IPO Analysis

IPO: Exicom Tele-Systems

Should you subscribe to the IPO of this power management solution provider?

Exicom Tele-Systems IPO: Everything you need to know

Exicom Tele-Systems, a power management solution provider, will launch its IPO (initial public offering) on February 27, 2024. Here's a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

  • Quality: Its three-year average ROE and ROCE are 11 per cent each. It also reported positive cash flow from operations each year except in FY21.
  • Growth: The company's revenue and profit after tax grew by 17 and 56 per cent annually, respectively, between FY21 and FY23.
  • Valuation: The stock is valued at a P/E and P/B of 26.3 and 2.7 times, respectively.
  • Overview: The rising trend of sustainable energy combined with the increased adoption of electric-based new energy solutions, especially in the telecommunication and automobile industry, should drive growth. However, opportunities in the sunrise industry will attract much competition from both organised and unorganised players, which, combined with high capital requirements, may pose a threat going forward.

About Exicom Tele-Systems

Founded in 1994, Exicom Tele-Systems is a power management solution provider. It operates under two main segments:

  • Critical power segment: It provides energy storage solutions to telecommunication sites such as cell towers and other enterprise usages like in-house energy storage for data centres. This segment contributed 69 per cent of revenue as of TTM September 2023.
  • EV (electric vehicle) charger segment: It provides electric vehicle supply equipment solutions, like offering charging systems for residential, business, and public purposes. In simple terms, it provides infrastructure for EV charging. This segment contributed 31 per cent of revenue as of TTM September 2023.

Strengths of Exicom Tele-Systems

  • Being an early entrant, the company has a 60 per cent and 25 per cent market share in residential and public charging segments, respectively.
  • Vertically integrated operations supported by two R&D (research & development) facilities and three in-house manufacturing facilities help it provide end-to-end product development in their B2B category.

Weaknesses of Exicom Tele-Systems

  • Highly competitive industry: It faces stiff competition from many listed and unlisted players in the battery management industry. Its critical power segment, which accounted for 67.1 per cent of revenue from operation as of FY23, holds just 16 per cent market share in the DC (direct current) power systems market.
  • Client concentration: Its top five customers accounted for more than 50 per cent of revenue from operations in the six-month period ending September 2023.
  • Supply concentration: The company relies heavily on a few local and global suppliers for its raw materials. China alone contributes to more than 50 per cent of total raw material expenses.

IPO details

Total IPO size (Rs cr) 429
Offer for sale (Rs cr) 100
Fresh issue (Rs cr) 329
Price band (Rs) 135-142
Subscription dates Feb 27 - 29, 2024
Purpose of issue Capex, working capital requirement, repayment of debt, and offer for sale (OFS)

Post IPO

M-cap (Rs cr) 1716
Net worth (Rs cr) 640
Promoter holding (%) 69.6
Price/earnings ratio (P/E) 26.3
Price/book ratio (P/B) 2.7

Financial history

Key financials 2Y CAGR (%) TTM FY23 FY22 FY21
Revenue (Rs cr) 17.5 947 708 843 513
EBIT (Rs cr) 52.7 73 36 52 15
PAT (Rs cr) 56.5 61 31 30 13
Net worth (Rs cr) 4.3 311 232 222 213
Total debt 4.5 86 133 128 122
EBIT is earnings before interest and taxes
PAT is profit after tax

Key ratios

Ratios 3Y average (%) TTM FY23 FY22 FY21
ROE (%) 11 23.8 13.4 13.7 5.9
ROCE (%) 11.3 19.7 10.9 17.7 5.3
EBIT margin (%) 4.8 7.7 5.1 6.2 3
Debt-to-equity 0.3 0.6 0.6 0.6
ROE is return on equity
ROCE is return on capital employed

Risk report

Company and business

  • Are earnings before tax of Exicom Tele-Systems more than Rs 50 crore in the last 12 months?
    Yes. It reported a profit before tax of Rs 73 crore in the twelve months ending September 2023.
  • Will Exicom Tele-Systems be able to scale up its business?
    Yes. The EV industry is still growing in India, and the company can leverage it to scale up its business.
  • Do Exicom Tele-Systems have recognisable brands with client stickiness?
    No. The company does not enter into long-term arrangements with its clients.
  • Does the company have a credible moat?
    No. It faces stiff competition from other listed and unlisted players.

Management

  • Do any of the company's founders still hold at least a 5 per cent stake in the company? Or do promoters hold more than a 25 per cent stake in the company?
    Yes. Post-IPO, the promoters' stake will be 69.6 per cent.
  • Do the top three managers have more than 15 years of combined leadership at Exicom Tele-Systems?
    Yes. Key managerial personnel and senior management have over 15 years of combined experience.
  • Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
    Yes. No information to suggest otherwise.
  • Is the company's accounting policy stable?
    Yes. No information to suggest otherwise.
  • Is the company free of promoter pledging of its shares?
    No. Promoters have pledged 2.63 per cent of outstanding paid-up share capital.

Financials

  • Did the company generate a current and three-year average return on equity of more than 15 per cent and a return on capital employed of more than 18 per cent?
    No. Its three-year average ROE and ROCE are 11 per cent each. In the twelve months ending September 2023, its ROE and ROCE were 24 and 20 per cent, respectively.
  • Was the company's operating cash flow positive during the last three years?
    No. It reported operating cash outflow in FY21.
  • Is the company's net debt-to-equity ratio less than one?
    Yes. Its net debt-to-equity ratio, as of September 2023, was 0.3 times.
  • Is Exicom Tele-Systems free from reliance on huge working capital for day-to-day affairs?
    No. The company has a high working capital requirement with a recorded cash conversion cycle of 97 days in FY23 and an average of 88 days between FY21 and FY23.
  • Can the company run its business without relying on external funding in the next three years?
    Yes. While it occasionally relies on short-term debt for working capital, the IPO proceeds should help.
  • Is Exicom Tele-Systems free from meaningful contingent liabilities?
    Yes. Contingent liabilities as a percentage of total equity stood at around 1 per cent.

Valuations

  • Does the stock offer an operating earnings yield of more than 8 per cent on its enterprise value?
    No. The stock offers a 4.2 per cent operating earnings yield on its enterprise value.
  • Is the stock's price-to-earnings less than its peers' median level?
    Yes. The stock is valued at a P/E of 26.3 times compared to its peer's median P/E of 101 times.
  • Is the stock's price-to-book value less than its peers' average level?
    Yes. The stock is valued at a P/B of 2.7 times as compared to its peer's median P/B of 17.1 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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