Aishwarya Telecom is a Hyderabad-based small company, which provides tests and measurement equipment used in the telecom industry. In addition, it also supplies equipment to the defence sector, railways, and cable TV operators. It manufactures telecom tests and measurement equipment for copper, optical, and data networks and has two production units in Yaman in the state of Pondicherry and Dehradun in the state of Uttarakhand.
Industry
Every year the telecom industry has been witnessing a consistent growth in the subscriber base. Telecom operators have to lay optic fibre network to cover the remaining part of the country, which increases the possibility for a higher number of problems in the network due to groundwork by municipal bodies and various other issues. As the competition intensifies in the telecom sector, the significance of the existing subscriber base increases. And then the need for providing reliable and error-free network for data as well as voice-based services increases. This is when one would see higher spending on testing and measurement equipment by the telecom operator to detect and solve problems in the network speedily. However, utilisation of testing and measurement (T&M) products is at a very low level as compared to matured foreign markets considering the penetration and the usage.
Currently, the size of the T&M industry is relatively small at about 600 crore and the maximum share is with multinational companies. In India, a majority of the players in the T&M industry are unorganised. Due to low expertise in the field there are very few companies who manufacture these products and the one who do have one or two products in their portfolio.
Financials & issue objectives
The majority of the sales of Aishwarya Telecom come from trading activity. Over a period of five years the share of manufacturing activity has declined from 39.80% to 7.77% in FY06-07 due to miniscule growth as compared to the trading business. However, the manufacturing share jumped to 15.56% in the last nine months of FY07-08. For the trading business, the company sources the products mainly from US companies. This may benefit the company if the trend of dollar depreciation continues.
Nonetheless, operating margins in the trading business hovers in the range of 15% to 25% and manufacturing on a higher side at 45% to 60%. With lower margins, the company also has higher debtors as the collection takes 90-100 days in the trading business. Due to this, the company requires Rs 7 crore for the working capital, which is the part of the issue objective. The remaining funds are intended for capital expenditure for research and development for a couple of advanced testers and analysers and also construction of land for corporate and marketing offices in Hyderabad.
From the financial point of view, the net sales of Aishwarya Telecom is 22.07 crore with a net profit of Rs 3.14 crore for the nine months ended 2007.
Valuation
On an annualised basis, Aishwarya Telecom?s fully diluted earnings per share is Rs 3.93. Considering the upper and lower price band, the price to earnings multiple is 8.89 and 8.13 times. The T&M industry being at a nascent stage domestically, the company is one of the largest. It is to be seen whether the company is able to acquire a higher share in the industry, which is mainly dominated by multinational companies.
One must consider the above factors before investing.
