|
MIC Electronics
A monopoly in a fast growing business
The company’s LED business has tremendous growth prospects and little competition, which will help the company to continue to grow at a high rate for next couple of years
| MIC Electronics |
| 532850 |
| MIC |
| MIC@IN |
| NA |
| Rs 604 / Rs 210 |
| Rs 525 (as on 26th September 2007) |
MIC Electronics is focused on business of design, development and manufacturing of LED Video Display systems. MIC is also into telecom products for wireline and wireless applications with focus on telecom software. Of late, the company has also forayed into LED lighting and embedded energy management solutions for power sector. With power saving being a top priority in the country, MIC will get huge benefits from its business of power saving LED based technology which provides very cost effective and high impact display and lighting solutions.
Thus broadly the business can be divided into media, information technology (IT), and communications and electronics. This is how the name MIC has been derived.
The media group is primarily responsible for the development, production and sales of video displays, text, graphic animation displays and display services including lease/rental of LED (light emitting diodes), and indoor/outdoor video walls. The company also plans to venture into LED based flat screen televisions and LED digital theatres.
Notably, the company is more of an embedded software and solutions company and less of an hardware company. The company imports most of its hardware requirement.
Huge untapped market
There is a tremendous scope in outdoor and indoor LED video walls and in digital display screen business. Lot of advertising is happening through such digital screens, which is very economical, eye-catching and consumes least power.
The market for outdoor video wall in India is USD $ 552 M and is expected to reach US $ 861 M by 2010, at CAGR of 12%. Whereas Indian out of home advertising market is projected to grow from current 10.5 billion rupee to 17.5 billion rupee by 2010 at CAGR of 14%.
Also the company is into LED signage business where, LED based technology is used to show the direction of arrows, kms, distance etc. LED signage market is expected to grow at 26% p.a. The use of signages is increasingly finding place in all forms of public communication.
The LED display/lighting is finding applications in advertising, shopping malls, product launches, sport stadiums (in twenty twenty world cup), sport perimeter, musical concerts (Indian Idol show),
The Indian live entertainment industry is expected to grow at a high rate of 18% p.a, to reach to 18 billion rupee by 2010. In some cases if screens are run on solar LED display technology virtually there is no need for power.
The current global LED display market size is around US$ 3.55 billion and is expected to reach US$ 3.9 billion by 2007. The LED market has shown a CAGR of 15.98% from FY 2004 to FY 2007. Internationally, LED display renting is one of the fastest growing segments in the live entertainment industry, with a size of around US$ 210 million and is expected to grow by 12.5% year on year. LED renting industry is expected to be around US $ 210 M and expected to grow by 13% p.a.
In line with global trend, Indian market is also growing fast. The company has just started development of LED based screens, which will be leased out to various distributors from where the company will earn the rental income. Of the 30 screens planned, 26 screens will be rented out by Dec’07 and the balance by Mar’08. These contracts have already been signed for 15-18 years. One can expect rental income of Rs 2 lac per day. The entire LED screen has a pay back period of 2 years.
The company has virtually a monopoly in LED business in domestic market, as there are no domestic players in the business. Further couple of international players has tried to capture some share in the market, but have not been successful. Infact, the company is capturing the share of its competitors in international markets.
The order book stands at Rs 170 crore as on July’07 as against Rs 65 crore in the corresponding previous period.
LED lighting offers a new growth avenue
The pace of change in the world's lighting industry is accelerating dramatically; LED technology and applications are major contributors to this change in Rural Lighting. LED is the light of the future in Rural and home lighting for indoor / outdoors. This technology can light an entire rural village with less energy than that used by a single conventional 100 watt light bulb.
MIC's Industrial Lighting Products (LED Lights) are useful for industrial work areas, warehouses, storage facilities. MIC's Industrial LED Lighting products help reducing over-all lighting energy costs by up to 40%, when compared to normal light sources, as they are less power-consuming equipment. LED lighting Products produces the same amount of brightness as other sources of lighting but has a 100,000 hour life span.
By taking the basic advantages of LEDs in General Lighting products, MIC is making the Railway Lighting Products by highlighting the feature of Solid-state technology which gives the unique feature of 'Vibration & Impact Resistance". MIC's Railway Lighting products are designed with specialization in engineering for better housing of the LEDs and/or LED Lights.
