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Rs 180cr market cap company incorporated in 2003. The stock transitioned from NSE SME board in 2020 and is now listed on the NSE main board.
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Macpower currently manufactures 9 different CNC machines product categories namely Turning Center, Twin Spindle Turning Center, VMC, Twin Spindle VMC, TurnMill Center, HMC, VTL, DTC, Grinder with 60+ different models serving 27 industry segments worldwide with 5500+ installations. The company has long-standing relationship with customers.
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Sophisticated imported machines used in-house for manufacture of CNC machines.
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The company achieved a high PAT of around Rs 13 crores in FY19. I estimate the company now has the capacity to generate at least Rs 30 crores PAT.
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Continuous improvements during the last 3 years (although not reflected in the financials). The company has done more than 2x capacity expansion, implemented backward integration, installed solar power plant and added more products.
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Cash-rich, zero debt company. All expansions from internal accruals. High asset turnover of ~3x. Negative capital requirement.
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High promoter holding of more than 70%. Minority investor-friendly, first-generation promoters.
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Management has projected 25%+ CAGR revenue growth over the next 5 years. Currently, the company has a record-high order book.
CNC Machines Industry
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Computerised Numerical Controlled (CNC) machines. The manufacturing process using CNC machines is used to control a range of complex machinery and to perform three-dimensional cutting tasks.
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The desired cuts (shapes) are programmed into the software and dictated to corresponding tools and machinery inside the CNC machine, which then carry out the tasks to be performed.
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Tremendous market growth is expected. Domestic machine tool manufacturing needs to be increased 5x from current levels to aid the increasing share of manufacturing in the GDP (source: Macpower CNC Company Presentation Aug 2021).
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Domestic production accounts for 30-40% of total consumption, thereby having significant dependence on imports, which can be substituted by domestic production in the future (source: same as above).
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Customers in auto sector, defense, general engineering, railways, space, education, agriculture, medical, aerospace, die mould and other sectors.
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3D printing is an alternative technology. Production using CNC machines is typically cheaper for large quantities (higher double digits to 100s) (source).
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Prominent CNC manufacturers/suppliers include Jyoti CNC, Marshall Machines (listed–there is a separate VP thread on Marshall), Ace Designers Ltd, Batliboi Ltd, Lakshmi Machine Works (listed, focused on textile machinery), and Lokesh Machines (listed).
Price and Technicals
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Strong base is forming around the current levels.
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Low PAT last quarter (mainly due to increased raw material prices) has offered a window to enter the stock at reasonable prices.
Risks
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Leverage play on GDP/export growth. Continued low demand for CNC machines can delay stock performance.
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Standard machines are commoditized and have low margins. The company must continually innovate on its offerings. Jyoti CNC (unlisted) and Marshall Machines are further ahead than Macpower in newer technologies such as robotic automation. Macpower’s growth strategy is to try to convert conventional users over to the CNC technology.
Summary
Macpower has the best-in-class financial metrics. In the last few years, the company has expanded capacity and positioned itself for strong future growth. It remains to be seen if Macpower’s continuous-improvement, wholesome growth strategy can succeed in the face of technologically advanced offerings of some of the competitors.
References
- Company Presentation: dated 16 Aug 2021
- Company Presentation: new products, and plant and machinery dated 9 Dec 2019
- Company Presentation: manufacturing process dated 12 July 2019
Disclosure: I have investments in Macpower CNC (average price around Rs 100) and Marshall Machines.
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