Cash in on Stocks Pivoting to Ride the EV Era 

In just a decade, Airbnb has scaled up to offer an inventory of more than 4.5 m rooms. This is three times what Marriott managed to in 100 years. All of this has been made possible by its 'AI factory' which aggregates data and uses algorithms to match users to property owners.

Netflix personalises the experience of each of its over 150 m subscribers. Basically, each subscriber sees a different suggested watchlist. Effectively, analytics has helped create millions of versions of Netflix customised to subscribers. Something no traditional media company can match.

Similarly, in India, food delivery major Zomato, lifestyle company Titan and QSR company Westlife Foodworld (owning the McDonald's franchise in India) have customised their offerings to suit every region, culture and occasion. All with the help of technology.

Technological obsolescence has, in the past, made the biggest of the businesses redundant.

Kodak is of the most cited examples of a business losing relevance with changes in technology. But it is certainly not the only one.

Also, apart from technology, climate change and geopolitics also threaten to bring about certain dramatic shifts in traditional business models. These disruptions may not occur overnight. But they could certainly put several companies out of business unless they pivot.

Take the case of the auto ancillary businesses for instance. Industry changes present automotive suppliers with a significant opportunity to reshape their businesses and modernize their business models.

For example, the transition to EVs will cause profit pools to shift from traditional internal combustion engine (ICE) components to e-drive modules and systems.

This point is further illustrated when we consider that a typical ICE drivetrain has roughly 2,000 moving parts compared to an EV which often has just around 20.

Therefore, most auto ancillary companies will need to invest in modification.

They primarily have two choices here:

• Either invest in R&D to launch products catering to the EV value chain or
• Diversify and cater to alternative and emerging business models

Turns out that several leading auto ancillary companies are turning towards the latter option. They are pivoting away from the disruption in the auto industry and the uncertainties of the success of the EV launches.

The Big Pivot

Bharat Forge, for instance, was one of the earliest companies in the space to recognise the urgency to shift.

For twelve years, between 2010 and 2022, Bharat Forge invested over Rs 7 bn on designing weapons, guns, armoured vehicles and ammunition. But there was practically no order book certainty or revenue to show.

Things began to change when the government focused on indigenizing defence production stating 2014.

Defence procurement policies that were obstacles to private sector participation were gradually replaced by those that encouraged it. The ban on defence imports and private sector participation in defence allowed companies like Bharat Forge to invest in capacities.

Over the years, Bharat Forge invested in designing, prototyping and developing some cutting-edge defence products. So, it now finds itself in a sweet spot with its defence business primed for growth.

While the defence vertical still accounts for less than 10% share of Bharat Forge's total revenue today, the management expects that annual contribution to rise seven-fold by 2030.

Similarly, Castrol India, has been an indispensable player in the global internal combustion (ICE) auto industry with its lubricant offerings. It has been part of the Indian lubricant industry since 1910.

Castrol India specialises in manufacturing and marketing a wide range of automotive and industrial lubricants. Its product portfolio includes engine oils, transmission fluids, and speciality products for various ICE vehicles.

But the company has seen sales truncate with the rise of electric vehicles.

So, with the threat of ICE vehicles getting obsolete looming large, Castrol was on its way to becoming the next Kodak.

But that may not be the case with the recent pivot in the company's business model.

The lubricant company has now set sights on data centres as a significant new growth avenue. In fact, it has identified data centre thermal management as a key area for future participation.

It aims to address one of the most critical challenges facing data centre operators today: the need to effectively manage heat generated by increasingly dense and powerful hardware.

The rapid expansion of data centres, driven by the increasing demand for cloud services, AI and big data, has created a pressing need for advanced cooling solutions.

Castrol India is leveraging its deep expertise in fluid technology to develop innovative products that meet these demands.

With data centres projected to become some of the largest consumers of energy worldwide, efficiency and effective thermal management will be critical. To support its expansion into the data centre industry, Castrol has made significant investments in R&D for data centre cooling solutions.

With the rise of AI and machine learning, data centres are being equipped with more powerful processors, which generate significantly more heat.

Liquid cooling, being more effective at heat dissipation than air, is gaining traction as a solution to reduce emissions and lower energy costs.

Despite some resistance to adopting these new cooling techniques, interest in liquid cooling is growing.

Castrol sees a huge opportunity to diversify into industrial thermal solutions for data centres, recognising the sector's potential for significant growth.

To put things in perspective, India's overall data centre capacity is anticipated to double by 2026.

Major investments from Amazon (AWS), Walmart and Google (commitment of US$ 10 bn to the India Digitization Fund), underscore India's strategic importance as a data centres hub. As the demand for cooling solutions intensifies, Castrol India is well-positioned to capitalize on this opportunity.

So, think twice before writing off every company in the traditional ICE automobile ecosystem as the next Kodak. For all we know, few of these could be next multibaggers in the making.

Hope you like this video. Thanks for watching.