Exicom Tele-Systems Ltd IPO Analysis - Strengths, Risks & Verdict

The initial public offer (IPO) of Exicom Tele-Systems Ltd, which kicked off on Tuesday, February 27, will close for subscription on Friday, February 29. The power management solutions provider is looking to raise Rs 429 crore through its IPO, which comprises an Offer for Sale (OFS) of up to Rs 100 crore by the selling shareholders. The firm has announced a price band of Rs 135 to Rs 142 per share for its IPO. Prospective investors can bid in lots, with each lot consisting of 100 shares. To apply for the IPO, the minimum investment is set at Rs 14,200 (calculated as 100 x 142).

According to market observers, shares of Exicom Tele-Systems Ltd are trading at a grey market premium (GMP) of Rs 170 (a premium of 120% over IPO price) as of today. The public offer is anticipated to debut on BSE and NSE on the 5^th of March, 2024.

Exicom Tele-Systems Anchor Round

Prior to issue opening, on February 26, Exicom Tele-Systems Ltd successfully raised Rs 178 crore from anchor investors. Some notable Foreign and Domestic Institutions that participated in the anchor round include Maybank Asiapac Ex-Japan Equity I Fund, Nepean Long Term Opportunities Fund, Abakkus Diversified Alpha Fund, Quant Mutual Fund, JM Financial Mutual Fund and SBI General Insurance Company, among others.

Exicom Tele-Systems Subscription Status

The IPO of Exicom Tele-Systems Ltd saw overwhelming response, achieving a subscription rate of 10.02 times on its opening day, quickly becoming fully subscribed due to high retail investor interest. The company's public offering attracted bids for 1,826,605,000 shares compared to the 182,235,400 shares available.

In detail, retail investors subscribed to the IPO 27.17 times over, while the Non-Institutional Investors' (NII) category saw a subscription rate of 19.04 times. The portion reserved for Qualified Institutional Buyers (QIB) was 73% filled on the first day.

About Exicom Tele-Systems Ltd

Exicom is a leading provider of power management solutions, including power systems and electric vehicle (EV) charging systems, serving both domestic and international markets. It focuses on two main sectors: (i) critical power solutions, offering design, manufacturing, and servicing of DC power systems and li-ion based energy storage for telecommunication sites and enterprise environments; and (ii) EV supply equipment solutions, delivering advanced smart charging systems for residential, business, and public usage in India.

As a pioneer in the EV charging segment in India, Exicom's products meet both global standards like CE and local regulatory requirements, including those set by the Automotive Research Association of India (ARAI).

Strengths

Remarkable Financial Performance: Exicom has showcased impressive growth in its financial metrics, achieving a Compound Annual Growth Rate (CAGR) of 17% in its revenue from operations between FY21 and FY23. This period also saw an impressive 33% increase in EBITDA and a significant 56% surge in net profit.

Exicom Tele-Systems: Profit Chart

Improving Profit Margins: Exicom has successfully increased its net profit margins from 2.47% in FY21 to 4.38% in FY23, with a further rise to 6.04% as of September 2023.
Dominance in the Market: Exicom is a recognized leader with a market share of 16% in the DC power systems sector and around a 10% share in the market for li-ion batteries for the telecommunications industry as of March 31, 2023.
Pioneering in EV Charger Manufacturing: As one of the initial companies to enter the EV charger manufacturing field in India, Exicom has gained a significant early-mover advantage. By March 31, 2023, it boasted a market share of roughly 60% in the residential sector and 25% in the public charging sector. As of September 30, 2023, it has installed over 61,000 EV chargers in more than 400 locations across India.
Strong Order Book: For the first half of FY24, Exicom secured orders amounting to Rs 603.36 crore in its critical power business and Rs 133.94 crore in the EV charger segment, showcasing robust demand for its offerings.
Established Customer Relationships: Throughout the six months ending on September 30, 2023, Exicom catered to a diverse clientele of 450 through its critical power and EV charger businesses, reflecting its strong and long-standing customer relationships.

Key Concerns

Revenue Concentration: Exicom relies heavily on its top five clients for approximately 57% of its revenue during the six-month period that concluded in September 2023. The loss of any major client or a decrease in their orders could negatively impact the company's operations, performance, and financial stability.
Inconsistency in Financials: Earlier in FY21, Exicom had reported an operational loss of Rs 10.79 crore. It also suffered a net loss in H1 FY23. Further, revenue decreased by around 16% in FY23.

Exicom Tele-Systems: Revenue Chart

Export Revenue Vulnerability: A significant portion of the firm’s income, 38.92%, comes from its international sales. Fluctuations in foreign exchange rates, along with competition from domestic providers in those markets, could pose risks to its export segment.
Cash Flow Concerns: Exicom experienced negative cash flows from its operating activities in FY21 and the first half ending on September 30, 2022. Continuous negative cash flows could pose risks to its operational efficiency and financial health.

Conclusion

Exicom has established itself as a key player in the global telecom power sector, set to benefit from the surge in smartphone usage, the rollout of 5G networks, and the widespread adoption of Internet of Things (IoT) technology. Moreover, by being an early entrant in the electric vehicle (EV) charging market, the company has secured a dominant 60% market share.

From a valuation perspective, the IPO seems to be fully priced with a Price-to-Earnings (P/E) ratio of 31x, based on the projected FY24 earnings against its post-IPO equity capital. Additionally, the grey market premium for the IPO suggests a strong listing on the bourses.

Considering the company's impressive record of maintaining client relationships, along with its growing profitability and the aforementioned points, it is advisable for investors to consider participating in the offering.

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