Dated: 02 July, 2007,
KERNEX MICROSYSTEM - ON THE RIGHT GROWTH TRACK
Background
Kernex Microsystems, a Hyderabad based company, it is engaged in manufacturing 4200 Anti Collision Devices (ACD) per annum having developed after five years of R&D, testing, field trials and supplying networked ACDs to Konkan Railway (KRC), an agency deploying the same for Indian Railways.
The company went public in November 05 with an issue of 39.60 lakh equity shares of Rs.10 each and Rs.250 per share for Rs.99 crores.
The issue was to finance Rs.99 crore projects to increase capacity of ACDs to 10,000 per annum, to manufacture 1000 Auto Driving Devices (ADD) for Sky Bus Metro Mass Transit and 500 Advance Railway Signal Systems.
The company is also setting up an Intelligent Transport Technology Centre in Nalgouda District of AP on 1035 acres of land for simulation and testing of advanced transportation control system.
KRC Tie-Up
The company is sole licensee of KRC for manufacturing, installation, commissioning and providing maintenance support of all types of ACDs excluding auto breaking unit, as also having exclusive international marketing rights with a royalty payment to KRC.The company has already installed ACDs on 736 km on Konkan Railway and 1730 km from Katinar in Bihar to Dibrugarh in Assam.
However, it is known from informed sources that the Indian Railways have recommended certain modifications and improvements in ACDs, which have been successfully and satisfactorily carried out by the company.
Railway Requirement
As per Corporate Safety Plan submitted to Parliament, Indian Railways have to cover 62,500 kms of tracks with networked ACDs in the next 7 years. The total requirement of networked ACDs would be around 50,000 units for installation in about 6 to 7 years, where average requirement would be around 8,500 to 9,000 units per day.
Once these orders starts flowing, substantial capacity of the company would get utilized.
International Markets
The products of the company have already drawn attention of countries like China, Thailand, Indonesia, Latin American countries, Middle East countries and South Africa, which provides a huge market.
The company has appointed marketing agents in New Delhi, Indonesia and USA for Latin America and North America and negotiations are on to appoint representatives for Pakistan, Iran, Turkey and African countries through Middle East.
However, as the products of the company cater to Railways, which is managed by the government agencies world over, red tapism and bureaucracy makes the decision making process very slow and time consuming.
Financial Performance FY 06
For FY 06, the total income of the company was placed at Rs.42.91 crores with EBITDA of Rs.15.23 crores giving a margin of 35.50%, PBT was placed at Rs.12.71 crores while PAT was at Rs.8.58 crores resulting in a basic EPS of Rs.7.55 on equity of Rs.11.36 crores. Of the total income, sales was Rs.19.46 crores while service income was at Rs.21.84 crores. During FY 06, the company produced and sold 563 ACDs for Rs.19.41 crores.
Financial Performance – 9 M FY 07
During 9 months ended 31-12-06 the total income was placed at Rs.22.13 crores, EBITDA of Rs.10.48 resulting into a margin of 47.35% with PBT of Rs.7.79 crores and PAT of Rs.5.50 crores.
It may be noted that during this period the total income is from service income on which EBITDA margin is close to 50%. However, due to fixed cost bottomline in low. The company sold no ACDs, during this period. Yet EPS for the period was at Rs.4.84.
Shareholding Pattern
Promoters of the company hold about 59% while 6% is held by FII, NRIs and MF with balance of 35% with the public. The total equity is Rs.11.36 crores.
Conclusion
The company seems to be on the right track of growth by virtue of its being the holder of exclusive international marketing rights of ACDs. Moreover, the existence of 70% of medium to low density railway traffic route across the globe, gives the company immense opportunity to customize and sell the ACD system to a number of countries.
Also, as gathered, the company carried out improvements in existing pilot project undertaken by them in NFR Section of Indian Railway, which was affected due to security conditions, climatic vagaries and terrain limitations. With further improvements and incorporation of additional features, the orders from Indian Railways are expected to flow.
The company is a high-tech product manufacturing company, which will get high discounting on the bourses, once full activity commences.
