Multibagger stock rallied 1,250%, hits inflection point as it enters key market

Spectrum Electricals has reported a consistent increase in operating revenue and net profit in recent years. (Image: Pixabay)
Spectrum Electricals has reported a consistent increase in operating revenue and net profit in recent years. (Image: Pixabay)

Summary

  • This microcap company is tapping India's medical devices manufacturing market. Why it's a positive step.

Spectrum Electricals, a manufacturer of electrical, automotive, and irrigation components, garnered significant attention in 2023 for its remarkable market performance.

The company's share price surged a massive 1,252% over the year, significantly outperforming peers and the benchmark Nifty's 14.4% increase. In January 2023, the stock was priced at 84, and had risen an astounding 1,252% by year-end. This means that an initial investment of 10,000 would have ballooned to 1.2 lakh.

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Leveraging its strong financial results and seeking to broaden its business scope, Spectrum Electricals entered the medical devices manufacturing field by launching a new subsidiary on 5 February 2024.

About Spectrum Electrical Industries

Spectrum Electrical Industries specializes in the design and manufacturing of a diverse array of products within the electrical components sector.

The company's operations encompass designing, fabricating, moulding, powder coating, surface coating, and assembling. Its product range includes items such as miniature circuit breaker bases and covers, distribution boards, air conditioner boxes, modular electric board panels, and lamp angle holders, alongside offering surface coating services.

Spectrum Electricals boasts manufacturing facilities in Jalgaon and Nashik, Maharashtra, catering to various manufacturing needs. Its wholly-owned subsidiary is Spectrum Electrical Life Solutions.

Medical device manufacturing subsidiary

On 5 February 2024, the board of directors at Spectrum Electrical approved the setting up of a wholly-owned subsidiary dedicated to medical device manufacturing, marking a strategic move to diversify the company's operations.

This initiative aims to foster collaboration between the parent company and the subsidiary, emphasizing innovation and adaptability in the development and manufacture of medical device products.

The formation of this subsidiary is part of Spectrum Electrical's broader strategy to diversify into the growing medical devices sector, with the goal of becoming a globally recognized, sustainable organization that ensures affordable access to quality healthcare.

Previously, Spectrum Electrical had signed a Memorandum of Understanding with Time Medical International Venture (India) Pvt Ltd to collaborate on the development, manufacture, and supply of MRI machine components, highlighting its proactive stance in expanding into the medical technology space.

Strong prospects

India's medical devices industry is emerging as a key sector with significant growth prospects. In 2021, the market was valued at approximately $11 billion, with expectations to surge to $50 billion by 2030.

The sector has seen a steady increase in exports, with a compound annual growth rate (CAGR) of 9.4% over the past five years. India is now the fourth largest medical device market in Asia and ranks among the top 20 worldwide, serving as a manufacturing hub for both domestic and international markets.

India's advantages in the medical devices sector include a comprehensive ecosystem offering end-to-end capabilities, from design to manufacturing. The country is known for its reliable sourcing base, covering 80% of the Bill of Materials required for various devices, potentially offering at least 25% cost savings in comparison to countries like the US, Japan, and Europe.

Further, the global medical devices market, valued at $492 billion in 2022, is on track to reach $656 billion by 2032, signalling a CAGR of 3% during the forecast period.

Government initiatives

The Indian government has introduced several initiatives to bolster the medical devices sector, including 100% FDI allowance and the National Medical Devices Policy to encourage orderly growth. The Production Linked Incentive (PLI) scheme has approved 26 projects with a committed investment of 12.1 billion, aiming to position India as a global hub for MedTech innovation.

The government has also set up an export promotion council for medical devices under the Department of Pharmaceuticals.

The company is set to benefit from these initiatives.

Financial snapshot

Spectrum Electricals has reported a consistent increase in operating revenue and net profit in recent years, with revenue growing to 2.5 billion in FY23 from 1.4 billion in FY21, and net profit rising to 84.5 million from 46.8 million during the period.

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The company has demonstrated a CAGR of 92% in revenue and 93% in net profit over the past three years. With solid financial ratios, including a return on equity (RoE) of 9.6% and a return on capital employed (RoCE) of 10.8%, the company is poised for further growth through its diversification strategy.

Conclusion

India's healthcare and medical device sectors have experienced significant growth, yet there remains a considerable gap between domestic supply and demand, with heavy reliance on imports from the US, China, and Germany.

Meanwhile to bolster economic ties, India and Russia have set an ambitious bilateral trade target of $30 billion by 2025, with an anticipated annual increase of $5 billion, driven by opportunities in pharmaceuticals, medical devices, minerals, steel, and chemicals.

With ambitious trade targets and government initiatives, the medical devices sector offers promising investment opportunities.

However, the capital-intensive nature of the industry and the need for continuous technological adaptation present challenges. Investors would do well to conduct thorough research and due diligence before making investment decisions.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such.

This article is syndicated from Equitymaster.com

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