Suyog Telematics: Worth catching when its young?


(Sameer_srj) #1

Company Name: Suyog Telematics
CMP: Rs. 341
Market Cap: 346 Crores.
P/E: 20.5
P/B: 6.8

The company is engaged primarily in the business of installing and commissioning of poles, towers and optical fibre cable (OFC) systems in India. It is a passive telecommunication infrastructure provider which refers to the telecommunication towers for wireless telecommunication services and OFC is used for the purpose of hosting and assisting in the operation of the active infrastructure used for transmitting telecommunications signals or transport of voice and data traffic. It builds,owns and operates poles, towers (mainly Roof top towers), OFC systems and provides this passive infrastructure on a shared basis to wireless and other communications service providers. It also offers services to telecom operators in installing telecom infrastructure on job work basis.

Segments:

Tower business: Installs roof top towers and provides the same to telecom service providers on a sharing basis. It has a tenancy ratio of 1.8 per tower. These towers are used for technologies like CDMA, 2G, 3G and 4G. The average tenancy ratio for the industry is expected to increase to 2.5 by the year 2020. Tenancy ratio refers to the number of antennae and other infrastructure on a tower. Increase in this ratio is a key driver of growth for a tower company.

Poles Business: This segment mainly provides poles for telecom infrastructure in situations where erecting regular network towere is not possible. It mainly provides poles and infrastructure on lease over several MSRDC flyovers, Bandra-Worli sea link project, MMRDA flyovers and skywalks in and around Mumbai. It has also started working in NHAI projects. It also installs BTS on poles in local areas with severe traffic and congestion like check posts, cinema halls etc. Company has clients in this segment like BSNL, Airtel, Idea cellular, Vodafone, Tata Tele, Reliance Jio, Rcom and Aircel.

Optical fibre network segment:

Company has set up its own optical fibre cable network of about 200 km from Thane Ghodbunder Road to Kalamboli. The OFC network fibre has been laid in ducts intended to provide added protection and it allows to lay more fibre as demand increases.

Sharing of infrastructure and towers is expected to increase among telecom operators amidst falling revenues, pressure on margins and pricing pressures in the industry. This is expected to improve the tenancy ratio of the company’s tower assets. Once a tower is rented out it generates a stable cash flow in the form of tower rentals from occupants. The thrust on 4G by all the major telecom operators will further increase the demand for sharing passive infrastructure. The company is well positioned to benefit from the demand for towers as data growth and voice growth continues rapidly in India.

Drivers of future growth:

Company has extended its operations into NHAI projects. Three upcoming NHAI projects ( Mumbai-Ahmedabad, Mumbai-Goa and Mumbai-Bangalore) are expected to add around 1000 towers to its current portfolio.

Focus on increasing slum site tenancies to 2.3 from the current 1.8

Acquisition of NISA which has its operations in north India ( Ahmedabad and Delhi).

Company entered into a 10 year agreement with MSRDC for erection of 10 meter monopole.

Plans to provide fibre connectivity to all Reliance Jio sites in Mumbai – mainly flyovers, skywalks and FOB sites. This will further strengthen its presence in fibre business.

Promoters hold 49.63% stake in the company while the rest is held by the public.

Financials:

The total turnover of the company increased by 38% to INR 60.54 Crore in 2017 from INR 43.75 Crore in 2016. While its PAT zoomed by close to 50% in the same period.

In the last three years its sales have grown from INR 21.71 Crores in 2015 to INR 60.54 Crores in 2017.

Operating margins have improved from 34% to 53.8%

EPS has ballooned from INR 1.43 in 2014 to 14.25 in 2016.

Sales have grown at a compounded 70% in the past three years and profit at 129%.

Operating cash flows have improved significantly.

ROCE of 58% and ROE of 42%.

In 2016 Suyog Telematics was included in the Forbes Asia ‘Best under a Billion’ list of the top 200 publicly traded companies in the region. An in 2017 it was recognized as one of the ‘top 100 SMEs of India’ by the India SME forum.

Disclosure: Not yet invested. Inviting your views.


(Bheeshma Sanghani) #2

Hi @Sameer_srj

You also need to provide the risks attached to the business for a balanced viewpoint. Also, appreciate the efforts in trying to identify the company but much of your text except the financials are a verbatim reproduction from the company AR

Best
Bheeshma


(Krishnendu) #3

Hi @Sameer_srj can you shed some light on the Management of this Company. I can see 36% of the Promoters are pledge. Investment from Sat Pal Khattar give some definite edge to this company undoubtedly but we can not ignore the fact that it already has raised 14 times in 3 years.


(Sameer_srj) #4

Hello @bheeshma,

Thanks for your suggestion. This is my first post in VP, and yes I did miss mentioning about the risk factor. As per my understanding, below are the risk factors:

  1. Highly competative business.
  2. Company derives most of its revenue from top 3 telecom players. So client concentration can be a risk factor. This might have changed with Jio’s entry but we will have to wait for AR to know more.
  3. Change in regulatory environment.
  4. Another stock specific risk factor is very low trading volume of the stock and high volatility.

Hi @KC1986, I did not find anything negative about the management. Only thing which is a bit assuring is that it was among the 100 best SMEs of India and corporate governance was also a factor in deciding the list.
As far as the pledge is concerned, the shares are pledged in favor of Axis bank from which it has raised long term loan.


(Krishnendu) #5

Thanks @Sameer_srj ,

But will you please tell something about their business model and competitive moat if any.


(Sameer_srj) #6

Q1 result out.

  1. Revenue from operations up 55.8% YoY and 6.3% QoQ.
  2. EBIT margin at 42.87% vs 42.21 YoY.
  3. Net profit has increased 42.26% YoY to 4.67 cr but has decreased 21% QoQ.
  4. Net profit margin at 24.23% vs 26.54% YoY.

Net profit margin has decreased because of the increase in finance cost.
Company has increased debt from 23.4Cr to 54.25 Cr. The D/E at the end of FY17 increased to 1.04 from 0.66 a year ago.

Waiting for the annual report which would give more clarity on their capital requirement and reason behind doubling the debt.

Suyog Telematics Q1 result.pdf (1.5 MB)


(Capsule91) #7

The percentage of pledged promoter share has come down to 24.37% from 34.33%in the term of q2fy18…
But the company seems to be starving on internal accruals , they defaulted on a term loan payment due on 28th dec 17… the following has been mentioned in statement by the company,

" This was on account of delayed realization from one of its customers, whose receivables were used to make the repayment. While STL had sufficient current account balance with another bank, the same was not utilized in servicing the principal payment. However, the company has cleared all dues as on date. "
Although the clarification that the sufficient balance was present in current account, but the whole event was an uncomfortable take from my side…

Disc: not invested, tracking, will wait for correction to enter…