# 1. Financial Performance ## A. Key Figures * **PAT:** **₹8.22** EPS (+26.3% YoY) * **Gross Margin:** **+296 bps** YoY (+~500 bps from recent lows) * **EBITDA Margin:** **+305 bps** YoY (consolidated) ## B. Profit Margins * **Sustained Margin Expansion:** Robust gross and EBITDA margin improvement driven by **forward-integration initiatives** and a strategic shift toward **higher value-add products**, including complex small-component manufacturing. * **Structural Margin Drivers:** Margin gains are structural rather than cyclical, with new high-margin businesses—developed since 2022–2023—now scaling commercially, supporting **longer-term profitability**. * **Cost Pass-Through Resilience:** Margins insulated from raw material volatility due to a **full cost passthrough mechanism**, enhancing predictability. * **Management Prioritizes Absolute Profit Growth:** While margins have improved over the past **four to five quarters**, focus remains on maximizing **total EBITDA in rupees**, balancing high-value and high-volume opportunities. ## C. Cash Flow * **Working Capital Tailwinds:** At **50% local raw material sourcing**, potential **30-day reduction in working capital cycle** expected, boosting cash flow and enabling interest income on surplus cash. --- # 2. Product & Segment Performance ## A. Key Figures * Shunt Volumes: **-0.9%** H1 FY26 YoY · **+25.23%** Q2 India sales YoY * **Shunt Realizations:** **₹3,290/kg** avg. current quarter vs. **~₹2,000/kg** in FY23 * **Bimetal Volume Growth (FY26):** **4–5%** projected ## B. Shunts & Resistors * **Resilient Growth Amid Volume Pressure:** Shunt volumes declined due to loss of low-margin strip business, yet overall resistor segment grew **8–10%**, reflecting successful pivot to high-value components. * **Value Over Volume:** Strong realization growth driven by **favorable product mix** and pass-through of base metal costs, with newer, smaller components delivering higher value despite lower kilo output. * **Strategic Gains with Key Customer:** Despite multi-year decline in Vishay strip supply, Shivalik is gaining indirect share and now holds **exclusive capability** for new Vishay resistor types, signaling potential volume recovery. * **Diversified End-Market Strength:** Growth anchored in smart meters, industrial automation, and mobility electronics, with demand **not limited to EVs**, providing broad-based, multi-year visibility. ## C. Bimetal & Strip Sales * **Bimetal Recovery in Sight:** Volume growth expected to rebound to **4–5%** in FY26, supported by data centre capex and anticipated market recovery. * **Margin Expansion Pathway:** Strategic shift to high value-add bimetal products and potential **indigenized raw material sourcing** expected to lift gross margins over the next 1–2 years. ## D. New Product Launches * **High-Value Pipeline Maturing:** **80% of recent R&D** focused on small-size resistors and assemblies, with long development cycles creating barriers to entry and setting foundation for **sustained margin expansion**. * **Near-Term Commercialization Catalysts:** PCBA revenue launch on track for **Q4**, while white-label agreement and new customer pilots are progressing toward volume ramp, supporting **₹50–70 Cr** next-year topline contribution. --- # 3. Customer & Geography Mix ## A. Key Figures * Sales in Asia (ex-India): +38.5% growth ## B. India & Asia Growth * **India as Growth Engine:** India is emerging as the fastest-growing market for automotive shunts, particularly in **EVs and hybrid two-wheelers**, supported by strong OEM development activity and global partnerships (e.g., Google). * **Indirect Data Centre Exposure:** Shivalik benefits indirectly from data centre build-out via components embedded in devices; growth tied to development pace in supply regions like India. * **Strong Regional Execution:** Asian geographies lead in active project rollouts, with robust shunt performance driven by new account wins and deeper customer engagement. ## C. US & Europe Trends * **Temporary OEM Headwinds:** Shunt volumes in Americas and Europe face short-term pressure from inventory rebalancing and annual approval cycles, not underlying demand weakness. * **Pipeline Diversification:** BYD-related business progressing via Vishay, with design activity expanding to other customers, signaling broader indirect market penetration. ## D. OEM & Export Exposure * **Export Sensitivity:** Revenue volatility linked to export cycles of Indian customers (e.g., Havells), as domestic sales often serve international end-markets. --- # 4. Strategic Initiatives ## A. Key Figures * **Revenue Potential (FY27):** **₹150 Cr** from all forward-integration opportunities * **CWIP:** **₹32 Cr** (Q to Sep), including **₹20 Cr** for SEPPL ## B. Forward Integration * **Strategic Expansion into Assemblies:** Accelerating shift toward high-value assemblies and direct OEM partnerships, reducing reliance on channel partners over the past **5 years**. * **Dual Growth Model:** Pursuing both **high-margin niche projects** and **lower-margin, high-topline opportunities**—such as PCBA assemblies—to balance scale and profitability. * **Margin-Quality Focus:** Despite potential margin dilution from new initiatives, management prioritizes **sustainable profitability** through technical differentiation and process efficiency. * **New Vertical Entry Imminent:** Company is finalizing product selection, location, and production plans for entry into electronic components manufacturing, leveraging