As I have been saying in my previous reports on Zicom, this company is expected to grow at a steady pace, not at a super-fast pace. Zicom is a profit-making company & with increasing scale of operations, we can expect the profit margins to expand to some extent, not from it's products business, but from the services business. As of now services business is very very small part of Zicom's total business. It will reach a significant proportion only about 2 or 3 years from now. And that is when we will see Zicom's profit margins to be much better than what they are today. As of now Zicom's EBITDA margins are around the 12% mark & Net Profit margin is around the 4.5% mark. We can expect a 200 bps improvement in EBITDA and atleast 100 bps improvement in Net Profit margin over the next 2-3 years.
Zicom has achieved a significant milestone in Q2 FY'14. Zicom's Total Income on a T-T-M basis have crossed the Rs.1000 crores mark and now stand at Rs.1027 crores. The Y-o-Y growth currently stands at about 29%, but I am expecting the growth rate to slowly calm down to levels closer to 20% in the coming 4-6 quarters. Infact I will be happy with a number anywhere over 15% Y-o-Y for the next 2-3 years. Another important aspect which can help Zicom improve it's Net Profit margin is the Interest Cost management. In the three quarters prior to Q2 FY'14, little over 34% of Zicom's EBITDA went towards it's Interest Cost, which is pretty high. In Q2 the same is down to little over 29%. This helped push the Net Profit margin in Q2 closer to 5% mark. Lets see if this is a one-off or Zicom manages to control it's Interest Cost in the coming quarters.
Now lets get to the Valuation & stock price movement part. And there is some good news for all new as well as older shareholders of Zicom. After spending a lot of time within a very tight range of less than Rs.70/-, Zicom share price has finally got moving over the last 6 months. The stock price has doubled to levels of about Rs.140/- now. This is still very very cheap at a little over 5 times it's T-T-M EPS of about Rs.27/-. With Zicom expected to post 20%+ growth in the coming quarters/years, I certainly think it deserves much higher valuation. I won't be surprised even if Zicom's share price doubles again from the current levels over the next 6-9 months and it still won't be expensive on the valuation front. But remember that the share price movement is difficult to predict as to when it will stop moving & when it will start moving again. A lot depends on how large Institutional Investors trade in this stock. So this stock is best suitable for investors who have good amount of patience.
Zicom has achieved a significant milestone in Q2 FY'14. Zicom's Total Income on a T-T-M basis have crossed the Rs.1000 crores mark and now stand at Rs.1027 crores. The Y-o-Y growth currently stands at about 29%, but I am expecting the growth rate to slowly calm down to levels closer to 20% in the coming 4-6 quarters. Infact I will be happy with a number anywhere over 15% Y-o-Y for the next 2-3 years. Another important aspect which can help Zicom improve it's Net Profit margin is the Interest Cost management. In the three quarters prior to Q2 FY'14, little over 34% of Zicom's EBITDA went towards it's Interest Cost, which is pretty high. In Q2 the same is down to little over 29%. This helped push the Net Profit margin in Q2 closer to 5% mark. Lets see if this is a one-off or Zicom manages to control it's Interest Cost in the coming quarters.
Now lets get to the Valuation & stock price movement part. And there is some good news for all new as well as older shareholders of Zicom. After spending a lot of time within a very tight range of less than Rs.70/-, Zicom share price has finally got moving over the last 6 months. The stock price has doubled to levels of about Rs.140/- now. This is still very very cheap at a little over 5 times it's T-T-M EPS of about Rs.27/-. With Zicom expected to post 20%+ growth in the coming quarters/years, I certainly think it deserves much higher valuation. I won't be surprised even if Zicom's share price doubles again from the current levels over the next 6-9 months and it still won't be expensive on the valuation front. But remember that the share price movement is difficult to predict as to when it will stop moving & when it will start moving again. A lot depends on how large Institutional Investors trade in this stock. So this stock is best suitable for investors who have good amount of patience.
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