Cemtrex is a complicated business...

Here's an interesting company that has been going bananas of late.  From their website:

"Cemtrex Inc. (Nasdaq: CETX) is a world leading diversified industrial and manufacturing company that provides a wide array of solutions to meet today's technology challenges. Cemtrex provides advanced custom engineered electronics, emission monitors & instruments for industrial processes, and environmental control & air filtration systems for industries & utilities."

They operate primarily in two segments: Electronic Manufacturing Services and Industrial Products and Services, 

Here is what they say about the business in their 10-K:

Electronics Manufacturing Services (EMS)

Cemtrex, through its Electronics Manufacturing Services (EMS) segment, provides end to end electronic manufacturing services, which includes product design and sustaining engineering services, printed circuit board assembly and production, cabling and wire harnessing, systems integration, comprehensive testing services and completely assembled electronic products.

Cemtrex’s EMS segment works with industry leading OEMs in their outsourcing of non-core manufacturing services by forming a long term relationship as an electronics manufacturing partner. We work in close relationships with our customers throughout the entire electronic life of a product, from design, manufacturing, and distribution. We seek to grow our business through the addition of new, high quality customers, the expansion of our share of business with existing customers, and participating in the growth of existing customers.

Using our manufacturing capabilities, we are able to provide our customers with advanced product assembly and system level integration combined with test services to meet the highest standards of quality. Through our agile manufacturing environment we can deliver low and medium volume and mix services to our clients. Additionally we design, develop, and manufacture various interconnects and cable assemblies that often are sold in conjunction with our PCBAs to enhance our value to our customers. The Company also provides engineering services from new product introductions and prototyping, related testing equipment, to product redesigns.

Our ability to attract and retain new customers comes from our ongoing commitment to understanding our customers’ business performance requirements and our expertise in meeting or exceeding these requirements and enhancing their competitive edge. We work closely with our customers from an operational and senior executive level in order to achieve a deep understanding of our customer’s goals, challenges, strategies, operations, and products to ultimately build a long lasting successful relationship.

Industrial Products & Services (IPS)

Cemtrex, through its Industrial Products and Services segment, offers single-source services for in plant equipment erection, relocation, and maintenance. The segment also sells a complete line of air filtration and environmental control products to a wide variety of industrial customers worldwide. The segment also manufactures, sells, and services monitoring instruments, software and systems for measurement of emissions of Greenhouse gases, hazardous gases, particulate and other regulated pollutants used in emissions trading globally as well as for industrial processes. The Company also markets monitoring and analysis equipment for gas and liquid measurement for various downstream oil & gas applications as well as various industrial process optimization applications.

The Company, under the Griffin Filters brand, provides a complete line of air filtration and environmental control equipment to industries such as: chemical, cement, steel, food, construction, mining, & petrochemical. This equipment is used to: (i) remove dust, corrosive fumes, mists, hydrocarbons, volatile organic compounds, submicron particles and particulate from industrial exhausts and boilers; (ii) clean noxious and acid gases such as sulfur dioxide, hydrogen chloride, hydrogen sulfide, chlorides, and organics from industrial exhaust stacks prior to discharging to the atmosphere; and (iii) control emissions of coal, dust, sawdust, phosphates, fly ash, cement, carbon black, soda ash, silica, etc. from construction facilities, mining operations and dryer exhausts.

The Company through its AIS subsidiary offers one-source expertise and services for in plant maintenance, equipment erection, relocation, and disassembly to diversified customers in USA. AIS installs high precision equipment in a wide variety of industrial markets like automotive, printing & graphics, industrial automation, packaging, and chemicals among others.

The Company, under the MIP-Cemtrex brand, manufactures and sells advanced instruments for emissions monitoring, process analysis, and controls for industrial applications and compliance with environmental regulations. MIP-Cemtrex emission monitoring systems are installed at the exhaust stacks of industrial facilities and are used to measure the outlet flue gas concentrations of a range of regulated air pollutants to determine the quality of the air we breathe. Through use of the company’s equipment and instrumentation, Cemtrex clients can monitor the exhausts to the atmosphere from their facilities and comply with Environmental Protection Agency and state and local emission regulations on dust, particulate, fumes, acid gases and other regulated pollutants into the atmosphere.

MIP’s Laser Opacity monitor is used to determine opacity or dust concentration in stack gases. Cemtrex also provides direct-extractive and dilution-extractive CEMS (continuous emissions monitoring solutions) equipment and systems for use with utilities, industrial boilers, FGD systems, SCR-NOx control, furnaces, gas turbines, process heaters, incinerators in industries such as: chemicals, pulp and paper, steel, power, coal and petrochemical along with municipalities, state and federal governments. The Company provides a single source responsibility for design, engineering, assembly, installation and maintenance of systems to its customers. The Company’s products are designed to operate so as to allow its users to determine their compliance with the latest governmental emissions regulations.

Cemtrex also markets a range of crude oil and natural gas analyzers. These products provide real time measurement of various properties specific to the refining processes of oil and gas. Some of the properties include RON, salt and water content, pH, viscosity, and other critical parameters that can be used to improve the blending and refining processes. The analyzers are sold by refineries and similar facilities to optimize the yield of blended and refined product.

Here are some observations / thoughts:
1) The AIS acquisition brought in $23MM of revenues and $2.4MM of EBITDA (from their press release). That's an EBITDA margin of 10.4%. This makes sense for a business that installs high precision equipment. They do mention cross selling opportunities with their IPS business, but note the gross margin on their IPS business is 30%+, which is remarkable given the AIS margin was way lower.
2) The only clue I got from why their GMs are so high is in the CEO letter. He says they focus on attractive niche segments of the EMS and IPS markets. Definitely sounds like he has a strategy, so kudos to management for doing that.
3) I believe Periscope GmbH went bankrupt, so they were able to purchase assets at an attractive price. How replicable is that as a long term strategy?
4) A lot of their sales are in Southeast Asia and accounts receivables has swollen.
There are also some red flags here. The Indian auditor is one. Also there is too much hyperbole from the CEO about the size of the EMS and IPS market.

Overall, I can't get a good enough grasp of the business to really get bullish or bearish. The narrative is an attractive one, but unless you can get a good idea of what the competitive advantage of their product is (and how they will be able to defend those sky high Gross Margins) and what the associated organic growth of their businesses might be, it seems like you're just buying into the management story.

My sense from reading their 10-K, last 10-K, acquisition history, balance sheet, income and cash flow statement is that this is really a hodgepodge of two different business lines with little cross synergies: EMS and IPS. I think they made some smart acquisitions in their EMS segment (Periscope GmBH) and IPS segment (AIS). So their results have improved.

I have no idea why they have such high gross margins in either segment. There's a vague explanation in the CEO letter and 10-K ("EMS offers...outsourcing of non-core manufacturing services") but really not enough to understand what their competitive advantage is, nor how they will be able to maintain their high gross margins, which are anomalous vs. peers.

Growing a business through acquisition is very difficult, so the odds are against them. Growing organically is also difficult since they need a product that is competitively advantaged. Both require capital as a reasonable cost. If this business is going to be successful, it will need to provide more clarity on where sales are coming from (by product line) and how they intend to expand their customer base. Since I have no clarity on any of these things (except for bold claims from the CEO about the size of their target markets), I don't feel confident in the company. Hopefully, this helps you too. All the best.