D-LINK INDIA LIMITED: BETTER PLACED IN THE SECTOR !!!

A TRADE TO TRADE SCRIP & FOR HIGH RISK TAKERS ONLY !!!
Scrip Code: 533146 / DLINKINDIA

CMP:  Rs. 59.00; Buy at Rs. 56 to 59 and at every dips.

Short Term Target: Rs. 65.00; Medium to Long Term Target: Rs. 175.00; STOP LOSS – Rs. 50.00; Market Cap: Rs. 176.87 Cr; 52 Week High/Low: Rs. 65.20 / Rs. 22.50.

Total Shares: 3,00,04,850 shares; Promoters : 1,81,14,663 shares – 60.37 %; Total Public holding : 1,89,90,187 shares – 39.62 %; Book Value: Rs. 28.98; Face Value: Rs. 2.00; EPS: Rs. 3.83; Dividend: 25.00 %; P/E: 15.39 times; Ind. P/E: 85.41; EV/EBITDA: 7.73.

Total Debt: 1 Lakh; Enterprise Value: Rs. 176.82 Cr.

D-LINK INDIA LTD: D-Link India Ltd was founded in the year 2008 and is based in Mumbai. D-Link (India) Limited was formerly known as Smartlink Network Systems Limited. Company is a subsidiary of D-Link Holding Mauritius Inc. D-Link (India) Limited engages in the marketing and distribution of networking products in India and SAARC countries. It primarily offers digital home, easy portal, home servers, security box, Internet protocol (IP) device integration and wireless routers, as well as carrier switches, broadband digital subscriber lines (DSL) and DSL access multiplexers, integrated access devices, cable modems, voice over IP, passive optical network, rural connective platform outdoor wireless bridges, digital home appliances, network storage, and IP surveillance and multimedia devices for customers and service providers. The company also provides metro network, access network, premises network and home entertainment focusing on the provision of backend infrastructure services to customers at various levels, such as service distribution, aggregation, and access and premise networks. The company sells its networking products to distributors, original equipment manufacturers and system integrators, as well as for the enterprise and small and medium business segments in the government, hospitability and education sectors. It also exports its products. D-LINK INDIA LTD can be locally compared Salora International Limited, Computech Intl. Ltd, Redington India Ltd, Vintron Informatics Ltd, Zenith Computers Ltd, Encore Software Ltd and globally with Emulex Corp of USA, Emcore Corp of USA, Digi International Inc of USA, Cisco Systems Inc of USA, Intel Corporation of USA, Qualcomm Inc of USA, United Technologies Corp of USA, Netgear Inc of USA, Novatel Wireless Inc of USA, Netas Telekomunikasyon A.S. of Turkey, Transmode AB of Sweden, Pace Plc of London, Alpha Networks Inc of Taiwan, Hitachi Kokusai Electric Inc of South Korea, Humax Co, Ltd of South Korea, Wave Electronics Co, Ltd of South Korea, Wistron NeWeb Corporation of Taiwan, Ceragon Networks Ltd of Isreal, Inter Far East Engineering Public Company Limited of Thailand, Marco Holdings Berhad of Malaysia, Startia Inc of Japan, Gremz, Inc of Japan, Aiko Corporation of Japan.

Investment Rationale: 

