ICSA

Message

Next big thing

PENNY WISE

Niren Shah / Mumbai August 6, 2007

Innovative products and geographical diversification will allow ICSA India to expand its footprint globally. 

It is well known that the Indian power sector has been experiencing shortages perennially. The peak power shortage amounts to about 13 per cent, while the total energy shortage is about 8 per cent for the entire country. 

The story turns gloomier as the power transmission and distribution companies grapple with incessant power thefts across the country. Transmission and distribution losses to state electricity boards (SEBs) and distribution companies amount to almost 35-40 per cent of their total distributed power. 

The few power ancillaries from the industry have been trying to come up with innovative solutions to tackle power-thefts, and have achieved some success. ICSA India is one such power ancillary, which has its roots in making devices to monitor power supply at various points of its distribution, is now adding more products and solutions using information technology. 

Versatile products 

ICSA has developed technologies with embedded software, which monitor as well as communicate the supply and consumption to a central database stationed at the distribution company’s offices. 

These devices help distribution companies monitor their networks for faults, as well as to get real-time supply and consumption data while conducting energy audits, which are now mandatory for all SEBs. 

ICSA is now extending the application of this technology from distribution of electricity to other areas such as supply of water, oil and gas pipelines for remote meter reading, supply audits, monitoring of thefts, leakages and other maintenance. 

“Our strength lies in our R&D, which enables us to design and launch new proprietary technologies and products,” says G Bala Reddy, chairman and managing director, ICSA India. “We already have four patents approved, and another two are likely to be approved by the end of FY08,” he adds. 

The company has recently developed a technology to measure and monitor corrosion in oil and gas pipelines, with the use of sensors placed on pipelines at various places which communicate the condition of the pipeline back to the control rooms using GSM technology. With this product, ICSA is eyeing oil and gas majors globally to expand its client base. 

Globalising 

In FY07, about 12 per cent of ICSA’s top line constituted of export revenues. Says Reddy, “We are now looking to expand our reach beyond the Indian shores, and considering entering developed markets such as the US and the UK.” 

The company has been mulling over acquiring similar outfits in the west. For this, it has raised $22 million (Rs 88 crore) and $24 million (Rs 96 crore) via foreign currency convertible bonds (FCCBs) in April-June this year. 

Of this, $17 million (Rs 68 crore) has been utilised towards modernisation of its R&D and expansion of its existing production facilities. The rest will be used for acquisitions, which are likely to be completed by the end of FY08. 

Powerful growth 

ICSA has grown its top line at a compounded annual rate of 213 per cent over FY03-FY07, while its bottom line over this period has grown at a compounded rate of 416 per cent. It has maintained healthy operating margins at over 25 per cent over the past three years.

PERFORMANCE MONITOR

Rs crore
FY07
FY08E
FY09E

Revenues
330.10
600.00
1000.00

Operating profit
85.10
160.20
270.00

OPM (%)
25.80
26.70
27.00

Net profit
63.60
115.00
200.00

NPM (%)
19.30
19.20
20.00

EPS (Rs)
82.60
134.00
210.50

P/E (x)
11.60
9.70
6.20

In line with this, the net profit margins have been well above 18 per cent for the same period. Over 90 per cent of its revenues are derived from its patented products at present, which is expected to lower as the annuity-based services and maintenance revenues kick in. 

Going further, the company aims to rope in more from exports - by the end of FY08, the share of exports is expected to go up to 20 per cent from 12 per cent for the previous fiscal. “We already have an order book of Rs 600 crore, executable over the coming 12-18 months,” claims a confident Reddy. 

Valuation 

At Rs 1,300, ICSA is valued at nearly 10 times and 6 times its estimated FY08 and FY09 earnings, respectively. In comparison to other power ancillaries such as Emco, Indo Tech Transformers and Voltamp Transformers – which are largely focused on the power sector alone – ICSA traded at a significant discount, on a trailing 12-month basis. 

PEER COMPARISON

FY07
P/E

ICSA India
11.60

Emco
22.70

Indo Tech Transformers
16.30

Voltamp Transformers
23.50

Over the past three months, the stock has returned a whopping 78 per cent, and continues its uptrend. Given the company’s diversification strategy based on its intellectual capital, its growth plans appear well on track. One may consider including the stock in a long term portfolio. 

Business - Standard