We have already covered an article on Telecom story which is far from over [Click Here] & our 10in3 for the July ‘10 month will be a huge beneficiary from it.
Now this article will provide more insight about the stock & investment rationale for such a strong conviction.
Business Insight:-
- Company is one of the leading telecom products manufacturer, providing world-class, hardware products and solutions for the telecom industry.
Company holds the distinction of being the largest manufacturer of “XXXXXX” and “XXXXX” all across the country. Company has its presence among various high margin products in Telecom manufacturing sector.
- This 10in3 has done many foreign companies acquisitions to increase footprint in the North American region. The major reason for these many foreign acquisitions in two years was to expand the product portfolio with high technology and high margin products. It would be time consuming to set up R&D centre in India. It would be far more convenient and cost effective to acquire a high technology company and introduce their telecom products in developed and developing market like India.
Key Positive Factors:-
These are the already existing factors which will impact the business and working of company in a very conductive manner.
- Rural India – Expansion Mode:- The telecom infrastructure is a key area in the Government’s Bharat Nirman programme, which is aimed at improving the overall rural infrastructure in the country, at an estimated cost of INR 1,760 billion.
- Expansion in EBITDA Margin:- In the last 2 financial years, the EBITDA margins of the standalone entity has increased from around 13% in FY 09 to 27% in FY 10. It was in the same 2 years that the company carried out acquisitions. We believe that this factor is largely being overlooked by the markets.
- Improvement in Defense and Space sector:- Company has received a very positive response from the Defense and Space segments and has been entrusted with the design and development of various “XXXX” products and “XXXX” for Defense and Space applications. Management is targeting at total revenue generation of 7-10% from this extremely prolific segment.
Key Growth Drivers:-
These are the key factors that will shape the growth of the company in the Years to come.
- In-Building Solutions:- In-Building Solutions(IBS) offering enables operators to optimize their mobile network to meet the increasing demand for high-quality mobile services, indoors. The company has already tied up with more than 100 buildings on a 10 year contract to provides IBS which would cover various telecom service providers. The company is expected to generate revenues of around 1.25 lacs per building per month.
- Third Generation (3G ) Mobile:- 3G is going to do to the Internet in India what 2G did to mobile telephony. Company has already designed and developed products for 3G and has received approvals from some prominent OEMs for the same.
- WiMax:- WiMax will lead the Indian broadband growth story, helping achieve the goal of having 100 million broadband users by 2014. High-speed data access is expected to bridge the urban-rural digital divide and help address concerns of delivering essential services like education, finance and healthcare.
Some Financial Highlights:
- The company is currently available at a valuation of around less than 5 times the consolidated earnings and at around less than 4 times the stand alone earnings. It should be noted that this counter has never been cheap. For most of the period before Jan 2008, the company used to trade at a range of 20 to 40 times the then current year earnings.
- While, the bad sentiments in the telecom sector could be a dampening factor on the valuations, we believe that such low valuations are not sustainable for the company in longer run. Even a tower building company with low margins like NuTek is trading at a valuation of more than 6.
- The company has displayed strong growth rates in the last year and we are expecting the numbers to be strong in coming year also. We expect the company to grow its earning at a CAGR of 40% for next 3 years.
Investment Rationale:
- Company is run by experienced technical management who has shaped this company from scratch.
- We expect the revenues to grow at a CAGR of around 35% and earnings to grow at a higher CAGR of more than 40% for the next 3 years. At such growth levels, the company should be able to post earnings of around 75 Crore for the financial year FY 13 and at a 13 times valuations, the company would be valued at around 1000 Crore, which would be a 9 bagger from the current levels.
-Team ROD
HBJ Report Factory Price - Rs 2500/-
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