Micro Technologies by Jagdish Malkani (NSE Member)

Micro Technologies specialises in creating custom-tailored solutions for its clients. It is basically a software company into security products like vehicle security, mobile phone security and credit card security. Some of its clients include Airtel, Idea, Mahindra & Mahindra, MTNL.

In the mobile phone security business, the company recently tied up with Bharti Airtel to offer Micro LMTS (Lost Mobile Tracking System) to increase the security of mobile handsets of Airtel subscribers. Symbian status achieved Micro LMTS (Lost Mobile Tracking System) is an innovative product of the company. The application works on GSM Technology. This hidden software in the users mobile informs the user about the new Mobile number (that has been replaced by the original Mobile Number), IMEI Number with the current location of the handset through an SMS alert along with an email to the provided email address. This tie-up would be beneficial for the company as it will expand its reach to a large number of mobile subscribers.

One of its products, Micro VBB, is an anti-theft security system that enables the user to detect any unauthorised access to his vehicle. In case of a theft, the user has to send commands in a prescribed format via SMS to a particular number. Once the SMS reaches the system, it immobilises the car engine and locks the doors. Over 2,000 private car-owners, including corporate customers, are currently using this remote activated device. Another product, Micro house security system (HSS), can be used on premises to alert users of any unauthorised entry, again through an alert message.

In the car security business, the company entered into a strategic agreement to market Micro VBB to South Africa, which is one of the largest markets for these Security solutions. South Africa and other adjoining countries have a very lucrative and rapidly expanding market, which offers excellent opportunities for the company's vehicle security products. The market is aware of the fast pace of the new technologies involved in Security Management and the need for up-to-date asset security and safety systems, combined with an early-mover advantage will give the company an edge above the others.

The company also had recently held along with Mumbai Police and Western India Automobile Association a Vehicle Safety and Security Week to introduce and make people aware of the latest technological devices and other preventive methods to overcome the menace of vehicle theft. The government is also reported to be considering a rule that all cars need to have an anti-burglary system, which should be beneficial to the company.

The company on July 20, 2007, issued and allotted 0.5% Coupon Foreign Currency Convertible Bonds (FCCBs) with a maturity of 5 years and three days. The FCCBs were issued in the principal amount of US $ 15 and are convertible into ordinary shares of the company at an initial conversion price of Rs 312.84 per share. The FCCBs, have a 7.75% per annum yield to maturity (calculated on a semi-annual basis).

The company also has approved the allotment of 2,50,000 equity shares to Bennett, Coleman & Co. Ltd., at a price of Rs 250.40 on preferential allotment basis and also 9,00,000 warrants to Micro Associates Consultancy (I) Pvt Ltd. at Rs 250.40 per warrant with the option to convert one warrant in to one equity share, on preferential allotment basis.

The company has also finalized strategic plans to expand its operations in the US market. The company has extended its operations in the US market through one of its subsidiary Micro Technologies US Inc. According to the company, the FCCB funds issue would be used for extensive operations of the company's products in US. The revenue amounting to US $ 50 million out of this operation is expected to flow in coming 18 months with micro access control system and micro vehicle black box - navigator.

Micro Technologies has been growing at a rapid pace. For the full year, net profit rose 83.58% to Rs 32.09 crore in the year ended March 2007 as against Rs 17.48 crore during the previous year ended March 2006. Sales rose 81.63% to Rs 106.36 crore in the year ended March 2007 as against Rs 58.56 crore during the previous year ended March 2006.

For the current quarter ending June 07, Net profit rose 61.66% to Rs 10.54 crore as against Rs 6.52 crore during the previous quarter ended June 2006. Sales rose 55.73% to Rs 34.51 crore as against Rs 22.16 crore during the previous quarter ended June 2006. The company can be expected to clock in an EPS of Rs 40 on a fully diluted basis. The revenues are also estimated to grow at around 60-70% CAGR.

HDFC Trustee holds around 5.7% equity, while Goldman Sachs has a 8.55% stake in the company as per the data on 30th June 2007. The stock can be expected to reach around Rs 350 in the next one year.

Disclaimer: Jagdish Malkani holds the stock.