MIC Electronics Ltd

MIC Electronics Ltd

MIC Electronics

MIC Electronics

MIC Electronics

MIC Electronics

MIC Electronics: Buy

Investments with a one-two year perspective can be considered in the shares of MIC Electronics, considering the bright prospects for its LED (light emitting diode) display business and potential to sharply scale up earnings. At Rs 905, the stock trades at 30 times its estimated current year earnings. This appears justified considering the company’s improving margin profile (profits have more than trebled in the nine months ended December 2007 compared to the same period in the previous year) on the back of increasing contribution from the LED display business, in which there are not comparable listed peers.

MIC has two key business segments — media and infotech and communication. The media business provides LED video, graphics, text displays and lighting solutions for “out-of-home” advertising at stadiums, billboards and malls as well as for various applications in airports and railway stations.

The infotech and communications segment makes telecom network products, WLL terminals, handheld computers and offers software solutions associated with network management and computer telephony.

The infotech and communication business, which contributed over 65 per cent of revenues even a couple of years ago now contributes less than 40 per cent.

This is due to the high-margin LED business gaining considerable momentum in terms of order wins with both national and international clients. MIC manufactures LED displays in India, with LED and other raw materials imported from NICHIA Corporation, Japan. MIC’s revenues and net profits have grown by a CAGR of 53 per cent and 100 per cent respectively in the last five years.

LED business holds the key

A 2008 report of FICCI-PWC on out-of-home advertising estimates the market size to be Rs 1,250 crore for 2008 in India alone with a growth of 25 per cent last year. MIC Electronics, with its countrywide reach and established relationships with government and other clients, appears well-placed to tap into this market opportunity. The pace of mall and large format retail store rollouts is likely to remain quite strong in India over the next few years, with home-grown retailers, large realty companies and international retailing giants all readying pan-India forays.

This points to strong demand for LED billboards, which are deemed a better mode of display than incandescent bulb lighting, and suggests sizeable opportunities for this business. This apart, higher offtake from the Railways (the Railway budget has indicated expansion in LED displays in stations around the country) and airports, also present domestic opportunities for growth.

MIC and InfoSTEP (its subsidiary) have jointly developed a Global Digital Billboard Exchange Solution (GLOBIX) that enables clients to optimise the utilisation of their advertisement space. This solution has been launched in the stations of the Delhi Metro Rail and may be replicable in high potential markets such as the US, where adoption of such technology may be higher.

This apart, MIC has also inked a JV with Latin America Futbol Corporation — Sports LED Media — to focus on LED solutions for stadiums across the world. Initially, the JV would focus on Latin America and Europe, two large markets where football is a popular sport with several events through the year.

This presents potential for LED displays by way of perimeter advertising, billboards and other forms of visual displays. If the JV manages to tap even a part of the market, the company would benefit by way of revenue-share arrangements.

Telecom segment

Though the telecom equipment manufacturing business is a low-margin business, MIC has two potentially strong areas of operation. First is the inter-operator billing solutions that it provides, which may hold potential as the number of operators in the telecom segment expands.

Second, the proposed forays by leading telecom operators such as Bharti Airtel and Reliance Communications into the IPTV segment may expand the market for products in the broadband DLC for triple play (voice, data and video).
Risks

Competition in the domestic market from players such as Barco and in the international market from Barco, Daktronics, Stella Vista may lower order sizes and have the potential to put pressure on margins. WLL handsets, which MIC manufactures, may not have strong prospects in the wireless landscape.

MIC Electronics jumps on Railway Budget proposals

In BSE, 14,113 shares of the scrip were traded. The stock had an average daily volume of 47,954 shares on BSE in past one quarter.

The scrip had touched a high of Rs 799 and a low of Rs 720 so far during the day. The stock had hit a 52-week high of Rs 1087.80 on 27 December 2007 and a 52-week low of Rs 210.25 on 30 May 2007.

The scrip had underperformed the market in the one month to 25 February 2008, falling 8.79% as against the Sensex's 3.87% decline. It had, however, outperformed the market in the past three months, soaring 21.75% against the Sensex's 7.72% slide.

The mid-cap video display system maker has an equity capital of Rs 20.13 crore. Face value per share is Rs 10.

