MIC Electronics Ltd - Rs 28.00

Established in 1986, MIC Electronics Ltd (MIC) is a pioneer in design, development, manufacture & supply of true color LED Video Displays, LED Lighting products and solution. Infact, it is the only integrated LED display manufacturer in India with design-to-manufacture capabilities. Hence it has virtually a monopoly in LED business in domestic market. An LED (light-emitting diode) is usually a small area of less than 1 mm2 light source, often with optics added directly on top of the chip to shape its radiation pattern and assist in reflection. The technology behind LED is based on semiconductor technology, which is also the basis of modern computers. Importantly, MIC has collaboration with Nichia Corporation Japan, which is the global leader in LED technology with 33% market share worldwide. Apart from LED business, MIC also deals in high end electronics and telecommunication equipments and is also engaged in development of telecom software. Presently, company is deriving more than 70% of revenue from LED division where as the balance comes from electronics and telecommunication division. Notably, the company is more of embedded software and solutions company and less of an hardware company as it imports most of its hardware requirement. Based on the application, MIC has broadly segmented its operation into following three categories

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  LED Display: This segment comprises the development, production and sales of video displays, text, graphic & animation displays. Its outdoor and indoor portfolio ranges from display sizes of 90 inch to video walls/large format display size of 512 inch. LED displays are immensely popular because of their programmability, making targeted marketing and interactive interfacing possible. Like websites, they can be networked and updated remotely with fresh and topical content. These displays find vast application in outdoor/indoor advertising, railways, malls, banks, sports events, live entertainment, award functions & stock exchanges. Company even offers LED displays for rentals during election rally meetings, music concerts and weddings on a small scale. It has launched a huge 120 inch LED TV for close viewership, primarily targeting malls and corporate boardrooms. Other products include LED/LCD based 3D display systems.. Remarkably, it has introduced "Mobile LED Video Display" concept in INDIA and has its premier product named as 'DigiWheel' which is now available in trailer model and truck model. Company is also into LED signage business where, display is used to show the direction of arrows, kms, distance etc. It is already executing an order for LED Variable Message Signs (VMS) for highway projects in Andhra Pradesh & Tamil Nadu worth 8 cr.

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  LED Lighting Solutions: LEDs represent the most energy and cost-efficient lighting source, consuming 10 times less power than CFLs (compact florescent lamps). Moreover the annual running cost of LED lighting is 50% lower than CFLs, with no replacement required for a minimum 11 years. With increasing volume and improving technology the manufacturing cost of LED is coming down sharply. So undoubtedly this is the future technology for lighting solutions. As per estimates, by 2025 more than 50% of the existing lighting will be replaced by LED lighting around the world. With the first mover advantage, MIC is targeting grid-based and non-grid based lighting, rural and urban street lighting, solar-powered lights, commercial and residential lighting. It is also looking to mark its presence in automotive/aircraft cabin & brake lights, road traffic signal lights etc which is a huge market in itself. Besides Indian railway offers a massive opportunity as LED lighting can be used to replace coach lighting, signal lighting, door and path way lighting, platform lighting, yard lighting, emergency lamps, railway colony lighting etc. Importantly, MIC has provided the LED lighting for all the aero planes of Kingfisher airlines, which proves the capability and growth potential of the company.

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  Electronics and Telecommunication Solutions: This division provides software solutions as well as electronic hardware and products to telecom service providers. It has diversified products including the digital loop carrier on optical fibre on synchronous digital hierarchy ring, broadband DLC for triple play (voice/video/data) applications; CDMA/GSM based WLL terminals and phones, hand-held computers with in-built GSM/CDMA modems. The company is importing most of these products, but provides the after sales and maintenance service. To compliment the hardware it also 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 MIC is gradually reducing its focus on this business vertical, in view of its low margins and extended receivables cycle. Couple of years back it represented around 65% of total revenue, but offlate its share has come down drastically to 20~25 %.

