The Hindu Business Line : MIC Electronics: Invest at cut-off

Investors with a high-risk appetite and medium-term investment horizon can consider subscribing to the book-built initial public offering of MIC Electronics.

The offer price has been fixed in the price band of Rs 129- 150 . The strengths of this offer stem from the company's first-mover advantage in the niche area of LED (Light Emitting Diode) video display business, the ability to scale-up outdoor advertising market from a relatively low base, and a reasonably good order pipeline in this segment.

On the flip side, however, in a price-sensitive market, the nascent LED display segment is likely to encounter competition from cheaper media applications , risks arising from execution and technological obsolescence and relatively high exposure to low margin telecom segment.

In this backdrop, we will be comfortable if the final offer price is fixed at the lower end of the price band. At the upper end of the price band, the price-earnings multiple works out to 14 times the 2006-07 per share earnings on an annualised and fully diluted basis.

MIC Electronics' business can be broadly categorised under three segments — media, infotech and telecom.

The core business segment for MIC Electronics will be media. This segment is focussed on the development, production and sale of video displays, text, graphic animation and display services. According to the US-based EDG Research, MIC Electronics is the only Indian company that has the capability in the field of LED video display systems. This segment is expected to cater to the requirements of sport and live events; electronic billboards/hoardings and news advertising ticker displays; indoor applications such as shopping malls, airports and other mobile applications.

Utilisation of funds

Of the offer proceeds of Rs 65-76 crore, a chunk is to be utilised towards setting up additional facility for LED video display.

Business segments

For the year-ended June 30, 2006, the media segment accounted for 31.4 per cent of sales at Rs 31.9 crore, recording a near three-fold rise from the previous year. The operating profit margin of this segment also improved to 30.7 per cent, up from 22.6 per cent in the same period. According to the offer document, though the number of screens sold by MIC dipped to 25 (from 36 in the previous year), the number of modules sold shot up to 1,681 (from 602). This contributed to a four-fold rise in average module per screen and margin per screen.

On the one hand, the buoyant economic environment in India is likely to create a huge opportunity for growth of the LED display market.

At the same time, given the nascent stage of development of the outdoor advertising through LED displays, the availability of outdoor vinyl hoardings at a lower cost and competition from international companies such as Barco NV or Daktronics Inc. (subject to import tariffs), there is a possibility of fluctuation in the quarterly performance of MIC Electronics. The infotech segment, which offers telecom software solutions such as telecom network management or computer telephony, has got a leg up with the recent acquisition of 55 per cent shareholding in InfoSTEP Inc, US.

This acquisition is expected to provide MIC Electronics access to business intelligence, enterprise application and survey management services.

The telecom segment, which contributed 65 per cent of revenues in 2005-06, caters principally to CDMA/GSM-based terminals, handheld computers and digital loop carriers. The operating profit margin at 12.9 per cent, up from 8.4 per cent in the previous year, is still substantially lower than the media segment.

The book running lead manager to the offer is Edelweiss Capital. The offer opened on April 30 and closes on May 8.

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