At the current price of Rs 786, the scrip trades at a PE multiple of 28.87, based on Q3 December 2007 annualised EPS of Rs 27.22.

The estimated time of arrival or ETA is a system used to know when the vehicle is expected to reach/arrive at a certain place. ETAs are used in public transports to generate estimated times of arrival depending on either a static timetable or through measurements on traffic intensity. ETA is electronically calculated and flashed on LED display screens.

MIC Electronics designs and manufactures light-emitting diode (LED) video display systems. The LED products manufactured by the company find various applications, including sport and live events, advertising campaigns and news ticker displays.

The net profit of MIC Electronics rose 109.8% to Rs 13.70 crore on 114.8% rise in sales to Rs 78.24 crore in Q3 December 2007 over Q3 December 2006.

MIC Electronics

MIC Electronics

Pioneer Distilleries, MIC Electronics, Bharat Gears

Pioneer Distilleries, MIC Electronics, Bharat Gears

MIC Electronics

MIC Electronics

MIC Electronics: Invest at cut-off

Investors with a high-risk appetite and medium-term investment horizon can consider subscribing to the book-built initial public offering of MIC Electronics.

The offer price has been fixed in the price band of Rs 129- 150 . The strengths of this offer stem from the company's first-mover advantage in the niche area of LED (Light Emitting Diode) video display business, the ability to scale-up outdoor advertising market from a relatively low base, and a reasonably good order pipeline in this segment.

On the flip side, however, in a price-sensitive market, the nascent LED display segment is likely to encounter competition from cheaper media applications , risks arising from execution and technological obsolescence and relatively high exposure to low margin telecom segment.

In this backdrop, we will be comfortable if the final offer price is fixed at the lower end of the price band. At the upper end of the price band, the price-earnings multiple works out to 14 times the 2006-07 per share earnings on an annualised and fully diluted basis.

MIC Electronics' business can be broadly categorised under three segments — media, infotech and telecom.

The core business segment for MIC Electronics will be media. This segment is focussed on the development, production and sale of video displays, text, graphic animation and display services. According to the US-based EDG Research, MIC Electronics is the only Indian company that has the capability in the field of LED video display systems. This segment is expected to cater to the requirements of sport and live events; electronic billboards/hoardings and news advertising ticker displays; indoor applications such as shopping malls, airports and other mobile applications.

Utilisation of funds

Of the offer proceeds of Rs 65-76 crore, a chunk is to be utilised towards setting up additional facility for LED video display.

Business segments

For the year-ended June 30, 2006, the media segment accounted for 31.4 per cent of sales at Rs 31.9 crore, recording a near three-fold rise from the previous year. The operating profit margin of this segment also improved to 30.7 per cent, up from 22.6 per cent in the same period. According to the offer document, though the number of screens sold by MIC dipped to 25 (from 36 in the previous year), the number of modules sold shot up to 1,681 (from 602). This contributed to a four-fold rise in average module per screen and margin per screen.

On the one hand, the buoyant economic environment in India is likely to create a huge opportunity for growth of the LED display market.

At the same time, given the nascent stage of development of the outdoor advertising through LED displays, the availability of outdoor vinyl hoardings at a lower cost and competition from international companies such as Barco NV or Daktronics Inc. (subject to import tariffs), there is a possibility of fluctuation in the quarterly performance of MIC Electronics. The infotech segment, which offers telecom software solutions such as telecom network management or computer telephony, has got a leg up with the recent acquisition of 55 per cent shareholding in InfoSTEP Inc, US.

This acquisition is expected to provide MIC Electronics access to business intelligence, enterprise application and survey management services.

The telecom segment, which contributed 65 per cent of revenues in 2005-06, caters principally to CDMA/GSM-based terminals, handheld computers and digital loop carriers. The operating profit margin at 12.9 per cent, up from 8.4 per cent in the previous year, is still substantially lower than the media segment.

The book running lead manager to the offer is Edelweiss Capital. The offer opened on April 30 and closes on May 8.

Morgan Stanley - MIC Electronics IPO

Morgan Stanley - MIC Electronics IPO

Anagram - MIC Electronics IPO Analysis

Anagram - MIC Electronics

MIC Electronics IPO Analysis

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.