Krone Communications achieved Sales revenues and PAT of Rs.86 crores and Rs.7.30 crores respectively for the year ended October 2006. The stock trading at a PE of 8 looks undervalued for a Multinational operating in a growth business, where the potential opportunities could be immense.
From a manufacturer of Telephone connectors to providing complete Telecom solutions, Krone Communications has come a long way. Krone Communications Ltd. is a part of ADC Group. The company was originally promoted by Krone, Germany and Karnataka State Electronics Development Corporation in 1988 to manufacture Telephone connectors and back panel connectors used in the Telecom industry. In 2004, upon acquisition of Krone by ADC Telecommunications Inc., the company has now come into the fold of ADC Group. ADC Group currently holds 62% of the company’s equity.
About ADC Telecommunications Inc.
ADC was founded in 1935 and has become one of the leading companies providing Telecom and Network infrastructure products and services that enable delivery of high-speed Internet, video, data, and voice services. With the acquisition of the KRONE Group in 2004, ADC now offers global copper- and fiber-based connectivity solutions and cabling products used in public access and enterprise networks and provides global scale and expanded products and services to better serve customers anywhere in the world. ADC is listed on NASDAQ, has Annual Sales Revenues of US $ 1.3 billion (2006) and employs over 8500 professionals worldwide.
The company’s customers around the world include local and long distance telephone companies, cable television operators, Internet/data communications providers, wireless service providers, private network operators, and broadcast television operators. Examples of this vast customer base include Bank of England, AT&T, Bloomberg, British Telecom, Air Berlin, Chase Manhattan, Cingular, Citi Bank, Deutsche Telekom, Ford, Glaxo Smith Kline, Hong Kong Telecom, Morgan Stanley, Sprint Nextel, Reliance Infocom (India), Bharti Tele (India), Rolls Royce, Qwest, T-Mobile, Seagrams, Verizon, and many others.
Krone Communications – Business Profile
Krone Communications has its manufacturing facility located in Bangalore. The company is involved in the manufacture of telecom and networking equipment. The company has a broad product portfolio in the switching segment and structured cabling solutions.
The company provides complete solutions for Telecom and Network applications – these include CARRIER NETWORKS SOLUTIONS - designed to help Carriers and Telecom Service Providers meet the challenge of bandwidth hungry applications; WIRELESS SOLUTIONS; ENTERPRISE SOLUTIONS; DATA CENTRE SOLUTIONS; FIBRE INFRASTRUCTURE; BROADCAST & ENTERTAINMENT; INDUSTRIAL WIRING & LOW VOLTAGE SWITCHGEAR APPLICATIONS. The company enables spectrum-starved Wireless Carriers to get more from their networks with its Digivance™ radio frequency transport solutions and ClearGain® tower-mounted amplifiers.
The company’s customers in India include Bharti Televentures, Reliance Infocom, Tata Teleservices, Siemens, HFCL Infotel, Lucent, TCS, Alcatel, Cognizant, EMC, Neyveli Lignite Corporate, Intellinet Global Services Ltd, Hexaware, TIDEL Park, ITPL, and Shell Indian Parliament Library. The company has done some pioneering work in India including world’s first 10 Gigabit Ethernet solution for Bangalore based i2 Technologies.
