Kernex: TCAS led multi year growth story

(manish) #22

I have invested a small part of portfolio.
As already mentioned understand the key here is the TCAS.
However the main risk i see is what is the probability that railways will accept the TCAS developed by Kernex. As per last 2 AR’s some Italian agency is supposed to test and approve it and the date of approval keeps shifting. latest one was for Sept 2017.

The company was qualified to develop TCAS in june 2013

TCAS seems to be the only hope for company survival.

The past record is not impressive.

The Company investments in ACDs did not yield results due to railways moving to another system TCAS. Also the company lost the cash flow due to cancellation of maintenance contract for ACDs by the Konkan railway.
Their EGYPT business apparently was not doing well due to geo-political issues lack of timely payments by the Egypt govt.

They have not been able to sell Lx systems and other products to other clients other than ENR inspite of making efforts in other countries.
So basically they haven’t been to find a market for their products in all these years.

Multi-section digital axle counters - the company developed same in collaboration with another company, tested in Fy 12, finally approval was not given. No success at this front also inspite of company claiming it to be 600 cr market.

Overs the years company has not been able to find new clients for its products except for some coal terminal in South Africa. ( a small order)

The Company used to mention their intention of foraying in the defence sector but no success achieved in procuring any orders.
They also mentioned of trying to enter into some Joint venture for TCAS but so far have no announcement has been made. This seems strange, if TCAS is a huge opportunity and only 3 players then finding a partner shouldn’t be so difficult.

The disclosures in Annual reports seems to be good for a micro-cap company.

Also selling of non-core assets is a positive , hopefully will keep the company afloat for few years.

there are so many suppliers to Railways, it seems strange that only 3 companies are qualified to develop TCAS.
Till 2017 the company has not received any orders for TCAS except for 6 cr for the purpose of trials.
Basically, this seems to a single client , single product company , hence high risk high reward kind of bet IMHO.

(Ayush A) #23

Agree with many observations. Differ on a few:

Yes, they talk about potential JVs. But that will happen only after the Order tenders are floated by railways.

Not sure what is the precise argument here? The three companies were selected after a technical bidding process by RDSO.

’Medha Servo and Kernex Microsystems were selected among six contenders, including a few multinational companies, by the Research, Designs and Standard Organisation (RDSO) of the Indian Railways on behalf of the Railway Board, a senior Railway Ministry official said.

(Abhishek) #24

'Medha Servo and Kernex Microsystems were selected among six contenders, including a few multinational companies, by the Research, Designs and Standard Organisation (RDSO) of the Indian Railways on behalf of the Railway Board, a senior Railway Ministry official said.

This article is from July 2013. Did they get any order since then?

(Ayush A) #25

The TCAS technology has been undergoing extensive and rigorous trials before its introduction. Yes, there were development and trial testing orders awarderd in the past albeit very small.

Final set of trials expected to end in Sep 2017. Source: Annual Report’17 HBL Power

The order book of 250cr for FY2017-18 has been approved by railways (Please refer to the first post in the thread). The tendering process is yet to begin and expected to be start post the end of trials. Awaiting the tendering process.


Railway tendering has picked up super strong pace in H1, Safety systems should also get their due share and this interesting stock story continue to unfold


the stock has corrected meaningfully from sometime now, needs to watch the commentary of order inflow now along with q2 results, counter worth watching at

(Abhishek Singhvi) #28

Please refrain from getting excited too early & try to understand that SIL-4 certification is the first thing.Then only order will come
As per my information RDSO is visiting Kernex premises this week to freeze the product.

(Ayush A) #29

@calmabhi23 Any updates on the visit?

(azardeen) #30

Will this news affect Kernex or HBL Power Systems?

([email protected]) #31

This is the precise points made in the article

More Information:

Besides, the Board also decided to install the ETCS Level-II system on the entire 9,054 km Golden Quadrilateral route connecting the four metros to make it a fully accident-free corridor.
The entire project to ensure ETCS Level-II compliance is expected to cost around Rs 12,000 crore.
At present, the Railways has a basic automatic train protection system based on the ETCS Level-I specification to provide a back-up to loco pilots on a limited stretch.
Known as a “train protection warning system”, the facility based on ETCS Level-I has been implemented on around 342 km of railway route.
However, it was decided to upgrade the system to put it on par with world standards as the ETCS Level-I has limitations.
With the implementation of ETCS Level-II, the balise fitted on the track for communicating the status of signals are no longer required

Does Kernex has the capability of ETCS level-II technology, any idea ?

([email protected]) #32

Details on ETCS-II

this is an old article, the point being made in the article is

TCAS developed by RDSO (Research Designs and Standards Organisation) is combination of earlier truncated version of Train Protection Warning System (TPWS) and latest European Train Control System level II (ETCS-II). The technology could pave the way for driver-less train operation in future and is most advanced among all the available system across world,"

In that sense it looks to be a good news for Kernex?
Fellow members your thoughts please.

(puneetagarwal) #33

([email protected]) #34

Hi Ayush, Have been following this thread for quite some time.
A query related to the 250cr order for FY17-18.

From the standalone Qtr results, the total revenue has been close to 5cr for Q1 and Q2.
Since the expected order book is close to 250cr for this FY year does it mean the major portion of the revenue will be reported in Q3/Q4?

Your thoughts would be helpful.

Disclaimer : Not invested

(Ayush A) #35

The pink book of 250 crs is the sanctioned size of the order book.
The tendering process is yet to start.
Hence, revenues form the TCAS project will be reported once the tenders begin to be executed.

(Ayush A) #36

Promoters issuing pref shares to themselves and select investors.

([email protected]) #37

Hi Ayush, Is this development a good news for Kernex? I am a novice investor so sorry if my question is too basic.

(Abhishek Singhvi) #38


Kernex will still take lot of time for TCAS system as their documentation are still not ready because prior to getting order they need SIL-4 certification & Independent Safety Assessment(ISA) for safety systems which is pending.
After getting those approval live trial on passenger train will be done then only Tender of Rs 250 cr as mentioned in pink book will be floated.

Yes preferential is a positive sign but they need money for other works too.I asked CS many times why company is not coming out of Z group he said they have to pay Rs 25 lakh fine which they have been unable to pay till now.

Disc:- Invested

(Ayush A) #39

Agree with most of these points.

(namanjain) #40

The company in its AR of FY 2016 had mentioned “Egypt, South Africa, Sri Lanka, Australia and some African countries are at present upgrading their railway infrastructure. With suitable technology and marketing setup, we could expand our product market”. They had also hinted of expectation of some orders from Sri Lanka or African countries in AGM. Could there be something on that front?

If yes, then it would be icing on the cake as TCAS story is unfolding and these orders would result in additional revenue for the company.

We would know today. Promoters increasing stake is definitely a positive signal.


Promoters will be allotted 18,70,057 shares at the price according to sebi regulations

As per sebi regulations -

Pricing of equity shares.
76. (1) If the equity shares of the issuer have been listed on a recognised stock exchange for a period
of six months or more as on the relevant date, the equity shares shall be allotted at a price not less than
higher of the following:
(a) The average of the weekly high and low of the closing prices of the related equity shares
quoted on the recognised stock exchange during the six months preceding the relevant
date; or
(b) The average of the weekly high and low of the closing prices of the related equity shares
quoted on a recognised stock exchange during the two weeks preceding the relevant date.

Relevant date as per todays notice is 17 jan, weekly high would be Rs 55, so they might be getting ~10.2Cr, which is ~11% of current mcap

Decent capital according to my opinion

@ayush…any comments?