LED lighting can be used in railways to replace night lamps, berth number indication lamps, signal lighting, door and path way lighting, coach lighting, coach emergency lighting. The company already has orders worth Rs 8 crore for lighting the AC coaches in railways. The company has identified the market of worth more than Rs 10 bn for LED lighting in railways. This can lead to power savings in a tremendous way. It is negotiating in a big way with the railway department to allow the LED lights in all the long distance trains.
The company is also in negotiations with various state governments, to convert all the fluorescent lamps and streetlamps into LED based lamps. Particularly, where the national grid is not present, using solar energy as a medium coupled with LED technology, the company can generate light at a minimal cost.
Similarly it can be used in aeroplanes as well. Kingfisher airlines use LED lighting purchased from the company in all its aeroplanes. The company is in negotiations with many other airlines for the same.
Further the company is in negotiation with Reliance Energy to convert all the streetlights in Mumbai into LED display lights. Also negotiations are going on with REL for other various LED based applications. This also includes laying a transmission network and setting up LED based electricity meters.
Going global
MIC Electronics had raised Rs 76.50 crore through IPO intended to set up an additional facility to manufacture LED boards, invest in LED video display systems used for rental/leasing, upgrade products, beef up R&D of LED/LCD/plasma/3D stereoscopic displays, augment the sales network across the country and overseas, and acquire the remaining 45% stake in Infostep Inc, US, expand operations, explore overseas opportunities, and meet working capital requirements and public issue expenses.
The company has recently acquired InfoSTEP, a US based company which provides various value added software services such as business intelligence ( architecting, development of data warehouse), survey management services ( marketing research and consulting), risk management services, enterprise appliation services (customer relationship management, SCm, product life cycle management) etc. The company has an order book position of Rs 3.6 crore of fixed price contracts and US $ 85 per hour of variable price contract.
The company so far has invested around Rs 15 crore of the proceeds in new facility in Cherlapally, Hyderabad for manufacturing LED boards and Rs 21 crore has been utilized for acquisition of InfoSTEP INC. USA and other overseas developments. The company is having unutilized IPO proceeds of Rs 30 crore, which it will utilize for further expansion in LED business.
The company is also looking to tap the LCD display screen device market in US and other development markets through InfoSTEP. According to a survey, LED display screen device market is as huge as US $ 150 bn in US. There are lot of players already existing in this business. However the market is so huge that every player has its own pie of the market. Also the company has an advantage of embedded software skills at lower cost. The only thing that company imports is the hardware screen devise.
Telecom and communication business also has good prospects
The communications and electronics group has diversified products including the digital loop carrier (DLC) on optical fibre on synchronous digital hierarchy (SDH) ring, broadband DLC for triple play (voice/video/data) applications, code division multiple access (CDMA)/global system for mobile communication (GSM)-based wireless in local loop (WLL) terminals and phones, hand-held computers (HHC) with in-built GSM/CDMA modems. These products find application in the telecommunication network of telecom operators. The company is importing most of these products. The company provides the after sales and maintenance service.
MIC’s telecom software solutions is an embedded software service which provides cost effective, user friendly and reliable solutions to wide variety of complex requirements of telecom service providers, railways in telecom switch access modules, heterogeneous and homogeneous network elements, computer telephony etc. The company provides various software services like interconnecting billing service, CDR data collection systems, teleconference solutions, prepaid calling card services, automatic payment reminder services, automatic telephone bill enquiry, fax services and such other I- Computer technology services. However with severe competition, the margins in this business is low
More revenues from high margin business going forward
Presently, the company derives nearly 2/3rd of its revenues from telecom segment and the balance from media segment. The margin from telecom segment is very low as it involves lot of hardware sales with lower value addition. The margin from media segment is hovering in the range of 25-30%. The LED lighting business has even higher margin of around 35%. Going forward, with most of the initiatives and development happening at high margin media (LED) business, the revenues from media (LED) segment will be around 50% by FY’08 and around 65% by FY’09. The company is under MAT (Minimum Alternative Tax for 5 years that ends on 2011-12. The company expects to grow its bottomline at a CAGR of minimum 50% for next couple of years.
Financials are already growing every quarter
For the quarter ended June’07, the net sales grew by 142% to Rs114.45 crore. The infotech business restricted the OPM% to 20.1%, which restricted the overall growth in OP to 85% to Rs 22.97 crore. After providing interest and deprecation and tax of Rs 0.57 crore, Rs 0.42 crore and Rs 3.90 crore, the PAT stood at Rs 18.08 crore, up by 77%.
