Zicom looks interesting to me in the wake of some new developments

1)       News that products be sold thru 100 Future group’s outlets

2)       Increasing stake of a ‘Ruane, Cunniff & Goldfarb INC’(Refer below) from 4.9% to 5.6% of Zicom shares thru Secondary market on Jun 13

3)       Allotment of 5 lakh shares (approx 5% shares) to Bennett, Coleman & Co. Ltd on Jun 11 at Rs200 per share (market value Rs230 as on Jun 11) on Jun 11 (Hmm.. don't know what BCCL can bring to Zicom ? - Ads at reduced rates in TOI & Mirchi heh  )

Company Snapshot

CMP  : Rs 230 9 (The stock has gone up in recent 2-3 weeks by 30% or so..)

07 EPS: 8.42

Trailing PE : 27

08 Forward PE : 19

Mcap : 226 Cr

Sales : 154 Cr

PBITDA 16.8 Cr

PAT : 7.7 cr

What holds ahead?

Company is a leader and holds 30% market share of  the electronic home/business security market. The market size if 300-400 Cr now. Electronic security market is estimated to be 1500-2000 Cr by 2010.

With booming apartments, nuclear families & retail chains opening up this is a very good pick axe theme for it.

Burglar alarms & B&W Video door surveillance (the one you see on the TV ads) for homes range from affordable Rs7000-Rs9000 to Color surveillance Rs.17,000. 

When I analyzed Zicom story earlier, it had the need & price part of it well captured, but was wondering how they can reach the masses. They started by plan to open their own retail pieces, which did not look that promising,. With the recent deal with PRIL & recent ads on TVs etc it looks much more promising.

All in all it is not merely the story the company has been performing :

Sales CAGR of past 5 yrs : 48%

EPS CAGR for past 5 yrs : 30%

Other names that hold Zicom include some FIIs (15%) , MFs & Insurances

- Arisaig Partners Asia Pte Ltd – 8.1%

 - Taib Securities Mauritius Ltd – 1.65%

  -Deutsche Securities Mauritius Ltd - 2.17%

  -Deutsche Bank AG London CB Account – 2.19 %

 - Goldman Sachs Investments Mauritus India – 3.9%

 -General Insurance Corporation of India – 2.56%

  -Carlson Fund Equity Asian Small Cap – 2.95%

  -SBI Mutual Fund A/c Magnum Global Fund – 6.14%

Some concerns:

1)They keep diluting equity almost very year by 5% or so.. Don’t know if this is very high or acceptable. (That is why I have taken the EPS growth rather than the net profit growth for analysis)

2)       ROE is low at 14-15 %

3)       Debt to Equity ratio is at  0.92 from 2004’s 0.1

4)       Some  investment groups like - Fastflow Consultants Pvt Ltd, Baronet Properties & Investments Pvt Ltd , Coronet Properties & Investments Pvt Ltd have sold near to 4% share holdings in last month alone. I see that from the Insider trading. Don’t know the credibility of these companies.. Any body with any ideas if we should pay weightage to that?

And Last here is what I found on ‘Ruane, Cunniff & Goldfarb INC’

Ruane, Cunniff & Goldfarb is the investment firm founded in 1969 by William J. Ruane and Richard T. Cunniff. The firm manages its trademark Sequoia Fund, which has one of the best long-term performance records on Wall Street. The firm manages over $14 billion in assets.

Ruane, Cunniff & Goldfarb is perhaps best known as the investment advisor and distributor of Sequoia Fund (SEQUX). From the fund's inception in 1970 through June 2006, its average annual total return has been 15.68%. The fund has been closed to new investment since 1982.

As of March 31, 2006, the fund's net assets were roughly $3.6 billion. The fund's largest holding is Berkshire Hathaway Inc. Sequoia holds roughly $1.2 billion in Bershire Hathaway stock.

My take is, if the company was able to grow at pace of 45%+ and EPS growth of 30%+ in past 5 yrs, then in next 3 yrs with an increased retail presence and demand, it could easily excel that.

Considering the scope of opportunity & Zicom being market leader getting on to capitalize that I would seriously consider initiating exposure to this company.

I am looking at 40% EPS growth is achievable if not higher.

Any thoughts ? Also any thing of real concern from the Key concerns list ?