Exicom Tele-Systems: Early mover in the EV charging space. – Capitalmind

Today, we talk about Exicom, a 2-decade-old business with its presence in telecom infrastructure and EV infrastructure sectors.

In this post, we will cover:

1. What does Exicom do? 
2. What are its business segments?
3. Industry Tailwinds/Headwinds?
4. How has the company performed financially?
5. What do we like and the key risks.
6. Views and Valuation.

Exicom recently made headlines with its IPO, debuting on the stock market with an impressive 85% premium on its listing day. The company offers energy solutions for telecommunication sites and EV charging solutions.

Let us now deep dive into its business and try to understand what it really does.

Business Overview

As briefly stated above, Exicom’s business has 2 segments-

1. Critical Power Business
2. EV Charger Business

Critical Power Business

Under their critical power business, they design, manufacture, and service DC Power Systems and Li-ion-based energy storage solutions for telecommunication sites.

The DC Power Systems are designed to provide reliable and uninterrupted power supply to telecommunication infrastructure, such as cell towers, base stations, data centers, and network facilities. It makes sure that all this equipment is up & running even during power outages or unreliable grid conditions.

Exicom has already deployed its DC Power Systems in 15 countries across Southeast Asia and Africa. As of FY24, it enjoys a 16% market share.

Now coming to the Li-ion energy storage solutions, these systems store electrical energy for later use to run telecommunication infrastructure. As of FY24, Exicom has deployed 5 lakh+ Li-ion batteries in the telecom sector, having a 20% market share.

Below is a snapshot of the products under its critical power business:

*Source: Exicom’s Investor Presentation. Click on the image to enlarge.

The market outlook for the Indian telecommunication tower industry looks promising. As per a DOT report, the data traffic in India has surged by 30 times over the past five years, with 97.9% of data usage coming from 4G in 2021.

This massive increase in data usage puts a lot of pressure on telecom infrastructure. As a result, the number of telecom towers has increased at a 10% CAGR, rising from ~ 4.4 lakhs in FY17 to about ~7.1 lakhs in FY22, primarily driven by the rollout of 4G services.

Looking ahead, the growth in the new tower additions is expected to slow down to a 4% CAGR, reaching ~9.2 lakh towers by FY28. The reason being that telco companies are now focusing more on upgrading existing towers for 5G, with about 80% of all towers expected to be upgraded by FY28.

*Source: Exicom’s Investor Presentation. Click on the image to enlarge.

Going forward, the majority of all the new base transceiver station (BTS) installations will be for 4G networks, with moderate growth in 5G stations, while 2G and 3G stations are expected to decrease.

To put it simply, a BTS is the crucial equipment that enables your mobile phone to make calls, send texts, and access the internet. It’s essentially the hardware that communicates with your mobile device and connects it to the rest of the network.

*Source: Exicom’s DRHP. Click on the image to enlarge.

In comparison to a massive total of ~ 11 lakh BTS added between FY16-21 to roll out 3G and 4G, only a mere ~1.7 lakh BTS are expected to be added over FY22-24.

Majorly because the telco companies are now focusing on replacing its 2G and 3G subscribers under its 4G subscriber base. Thus limiting construction capex in FY23 & FY24.

Government Initiatives Supporting Growth

BSNL is actively progressing with its plan to launch a nationwide 4G network. This rollout is expected to include upgrading 1 lakh towers (including 8-9 thousand new sites), which involves both the communication and power infrastructure.

Exicom will be providing high-capacity power systems and Li-ion energy storage for the same.

Another such initiative is to provide 4G connectivity to 24,680 villages in India while the Bharat Net program plans to connect 1.5 lakh panchayats in India.

Also, Vodafone’s equity raise of Rs 18,000 Cr should act as a catalyst to continue the momentum in 5G network deployment.

Changing Trends

A few years ago, lead-acid batteries were the mainstay of the telecom sector. However, the landscape is shifting due to the declining prices of Li-ion batteries, driven by increasing demand, technological improvements, and economies of scale.

As Li-ion batteries become more affordable, they are becoming the preferred choice for telecom companies because they are more efficient and have a longer lifespan compared to lead-acid batteries. 

These qualities make Li-ion batteries particularly suitable for powering new technologies like 5G and the Internet of Things (IoT). Looking ahead, it is expected that the battery mix will get skewed towards Li-ion batteries.

