Tuesday 8 January 2008

MULTIBAGGER - ICSA India

ICSA (INDIA) Ltd.

ICSA is one of the fastest growing companies in the Power T&D and Oil and Energy space. We recommend ICSA as an excellent Mid-Cap play with the year-end target of Rs 1000.

Company Profile

ICSA is a Hyderabad based Mid-Cap company, which provides products and solutions in the Infrastructure space with particular emphasis on Power (Transmission and Distribution). In the last one or two years this fast growing technology driven company has made aggressive inroads into the Oil and Energy sector and also into providing turnkey solutions on an EPC basis for Infrastructure.

Industry Overview

The Indian power sector is plagued by huge losses in Transmission and Distribution, which sometimes goes as high as 50%. It is most essential that these losses are minimized, since that would increase power availability with marginal investment. Keeping this in mind, the Government has launched a massive scale Accelerated Power Development and Reforms Programme (APDRP) whereby power utilities are funded for investment in reduction of T&D. ICSA is perhaps the most prominent player in this area providing products and services and a huge beneficiary of this Programme.

Pipelines are the lifeline of the Oil and Energy sector since they are the most cost efficient means of transportation for natural gas, crude oil, petroleum products etc. Due to transportation over long distances at high pressure corrosion often takes place leading not only to losses but disasters also. ICSA has developed products and solutions for the prevention and management of these losses.

Products and Clients

The main products of ICSA are Distribution Transformer Monitoring Systems (DTMR), Theft Detection Devices (TDD), Intelligent Automatic Meter Reading (IAMR), Remote Street Light Control Systems in the Power Transmission and Distribution space. Its Intelligent Cathodic Protection Solutions (ICAP) is a star in the Oil and Gas pipeline space.

ICSA’s clients in the power sector include almost all State Electricity Boards and leading private players like Reliance Energy. In the Oil and Energy space, it has huge orders from Oil India and is expected to finalise contracts with several others.

Financial Position

ICSA’s growth has been spectacular. For the financial year ended 31 March 2007, ICSA registered a more than 300% increase in turn over from Rs. 81.1 crores to Rs. 332.5 crores. Its profit after tax also went up almost 4 times from Rs. 15.1 crores to Rs. 58.9 crores. During the first 6 months of the present financial year the company has continued its robust growth with the turnover for half year 2007-2008 increasing by more than 100% to Rs. 268 crores. The profit after tax also doubled to Rs. 52.8 crores at which level it was almost close to the entire full year profit of the previous year.

The company split its share from Rs. 10 to Rs.2 and has also done part allotment of FCCB shares.

Concerns

The company may have some slow down in its meteroric growth if investment in the Power T&D slows down. In our view, this is unlikely and even if it does happen the company’s diversification into the fast developing Oil and Energy space should compensate for that.

ICSA is an R&D driven company and at some extent it needs to come up with new products and solutions to cater to more sophisticated segments. However, it must be said the company has done well in this area in the last few years.

Valuation & Recommendation

ICSA is one of the fastest growing companies in the Power T&D and Oil and Energy space. We see this as an exciting growth play in India’s Infrastructure, which is right now attracting huge investor attention. True, the share has run up a lot and given excellent returns to the investors in the last one year but considering the triple digit growth prospects for the next five years and the 2007-08 annualised P/E of 22 based on share split and part conversion of FCCBs, it still has got very good upward potential. We recommend ICSA as an excellent Mid-Cap play with the year-end target of Rs. 1000/-

PN Vijay, Investment Advisor

(The author has shares of the above in the Proprietary accounts and in the Portfolios managed by his Company).