Macfos Ltd (robu.in)

What do they do?

The company is an e-commerce-based business that specializes in marketing a wide range of electronic components. These components are used in various engineering products and projects, including emerging technologies like IoT, Robotics, Automation, Drones, Electric Vehicles, 3D Printing, and Auto Guided Vehicles. They offer over 12,000 SKUs of electronics components and parts to manufacturers, engineering students, educational institutions, researchers, and developers. Their goal is to help customers turn their ideas into reality and accelerate their product research, development, and prototyping. The company operates through an e-commerce website and mobile application called Robu.in, where they sell robotic parts, drone parts, E-bike parts, IoT and wireless items, 3D printers and parts, learning kits, development boards, sensors, motors, batteries, and various other mechanical and electronic components. They have established partnerships with over 140 vendors, both domestic and overseas, to source their electronic items and parts. Additionally, they have three owned brands and a dedicated fulfillment center in Pune, Maharashtra, with logistics services that allow them to deliver products across India and internationally. In the fiscal year 2021-2022, they fulfilled over 200,000 orders from all 28 states and 6 Union Territories of India. Their revenue for the same period amounted to Rs. 5551.47 lakhs, with 62.59% coming from online sales and 37.41% from offline channels. Their offline customers mainly consist of corporations and large enterprises, including notable names like ONGC, M&M, Tata Power Solar Systems Ltd., and Wipro Enterprises Pvt. Ltd.

Their portfolio of electronic components & items:

Competitive strength -

The company's competitive strengths lie in their extensive and diverse portfolio of electronic items and parts, as well as their content-rich platform. They offer over 12,000 SKUs of electronic items and parts, including a wide range of products such as robotic parts, drone parts, E-bike parts, IoT and wireless items, Raspberry Pi items, 3D printers and parts, DIY learning kits, development boards, sensors, motors, batteries, chargers, electronic modules, displays, and various other mechanical and electronic components. Their portfolio includes over 100 brands, both international and non-branded products, making them a one-stop destination for consumers in the electronics field.

Recognizing that consumers in the electronics parts business often require assistance in navigating a fragmented and wide assortment, the company focuses on simplifying purchase decisions through relevant educational content. They frequently create videos and blogs that provide product education and showcase DIY electronic projects that can be made using the electronic parts available on their platform. The company produces a majority of their content in-house through their internal team.

In addition to their content-rich platform, the company actively engages with their target audience through various social media platforms such as Facebook, Instagram, and YouTube. They have amassed approximately 40,000 subscribers/followers across these platforms, allowing them to spread awareness of the latest technological products and promote their offerings effectively. These platforms serve as valuable channels for connecting with their target audience and expanding their reach.

The company boasts a strong, diverse, and growing customer base across India. In the fiscal year 2021-2022, they fulfilled over 200,000 orders placed by more than 83,000 consumers through their website, mobile application, and direct channels. These orders originated from all 28 states and 6 Union Territories of India. Their revenue from operations for the same period amounted to Rs. 5551.47 lakhs, with 62.59% generated through online sales and 37.41% through offline channels. Within the offline channel, their customers mainly consist of corporates and large enterprises. Some notable customers they have served include ONGC, M&M, Tata Power Solar Systems Ltd., Wipro Enterprises Pvt. Ltd., and Tata Communications Ltd. The company's diverse customer base helps mitigate the risk associated with depending on specific customer segments or geographical regions, reducing financial and concentration risk.

The company's technology platform is scalable and reliable, enabling them to engage with consumers efficiently. They primarily interact with customers through an easy-to-navigate mobile app and website, automating and digitizing the consumer journey for purchasing electronic parts. The company maintains a dedicated in-house IT team responsible for managing and continuously improving the website and mobile app to provide a personalized experience for consumers throughout their journey. Additionally, they have developed an internally built ERP software used for various processes such as order processing, inventory management, shipping, and billing. The mobile app and website are designed to be scalable and reliable, allowing the company to introduce new products and features according to their internal roadmap.

As explained in a conference call -

The company has a consistent track record of profitable growth and strong financial performance. Their focus on functional and operational excellence has contributed to this success. In the six-month period ending in September 2022 and the fiscal years 2020, 2021, and 2022, they achieved positive EBITDA figures of Rs. 437.39 lakhs, Rs. 873.14 lakhs, Rs. 273.57 lakhs, and Rs. 127.83 lakhs, respectively. Net profits after tax were reported at Rs. 295.85 lakhs, Rs. 601.27 lakhs, Rs. 158.31 lakhs, and Rs. 32.97 lakhs for the same respective periods. The company has demonstrated a strong return on net worth, with figures of 24.50% (not annualized) for the six-month period ending in September 2022 and 65.93%, 50.96%, and 62.74% for the fiscal years 2022, 2021, and 2020, respectively.