To become a true global player, MIC is also enhancing its presence in the international market and has a direct presence in the North American, Korean and Australian markets thru wholly owned subsidiaries. It also has arrangement with local importer in Middle East & South Africa. Moreover along with Latin America Futbol Corporation, USA a sports management company, MIC has formed a 50:50 joint venture company called Sports LED Media (SLM), which has won a contract for LED Display in 50 stadiums in Latin America. Importantly, it is estimated that SLM would buy LED screens from MIC for US$ 50 million over next couple of years. MIC is in talks with Lamar Advertising, the second largest US outdoor advertising company to provide end-to-end display screen solution. Earlier it entered into a strategic partnership with LEDSTAR of Canada to deploy Intelligent Transportation Systems (ITS) and LED Variable Message Signs (VMS). Recently MIC has also entered into an MOU with a renowned lighting company in Italy which enabled the access to European markets and others like Russia, Morocco & Eastern European countries. To increase its market share and cash on the huge opportunity, MIC commissioned a state of the art fully automated manufacturing line at Hyderabad on 29th October 2008. With this EOU facility, company has doubled the production capacity of LED display to 2400 modules from 1200 modules earlier. Company is further contemplating to take its total capacity to 3600 modules. To maintain its growth momentum, MIC is setting up of manufacturing unit for LED true colour displays, LED lighting solutions and solar based LED lighting products at Fab City SEZ near Hyderabad for which it has already been allotted 50 acre of land on lease.

Lately, MIC got the RDSO (Research and Design Standard Organization) approval for its unique & innovative video cum train info display system thereby becoming the first and only company to get such approval. This fully automatic system takes data using satellite, displays station specific train information and simultaneously makes the announcement. Notably, railways have the aggressive plan to install 100 such boards in A & B category stations. Besides, increased focus of the Indian Railways on advertising has created a significant business for the display market. They would be coming out with a tender for LED display at 100 stations i.e. 600 screens. MIC has already made presentations to the Railways and is expected to get good order. Earlier, it received an order and license from Delhi Metro for installation and maintenance of 25 nos of full color day and night LED Video display boards at 8 metro stations worth Rs 45 cr. On the other hand, company has identified the market of worth more than Rs 1000 cr for LED lighting in railways. It is negotiating in a big way with the railway department to allow the LED lights in all the long distance trains. MIC also would be investing about Rs 30 cr on 60 screens which could take the rental income to Rs 3 cr per month. Company is also entering the entertainment business through self owned digital theme parks and theatres.

To conclude, demand for the LED based products is expected to be shoot up significantly in the coming years on account of growing spending by the advertising agencies (specially outdoor), Indian railway, rural electrification, malls, airports, event managers among the others. And MIC with proprietary technology and increased capacity is all set to cash on this opportunity. Thus, although it’s a two decade old company, but the space in which it is operating is at nascent stage. Operationally, company has reported dismissal performance for the last two quarters due to general economic slowdown. Accordingly for the nine months ending March 2009, its revenue has dropped 15% to Rs 197 cr but still PAT has improved by 25% to Rs 53.50 cr. This is because company has reduced its high volume low margin telecommunication business and is now focusing solely on LED based segment. Thus it clocked an OPM of 35% in the current year against 23% in the corresponding previous year. To fund its expansion plan, in July 2008 MIC issued 1.75 cr convertible share warrants at Rs 122 each on preferential basis and has already collected Rs 38 cr (18% instead of 10%). However looking at the current market price and general sentiment, warrant holders may not opt for conversion. But being highly under leveraged with a debt equity ratio of 0.1x times, MIC can comfortably raise debt to fulfill its requirement. Conservatively for FY09 ending June’09 it is estimated to clock a turnover of Rs 260 cr and PAT of Rs 65 cr on a standalone basis. This works out to an EPS of Rs 6.50 on current equity of Rs 20 cr having face value as Rs 2/- per share. The estimated fully diluted EPS works to Rs 5. Thus a company operating in such a fast growing industry and having a high OPM, NPM, ROCE & ROE is trading reasonably cheap at an EV of Rs 350 cr. On the flip side, high debtors indicate company’s incapability to manage receivables. Ironically, scrip is trading just at its April 2007 IPO price of Rs 30 (adjusted for Rs 150 with face value as Rs 10) Thanks to the global turmoil and vertical crash in stock market, its share price has become one tenth in matter of few months. Investors are strongly recommended to buy at current levels for a price target of Rs 60 within 12 months.

