocks

Penny stocks are companies with low market capitalization — less than INR 500 Cr — known as micro-caps. These stocks have low liquidity. Are prone to market manipulation [in some cases]. Most of these companies don’t publish any information about their business — so you don’t really know what the management is doing.

Unless you find a micro-cap, which is transparent about it’s business, publishing promising earnings report and communicating with investors — general rule for early stage investors — stay away from micro-caps.

When you don’t know what a company is doing, an investment turns from a calculated bet to a full blown gamble.

#5 Don’t act on tips

Your money is your responsibility. And therefore, you must do your own research before you take ANY investment decision. You can join investment groups. It’s good to listen to ideas. But, you should never act on tips — even if you think it is an expert who is giving the tip.

Pro tip — there are no experts in investing. Only lifelong students. Curiosity to learn, is what differentiates great investors from average investors.

There are many other factors to look at — (i) decrease in promoter shareholding (ii) high contingent liability (iii) management consistently missing estimates (iv) businesses with low purchasing power etc. — that you can look at before investing.

But these 5 broad items, should in general, lower the probability of you losing money in the markets.

Keep learning about new businesses and sectors. Increase your investing acumen. Inculcate patience within. And embark on a journey of wealth creation. 🚀

If you liked this article, share it in your investing network. Comment, like, show some love! I spend a lot of time in research & it would mean the world to me if you could recommend this blog to your friends.

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

I had written a detailed article talking about Skipper’s business model & revenue segments, barriers to entry, growth opportunities and risks involved in the business. You can read the full piece here.

Disclaimer: I’ve been invested in Skipper since 2020, and the company forms around 5% of my total portfolio.

When I am researching a company, I try to find answers around 3 broad themes —

1. Strategy to increase revenues

2. Strategy to increase operating profits / PAT

3. Risks that could derail growth

And that’s what we will do in this article. So, let’s begin!

Revenue growth drivers

As an investor, I am interested in finding how quickly a company can grow its topline? Is it adding new revenue streams? Does it need to incur significant capex to grow sales? Is the management exploring new opportunities to unlock growth? Is it expanding to new geographies?

• #1 Robust order book & growing export business — Skipper has an order book of INR 8,820 Cr as at 30th September. 89% of the order book comprises of domestic orders and 11% comprises of export orders. Expecting to close FY26 with an order book in the range of INR 9,000 - INR 10,000 Cr.

  

  • Projects won — during Q2, it won 2 prestigious 765 kV transmission line project orders from PGCIL in Rajasthan + Madhya Pradesh valued at INR 1,243 crores — strengthening the company’s position in the high voltage segment. Execution timelines were not shared by the management.

  • Bidding pipeline — Skipper’s bidding pipeline remains at INR 30,000 Cr — this is potential business that could flow into the order book. Out of this, INR 10,000 Cr is the export bidding pipeline.

    The historical win rate is 25%, which means 25% of bidding pipeline gets converted into the order book.

  • Export biz — the management’s aspiration is to achieve an order mix of 50/50 between domestic and export orders in the next 2-3 years, with 25% of overall order book coming from developed economies (North America, Europe, Australia) and 25% from developing countries (Middle East, LatAM, Africa).

    To put this plan in motion, the company has set up 3 foreign marketing subsidiaries in the U.S., U.A.E & Brazil. Export business would help the company in increasing profitability, since exports typically enjoy 1-2% higher margins.

• #2 Increasing manufacturing capacity — The company’s current capacity is 3,75,000 MTPA (for engineering products) and it is planning to add another 75,000 MTPA by the end of FY26 — involving a capex of INR 200-250 Cr. Skipper is currently operating at 85% capacity utilization.

  • By FY28, the company wants to build a capacity of 6,00,000 MTPA — which would effectively make it the largest transmission tower maker in the world.

• #3 Building test bed facilities — Skipper launched two transmission tower test beds for full scale testing of Lattice towers & Monopoles. This will ensure faster project turnaround and unmatched reliability. This helps in improved brand positioning in the export market.

• #4 Substation opportunity — the company is executing 2 small sized projects, building 2 substations of 132 kV and 220 kV. These projects will be commissioned in the next financial year, post which Skipper would be qualified to bid for larger substation projects. THIS IS A BIG OPPORTUNITY.

The Government plans to spend INR 9.1 trillion between FY25 to FY32 on the transmission and distribution sector. What I have understood is that this will be split 50/50 between transmission towers and substations.

Therefore, if Skipper can enter the substation market in a meaningful way over the next few years — it is sitting on a huge additional revenue stream. This is a development that needs to be tracked closely by investors.

EBITDA growth drivers

Higher operational profits drive shareholder wealth creation, which in turn should [theoretically] result in a higher market capitalization. What are the levers that the management can pull to increase profits? That is the name of the game.

The management is doing several things to enhance operating profits:

• Striving to increase export share in the business — which commands higher margins. Skipper’s engineering facilities were audited by potential clients from Middle East & North America. Growth in exports need to tracked.

• Management is prioritising high value / high margin orders — since it is not desperate to grow it’s order book.

  

• Targeting to achieve double digit EBITDA margin in the polymer business in the next couple of years. Current EBITDA margin in the polymer business is around 4%. Needs to be tracked, since this is a very aggressive target.

• Finance costs are growing since the company needs to incur significant capex to grow, however finance cost as a % of sales has been declining over the years. For Q2FY26, the finance cost as a % of sales was 4.2% (as compared to 5% in Q2FY25) - a significant drop.

• The company is implementing SAP S/4 HANA RISE to achieve operational efficiencies.

  

Management is expecting long term EBITDA to be in the range of 12%. Currently EBITDA is hovering around 10-10.5%.

Potential Risks

#1 CAPEX led growth

The #1 risk that I see in this business is the requirement of CAPEX to fund growth. What happens post FY28 once they’ve become the largest transmission tower maker in the world? What is the playbook after FY28? There’s no commentary on that yet.

The company needs to continuously build capacity, for which they need to undertake debt. What happens when orders dry up? The fixed finance cost would eat up into margins. I’m still not very clear whether the company can grow sustainably without incurring CAPEX.

#2 Customer concentration

PGCIL is Skipper’s largest customer. We don’t know the exact % of revenue that comes from PGCIL, but I am guessing it is >50%. Any disruption in the business of PGCIL, would have catastrophic impact on Skipper.

#3 Sectoral Risks

India’s T&D sector is hurdled with multiple challenges like land acquisition delays, manpower issues, delay in payments from Discoms — which could delay execution timelines for EPC players like Skipper.

Conclusion

Q2FY26 was a decent quarter for Skipper — with revenues up 13.7%, EBITDA up 16.2% and overall EBITDA margins inching up to 10.4%. There was a sharp decline in EBITDA margins in the Polymer + Infra business, which was compensated by margin accretion in the Engineering Products business. [see chart below]

Management has not changed it’s guidance for FY26 i.e. they are forecasting revenue growth of 25% with EBITDA margin in the range of 10-10.5%.

At the market capitalization of INR 4,900 Cr operating at a P/E of 29 times — I would say that the stock is fairly valued. I believe there is further upside and value to be unlocked — given the capital outlay planned by the Government and themes like AI data centres + renewable energy playing out in the next few decades in India.

What I will be tracking over the next few quarters:

• The Substation Opportunity — whether Skipper can start bidding for substation projects and gain market share in this segment.

• Export business — whether they can inch towards the 50/50 goal — to have 50% of the order book coming from export markets.

• Capacity expansion — whether additional 75,000 MTPA capacity will go live in Q4FY26 as forecasted to take total capacity to 4,50,000 MTPA.

• Finance cost reduction — whether management can further reduce finance cost as a % of sales to below 4%.

• Guidance — whether the management can achieve revenue growth of 25% YoY for FY26 + maintenance of EBITDA at 10-10.5%.

If you liked this article, share it in your investing network. Comment, like, show some love! I spend a lot of time in research & it would mean the world to me if you could recommend this blog to your friends.

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

Anyways — so everyone’s talking about the Lenskart IPO. There’s a big hoo-la-hoo about the $7B market cap. Yes, it is outrageously priced. And yes, the company has not left a lot of money on the table for retail investors. The early backers + Peyush Bansal will make some serious gains. That’s the strategy.

But, Mr. Bansal is not forcing anyone to buy into the IPO. It is a free market. And yet, you will see retail investors apply to the IPO for a simple reason — listing gains. Its the urge to make a quick buck. Greed. A basic human emotion, which trumps all logic.

As of today, the company’s grey market premium is 23% — which means that there is a probability that Lenskart will list at a premium of 20%+. Which means, if you get the allotment, you’d make a quick profit of INR 3,500, in theory.

As a result, the issue is already subscribed by 1.13 times on the first day, despite the backlash on the valuations. Despite the fact that the company has razor thin margins.

At a P/E of >200 times, you’d think that Lenskart is in the business of bio-medicine, gene-editing or quantum computing — fields which could command HUGE pay-offs in the future.

But the business is much simpler. They sell you eye-wear products. Sure, they have additional features like virtual try-ons, AI based face detection etc. The brand has strong recall. The Lenskart Gold membership does provide value to customers.

But, to scale they need to open more stores. Compete with veterans like Titan. It’s not a SaaS business, where you write a piece of code which you can scale indefinitely.

Plus, there are so many red-flags apart from the valuation. Low promoter holding. Sudden jump in profit margins before the IPO. I’m not going to talk about it in depth, because it’s there on the net for people to read.

Here’s how you should think about IPOs.

It’s a sale — of shares in a business. And the person who is selling it to you, is the owner of that business — do you think they would sell it at a discount so that you can make money off of them?

Verdict

If you’re here to make a quick buck — even at a grey market premium of 23%, I believe Lenskart looks dangerous. If it doesn’t get heavily oversubscribed in the next few days, that premium could drop and you — the retail investor — could be left stranded with some red in your portfolio. On the flip-side, you could also make a quick INR 3-4K. Both probabilities exist.

For a long term investor — this is an easy pass. There are better stocks where your capital can be deployed. Focus on honing your skills and building your knowledge. Read stuff that no one is reading, that is what gives you an edge in this market. Find niches and take calculated risks in those niches.

Ultimately, there’s no guarantee when it comes to investing. We all make calculated bets based on the information that is available to us. And then we wait for compounding to kick in ;)

China leads the pack in EMS manufacturing — with a staggering 47% market share. No surprises here. No other country comes close to it, however as the world moves away from China to diversify their supply chains — they’re looking at countries like Vietnam, India and other South East Asian nations.

If you see the chart above, you can see that India’s share in electronics manufacturing is projected to increase to 7% — which is a far outcry from where China is, but it still offers a high growth opportunity for all Indian players in this space.

Dixon Technologies, Kaynes Technology, Amber Enterprises, Syrma SGS are some of the established players in the Indian EMS industry. And there are upcoming players like Avalon Technologies, Elin Electronics etc.

As an investor, this is a sector which warrants your attention — given that the EMS industry in India is projected to grow by a STAGGERING 30% CAGR upto FY28.

Over the next few months, I will cover 3-4 companies operating in this space, which I believe can significantly ride the industry tailwinds. The first one to make the cut, is Avalon Technologies.