Strategies for Growing and Thriving in the Electronics Market

1. Acquiring New Consumers: One of our key goals is to attract new consumers to our platform. To achieve this, we offer an extensive array of electronic items and solutions at competitive prices. Our commitment to exceptional customer service sets us apart, as we ensure optimal satisfaction for our customers. We invest in digital marketing activities, including Google Ads and Facebook Ads, to generate brand awareness and drive traffic to our platform. Moreover, our engaging content-based marketing approach, featuring informative articles and social media presence, helps us connect with our target audience.

2. Expanding Offerings: We believe in constantly evolving and diversifying our product range to stay ahead in the market. Our recent expansion includes the introduction of cutting-edge services such as metal laser cutting, non-metal laser cutting, SLA 3D printing, FDM 3D printing, PCB manufacturing, and custom Li-ion battery packs. These additions enable us to cater to a wider range of customer needs and tap into emerging sectors such as drones and UAVs, microcontrollers, industrial automation, IoT, machine learning, and prototyping services. By staying up-to-date with technological trends and consumer preferences, we enhance the shopping experience and maximize sales.

3. Strengthening Vendor Relationships: Maintaining strong relationships with our vendors is crucial to our success. We have a robust network of suppliers, which allows us to procure electronic items and parts at competitive prices. As authorized distributors/re-sellers of some of our suppliers, we provide curated assortments to our consumers. We continuously seek to forge new relationships with vendors, both established brands and non-brands, while nurturing existing partnerships. Our emphasis on supply chain management ensures operational efficiency, ultimately benefiting our business and customers.

4. Focus on Human Resource Development: Our employees play a pivotal role in our journey towards success. We prioritize their development and growth through regular assessments to identify competency gaps. We offer training programs and job rotations to address these gaps and enhance their skills and productivity. By fostering a customer-oriented corporate culture and maintaining service quality standards, we empower our employees to meet the changing needs and preferences of our consumers. Furthermore, we strive to create a motivating work environment by regularly reviewing and updating compensation plans based on individual performance.

Streamlined Business Process for Exceptional Customer Experience

1. Procurement and Supply Chain Management: We have built strong partnerships with over 140 domestic and overseas vendors, including distributors, manufacturers, and retailers. Our stringent selection process ensures that we source high-quality products that meet our standards. We regularly evaluate our suppliers to ensure ongoing compliance with our criteria. With a dedicated fulfillment center in Pune, spanning an area of 7,900 sq. ft., we maintain centralized operations for streamlined procurement and inventory management. Our ERP software enables us to effectively track inventory levels, monitor SKU movement, and analyze customer demand, allowing us to make data-driven procurement decisions.

2. Sales Operations: Our primary sales channel is our user-friendly online platform, comprising both a website and a mobile application. For bulk orders, we also accommodate direct/offline orders, which are manually entered into our ERP system. Order processing is seamlessly managed through our ERP software, and our fulfillment center handles the packing and handover of orders to our trusted logistics partner, Blue Dart Express Limited. We offer multiple digital payment options to provide convenience to our customers, including cash on delivery (COD) for added flexibility.

3. Support to Customers: Ensuring exceptional customer support is a priority for us. Our dedicated customer support team promptly addresses queries, issues, returns, and replacements through our ERP system. Customers can reach out to us via our toll-free numbers or by creating a support ticket on our platforms. Through our automated ticketing system, all queries are logged and tracked for timely resolution. This streamlined process allows us to provide efficient support and enhance customer satisfaction.

COMPETITION:

The market for electronic items and parts is highly competitive, with both small and big players vying for customers. Key factors in this industry include product quality, reliability, service quality, and the ability to keep up with changing technology. However, we believe that our cost-effective and integrated offerings, focus on customer satisfaction, reliability, and quality consciousness give us a competitive advantage. While minimal entry barriers exist, any expansion by existing competitors would intensify competition. Some of our competitors in the market include Element14 India Pvt Ltd, Arrow Electronics Pvt. Ltd., Mouser electronics India Pvt Ltd, and Millennium Semiconductors India Pvt Ltd.