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MIC Electronics Ltd
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STOCK WATCH

Petronet LNG (55.00) is operating India's first LNG receiving and regasification terminal at Dahej, Gujarat having a capacity of 5 million tonnes per annum. This year it has doubled this capacity to 10 million tones, the benefits of which will start accruing from the coming quarter. Meanwhile, company is midst of setting up another terminal at Kochi in Kerala under a capex of Rs 3400 cr to be completed by 2012. Besides, it has also entered into a joint venture agreement with Adani Group for setting up a solid cargo port at Dahej. To summarize, company is a bulk supplier of imported LNG, which is regasified and delivered to GAIL's HVJ pipeline. Most of the natural gas is supplied to customers of GAIL, IOCL and BPCL, while a small share goes to spot sales and other customers. Remarkably as of now company supplies about 23% of the natural gas consumed in the country. Company has a long term sale and purchase agreement with Ras Laffan LNG, Qatar for supply for LNG to India. Recently, company entered into an agreement with Exxon Mobil under which they will supply minimum 1.5 MTA of LNG from Australia to the Kochi port for 20 years. Fundamentally, on the back of sharp volatility in LNG price and dollar rates, Petronet LNG ended this fiscal with high forex gains and exceptional loss. It clocked a turnover of Rs 8428 cr which was higher by 30% and PAT of Rs 518 cr, increase of 10% for FY09. This translates into EPS of Rs 7 on equity of Rs 750 cr. It declared 17.50% dividend for FY09. With doubling of Dahej capacity, company may report sales of Rs 15000 cr and net profit of Rs 750 cr i.e. EPS of Rs 10 for FY10. Keep accumulating at declines.

For the March’09 quarter, Elgi Equipments (35.00) reported 10% growth in PBT to Rs 16 cr despite 6% fall in sales to Rs 118 cr. However due to higher tax provisioning net profit for the quarter declined by 5% to Rs 9.70 cr. Accordingly for the full year ending March 2009, company managed to improve its sales marginally by 5% to Rs 480 cr whereas PAT stood flat at Rs 40 cr. Thus it posted an EPS of more than Rs 6 on equity of Rs 6.30 cr having face value as Rs 2/- per share. It declared 130% dividend which gives a yield of nearly 4% at CMP. Being the Asia’s largest manufacturer of air compressors, company is involved with the design, development and production of exhaustive range of electric and diesel powered, centrifugal, reciprocating, borewell, railway air compressors etc. Of late to cash on its rich experience company also started offering end to end mechanical engineering solutions and contract manufacturing services of precision engineered part to clients who are looking for cost-effective, subcontracting solution. It is also looking to increase its global presence for which it has formed a subsidiary in China and has also entered into joint venture with M/s. J P Sauer & Sohn, Germany for manufacturing air compressors. Infact it’s newly set up unit in China has commenced production from Jan 2009. On the other hand in order to manage the automotive division effectively, company is hiving off this division into a separate wholly owned subsidiary called ATS-Elgi Ltd. Keep accumulating at declines

