Exicom Tele-Systems
- Exicom Tele-Systems is coming out with a 100% book building; initial public offering (IPO) of 3,14,12,500 shares of Rs 10 each in a price band Rs 135-142 per equity share.
- Not more than 75% of the issue will be allocated to Qualified Institutional Buyers (QIBs), including 5% to the mutual funds. Further, not less than 15% of the issue will be available for the non-institutional bidders and the remaining 10% for the retail investors.
- The issue will open for subscription on February 27, 2024 and will close on February 29, 2024.
- The shares will be listed on BSE as well as NSE.
- The face value of the share is Rs 10 and is priced 13.50 times of its face value on the lower side and 14.20 times on the higher side.
- Book running lead managers to the issue are Monarch Networth Capital, Unistone Capital and Systematix Corporate Services.
- Compliance Officer for the issue is Sangeeta Karnatak.
Profile of the company
Exicom Tele-Systems is an India headquartered power management solutions provider, operating under two business verticals, (i) its critical power solutions business, wherein it designs, manufactures and service DC Power Systems and Li-ion based energy storage solutions to deliver overall energy management at telecommunications sites and enterprise environments in India and overseas (Critical Power Business); and (ii) its electric vehicle supply equipment (EV Charger) solutions business, wherein it provides smart charging systems with innovative technology for residential, business, and public charging use in India (EV Charger Business) and which commenced commercial sales in the Financial Year ended March 31, 2019.
The company was amongst the first entrants in the EV Chargers manufacturing segment in India and as of March 31, 2023, it had a market share of 60% and 25% in the residential and public charging segments, respectively. Furthermore, in its Critical Power Business, it occupies a market share of 16% in the DC Power Systems market and is recognized in the market for Li-ion Batteries for application in the telecommunications sector, having a market share of approximately 10% as of March 31, 2023. It aims to be an impact business contributing to the sustainable energy transition by enabling electrification of transportation, and energy stability of digital communication infrastructure.
Its Critical Power Business delivers overall energy management at telecommunications sites and enterprise environments. Under this business vertical, it offers a diversified portfolio of DC power conversion systems (DC Power Systems) and Li-ion based energy storage solutions to deliver back-up power during grid interruptions (Li-ion Batteries or Energy Storage Solutions) and has deployments in India, South East Asia and Africa. Moreover, it leveraged its nearly three decades of domain experience and know-how in power conversion, energy management and de-carbonization solutions, along with tapping into its existing manufacturing and supply chain operations, to commence its EV Charger Business in 2019, which provides smart electric vehicle (EV) charging products and solutions.
Proceed is being used for:
- Part-financing the cost towards setting up of production/assembly lines at the planned manufacturing facility in Telangana.
- Repayment/pre-payment, in part or full of certain borrowings of the company.
- Part-funding incremental working capital requirements.
- Investment in R&D and product development.
- General corporate purposes.
Industry overview
Telecommunication power systems are specialized systems designed to provide reliable and uninterrupted power supply to telecommunication infrastructure, such as cell towers, base stations, data centers, and network facilities. These systems ensure that the telecommunication equipment remains operational even during power outages or unreliable grid conditions. These are the integrated systems that manage the generation, conversion, distribution, and control of electrical power. They are designed to provide reliable and efficient power supply to various electrical loads. India is expected to be the fastest growing market at 10-12% CAGR over the period from 2023 to 2028, while other economies like North America and Europe will grow at 5-6% CAGR over the same period. The growth is mainly going to come from upgradation capital expenditure which telecommunication companies are doing in light of network upgrades, efficiency measures and new tower additions. The market size for telecommunication DC power systems (including hybrid systems) is estimated at Rs 15 billion for Financial Year 2023. The upgradation and replacement demand are expected to drive the industry with 75% demand coming from the segment, while the balance 25% demand is expected on account of new tower additions.
