Shares in air conditioner company Tadiran Group have without doubt been one of the best investments on the Tel Aviv Stock Exchange in the past decade, rising by no less than 7,000%, and bringing the company to a market cap of nearly NIS 4 billion. The biggest gainer from this phenomenal return is Tadiran's controlling shareholder and CEO Moshe Mamrud (69), with a 64% stake currently worth some NIS 2.4 billion.
Nevertheless, Mamrud says that realizing any significant proportion of his holding is not on the agenda as far as he is concerned. He says that the Tadiran still has plenty of room to grow, both in its existing air conditioner business and in synergetic activities, chiefly in renewable energy, an area the company has entered in the past few years through a number of substantial acquisitions.
"I don’t think that Tadiran's share price is high in relation to where our business stands," Mamrud told "Globes". "I'm very optimistic about the directions the company is taking, proud of the decisions to exit some businesses, and, looking forward, I see very strong numbers in the coming years, and I'm convinced that anyone who invests in the company will see good value.
"When we reached a market cap of NIS 1 billion, I was told 'You should sell shares, that won’t repeat itself.' I said at the time, 'No way,' and the same thing when the company reached NIS 2 billion and NIS 3 billion, and now it's nearly at NIS 4 billion. The music can't be stopped. We're moving forward, I feel that we're in the right businesses, and I get up each morning with the enthusiasm of a sixteen year-old. I'm not an opportunist, but the builder of a company for the long term."
What about bringing partner into the business?
"I've been married for 40 years to the best partner in the world, my wife. I don't want more partners. I think that the company is run in exemplary fashion. The company is liquid and doesn't need cash, and isn't jumping into anything that isn't in its core businesses. I need to continue to make sure that Tadiran continues to grow and be good for my investors."
"Italian acquisition - an important day for Tadiran"
Tadiran's core business is importing, marketing and selling air conditioners. The company also deals in manufacturing and development, and in maintenance of air conditioners, chiefly under the Tadiran brand, and also under the Amcor, Toshiba, and Spectra brands. In addition, the company imports, markets and distributes electrical appliances under the Amcor and Crystal brands, an activity it may sell in the future.
In the past few years, the company has been determinedly expanding its activity in renewable energy, and within less than two years it has made acquisitions to the tune of NIS 300 million. The latest deal, which Tadiran completed last week, is the acquisition of control (60%) in Italian renewable energy company VP Solar, for €32 million (NIS 115 million).
Mamrud: "Completion of the takeover of the Italian company is a special and important day for Tadiran, because it thereby becomes an international company, and from here we start moving towards Europe, in line with our strategy and thinking. VP Solar is strong in solar energy, and the biggest energy storage company in Italy, with about a third of the market.
"Today, Tadiran focuses on several strong areas. We read the market and understood that it was looking for as many alternative source of energy as possible, and accordingly, two years ago (May 2020), we presented a strategic plan concerning the areas that we would focus on, which, besides air conditioning, included expanding to Europe, entering renewable energy, and dealing with air pollution.
"We bought businesses, and put our hands on the right companies to acquire, which we estimate will help us reach annual turnover of NIS 2 billion in 2022, even though when we presented the plan we set a goal of reaching turnover on that level within five years."
With the support of the acquired businesses, Tadiran saw a 36% rise in revenue in the first nine months of 2021 in comparison with the corresponding period of 2020. Revenue reached NIS 1.1 billion, while net profit grew 31% to NIS 111 million.
"To make money, and also save the world from destruction"
A substantial acquisition that Tadiran made in early 2021 was of 75% of Eliran Solar from its founder Eliran Tyito for NIS 55 million. Within the past few weeks, Tadiran has bought the remaining 25% of the company for a much larger sum, of up to NIS 90 million, so that Tyito has ultimately made an impressive NIS 150 million exit.
Eliran Solar sells products for solar energy systems, such as panels, aluminum installation infrastructure, devices for producing maximum power from the panel, current converters, and other accessories.
How do you explain the jump in the valuation at which you bought the company?
Mamrud: "Tadiran Solar is a company that, according to the results for January to September 2021, generates annual revenue of NIS 400 million, with a profit of NIS 40 million. We had a call option on the shares, and after I had studied the company well since the acquisition, I asked the founder, Tyito, if he would like to bring the sale forward. We quickly reached an understanding, because he felt that done all he could and wanted an exit.
"Tadiran Solar (Eliran) sells to installers in Israel all the equipment needed for solar power installations, from the smallest screw to the largest panel, exactly as needed. It's like Tadiran Air Conditioners, which sells air conditioners to anyone who needs them, but doesn't do installation. After the acquisition, I moved it to a new place in Kiryat Gat, and built it in accordance with Tadiran's language. We'll develop products of our own that will generate as much power as possible from as little sunshine as possible.
