MIC Electronics
Moving fast
The company’s LED business has excellent growth potential and the company is making right moves to capitalise on it
| Buy | MIC Electronics |
| BSE Code | 532850 |
| NSE Code | MIC |
| Bloomberg | MICE@IN |
| Reuter | - |
| 52-week High/Low | Rs 1088 / 210 |
| Current Price | Rs 645 (as on 11th April 2008) |
MIC Electronics is focused on business of design, development and manufacturing of LED Video Display systems. MIC is also into telecom products for wireline and wireless applications with focus on telecom software. Of late, the company has also forayed into LED lighting and embedded energy management solutions for power sector. With power saving being a top priority in the country, MIC will get huge benefits from its business of power saving LED based technology which provides very cost effective and high impact display and lighting solutions.
Thus broadly the business can be divided into media, information technology (IT), and communications and electronics. This is how the name MIC has been derived.
The media group is primarily responsible for the development, production and sales of video displays, text, graphic animation displays and display services including lease/rental of LED (light emitting diodes), and indoor/outdoor video walls. The company also plans to venture into LED based flat screen televisions and LED digital theatres.
Notably, the company is more of an embedded software and solutions company and less of an hardware company. The company imports most of its hardware requirement.
Huge untapped outdoor and indoor LED video walls and in digital display screen business
There is a tremendous scope in outdoor and indoor LED video walls and in digital display screen business. Lot of advertising is happening through such digital screens, which is very economical, eye-catching and consumes least power.
Also the company is into LED signage business where, LED based technology is used to show the direction of arrows, kms, distance etc. The use of signages is increasingly finding place in all forms of public communication.
The LED display/lighting is finding applications in advertising, shopping malls, product launches, sport stadiums (in twenty twenty world cup), sport perimeter, musical concerts (Indian Idol show),
The current global LED display market size is around US$ 3.55 billion and is expected to reach US$ 3.9 billion by 2007. The LED market has shown a CAGR of 15.98% from FY 2004 to FY 2007. Internationally, LED display renting is one of the fastest growing segments in the live entertainment industry, with a size of around US$ 210 million and is expected to grow by 12.5% year on year. LED renting industry is expected to be around US $ 210 M and expected to grow by 13% p.a.
In line with global trend, Indian market is also growing fast. The company has just started development of LED based screens, which will be leased out to various distributors from where the company will earn the rental income. Of the 30 screens planned, 26 screens are learnt to have been rented out by Dec’07 and the balance will be rented out by Mar’08. These contracts have already been signed for 15-18 years. One can expect rental income of Rs 2 lakh per day. The entire LED screen has a pay back period of 2 years.
The company has virtually a monopoly in LED business in domestic market, as there are no domestic players in the business. Further couple of international players has tried to capture some share in the market, but have not been successful. In fact, the company is capturing the share of its competitors in international markets.
Garnering big business from the Indian Railways
The company has acquired 51% stake in Power Electronics for Rs 3 crore. Power Electronics specializes in LED display system for Railways and has IRDA approval for the same. MIC now is the sole domestic player, which is approved by the railways for LED display systems including the emergency display device.
The market size for LED Railway business is as big as Rs 600 crore. By FY’08 ending June, the company targets to reach around Rs 45 crore and then to double every year.
It has 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 of line-3 worth Rs 45 crore, to be installed in the next six months. These LED displays will be networked and controlled front a single location and are first of its kind for Indian Railways.
LED lighting offers a new growth avenue
The pace of change in the world's lighting industry is accelerating dramatically; LED technology and applications are major contributors to this change in Rural Lighting. LED is the light of the future in Rural and home lighting for indoor / outdoors. This technology can light an entire rural village with less energy than that used by a single conventional 100 watt light bulb.
MIC's Industrial Lighting Products (LED Lights) are useful for industrial work areas, warehouses, storage facilities. MIC's Industrial LED Lighting products help reducing over-all lighting energy costs by up to 40%, when compared to normal light sources, as they are less power-consuming equipment. LED lighting Products produces the same amount of brightness as other sources of lighting but has a 100,000 hour life span.
By taking the basic advantages of LEDs in General Lighting products, MIC is making the Railway Lighting Products by highlighting the feature of Solid-state technology which gives the unique feature of 'Vibration & Impact Resistance". MIC's Railway Lighting products are designed with specialization in engineering for better housing of the LEDs and/or LED Lights.
LED lighting can be used in railways to replace night lamps, berth number indication lamps, signal lighting, door and path way lighting, coach lighting, coach emergency lighting. The company already has orders worth Rs 8 crore for lighting the AC coaches in railways. The company has identified the market of worth more than Rs 1000 crore for LED lighting in railways. This can lead to power savings in a tremendous way. It is negotiating in a big way with the railway department to allow the LED lights in all the long distance trains.
The company is also in negotiations with various state governments, to convert all the fluorescent lamps and streetlamps into LED based lamps. Particularly, where the national grid is not present, using solar energy as a medium coupled with LED technology, the company can generate light at a minimal cost.
