Transmission and distribution (T&D) losses in India are as high as 35-40%. One of the reasons for the losses of the state electricity providers is power theft. The government of India has made energy auditing mandatory to track the power loss.
This step could increase the demand for various monitoring tools and ultimately improve the efficiency of the T&D network. On the other hand, providing electricity to all households, especially in the rural areas, by 2012 is one of the priorities of the government. All these initiatives could benefit power solution companies. One of the prime beneficiaries of these initiatives would be ICSA India.
Business
ICSA India is a Hyderabad-based entity providing telemetry solutions, comprising hardware and software, to the power and pipeline industry. It has a portfolio of products, which are used to increase efficiency, reduce theft, tracking and monitoring data. For the water pipelines it has products to track and monitor corrosion. Oil well automation and control of storage tanks are some of the solutions for the oil & gas sector.
The company also provides turnkey services for electrical infrastructure projects.
It also provides sub-stations suited for electrification in rural areas. ICSA is getting regular orders for rural electrification projects. It has received a contract for supply and erection of sub-stations on a turnkey basis valued at Rs 43.97 crore.
Financials
In the last financial year, ICSA has grown at a tremendous pace. The topline had grown from Rs 84.12 crore in FY05-06 to Rs 330.07 crore in FY06-07.
The company saw higher growth in net profit from Rs 17.46 crore to Rs 63.66 crore. The recent December quarter results are also healthy, delivering a growth of 100% in net profit and total income. It enjoyed an operating margin of around 25% in the previous financial period and could maintain similar or higher margin ahead due to lower R&D and operating cost. Segment-wise infrastructure projects and services command (11.76%) a much lower operating margin than embedded and software services (32.81%). The higher operating margin offsets the higher revenues contributed by software services.
The company’s majority revenues come from the power sector. However, it is increasing its focus on the energy and water sector that could reduce the dependence on power and help to de-risk the business model.
Valuation
The company is looking reasonably valued, considering the way it has grown in the last four years and huge investment in power and water management ahead in the next three years. The annualised earning per share is Rs 28.67 and the price-earning ratio comes to 16 times fully diluted earnings.
The company’s return on networth (RONW) is very healthy at 84%. However, the company has raised funds by floating FCCBs amounting to Rs 98.45 crore which is showing in loans. However, due to the conversion of FCCBs into equity shares, RONW could come down. One of the major concerns for the company is higher debt and debtors.
Also, sustainability of its growth in the future is a concern, considering the pace of growth achieved in the last financial year. Higher focus on the infrastructure services segment ahead would fetch lower margins to the company.
