Hidden Gem: Somi Conveyor Belting Navigates Industrial Cycles Steadily
Overview
Somi Conveyor Beltings, a 25-year veteran in industrial conveyor belts, demonstrates resilience through consistent growth and disciplined capital allocation. Despite FY25 revenue dips, improved margins highlight operational efficiency. Valued at 31 times trailing earnings, the company prioritizes stability over rapid expansion in cyclical markets.
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Consistent Performer in Niche Industrial Space
Somi Conveyor Beltings has quietly carved out a durable niche over 25 years, manufacturing essential rubber and steel-based industrial conveyor belts. The company, based in Jodhpur, Rajasthan, has focused on incremental capacity additions and building customer reliability, eschewing the high-growth, high-risk strategies often seen in manufacturing. This approach has yielded a consistent sales Compound Annual Growth Rate (CAGR) of around 17% over the last five years, with profits rising commensurately.
Navigating FY25 Headwinds with Discipline
Fiscal year 2025 presented a challenging environment marked by global economic headwinds and volatile raw material costs. Somi Conveyor Beltings reported revenue of ₹101 crore and a profit of ₹5.46 crore. While topline figures saw a slight year-on-year decline, profitability notably improved, with margins expanding to 10.3% from 8.6% a year prior. This was driven by better cost control and operational efficiencies, showcasing the company's focus on discipline during cyclical downturns.
Governance and Capital Allocation as Strengths
The company's governance structure, featuring a professional promoter-led board with significant independent director presence, is a key asset in managing cyclicality. Somi Conveyor Beltings has historically exercised restraint in capital allocation, expanding capacity selectively and funding growth without excessive leverage. This discipline is crucial in industries like mining, cement, and power, where demand is inherently tied to capital expenditure cycles, preventing overbuilds that can lead to distress.
Valuation Reflects Stability
With a market capitalization of approximately ₹136 crore, Somi Conveyor Beltings trades at about 31 times trailing earnings. While this multiple appears demanding given its 7.44% return on equity and 10.4% return on capital employed, it reflects the market's pricing of the company's steady execution and endurance. Historically trading closer to 28 times earnings, the current valuation suggests investors are factoring in its proven ability to navigate economic cycles.
