XL Telecom & Energy Ltd - Rs 29.00

XL Telecom & Energy Limited (XL) was originally incorporated as a private limited company in 1985 to manufacture and deal in cable splices, manufacturers of protection equipment and allied accessories for electronic telephone exchanges and other establishments. Subsequently in 1990 it got converted into public limited company and then gradually emerged as one of the fastest growing telecom equipment manufacturers. Simultaneously, during 1994 it also got itself engaged into solar energy sector although at a small scale. Thus it has been pioneer in solar module manufacturing with a rich experience of almost 15 years. Of late, to cash on the huge opportunity XL has aggressively moved on to non conventional energy business especially solar photovoltaic segment. Accordingly, the energy segment which constituted 55% of total sales last year, now contributes nearly 90% of revenue. Apart from solar energy company also has interest in ethanol production. Broadly company has divided its revenue model into two segments.

A. Energy Segment: This is sub categorized into following two divisions:

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  Solar Photo Voltaic Systems Division: This division now forms the core business and major revenue driver for the company. It makes solar photovoltaic modules / panels of various capacities ranging from 5Wp to 280Wp catering to domestic and international customer requirements. Starting with initial module manufacturing capacity of 24MW in 2005, XL has last year increased the capacity multifold to 180 MW. Moreover it is in the midst of setting up a huge Greenfield plant at Fab City (SEZ), Hyderabad under a capex of Rs 360 cr. With this it will add another 40 MW module manufacturing capacity thereby taking the total to 220 MW. Besides, to get itself backward integrated, XL is putting up a solar cell manufacturing facility with a rated capacity of 120 MW. The capex has been fully funded and the plant is expected to begin commercial operation within this calendar year. Along with this backward integration company has also moved up in the solar value chain by going into solar energy power generation through grid connected solar farms. During Oct 2008, its 100% subsidiary in Europe- ‘Saptashva Solar Ltd’ has established the first solar farm in Spain with an installed capacity of 1.60 MW, thereby perhaps XL becoming the first and only solar manufacturing company in the world to capture the complete solar value chain of – Solar cell to module to system to solar farm or power generation. It has also signed the power purchase agreement for 25 years with the Spanish utility company which ensures stable revenue. Importantly, Saptashva is looking for establishing series of such “Solar farms” across Europe which may lead this subsidiary becoming the largest customer for the holding company in terms of solar panels and EPC services. Infact, XL is very bullish of getting into EPC segment of solar farm establishment and has internal target to set up so many solar farms generating as much as 300 MW over next three years. On the other hand, recently company’s one of the end customer commenced operation at its largest 30 MW solar park using XL’s exported solar panels which proves the company’s credential.

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  Ethanol Division: Earlier company had aggressive plans about this division but with the drastic fall in crude oil price and unfriendly approach of govt, XL has decided to go slow. It has an ethanol fuel facility at Nanded in Maharashtra with a production capacity of impressive 1.5 lakh litres per day. The plant has been inspected and cleared technically by oil companies both in terms of capacity evaluation and the quality of the product being produced. In order to meet the raw material requirement for ethanol production, company is contemplating to establish the distillery unit for which it has already incurred about Rs.27 cr out of total planned capex of Rs.72 cr.
  

B. Telecom Segment: This segment use to be the main business for XL earlier, but due to saturation in Indian market and better opportunities in energy sector, company reduced its focus and efforts towards telecom. But still it continues to manufacture / market following products depending upon the demand scenario.

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  CDMA Handsets & Fixed Wireless Phone: XLTEL is the first Indian company to setup a manufacturing facility for CDMA mobile handsets in India, as an independent company. It has established only “ASSEMBLY” facility for manufacture of mobile phones in partnership with KYOCERA Inc of USA and has a capacity of about 35 Lakh handsets per annum. It is supplying multiple models to all CDMA Operators like BSNL, MTNL, TATA and Reliance. Similarly it has established partnership with AXESSTEL of US for Fixed Wireless Phones with BSNL as its main customer.

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  Switch Mode Power System : Under technology transfer from SMPS de Austria XLTEL manufactures and offers a full range of SPMS needed by telecom operator in their exchanges as well as BTS stations in the mobile segment

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  Outside Plant Accessories: Company has been a supplier of joining kits, optic fibres accessories, fusion splicers etc for over two decades and enjoys nearly 40% market share in joining kit business. Its plant at Hyderabad with a capacity of 20,00,000 Heat shrink sleeve & 5,00,000 cable jointing kits is setup in technical collaboration with Corning Inc.

Solar power is fast emerging as the most viable and eco-friendly power generation option for tomorrow with no moving parts, no noise and zero emissions. Solar power systems are used for a variety of residential, commercial and industrial applications generally described as either 'on-grid' or 'off-grid' in nature. The market for 'ongrid' applications, where solar power is used to supplement electricity purchased from the utility network, represents the largest and fastest growing segment of the market And as company’s most of the products are used in on-grid applications, XL’s focus remains on emerging grid connected solar solutions as against conventional stand alone solar power systems. Thanks to technological breakthroughs, the generation and distribution cost of solar power has come down substantially, but still solar energy constitutes only a small fraction of the world's energy output. It is estimated that Spain, Italy, and France will drive the solar power demand in near future apart from Germany, Japan and US being the largest markets for solar photovoltaic demand. As per consensus among the global research organization, solar products are slated to register 40% CAGR for next 10 years

In order to fund its growth plans, XL raised nearly 59 cr in Dec 2006 thru IPO route @ Rs 150 per share, then approx 175 cr thru FCCB and simultaneously even allotted 52,50,000 warrants @ Rs 135. With part of FCCB and warrants already been converted, the equity share capital currently stands at Rs 18.80 cr. Ironically, company has recently reset the FCCB conversion price to Rs 160 per share from Rs 260 originally. Despite this the holders may not opt for conversion as the CMP is trading at huge discount. For year ending June 2008 it recorded 25% rise in topline to Rs 654 cr but net profit doubled to Rs 40 cr posting an EPS of Rs 21. Despite very poor performance for the Dec’08 qtr, its H1FY09 looks impressive with 40% and 60% growth in topline and bottomline to Rs 359 cr and 15.80 cr respectively. It may end the current fiscal with sales of Rs 700 cr and PAT of Rs 25 cr leading an EPS of Rs 13 on current equity of Rs 18.80 cr. Ironically, company’s bottomline is getting hit due to significant interest cost on the loan which it has borrowed for expansion. It seems instead of capitalizing the same, XL is writing off as a revenue expense. It has a capital work in progress of nearly Rs 250 cr against current gross block of Rs 55 cr. So the day new plant comes into full action, XL will report substantial jump in topline as well as bottomline. So investors are strongly recommended to buy at current levels as share price can triple in 24 months. However investors should note that company has high debt and receivables to the tune of Rs 378 cr (including FCCB) and Rs 224 cr respectively.

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