ICSA (India) Ltd - Rs 90.00

Incorporated in 1994, ICSA India Ltd (ICSA) formerly known as Innareddy Computer Software Associates (India) Ltd is a Hyderabad based company engaged in constructing power transmission lines and substations apart from providing state-of-art Embedded technologies and software applications for the power, oil, gas and water sectors. It boasts of developing innovative products suitable for power utilities in the field of energy management, energy audit, control application which identifies distribution losses, and help the power utilities reduce their costs & streamline their operations. It also offers versatile data Acquisition system using several communication media such as GSM, CDMA, Satellite, Optical fiber and Radio Frequency. Thus the company’s main business motive is to bring down the cost per unit of power by optimizing critical production processes and minimizing transmission, distribution and transaction losses while at the same time save valuable consumer resources by real time audit and meter reading, billing systems, accountability and transparency systems, shortages and disaster prediction applications, SCADA (Supervisory control and Data Acquisition) and management solutions using best practices. Apart from power it also provides remote monitoring applications to multiple sectors like oil & gas, mining, irrigation, transport and water utilities.

Broadly, ICSA has divided its revenue model into following two segments:

· Embedded Solution/Products Division: This has now become the core business of ICSA as it derives nearly 60% revenue from such products/solutions. Ironically, ICSA doesn’t face any significant competition as it enjoys virtual monopoly for few of its product. This is because all the products of company are developed after strong in house research, then trial and tested thoroughly before being launched. Today, these products are very well accepted in the market and have gained a good reputation leading to frequent repeat orders. The list of its popular product includes Intelligent Automatic meter reading, Distribution transformer monitoring system, Theft detection device, Energy audit services, Pole top & Micro remote terminal unit to name a few. Apart from catering to power sector vertical, ICSA also has few products/solutions for water management and oil & gas segment such as Automatic water meter reading, Cathodic protection system, Pilferage detection system, Telemetric unit etc. Last fiscal, it launched two new unique products namely Remote street light control system & Agricultural load management system. Importantly, ICSA has already acquired the Intellectual Property Rights for most of its products/technology and is contemplating to acquire international and process patents in future.

· Engineering and Infrastructure Division: Presently, this division contributes around 40% of total revenue. Thru this division ICSA undertakes electrical infrastructure projects in power generation, transmission and distribution sectors both in India and abroad. On the EPC basis company has the capabilities in designing, supplying, transporting, erecting, testing & commissioning of 400/220/132 kV transmission lines & sub stations, outdoor & GIS sub stations. Whereas on the Turnkey basis it executes HVDC (High Voltage Direct Current) Distribution works, Rural Electrification works, Industrial Electrification works & construction of 33/11 kV Indoor & Outdoor Sub Stations.

Headed by Mr. G. Bala Reddy, ICSA follows an asset light business model under which it designs and develops prototype models of the product and outsources manufacturing. Thus it focuses on critical intellectual capital based operations, primarily research and development. That’s why R&D accounted for nearly 30% of the ICSA team in FY08. To summarize the business process, company procures the raw materials and supplies it to the contractors/job workers for the manufacture of components. The components manufactured are subsequently assembled by the company in its own unit and then the in-house embedded, production and quality control personnel, embed it with the requisite software, test and certify the product before dispatch. Thus the software which form the core of the product is developed and embedded in-house. With full faith and guarantee on the technology/product, ICSA does innovative concept-marketing whereby it promises a return on investment to its customers and also offers a one year free maintenance on the product. Although majority of its clientele includes various State Electricity boards, but company has started tapping private corporate with Reliance Energy, Tata Power already being its customer. Earlier it signed an agreement with OIL India Ltd to provide products and services in monitoring oil and gas pipelines which will forecast and control the rate of corrosion apart from addressing issues such as pilferage and thefts along the pipeline.

As a part of its inorganic growth, last year ICSA acquired the energy Meter plant of ECE industries in Hyderabad, thereby enabling itself to manufacture energy meters on its own capacity. Moreover in order to enhance the revenue and enjoy the tax benefit, it has diversified into non conventional energy and is setting up a 20 MW capacity wind power project in Andhra Pradesh out of which nearly 10MW has already being commissioned. On the international front, during last fiscal ICSA entered into a marketing joint venture with Global Digital in Malaysia to distribute, license and provide solutions in the field of telemetry for power, utilities, oil and gas, SAP compliance, using proprietary solutions (software and hardware developed by ICSA). It has also formed a subsidiary in Singapore to strengthen its presence in the Asian market.

To conclude, its very clear from above, that ICSA’s fortune depends majorly on power industry. And with the massive investment lined up in power sector, the future prospect of company looks promising. Currently it is estimated of having an unexecuted order book position of more than Rs 800 cr. This includes the recent order of Rs 460 cr bagged by the company from Bihar and Maharashtra State Electricity Boards. Importantly, government has made Energy Audit mandatory for all SEBs and distribution companies. This augurs well for ICSA and opens up a huge and sustainable opportunity as it offers end to end solution for energy audits. Secondly, government has proposed to undertake incentive financing to enhance the commercial viability of SEBs which will force the SEB to cut down their T&D losses thereby automatically creating huge demand for company’s product. Unfortunately, India has one of the highest T&D losses as high as 35% against 10% in China. Apart from above ICSA is expected to get infrastructure orders under APDRP and the RGGVY programmes.

Financially as well as fundamentally company has been doing excellent and riding the boom in power sector. Its topline as well as bottomline has grown at a whopping CAGR of 225% and 300% respectively in the last four years. Even for the latest Dec’08 quarter ICSA has recorded handsome growth and accordingly for the first nine months its sales jumped up 80% to Rs 825 cr and NP shot up 50% to Rs 134 cr. Thus it has already surpassed the sales and NP of entire FY08 by decent margin. Infact it is estimated to end FY09 with sales of Rs 1100 cr and PAT of Rs 170 cr leading to an EPS of Rs 36 on current equity of Rs 9.40 with face value as Rs 2/- per share. Incidentally during 2007 company had raised nearly Rs 200 cr (@ Rs 250 per share for FV as Rs 2) thru FCCB route out of which Rs 100 cr is yet to be converted. Interestingly, share price which hit Rs 650 in Dec 2007 was decimated to Rs 50 in March 2009. So despite low promoter holding & high debt investors can keep accumulating this scrip only at sharp declines. Scrip can appreciate 50% in a years time.

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