Buy ICSA (India) Ltd CMP Rs 346 Target Rs 460 in 2 Months

New product offerings and continuous R&D provides an edge over peers
ICSA, which offers products and solutions for power, oil and gas and the water
segment, has developed products and solutions to arrest losses during
transmission. Apart from conventional products, it developed Intelligent Cathodic
Protection solutions (iCAP), Intelligent Automatic Meter Reading (IAMR), Intelligent

Automatic Water Reading solution (IAWR) and street light monitoring control
systems. Presence in these segments that are currently witnessing huge spend,
with a host of new product offerings for which IPRs have been filed, will help ICSA
sustain high growth in future.

Power, oil and gas transmission grid offer opportunities for growth
Since ICSA’s products and services are designed to tap transmission and
distribution (T&D) losses, it would be a major beneficiary of the spending under the
Accelerated Power Development and Reforms Programme (APDRP). The company
provides services like energy management, energy audit and control applications,
which are tools for arresting losses. Coupled with this, capex announced by oil and
gas companies also provides an opportunity for its pipeline management products
and services.

Value added products should expand margins
With the introduction of newer and better products, we expect the company’s
operating margin to expand. This will be supported by patents for three of its
products, which could lead to improved realizations. We expect operating margins
to sustain at 26%, an improvement of 140 bps by FY09E over FY07.

81.5% profit CAGR over FY07-09E, Recommend BUY
ICSA’s revenues and profits have registered high growth of 293.2% and 297.6%
CAGR over FY05-07. ICSA is a proxy on the growth opportunities in the power
sector. With robust growth outlook over the next five years due to greater focus on
implementation of APDRP, we expect ICSA’s revenues and profits to witness 75.6%
and 81.5% CAGR over FY07-09 respectively. At the current price, the stock trades
at 12.5x and 8.3x its FY08E and FY09E EPS of Rs25 and Rs37.6 respectively. We
recommend BUY with a one-year price target of Rs451, an upside of 44.7%