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.
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 |
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