Avalon listed on the bourses back in April 2023 and has delivered stellar returns in the last couple of years. The P/E ratio [101 times] is quite elevated and this is by no means a cheap stock to own at these levels.

However, given the high growth expected in this sector — it makes sense to learn about the business of Avalon (and other EMS companies) — which is what we will embark on in the next few months!

Business Model

Avalon is a fully integrated EMS company with a focus on high value precision engineered products. The company has manufacturing facilities in India & the US — making it quite unique compared to other EMS players.

It serves a diversified set of industries such as industrials, clean energy, mobility, aerospace & communication.

The company was incorporated in 1999, with limited capabilities of PCB assembly. Over the years the company ventured into various other functions like magnetics, plastics and ultimately today is delivering box build solutions. This shows the ability of the management to anticipate and build capabilities as per the evolving EMS landscape.

I have worked in a startup which was in the business of selling battery management systems [which is the brains of a Li-ion battery] and we used to sub-contract our electronics manufacturing.

• We would share our product design with the EMS player [obviously after signing NDAs + Supply agreement], and send them raw materials (PCBs, electronic components, microchips etc.)

• They would assemble all the components on the PCB, conduct quality tests and deliver the final product back to us.

• The EMS player would charge a certain % over and above the costs of raw materials for their EMS services.

This ensured two things.

#1 — we didn’t have to invest capital in setting up electronics manufacturing facilities, which takes time & capital. You have to buy the right machines, hire the right talent, get the required ISO certifications. It can take years to build EMS capabilities — which is a barrier to entry in this industry.

#2 — it ensured speed. Since the EMS players have multiple manufacturing facilities, they can rotate machinery more efficiently, ensuring that the customer gets the finished product on time. This is essential, if you’re a startup. Speed of execution is EVERYTHING.

The risk here was — in case demand for the final product took a hit, we were left with components and raw materials that we would then have to sell in the market at discounted prices. Most of the EMS players do not take the risk of unused inventory, in case of a demand slowdown, to safeguard their working capital.

Products

Avalon makes a variety of products like Printed Circuit Boards (PCBs), Injection Molded Plastics, wire harnesses, cable assemblies, sheet metal fabrication, magnetics and complete box build solutions.

Box build is the process of integrating the PCBs with other components like wiring, cables, power supplies, enclosures in a single functional unit — it is the final stage in Electronics Manufacturing that turn individual components into a ready to use product.

Box build solutions contribute 56% of the top-line (from 44% in Q1FY25) — which indicates the company’s success in moving up the value chain towards more complex and profitable products.

Manufacturing Facilities

Avalon has 12 manufacturing facilities — 10 of which are in India while the other two are in the US, giving it a rare edge over other EMS players. This strategic manufacturing footprint in the US, makes Avalon better positioned to deal with Trump’s erratic tariff policies + the ability to manufacture in US if a client requires.

The company operates on a cost plus structure, meaning it is able to pass on the increase in costs to customers, safeguarding margins / profitability in the long run.

Sticky Customer Base

Key customers include Kyosan India, Zonar Systems Inc., Collins Aerospace, Meggitt among others. The company has an approach of engaging in component level design from the product’s conception — effectively embedding it into a customer’s ecosystem early on.

This technical dependency creates a barrier to exit for existing customers, since it would lead to high costs + time + effort to transition to an alternative EMS player. In effect, once Avalon (or any other EMS player for that matter) wins a customer — they stick with the company for long periods of time.

Significant Tailwinds?

Now that we have a firm understanding of the business model of Avalon — let’s take a look at some of the growth factors which are contributing to the current bull run in the company’s stock price.

Entry into Semiconductor Equipment biz

Avalon has won orders from a global semiconductor company [name undisclosed] to provide highly complex industry 4.0 compliant box builds — the customer is a semiconductor equipment manufacturer. The company has been working for the past 3 - 4 quarters to achieve the level of complexity and technology required to win this client.

As per the management, it is the most complex level of box build an EMS player can do and takes Avalon to the next level in box building solutions — which means higher margins?

The management believes it is very scalable with the company making many products in this segment and manufacturing capacity should not be a constraint.

• Avalon will look for Government incentives once they get into production. Currently they are in the pilot stage and it will take several quarters before they enter the production stage.

• Revenues from this segment should start flowing in from the next quarter — and will gradually grow over the next 1-2 years. Something investors should watch out for!

Order book

The company boasts an order book of approx. INR 2,950 Cr — which is close to 3x of FY25 sales. This gives investors good revenue visibility with INR 1,800 Cr worth of contracts executable over the next 14 months.

Management has revised it’s revenue guidance projecting revenue growth between 23-25% for FY26 - an upward revision from the earlier projection of 18-20%. With such a robust order book, 25% YoY growth looks achievable.

• Order book has grown by 23% YoY and the company is working on several new programs at various stages of development [design / prototype / nearing production].

• Some of the products under development are backup power systems, power transmission systems, aerospace cabin sub-assemblies, locomotive engine sub-systems, energy storage systems, power electronics etc.

• Steady progress is being made on the Railway Kavach project — which is currently under prototyping and final stages of approval. Expected to enter commercial production next year.

• The company has witnessed high growth [albeit on a low base] in the communication segment — where the company’s focus is on 5G and 5G radios.

Guidance

Revenue — The management has guided for 25% growth in revenues for FY26, with objective to double FY24 revenues of INR 870 Cr by FY27 — in short, they want to achieve revenues of close to INR 1,750 Cr by FY27.

Gross Margins — are expected to be in the range of 33-35% over the next few quarters. The management doesn’t expect a lot of volatility here, since the company operates on a cost plus model. Raw material price increases, are passed on to the customer.

EBITDA — expected to be in the historical range of 10-12% (although the management didn’t specify the exact #). In Q1, EBITDA dropped to 9% — which was due to front-loading of manpower and other costs incurred, the benefit of which will start showing from Q3.

Capex — company plans to invest INR 45 - 55 Cr in infrastructure build up and is planning to complete Phase 2 of brownfield expansion of Chennai plant by Q3FY26. Management has a goal to achieve asset turnover of 10X in the long term.

Other points

• Manufacturing facility — as per the management the company’s facility in the US puts it in a better position to deal with U.S. tariffs and respond to evolving trade dynamics. 20% of revenues are serviced from the US plant.

  • EBITDA of the US facility is NEGATIVE 6.9% with a PAT of negative 9 Cr. In short, the facility is making losses due to high costs of production. Management expects to achieve break-even in the next few Qs.

• Export mix — 40% of revenues comes from Indian based customers and 60% of revenues comes from US market customers. The company is gradually increasing the share of domestic revenues.

• Zepco partnership — Avalon will be investing in Zepco Technologies to acquire a 4% stake and will partner with the company. The company will be servicing various customers in the industrial / clean energy space — where design will be by Zepco and manufacturing by Avalon. It will also cater to drone motors and power electronics manufacturing through this partnership.

Concerns

I couldn’t find many things to be concerned about Avalon. It has reduced it’s borrowings over the years. There was a period of revenue de-growth in FY24, from which the company has bounced back (and so has the stock price).

EMS is a sector poised for growth, with India’s global share increasing exponentially.

Operating margins have remained in the range of 10-12% over the years. The business is not VERY capital intensive. Return on capital employed has sharply decreased since FY22 — due to increase in share capital (Avalon IPOed in April 2023)

However there are a few factors that warrants investor attention:

#1 Impact of tariffs — if you read the Q1 earnings transcript, you’d see most analysts concerned with ONE question — ‘what will be the impact of US tariffs on the company?’. The management responded saying that the effects are still playing out and currently, all price increases are being passed on to the customer.

• However, it is possible that such pass on might not continue and Avalon might have to bear some part of the tariffs to reduce it’s EMS service fee %. This is an evolving situation that needs to be closely tracked.

• Despite having a facility in the US, even with tariffs included — producing in US is more expensive than producing in India, so having a U.S. based facility doesn’t help the company too much if the consumer is not ready to pay more.

#2 Reduced promoter shareholding — the company’s stock is increasing and simultaneously the promoters’ stake is decreasing. Now, it could be that they want some liquidity, but it doesn’t instill a lot of confidence when people who are running the company sell stock. In all probability, they believe the stock is over-valued and want to make some money.

However, FIIs / DIIs have a combined holding of 32% of the company — and this means that fund managers sense an opportunity with Avalon. And they’re willing to bet on this stock long term.

Conclusion

At a P/E of 100+, the stock looks very expensive at current levels. It has already doubled in the past 1 year and the fundamentals need to grow to justify a further increase.

Order book looks robust. Entry into semiconductor equipment manufacturing should be lucrative and margin accretive. Many projects are in pipeline, which should convert into orders in the next few quarters. More share of revenues is coming from box build solutions, which is a good sign.

Tariffs remain a worry, which will need to be monitored closely. Regardless of that, the EMS sector remains a multi-decadal opportunity and Avalon could be one of the beneficiaries of such growth.

Investors should definitely track this company and a basket of other EMS stocks. Stay tuned, I will be publishing more pieces on EMS companies in the next few months.

Disclosure: I am invested in the company, and will add more to my position in case of a significant correction.

For my subscribers, I have partnered with Finology to get you a one month free subscription to Finology Ticker. Follow the steps listed in the Google Form [Form Link]

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

One of the reasons I have been frequently covering updates on Arkade Developers — is because it showcases an anomaly not observed in the real estate sector — it delivers projects on time.

Which is kind of a big deal in a sector which is capital intensive and ridden with delays. And the metrics are there to back it up.

Arkade has one of the best return ratios and margins in the industry. It boasts a 5Y ROCE of 35% coupled with an operating margin ranging between 27-30%. This is a sign of fiscal prudence. Of good capital allocation.

Obviously, it is nowhere near the scale of DLF, Lodha, Prestige, Godrej or Oberoi — the big boys of Indian real estate. Maintaining margins and ROIs at scale is a challenge, and it would be interesting to see how the margin profile of Arkade changes as it scales from here.

The YTD stock performance has been muted, but at a market capitalization of INR 3,000 Cr with a P/E of 20 times — I think Arkade is a VERY compelling investment at this point. They’ve started making bold moves, venturing into bigger projects and into the ultra premium luxury market with an increasing Order Book.

Business Updates

The company’s stock price has corrected in the past few months — the reasoning is simple. Margins have taken a hit. Pre-sales & collections are flat. Revenue, however witnessed robust YoY growth of 30%.

If you see the chart above, you’d notice that:

• Gross Profit margins have reduced by 11% in H1FY26. EBITDA margins are down by 8% in the same period. Net profit margins are down 5%.

• The reason for decline in margins is two-fold as explained by the management:

  • Increase in competition in the redevelopment market has caused acquisition costs to increase for real estate players, however there has been no increase in selling price per sq.ft, therefore squeezing margins. Its a case of increase in cost of acquisition of redevelopment projects.

  • The management mentioned that margins typically go down as real estate companies scale i.e. increase in volumes = decrease in margins.

Management however, maintains an EBITDA margin guidance of 30% for FY26 and expects margins in H2FY26 to be much better. Something that investors should closely watch out to see if Arkade can maintain margins as it scales.

Acquisitions & Projects

The management has started making bolder bets in Mumbai, with greenfield acquisitions in Goregaon (W), Thane, Bhandup. All these projects have a GDV of > 1,000 Cr.