Meanwhile, Telecommunication energy storage solutions store electrical energy for later use to run telecommunication infrastructure. However, telecommunication energy storage solutions are part of the overall energy storage solutions gamut. India’s installed renewable capacity has crossed the 150GW mark and this brings the total nonfossil fuel based installed energy capacity at 156.8 GW which is 40.1% of the total installed capacity of 390.8GW. At the recently concluded COP26, the government is committed to achieving 500GW of installed electrical capacity from non-fossil fuel sources by the year 2030. With this the need for Battery Energy Storage Systems is estimated to rise to maintain grid stability. In addition to grid storage, the BESS systems will be used mainly for providing backup, replacement of diesel gensets and with UPS in various commercial and industrial use cases and telecommunication is one large sector in such use cases. A few years back, telecommunication energy storage solutions segment was largely dominated by Valve Regulated Lead Acid (VRLA) batteries. However, the landscape changed, after Jio rolled-out close to 2 lakh towers with Li-ion batteries. As a result, there is almost an equal mix of VRLA and Li-ion batteries in the current tower population.
The prices of lithium-ion batteries have been declining steadily in recent years. This is due to several factors, including increased demand, technological advancements, and economies of scale. As lithium-ion batteries become more affordable, more telecommunication operators will switch to this technology from lead-acid batteries as they are less efficient and have a shorter lifespan than lithium-ion batteries. Compared to 2022, The US National Renewable Energy Laboratory (NREL) expects the costs of the batteries to fall by 47%, 32% and 16% by 2030 in its low, mid and high-cost projections, respectively. By 2050, the costs could fall by 67%, 51% and 21% in the three projections, respectively. The ESS market for telecommunications is expected to grow from Rs 19.5 billion in Financial Year 2023 to Rs 36.1 billion in Financial Year 2028 at a CAGR of 13.5%, with an aggregate market potential of Rs 150 billion over Financial Year 2023 - Financial Year 2028. Based on the price trends of Li-ion, it has been assumed for de-escalation of -3.0% in the prices of the Li-ion batteries.
Pros and strengths
Established player in the Indian EV Charger market: The company had a market share of approximately 60% and 25% in the residential and public charging segments, respectively, as of March 31, 2023. As of September 30, 2023, the company has deployed over 61,000 EV chargers across 400 locations in India, by way of sale to OEMs, EV owners (primarily through such OEMs), CPOs for public charging stations and fleet aggregators for captive charging stations. Its extensive portfolio of EV charging products supports both slow-charging, i.e., AC chargers from 3.3kW to 22kW, which are primarily for residential use; and fast-charging, i.e., DC fast chargers from 30kW to 360kW, which are for business and public use, as part of the ‘public charging’ networks in cities and on highways. The customers of its EV Charger Business include national CPOs such as Reliance BP Mobility Limited (JioBP) and Fortum Charge & Drive India Private Limited, fleet aggregators such as BluSmart Mobility and Lithium Urban Technologies and established automotive OEMs (PVs and EV buses) such as Mahindra & Mahindra Limited, MG Motors Limited and JBM Limited.
Vertically integrated operations: The company’s operations are vertically integrated with end-to-end product development capabilities from concept to design to engineering to prototype testing, supported by its two dedicated R&D centres, with its extensive product portfolio manufactured in-house at its three manufacturing facilities in India at Solan, Himachal Pradesh and at Gurugram, Haryana, which have an annual capacity of 12,000 DC Power Systems; and 44,400 AC and DC EV Chargers, and a total built-up area of 134,351.95 sq. ft. At its Gurugram Facility I, it manufactures products for both its Critical Power Business and EV Charger Business, while at its Gurugram Facility II, it manufactures Li-ion Batteries for its Critical Power Business. At its Solan Facility, it manufactures AC-DC converters (rectifiers), which are partly utilised for its own manufacturing operations at its Gurugram Facility I. These AC-DC converters (rectifiers) form a component of its DCT Power Systems and are sold to its customers along with the DCT Power Systems. An insignificant portion of the AC-DC converters (rectifiers) manufactured by it are also sold to customers directly as a service spare. Its manufacturing facilities have dedicated production lines along with testing, quality assurance and storage facilities
Significant product development and focused engineering capabilities: The company has a dedicated R&D team of 145 employees, as of September 30, 2023, housed at its two R&D centres located in Gurugram, Haryana and Bengaluru, Karnataka. Its R&D team focusses on power electronics design, firmware, system engineering (including mechanical and thermal design), EV Charger development and battery pack/BMS development. To validate its designs, it has developed internal failure detection capabilities and it also ties up with third party laboratories for compliance testing as per the required standards. On battery development, it has developed capabilities in end-to-end battery pack design and development including BMS and related algorithms which it aims to optimize to give its customers high cycle life and optimal performance.