For the year ending June’07, the net sales grew by 130% to Rs 239.66 crore and PAT grew by 107% to Rs 31.95 crore. The sales from media group grew by 151% to Rs 80.20 crore and from Infotech business grew by 120% to Rs 159.46 crore. The PBIT margin from Media segment stood at 34% and PBIT stood at Rs 27.50 crore, up by 180%. The PBIT margin from Infotech & Communication business stood at 8% and PBIT stood at Rs 12.72 crore, up by 24%.
Valuation
For FY’08 ending June, we expect the company to register net sales and PAT of Rs 385 crore and Rs 31.95 crore. This gives an EPS of Rs 24.8 for FY’08. The earnings are likely to grow at a CAGR of above 50% in future without any equity dilutions (as the company’s business does not involve much capex requirements). At current market price of Rs 525, the P/E is 21, which is reasonable considering the low-capex, skill-oriented, high growth nature of its business.
| |
0406 (12) |
0506 (12) |
0606 (12) |
0706(12) |
0806(12P) |
| Net sales |
13.23 |
24.92 |
104.41 |
239.66 |
385.00 |
| OPM (%) |
12.8 |
16.1 |
19.2 |
16.8 |
16.1 |
| OP |
1.69 |
4.00 |
20.07 |
40.22 |
62.00 |
| Other Income |
0.13 |
0.02 |
0.00 |
0.00 |
0.00 |
| PBDIT |
1.82 |
4.02 |
20.07 |
40.22 |
62.00 |
| Interest |
0.72 |
1.49 |
1.74 |
2.44 |
3.17 |
| PBDT |
1.10 |
2.53 |
18.33 |
37.78 |
58.83 |
| Depreciation |
0.67 |
0.71 |
1.58 |
1.68 |
2.08 |
| PBT |
0.43 |
1.82 |
16.75 |
36.10 |
56.75 |
| Tax |
0.10 |
-0.33 |
1.30 |
4.15 |
6.81 |
| PAT |
0.32 |
2.14 |
15.45 |
31.95 |
49.94 |
| EPS (Rs.)* |
0.2 |
1.1 |
7.7 |
15.9 |
24.8 |
*Annualised on current equity of Rs 20.13 crore of face value of Rs 10 each
(P): Projections, Figures in crore, Source: Capitaline Corporate database |
| |
0706(03) |
0606(03) |
Var % |
0706(12) |
0606(12) |
Var % |
| Net Sales |
114.45 |
47.22 |
142 |
239.66 |
104.41 |
130 |
| OPM % |
20.1 |
26.2 |
|
16.8 |
19.2 |
|
| OP |
22.97 |
12.39 |
85 |
40.22 |
20.07 |
100 |
| Other income |
0 |
0 |
0 |
0 |
0 |
0 |
| PBIDT |
22.97 |
12.39 |
85 |
40.22 |
20.07 |
100 |
| Interest |
0.57 |
0.48 |
19 |
2.44 |
1.74 |
40 |
| PBDT |
22.4 |
11.91 |
88 |
37.78 |
18.33 |
106 |
| Depreciation |
0.42 |
0.41 |
2 |
1.68 |
1.58 |
6 |
| PBT |
21.98 |
11.5 |
91 |
36.1 |
16.75 |
116 |
| Tax |
3.90 |
1.3 |
200 |
4.15 |
1.3 |
219 |
| PAT |
18.08 |
10.20 |
77 |
31.95 |
15.45 |
107 |
| EPS* |
|
|
|
15.9 |
7.7 |
|
*Annualised on current equity of Rs 20.13 crore of face value of Rs 10 each
Figures in crore, Source: Capitaline Corporate database |
| |
0706(03) |
0606(03) |
Var % |
| Segmental revenue |
|
|
|
| Media |
80.2 |
31.95 |
151 |
| Infotech & Communication |
159.46 |
72.46 |
120 |
| Total |
239.66 |
104.41 |
130 |
| |
|
|
|
| PBIT |
|
|
|
| Media |
27.5 |
9.83 |
180 |
| Infotech & Communication |
12.72 |
10.24 |
24 |
| Total |
40.22 |
20.07 |
100 |
| Less: Interest |
2.44 |
1.74 |
40 |
| Less: Depreciation |
1.68 |
1.58 |
6 |
| |
|
|
|
| PBT |
36.10 |
16.75 |
116 |
| Figures in crore, Source: Capitaline Corporate database |
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