"S A A R T H I" - The Guiding Star: MIC Electronics Ltd

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

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.

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.

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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