CMP: Rs. 162.15; Market Cap:
Rs. 575.71 Cr; 52 Week High/Low: Rs. 251.80 / Rs. 95.60. Total Shares: 3,55,04,850 shares;
Promoters : 1,81,14,663 shares –51.02 %; Total Public holding : 1,73,90,187
shares – 39.62 %; Book Value: Rs. 37.87; Face Value: Rs. 2.00;
EPS: Rs. 5.73; Dividend: 35.00 %; P/E: 28.27 times; Ind. P/E: 21.65;
EV/EBITDA: 17.53. Total Debt: Rs. 3.51 Cr; Enterprise Value: Rs. 576.15 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 US, 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) Limited was incorporated in 2008. D-Link (India) Limited is a
subsidiary of D-Link Holding Mauritius Inc. D-Link India is in 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
witnessed in 2008. The total number of internet connections is expected to
reach 463 million by FY18E (as per FICCI KPMG). The national optic fibre
network as proposed by the new government will facilitate the New Telecom
Policy (NTP 2012) targeting 600 million broadband users by 2020. Currently,
India has about 55 million fixed and mobile broadband users. The
Indian networking industry is undergoing a rapid transformation with the advent
of new technologies, higher bandwidth and high speed wireless connectivity. The
growth in this sector is likely to be accelerated as the economy steadily moves
to a higher gear in 2014-15 driven by a gradual revival in industrial
production, stable agri-sector activity, steady services growth and easing
inflation. With the economy poised to grow at a steady pace, Enterprises are
investing towards setting up a strong networking infrastructure that can
deliver reliable and efficient end-to-end solutions which eventually transforms
their productivity from business operations. The roll out of 4G services and
the significant government initiatives in aggressively promoting broadband
usage in the country are driving the demand of networking products like routers,
modems, switches and access points to storage and surveillance products across
all verticals. The number of computing devices, PCs, tablets, smart phones has
increased rapidly in India and networks, especially wifi networks, need to be
deployed to share information and resources across users and devices. Indian users
are upgrading their networks to take advantage of complex applications,
advanced communication capabilities and rich multimedia content. Indian users
need the convenience and flexibility of operating their various devices in an
increasingly mobile or wireless manner. Similarly, market demand for television
connectivity products has increased as users seek to connect their televisions
to internet and for entertainment content. These developments augurs well for
D-Link India, and with the networking industry in an expansion mode, the
company looks forward to sound long term growth prospects. D-link supplies
complete range of switching solutions including switches, L3/L2 managed web-smart
and un-managed switches. D-Link is the
market leader in port shipment of switches with market share of 30 %. The demand
for switches are driven by bandwidth intensive applications like streaming
video, VoIP and high-end multimedia and the rising demand for gigabit switches are
driven from large enterprises and service providers and D-Link carters to all.
D-Link’s Product portfolio includes business class access points, unified
switching solutions and long distance wireless systems. D-Link is the market leader by volumes in WLAN category with 40 %
market size. Expansion of the smart phone market has helped D-Link to profitably
position its products like mydlink, mobile companion and 3G in a leading space.
D-Link also offers a wide range of IP-based surveillance cameras with wired and
wireless options, including stand-alone network cameras, pan tilt zoom cameras,
dome cameras, box cameras and outdoor cameras. This business gets orders from
all relevant sectors like consumer, SMB/SME and enterprise. D-Link also handles
cabling requirements of large enterprises and SMEs/SMBs across sectors. In
healthcare, the focus is on high data transmission in ICU and operation
theatres, while it provides complete platform of infrastructure systems and fibre
connectivity for data centres. For enterprises, it offers exhaustive solution
for physically distributed network and plan for flexible cabling. D-Link has
recently acquired TeamF1 Networks, a provider of embedded software engineering
with expertise in networking and security, in a share swap deal of 5.5m shares
were issued at a price of Rs. 30 each, resulting in goodwill on acquisition of
Rs. 15.35 Crs. TeamF1 provides networking and security solutions for key
infrastructure components of communication and industrial equipment’s (both
wired and wireless). Its products have been planted in embedded systems by
scores of OEM customers ranging from big corporates to start-up companies. This
acquisition will not only foment D-Link's technological and R&D
capabilities but also spur in-house customization and development of new
localized products. To strengthen its reach in industrial networking segment,
D-Link has recently tied up with MOXA, a well-recognized player in industrial
networking, computation and automation and MOXA has presence in over 70
countries. This alliance is aimed towards providing comprehensive industrial
networking solution with switching, IP surveillance & wireless products as
part of its offering. This association will help D-Link to offer reliable network
solution for industrial grade networking technology catering to wide industrial
segments like power, factory automation, surveillance projects, oil & gas,
marine and telecom carriers. With the rollout of 4G and its enabled products
will help D-Link to leverage its position in SOHO/SMB segment. Its latest
product line from Connected Home Solution comprises of Wi Fi smart plug, motion
sensor, audio extender and apps. It has also unveiled ‘D-LINK Connect Mobile
App’ for its channel partners and retailers across the country. This app
provides instant update on new product introductions, details on select SKUs
with specification videos, news, events etc. There is a good demand for
D-Link's portable routers have got a thrust from widespread adoption of 4G LTE
technology in the consumer segment. Some other new products introduced last
fiscal include a baby camera and 11AC product line up with cloud services which
helps in stream media, share files and control network from any PC or mobile
device remotely. Also D-Link Corporation recently signed a non-binding MOU with
the Telegana government to set up its global R&D centre, and expands its
Hyderabad office and build a network training centre in Indian state of
Telegana with an investment of over Rs. 350 Crs. D-Link (India) continues to
rely heavily on wares imported from D-Link Corporation and its subsidiaries, associates.
