Promoted by Dinesh Kumar, a commerce graduate, XL Telecom assembles CDMA mobile handsets and manufactures switch mode power systems (SMPS), solar photovoltaic systems (SPV) and ethanol. Established in 1985, the company has strategic partnership with international technology companies including Corning (for cable jointing kits and accessories), Kyocera Wireless Corporation (for CDMA handsets) and Axesstel (for CDMA fixed wireless phones). It has a capacity to assemble 10,000 CDMA mobile and fixed wireless sets per day, 600 amps per day of SMPS, 1,667 jointing kits and accessories per day, 1,50,000 liters of ethanol per day, and 3.3 KW of SPV systems per day.
XL Telecom has lined up a public issue to raise Rs 49.46 crore at the lower band (Rs 125) and Rs 59.35 crore at the upper band (Rs 150). The net proceeds from the issue (including internal accruals) comprising Rs 8 crore are to be used for expansion of capacity to make SPV modules from the existing 1 MW per annum to 24 MW per annum, Rs 20.40 crore for creation of SMT line to produce PCBs for CDMA mobile and FWP (fixed wireless phones), repayment of Rs 9-crore IDBI term loan, Rs 20 crore for long-term working capital requirement for FWP business (due to deferred payment model of BSNL), and for issue expenses.
Strengths
- A couple of countries in Europe has made 160 watt to 200 watt solar power generation for every home mandatory. Thus, there is export potential for SPV systems. To tap this opportunity, the company has established an MOU with a Spanish supplier of SPV systems Forta Im Ex SL in Europe with an immediate US 13-million order for 3 MW SPV systems. The minimum commitment by European customers is for 12 MW over three years, which works out to Rs 220 crore at current prices.
Weaknesses
- Competitors like LG and Samsung have established their own units in India to manufacture CDMA handsets. These are the preferred original equipment suppliers of Reliance Communication and Tata Telecom. These companies are cost efficient due to high volume and would compete in the tough, price-sensitive market in India.
- XL Telecom is substantially increasing its SPV capacity from existing 1 MW per annum to 24 MW per annum. This has an inherent a risk of sudden fall in global demand, resulting in underutilisation of capacity.
Valuation
EPS for the year ended June 2006 on post-issue equity works out to Rs 7.4. At the price band of Rs 125 – Rs 150, PE works out to 17.0 to 20.4. There is no comparable listed company. In a normal market, companies with such diverse businesses get discounted poorly due to the unpredictability of their financials.