Another compressor manufacturing company namely Kirloskar Pnematic (255.00) also reported decent set of nos for the March’09 quarter. Although its topline declined by 7% to Rs 158 cr, PBT remained flat at Rs 25 cr due to higher operating margin. At the same time, because of increase in tax provisioning its net profit fell by 15% to Rs 17 cr for the quarter. However for entire FY09 it clocked 30% growth in topline to Rs 518 cr and 40% increase in bottomline to Rs 41.75 cr thereby posting an EPS of Rs 32.50 on equity of Rs 12.80 cr. It there wasn’t increase in tax provisioning company would have clocked 70% growth with an EPS of almost Rs 40. Company is one of the leading manufacturers of compression systems and transmission products. It manufactures a wide variety of compressors and also undertakes design & packaging of conventional and high-tech refrigeration systems thereby serving several core industries across the board. Under the transmission division, it make rail traction gears, wind turbine gear boxes, marine gearboxes for Naval and commercial ships and gearboxes for industrial applications. Moreover company has emerged as the undisputed leader in supplying gears and pinions to Indian Railways. On the other hand it has manufactured the first prototype CNG Compressor under license agreement with Cameron and has recently signed packaging/technology agreement with GE (Nuovo Pignone), Italy for compressor packages meant specially for refineries and petrochemicals industry. A solid bet

Despite all the apprehensions about the future growth and profitability of cement industry, JK Lakshmi (70.00) continues to churn out encouraging set of nos. It reported 25% increase in sales to Rs 364 and whopping 55% jump in profit before tax to Rs 104 cr for the March’09 quarter. Remarkably it was able to maintain an impressive OPM of more than 30% for the quarter although for the entire FY09 it stood at 25.50%. But most significantly, company earned a net income instead of interest cost for the quarter. Effectively for entire FY09 its sales was up 10% to Rs 1225 cr but NP was down 20% to Rs 178 cr on the back of higher deferred tax provisioning. This works out to an EPS of Rs 29 on current equity of Rs 61.20 cr. Company has declared a dividend of 40% which leads to a yield of 6% on CMP. In order to cater the rising demand and increase its market share, company has been constantly expanding and modernizing over the years. Infact, in the last quarter only it completed its expansion of 1.1 million tonne thereby taking the total current production capacity to 4.75 MTPA. Further company is in the process of setting up of 2.70 million tonne Greenfield cement plant at Chhattisgarh under a capex of Rs 1100 cr to be ready by 2011-12. Besides, it has taken up work of waste heat recovery system which would generate 12 MW of power by 2011 and thereby will lead to considerable saving in power cost. At the same time the fall in coal and pet coke prices augurs well for company as it has fully stabilized the working of the 36MW captive thermal power plant. Moreover the icing on the cake is the reduction of debt by the company, which now stands at approx Rs 350 cr. To conclude, growth guaranteed.

Techno Electric & Engineering Co Ltd - Rs 100.00

Incorporated in 1963, Techno Electric & Engineering Co Ltd (TEECL) is a large engineering, procurement and construction (EPC) contracting company primarily focused on the Indian power sector. Ironically, it has worked in one capacity or other in setting up of more than 50% of the power generating capacity in the country (more than 50,000 MW) and has similarly participated in building more than 50% of National Grid for execution and transmission of power from one region to another. Company has presence in all the three segments of power sector i.e. generation, transmission and distribution. It is among the very few Indian companies to have license to execute electrical installations upto 400 kV. Although majority of its revenue comes from govt bodies or PSU but it caters to private sector as well and has an enviable clientele including all power giants such as NTPC, Power Grid, NHEPC, BHEL, APTRANSCO, MSEB, Reliance Energy, ABB, Alstom, Thermax, Delhi Vidut board, CESC, IOC, Nalco and various other State Electricity Board. Company has even executed a turnkey power project with GE of USA for Damodar Valley Corporation and subsequently has won the confidence of other multinationals like ABB and ROLLS ROYCE amongst others, as an associate for their IPP Projects in India. Over the years TEECL has groomed itself in the field of comprehensive engineering, procurement and construction services for fuel oil storage and handling system, comprehensive piping systems, process plant installation, fire protection systems, EHV switchyards, EHV sub stations, power plant cabling system, plant electrical distribution system, lightning protection system and plant illumination systems. It has capabilities in setting up small capacity power plants and executing balance of plant jobs for larger capacity thermal/hydro power plants. It also possess specific domain knowledge that enables it to serve the steel, fertilizer, metals and petrochemicals sectors along with specialized jobs in diversified manufacturing.