All in all, factoring all the points discussed above, the DC power systems and Li-ion batteries market is expected to grow at 8.5% and 13.5% respectively from FY23-28.

*Source: Exicom’s Investor Presentation. Click on the image to enlarge.

EV Charger Business

Exicom is one of India’s first movers in the EV charging space. It forayed into the EV charger business in 2019 and since then launched various products covering all the segments like residential, public, bus, and fleet charging.

Here is a glimpse of the products under its EV Charger Business:

*Source: Exicom’s Investor Presentation. Click on the image to enlarge.

As of FY24, Exicom has made significant strides in India’s EV charging market by deploying over 65,000 chargers across more than 400 cities. This expansive reach has established Exicom as the market leader in residential chargers, capturing a 60% market share, and a 25% share in the public charger segment as well.

Looking ahead, Exicom’s management is optimistic about the future of its EV charger business, especially with the increasing adoption of electric vehicles across various automotive segments. 

The chart below highlights that the trend towards electrification is particularly strong in the two-wheeler (2Ws) and three-wheeler (3Ws) segments compared to passenger vehicles.

*Source: Exicom’s DRHP. Click on the image to enlarge.

Policy Support

The Indian government has consistently shown strong support for the adoption of electric vehicles through proactive incentivization.

One key initiative is the FAME (Faster Adoption and Manufacturing of Electric Vehicles) program, the government’s flagship scheme to encourage the uptake of electric vehicles. Launched in 2015 initially for two years, it was subsequently extended for another two years.

In response to its success, the government launched Phase II of the program (FAME-II) in FY20 with an increased budget of Rs 10,000 Cr over three years, concluded on March 31, 2024. 

As FAME-II has drawn to a close, plans for FAME-III are underway. Expected to be introduced within 100 days of the new government’s formation, the industry anticipates that this next phase will place a stronger emphasis on developing EV charging infrastructure, which would be particularly beneficial for companies like Exicom.

Additionally, the government introduced the PM-eBus Sewa policy, which aims at deploying 10,000 electric buses across India in a Public-Private Partnership (PPP) model.

Other Factors

OEMs plan to release 22 new EV models in FY25, which is significantly more in comparison to just 9 in FY24.

In addition to this, CPOs (Charge Point Operators) are adding new public charging points and revamping their older low-power infrastructure to service the growing number of electric vehicles.

And while there are already 10,000+ EVs on the road by Fleet operators, it is expected to grow by ~2.5x in the upcoming years.

Looking at all these factors in consolidation, we can expect an uptick in the number of EVs in the coming years, which in turn will require more EV charging infrastructure.

*Source: Exicom’s Investor Presentation. Click on the image to enlarge.

Tapping the International Markets

While Exicom is keen on leveraging the various tailwinds in the domestic EV market, it is also very keen on its International expansion.

And to be honest, it doesn’t sound like a bad idea as EVs already form a substantial proportion of all the automobiles running in various international markets.

Exicom’s focus markets are SE Asia and the Middle East. It is already a regular supplier to Malaysia and Thailand and has also established an EV tech support team in Kuala Lumpur for customer support.

It also entered an exclusivity agreement to sell chargers in the Kingdom of Saudi Arabia. The company is actively working to expand its partner network and for certification of chargers for other countries aiming to deepen its footprint in both Southeast Asia and the Middle East.

*Source: Exicom’s Investor Presentation. Click on the image to enlarge.

Expanding Capacity

Exicom currently operates three manufacturing facilities in India. The first facility is located in Solan, Himachal Pradesh, and the other two are in Gurugram, referred to as Gurugram Facility 1 and Gurugram Facility 2. Together, these facilities cover a total built-up area of ~1.34 lakh sq ft.

Gurugram Facility 1 is dedicated to producing products for both the Critical Power and EV Charger business whereas Gurugram Facility 2 is used for manufacturing Li-ion batteries. The Solan facility specializes in producing AC-DC converters (rectifiers), which is a backward integration for the production processes at Gurugram Facility 1.

All these 3 facilities have annual capacity of 12,000 DC Power Systems and 44,400 AC and DC EV Chargers.

Going forward, Exicom’s management is optimistic about significant business growth, particularly driven by its EV charger business. To accommodate this anticipated growth, the company is expanding its manufacturing capabilities.