existing capabilities and customer synergies. ## C. Backward Integration * **Faster-Than-Expected Indigenization:** Nickel alloy localization progressing rapidly, with base-grade materials in final testing and **local sourcing set to reach 20–25% within months**. * **Material Cost & Resilience Play:** Strategic push to source **~50% of raw materials locally next year**, reducing import dependence amid trade barriers—even if near-term cost savings are limited. ## D. Automation & Capex * **Elevated Capex for Automation:** Recent increase in capital spending driven by strategic automation investments to counter rising labor costs and skill shortages, with **₹20 Cr allocated to SEPPL** for advanced processes and land. * **Long-Term Efficiency Bet:** Automation capex represents a **medium- to long-term productivity upgrade**, justifying higher current outlays despite recent completion of prior major projects. * **Robust Growth Pipeline:** Customer part number developments and business value created in the last **two years exceed the prior decade**, signaling strong future revenue visibility. --- # 5. Risks & Trade Exposure ## A. Key Figures * **US Revenue Exposure:** **17–18%** current (~50% reduction from 40%) * **Growth Impact:** **2–3% higher** growth estimated without US tariffs ## B. US Tariff Impact * **Sharp Demand Suppression:** 50% US tariffs have materially reduced orders and near-term forecasts, with customers de-stocking to avoid tariff costs despite no loss of direct business. * **Strategic Reassessment:** In response to trade barriers and weak demand, Shivalik is exploring direct OEM onboarding, though progress is constrained by **longer approval cycles**. * **Recovery Optionality:** Prolonged tariffs may force Vishay to reevaluate sourcing, but resolution would likely trigger a **sharp rebound** in Shivalik’s US business, especially in shunts and bimetal products. ## C. Customer Concentration * **Structural Stickiness:** High-precision components with long development cycles and significant tooling create strong switching barriers, supporting **margin resilience** even under tariff pressure. * **Indirect Volume Loss:** Shivalik is not losing direct customers, but volume decline stems from **Vishay’s own market share erosion** due to over-forecasting and a multi-year inventory correction. * **Competitive Spillover:** Further volume pressure arises as competitors gaining Vishay’s share source less from Shivalik, creating indirect exposure despite stable client relationships. ## D. Global Demand Volatility * **Fragmented Growth Drivers:** Global disruptions over the past 18 months have created uneven performance across regions, with **EV sector shifts** and Western project delays weighing on shunt segment growth. * **Export-Linked Domestic Demand:** A large portion of Indian customers export end-products, making domestic sales vulnerable to **global tariffs and geopolitical headwinds**. * **Downward Forecast Revisions:** End-customers have cut demand outlooks due to weaker international expectations, cascading into lower orders for Indian suppliers. * **Component Supply Chain Stress:** European auto firms face chip shortages from Nexperia due to China-EU geopolitical tensions, disrupting downstream demand for related components. --- # 6. Guidance & Outlook ## A. Key Figures * **FY26 Revenue Growth:** **4–5% below initial 12–15% guidance**, now pointing to **high single-digit or low double-digit growth** * **FY27 Revenue Growth Guidance:** **13–14% to 17–18%**, contingent on resolution of US trade issues affecting **17–18% of business** * **EBITDA Margin:** **23%** current run-rate, with potential for **~200 bps expansion in next 4 quarters** and further gains over 3 years ## B. FY26 Revenue View * **Downward Revision Due to Tariffs:** Full-year growth outlook reduced due to tariff-driven US market headwinds, though recovery signals emerging for Q4 FY26 and Q1 FY27. * **Bimetal Growth Challenge:** Despite ambitious full-year volume target, recent flat performance raises execution risk; H2 requires near **10% quarterly growth** to achieve target. * **Vishay Recovery Path:** White-label partnership expected to restore prior revenue contribution within a year, with **~50% of outlook** considered optimistic but feasible. ## C. FY27 Growth Projections * **Strong Confidence in Recovery:** Management anticipates rapid rebound in FY27, with base-level demand restoration alone driving **substantial top- and bottom-line expansion**. * **AI-Driven Demand Surge:** AI adoption in data centers could **triple demand** for Shivalik’s components, unlocking structural growth. * **Pipeline Maturation:** Multi-year R&D initiatives now ramping, supporting **double-digit FY27 growth** expectations; new pilot projects expected to boost Q4 momentum. * **Execution Timing Flexibility:** Short-term volatility of **1–3 quarters** is deemed normal; key project approvals underpin confidence despite timing uncertainty. ## D. Margin Trajectory * **Structural Margin Expansion Expected:** Despite no formal targets, **value-added products** and high-margin developments expected to lift EBITDA margins by **a couple of percentage points over 3 years**. * **Near-Term Upside:** Potential **200 bps margin improvement in next 12 months** if current trajectory holds, driven by product mix and scale. * **Mix Risk Acknowledged:** Introduction of **high-revenue, lower-margin products** could offset gains, keeping margin path sensitive to business mix outcomes.