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Micro Technologies (India) Ltd. is an IT based company, a leading global developer,
manufacturer and marketer of security devices for its clients across the globe. It has
earned reputation for providing leading security solutions in India and overseas in
the space of Vehicle, Home, Mobile and Premises and continues to successfully
partner with key world players from countries like Israel, Japan, Belgium.
Financials
Over FY08-11, net sales have grown at CAGR of 47% while PAT has grown at
CAGR of 12.7% over the same period. The slower PAT growth was mainly due to
higher capex requirement during these years resulted higher borrowing and thus
higher outflow on interest expense. We forecast 22.6% CAGR growth in revenues
for FY11-FY13E period, EBIDTA is expected to expand by 19.1% CAGR while
margins are expected to decline by 167 basis points over FY11-FY13E due to
higher overall expenditure towards investments in R&D and enhancement of its
marketing network. PAT is expected to grow by 19.8% CAGR over this period with
PAT margins in the range of 12-12.5% over the period.
Growth Drivers
• First mover advantage: Microtech entered the security market prior to it
being considered or perceived a major market. Its focus on innovation will help
Microtech maintain its first mover advantage in the market.
• Range of product offerings: The Company offers a wide range of security
products, messaging products and other web based and non web based
products. The Company is engaged in developing products along with offering
corporate specific, customised solutions. It has currently more than 300
products in its basket of offerings with prices ranging from Rs 99 to Rs 16,500.
• Increase in contribution of new products: The Company launched five new
products in FY11 namely Micro ABB, Micro Antivirus, Micro Video Analytics,
Micro VBB Bluetooth +Security and Micro FMS. New products contribute
~25% to the total revenue, over the past 1-3 years; this is expected to increase
on gaining market acceptance. Some of the upcoming products are Secure
Communication terminal, ATM black box and Health Segment.
• Geographical expansion of product offerings: Microtech intends to further
expand the client base for its product offerings. It is already offering its
products in more than 20 countries and plans to further increase its reach.
• Strategic Alliances: The Company has strategic alliances with Siemens,
Girvan Institute of Technology and ARAI. It uses Siemens technology in its
products under a technological tie-up. It has tied up with ARAI for development
and testing of Micro VBB to meet national and international requirements.
• Expansion of ‘Micro Shoppe’: Microtech established chain of outlets called
'Micro Shoppe' are franchisee owned shops which only sell the Company's
products in accordance with set guidelines and standards set by the Company.
Currently, the Company has 201 retail outlets and it intends to increase this
number to 350 in next two years.
• Increase in demand of security products: Security products market size in
India is estimated at USD 50 crores & is growing at about 38% annually with
potential to reach USD 970 crores by 2016. Share of organised players
comprises of only 20% of the market, though it accounts for 80% of the total
revenue generated. Hence there is huge scope for organised player to grab a
higher market share.
Valuations:
At CMP of Rs 131.4, stock trades at PE of 2.2x and 1.9x its FY12E and FY13E
earnings of Rs 61.1 and 68.5 respectively. We see tremendous scope for
Microtech being the first mover in this immensely attractive Indian electronic
security industry as it has huge scope being still under-penetrated.
Technicals
After secular fall during 08-09, this scrip has barely managed to retraced 50% level
till Rs 220. Now it is hovering at multiple support zone of near Rs 100. During this
consolidation it is forming small inverse head & shoulder pattern which can push
the scrip towards 38% retracement levels around Rs 180 /220.
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