MIC Electronics - Profiting from a Warming Planet

MIC Electronics Limited. is a global leader in the design, development & manufacturing of LED Video Displays, high-end Electronic and Telecommunication equipment and development of Telecom software since 1988. An ISO 9001: 2008 certified company, it has marked presence in the highly dynamic segments of:

• LED Video, Graphics and Text Displays
• LED Lighting Solutions
• Embedded, System and Telecom software
• Communication and Electronic Products

MIC's flagship products are LED Video Displays (indoor / outdoor / mobile), that have become an integral part of Sports Stadiums, Transportation Hubs, Digital Theatres and Theme Parks, Advertisements and Public Information Displays.

Headquartered in Hyderabad, it has a nation wide presence in the form of a vast network of marketing, sales and service support centres in all metros of India. To meet the demand of its products worldwide, it has offices in Australia,Korea and USA. Now the company is gradually setting up operations in other international markets.

The company has also been rated by Forbes Asia magazine as one of the 'Best Under a Billion'.

Business Mix:
The company is present in 2 segments: Digital display solutions & LED based lighting solutions

The company's digital display business enjoys major presence in malls and commercial complexes in the country. These devices are set up in high footfall areas and are used to display advertisements and public interest messages. The company has an order in Delhi to set-up digital hoardings, which will be paid for through the advertising. Also, the company has entered international business, by tying up with sports event management companies in Australia, Latin America, etc for supplying digital signboards in sports venues. Going forward, Digital display business will produce regular predictable annuity income. Company has healthy order book in LED business also.

LED based lighting solutions is a segment which is seeing high levels of interest due to the increased focus on eco-friendly technologies. The main reason for this is the technical superiority of the LED technology. LED based lights are able to generate significant cost savings over their lifetime against the CFL & incandescent technology. LED bulbs have a life-span of 100000 hours, as compared to bulbs and tubelights, which last between 1000-10000 hours. Further, the electricity consumption is much less than traditional lighting and even CFL lamps. This leads to major savings over the life time of the bulbs, despite the higher up-front cost. LED lighting technology has a payback period of 1-2 years.

The company has received orders from Railways for replacement of in-coach lights and signages with LED lights. This is a major growth booster for the company. Also, the company has a relationship with Delhi Metro for lighting its stations.

Valuation:
The stock is trading much below its pre-crash highs. The main reason for the stock's fall was that the promoters had pledged a major part of their share holding in order to raise debt for expansion. In the wake of the Satyam scandal, this caused a steep fall in the price. Also, the company is in a growth stage, and therefore it has negative free cash flows.

The company is on the verge of a re-rating. On a consolidated basis, the company has declared earnings growth of 25% in the quarter ended March '09. The current TTM P/E is 7.5.

The company consistently achieves PAT margins > 20%, and Return on Capital > 20%. The stock had a lifetime high of stock is 217 (adjusted for splits & bonuses), vs its current price of ~ Rs 40.

The stock is expected to provide multi-bagger returns in the future. The company has steady earnings growth, and also is cheap by most valuation measures.