>ZICOM ELECTRONIC SECURITY SYSTEMS (PRIME BROKING)

Q1FY10 CONSOLIDATED PERFORMANCE

Zicom reported a 26.2% YoY growth in revenues for Q1FY10 at Rs. 1,047 mn versus Rs. 829 mn for Q1FY09. EBITDA grew by 49.6% YoY and EBITDA margin improved to 14.3% from 12.1% for Q1FY09. Depreciation and interest costs increased by 39.9% and 116.7% YoY respectively. At PBT level, profit stood at Rs. 61 mn, up by 15.8% YoY. Net profit adjusted
for minority interest was up by 14.5% YoY at Rs. 44 mn versus Rs. 38 mn for Q1FY09.

VALUATION

We maintain our expectation of a 30% CAGR in revenues over FY10-FY11E. We estimate FY10E and FY11E EPS of Rs. 22.3 and Rs. 32.8 respectively. The company is currently trading at P/E of 3.8x and 2.6x and EV/EBITDA of 3.4x and 3.0x times FY10E and FY11E numbers. Our target price on the stock is Rs. 223 at a P/E multiple of 10.0x its FY10E earnings.

KEY RISKS

The key downside risks are:
1) Delay in response for change in regulatory framework from the government as this impacts priority for security products, decision making and budgetary provisions for security projects in government and public sector companies

2) Increased competition due to low barriers to entry

3) High price sensitivity in the Indian market

4) Obsolescence of technology and products

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