>ZICOM ELECTRONIC SECURITY SYSTEMS (PRIME BROKING)

Sense of security

RESULTS HIGHLIGHT
Zicom reported a 29.5% increase in topline to Rs. 3,757.6 mn. EBITDA jumped substantially by 224.3% to Rs. 505.2 mn versus Rs. 155.8 mn for FY08 with EBITDA margin improving to 13.4% versus 5.4% for FY08. This was primarily because the company had taken the advertising expense of Rs. 231.6 mn for their retail arm as one-time expense in FY08. Depreciation and interest cost increased by 78.4% and 72.3% respectively.

At PBT level, profit was up significantly by 2,572% at Rs. 240.2 mn. The company’s net profit increased by 447.3% to Rs. 222.9 mn versus Rs. 40.7 mn for FY08. The net profit figure after adjusting for minority interest was Rs. 195.9 mn versus Rs. 14.5 mn for FY08.

Zicom reported consolidated Q4FY09 revenues at Rs. 1,038.4 mn with EBITDA of Rs. 152.1 mn. Net profit figure for the quarter stood at Rs. 67.6 mn. EBITDA margin and net profit margin for the quarter were at 14.7% and 6.5% respectively.

INVESTMENT RATIONALE
The electronic security solutions market in India is at a nascent stage compared to developed countries of the world. While the U.S. and Europe may account for more than 60% of the global electronic security industry, the rate of growth of the industry in India is expected to be much higher at 30% compared with the single digit growth rates expected in these developed markets. We believe that there is a huge potential for security business in India for the following reasons:

1) The security perception of the government has changed drastically due to continued threats from terrorist activities in India. With the government giving increased importance to safety and security measures, we expect significant demand from the government for integrated security solutions to protect public infrastructure.

2) The industrial segment’s rising demand for new generation network-based integrated products and solutions to support remote access and monitoring across their physically scattered plant locations.

3) The consumers’ growing awareness and change in attitude about safety, security and preference for integrated electronic security systems.

4) The need for security systems at the increasing number of public places such as malls, multiplexes, retail chains, etc that have come up over the past few years. Further, need for security equipments such as burglar alarm system, video phone doors, etc for large number of residential townships across metros, tier 1 and tier II cities in India as these are increasing considered as basic facilities or lifestyle products by the consumers.

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