• The management is expecting significant revenues to kick in from FY27 — this is when revenues from Filmistan + Thane projects will start to flow. These two projects will take 5 years to be fully completed.

• With the Filmistan acquisition — the company plans to foray into the Uber luxury segment offering 3 / 4 / 5 BHK residences and penthouses tailored for Mumbai’s growing HNI customer base. Mumbai, is really the city of extremes.

• No new launches planned for this year — focus on completion of ongoing projects.

Order Book

As at 30th September 2025, Arkade has an Order Book of INR 13,500 Cr — an increase from INR 8,790 Cr in Q4FY26.

• What’s interesting is that for the Filmistan project, the company had initially estimated a GDV of INR 2,000 Cr which is now increased to a GDV of INR 3,500 Cr — which is a 75% increase in value. I think the management is unsure of how much money they can make from this project and this is an evolving situation.

• For the Dahisar redevelopment project — which is the company’s largest redevelopment project — timelines are not yet clear, due to certain restrictions and technical issues. Need to keep a close watch on this, to see if the GDV takes a hit due to delays in approval.

An interesting question asked during the Q1 concall was on what the company was doing to enable it to complete projects on time — was it faster construction?

The management replied that they use aluminium homework shuttering for the RCC work which reduces the slab cycle compared to conventional shuttering system.

The company mentioned that it has a stellar team which enables it to execute projects on time, with faster construction being one of the factors.

ChatGPT: Slab cycle is the time taken to complete the construction of one floor of a building. A conventional slab cycle might take 8 to 15 days or more, while aluminium form-work can often achieve a cycle of 4 to 7 days per floor.

Maiden Interim Dividend

Arkade declared it’s first ever interim dividend — and the promoter (Mr. Amit Jain) and whole-time directors (Mr. Sandeep Jain + Mr. Arpit Jain) are forgoing their dividends to enhance shareholder value.

This can be interpreted in two ways.

For me, I think this is a great gesture from the management — I don’t remember the last time promoters gave away their dividends. It shows ethics and putting minority shareholders’ first. Quite rare.

Another way to look at it is — does Arkade really need to pay dividends? The business is generating ROCE of >30% which is higher than what most investors can generate. Plus, this cash would yield more if it was re-invested in the company.

Conclusion

Despite a decrease in margins in the past 2Qs — revenues have been robust. Order book has significantly increased with high value greenfield acquisitions. Management believes FY27 will be a turning point for the company. They are definitely making bigger [and bolder] bets. The Filmistan project will mark it’s entry into the ultra luxury market. Lots of things to be excited about.

Disclosure — I have invested in Arkade sometime back and will increase my position if the stock further corrects from here.

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[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

I came across one of the best articles written on an overview of the semiconductor industry by Eric Flaningam — which for a newbie like me, was key to understand how the industry is structured.

As an investor, if you can spend time studying an industry in which your target company exists, it can enhance your understanding of the business model many folds — which is key in conducting fundamental analysis.

For our purposes, we can categorise chip companies into the following broad categories:

1. Design companies — companies which design the semiconductor chip, but don’t manufacture the chips themselves, also known as fabless chip companies.

2. Foundries — firms which manufacture the chips based on the designs provided by fabless companies.

3. Integrated device manufacturers — companies which design + manufacture their own chips.

4. Equipment manufacturers — companies that manufacture the equipment that is used in the design and manufacturing of semiconductors.

MosChip is in the business of design — of semiconductors, software & systems. The design of semiconductors is a complex process, which involves various steps like:

• Identification of the design requirements of the chip + intended function

• Laying out the logic design

• Simulating semiconductor performance (hardware / software)

• Testing for errors, bugs etc.

The software used for design is called Electronic Design Automation (EDA), and once the design is complete — it is sent to foundries like TSMC, Samsung etc — to convert that design into a physical chip.

For designing chips, there are 3 architectures — Arm (licensed by the company ARM), x86 (developed by Intel) and RISC-V (an open source alternative).

Business Updates

FY25 was a good year for the company, with increase in topline by 59% YoY. Operating profit margins remained stable at 12%. Q1FY26 was also a decent quarter.

Due to lack of management guidance, we don’t know the revenue target for FY26. But, if you extrapolate the Q1FY26 revenue, a 20% YoY growth for FY26 looks probable. Now, this isn’t explosive growth - which is what you’d expect with a company operating in the semiconductor design space commanding a PE of 130+.

Summary of the business model

MosChip operates two business units viz. — (1) Semiconductor design (2) Software & System Design.

• Semiconductor design contributes 80% of total revenues, and the company offers design services like ASIC design, SoC design, FPGA design, IP services etc.

  • MosChip has been involved in more than 600 SoC tape-outs. A tape out is the final step in the design process, where the design files are sent to a foundry (like TSMC) for manufacturing.

  • Operating margins from semiconductor design is around 23% [a slight decrease from FY24 margins of 25%]

• Software & system design contributes 20% to the topline. MosChip helps businesses with their hardware and software design needs.

  • Operating margins from this segment is around 6% [a sharp decrease from FY24 margins of 10%]. Why have margins decreased? Is it change in sales mix? Or increase in project costs? Management doesn’t provide any commentary.

• Costs — the major costs incurred for running this business are:

  • Manpower costs — MosChip hires 1400+ engineers, which are essential in delivering design services to clients. The quality of skilled engineers, is what differentiates a design company.

  • Electronic Design Automation — the software used for semiconductor design, this is probably the licensing cost of the EDA tool.

  • Outsourcing services — despite having 1400+ engineers, the company still outsources various activities to external consultants / agencies. This cost has increased from INR 16 Cr in FY24 to INR 129 Cr in FY25 — is it because of increase in revenues? Or development of a new design? We don’t know.

What’s next for MosChip?

If you look at the companies operating in the semiconductor space, most of them are valued at >$50B — and sadly none of them are Indian companies. India is playing catch-up with the rest of the world, when it comes to investing in semiconductor manufacturing.

With programmes like the ‘India Semiconductor Mission’ the government plans to create a full supply chain from design to fabrication, testing and packaging in India.

For this the government has approved 10 semiconductor projects, with a total investment of $18.2B — which includes two semiconductor fabrication plants and multiple testing and packaging factories.

Coming back to MosChip — what we are interested to understand, is whether it can become a chip design behemoth in the next 10 years? Can it generate exponential returns for it’s shareholders?

Although the P/E ratio of the company has halved from 250+ to 130+, it still looks quite expensive at current growth rates.

What are the initiatives that should fuel growth in the coming years?

• CDAC HPC Processor ‘AUM’ — MosChip has obtained an INR 509 CRORE contract with CDAC for development of a high performance computing SoC [System on Chips]. The SoC will be based on ARM’s architecture, co-developed with Socionext on TSMC’s 5 nano-meter technology node. The contract will last for 4 years.

• Smart energy meter integrated circuit (IC) — MosChip is involved in the design of a smart energy meter IC which will be used by Electricity Energy Meter OEMs. MosChip will supply the design of the ICs to CDAC.

• Aims to grow emulation expertise — the management wants to build emulation expertise in MosChip. Emulation is the process of using hardware to imitate the behaviour of a chip or a system before it is physically fabricated. It is much faster than software simulations, and helps engineers fix design errors quickly, reducing cost of physical prototypes.

• Digital Sky GenAIoT — MosChip is also working on a solution suite, that helps clients design, integrate, and deploy smart AI powered products faster and with reduced complexity. It brings together AI, IoT, Automation and Cloud technologies — enabling accelerated product development.

Conclusion

In the absence of any clear guidance from the management, it is difficult to predict the growth trajectory of the company going forward. I have no idea, how much the above initiatives are going to contribute to the top-line. Will these new initiatives expand margins? We don’t know.

Can it compete with global design players like Qualcomm, AMD, MediaTek, Broadcom or even Indian players like Tata Elxsi, HCL Technologies, Sasken? Only time will tell.

MosChip has partnerships with leading foundries (TSMC) providing it early access to cutting edge chip technologies. It has strengthened relationships with EDA & IP vendors. It is training its employee base via MosChip Academy of Silicon Systems, a way to build and retain talent.

However, there are risks in the form of customer & geographical concentration. Promoter shareholding has slightly decreased YoY.

The management hasn’t given any forecast on future revenues. No commentary on Order book. We don’t know who the biggest clients of the company are [most probably AMD / Microchip among others]. No quarterly calls. Investor PPTs are very basic.

Without clear guidance, all you can do is shoot arrows in the dark and wait for more information to emerge. And that’s what we’re going to do. Keep close tabs on the company.

Because it is among the very few small cap stocks operating in the semiconductor space, and that alone warrants a close watch on the business!

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It’s 2014. Somewhere in Jaipur, on a cold breezy night.

I’m in the balcony with my earphones plugged in. Listening to my trance playlist. My eyes are closed. I can feel the wind. I’m in the moment. The music slowly building to a crescendo. There is a surge of energy in my body. A state of transcendence. A moment, when you lose all track of time.

The wind is getting stronger. It’s trying to communicate with me. I feel this weird pull towards the universe. I look at the stars and it feels home. A strange feeling of belonging. Something inside of me, belongs there.

You see, trance music doesn’t have any lyrics. It’s pure music. A rhythm of beats. And when you listen to trance long enough, you start deriving meaning out of those rhythm of beats. And that’s what happened that day.

In the music, I could sense something being relayed to me. Not words, but a feeling. A feeling, that I could do anything that I set my mind to. A feeling of endless possibilities. A feeling that I was unstoppable.

How could a rhythm of beats carry a message that could make me feel so amazing?

More importantly, who was sending this message?

In an instance, I knew the answer. It was me. I was communicating with myself.

Fast forward to the year 2020. Mumbai.

Post workout, I sit down to wind down. I meditate for 10 minutes, listening to trance music. My mind wanders, taking wild turns with every beat. Unbridled. Free. The music, trying to talk to me. Again.

A strange feeling overcomes me. A feeling of being connected. With all the versions of me — past & future. And all of a sudden, I am talking to these versions, transmitting a feeling across all wave-lengths to all the versions of me. A feeling which says something like:

‘Hey man. I don’t know what you’re going through right now. But if I could tell you one thing, it would be this.

You can do anything. You’re unstoppable. You’ve got unlimited potential. A path filled with exponential growth. With love. With freedom. With endless possibilities. So you go out there, and you conquer the world. Because that’s who you are.’

Every-time I sit down to meditate, I communicate with all the versions of myself. Sometimes the connection is strong. Sometimes, I don’t feel anything. But regardless of that, I still do it. Because, for the mind, there is no time. Whatever I say (or think) can travel backwards, forwards, sideways, in all directions.

My message, is embedded in music. Music, which can transcend the boundaries of time. Instead of words, I communicate in feelings. Because that’s the purest form of communication.

In my day to day life, I forget about these messages. I get distracted. I get busy chasing my dreams. But when I slow down, when I let the music flow within me — the messages reappear. I am re-minded of who I am. And I am exposed to a world without time. Because, time is an illusion.

The universe, is always talking to us. The question is, are you listening?

