Stock Review: KAVVERI TELECOM

 

 

Telecom products maker Kavveri Telecom can be a good longterm investment considering increasing demand for its products, growing profitability and attractive valuations. Kavveri Telecom is engaged in the design, development and manufacture of radio frequency (RF) products and antennas for telecom, defence and space applications. Its target clientele includes companies from sectors such as telecom, defense, and space applications.

The company has a history of growing inorganically to expand its market reach and product portfolio. Incorporated in 1996, ithas struck multiple deals in North America including those with Canada's Trackcom Systems International, antenna manufacturer Til-Tek, DCI Canada and Spotwave Wireless, Canada. Kavveri has also acquired the technology and IP rights of Sigma Wireless, Ireland, from PCTel USA.

GROWTH DRIVERS

Kavveri provides a high quality, cost-effective solution for cellular operators in build, operate & lease (BOL) projects through its infrastructure arm — KTIL (Kavveri Telecom Infrastructure). This reduces the capital outlay as well as operational expense of the operators, which is an increasingly attractive option for debt-laden domestic telecom operators.

In line with its strategy to grow inorganically, the company intends to raise additional funds from institutional investors in India or overseas. It intends to use its low-cost Indian manufacturing operations to build its business in Europe, Africa and Latin America.

FINANCIALS

The company has posted a 13% compounded growth in its top line and 8% rise in its bottom line over the past eight quarters. Nearly 80% of its overall revenues come from the domestic market. It plans to increase the proportion of international business to nearly half of the total from 20% within three years.
During the June 2011 quarter, net sales grew 20% to 90 crore while profits were up 29% to 10 crore. The company has been operating at a margin of 22% and expects to maintain that in the coming quarters.

VALUATIONS

At current price levels, Kavveri's stock trades at four times its earnings for the trailing 12 months. Given the growing demand for its offerings, the company is expected to fare well in the coming quarters. Also, launch of 3G services by domestic operators has opened up another market for the company.