Track record of long-standing relationships with an established customer base: The company attributes the growth of its Critical Power Business and EV Charger Business to, among other things, its customer-centric solutions, and value-added products and services. During the six months ended September 30, 2023 and the Financial Year ended March 31, 2023, it served a diverse customer base of 450 and 350, respectively, through its Critical Power Business and EV Charger Business. It commenced operation in 1994 as a critical power solutions provider, wherein it primarily supplied DC Power Systems to state owned Bharat Sanchar Nigam Limited (BSNL) and over time-added established telecommunications companies and tower companies as its customers in India and overseas. It serves telecommunications companies like Jio Infocom Limited, Maxis Telecom (an operator in South East Asia) and tower companies like American Tower Corp., Eastcastle Infrastructure DRC S.R.L.U. and Indus Tower.
Risks and concerns
Maximum revenue comes from few customers: The company derived a majority of the portion of its revenue from operations from the sale of products and services to its top five Critical Power Business customers based on revenue contribution for the six months ended September 30, 2023 and September 30, 2022 and in each of the last three Financial Years. The company garnered Rs 3,612.01 million (51.02%), Rs 6,891.58 million (81.77%) and Rs 3,723.85 million (72.60%) in FY23, FY22 and FY21, respectively. It has historically been dependent, and expect to depend, on such customers, for a majority of the portion of its revenue and the loss of any them for any reason (including due to loss of, or failure to renew existing arrangements; limitation to meet any change in quality specification, customization requirements, change in technology; disputes with a customer; adverse changes in the financial condition of its customers, such as possible bankruptcy or liquidation or other financial hardship) could have a material adverse effect on its business, results of operations and financial condition. Additionally, its top five customers based on revenue contribution under this business vertical include GoI entities, including PSUs, it may be unable to win bids and secure the tenders of the said PSUs for similar volumes of demand or at all, which may adversely effect on its business, results of operations and financial condition.
No long term agreements with customers: The company follows a business-to-business model in its Critical Power and EV Charger Businesses. For its critical power customers, it typically transacts its business based on either continuing contractual arrangements with its customers which range from one to three years, supplemented by purchase orders or standalone purchase orders issued by its customers. Revenue from operations decreased by (Rs 1,348.75 million) or (16.00%) to Rs 7,079.30 million for the Financial Year 2023 from Rs 8,428.05 million for the Financial Year 2022 due to reduced orders of Li-ion batteries received during Financial Year 2023 as a result of which there was a decrease in revenue generated from sale of its products to Rs 6,201.40 million for the Financial Year 2023 from Rs 7,684.31 million for the Financial Year 2022. For its EV Charger customers, it typically transacts its business on the basis of standalone purchase orders (although in very limited instances, it has entered into continuing contractual arrangements). If its customers choose not to renew their agreements with the company or continue to place order with it, the company’s business and results of operations will be adversely affected.