I’ve been covering Olectra Greentech for quite some time now. There are not many pure play listed EV players in India, and Olectra gives you exposure to the electric bus market — which is rapidly expanding with the Government quite serious when it comes to the electrification of diesel buses launching schemes like PM e-Bus Sewa / PM E-DRIVE.

The reason I’ve been closely following Olectra is because it has an order book of >10,000 e-buses (for quite some time now) valued at INR 15,000 Cr, which is more than the company’s current market capitalization of INR 12,500 Cr.

So, there’s potential. But execution, is where Olectra falls behind.

Promises made

Let’s look at some of the promises that the company made in the past and let’s compare that with what they actually achieved.

• FY25 e-bus delivery target — initial estimate was to sell between 1,500 - 2,000 e-buses, which was lowered to 1,200 e-buses.

• FY26 e-bus delivery target — initial estimate was to deliver 5,000 e-buses in FY26, which was revised to 2,500 e-bus deliveries. Wow.

• Capacity expansion — initial estimate was to achieve capacity to produce 5,000 e-buses in a year by the end of FY25. This was further delayed to Q1FY26.

• MSRTC Order — In July 2023, Olectra won an order from MSRTC to supply 5,150 e-buses to Evey Trans Private Limited (a sister company) which would be delivered to MSRTC by July 2025. The value of this order was INR 10,000 Cr (i.e. 1 e-bus = approx. 2Cr).

The Reality

• FY25 e-bus delivery — actual e-buses delivered in FY25 were 972. A shortfall of 228 e-buses from the revised estimate.

• FY26 e-bus delivery — In Q1FY26, the forecast for FY26 has been further reduced to 2,000 e-buses. That’s a 60% drop from the initial estimate of 5,000 e-bus deliveries in FY26. I’m flabbergasted.

• Capacity expansion — In Q1FY26, management has committed that it will reach a capacity of 5,000 e-buses by the end of FY26. A delay of more than a year compared to original estimates. And I wouldn’t be surprised if this revised target is missed as well.

• MSRTC Order — till date, only 220 e-buses have been delivered to MSRTC, which prompted Pratap Sarnaik — Maharashtra’s Transport Minister — to declare on X that they would be cancelling this order since the delivery timelines were not met. Olectra, however confirmed that this order is NOT cancelled (yet).

In Q1FY25, a penalty of INR 2.2 Cr was slapped on Olectra due to non-delivery of e-buses. Wouldn’t be surprised if such penalties are levied in the future too.

Estimates in Q1FY26

• The company was able to sell only 161 e-buses in Q1FY26, and expects to meet the target of 2,000 e-buses in the balance 3Qs. Seeing the abysmal forecasting abilities of the management, I’m pretty sure this target will be downgraded to 1,500 e-buses in the future and the actual numbers achieved would be <1,500.

• There’s no substantial change in the order book, which stands at 10,193 e-buses as at 30th June 2025. The management is very confident that they will exhaust this order book in the next 2 years. Looks very unlikely if you ask me, since the capacity expansion to produce 5,000 e-buses per year, will happen only by the end of FY26.

• When questioned by analysts on missed revenue estimates, the management has mentioned that the entire industry is facing a supply chain issue with respect to battery components / chassis and dependence on China. The whole point of the leadership team, is to forecast such events and mitigate risks in advance.

• Olectra wants to be #1 player in the e-bus segment, it is currently #2.

Some silver linings

That said, not everything is dark and gloomy. Olectra is in the process of appointing a new CEO very soon, and I am hoping that the new CEO can run a tighter ship. I would suggest the company to hire a solid FP&A Director, who knows how to read the market trends and generate more accurate forecasts!

Olectra unveiled a new blade battery technology at Bharat Mobility Global Expo 2025 — which would increase bus mileage by 30% and reduce battery weight by 30%. These batteries would be supplied by BYD, Olectra’s technology partner.

Battery prices are coming down, which should bring down the cost of e-buses, leading to volume growth for the whole industry. Olectra is working on localization of components and working on other battery technologies to de-risk itself from BYD in the long term.

Conclusion

Olectra’s share price sums up the current investor sentiment. In the past 1Y, the stock has been flat — a direct function of missed estimates.

At a market capitalization of INR 12,500 Cr at a P/E of 88 times, I think the company is over-valued, given the execution risks. I wouldn’t pay a premium for a management that consistently fails to meet it’s revised estimates.

It raises a very serious question — does the management not have the financial acumen and industry insights to forecast how demand / supply is going to move? How can revenue estimates drop by 60%? How can the management NOT know when capacity will go live?

I’m sitting on the sidelines, unless the stock corrects by 40-50% from current levels, at which point I see limited downside. The industry tailwinds are there, but the million dollar question is — can Olectra execute + capitalize on this growth?

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It is not enough to build power generation capacity, you need to transmit that electricity, which requires more transmission lines + substations. The Government has planned to invest INR 9.1 TRILLION over the next 7 years in the power transmission sector unlocking opportunities for companies operating in this space.

Business is boomin’ if you’re in the power & transmission business with strong demand for atleast the next 2 decades — which brings us to Skipper Limited, a company which makes towers which form a vital part of the transmission grid.

If you’ve been an investor in Skipper Limited for the past 10 years, you’ve been on a rollercoaster ride (see chart below). It is a turnaround story. And shareholders’ who stuck with the company, have been handsomely rewarded.

The question remains — can the company keep winning from here? Let’s find out!

Business Model

Skipper Limited is in the business of manufacturing transmission towers. They design the blueprint of the tower, manufacture various parts required and assemble the parts on site into a tower — the entire process taking anywhere from 2-3 years.

The company was incorporated in 1981, headquartered in Kolkata and has a long standing partnership w/Power Grid Corporation which is India’s largest power transmission company. This relationship with PGCIL, is crucial for it’s growth + survival.

Segments

The company operates across 3 revenue segments — Engineering, Infrastructure & Polymer business.

• Engineering business [82% of topline] — this segment covers manufacturing of power transmission towers, railway structures, monopoles, test stations, telecom towers and other tower accessories.

  • As of June 2025, the company has a capacity of 3,75,000 MTPA for Engineering products.

  • 20-22% of engineering revenue comes from exports and the company has a strong international presence in Middle East, Latin America & Africa.

  • The company makes the entire spectrum of transmission towers from 66KV to 800KV and has the capabilities to manufacture 1200KV towers.

  • EBITDA margin in the range of 11-12% — margins are low and the company most probably operates on a cost plus model. Money is therefore made, by saving costs since selling price cannot increase much.

Let’s break down some verbiage.

Transmission towers — tall steel structures that act as electricity highways, carrying bulk electricity from generating plants to substations.

Substations — these are facilities that convert voltage for efficient distribution. They contain specialized equipment like transformers to step voltage up or down, circuit breakers to protect the system from faults, and busbars to distribute electricity.

• Infrastructure business [8% of topline] — caters to the EPC business, which stands for Engineering, Procurement & Construction, where the company is responsible for the entire lifecycle of a project.

  • the company undertakes EPC for towers, substations, telecom and water projects.

  • EPC projects demand higher working capital — involving procurement of materials, manufacturing, assembling, getting approval certificates for the project and final release of payment.

  • EBITDA margins in this segment bounce between 3-6%. Naturally, the company is not very keen on increasing it’s EPC pipeline, unless it is margin accretive.

• Polymer business [10% of topline] — unrelated to engineering, the company is a leading manufacturer of polymer pipes & fitting products in West Bengal. They’ve also roped in Dhoni as a brand ambassador.

  • These pipes are used in plumbing, sewage management, borewell & agriculture. The company has 30,000+ retail units across India.

  • There’s been a decline in Governmental orders and increase in business from the pump plumbing segment which has higher margins, which makes the management optimistic about achieving double digit margins by end of FY27

  • EBITDA margins (current) bounce between 3-5%. You can think of this as a commodity business, with little pricing power.

One could raise a question whether the company should be in the polymer business to begin with? Wouldn’t it be better to divert capital & human resources into the tower making business?

Capex heavy business?

Growth is fueled by increasing capacity, which is dependent on capex. This means, the company cannot grow without undertaking more debt, since it doesn’t generate enough profit to cover capex requirements.

• The company added 75,000 MTPA capacity in Q1FY26 for Engineering products — taking total capacity to 3,75,000 MTPA. Targeting a capex of INR 200-250 Cr [financed by 60% debt / 40% equity] to add another 75,000 MTPA capacity which should be added by Q4FY26.

• Capex of INR 200-250 Cr is required for each block of 75,000 MTPA capacity addition. For each addition of 75,000 MTPA, the company is able to generate INR 1,000 Cr in revenues approximately.

• An average EBITDA of 10%, means an EBITDA payback period of 2-3 years for each capex cycle. And a PAT of 3.6% translates into a PAT payback period of 6-7 years.

The company is planning to invest INR 600 Cr in the next 3 years taking total capacity to 6 LAKH MTPA by FY28 — with the vision to become the WORLD’s largest transmission tower manufacturer.

Raw materials

The management claims that the company is completely backward integrated and 90% of the raw materials used to make towers are sourced internally.

Steel is converted into MS & HT angles and wire rods are converted into bolts, nuts, hangars & D-shackles — which are used in fabricating a tower.

The company’s location in Eastern India allows it access to raw materials at a competitive price leading to cost savings by 4-5% as a result of lower freight costs & bulk purchases. The primary supplier of steel billets is SAIL, with whom the company enjoys a good relationship.

Management Guidance

One of the things that I liked about the earnings call, was that the management was quite open in answering questions. They didn’t hide details and these little things make a BIG difference.

However, the management has skipped earnings call in the past when the company was going through a tough phase and it would be interesting to see if they skip future calls in case of a bad quarter, that would speak volumes about their character.

• Revenue guidance — management expects revenue to grow by 25% in FY26 & FY27. Targeting order inflows of INR 6,500 Cr in FY26, out of which 25% will be export orders.

• Margin guidance — expecting operating margins to improve by atleast 50bps. Expecting to reduce interest cost to 4% of revenues by end of FY26.

Cost benefits = higher profits = higher shareholder wealth creation

What sets the company apart?

On the outset, given the moderate level of EBITDA — you might believe that arranging steel components into a tower might not be very hard. Anyone with money (capital is definitely an entry barrier) can do what Skipper can do?

Wrong.

Building a transmission tower requires high engineering expertise, because each transmission line has a specific design requirement and it needs to be customized. Skipper focuses on making towers for high voltage lines (400 KV+) which has far more stringent criteria’s to meet — and price is not the only deciding factor. You need credibility, capability & capacity.

It takes time to build repute in execution of high voltage offerings, for obtaining orders of sizable scale — and since the time required to build a tower takes anywhere from 2-3 years — Skipper doesn’t foresee any major competition from Chinese players in this segment, since the Chinese lack commitment for long term assignments.

Also, tower being a very critical part of the transmission line — needs to be empaneled with PGCIL / private T&D players, which is a tedious process. Not many players can build a tower that will meet the requirements.

So, barriers to entry exist. And the above points set Skipper apart to safeguard it’s business from any major disruption.

Order Book

In Q1FY26, the company won orders worth INR 1,977 Cr taking the total order book of the company to INR 8,520 Cr, which is 1.8 times FY25 revenue — which gives good visibility of future business.

