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Multibegger by K.R Choksey

Friday, December 14, 2007

Multibegger by K.R Choksey
Micro Technologies India : Reco Price Rs. 271.10 CMP: Rs.292.00 (Gain 7.71%)
MTIL is a global provider of security, safety and life-support solutions. MTIL’s systems combine state-of-the-art technologies such as GPS, wireless communications, and business intelligence with a full array of sensors to ensure integrity, reliability, security and efficiency. MTIL has been awarded the ‘Technology Fast 50 (India) Award’ for 2006-07 for being one of the fastest growing companies in India by the Deloitte Touché Tohmatsu.

Micro Technologies India Ltd

Investment Rationale:

MTIL is a global provider of security, safety and life-support solutions. MTIL’s systems combine state-of-the-art technologies such as GPS, wireless communications, and business intelligence with a full array of sensors to ensure integrity, reliability, security and efficiency. MTIL has been awarded the ‘Technology Fast 50 (India) Award’ for 2006-07 for being one of the fastest growing companies in India by the Deloitte Touché Tohmatsu. We like the company for the following compelling reasons:

Large and Growing Market:

In India, around 85000 vehicles are stolen every year and only 16000 of them are recovered. The size of this market is Rs 220 crore. Besides, incidences of home burglary in India and abroad are increasing rapidly. MTIL’s sophisticated Vehicle and Home Security Systems are one of its kind and much more superior compared to other security systems available in the market. There is no other major player in Indian market who offers similar technology and similar products with a pan-India presence. Thus, there exists vast scope for MTIL to ramp up its scale through adequate marketing strategy. The company has expanded its Dealer/Distributor Network and plans to increase its Micro Shoppe network from 75 at present to 250 in the current year.

Geographical expansion to boost topline:

Exports contribute 38% to MTIL’s revenues and this is expected to gradually increase going ahead since the company is planning to increase its presence in the Middle East countries, Japan, Indonesia and South Africa. MTIL is in the process of tying up with various marketing companies in India and abroad to ramp up its domestic and global presence. Security products in developed countries constitute a large market where the company’s product cost and AMC (annual maintenance cost) are much lower compared to similar products and this factor will help it grow exports manifold going forward.

Strong R & D Focus:

R&D is one of the strongest core competencies of the company. MTIL’s CMD is a Ph.D. technocrat and personally looks into this area. It has invested more than Rs.60 crore in Research & Development assets. MTIL has developed 140+ products so far to secure vehicle, shop, office, retail, bank and other sensitive assets. The company concentrates mainly on development of new & innovative products and outsources majority of its manufacturing to other units.

Industry Scenario:

MTIL is a global provider of security, safety and life-support solutions. MTIL’s systems combine state-of-the-art technologies such as GPS, wireless communications, and business intelligence with a full array of sensors to ensure integrity, reliability, security and efficiency. MTIL has been awarded the ‘Technology Fast 50 (India) Award’ for 2006-07 for being one of the fastest growing companies in India by the Deloitte Touché Tohmatsu. MTIL has almost 140 products in its portfolio. However, it banks on its three main products, namely, Vehicle Black Box, Home Security System and Lost Mobile Tracking System.

Micro Vehicle Black Box (VBB):

• Micro VBB is a vehicle security device that helps you track your vehicle when stolen. In India, around 85000 vehicles are stolen every year and only 16000 of them are recovered. The size of this market is Rs 220 crore.
• This product contributed Rs 65 crore to topline i.e. around 63 percent of the total revenues in FY2007. The company has sold around 120000 units (8000 units exported) of VBB in FY2007. The company is able to meet the demand of customers with its manufacturing capacity of 5000 units and rest through outsourcing.
• The company has started expanding into different geographies like U.S and South Africa, which are highly lucrative markets for this product. It is looking for potential acquisition targets in U.S. to consolidate its position in the market.
• The company would face tough competition in U.S. from a car security product called “LoJack” which has more than 50 percent market share, though its product has superior features compared to LoJack which can only raise an alarm.
• The company has a tie up with Ford India to sell its units at ford Authorized showrooms across the country for Ford IKON model, thus demonstrating acceptance of its technology by MNC car makers.