MARKETING:

In our marketing efforts, we prioritize digital channels to engage both prospective and existing customers. We leverage online platforms such as emails, social media, and search engine optimization to connect with our target audience. Recognizing the widespread internet usage in our country, we have implemented various digital marketing and social media initiatives. Our strategies include Google Ads, Facebook Ads, content-based marketing through articles, search engine optimization, and maintaining an active presence on platforms like Facebook, Instagram, and YouTube. With over 40,000 subscribers/followers across these platforms, we utilize social media marketing to reach new users and engage with our existing audience. Through these channels, we enhance brand awareness, showcase our latest technological products, and connect with our target customers effectively. Notably, our advertisement expenses for Fiscal 2022 amounted to Rs. 131.40 lakhs, reflecting a 55.87% increase compared to Fiscal 2021.

VALUATION :

The company has been growing top line at 70% cagr and PAT at >190% cagr, buying it at 30-40 PE may not be expensive.

It all boils down to with what rate they will keep growing in the future and what is going to be the sustainable margins.

Currently,

• The company is doing 14% EBITDA margins.

• 9% Net Margins.

• Healthy 57% RONW and ROCE of 53%.

Customer engagement going up -

To assess potential growth in the B2C side of their business (which is 45% of their revenue) this can give us some good idea -

Who are these B2C customers?

Mostly hobbyists, early Entrepreneurs working on their idea, and maybe small startups.

It’s really hard to assess the potential here but anyways let’s have some idea about potential growth rather than no idea.

With approximately 500,000 electronics engineers graduating in India each year, even if only 1% of them continue as lifelong hobbyists, we have the potential to gain 5,000 new customers annually. Additionally, if we consider that 0.5% of mechanical and computer science engineers also join the ranks of hobbyists, we could attract an additional 15,000 potential customers each year. In total, this amounts to 20,000 new customers annually, presenting a significant opportunity for growth and expansion.

• That means they will double their B2C customer base in 2 to 3 years.

• The influx of new customers from the pool of engineering students has the potential to drive a substantial 40-50% growth in our B2C top line. However, as the customer base expands and the number of engineering students remains relatively constant over the next decade, this growth rate may gradually decrease over time.

Another perspective to consider is the size of the electronic IC/Chips market in India. Robu serves as a viable alternative to prominent markets like S.P Road in Bengaluru and Nehru Market in Delhi, Even the tier-2 cities have similar markets.

Bengaluru S.P Road has about 1500 shops spanning over 2Km, Let’s say each shop on average could be doing Rs 30,000 in net profit monthly (This is what they have to do to survive in Bangalore) then it could be Rs 50- 60Cr net profit market annually.

Let's assume we might have 20 cities ( of 28 states and 8 Union territories each must be having some market) in India doing an average of Rs 40 cr net profit, then it turns out to be an Rs 800 Cr net profit market, Most of it would be mobile repair market lets say the electronic component market is around 20% of it, which is Rs 160Cr net profit market. MACFOS does around Rs 7 Cr net profit today (which is around 3.8% of the potential market).

Can they easily be 10-15% of the market? then there is an easy 2-3x market share gain opportunity.

When it comes to the B2B segment, which accounts for 55% of the revenue, the potential for growth is uncertain. On one hand, with the government's efforts to promote electronics manufacturing in India, there could be significant opportunities for expansion. On the other hand, there is a possibility that market saturation has been reached, and large B2B players may establish their own supply chains. The bottom line is “I don’t know “.

Considering the increasing manufacturing of drones, IoT devices, robots, and mobile phones in India, it is reasonable to anticipate potential growth in this segment. The expanding presence of these technologies suggests that there will be an increased demand for electronic components and parts, creating opportunities for growth in the future.

It’s hard to say how big the company will be 10 years from now but I think the odds are they might be doing Rs 50 to 70 Cr net profit Vs Just Rs 7 Cr profit what they do today.

So, there is a reasonable chance the company could end up growing 8 to 10x in the next 10 years, in that context today’s valuation may not be expensive.

Thank you,

Please share if you find it interesting and let me know your view in the comments below.

BLOGS ARE NOT A RECOMMENDATION SERVICE – These are my personal views about Business Quality, Management Quality, Business Execution & Performance.

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Thanks,

Dhruva Pandey 

Email : dhruva.pandey@outlook.com

Twitter : https://twitter.com/Dhruvapandey