To maintain its technological edge D-Link Corporation continues to rack up R&D
spending which grew 18 % in the year ending 2014 and constituted 3.7 % of net
operating revenues. As a result, it has been awarded copyrights and patents on
several technological platforms including application specific integrated
circuit (asic) computer chips, hardware technology designs, software
applications and other intellectual properties.
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 as well as SAARC Countries. D-Link
Holding Mauritius Inc., which is 100 % subsidiary of D-Link Corporation, is
holding 60.37 % in D-Link (India) Ltd. D-Link (India) Limited is a key market
player with a nationwide reach, robust product portfolio and superior services
in India. The Company is firmly committed towards delivering high quality,
efficiency and reliability to Networking products, solutions and services. Its product portfolio consists
of end to end networking products, which includes 3G/4G, broadband, IP
surveillance, network security, network storage, switching, routing and
wireless LAN. D-Link is a leading player in networking products for the enterprise
segment and is well placed to grab emerging opportunities in education, BFSI, manufacturing
and customer premise equipment industry. D-Link's entire range of high end
copper and fiber products finds applications in high end applications like data
centres and server farms. 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 in India. India adds more than 1.5 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 which reflects 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 i.e. smart-phones and dongles. Robust growth in wireless as well
as broadband subscribers is pushing the demand for PCs, tablets, smart phones
and consequently for networking, especially, Wi-Fi networks. 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 with their demand
for new age technology, especially the demand for smart phones. This trend is
expected to continue and will be further fuelled with 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. In India, 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 FY14 against the
backdrop of a virtually flat market. In the routers segment, D-Link ranked
second with a 36.6 % market share in FY15. In network switches it holds market
share of 30 % and in the commercial routers, D-Link retained its Numero Uno
position with 40 % of the market and commands pricing power, while in the
emerging domain of IP surveillance, D-Link was at 4th place in FY15. GOI's landmark initiatives of
digitalizing India and erecting dozens of smart cities would further galvanize
the IT networking industry. Lifted by firm backing of its parent D-Link
Corporation, D-Link (India) would continue to roll out highly sophisticated
products in India. GOI's Digital
India project envisages creation of high speed internet at gram panchayat
level, on demand availability of public services and digital empowerment of
citizens. It plans to set up necessary infrastructure for digital identity,
financial inclusion and availability of common service centers. GOI has also
laid out policy framework for setting up 100 smart cities in next five years. Despite some cooling, its revenues are expected to grow by 24 % to
25 % over the next two years. D-Link has wonderful top line growth; its revenues
have grown by 5 times in last five years with average yearly addition of Rs.
134 Crs in last three years. D-Link’s Foray in high end enterprise solutions with
recent tie ups with MOXA and GajShield could push its margins higher. D-Link's asset light model manifests in its
overwhelming asset turnover ratios, its fixed asset and total asset turnover
ratios stood at 32 % and 5.3 % last fiscal respectively. Despite awful net
margins, its ability to churn out sales on a low base helps push its return on capital
ratios in top quartile and its ROE stood at 18.2 % last fiscal. On
Financial side, D-Link in Q4 FY15, reported a jump in its Net profit jumps to
Rs. 5.30 Cr an increase of 65.91 % against Rs. 3.2 Cr in the corresponding
quarter of previous year. The company’s net sales registered 29.91 % increase in
Q4 FY15 and stood at Rs. 172.89 Cr from Rs. 133.08 Cr over the corresponding
quarter of previous year. During the quarter, it reported its operating profit
at Rs. 8.87 Cr as against Rs. 5.99 Cr in the corresponding period of the
previous year. For the end of FY15, the company registered a growth of 28 % in
Net sales to Rs. 625.32 Cr from Rs. 487.58 Cr for the end of FY14. Net Sales
and PAT of the company are expected to grow at a CAGR of 24 % and 21 % over
2014 to 2017E respectively. At the current market price of Rs. 162.15, the stock is trading at 22.24 x FY16E and about 17.07 x FY17E. Company can post Earnings per share (EPS) of Rs. 7.29 for FY16E and of Rs. 9.49 for FY17E. Despite sobering growth, D-Link's earning is projected to grow by some
26 % (annual average) over the next two years. The company will proficienctly remain virtually debt free – funded the TeamF1’s purchase
consideration of Rs 16.50 crs through equity. Volatility in forex rates though
pose marginal risks for it imports finished goods worth over 50 % of sales. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.
| KEY FINANCIALS | FY14 | FY15 | FY16E | FY17E |
|---|
| SALES (₹ Crs) | 487.58 | 625.32 | 781.45 | 968.78 |
| NET PROFIT (₹ Cr) | 13.57 | 21.32 | 25.88 | 33.70 |
| EPS (₹) | 4.25 | 6.00 | 7.29 | 9.49 |
| PE (x) | 6.40 | 27.40 | 27.00 | 20.70 |
| P/BV (x) | 0.90 | 4.30 | 4.40 | 3.70 |
| EV/EBITDA (x) | 3.80 | 16.90 | 16.90 | 13.10 |
| ROE (%) | 14.40 | 18.20 | 17.80 | 19.50 |
| ROCE (%) | 14.80 | 18.00 | 17.60 | 19.50 |
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*As the author of this blog I disclose that I do hold DLINK Ltd in my investment portfolios.
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