Company is a civil and mechanical engineering services provider to North American contractors.
Despite recent headwinds in the wider IT industry, company has not only increased its margins (YoY) but is also very positive on growth (25%+)
Recently, the U.S. government passed the $300 billion Inflation Reduction Act and emphasized on friend shoring and reshoring. These actions combined with punitive actions on Chinese supply chains is forcing manufacturers to relocate their factories either in the US or in countries deemed friendly.
New factories coming up in the U.S. is leading to a building boom especially in certain sectors like renewable energy, industrials, and electric mobility. This is a huge boon for the company who can be a key beneficiary.
Currently, they work with American architects and certain contractors. They have the relevant certifications and are in the market for acquisitions to move up the value chain. Moving up means they’ll work directly with the end customers as well as Tier 1 contractors.
In the civil engineering division, they are among top 2-3 players in India.
In their mechanical engineering services division, they are trying to secure contracts in the electric car space (having successfully completed a project for Tesla couple of years ago).
There is almost a 50% difference between the billing rate quoted by them and their American local competitors.
Very technocratic and honest promoters. Second generation is also involved.
Their exposure to Europe is miniscule which is good because Europe is currently suffering even more than US. But the EU has also announced its own version of the inflation reduction act. This could open another huge market for the company.
Risks:
If the US construction boom stalls, then their growth will be affected.
Generally, IT companies do either buyback or distribute dividends with their excess cash flows. The company is small with limited operating history and scale of operation, we need to watch their capital allocation decisions.
Slower than expected roll out and transition to electric cars will be negative for them.
At a PE of 30, future growth is already implied in the stock price. Long term IT company multiple is usually in the range of 15-25. There could be some short-term corrections. So, investors need to be cautious.
Not sure of the long-term impact of Generative AI on their work. Need to track this.
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