The company has now expanded and increased its product range to include other Non Ferrous alloys like Phosphor Bronze, Nickel Silver, Nickel Brass, Cupro Nickel, Aluminium Bronze, Tin Bearing Copper and Silver Bearing Copper etc. These are produced in the form of semis like ingots, strips, sheets, plates, foils, copper bus bars in India. They have plans to broaden the range of products to include thingslike tubes, coin blanks, rods and wires.
Arcotech is contemplating to set up a green field project in the state of Gujarat, India to manufacture Aluminum semis. This will be an integrated facility and will prove to be a synergy to the Copper division. Aluminum demand has been growing at 10% CAGR since last 5 years and is expected to grow at 15-17% for the next five years in India.
Let's take a look at the company's financial performance:
I did a three stage DCF valuation with the following assumptions:
- 1st stage profit growth of 25% for the next 5 years
- 15% for years 6-10
- 4% terminal growth rate
- discount rates of 12%, 14%, 16%
I didn't purchase Arcotech for a simple reason: it has no competitive advantage. It might have grown fast, but there are limits in the industry with extremely narrow margins. As Warren Buffett said: "Time is the friend of a wonderful company, and enemy of the mediocre". I will not buy such a stock, because there are so many other wonderful businesses out there.