Similarly it can be used in aeroplanes as well. Kingfisher airlines use LED lighting purchased from the company in all its aeroplanes. The company is in negotiations with many other airlines for the same.
Further the company is in negotiation with Reliance Energy to convert all the streetlights in Mumbai into LED display lights. Also negotiations are going on with REL for other various LED based applications. This also includes laying a transmission network and setting up LED based electricity meters.
Going global
MIC Electronics had raised Rs 76.50 crore through IPO intended to set up an additional facility to manufacture LED boards, invest in LED video display systems used for rental/leasing, upgrade products, beef up R&D of LED/LCD/plasma/
The company acquired InfoSTEP, a US based company which provides various value added software services such as business intelligence (architecting, development of data warehouse), survey management services ( marketing research and consulting), risk management services, enterprise appliation services (customer relationship management, SCm, product life cycle management) etc.
The company is also looking to tap the LCD display screen device market in US and other development markets through InfoSTEP. According to a survey, LED display screen device market is as huge as US $ 150 bn in US. There are lot of players already existing in this business. However the market is so huge that every player has its own pie of the market. Also the company has an advantage of embedded software skills at lower cost. The only thing that company imports is the hardware screen devise.
Focusing on inorganic growth
The company has acquired 74% stake in another Chennai based entertainment company, which is specialized in lighting solutions for digital theme parks for Rs 25 crore. Digital theme park is a new concept, which is working successfully in UK and EU. In order to grab the technology, MIC acquired the stake and is preparing for developing such digital parks in India. However, the concept will take time and currently the company is using the technology internationally to have the experience and expertise.
Telecom and communication business also has good prospects
The communications and electronics group has diversified products including the digital loop carrier (DLC) on optical fibre on synchronous digital hierarchy (SDH) ring, broadband DLC for triple play (voice/video/
MIC’s telecom software solutions is an embedded software service which provides cost effective, user friendly and reliable solutions to wide variety of complex requirements of telecom service providers, railways in telecom switch access modules, heterogeneous and homogeneous network elements, computer telephony etc. The company 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 with severe competition, the margins in this business is low
More revenues from high margin business going forward
Presently, the company derives nearly 2/3rd of its revenues from telecom segment and the balance from media segment. The margin from telecom segment is very low as it involves lot of hardware sales with lower value addition.
In Telecom segment, the margins will continue to hover around the existing level. The company also has plans to hive off its telecom segment going forward.
The margin from media segment is hovering in the range of 25-30%. The LED lighting business has even higher margin of around 35%. Going forward, with most of the initiatives and development happening at high margin media (LED) business, the revenues from media (LED) segment will be around 50% by FY’08 and around 65% by FY’09. The company expects the margins to improve in the Media Segment since it is moving to the higher division of LED display device, where value addition is more. Overall there is no pressure in this segment..
Currently, the company is under MAT (Minimum Alternative Tax) for 5 years that ends on 2011-12. The company expects to grow its bottomline at a CAGR of minimum 50% for next couple of years.
Strong order book in media segment
Currently the order book position in Media segment stands around Rs 180-185 crore of which nearly Rs 45 crore are export orders. The company is expecting another big order of 25 gigantic screens for 20 football stadiums in EU and US.
Financials are already growing phenomenally
For the quarter ended December 2007, MIC reported consolidated net sales of Rs 90.50 crore up 108%. The operating margins improved 300bps at 21.8%. PAT after minority interest stood at Rs 15.25 crore up 135%.
For the six month ended December 2007, MIC reported consolidated net sales of Rs 177.22 crore up 140%. Operating margins improved 80 bps to 19.3%. PAT after minority interest grew 146% to Rs 26.39 crore .
Rentals income to grow at a fast pace
The media group is primarily responsible for the development, production and sales of video displays, text, graphic animation displays and display services including lease/rental of LED (light emitting diodes), and indoor/outdoor video walls.
The rental income for FY’07 stands around Rs 12 crore. For FY’08, the company expects to be around Rs 36 crore.
Heightened activity in subsidiaries; to grow at fast pace
The company and its 75% subsidiary InfoSTEP Inc. has jointly developed a Global digital Billboard exchange solution, GLOBIX, The GLOBIX solution facilitates clients to reach out to most optimal Out-of-home (OOH) advertisement locations to target brand advertising. The billboards owners will be able to optimize the utilization of their advertisement space. This solution opens up opportunity for small businesses and consumers to advertise on billboards on demand across the globe. GLOBIX will be launched with an initial database of all MIC's digital billboard locations starting with Delhi Metro Rail stations at New Delhi. The total market potential of OOH advertising is projected to be more than Rs 1750 crore over next 3 years. GLOBIX will allow MIC to play a key role in this market.
The management expects that InfoSTEP will report a turnover US $20 M by Dec’07 (December ending company). For the next year, the company has a target of US $ 30 M sales with margins hovering around 13%.
Maave Electronics (Wholly owned Subsidiary of MIC Electronics Ltd.,) has received orders from different Zonal Divisions of Indian Railways along with the Coach factories for the supply of approx 20000 nos of Coach Emergency LED Lamps worth above Rs 8 crore.