Share is a good buy at Rs 257 with potential to atleast double in the next -- 12 months with very limited downward risk.
Background
Kernex Microsystems, a Hyderabad based company, it is engaged in manufacturing 4200 Anti Collision Devices (ACD) per annum having developed after five years of R&D, testing, field trials and supplying networked ACDs to Konkan Railway (KRC), an agency deploying the same for Indian Railways.
The company went public in November 05 with an issue of 39.60 lakh equity shares of Rs.10 each and Rs.250 per share for Rs.99 crores.
The issue was to finance Rs.99 crore projects to increase capacity of ACDs to 10,000 per annum, to manufacture 1000 Auto Driving Devices (ADD) for Sky Bus Metro Mass Transit and 500 Advance Railway Signal Systems.
The company is also setting up an Intelligent Transport Technology Centre in Nalgouda District of AP on 1035 acres of land for simulation and testing of advanced transportation control system.
KRC Tie-Up
The company is sole licensee of KRC for manufacturing, installation, commissioning and providing maintenance support of all types of ACDs excluding auto breaking unit, as also having exclusive international marketing rights with a royalty payment to KRC.The company has already installed ACDs on 736 km on Konkan Railway and 1730 km from Katinar in Bihar to Dibrugarh in Assam.
However, it is known from informed sources that the Indian Railways have recommended certain modifications and improvements in ACDs, which have been successfully and satisfactorily carried out by the company.
Railway Requirement
As per Corporate Safety Plan submitted to Parliament, Indian Railways have to cover 62,500 kms of tracks with networked ACDs in the next 7 years. The total requirement of networked ACDs would be around 50,000 units for installation in about 6 to 7 years, where average requirement would be around 8,500 to 9,000 units per day.
Once these orders starts flowing, substantial capacity of the company would get utilized.
International Markets
The products of the company have already drawn attention of countries like China, Thailand, Indonesia, Latin American countries, Middle East countries and South Africa, which provides a huge market.
The company has appointed marketing agents in New Delhi, Indonesia and USA for Latin America and North America and negotiations are on to appoint representatives for Pakistan, Iran, Turkey and African countries through Middle East.
However, as the products of the company cater to Railways, which is managed by the government agencies world over, red tapism and bureaucracy makes the decision making process very slow and time consuming.
Financial Performance FY 06
For FY 06, the total income of the company was placed at Rs.42.91 crores with EBITDA of Rs.15.23 crores giving a margin of 35.50%, PBT was placed at Rs.12.71 crores while PAT was at Rs.8.58 crores resulting in a basic EPS of Rs.7.55 on equity of Rs.11.36 crores. Of the total income, sales was Rs.19.46 crores while service income was at Rs.21.84 crores. During FY 06, the company produced and sold 563 ACDs for Rs.19.41 crores.
Financial Performance – 9 M FY 07
During 9 months ended 31-12-06 the total income was placed at Rs.22.13 crores, EBITDA of Rs.10.48 resulting into a margin of 47.35% with PBT of Rs.7.79 crores and PAT of Rs.5.50 crores.
It may be noted that during this period the total income is from service income on which EBITDA margin is close to 50%. However, due to fixed cost bottomline in low. The company sold no ACDs, during this period. Yet EPS for the period was at Rs.4.84.
Shareholding Pattern
Promoters of the company hold about 59% while 6% is held by FII, NRIs and MF with balance of 35% with the public. The total equity is Rs.11.36 crores.
Conclusion
The company seems to be on the right track of growth by virtue of its being the holder of exclusive international marketing rights of ACDs. Moreover, the existence of 70% of medium to low density railway traffic route across the globe, gives the company immense opportunity to customize and sell the ACD system to a number of countries.
Also, as gathered, the company carried out improvements in existing pilot project undertaken by them in NFR Section of Indian Railway, which was affected due to security conditions, climatic vagaries and terrain limitations. With further improvements and incorporation of additional features, the orders from Indian Railways are expected to flow.
The company is a high-tech product manufacturing company, which will get high discounting on the bourses, once full activity commences.
Share is a good buy at Rs 257 with potential to atleast double in the next -- 12 months with very limited downward risk.