D-Link India is the business of marketing and distribution of networking, broadband, digital, voice, and data communications products of its parent D-Link Corporation, Taiwan in India. D-Link Corporation, Taiwan is globally renowned for its networking products and solutions and has a presence in 67 countries with a wide range of products. D-Link India distributes switches, routers, modems, voice over Internet protocol products, surveillance equipment, print servers, Ethernet cards, and broadband equipment. India is expected to witness a data boom similar to the voice boom in 2008. The total number of internet connections is expected to reach 46.3 Cr by FY18E, as per the FICCI KPMG report. The national optic fibre network as proposed by the new government will facilitate the New Telecom Policy (NTP 2012) which targets 60 Cr broadband users by 2020. Currently, we have about 5.5 Cr fixed and mobile broadband users. D-Link has a vast product portfolio, with such a product portfolio of active products such as switches, wireless & digital home products, passive products such as copper and fibre products and certain IT and enterprise based solutions and modems and routers, D-Link is expected to emerge as the direct beneficiary of the internet revolution. With more and more people availing internet connections, the increase in popularity and usage of mobile devices like laptops, smart-phones and gaming consoles has also resulted in an increased demand for networking products in the consumer space. India adds more than 1.50 Cr wireless subscribers every month and is the second-largest market after China for wireless services. The numbers of wireless subscribers has increased from 26 crore at the end of FY08 to 90 crore at the end of FY14, a CAGR of 23 % while wired broadband penetration has increased from 0.4 crore at the end of FY08 to 1.5 crore at the end of FY14, at a CAGR of 25 %. In addition to these there are currently 4.6 crore users accessing broadband internet through mobile devices such as smart-phones and dongles. The robust growth in wireless as well as broadband subscribers is pushing the demand for PCs, tablets, smart phones and consequently, pushing the demands for networking, especially, Wi-Fi networking products such as wireless routers, dongles, wi-fi adopters. The emergence of an affluent middle class is triggering the demand for mobile and internet segments. A young and growing population is aiding this trend, especially the demand for smart phones. This will fuel an increase in 3G/4G subscribers and broadband users, thus, creating further demand for networking products from individual users. Enterprises have been investing towards setting up a strong networking infrastructure that can deliver reliable and efficient end-to-end solutions to aid in their business operations. The roll out of 3G services and the significant government initiatives in aggressively promoting broadband usage in the country are driving the demand of networking products like routers, switches and access points to storage and surveillance products across all verticals. The fast growth in networking infrastructure is evident across a string of verticals such as telecom, retail, aviation, hospitality, government, manufacturing and education which are increasingly deploying sophisticated networking infrastructure. D-Link being a market leader in providing networking and IT products and solutions naturally benefits from any increased spending in networking infrastructure. During this budget of 2014-15, the Finance Minister of India allocated Rs. 100 Crs fund to set up virtual classrooms, and Rs. 500 Cr for National Rural Internet and Technology Mission, which include providing broadband and information Technology (IT) skills to villages. There is a direct c0-relation between increasing broadband & mobile penetration and GDPof a country. According to a study by Deloitte LLP & Cisco, a 10 % increase in mobile penetration increases total factor productivity in the long run by 4.2 %. The Government has also proposed to integrating all the services of central government departments and ministries on its e-Biz platform, aimed at making all business and investment related clearances and compliances available on single website with an integrated payment gateway by 31 Dec 2014. And D-Link has sustained its growth momentum in various categories. In the switches segment, D-Link’s market share continues to grow and has reached the leadership position at nearly 37 % in FY13 against the backdrop of a virtually flat market. In the routers segment, D-Link ranks second with a 31 % market share in FY13. In the wireless domain, D-Link retained its Numero Uno position with 40 % of the market while in the emerging domain of IP surveillance, D-Link was at 4th position in FY13. Historically, whenever the cycle turns up, it is always the leaders who benefits foremost from the growth trajectory. And, D-Link by virtue of its leadership position is fitted in the best placed to benefit from this. The new government aims to set up a National Optic Fibre network up to the village level and also establish Wi-Fi in public zones. D-Link is very well placed to zero in on the upcoming internet boom in India with its portfolio of innovative product offerings. The total broadband subscribers in India have grown at a stellar rate of 58 % CAGR in FY10-14 to 5.5 Cr from a mere 9o lakh in FY10. This growth in broadband subscribers is also visible in D-Link’s financials. Nonetheless, the scope for further growth remains humongous as broadband penetration is still quite low. Going ahead, if the current momentum continues, the industry would reach closer to NTP 2012’s target of 60 Cr broadband subscribers, which would directly benefit players like D-Link.

Outlook and Valuation: 

