Buy ICSA (India) - Systematix

ICSA (India) Ltd reported net sales of Rs.3,254mn in Q2FY11, up by 4.6% & 5.9% on q-o-q & y-o-y basis due to higher revenue from IPS business. EBITDA margin has fallen by 230bps & 50 bps on y-o-y & q-o-q basis to 19.6% due to higher revenue contribution from its low margin IPS business. EBIT margin from IPS business has fallen by 100bps & 80bps on y-o-y & q-o-q basis to 11.9%, wherein EBIT margin from ESS business has fallen by 250bps & 50bps on y-o-y & q-o-q basis to 27.8%. PAT has declined by 23.5% on y-o-y basis to Rs.294mn, up by 6.0% on q-o-q basis. EPS of the company stood at Rs.5.6. Overall, the results were in line with expectations. The key factor to watch during the quarter was improvement in order book of ESS business. Although the size of order was small, it gives an indication of the overall improvement in the industry, which has remained sluggish since the last 2 years. For IPS business, the company has secured orders worth Rs.2.55bn, out of which orders worth Rs.1.95bn is for 400Kv transmission lines. Besides this, 2-3 states are expected to float orders for SCADA solutions in the current quarter.

We expect the company to secure some orders for their high margin ESS business and SCADA solutions from the current quarter onwards. We reiterate our BUY rating on the stock with a price target of Rs.239/share.

Industry showing signs of improvement

Due to restructuring of RAPDRP program, there was sluggishness in T&D industry, especially in the distribution segment. About 15 states have already finalized their system integrators as a part of RAPDRP IT implementation projects. SCADA projects are also being structured by PFC and the state utilities, which are expected to come up for tendering from this quarter onwards. Madhya Pradesh, Gujarat and Rajasthan are likely to finalize their system integrators for SCADA solutions. Orders for SCADA solutions from each state would be in the range of ~Rs.2–2.5bn. We expect a continuous announcement of orders for SCADA solutions from various states from this quarter onwards. Besides this, orders for automation technology are also likely to pick-up from this quarter. There is total opportunity of ~Rs.100bn under RAPDRP program for SCADA solutions and automation technology.

Order book for ESS business set to improve

The total order book of the company stands at Rs.18.9bn; Rs.2.3bn for ESS business and Rs.16.6bn for IPS business. The company is continuously getting orders for their IPS business and orders for 400Kv transmission lines would help to improve margins. Order book for ESS business remained sluggish. During Q2FY11, the company has secured orders worth Rs.0.5bn for their ESS business. Although the size of order is small, it gives an indication of the overall improvement in the industry. We expect order book for ESS business to improve from the current quarter onwards. ICSA has been empanelled as system integrators for SCADA solution and meter data acquisition and solution providers.

Maintain "BUY", with a price target of Rs.239/share

We are positive on the outlook of T&D segment and the positioning of the company for both of its IPS and ESS business. Getting new orders for ESS and SCADA solutions would be a key trigger for the stock. We thus maintain our BUY rating on the stock with a price target of Rs.239/share.

Source : Equity Bulls

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