Exicom Tele-Systems Ltd. (Subscribe)

Highlights

Exicom Tele-Systems Limited (ETSL) incorporated in 1994, is an India headquartered power management solutions provider, operating under two business verticals (I) Critical Power Business and (ii) Electric Vehicle Supply Equipment Business.

In the Critical Power Business the company designs, manufactures and services DC Power Systems and Li-ion-based energy storage solutions to deliver overall energy management at telecommunications sites and enterprise environments in India and overseas in the EV Charger business the company provides smart charging systems with innovative technology for residential, business, and public charging use in India.

The company is amongst the first entrants in the EV Chargers manufacturing segment in India as of FY23. They had a market share of 60 pct and 25 pct in the residential and public charging segments, respectively. Furthermore, in their Critical Power Business, they occupy a market share of 16 pct in the DC Power Systems market and are recognized in the market for Li-ion Batteries for application in the telecommunications sector, having a market share of approximately 10 pct as of FY23.

The company aims to be an impact business contributing to the sustainable energy transition by enabling electrification of transportation, and energy stability of digital communication infrastructure. Being an innovation-focused company, they have a dedicated R&D team of 145 employees, as of H1FY24, housed at their two R&D centers located in Gurugram, Haryana and Bengaluru, Karnataka.

Out of the total proceeds of Rs. 4,290 mn, Rs. 502 mn would go towards repayment or prepayment, in full or in part, of all or a portion of certain borrowings of the Company. Rs. 1,457 mn would go towards Part-financing the cost of setting up production/assembly lines at the planned manufacturing facility in Telangana, Rs. 690 mn would go towards Part-funding incremental working capital requirements and Rs. 400 mn would go towards Investment in R&D and product development and Rs. 1,000 mn would go towards existing selling shareholders of the company.

Key Highlights

• The market size for telecommunication DC power systems (including hybrid systems) in India is estimated at ~Rs. 15 bn for FY23, with upgradation and replacement demand expected to drive the industry with 75 pct demand while a balance of 25 pct demand is expected on account of new tower additions. The energy storage solutions market for telecommunications is valued at Rs. 19.5 bn in FY23, while the market size for Li-ion battery energy storage systems in data centers is valued at Rs 3.2 bn in FY23. CRISIL MI&A estimates the current EV charging market in India to be valued at ~ Rs. 8.5 bn as of FY23.
• As per the CRISIL Report, there is a growing focus on expanding the charging infrastructure network across India. By designing and manufacturing EV Chargers for residential, business, and public use, the company aims to provide products to lay the infrastructure required to meet the demands of growing EV ownership in India.
• ETSL provides an additional range of services to their customers including (i) installation and commissioning (ii) services under annual maintenance contracts (iii) spare parts support and (iv) other after-sales services, including technical support and remote product management.
• The company has an extensive product portfolio and they manufacture their products in-house at their three manufacturing facilities in India at Solan, Himachal Pradesh and at Gurugram, Haryana, which have an annual capacity of 12,000 DC Power Systems, 44,400 AC chargers and DC fast chargers.
• The company’s key strategies include (i) To Capitalize on EVSE industry tailwinds, including through proposed expansion (ii) Continuing to invest in their capabilities of product innovation, engineering and design with a focus on indigenisation (iii) Increasing penetration in existing markets, and expand into new overseas markets (iv) Expand product portfolio to increase sales to existing customers and cater to new customer industries and use-cases and (v) Invest in the digital transformation of business operations to improve operational efficiencies and customer experience.
• Sales of the company have grown by ~17.5 pct CAGR during the period FY21-23 while EBITDA and profit grew 33.27 pct and ~56 pct CAGR over the same period respectively. During FY23, the company reported sales of Rs. 7,079 mn which degrew by ~16 pct YoY due to reduced orders of Li-ion batteries received during, while EBITDA decreased by 22.5 pct YoY to Rs. 524 mn as EBITDA margin slipped from 8 pct in FY22 to 7.41 pct in FY23. As of FY23, the company reported a profit of Rs. 310 mn which was increased by ~2 pct YoY. During H1FY24 the Sales/EBITDA/Profit came at Rs. 4,550 mn/Rs. 414 mn/Rs. 274 mn which was up by 110 pct/840 pct YoY.

Key Risk

• Exicom operates in industries that are highly regulated and subject to change. They are subject to various laws, regulations and standards applicable to its products. If they fail to comply with the applicable regulations, it may affect the company’s business.
• The company faces client concentration risk, If the products they manufacture experience quality defects, they may lose their customers.

Financial Performance

Valuation

At the upper end of the price band, the issue quotes a PE of 31.2x its FY24 earnings, which appears to be fully priced. However, considering its first mover in power management solutions and EV charging infrastructure and dominant market share in the EV charging segment, it is poised for bright prospects considering a shift from conventional fuel to EV vehicles globally. One can Subscribe from a longer-term perspective.

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