Financials
The latest financials of the company are given as under :-
| QUARTERLY - LATEST RESULTS - Krone Communications Ltd (Curr: Rs in Cr.) | | ||||||||
| | | | | | | | | | |
| Particulars | Quarter Ended | Quarter Ended | Quarter Ended | YTD / Latest Half | YTD / Latest Half | YTD / Latest Half | Year Ended | Year Ended | Year Ended |
| | | | | | | | | | |
| (Jul 07) | (Jul 06) | (% Var) | (Jul 07) | (Jul 06) | (% Var) | (Oct 06) (12) | (Oct 05) (12) | (%Var) | |
| Sales | 21.5 | 18.73 | 14.8 | 66.01 | 60.02 | 10 | 80.61 | 76.19 | 5.8 |
| Other Income | 0.86 | 0.95 | -9.5 | 2.45 | 1.99 | 23.1 | 3.64 | 2.13 | 70.9 |
| PBIDT | 3.93 | 3.45 | 13.9 | 9.43 | 9.21 | 2.4 | 12.16 | 12.31 | -1.2 |
| Interest | 0.02 | 0.01 | 100 | 0.04 | 0.04 | 0 | 0.05 | 0.08 | -37.5 |
| PBDT | 3.91 | 3.44 | 13.7 | 9.39 | 9.17 | 2.4 | 12.11 | 12.23 | -1 |
| Depreciation | 0.48 | 0.34 | 41.2 | 1.81 | 0.52 | 248.1 | 1.24 | 1.17 | 6 |
| PBT | 3.43 | 3.1 | 10.6 | 7.58 | 8.65 | -12.4 | 10.87 | 11.06 | -1.7 |
| Tax | 1.34 | 1.27 | 5.5 | 3.41 | 3.25 | 4.9 | 4.31 | 4.45 | -3.1 |
| Deferred Tax | -0.14 | -0.22 | 36.4 | -0.71 | -0.19 | -273.7 | -0.48 | 0.23 | PL |
| PAT | 2.23 | 2.05 | 8.8 | 4.88 | 5.59 | -12.7 | 7.04 | 6.38 | 10.3 |
(Source: Capitaline)
| Latest Data As On 17/10/2007 | |
| Latest Equity(Subscribed) | 4.6 |
| Latest Reserve | 34.19 |
| Latest Bookvalue -Unit Curr. | 84.33 |
| Latest EPS -Unit Curr. | 14.37 |
| Latest Market Price -Unit Curr. | 129.9 |
| Latest P/E Ratio | 9.23 |
| 52 Week High -Unit Curr. | 183.65 |
| 52 Week High-Date | 1/18/2007 |
| 52 Week Low -Unit Curr. | 109 |
| 52 Week Low-Date | 3/7/2007 |
| Market Capitalisation | 59.75 |
| Stock Exchange | BSE |
| Dividend Yield -% | 2.26 |
(Source: Capitaline)
The company has a track record of uninterrupted payment of dividend since 1993 and has paid 30% dividend last year.Business Potential, Valuations & Conclusion
Krone Communications provides solutions to various Telecom companies and caters to the burgeoning Telecom Infrastructure space. ADC, the parent company increased its stake in Krone Communications in March 2007 by buying the 11% stake of Karnataka State Electronics Development Corporation and paid Rs.169 per share.
Of late, there has been a renewed interest in Telecom space in India with a number of companies, including existing telecom companies and many established real estate companies including Parsavnath, Unitech and DLF vying for a pie of the 3G Spectrum. This only strengthens the belief in the potential of the Telecom sector in India. Upon allotment of bandwidth, these companies would turn to companies like Krone Communications for end to end connectivity and for providing Telecom solutions, to enable them to roll out services to the consumers.
The Telecom sector in India is witnessing strong growth. Most Telecom Analysts expect Wireless Mobile & Broadband and Enterprise Service business to record healthy growth in the coming years.
There is thus a big opportunity for companies like Krone Communications.
Krone Communications achieved Sales revenues and PAT of Rs.86 crores and Rs.7.30 crores respectively for the year ended October 2006. We estimate revenues of over Rs.90 crores and PAT of around Rs.7.50 crores for the year ended October 2007. This would translate into an EPS of over Rs.16. The stock trading at a PE of 8 looks undervalued for a Multinational operating in a growth business, where the potential opportunities could be immense.
Since India is emerging as a major market in the telecom field, ADC may increase its financial commitment to Krone in the coming years. Krone's association with ADC is also likely to expand its product range in the wireline and wireless space, opening up newer opportunities for growth. ADC's range of products and services cover every type of communication network from copper, fibre, coaxial and wireless media. These are used for high-speed Internet, data, video or voice services - areas which are currently witnessing high growth in India.
Krone Communications with support from its parent, ADC Telecommunications Inc. is well positioned to grab a pie of India’s Telecom Infrastructure & Telecom Solutions business – a business which is currently witnessing strong growth. The stock currently trades at reasonable valuations and can be bought at the current price.
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