D-Link (India) Limited is a part of D-Link Corporation and is one of the largest networking company in India. The Company is engaged in Marketing and Distribution of Networking products in India and SAARC Countries. D-Link Holding Mauritius Inc., which is 100 % subsidiary of D-Link Corporation, is holding 60.37 % in D-Link (India) Ltd. Today, D-Link (India) Limited is a key market player with a nationwide reach, robust product portfolio and a provider of the superior services in India. The Company is firmly committed towards delivering high quality, efficiency and reliability to Networking products, solutions and services. The management has expressed confidence that the networking industry will continue to grow at a robust pace on the back of higher enterprise spending, further roll out of 3G/4G networks and increasing broadband penetration will also help. With strong parental support from D-Link Taiwan, in terms of a pipeline of the latest and innovative products, D-Link India is ideally placed to take advantage of the impending boom in networking and internet products. D-Link is a market leader in important product categories such as Switches where it holds 37 % market share; in Wireless it holds 40 % market share; and in Routers it holds 31 % market share. Recently, in Union Budget of 2014-15, the Finance Minister proposed to build smart cities, increasing high-speed Internet connectivity, providing online delivery services through integration of government departments and also the long standing issue of inverted duty for electronic goods has been addressed & Special additional duty of 4 % is removed and educational cess put on imported electronic products will encourage domestic manufacturing. India is among the world's youngest nations with a median age of 26 years. 65 % of Indian population is estimated to be below 35 years of age and India will have 7 Cr new entrants to its work force over the next 5 years. India currently has about 21.4 Cr internet users, the third largest in the world and is likely to have 33 Cr to 37 Cr internet users in 2015 which would then be the second largest in terms of incremental growth. Due to declining costs of Internet access and mobile devices, nearly 55 % of aggregate user base in 2015 is expected to have an access to the internet from a mobile or tablet device in India. Economic contribution from Internet in India can be potentially doubled from current 1.6 % of India’s GDP to 2.8 % to 3.3 % by 2015. Internet-related economy is expected to grow bigger than education and as bigger as healthcare sector in terms of current GDP share. Internet’s effect on the Indian economy goes well beyond iGDP. The Current levels of internet-related expenditure are estimated to create about 60 lakhs direct and indirect jobs. As the direct impact of the internet on India’s GDP has the potential to treble by 2015, an additional 1.6 Cr jobs could be created. In India, Enterprise IT spending is expected to grow at a CAGR of 12 % and reach $50 billion by the end of CY15 from $38 billion in CY13. With the spending on IT on the rise, networking products and services will continue to be in great demand in the foreseeable future. Wireless subscribers have grown at a CAGR of 23 % while wired broadband penetration has increased at a CAGR of 25 % through FY08-14. The emergence of an affluent middle class is triggering demand for the mobile and internet segments This will fuel an increase in 3G/4G subscribers and broadband users, thus, creating further demand for networking products from individual users. D-Link has a strong backing from its parent company and D-Link India enjoys flexibility when it comes to procurement and pricing and can manage its working capital cycle better than other companies in difficult times. For the last 3 years, D-Link has maintained a debtor day’s cycle that is in the range of 70 to 85 days and it has a creditor day’s cycle in the range of 70 to 90 days. As per the management, the company receives a credit period of 45 days from its parent company which can be flexible depending on the working cycle requirement and 60 days from its local supplier. It will continue to maintain an inventory of products for two months. D-Link India along with its parent entity D-Link Holding Mauritius is acquiring TeamF1 Networks, a company which specializes in providing networking and security software for embedded devices. The acquisition, which is aimed at 100% shareholding in the TeamF1 Networks, will be partially funded through stock swap and partially through cash. Accordingly, D-Link India has issued 55 lakh shares on a preferential basis to the promoters and other shareholders of TeamF1 Networks. Post the demerger; the company had reported flat revenues in FY09-11. However, D-Link India’s performance has been quite impressive over the past two years as it posted 47.6 % and 40.5 % CAGR in its revenue and EBITDA, respectively, over FY12-14. D-Link distributes its products in India largely through two pan-India distributors, Redington and Ingram Micro. The company has of a strong distribution network with 17 branch offices in India, 22 RMA centres, 85 business distributors and over 200 SI partners. It has further enhanced its distribution network by adding one other distributor (Cadence) in FY14. D-Link continually engages with its channel partners through various training and technology up-gradation programmes to ensure that they are better equipped to meet customer needs relating to technology. D-Link sales have grown at a CAGR of nearly 56 % during the period FY11 to FY14 on the back of aggressive marketing strategies. At a Current Market Price of Rs. 59.00, the D-Link stock is trading at a P/E of 9.21x FY15E and 7.65x FY16E. The company can post EPS of Rs. 6.40 for FY15E and Rs. 7.70 for FY16E. One can buy D-LINK LIMITED with a target price of Rs. 65.00 for Short term and for Medium to Long term investment it should be Rs. 175.00.

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	353.70	486.00	586.40	671.00
NET PROFIT (₹ Cr)	12.30	13.60	19.20	23.00
EPS (₹)	4.10	4.50	6.40	7.70
PE (x)	12.30	11.20	7.90	6.60
P/BV (x)	1.70	1.50	1.30	1.10
EV/EBITDA (x)	7.70	6.90	4.40	3.10
ROE (%)	14.00	13.60	16.00	16.30
ROCE (%)	20.20	20.10	23.50	24.00

I would buy D-LINK LTD for Rs. 65.00 in short term and for Medium to Long term target of Rs. 175.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 50.00 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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