Riding the Mining & Steel Supercycle: A Hidden Gem with a 25-Year Track Record
Welcome to the latest edition of Hidden Gems Weekly. In recent weeks, we have explored various opportunities across real estate, a soda ash player navigating a brutal commodity cycle, and a quiet engineering business. This week, we turn to something far less visible but equally essential to the industrial economy. Conveyor belts do not make headlines, but without them, mines stall, cement plants slow, and power stations grind to a halt.
In Indian manufacturing, longevity is often underrated. Many companies start with ambition but struggle to survive through commodity cycles, policy changes, and periods of muted demand. However, Somi Conveyor Beltings has spent 25 years defying these challenges. It has stayed in business, expanded capacity in phases, and built lasting relationships with customers who value reliability over novelty. This track record alone speaks volumes about the kind of business it is.
Somi Conveyor Beltings specializes in manufacturing rubber and steel-based industrial conveyor belts. These belts are not discretionary purchases; they are essential to industries that keep the Indian economy running but rarely attract investor attention. Mining, cement, steel, power generation, and bulk logistics all depend on conveyor systems to function at scale. When these belts fail, production halts. When they work well, they disappear into the background. This invisibility is both a curse and a strength for Somi Conveyor Beltings.
The company commenced commercial production in February 2002 at its Sangaria industrial unit in Jodhpur, Rajasthan. Since then, it has grown steadily through incremental capacity additions and diversification. Over the past five years, the business has registered a sales CAGR of around 17%, with profits rising at a similar pace. These numbers highlight consistency, a significant achievement in a cyclical industrial business.
Growth for Somi Conveyor Beltings has been characterized by careful addition rather than rapid acceleration. The company has expanded manufacturing capacity through multiple phases, particularly at its Tanawara unit in Jodhpur, Rajasthan. New production lines were introduced when demand visibility improved, not ahead of it. Steel cord conveyor belts were added to cater to heavy-duty applications in mining and power, and mixing and compounding capacity was expanded to support higher-grade products and timely execution. Each step was taken with an eye on utilization rather than unbridled ambition.
Conveyor belting is a cyclical business, with demand closely tied to capital expenditure in mining, cement, and power. When these sectors slow, volumes can dry up quickly. Companies that overbuild capacity during good times often find themselves in distress when the cycle turns. Survival, therefore, depends on timing and discipline. Somi Conveyor Beltings has demonstrated this by focusing on cost control and operational efficiency, maintaining stable margins even during challenging periods.
FY25 was a year marked by global headwinds, inflationary pressures, and fluctuating raw material costs. Despite these challenges, Somi Conveyor Beltings reported revenue of Rs 101 crore and a profit of Rs 5.46 crore. While revenue fell slightly year-on-year, profitability improved, with margins rising to 10.3% from 8.6% the previous year. The company's focus on cost control and operational efficiency ensured that profitability remained stable, even as demand eased.
Client relationships play a crucial role in sustaining Somi Conveyor Beltings' business model. The company has supplied conveyor belts to entities such as National Thermal Power Corporation, Neyveli Lignite Corporation, and Maharashtra State Power Generation Company, among others. These are not transactional customers; vendor registrations take years, and repeat orders come from performance rather than pricing. Once trust is established, it becomes a competitive moat.
The company’s client base is well-diversified across mining, cement, steel, power, and logistics. While all these sectors are cyclical, they do not move in perfect sync, helping to smooth demand volatility. Governance and capital allocation are equally important. The board reflects a promoter-led structure but is professional in its day-to-day decision-making. Independent directors play a meaningful role, and key committees are chaired by non-executive members. This structure helps the company avoid the pitfalls of overexpansion and excessive leverage, ensuring long-term sustainability.
The annual report emphasizes broader trends such as infrastructure development, industrial automation, and green energy projects as demand drivers for high-performance conveyor systems. The company positions itself as well-placed to participate in these trends, not to dominate. This approach reflects a deep understanding that conveyor belt manufacturers respond to demand rather than shape it. The best they can do is ensure that when demand arrives, they are ready with capacity, quality, and execution.
Valuation reflects this balance between durability and expectation. At a market capitalization of about Rs 136 crore, Somi Conveyor Beltings trades at roughly 31 times trailing earnings. This may seem high for a cyclical industrial business with a return on equity of 7.44% and a return on capital employed of 10.4%. However, the stock has typically traded closer to a 28 times multiple over the past five years, suggesting that the market already prices in steady execution.
For investors, the temptation is often to look for companies that promise rapid expansion or structural disruption. Businesses like Somi Conveyor Beltings rarely offer such narratives. Instead, they offer the ability to endure. Endurance is an underappreciated asset in Indian manufacturing. Surviving commodity cycles, managing raw material volatility, and retaining customers through slowdowns require discipline. It requires saying no more often than saying yes. Somi Conveyor Beltings stands as a reminder that not every successful business announces itself loudly. Some simply stay relevant, year after year, cycle after cycle, doing the unglamorous work that keeps larger industries moving.
In markets obsessed with speed, this kind of longevity is easy to overlook. But it is rarely accidental. For investors looking for a reliable, steady performer in the industrial sector, Somi Conveyor Beltings is a hidden gem worth considering.