MIC Electronics Inc. (Wholly owned USA subsidiary of MIC Electronics Ltd.) and LEDSTAR of Canada have entered into a strategic partnership to deploy Intelligent Transportation Systems (ITS) and LED single / full colour Variable Message Signs (VMS). The partnership enables MIC Electronics to address the rapidly growing ITs / VM3 market in India. MIC Electronics Inc. received its first order from GMR Expressways Pvt Ltd, India for LED Variable Message Signs (VMS) for highway projects in Andhra Pradesh & Tamil Nadu. The order size is Rs 8 crore (Approx. $ 2 Million).
Valuation
The company has raised around Rs 220 crore by the way of issue of warrants to strategic investors including the promoters, On conversion of warrants, the diluted equity share capital of the company will stand at Rs 24.80 crore.
For FY’08 ending June, we expect the company to register net sales and PAT of Rs 440.00 crore and Rs 67.06 crore. This gives an EPS of Rs 27.0 for FY’08. The earnings are likely to grow at a CAGR of above 50% in future without any further equity dilutions (as the company’s business does not involve much capex requirements)
| | 0406 (12) | 0506 (12) | 0606 (12) | 0706 (12) | 0806 (12P) |
| Net sales | 13.23 | 24.92 | 105.74 | 273.86 | 440.00 |
| OPM (%) | 12.8 | 16.1 | 18.6 | 16.0 | 19.3 |
| OP | 1.69 | 4.00 | 19.65 | 43.89 | 84.96 |
| Other Income | 0.13 | 0.02 | 0.07 | 0.50 | 1.64 |
| PBDIT | 1.82 | 4.02 | 19.72 | 44.39 | 86.60 |
| Interest | 0.72 | 1.49 | 1.74 | 2.49 | 2.15 |
| PBDT | 1.10 | 2.53 | 17.98 | 41.90 | 84.45 |
| Dep. | 0.67 | 0.71 | 1.62 | 1.90 | 2.62 |
| PBT | 0.43 | 1.82 | 16.36 | 40.00 | 81.83 |
| Tax | 0.10 | -0.33 | 1.3 | 3.64 | 12.45 |
| PAT | 0.32 | 2.14 | 15.06 | 36.36 | 69.38 |
| MI | 0.00 | 0.00 | 0 | 1.52 | 2.32 |
| PAT after MI | 0.32 | 2.14 | 15.06 | 34.84 | 67.06 |
| EPS (Rs )* | 0.1 | 0.9 | 6.1 | 14.0 | 27.0 |
| *Annualised on fully diluted equity of Rs 24.80 crore; | |||||
| MIC Electronics: Consolidated results |
| | 0712 (3) | 0612 (3) | Var. (%) | 0712 (6) | 0612 (6) | Var(%) | 0706 (12) | 0606 (12) | Var. (%) |
| Net Sales | 90.5 | 43.44 | 108 | 177.22 | 73.84 | 140 | 273.86 | 105.74 | 159 |
| OPM (%) | 21.8 | 18.8 | | 19.3 | 18.5 | | 16.0 | 18.6 | |
| OP | 19.71 | 8.18 | 141 | 34.24 | 13.68 | 150 | 43.89 | 19.65 | 123 |
| Other Income | 0.48 | 0.01 | 999 | 1.14 | 0.03 | 999 | 0.50 | 0.07 | 614 |
| PBIDT | 20.19 | 8.19 | 147 | 35.38 | 13.71 | 158 | 44.39 | 19.72 | 125 |
| Interest | 0.57 | 0.51 | 12 | 0.9 | 0.92 | -2 | 2.49 | 1.74 | 43 |
| PBDT | 19.62 | 7.68 | 155 | 34.48 | 12.79 | 170 | 41.90 | 17.98 | 133 |
| Depreciaton | 0.64 | 0.47 | 36 | 1.12 | 0.92 | 22 | 1.90 | 1.62 | 17 |
| PBT before EO | 18.98 | 7.21 | 163 | 33.36 | 11.87 | 181 | 40.00 | 16.36 | 144 |
| EO | 0 | 0 | | 0 | 0 | | 0 | 0 | |
| PBT after EO | 18.98 | 7.21 | 163 | 33.36 | 11.87 | 181 | 40.00 | 16.36 | 144 |
| Tax | 3.31 | 0.63 | 425 | 6.15 | 1.06 | 480 | 3.64 | 1.3 | 180 |
| PAT | 15.67 | 6.58 | 138 | 27.21 | 10.81 | 152 | 36.36 | 15.06 | 141 |
| Minority Interest | 0.42 | 0.08 | 425 | 0.82 | 0.08 | 925 | 1.52 | 0 | |
| PAT | 15.25 | 6.5 | 135 | 26.39 | 10.73 | 146 | 34.84 | 15.06 | 131 |
| EPS * | 24.6 | 10.5 | | 21.3 | 8.7 | | 14.0 | 6.1 | |
| *Annualised on current equity of Rs 24.80 crore; | |||||||||
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