• secured 3 contracts of 765 KV (high voltage) transmission line projects from PGCIL in Rajasthan & Andhra Pradesh.

• secured an INR 2,570 Cr order from BSNL in 2022 to supply and erect telecom towers to advance connectivity in rural areas. [to be executed over 5 years]

• Secured major tower testing & design order from Saudi Electric Company [of INR 25 Cr] — Middle East’s largest utility.

• Secured 1st substation EPC contract [INR 45 Cr] making a strategic expansion into the substation segment (which is a massive opportunity)

• Involved in Railway Kavach project which is a 50,000 Cr opportunity — how much Skipper will benefit out of this opportunity is not known.

Skipper has a bidding pipeline of INR 30,000 Cr participating in high value tenders across domestic, EMEA, LATAM, Africa. With a bid convert rate of 20-25%, the company is confident to win orders worth INR 6,500 - INR 7,000 Cr during FY26 (this includes 1,977 Cr of orders won in Q1)

Industry tailwinds

Like I mentioned at the start of this article, the GOI intends to spend INR 9.1 TRILLION till FY32 in the transmission sector, which will be split 50-50 between transmission lines & building substations.

There is an INR 2.5 trillion budget for new renewable energy grid to generate power and for every rupee spent on generation an equal rupee needs to be spent on transmission.

So — the long term outlook for the transmission sector is very strong. There’s also demand for more telecom towers as India is the 2nd largest telecom market in the world and 5G rollout is in full swing.

The company confirmed that US constitutes less than 1% of it’s current order book, so there wouldn’t be any adverse impact from Trump’s recent tariffs on Skipper.

Global Expansion

The company wants to increase the export share in total revenues, and estimates export revenue to double from INR 700-800 Cr (current) to INR 1,500 Cr in FY26.

Increase in exports should drive margin expansion, since export orders have 1-2% better margins compared to domestic orders. The current addition in capacity of 75,000 MTPA also frees up the company to target export orders and short term demand — a segment where the company faced constraints last year.

Investors should keep a track of this, since more export orders = better margins = more wealth created for shareholders.

• Skipper has established a R&D Centre + tower testing station — which improves brand positioning in the export markets.

• It plans to set up 3 subsidiaries across 3 key international regions to accelerate export growth.

• The company has strong relationship with global EPC players and has been working with other utilities in the Middle East.

• Obtained LCA + EPD certificates for towers & pole products which is required for exports to Europe / USA.

Other tailwinds

Skipper has reduced it’s finance costs to 4.22% of sales (from 4.69% last year). PAT margins have increased to 3.56% from 2.89% (PY). Similar trends need to continue into FY26.

It is slowly scaling the sub-station segment, which is a HUGE opportunity. It might take some time to ramp up in this segment, but this is one to watch for future growth.

What’s the bear case?

One of the biggest challenges for the company, would be to scale its business. We’ve understood from an analysis of the business model that it probably operates on a cost plus model. It is heavily dependent on PGCIL for majority of its business. And, it is operating at near full capacity.

You will not see a wild swing in EBITDA margins in this line of business. On the contrary, EBITDA margins in the Engineering business has reduced by 1% since FY22.

So, it cannot increase prices. It doesn’t have a lot of pricing power. It doesn’t have unutilized capacity to leverage. So, how does the business scale from here?

The company needs to spend anywhere between INR 200-250 Cr to add 75,000 MTPA capacity, which leads to additional revenues of INR 1,000 Cr and a PAT of INR 30-50 Cr. By FY28, Skipper aims to become the largest transmission tower maker in the world, and there are serious questions on how the company will unlock the next leg of growth post FY28. Can it increase service revenues? Can hiring more people help scale the biz? We’ll have to wait for the management to comment on this.

Other headwinds that could impact the business:

• Dependence on PGCIL — Power Grid is the largest transmission player in India, and Skipper’s largest customer. Any decrease in demand from PGCIL, would adversely impact the business.

Although the management actively works with private players like Sterlite, Adani Energy, GR Infra, DRAIPL to mitigate some of that risk.

• Increase in commodity prices — steel & zinc are key raw materials and higher raw material prices could impact profitability — however I believe the company operates on a cost plus model, and should be passing on raw material price increase to the customer, since operating margins have been relatively stable throughout the years.

• India T&D sector faces challenges like manpower issues, land acquisition delays, delayed discom payments, high AT&C losses which increases working capital cycle for players like Skipper.

Conclusion

At a market capitalization of INR 5,919 CRORE at a P/E of 37 times — I think the company is a tad bit expensive. Management has guided for a 25% revenue growth for the next 2 years and a margin expansion of 50bps in FY26.

It has better operating margins (10%) compared to peers [KEC - 7%, Kalptaru - 8%].

If you see the company’s performance since 2018, it witnessed periods of degrowth in FY19 / FY20 and there was no growth between FY18 - FY23. However, in FY24 the company delivered significant growth, carrying it forward into FY25. And that is a significant turnaround for investors in the business.

My main concern is the scalability of the business. It needs to incur capex to fund growth and I’d like to see if margins can expand without significant capex.

The management has a solid plan in place to become the biggest transmission tower maker by FY28. The order book is expanding. The share of exports should grow, which has better margins. And the industry tailwinds are very strong.

I believe the stock price could still appreciate significantly from current levels, however if you’re expecting Skipper to be a 10 bagger or a 20 bagger, it might not fit the bill.

Disclosure: I’ve been invested in the company since 2020, and will continue to hold it until it reaches a market capitalization of INR 15,000 Cr.

BIG shoutout to the ValuePickr community. The analysis in that forum has greatly helped in writing this piece.

For my subscribers, I have partnered with Finology to get you a one month free subscription to Finology Ticker. Follow the steps listed in the Google Form [Form Link].

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

Since then, in the last one year the stock has delivered a decent return of 30%. I had set a GTT on Zerodha to buy the stock at INR 170, and those who were able to time the entry into this stock, are sitting on gains of >100% in the last 1Y.

Which begs the question, is there more room to grow? Or is SKM one of those range bound companies, taking investors for a rollercoaster ride? Let’s dig deeper to find out.

The business of SKM is easy to understand. They convert eggs into egg powder & egg liquids. They spend money on setting up a poultry farm. They incur costs on buying feed for chickens who lay eggs. The company has an installed capacity to break 1.8 million eggs per day to produce 6,900 MT of egg powder annually.

The costs of feed like corn & soya can fluctuate & as I have observed in my previous article — it doesn’t look like SKM has the pricing power to pass on the increase in raw material costs to it’s customers.

In the image above, you can see that operating profit margin is closely related to the movement in material cost %. Material costs have taken wild swings, making it very difficult to predict how much money SKM is going to make any given quarter.

FY25 results

FY25 was not a great year for the company, with a period of sales degrowth. There’s no management commentary on why there was a drop in sales [a major issue with microcaps] but a CARE Ratings report (released on 04 August 2025) comes to our rescue.

As per the report, revenue took a hit in FY25 mainly due to decrease in export sales caused by lower selling prices for it’s egg products. Classic case of a commodity business with low pricing power. And as an investor, you do NOT like to see a drop in selling price!

Why is the stock price going UP then?

• Decent Q1 — One reason is that the Q1FY26 results were good. Revenue inched up 50% YoY (on a lower base) to INR 176 Cr. Operating profit margin was stable at 14%.

Still a far outcry from 2 years back when revenue was INR 210 Cr with a operating margin of 24%. Can SKM achieve such margins again? The markets certainly feel that way.

• Promoter buying — Another reason for the stock going up was an increase in promoter shareholding. The stock took a massive beating in the month of March 2025 and promoters kept buying more shares in the company — which is an indirect signal that the promoters believe there might be significant upside in the stock.

  

The founder of the company (Mr. Shivkumar) has indicated that he wants to achieve INR 1,000 Cr in topline in the next 3-4 years. Once that target is achieved, he would retire from the company — which begs the question — who will replace him? And what does the future of SKM look like post it reaches the target of INR 1,000 Cr? Can it scale beyond that?

CARE Ratings Report

Some other takeaways from the CARE Ratings report which stood out to me were:

• Slight reduction in revenue concentration — In FY24, 46% of export revenue came from Japan & Russia. This was slightly reduced to 45% in FY25. Not a huge reduction, and the company still relies heavily on these markets.

  • Revenue from top 10 customers contributed to 52% of total sales in FY24. This decreased to 32% of total sales in FY25. Major improvement and reduction in customer concentration.

• Increase in domestic sales — Export sales was 76% of total income in FY24, which has dropped to 58% in FY25, which means that domestic sales has increased from 24% (FY24) to 42% (FY25).

  • Although this reduces foreign currency risk and dependency on foreign markets, this has resulted in lower price realizations shrinking operating margins from 22% (FY24) to 16% (FY25)

• SKM is the largest exporter of egg powder from India, accounting for 65-70% of overall export of egg powders used in the food + health industry. So, this means to grow it needs to expand in existing & newer geographies.

• Integrated and strategically located manufacturing facility

  • SKM’s operations are integrated with the company having its own and leased poultry farm to meet ~90% of egg requirements and also its own feed manufacturing unit to cater to its poultry farm.

  • All the poultry farms are strategically located in proximity to the company’s manufacturing unit (30-40 km radius), providing easier access to the raw material and ensuring lesser breakage of eggs in transit.

  • The company’s entire operations from the egg-breaking process up to production and packing of the final egg powder is automated to maintain high level of quality standards.

I spoke about this point in my previous article, as a key lever which SKM uses to differentiate it from other egg powder producers.

Conclusion

SKM Egg Products has doubled it’s market capitalization in the last 6 months due to a decent Q1 + promoter buying, and the market has reacted to that with a 100% return in the last 6 months.

FY25 was a period of degrowth and on that lower base, Q1FY26 looks impressive. However compared to FY24, revenue is still far off. Input costs have increased in FY25 and have not shown signs of softening.

The company has invested approx. INR 63 Cr on building / plant & machinery in FY25 — however, we’re unclear what this capex leads to. Is that capacity addition? Is that maintenance capex? Is that purchase of a poultry farm? It’s hard to know in the absence of information.

The recent run-up in the stock price means that the company is trading at a P/E of 23 times, at a market capitalization of INR 900 Cr. Not cheap by any means. And the upside looks limited, even if the company reaches the INR 1,000 Cr mark in the next few years.

Bull Case

SKM cracks the USA market. Egg yolk powder demand from key markets (Russia / Japan) increases substantially. Enters and scales the Saudi Arabia and African markets. Maintains price realizations in the export market. Increases capacity to meet increase in demand. Domestic sales continue to rise. Input costs stabilize, leading to better operating margins. If this happens, I see some upside in the stock from here.

Bear Case

Price realizations continue to drop in key markets. Input costs rise compressing margins further. Considerable time taken to expand and scale new geographies (Africa, Europe, Saudi Arabia). Founder retires, with no clear execution strategy. Domestic sales get stagnant.

It’s difficult to predict what’s going to happen, but the absence of management guidance doesn’t help. It doesn’t give ANY visibility into the future and investors are in the dark. Will track the next few Qs to see how the business shapes from here.

(I’d also like to give the ValuePickr Community a BIG shoutout — discussions on that forum gave me a lot of insights into the company.)

