KLG Systel Ltd - Rs 295.00

Incoporated in 1985, KLG Systel Ltd (KLG) offers knowledge solutions to key industries like oil & gas, process, power, metal, manufacturing, infrastructure sectors etc by providing a unique mix of domain expertise, software solutions, consultancy and training. Broadly KLG has classified its revenue model into following two business units:

I. Power system Solutions (60%): The basic objective of this unit is to provide hardware / software solutions and services at the design, implementation and operational stages of power generation and the downstream sector - transmission, sub-transmission and distribution. The unit provides on-line IT solutions to distribution utilities, using its self-developed Software and solution with backing from world renowned companies for determining the Transmission & Distribution losses, fixing the areas of power theft, on-the spot billing & check collection, increasing revenue collection efficiency of the utilities and addressing consumer grievances. This unit has divided into following five sub units.

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  Distribution Management Solutions (SG61 Technology) – Its basically a equipment, which provides the information in the real time over an IP network and this has been jointly developed with IBM and SAP. This system provides real time energy reconciliation.


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  Revenue Management Operations (Vidushi) – It’s a transactional system which allows a utility to have complete management of its assets, management of its consumers, do billing, do metering, and also do energy reconciliation. It uses a GIS as front end and also a normal application and also does connection management.


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  Engineering Procurement Construction: The State Electricity Utilities have taken proactive steps to improve the distribution efficiency under an ambitious Feeder Renovation Program. Accordingly KLG has won huge construction contract under competitive bidding. It has also won various tender orders under Rural Electrification Scheme from Rajasthan govt. Besides, over the last decade KLG has gained engineering design domain-expertise in various industry verticals, the benefit of which it is reaping now by providing Engineering Services Outsourcing (ESO).


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  Utility Distribution Franchising: Due to better synergies and leverage is expertise, KLG is also contemplating to venture into power distribution business thru franchisee model.


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  Demand Response (www.connectgaia.com) - Building on the deep power domain expertise and its relentless R&D, KLG has developed a solution that empowers consumers to manage their electricity consumption. This unique web based solution has been named as www.connectgaia.com which makes it possible for users to View, Visualize, Measure, Optimise and Manage the Energy Consumption in their Domestic, Commercial, Industrial, Government and Semi-Government establishment

II. Business Life Cycle Solutions (40%): Balance 40% of KLG’s revenue comes from this unit which specializes in providing technology life cycle solutions right from concept and creation, through product design and engineering, plant design, project execution, plant automation, management operations & optimisation, to expansion / revamp. KLG has the 'first-mover' advantage of focusing on Indian industry's requirements for automated business life cycle solutions. Further, this unit has been divided into following four strategic business units (SBU).

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  Computational Engineering and Sciences – This is the main SBU as its strategic focus area includes CAD, CAM, CAE, GIS, rapid prototyping & reverse engineering technologies. Remarkably, majority of all oil refineries, petrochemical / fertilizer complexes, power plants designed, erected or revamped in last ten years in India have used solutions from KLG for mechanical design analysis of steel structure, pressure vessels, heat exchangers, piping systems, etc.


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  Enterprise Project Management: Unit this SBU, KLG offers end to end solutions ranging from consulting, solution customisation, solution deployment, user acceptance and training to support and maintenance. It has developed significant IP in terms of developing a web based Enterprise Project Management System using best practices provided by Project Management Body of Knowledge (PMBOK) Areas.


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  Automation and Manufacturing: Under this KLG offers integrated solution for industrial automation and supply chain planning and optimization. It works closely with Wonderware a division of Invensys PLC, Microsoft, IBM, Oracle and SAP to deliver solutions and integrates diverse automation platforms from ABB, Allen Bradley, Areva, Foxbro, Honeywell, Siemens, Yokogawa and Sensor manufacturers.


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  Enterprise Business: Thru this KLG has put together a basket of solutions, a result of in-house R&D and Strategic Alliances, that cater to special needs of Enterprises like the Supply Chain Optimisation software called 'Chaos', emerging technologies of RFID, technology for 'retailing solutions, and SAP Business One.

Importantly as on today, KLG has a healthy order book position of around Rs 350 cr to be executed in next one to one and half years. Moreover, it is lowest bidder (L1) bidder in contracts worth Rs 550 cr and has a bidding order book of close to Rs 4,500 cr which includes a large 5 years contract of Rs 2,500 cr. KLG has an enviable clientele consisting of top 500 Indian companies (government & private) and Indian arms of the Fortune 500 companies. It has also partnered with leading international technology partners such as Autodesk, COADE, IBM, Microsoft, Oracle, Primavera, SAP and OTI etc. On the infrastructure front it has its own R&D centre spread across 75,000 sq ft in gurgaon whereas another facility with 500,000 sq ft is under construction. It has set up an ultra-modern manufacturing unit for the production of Connectgaia.com in Dehradun with a production capacity of 10,000 units a month. To further meet the growing demand specially for Automatic Meter Reading units group is contemplating to establish a state-of-the-art manufacturing plant at Davni, near Baddi in Himachal Pradesh, with installed capacity of 25,000 units per month

Earlier in Aug 2007, KLG acquired 51% stake in Atlantis Lab which caters to automobile and aerospace segments. Further it is looking at inorganic growth in engineering services and enterprise business solutions. KLG has recently demerged the power systems solutions business into a new subsidiary named KLG Power by transferring assets worth Rs 125 cr. TGP Growth India has conditionally planned to invest nearly Rs 200 cr in this subsidiary for up to 20% holding on diluted basis. Meanwhile couple of days back, IBM group company has invested Rs 12 cr for taking 1.20% stake, thereby putting the valuation of KLG Power Ltd to whopping 1000 cr. Ironically against this, KLG - the parent company which is holding the rest 98.80% is available at a market cap of merely Rs 350 cr.

Financially, for the year ended March 2008, company recorded 120% growth in sales to Rs 269 cr and Net profit increased by 140% to Rs 52 cr thereby posting an EPS of Rs 45 on equity of 11.70 cr. During FY07, KLG raised nearly Rs 100 cr thru FCCB route to be converted into equity @ Rs 400 per share. Out of that still more than Rs 80 cr is yet to be converted into equity shares. Considering all the factors, KLG is estimated to clock a turnover of Rs 400 cr and PAT of Rs 65 cr on a consolidated basis for FY09. This translates into EPS of Rs 45 on diluted equity of Rs 14.50 cr. Investors are strongly recommended to buy at current levels and add on every declines for a price target of Rs 550 (i.e. 85% appreciation) within 15 months.

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