"We're a leading player in the home solar market. Today, anyone who has a house, a warehouse, a logistics center, or other property, and doesn't put solar panels on the roof, it's as though they're throwing money away. This is a business in which you can both make money and save the world from destruction. Everyone should take this personally, and help to produce electricity from the sun instead of polluting. Today, if you put solar panels on your roof, the state commits to buying electricity from you for twenty-five years, so you can return the investment within six to seven years."
"We'll go into energy storage at full speed"
Through Tadiran Solar, the group has also acquired energy storage company Aviem Systems for NIS 30 million. The acquisition price could reach NIS 56 million, depending on future performance.
Mamrud: "The combination with it and the acquisition in Italy give us an advantage. The next thing for us in energy is to go into storage at full speed. In Israel, revenue in the storage market in 2021 was negligible; estimates for this year are that sales in this market will be $100 million, and the expectation is that within seven to ten years the energy storage market could reach NIS 6-7 billion."
What's your formula for a successful acquisition?
"Sometimes, even when you can see synergy with potential companies, in practice, after the acquisition you encounter lots of problems, mainly because of the owners. But we've made good acquisitions with good people. I'm good at sizing people up, and where I spot a good person, I buy."
What about the risks?
"Tadiran is in a safe business - if the sun shines, the company will flourish. People will have to continue using air conditioning, the world is pushing towards alternative energy, and pollution creates demand for treatment."
"Air conditioning has become a basic consumer product"
With all due respect to the renewable energy business, Tadirna's bread and butter and the basis of the rapid growth in its profits and value is air conditioners, in which the company has been active since 2009, when it bought the activity of Tadiran Consumer Products (then called Crystal Consumer Products) from US company Carrier for just NIS 16 million.
Does the entry into renewable energy indicate that you project limited growth in the air conditioners business?
Mamrud: "Certainly not. There's a huge opportunity in the air conditioners market, for several reasons. In the past two or three years, air conditioning has become a basic consumer product. When I bought Tadiran (in 2009) it was considered a luxury, for people with average income and above. What has fueled our growth is that air conditioning has become the main thing in the home.
"Tadiran's factory in Afula specializes in producing a mini-central air conditioner for the whole home, and this factory currently works round the clock, except on Shabbat, because demand is crazy. In every home and office people want to install this type of air conditioning, and the market is growing stronger. Apart from that, we import wall-mounted air conditioners from China.
"Construction is taking place in Israel at a crazy pace, and it's also exceptionally worthwhile replacing old air conditioners with new ones, because the old ones are power guzzlers and noisy, whereas the new ones are economical and quiet. The replacement market is limitless.
"Tadiran has two million air conditioners installed in homes in Israel, and every year we put 400,000 air conditioners on the market."
Do you intend to sell air conditioners overseas as well?
"When I bought Tadiran, I decided to operate only in the local market and to halt the export activity, because it wasn't built correctly and well. At that time, I didn’t see a partnership with which to do international business, and the payment ethic wasn't to my satisfaction. I work for the long term, and today I want to go into Europe through acquisitions and build up a business. This is one of the reasons that we bought the Italian company. This is a longstanding business that specializes in solar energy and also deals in heat pumps, and has started to deal in air conditioners. Italy is the biggest market in Europe for air conditioning, and my vision is that this company will be just like Tadiran in Israel. It will have all the legs - solar energy, heat pumps, and air conditioners - and it will be a platform for air conditioning activity all over Europe."
"We're becoming a player in environmental quality as well"
Mamrud sees part of Tadiran's growth potential in the air purification activity that it is developing. "Tadiran is becoming a player in environmental quality as well. Five years ago, when I saw that I led in air conditioners, I thought, what else can be done with it besides warming and cooling, and we decided to go for air treatment. We developed a product that sits in the air conditioner and can clean a space of viruses (including the coronavirus), dust, and other things, protecting children and old people. Our capabilities are backed by all the labs in the world.
"We're going to offer a product that has all the means of cleaning the air rapidly, and not at a high cost, up to NIS 1,000, and without maintenance. You install it in the air conditioner, and for several years it will deal with the cleanliness of the air in the home. We have set up a separate division for this activity, and we'll shortly put the products on the market. We already have more than twenty contracts around the world, a representative in the US who committed to buy air purification components to the tune of $70 million, and agreements in Japan, Italy, Korea, and other places."
Published by Globes, Israel business news - en.globes.co.il - on January 30, 2022.
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