Electronic Hardware Industry Leaps Ahead, Shares Mildly Bearish | CORPORATE ETHOS

Electronic Hardware Industry Leaps Ahead, Shares Mildly Bearish

By: | June 15, 2018
electronic hardware industry

The monthly Index of Industrial Production data for the past eight months show that computer and electronic hardware industry has been consistently recording positive growth month on month. In April it grew at a rate of 27.5% while in March it was 12.2% and in September last year 128.3%. Indian government is working out a new electronic policy with focus on exports and expanding applications of electronics in automotive, defence, medical, power among others. It also aims to make India a manufacturing hub for electronics.

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Mobile phones, LCD, LED TVs, LED Lights, Computer hardware,telecom hardware,  DTH, Set Top Boxes, industrial electronics are the various segments with in the electronic hardware industry.
India’s hardware market is expected to grow to US $400 bn in 2020-22 compared to $140 bn in 2016-17.

Amidst the positive sentiments seen in electronic hardware market, here is a look at the prospects of major players:

#Redington India Ltd (BSE:532805, NSE: REDINGTON) Category: Mid Cap

Redington India Ltd commenced operations in 1993 and is now the largest end-to-end supply chain solutions provider for all categories of Information Technology products (PCs, PC building blocks, networking, software and enterprise solution products) and consumer and lifestyle products. It has 48 sales locations across India and subsidiaries in India and overseas. It is supported by robust IT and communication infrastructure.

The company was impacted by implementation of Goods and Services Tax (GST). In Q4FY18, net profits fell 6.28% to Rs 3.58 cr while sales rose 4.81% to Rs 11, 314 cr. It had a negative cash flow of Rs 306 cr largely on account of providing extended credit in the case of smart city projects and requirement of higher working capital in India. Its overseas operations except Turkey were showing positive growth. Mobility business witnessed de-growth on account of customs duties changing rapidly and vendors having inventory with differing levels of customs duty.
The company reported profit degrowth at Rs 183.92 cr in FY18 compared to Rs 208.35 cr in FY17. Income fell to Rs 15, 262.58 cr as compared to Rs 15,758.83 cr the previous year. It has underperformed the Sensex by 24.85%,  Cash and cash equivalents for the half year FY18 is at its lowest of Rs 541.27 cr.

It is trading at a PE of 26 which is quite attractive. On technical charts,  RSI of 32.80 is bearish, while ADX of 27.97 indicates range bound trading and MACD has witnessed a bearish crossover.

Target: Nil

Cerebra Integrated Technologies Ltd (BSE: 532413, NSE: CEREBRAINT) Category: Small Cap

Cerebra Integrated Technologies Ltd commenced its business operations in 1992 in hardware sector and expanding its services to software, training, consulting, BPO. It has over 50,000 installations of PCs and servers across the country.

In FY17, the company earned a turnover of Rs 251.97 cr and profit of Rs 11.24 cr. The company reported a net profit of Rs 14.63 cr in Q4FY18 while sales rose 91.80% annualised to Rs 130.18 cr. It is trading at a PE of 59 indicating that it is quite expensive to buy at current levels. On technical charts, RSI of 55.48 indicates bullishness, ADX of 24 indicates range bound trading and MACD has witnessed a bearish crossover.
It has outperformed the Sensex by 11.96%, Q4FY18 results show net profit highest at Rs 14.63 cr and profit before tax highest at rs 17.13 cr.

Target: 75     Duration : 4 weeks.

#Avantel Ltd (BSE: 532406, NSE: )  Category: Small Cap

Avantel Ltd was started in 1990 and works in integrated technologies such as wireless front end, satellite communication, embedded systems, signal processing, network management and software development. Products in RF radios, transmitters, receivers, TR modules, RF subsystem, modems, encoders.

It has outperformed the Sensex by 37.03% and outperformed sector by 57.32% at a PE of 10.03 it looks very attractive. Q4FY18 results show it now has highest inventory turnover ratio (Half Yearly) at 8.38 times and return on capital highest at 67.81% and cash and cash equivalents highest at Rs 10.96 cr.  Operating profit to net sales is lowest at 5.39% and Earnings per Share lowest at -3.18, Debtors turnover ratio highest at 6.27% which means it is able to settle its debts faster, net sales Q4 at Rs 14.28 cr grows 20% while operating profit margin has fallen to lowest at 5.39%

On technical charts, RSI of 43 indicates bearishness, ADX of 26 indicates range bound trade and MACD has witnessed a bullish crossover.
Target: Nil

# Tejas Networks Ltd  (BSE: 540595, NSE: TEJASNET) Category: Mid Cap
Tejas Networks has emerged as a major player in data networking products, and has leading products in Optical Networking and Broadband access (4G/LTE, GPON). It is ranked leader in India’s optical aggregation market and among top 10 worldwide.

The Debt Equity Ratio on half yearly basis is lowest at 0.0 times while net profit has fallen 56.7% to Rs 29.07% in Q4, operating profit to net sales lowest at 10.52% and net sales lowest at Rs 102.13 cr.

March 31, 2018, our consolidated revenues (net of taxes and pass-through component sale) were Rs. 739.9 crore which was a year-on-year decline of 9.6% and our profit before tax and exceptional item was Rs 106 crore which was an year-on-year increase of 26.0%. For Q4’18 our consolidated revenues (net of taxes and pass-through component sale) were Rs 98.7 crore, a decline of 61.2% and our net profit after tax of Rs 29.1 crore, a decline of 56.7% on a yearon-year basis.

Mr. Sanjay Nayak, Managing Director and CEO of Tejas Networks  has pointed out that global growth prospects remain bright for Tejas on mobility growth.  Revenue has fallen in FY 18 due to late receipt of a few large orders.  “However, we ended the year with a healthy backlog of Rs 579 crore, which gives us the necessary momentum for a strong revenue growth in the coming year.”

Target : Nil.

Summary

The indicators are positive for global growth of electronic hardware industry and India is no exception and likely to grow at a very faster rate. Hence, the prospects for electronic hardware companies are indeed positive for the long term although technically most of them are mildly bearish or bearish on short to medium term. Government of India is very supportive of the industry with its export oriented and investor friendly approaches. Government has clearly stated that emphasis will be on local manufacturing with lesser dependence on product imports. With the arrival of sub assembly manufacturers, setting up of export- oriented hardware parks, India is set to become a global hub for electronics manufacturing. Certainly good days are ahead for this emerging blue chips.