Till date TEECL has successfully executed nearly 300 projects including power project, electrical projects or civil, structural and civil work. Out of these most of them were quite prestigious and large scale projects. The reason for company’s success is the adoption of state-of-the-art technology in the form of computerized engineering services, mechanized field operations, high standards of quality management backed by strong human resources and resourceful financing. Infact TEECL has been an acknowledged force vis-a-vis safety and statutory requirements for design, engineering and construction framed by the Indian Statutory Authorities such as the Inspectorate of Boilers, Chief Controller of Explosives, Tariff Advisory Committee for Fire Protection, Inspectorate of Electrical Installation among others. Today TEECL is actively involved in APDRP and Rajiv Gandhi Rural Electrification Program of Govt. of India. It boast of having an unexecuted order book position of more than Rs 500 cr. Besides company has participated in many other prestigious tenders out of which it is L1 (lowest) bidder in few of them.

As a part of its diversification strategy, TEECL has ambitious plan to be a major power producer in the field of non-conventional energy through setting up of biomass power generating units all over the country. Initially company has already obtained licenses for two units and is now setting up 10/12 MW Bio-Mass based power plants, one in North Dinajpur District of West Bengal and the other in Rajgarh District of Madhya Pradesh. These projects are slated to complete before March’2010. This new business segment of the company has tremendous potential because by 2012 most of the electricity boards will be compulsorily required to source 10% energy from non-conventional sources as per rules of the Electricity Act. On the other hand TEECL has also been selected as a Franchisee' for power distribution by Dakshin Haryana Bijli Vitran Nigam, Haryana. The total load involved is 85 MVA with a consumer base of +55000. TEECL is expected to increase the collection and decrease the T&D loss on the back of better governance and proper control to make a better distribution network.

Unfortunately, in the power sector the generation capacity addition has not been in commensurate with the increase in demand for power. After dismal performance in the 10th plan the government has set another ambitious target for the 11th plan of 78577 MW. In the first year of the plan i.e. 2007-08 an addition of 9263 MW was made which is again 57% of the target of 16336 MW. Although the annual rate of capacity addition has improved significantly over last 2 years, it has to double to meet the ambitious target set for the 11th plan period. However the silver lining is the projects over 53300 MW are under construction comprising 68% of the total 11th plan target. Similarly, the matching transmission and distribution systems will be augmented in due course. The National Grid is being upgraded to 765 kV and the State Grids are being upgraded to 400 kV to reduce the T&D losses. Moreover, to achieve the inter-regional power transmission capacity of 37150 MW by 2012 through creation of transmission super highways, the govt plans to set up a number of 765 KV Sub-Stations interconnected with matching transmission lines. And with TEECL being one of the major players is bound to benefit from such massive investments.

Financially, TEECL has been doing exceedingly well. Even for the latest March’09 quarter it reported satisfactory nos as PBT increased by more than 10% to Rs 28 cr despite 20% fall in revenue to Rs 117 cr. But due to higher tax cost its PAT reportedly declined by 5% to Rs 19.50 cr in comparison to corresponding quarter last year. Notably company reported a very healthy OPM of 16% for the quarter which is a very quite heartening. Thus for the entire FY09, TTECL was able to clock 30% growth in net profit to Rs 62 cr, whereas topline grew by 15% to Rs 485 cr. This translates into an EPS of Rs 11 on equity of Rs 11.40 having face value as Rs 2 per share. Being a very low capital intensive business, company has a very small gross block of less than Rs 10 cr. It is not only a debt free company but a cash rich company having liquid investment worth Rs 150 cr and cash balance of approx Rs 25 cr which is equivalent to almost Rs 30 per share. Investors are strongly recommended to buy at sharp declines with a price target of Rs 150 in 15~18 months.

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Techno Electric & Eng Co Ltd
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