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The initial public offering (IPO) of Exicom Tele-Systems opened on February 27 and will close on February 29. Of the around ₹429-crore offer, ₹329 crore is fresh issue and ₹100 crore is an offer for sale. The proceeds from the issue shall be used to fund capital expenditure (₹151.5 crore for setting up production/assembly line at a planned manufacturing facility in Telangana) and working capital requirements, pre-/repayment of debt (₹120 crore) and other corporate purposes. The price band for the issue is ₹135-142 per share.
Business
Incorporated in 1994, Exicom is a power management solutions provider, operating under two business verticals: electric vehicle supply equipment solutions (EV chargers), wherein it provides smart charging systems for residential, business, and public use in India; and critical power solutions, wherein it designs, manufactures and services digital infrastructure technology for energy management at telecommunications sites and enterprise environments in India and overseas.
Anant Nahata, 39, has been the CEO and Managing Director of Exicom since 2009. Post issue, the promoters will hold around 70 per cent stake. While Delta Electronics India is Exicom’s key competitor across business segments, other competitors include Vertiv Energy Private Limited in the DC power solution segment,and Exide and Amara Raja Batteries in the backup power segment using Li-ion based energy storage system (ESS).
Competitive strengths
The Indian EV industry is one of the fastest growing in the world across vehicle segments. The EV passenger vehicle and bus market is estimated to grow nine times between FY23 and FY28 (CAGR of 50-60 per cent) with estimated EV penetration of 8-10 per cent by FY28. The EV charging network will consequently need to be ramped up, presenting a significant market opportunity of ₹8,600 crore by FY28. Exicom was an early entrant in the EV charger manufacturing segment and is a market leader with a market share of 60 per cent and 25 per cent in the residential and public charging segments, respectively.
Exicom’s EV charger business provides slow charging solutions (AC chargers primarily for residential use), and fast charging solutions (DC chargers for business and ‘public charging’ networks). The EV charging products are compliant with global standards such as CE, as well as Indian certification requirements such as the regulatory compliances set by the Automotive Research Association of India (ARAI). As of FY23, Exicom had deployed over 35,000 EV chargers across 400 locations in India.
The telecommunications power systems market in India is expected to grow from approximately ₹1,500 crore in FY23 to ₹2,200 crore in FY28 at a CAGR of 8.5 per cent. The ESS market for telecommunications and Li-ion based battery ESS market for data centres are expected to grow from ₹1,950 crore and ₹320 crore, respectively, in FY23 to ₹3,610 crore and ₹4,700 crore in FY28. In the critical power business, Exicom has a market share of 16 per cent and 10 per cent, respectively, in the DC power systems market and Li-ion batteries for telecommunications. It has three manufacturing facilities, which have an annual capacity of 12,000 DC power systems; and 44,400 AC chargers and DC fast chargers.
Risks
A key risk associated with the company’s current operation is the concentration risk, with its top five customers in the critical power business contributing over 50 per cent of the revenue. It is also important to note that the future growth prospects in the EV charger business is dependent on the pace of adoption and demand for EV in India. On the manufacturing front, the company is dependent on global suppliers for raw materials and other key inputs (around 66 per cent of total raw material cost), therefore profitability is likely to be impacted by the movement in global prices.
Financials and valuation
Exicom reported operating revenue of ₹708 crore in FY23, a CAGR of 17.5 per cent during FY21-23. In 1HFY24, the company registered operating revenue of ₹455 crore, a year-on-year growth of 110 per cent. The company has been able to diversify its business with the revenue contribution from the EV charger business increasing from 8.6 per cent in FY21 to 31.67 per cent in FY23. Consequently, operating margins expanded by 200 bps, from 5.8 per cent in FY21 to 7.8 per cent in FY23. Profit after tax (PAT) had been impacted due to losses from discontinued operations over the last few years. As a result, PAT margins increased marginally from 0.7 per cent in FY21 to 0.9 per cent in FY23. However, in 1HFY24, the company reported PAT margin of 6 per cent without any impact from discontinued operations. Net debt-to-equity has remained stable at around 0.3x during FY21-23 while return on equity (ROE) has increased from 2 per cent to 2.8 per cent.
The company reported PAT of ₹27.5 crore in 1HFY24. After accounting for fresh issue for shares, the issue is priced at 31x annualised earnings for FY24, with the market cap on the upper band at around ₹1,700 crore.
Given its market leadership in the EV charging segment and the likely future growth trajectory in the EV space, the offer appears reasonably priced for investors who have a high risk appetite to invest in emerging technologies.
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