If you liked this article, share it in your investing network. Comment, like, show some love! I spend a lot of time in research & it would mean the world to me if you could recommend this blog to your friends.

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

More people are waking up to the fact that the stock market is one of the best places to generate wealth. The risk appetite of investors is increasing. Market penetration is rising which makes it worth tracking the quarterly performance of Monarch Networth - an integrated financial services player.

Monarch has delivered a 10% return in the last 3 months (from the date of the original article). For Q1FY26 — revenue was up 16% YoY and net profits were up 13% YoY. At the surface, these are decent results. But if you look deeper, a grim picture emerges.

Segmental Results

The problem with microcaps like Monarch, is that these companies don’t publish a lot of information. There’s no earnings transcript. No investor PPT. The FY25 annual report isn’t out yet. Very little management commentary online or on business publications.

In these cases — we have to look at alternative sources of information. BSE filings. Earnings press release. And we let the numbers speak to us.

• Fees & Commission Income — this includes revenue from broking, investment banking & asset management services, out of which broking is the major revenue contributor. Fees & Commission income was down 21% YoY, which is a significant drop.

  • Is this due to lower trading volumes on Monarch’s app? Did trading activity in general decrease for other broking companies? Was this due to lower income from F&O trades? We have no clear answer.

• Interest income — was up 14% YoY. This can be directly attributable to increase in the margin book and increase in bank balances on which the company earns interest income.

• Net gain / (loss) on fair value changes — the company recorded a significant increase in the value of its investments, which covered up for the dismal performance in the core business.

• Income from NBFC business was down by more than 50%, and income from insurance business was down by 50%. These revenue streams are quite miniscule at the moment, but as investors — you’d like to see rapid growth in these sectors.

A few bright shoots

There were a few things to be optimistic about. The company received SEBI approval to set up a mutual fund and revenue should start flowing from this segment in the next few quarters (hopefully).

• Employee benefit expenses have remained stable, fees & commission expenses dropped by approx. ~40% in direct relation to fall in broking revenues.

• Finance costs were significantly lower compared to the previous year, due to decrease in borrowings & debt securities.

• The only anomaly was the increase in other expenses — which increased from 7 Cr to 18 Cr. What was the reason for such increase? Is this expense for setting up a mutual fund? Or for launching it’s PMS offering? We need more information.

Conclusion

On paper, not a bad quarter. Net profits were up in absolute terms. The company obtained SEBI approval to set up a mutual fund. Operating margins were stable around 63-65%.

However, on a deeper look — the broking business had a disappointing quarter. Other businesses like NBFC / Insurance didn’t grow at all, despite having a small base.

The FY25 annual report of the company should be out soon, which should have more details on decrease in borrowings / increase in the margin book and give us an insight into management’s view on the future.

Till then, we will keep tracking the quarterly results. And let the numbers do the talking.

If you liked this article, share it in your investing network. Comment, like, show some love! I spend a lot of time in research & it would mean the world to me if you could recommend this blog to your friends.

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

IN THEORY — Few players in the market > higher market share + growth > better operating margins > higher market capitalization > greater shareholder wealth creation.

If an opportunity exists, and it is relatively easy for new businesses to enter the market, it would increase competition driving down prices and profitability. Higher the barriers to entry, higher the probability for existing players to make outsized returns. Doesn’t always play out this way in reality though.

In this article, we are going to look at several barriers that exist, that you should run a company through when you’re engaging in stock analysis.

I. Capital requirement

The #1 barrier to entry for any business is the amount of capital required to operate it. I’m sure each one of you reading this article would have had a business idea in your lives, but one of the reasons that idea didn’t get hammered into reality, is the lack of capital. Or a lack in the ability to raise capital. Otherwise, we’d all be entrepreneurs.

For e.g. to get into the airlines business, you need a SH*TLOAD of money — which is why you wouldn’t see more than 5-6 serious players in that industry at any point in time.

But if you’re building a skincare brand? Or a SaaS business? You don’t need a lot of capital. You need human resources, yes. Time? Yes. Branding? Yes. But capital is not a barrier. And hence, you’d find many skincare brands in the market and a lot of SaaS products.

Relevant questions to ask when you’re evaluating a company:

1. Is the business capital intensive? How quickly can the company raise money when required? What is its credit rating? Does it have unsustainable debt?

2. How many pure play competitors does the company have? Is it difficult for other players to enter the market due to large amount of capex required? How are the company’s key metrics [margins / return ratios] compared to peers?

3. Despite being capital intensive, is the company able to generate a higher return on capital employed (RoCE)? If yes, that means that the management of the company are prudent allocators of capital.

Let’s take a look at few examples for better clarity.

E1: Olectra Greentech is in the business of manufacturing electric buses. To run this business, it needs to invest heavily on R&D, state of the art facilities, battery technology (partnership with BYD) among other things. The business is capital intensive, with limited players (JBM Auto, Tata Motors, Ashok Leyland and a few other small scale start ups). The barrier to entry in the EV Commercial vehicle sector is high.

E2: Parag Milk Foods sells milk and milk products. To run this business at scale, it needs to invest in milk processing facilities & cold chain distribution. But, a small farmer can also get into this business quite easily - probably not at the same scale. Margins on selling milk therefore, are razor thin. The barrier to entry in the milk business is low.

If a company is operating a business which requires a lot of capital — that doesn’t mean that new competition cannot enter the market. But the new players that do, will need deep pockets.

A few examples come to mind:

• Reliance Jio entered the telecom industry out of the blue in 2016, disrupting the industry and becoming the #1 player a few years later. Telecom, is a [very] capital intensive industry - but Reliance entered anyway driving a lot of other telecom players out of business. The high capital barrier to entry didn’t help the existing players.

• Rakesh Jhunjhunwala backed Akasa Airlines commenced operations in 2022, in an industry where players like Jet Airways and Go Air were going bust. If you have deep pockets, you can enter most businesses.

II. Regulatory Barriers

Some barriers, are created by the law. Examples could be government regulations, import tariffs, patents etc.

E1: IRCTC is the only company authorized by the Government of India for selling railway tickets online. This gives IRCTC a monopoly status, which is created by the Government. No other company can get in this line of business, unless the GoI opens this sector for private players — which isn’t happening anytime soon.

E2: Novo Nordisk owns the patent for semaglutide - the active ingredient used in Ozempic which is a weight loss drug. This patent expires in 2026 in markets like India, China among others. What this means, is that no one can use this active ingredient to develop a similar drug unless the patent expires — giving Novo Nordisk an opportunity to make outsized returns. Even if you have the capital, you cannot get into the business of manufacturing this drug.

E3: On 29th June 2020, India banned the use of Chinese apps like Tiktok, WeChat etc. These companies cannot operate on Indian soil. If you’re a Chinese social media company trying to enter the Indian market, you’re going to have a tough time.

Relevant questions to ask when evaluating a company:

• Does the business need frequent governmental clearances / approvals to operate / expand its operations? How susceptible is the business to change in government policy?

• Is the business indifferent to the ruling political party? Will the business be adversely affected due to a change in the current ruling party? Is the founder / senior management of the company politically connected? Does the business contribute any money to political parties?

• Are there any expected tariffs that could be imposed on the company’s product / services in the future? How much revenue does the company derive from exports?

Regulatory barriers can be powerful — making the connection between business and politics quite strong. Governmental bodies control policy changes, approvals & clearances affecting multiple businesses.

• The Adani Group secured contracts to operate 6 major airports in 2019 — despite having no prior experience in running airports.

• Reliance Jio’s rise coincided with significant policy shifts in the telecom sector — reduction in IUC (Interconnecting Usage Charges) by TRAI benefitted Jio by reducing costs for connecting calls to rival networks.

• Tata Electronics will build India’s first chip fabrication unit in Dholera (Gujarat) with applications in power management ICs, micro-controllers etc. This closely aligns with government’s Semicon India program to promote semiconductor manufacturing and Tata Group is seen to be a major beneficiary of this program.

If a company finds itself on the wrong side of politics — the consequences could be quite adverse.

III. Technological Barriers

Tech companies are consistently investing in R&D so that they can get their hands on the next ‘world changing’ tech and create a big enough moat so that other companies cannot outpace them.

E1: ASML provides EUV Lithography machines which uses ultraviolet light to etch patterns on semiconductors. EUV technology is used to create the most advanced chips for AI, 5G and high performance computing. ASML had invested billions of dollars in developing the EUV technology, and today no other company has the capabilities to compete with ASML.

E2: NVIDIA enjoys near monopoly status in the GPU market. GPUs are critical for neural network training & building AI models. The integration of it’s CUDA software platform with AI stack, provides NVIDIA with a formidable advantage — one which Intel / AMD are trying to challenge, with little success.

E3: Meta Platforms is a social media giant which has control over the attention span of billions of individuals. Indian homegrown players like Koo, Hike Messenger, Moj, Josh have failed to compete with Meta Platforms due to superior network effects enjoyed by Instagram, Whatsapp, Facebook etc.

E4: DreamFolks claims that it has developed a proprietary tech stack connecting banks to lounge owners facilitating seamless lounge access to air passengers. However, Adani Airport Holdings recently came out and said that they’re launching their own platform bypassing any ‘intermediaries’ a.k.a DreamFolks. No wonder, DreamFolks’ share price is down by 60% in the last 6 months, because it doesn’t have a technological moat.

Relevant questions to ask when evaluating a company:

1. Is the company a ‘tech’ company? If yes, how much money does it invest in R&D to stay ahead of competition? How many people are employed in the R&D division?

2. What is its market share compared to peers? Is the tech getting obsolete? Does it have any patents?

3. How easy is it for competitors to replicate the technology? Is there any attrition in tech leadership positions being poached by the competition?

4. Is there a new technology being developed that could lead to an existential crisis for the company?

   For e.g. Quantum computers are being developed that could change the future of computing - making normal computers irrelevant.

Conclusion

I use the ‘barrier to entry’ model to gauge a company’s ability to safeguard it’s market position / profitability. The higher the barriers to entry, the higher the probability of a company to make outsized profits.

If there are no barriers to entry, there will be too many players in the market and companies would have to find other ways to differentiate themselves (branding, marketing, steep discount etc.)

But like I mentioned before, this model shouldn’t be used in isolation. You need to look at other factors like management quality, return ratios, growth drivers and weed out red flags (if any) while conducting analysis of a business.

Only then, a faint picture emerges. Because no one knows what the future will bring with absolute certainty.

Investing is a game of probabilities and as investors, the best we can do is try to predict the future with the information that is available to us. It is a calculated gamble.

If you liked this article, share it in your investing network. Comment, like, show some love! I spend a lot of time in research & it would mean the world to me if you could recommend this blog to your friends.

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

Why do I say so? Let’s take a look at the recent results.

Business Updates

• Performance — The company recorded it’s highest ever pre-sales of INR 773 Cr for FY25 (20% YoY increase) and sold 2.5 lakh sqft. Revenue was flat for FY25, however there was a major improvement in margins. (see chart)

  

• Guidance — management abstained from giving a specific revenue # for FY26. However, several major updates were given. The company plans to launch 4 projects in FY26, out of which 3 are redevelopment projects.

