JM Financial initiates coverage of Shivalik Bimetal; sets target price of Rs 730 a share

Shivalik, which had a focus on bimetal and electrical contacts since 1984, has rapidly expanded into the shunt resistor business that now constitutes a significant portion of its revenue.

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Shares of Shivalik Bimetal Controls Ltd gained over 6 percent on June 26 after brokerage firm JM Financial initiated coverage of the stock with a buy rating and set a target price of Rs 730 per share, up 34 percent from the current market price.

At 10.15am, the stock was trading at Rs 576 a share on BSE, up 6 percent from its previous close while India's benchmark Sensex fell 0.08 percent to 77,991.18 points.

The firm, primarily known for manufacturing bimetal and electrical contacts, expanded into the shunt resistor business starting in 2014-15. With established dominance in the domestic market, it now plans to enhance its export capabilities following recent capital expenditures and capacity expansions.

Shivalik Bimetal operates across three key sectors: switchgear industry, smart metering, and electric vehicles (EVs). It aims to boost revenue from electrical contacts, currently contributing around 10-11 percent, through strategic acquisitions and by tapping into global markets. Additionally, Shivalik benefits from product-linked incentives (PLI) for shunt products and continues to explore applications in emerging sectors such as mobile, telecom, and renewables.

"Overall, we expect revenue/EBITDA/PAT CAGR of 25 percent/29 percent/29 percent over FY24-26E, with RoCE/RoE 30.4 percent/24.1 percent in FY26E. We initiate BUY coverage on SBCL with TP of Rs 730, valuing it at 30x FY26E (currently trading at 22x FY26)", JM Financial said in its latest note.

Shivalik, which had a focus on bimetal and electrical contacts since 1984, has rapidly expanded into the shunt resistor business that now constitutes a significant portion of its revenue. Leveraging a technological advantage in EBW machines, Shivalik has established a monopoly in the domestic shunt resistor market.

Future growth is anticipated from both domestic and export markets, driven by increasing adoption in smart meters and electric/hybrid vehicles. JM Financial said its shunt revenue is projected to grow at a compound annual growth rate (CAGR) of 30 percent from FY24 to FY26, with expected EBITDA margins of approximately 23 percent to 24.2 percent by FY25/26.

In the bimetal segment, Shivalik commands a dominant position in the domestic market with an 80 percent share. The company is now focusing on expanding its presence in international markets, particularly in the Americas, following a capacity expansion aimed at capturing a larger share of the global market. Export opportunities are expected to drive a CAGR of 17 percent from FY24 to FY26, with EBITDA margins around 22.9 percent, JM Financial report said.

The electrical contacts segment, though smaller, benefits from opportunities in switchgear and smart meters. Following the dissolution of its JV with Checon Corporation, Shivalik is now targeting the US market through a new partnership with Metalor. This segment is projected to grow at a CAGR of 37 percent over FY24 to FY26, with EBITDA margins of approximately 11.5 percent to 12 percent , it added.

Shivalik's strength lies in its long standing customer relationships, with a majority of sales being customized products tailored to specific customer needs. Approximately 75 percent of products are custom-made, supported by stable relationships where no customer has been lost over the past decade, the report added.

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