Thread by @CapitalSapling

#PixTransmission is a dominant small cap in its duopolistic market of V-Belts, essential in all manufacturing sectors.
Company due to robust demand has recently approved further capex of 60 crores.
Promoter increasing stake.

Disc: invested from 300 levels.

Much more to come!

Indian Market is dominated by Pix & Fenner, V-Belts has repeatable purchase as the product wears out after a limited time.
Due to its use in every industry, it is required that the manufacturer have v belts in 1000's of sizes and every size has a different mold.

This inventory of molds calls for a significant investment, which acts as a moat for the incumbent.
Since v belts are used across India, the vendor is required to have most of its variants stocked with dealers across the country.Pix has a significant distribution moat in India.

Pix is also expanding its horizons abroad where it follows a stock and sell model, to be able to service customer requirement in quick time, which increases inventories.
This quick service helps build trust with the customer, very important because of nature of repeat sales.

Every glass lined reactor in every chemical plant which has an agitator requires power transmission, from the motor to the agitator, it is either done through a coupling or a Vbelt.
Even in the cement,coal sector vbelts are used, and if the vbelts give out. production is halted

The next big sector in which Pix is having a go at is agriculture, Vbelts finds great application in Agriculture equipments.
In Industry, manufacturers use multiple vbelts at the same time to bring in buffer if any vbelt gives leading to production disruption.

Every centrifuge, compressor used across the industry requires a Vbelt.
The applications spread across the length and breadth of industry. It is synonymus with manufacturing.
Roce of the company is poised to go above 20 which is significant given the working capital requirement.

The best companies are those that enlarge their fixed assets base over a period of time without burgeoning the balance sheet. Pix haa done just that over the past few years.

With regards Rubber price impact, one would do well to notice that almost all of the ebidta improvement over the last couple of years has come from operational efficiencies and volume growth with gross margins remaiming more or less stable.

The company in the last quarter yoy increased it sales by 30% without increase either in employee costs or operational expenses in the other expenses line item.
Which guides that the company was able to carry out plant automation and reduce wastages while increasing efficiencies.

This highlights that the company over past few years has been able to insulate itself from the vagaries of RM price movements with gross margins remaining stable between a handsome 62-65%.

A factor that lends to #pixtransmission business predictability is the installed machine base, which keeps throwing annuity demand for belts.

& since the ticket size of the product is low, the company is able to make high margins without burning a whole in the customers pocket.

Brilliant results from our Sapling #Pixtransmissions, delivers a lifetime high quarterly profit of almost 22 crores. Company is trading very cheap and deserves to trade at a valuation that is telling of its dominance in its niche and fundamentals better than world leader.

What drives a purchase decision is a point of consideration while analyzing business stickiness .
An element that we love, works here for Pix is Paranoia, the paranoia of using something cheaper which might cause losses more than cost of the vbelt in case of failure.

Why would all the competitive forces of this world allow a seemingly simple rubber belts manufacturer from a small town in India to make 20 odd crores profit every quarter with high return ratios.

More than what meets the eye!

Isnt it?

#Moatinvesting.