  • Expecting a 20% CAGR in Pre-sales and GDV (Gross Development Value) going forward.

  • GDV under execution is INR 2000. GDV under pipeline is INR 6,790. Resulting in a total order book of INR 8,790 (approx.). The order book is expected to be realized over the next 4-5 years.

  • EBITDA margins are expected to be in the range of 27-33%.

• Redevelopment opportunity — as per MCHI-CREDAI, more than 25,000 buildings are eligible for redevelopment in the MMR region, with a project value of INR 30,000 CRORE, which means that property rates and rentals in Mumbai aren’t going down (ever!).

  • Arkade signed key redevelopment agreements in Borivali (W) + Malad (W) with estimated GDV of INR 850 Cr & INR 750 Cr.

  • The company secured one of the largest redevelopment projects to date, a 6.5 acre land parcel in Anand Nagar, Dahisar (E) — with an estimated GDV of 1,700 Cr.

• Greenfield development — Arkade acquired a prominent 4 acre land parcel in Goregaon (W), currently leased to Filmistan. The company plans to design 3 / 4 / 5 BHK + penthouses in this land parcel, marking its entrance into the uber-luxury segment. [a.k.a high revenue, high margins]

I like the management. They are fiscally prudent (especially for a real estate developer) with net debt below ZERO. Great ROCE. Low unsold inventory. Management generally avoids taking debt as much as possible — they haven’t fully utilized the IPO proceeds either.

The USP of the brand is that they deliver projects before time, in an industry plagued with delays. They have a razor focus on the Mumbai Suburban (MMR) region, which is a BIG enough opportunity. No mindless expansion. Not throwing away cash to generate growth.

The company wants to achieve cumulative revenues of INR 10,000 Cr in the next 5 years. With a baseline PAT margin of 20%, that translates into net profits of INR 2,000 Cr.

Therefore, at a market capitalization of INR 3,600 Cr — I think there is a LOT of room for the company to grow. Management knows the business well. They’re great capital allocators. Good executors when it comes to delivering on time.

All the ingredients required, for a great long term investment.

If you liked this article, share it in your investing network. Comment, like, show some love! I spend a lot of time in research & it would mean the world to me if you could recommend this blog to your friends.

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

It’s a war between systems, computing power and cutting-edge micro-processors.

Unfortunate as it is, we’re very far away from global peace. War is brewing in various parts of the world and defense budgets are increasing.

Closer to home, we’ve seen the recent Indo-Pak conflict, where India’s air defense systems were thoroughly tested and has led to the Government pushing for greater domestic production of defense equipment.

India’s defense budget for 2025/26 is a staggering INR 6.81 LAKH CRORE, which could increase by further 50,000 Cr as a result of the recent Indo-Pak conflict. Stock prices of defense companies have exploded (pun intended) and as an investor, this is a sector you cannot ignore.

I’ve been tracking a small-cap company for quite some time [and I missed the bus!], where the management is making aggressive moves with the aim of becoming a fully integrated Tier-1 defense OEM.

Enter Apollo Micro Systems.

The company has delivered multi-bagger returns in the past 5 years, with the stock price up 70% in the last one month. Although the stock looks expensive at current levels (P/E of >100) — the management believes that there is a lot of room to grow from here.

Can the company keep multi-plying shareholder wealth in the future? Can it compete with bigger incumbents like BEL, BDL? Only time will tell. What we can do, is learn about how AMSL makes money and it’s growth drivers in the future.

The Business Model

Incorporated in 1985 in Hyderabad, the company is in the business of design and development of advanced weapon systems catering to strategic domains like missile systems, satellite and space systems, naval systems, avionics and homeland security.

In short, it makes the ‘intelligence’ inside major defense equipments.

A brief history

It started as an electronic CAD design company in 1985. Entered the defense segment with processor boards in 1990. Launched telemetry products for ISRO in 2005. Configured automated launcher controller for AGNI missiles in 2010. Entered RF & Microwave designs via acquisition of established RF company in 2021.

Over time, the company has moved up the value chain — designing its own systems, partnering with state-run giants and expanding across land, sea, air and even underwater defense systems.

The Model

Development of a weapons system requires years of R&D, testing, inspection before it is approved for large scale production. Scrutiny & inspection is involved in every stage of production, starting from raw material procurement to delivery of the systems.

Therefore, there is a high barrier to entry in this industry. Customers are sticky, because it is not easy to switch weapons systems. Significant capex is required in setting up manufacturing, R&D and testing facilities. Major raw materials are semiconductors and high-speed microprocessors, which are the brains of the weapons systems.

The company has participated in 150+ indigenous defense programs over the years and has >700 technologies on the table.

However, longer development cycles means money stuck in inventory (like raw materials), putting a strain on working capital & return on capital. Defense contracts can be lumpy and unpredictable.

The Tailwinds

Apollo Micro Systems is part of the group of suppliers which are the backbone of modern defense in India. The company’s management is expecting revenue growth of 45-50% YoY over the next 2 years — indicating significant tailwinds in the future.

• Order book — As of May 2025, the company’s order book was INR 615 Cr. Management is expecting to triple this by the end of FY26 to INR 1,800 Cr. This is a metric that investors should actively track — giving confidence about management’s ability to achieve their targeted revenue growth of 50% every year for the next 2 years.

  • the company bagged a ₹113 crore export order for avionic systems (the electronics used in aircrafts).

• Preferential issue — the company plans to raise INR 816 Cr via preferential issue of shares which will be utilized for working capital purposes, R&D expenditure, investment in subsidiaries and development of new innovative technologies.

• Manufacturing ramp up — Apollo has one manufacturing unit [Unit I] located in Hyderabad over 55,000 sq ft and it is aggressively ramping up capacity.

  

  • Partial operations have started in the second manufacturing unit [Unit II] and full fledged manufacturing is set to commence from Q2FY26.

  • The company is investing in building a new weapons integration facility [Unit III] which will involve a CAPEX of INR 250 Cr and will be fully operational by the end of Q4FY26.

This gives you a hint that the management expects exponential growth in defense contracts in the future and wants to be ready to cater to that demand by building manufacturing capabilities upfront.

• Sticky customer relationships — The company has a track record of ZERO customer attrition, partly due to the nature of the business which involves long development timelines and difficulty in replacing defense vendors.

  

  • High entry barriers coupled with the long term nature of defense contracts [extending over several years] provides revenue visibility over the medium term.

• Robust R&D Team — the company invests close to 6-8% of revenue on R&D, with 165+ people working in the R&D team. FY25 resulted in successful development of aerial bombs, underwater acoustic sensors, critical actuation systems, secured data links and many other products.

• Partnerships — the company entered into various partnerships which could open new doors and expand revenue streams:

  • Signed a partnership with Munitions India Limited to develop advanced weaponry.

  • Joined forces with Troop Comforts Limited to build anti-drone + anti aircraft systems.

  • Collaborating with private sector companies on drone landing modules, underwater mines and development of torpedo guidance systems.

  • Signed a MoU with Garden Research Shipbuilders for development of mini-torpedoes.

• Acquisition — the company is in the process of acquisition of IDL Explosives Limited, which is engaged in the manufacture of full range of packaged & bulk explosives.

  • The strategy is simple — by acquiring an explosives company, Apollo moves into a league where they can manufacture the entire weapon (and not just its sub-systems)

  • Plus, there are not many companies in the explosives space. A few large players like Premier Solar and Munitions India and a bunch of very small players.

  • The company is going to increase its portfolio into warheads + rocket propellants + rocket motor designs through this acquisition. They will enter into a complete ammunition cycle where different calibers of mortar will be developed in-house and supplied to Indian defense forces which will have a huge export potential.

This acquisition, the management believes — would enable AMSL to transition into a fully integrated Tier-1 defense OEM.

• Growth drivers — the company has dipped its toe into almost every indigenous development program in the country and is working on several promising technologies.

  

  • Underwater mines — management expects this to be a BIG opportunity, with combat trials conducted and expecting order flows in FY26.

    • Submitted samples of moored mines to DRDO for evaluation, could translate into future orders.

    • Working on portable mines called Limpet mines for supply to the Indian Navy.

  • Heavy weight torpedoes — received financial approval from the Ministry of Defense for deployment of Varunastra, an anti-submarine torpedo developed by BDL (Bharat Dynamics Limited). Once BDL receives an order from the MOD, subsequent order to AMSL will be awarded to develop systems for Varunastra.

    • Expecting significant orders to flow in the advanced light weight torpedo (ALWT) category.

    • Received orders for limited production of electric heavy weight torpedoes (EHWT) from BDL. More orders expected in FY26. EHWT is being used in majority of the sub-marines.

  • PRACHAND Munitions — AMSL was shortlisted by DRDO for production and supply of PRACHAND munition hardware to Indian Armed Forces. PRACHAND is an anti-tank munition with full-width attack capability.

  • Air missiles — working on 4-5 subsystems which will be part of Project Kusha, a long range surface to air missile system. BEL is a key player for this project. Apollo has already supplied critical actuation systems and is developing launcher systems for this project which will be completed by Q2FY26.

    • QRSAM — is a short range surface to air missile system being developed by BDL, BEL and DRDO. The company is expecting large orders pertaining to QRSAM to come from BDL over the next 2Qs.

    • AKASH-NG — is a state of the art surface to air missile system designed to intercept high speed agile aerial threats. The management is expecting good orders in this category as well.

    • The company is working on other projects like AAD & ASTRA.

Points of concern

Underwater mines. Anti-submarine torpedoes. Anti-tank munitions. Surface to air missile systems. Apollo Micro Systems is working on exciting technologies, in an environment where defense spending is on the rise in India.

However, that doesn’t mean that everything is rosy. There are certain causes of concerns that an investor should be aware of.

• Few projects in production — although the company is working on several technologies, the [BIG] money is made when a system transcends from development into production. The management acknowledged the fact that several dozens of programs are being done, but not many systems have gone into full-fledged production.

• Stretched working capital — as we have seen, the company operates a business model where capital is blocked for a very long time. Long production cycles. R&D spanning several years. Delays in approvals. Projects can get stalled due to a bazillion reasons. All of this means, that a lot of money is required to keep things running.

  

  • Customers pay only after systems are thoroughly tested, which results in high debtor days.

Not making any accusation here — but whenever I see high inventory & debtor days, my internal antennae goes up. If you study the history of financial manipulation, you’d see a direct relationship to these two metrics. However, in this case — most likely it is the nature of the business. Defense contracts require a large build up of inventory & it is NOT EASY to get money from government companies!

• Employee expenses are abysmally low — for a company which boasts that it has not seen any turnover in the R&D department, employee expenses look very low.

  

  • the median remuneration of employees for FY24 was INR 4.7 lacs, which is quite low. In an innovative R&D defense tech company, you’d expect this # to be significantly higher. How are they going to attract top talent?

  • their CFO is getting paid only INR 20LPA — which is VERY low.

The company has a 3.6* rating on Glassdoor, which is decent. But for a company to scale exponentially, you would need highly motivated individuals which can bring forth innovative ideas. I’m not sure if Apollo Micro Systems, has too many bright minds working in their R&D labs at the moment.