Micro Lost Mobile Tracking System (LMTS):

• This software system helps the customer to track its mobile when stolen. The Mobile handset thefts in India and world over are huge. The company charges Rs 399 for subscription of 12 months. It has also tied up with Bharti Airtel Ltd to offer this system to their subscribers.
• However, currently this product is available for GSM mobiles only but the company is preparing to launch it for CDMA and Blackberry handsets also.
• The company has also entered into a joint venture partnership with 100 percent subsidiary of Mitsubishi Corporation Jicoux data systems of Chinese and Japanese market.

Micro Home Security System (HSS):

• Micro Home Security Systems installed at residence, office premises detects any sort of anomaly like theft or fire and immediately alerts via email & Mobile alerts the concerned person in order to take preventive measures.
• The company has entered into various Middle East and Asian markets for marketing this product.
• In India, the company is planning to start massive marketing for this product.

Reputed Clientele:

MTIL has reputed names as its clients. For example, Telecom Service providers like Airtel, Idea & MTNL, Petroleum companies like BPCL & HPCL, Automobile companies like Mahindra & Mahindra, KK Motors, and various companies/organization across sectors like Atlas Apco, TVS Lucas, Tata Honeywell, Riverdale Foods, Autofin Ltd, FICCI, Myso India, Mercury Infotech, CIDCO, M.S.E.B., Mantralaya, M.C.G.M., M.P.C.B., N.M.M.C., Sicom Ltd, and others. MTIL’s products have huge market potential and no major competitor but are yet to capture a sizeable market. The company has to scale up its marketing efforts manifold to monetize its first mover advantage before big MNC players enter the market. Thus, in order to increase sales, the company has decided to initiate marketing on a massive scale by expanding their dealer/distribution network. It will set up around 250 Micro Shoppe by end of FY2008.

Key Developments and Impact:

100% subsidiary for HSS business:

MTIL has formed “Micro Secure Solutions”, a 100% subsidiary for its Home Security System business. Also, out of the various investment proposals for this subsidiary, proposal of USbased Girvan Institute of Technology for $1 million for 2% stake has been accepted. Girvan is a technical institute promoted by NASA to facilitate the growth of high technology business. The subsidiary will have senior level key personnel to look after the marketing of security solutions. This would enable the company to focus on taking the business on a new scale.

Financial Analysis:

Strong show continues:

The Q2FY2008 Net Sales grew by 50.1% to Rs 38.6 crore due to the strong show posted by its VBB product. Inspite of lower Other Income and higher Staff cost, the EBITDA increased by 56.9% to Rs 16.7 crore due to less than proportionate increase in Other Expenses. Decline in interest and lower rise in depreciation charge shot up the PBT by 65.1% to Rs 13.4 crore. However, the Provision for Tax has more than doubled. Net Profit thus grew by 60.8% to Rs 11.9 crore.

Valuations:

At the CMP of Rs 279, MTIL is trading at 2.2x EV/Sales and 5x EV/EBITDA. It is trading at a P/E multiple of 7.4x on TTM basis.

Risks:

The Company’s products have huge market potential and no major competitor but are yet to capture a sizeable market. The company has to scale up its marketing efforts manifold to monetize its first mover advantage before big MNC players enter the market.

Growth:

In India, around 85000 vehicles are stolen every year and only 16000 of them are recovered. The size of this market is Rs 220 crore. Besides, incidences of home burglary in India and abroad are increasing rapidly. MTIL’s sophisticated Vehicle and Home Security System products are one of its kind and much more superior compared to other security systems available in the market. Thus, there exists vast scope for MTIL to ramp up its scale through adequate marketing strategy.

Posted by pp at 10:11 AM  

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IMPORTANT DISCLAIMER

Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.