MIC Electronics
GOOD RATING BY CAPITAL MARKET
Displaying encouraging signals
CM RATING 47/100
Promoted by technocrat Dr M V Ramana Rao in 1988, MIC Electronics’ business is broadly divided into media, information technology (IT), and communications and electronics.
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 video walls. The IT group provides telecom software solutions for telecom network management, telecom switch access and computer telephony domains. 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/data) applications, code division multiple access (CDMA)/global system for mobile communication (GSM)-based wireless in local loop (WLL) terminals and phones, hand-held computers (HHC) with in-built GSM/CDMA modems.
MIC Electronics has lined up a public issue to raise Rs 65.79 crore at the lower band (Rs 129) and Rs 76.50 crore at the upper band (Rs 150). The net proceeds from the issue are 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/3D stereoscopic displays, augment the sales network across the country and overseas, and acquire the remaining 45% stake in Infostep Inc, US, expand operations, explore overseas opportunities, and meet working capital requirements and public issue expenses.
Strengths
The LED business has excellent growth potential. The management says the 30.8% earning before interest, depreciation, taxes and amortisation (EBIDTA) margin of the segment in FY ended June 2006 has improved to about 40% in the six months ended December 2006 on reduction in R & D cost. 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.
The order book of the three divisions stood at Rs 167.86 crore end January 2007, which is 2.5 times the revenue for six months ended December 2006. Of this, 33.92% of the orders are for LED video display systems, 3.57% for the IT division and the balance 62.49% bagged by the communications segment.
Weaknesses
The operating cash flow has been negative to the extent of Rs 14.36 crore in the year ended June 2006.
Nearly 90% of its entire LED requirement for outdoor LED display systems is sourced from one supplier: Nichia Corporation, Japan.
There is competition in the LED display business from other internationally reputed companies with significant financial and other resources.
Valuation
Going ahead, MIC Electronics expects the media division to be the key growth driver. In a span of two years, company has been able to ramp up the revenue from this business, from Rs 88 lakh in FY 2004 to almost 32 crore in FY 2006.
EPS for FY 2006 on post-issue equity works out to Rs 7.7 and PE 16.8 – 19.5 at the price band of Rs 129– Rs 150. The annualised EPS for the half-year ended December 2006 on post-issue equity works out to Rs 10.8. At the price band of Rs 129–150, P/E works out to 11.9 to 13.9. There is no comparable listed company. However, its small size and involvement in a number of businesses will restrict its valuation.
Zerodha (Trading Account)
RHP