• Promoter pledged shares — around 48% of promoter shareholding is pledged, which is an insanely high number. Management has explained that promoters have pledged shares to raise money to invest back into the business [I am not buying it] — which is a very risky strategy. A drop in stock prices of AMSL, could trigger margin calls from banks and could lead to a massive sell-off.

• Low FII / DII holding — as retail investors, you have limited information to act on. FIIs / DIIs subscribe to their Bloomberg terminals extracting a LOT more information than we have access to. For small-caps in particular, a steady FII / DII holding gives comfort to retail investors. In the case of AMSL, FII / DII holding is quite low.

  

Conclusion

I think the company has a lot of promise. Management has guided for a 50% revenue growth for the next 2 years on a standalone basis. A 100% revenue growth for FY26 if revenue of IDL Explosives is consolidated.

It is working on several exciting system developments. Acquisition of IDL Explosives, would steer it closer to becoming a Tier-1 integrated defense player. It is raising money for working capital and R&D. Building new manufacturing units. Growing its order book.

Some unanswered questions that I’d like answers to:

• What is the manufacturing capacity of AMSL? What are the utilization levels? How much capacity is going to be added by Unit II and Unit III?

• Can Apollo deliver projects worth > 1,000 Cr in a year since it takes such a long time to develop systems? How many projects are expected to go from development stage to mass production stage?

• What is the breakup of product revenue? What are the best-selling products? Which product gives the highest margins?

• What is the revenue breakup by customer? Is there a high concentration from 1-2 customers like BDL / BEL?

At a market capitalization of INR 6,000 CRORE, at a P/E of 106 — the stock does look expensive. I’d most likely take a small position in the company to track it’s performance and see if the revenue targets are being met in the next few quarters before building a larger position. The defense sector on a whole, is kicking things up a notch.

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[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]

When I say ‘financial services’ it includes broking, equity research, investment banking, fund management etc — but doesn’t include the banking sector. Although the banking sector is poised for decent growth as well and is an indication of the broader economy.

His thesis was simple:

• Risk appetite of a normal retail investor + market penetration into stocks / mutual funds is growing in India.

• India’s GDP is expected to grow by 6-7% (at the minimum) every year.

This means increase in assets under management (AUM) for financial services companies. Increase in trading activity. More IPOs. More AIF launches to invest in startups.

As per his estimate, if a financial services company can execute well — a 20% YoY growth in top-line & PAT over the next 10 years doesn’t look very surprising. And this would mean a lot of wealth creation for shareholders in such companies.

Enter Monarch Networth.

A company operating in the financial services space with very (very) attractive operating margins. The company has TRIPLED their profits (PAT) YoY. Introduced new revenue streams in the past few years. And delivered a 35X return in the past 5 years!

The question is, can it continue winning? Can its market capitalization catapult to INR 20,000 Cr in the next 8-10 years? That’s what we want to find out!

The Business

Established in 1992, the primary business of Monarch Networth is of stock broking. However, there has been a shift in strategy post FY20 — with the management venturing into new business lines with the vision of turning Monarch into a fully integrated financial services company.

Business units

• Retail Broking [64% of revenue] — this is a simple business where Monarch offers it’s clients a platform where they can buy and sell securities and Monarch extracts a brokerage for facilitating such transactions.

  

  • It offers trading in equities, F&Os, Commodities, Currency futures, ETFs, FPOs and e-IPO services.

  • Users can trade via its native application called RESACH. The application has a 4.1* rating on Google Play with most users quite satisfied with the performance.

    

Revenue sources in the broking business are several:

Broking revenue — this is the commission charged by brokers on buy / sell transactions undertaken by Users on the platform.

Interest on Margin funding — brokers typically lend money to Users to enable them to buy securities using leverage. Interest is charged on such ‘margin funding’.

Interest on delayed payments — brokers charge an interest in case there are delays in payment by Users. Delayed payment charges can be levied in case of negative Demat balance, margin shortfall etc.

• Investment Banking [17% of revenue]— this is a high growth business division of the company under which it helps businesses with raising capital via IPOs, Debt financing and provides advisory on Mergers & Acquisitions (M&As), Corporate restructuring etc. Some key milestones in this segment:

  • Successfully led the IPOs of IRM Energy [Issue size: 545 Cr] and Exicom [Issue size: 500 Cr]

  • Successfully led the QIP of HFCL [Issue size: 350 Cr]

Revenue from this segment recorded robust growth of 93% YoY growing to INR 44 Cr (approx) for FY24. The management is expecting more deals in the pipeline with India’s red hot IPO market.

• Asset Management [3% of revenue] — Monarch has diversified into the asset management biz by launching alternative investment funds (AIFs). The target market for AIFs are generally institutions / HNIs since the minimum investment amount is 1Cr.

  • It is currently managing 2 AIF (MNCL CCF-1 & MNCL CCF-2) schemes with combined AUM of > INR 1000 Cr.

  • Pre-closed 1 AIF scheme (MNCL CCF) which was raised in October 2020 ahead of schedule generating returns of 23% CAGR to investors.

  • Planning to launch a PMS scheme to compliment the AIF business and venture into the mutual funds biz to cater to retail investors.

Revenue from Asset management for FY24 was INR 9 Cr (up from INR 2.17 Cr in FY23). MNCL CCF-2 AIF raised INR 729 Cr in April 2024, so if you do the math — the management fee % for FY24 comes to around 3.3%. Taking a conservative approach, if we assume a 3% management fee going forward that would translate to INR 30 Cr in revenue on an AUM of INR 1,000 Cr.

• Other revenue streams — Monarch makes money through various other revenue streams like:

  • Interest on FDs kept under lien with stock exchanges [13% of revenue]

  • Income from insurance distribution

  • Interest income from NBFC business

The Tailwinds

Now that we have a firm grip on the business model of Monarch and how it has evolved into a fully integrated financial services company, what we want to understand is — can MNCL become an INR 20,000 Cr company in the next 8-10 years? What are the growth levers that it can pull to grow its top-line / bottom-line?

• Shift in management strategy and growth drivers — Monarch has been a broking company since inception primarily appealing to HNIs / Corporations / Institutional clients. That narrative is slowly changing.

  • Since FY20, the company began diversifying into other businesses and in the last 3-4 years is seeing good growth in the investment banking and asset management business.

  • In July 2024 — Monarch raised INR 300 crore via private placement which will be used:

    • to launch it’s PMS offering

    • to scale it’s margin trading book

    • for launching a pre-IPO fund

    • for applying for a mutual fund license

    • strengthening the debt capital market division

    • Underwriting IPOs among other things

The above initiatives might take anywhere from 2-5 years to scale and make a meaningful impact on revenues.

• Growth in margins — Monarch operates an asset light business (like most financial services companies). It has minimal debt on it’s balance sheet. And its operating margins are VERY sexy indeed — which means that the company is bearing the fruits of operating leverage.

  

Operating leverage is when revenues increase faster than expenses because of certain expenses being of a fixed nature.

• In this case, for e.g. total income for Monarch increased by 72% in FY24. But employee benefit expenses actually decreased by 13% [which is weird?]

• Sub-broker & commission expenses which it pays to it’s sub-brokers increased by only 25% YoY.

• Other expenses increased by 16% YoY.

• Other developments — some other noteworthy developments in the last few months that investors should be aware of:

  • IFSC License — One of Monarch’s subsidiary companies has received a ‘Registered Fund Management Entity (Retail)’ license from the IFSC authorities at GIFT City. Using this license, Monarch will be able to manage public offerings of REITs / InvITs enabling it to target foreign investors.

  • MF License — the company has applied to SEBI for a mutual fund license to cater to grow it’s target audience and offer mutual fund schemes through it’s platform. India currently has 47 fund houses with INR 68 TRILLION in AUM. This is an ultra competitive space & Monarch might have a hard time gaining market share, but this opens up a BIG market for them in the future.

Causes of concerns

I couldn’t find a lot of red-flags against the company and there’s not a lot of research material by other analysts out there which makes it difficult to find out if there are any skeletons in the closet. In the absence of information, we draw as much as we can from the numbers that are present in front of us.

• Reduction in employee benefit expenses — in an ideal world, if a company reports increase in revenues [and profits], you’d imagine that the employees would get paid higher. Well, that’s not what has happened here.

  

  • In a year, where total income is up by 72% — why have performance incentives dropped significantly? That doesn’t make a lot of sense to me. The sales team is probably not very motivated.

  • The company has a Glassdoor rating of 3.9*, which isn’t too bad. However, if you read some of the employee comments it seems that there are not too many growth opportunities for low / mid level employees — which means decision making is concentrated with a select group of individuals.

• Increase in receivables — there was a significant increase in trade receivables, putting pressure on Operating cash flows. The company also recognized a provision for doubtful debts of INR 1.16 Cr. Not a big cause of concern, but a metric which should be closely monitored.

• Violation of stock broker’s rule — the company paid INR 11.37 lacs towards settlement amount to SEBI for violation of stock broker’s rules. Monarch was alleged to be the stock broker for certain entities who carried out fraudulent trades in the securities of Atlantaa Limited.

• Other points

  • Director remuneration has increased from INR 75 lacs to INR 2 Cr, despite decrease in overall employee costs. Not something that employees would be thrilled about.

  • Approx. 3% of shares are pledged by the promoters of the company.

    What is the requirement of such pledge when the company is making healthy profits which can be distributed as dividends to promoters? We do not know.

  • Auditor remuneration stands at just INR 6.6 lacs — which looks absurdly low for a company the size of Monarch [w/revenues of 260+ Cr in FY24]. One could question the quality of the audit being conducted, given such low audit fees.

    

Conclusion

At a market capitalization of INR 2,400+ CRORE, trading at a P/E of 16 — I think the company is fairly valued. The metrics look solid. Operating margin of >60%. 5Y ROCE of >40%. Revenue growth of 72% in FY24.

However, the FY25 #s were recently released and revenue growth has taken a hit.

• Revenue for FY25 was INR 327 Cr [a 18% increase YoY]

• ROCE dropped to 33% in FY25 from 52% in FY24 [this was due to the 300 Cr private placement in July 2024, which increased the capital base]

I believe there is a lot of growth that can be unlocked with new initiatives that the company is undertaking like expanding it’s margin book, launching a PMS offering, getting into the mutual fund business etc.

Some unanswered questions that I would like to get answers to:

• What is the revenue guidance for the next 3 years?

• What is the baseline EBITDA and PAT? Has it stabilized or is there more room to grow?

• What will be the revenue contribution from new segments like PMS / Mutual Funds? Will these segment dilute margins to some extent?

• What is Monarch’s competitive advantage? What is management’s strategy to win deals? How will it claw market share in an ultra competitive market?

• Is there a plan to launch more AIFs? Can it sustainably grow AUM?

• What are the IB deals in the pipeline? How much commission does Monarch make on investment banking deals?

To conclude, Monarch can scale it’s business without significant capex requirements and I believe if the company can grow its net profits by 15% every year — this could be a compelling value investment for the next 5-10 years, creating [a lot of] wealth for it’s shareholders.

If you liked this article, share it in your investing network. Comment, like, show some love! I spend a lot of time in research & it would mean the world to me if you could recommend this blog to your friends.

[Note: The author is not a SEBI registered investment advisor and the contents of this article do NOT constitute investment advice. Always do your own research before you invest in a company]