Maximum revenue comes from telecommunications sector: The company’s business has been and continues to be concentrated on providing critical power solutions and Li-ion Batteries to customers in the Indian telecommunications sector, being telecommunication companies and tower companies, and is therefore dependent on the performance of the telecommunications sector in India. Revenue from telecommunication companies and tower companies were Rs 3,645.13 million (51.49%), Rs 6,818.32 million (80.90%) and Rs 3,966.27 million (77.33%) during FY23, FY22 and FY21, respectively. Given its dependence on customers in the Indian telecommunication sector, its business depends to an extent upon the performance of the Indian telecommunication industry, which in turn is highly competitive, with multiple players vying for market share. Intense competition often leads to price wars, reducing profitability for operators. Its ability to continue to generate consistent volume of business from the Indian telecommunication sector also depends on its ability to develop and introduce new products in a timely manner. However, there can be no assurance that it will be able to secure the necessary technological knowledge or capabilities which will allow it to expand its product portfolio in a timely manner or at all, or that any products it develops and introduces will achieve market acceptance as anticipated.
Significant working capital requirement: The company’s business requires significant working capital in connection with its manufacturing of products, financing inventory and purchase of critical components which may be adversely affected in case there is any change in terms of credit or payment. Delays in payment under its existing contracts or reduction of advance payments due to lower order intake or inventory and work in progress increases and/or accelerated payments to suppliers, could adversely affect its working capital, lower its cash flows and materially increase the amount of working capital to be funded through external debt financings. Accordingly, it may require additional capital or financing from time to time to meet its working capital requirements. Some of the working capital facilities it has availed are repayable on demand. In the event that any lender seeks a repayment of any such loan, the company would need to find alternative sources of financing, which may not be available on commercially reasonable terms, or at all. Any failure to raise additional funds on favourable terms or in a timely manner or at all could severely restrict its liquidity and have a material adverse effect on its business and results of operations. Further, continued increase in its working capital requirements may have an adverse effect on its financial condition and results of operations.
Outlook
Exicom Tele-Systems specializes in power systems, electric vehicle (EV) charging, and other related solutions. The company is among the first to enter India's EV charger manufacturing segment. The company operates in the EV Charger business, which offers both slow charging solutions (primarily AC chargers for residential use) and fast charging solutions (DC chargers for business and public charging networks in cities and highways). The customer base includes established automotive OEMs (for passenger cars and EV buses), charge point operators (CPOs), and fleet aggregators. On the concern side, the company is dependent on the top five customers based on revenue contribution under its critical power solutions business, who contributed over 50% of its revenue from operations for the six months ended September 30, 2023 and September 30, 2022 and in each of the last three Financial Years and include Government of India entities/public sector undertakings. Loss of any of these customers or a reduction in purchases by any of them could adversely affect its business, results of operations and financial condition.
The company is coming out with an IPO of 3,14,12,500 equity shares of face value of Rs 10 each. The issue has been offered in a price band of Rs 135-142 per equity share. The aggregate size of the offer is around Rs 424.07 crore to Rs 446.06 crore based on lower and upper price band respectively. On performance front, the company’s total income decreased by 14.79% to Rs 7,233.99 million for the Financial Year 2023 from Rs 8,489.57 million for the Financial Year 2022, primarily due to decrease in its revenue from operations. Moreover, the company reported a profit for the year of Rs 63.72 million for the Financial Year 2023 as compared to a reported profit for the year of Rs 51.36 million for the Financial Year 2022.
Driven by a global focus on energy transition and the decreasing manufacturing costs, the world of transportation is experiencing an accelerated shift towards electrification. The global EV market is projected to reach 41.8 million units by 2030 from an estimated 12.8 million units in 2023, at a CAGR of 18.4%. Globally, the EV Charger market for public chargers is projected to grow from an estimated 2.61 million units in 2022 to 16.39 million units by 2027, at a CAGR of 44.40%. Within the EV Charger ecosystem, the company is in the process of launching software business to promote mobile applications that provide value added services to support its EV Charger solutions at homes, and also provide a unified platform for discovering, and booking charging sessions on available public charging infrastructure. It is also in the process of developing complementary energy management software for EV Chargers, that is intended to help reduce costs by allowing intelligent charging during off-peak hours, and facilitating grid-load management. It endeavours to provide software solutions in addition to its products to increase customer services and help its overall product sales.
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