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MIC Electronics Ltd – Initiating Coverage
MIC Electronics Ltd (MIC) is the largest player in the domestic Light Emitting Diodes (LED) based display products.
Expected increase in LED light usage in India to drive MIC's lighting revenues
Government's initiatives such as supplying LED-based solar lanterns at subsidized rates in rural areas and promoting energy efficiency projects in street & industrial lighting to expand the LED lighting usage in India. Further, MIC's proactive steps such as tie-ups with Hyperion Green Energy, IOC and other organisations make us expect LED lighting segment to be a major revenue driver for the company.
Increased use of LEDs by Indian Railways to benefit MIC
As of now, MIC is the only LED company approved by Research Designs and Standards Organisation (RDSO) for manufacturing passenger information display boards and coach lighting solutions in railways. Thus we expect MIC to have first mover advantage over competition. The potential market size from these two projects is estimated over INR 30 bn spread over the next few years.
Revival in LED display market together with its technological advances is expected to drive display volumes
Global market for signs & displays segment is expected to grow at 60% CAGR to reach USD 10.5 bn by 2014 from USD 1 bn in 2009. Replacing of static or vinyl billboards to digital billboards in the US and other countries, increasing demand for live coverage of corporate events, sports and weddings should drive MIC's LED display segment.
Expanding capacities to meet the increasing demand from LED segment
MIC had recently expanded the Charlapally unit at a cost of INR 200 mn. The total built-up area now stands at 1 lac sq. ft which can generate INR 800-1000 mn revenue. It is now planning to invest c. INR 1850 mn in setting up a greenfield facility in Hyderabad for manufacturing LED lighting products. At 100% capacity utilisation, this facility is estimated to generate a turnover of INR 12 bn.
Outlook & Valuation:
The stock is currently trading at INR 31.6 which is near to 52-week low of INR 28. Going forward, as the lighting segment is poised for a strong growth, we expect the positive impact of the same shall be reflected on MIC, thus providing increasing visibility among investors.
At CMP of INR 31.6, the stock currently trades at 4.4x our FY12e EPS. Based on relative valuation method we have arrived at a target price of INR 51 with an upside potential of 62% in the 12-18 months period. Thus we recommend a Buy on the stock.
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