It is in the process of establishing an integrated manufacturing plant in Hyderabad. This new facility will be capable of producing all of Exicom’s product lines, representing a capital expenditure of Rs 170 crore.

*Source: Exicom’s Investor Presentation. Click on the image to enlarge.

The Hyderabad plant will be spread across a total built-up area of 2.8 lakh sq feet, which is more than double that of the total cumulative area of its previous 3 plants(~1.3 lakh sq ft).

The expansion is designed to significantly boost production capacity, increasing annual output from 42,000 AC chargers to 180,000 AC chargers in two phases, and from 2,400 to 3,500 DC fast chargers.

During its recent concall, the management indicated that trial production at the Hyderabad facility is scheduled to begin in April 2025, depending if the next 9 months goes as per the plan.

The establishment of this new plant was also the primary motivator for Exicom’s IPO. Let us have a look at how it has used its IPO proceeds:

*Source: Exicom’s Investor Presentation. Click on the image to enlarge.

Out of its total Rs 400 Cr from IPO proceeds, a substantial portion of ~Rs 151 Cr was for its upcoming plant. Out of which, it has already spent ~Rs 18Cr.

Marquee Customers

Under its critical power business, the company serves major telecom companies such as Reliance Jio Infocom Ltd, BSNL, Maxis Telecom (operating in Southeast Asia), and prominent tower companies like American Tower Corp., Eastcastle Infrastructure DRC S.R.L.U., and Indus Tower.

For its EV chargers business, Exicom supplies EV chargers to automotive OEMs like Mahindra & Mahindra Ltd., MG Motors Limited, and JBM Limited. Additionally, it caters to Charge Point Operators (CPOs) such as Reliance BP Mobility Ltd. (JioBP) and Fortum Charge & Drive India Pvt. Ltd., as well as fleet aggregators including Blu Smart Mobility and Lithium Urban Mobility.

*Source: Exicom’s Investor Presentation. Click on the image to enlarge.

Here is a glimpse of how its revenue concentration looks for both its segments-

*Source: Exicom’s Investor Presentation. Click on the image to enlarge.

Revenue from Exicom’s top 5 customers in its critical power business has generally remained high, with FY23 being an exception where it still accounted for 51% of total revenues. Interestingly, FY23 was also the year when the performance of the critical power business was relatively subdued, a topic we’ll explore further later on.

On the other hand, the revenue concentration from the top 5 customers in Exicom’s EV chargers business has significantly decreased, from around 92% in FY21 to approximately 55% in FY24. This diversification is a positive sign, indicating that Exicom’s products are reaching a broader customer base. This expansion is supported by a wide range of products covering all segments like residential, public, bus, and fleet charging.

Promoter History

Exicom was incorporated in 1994 and is currently led by Mr. Anant Nahata, who serves as the Managing Director and CEO. He has been associated with the company since 2008 and is also an individual promoter of Exicom.

Exicom’s management has 2 distinct CEO’s for its Critical Power and EV Charging Business. Mr. Sanjeev Narula is the CEO of its critical power business with over 15 years of experience in telecom and power generation whereas Mr. Anshuman Divyanshu is the CEO of its EV charging business with over 17 years of experience. He has played key roles in Bharat Petroleum and Reliance Industries prior to joining Exicom.

The promoter group holds approximately 70% of the company, with Nextwave Communications Pvt. Ltd. holding a significant 56% stake. As per Exicom’s DRHP, Mr. Anant Nahata holds ~98% stake in Nextwave.

Another company in the promoter group is HFCL Ltd (Himachal Futuristic Communications Limited), a telecom equipment manufacturer. HFCL is a related party business as Mr. Mahendra Nahata, the Promoter and Managing Director of HFCL, is the father of Mr. Anant Nahata. As of FY24, Mr. Anant Nahata and Nextwave Communication hold 0.18% and 14.26% stakes in HFCL, respectively.

In 2008, HFCL was scrutinized by the CBI in connection with the infamous ‘2G Spectrum Scam’. The Nahatas were allocated a pan-India license to operate GSM-based mobile telephone services and formed Datacom along with the Dhoots of the Videocon Group. They exited the venture in 2010, selling their entire stake to the Dhoots at a premium.

Here is the link to know more.

Financial Overview

Let us now deep dive into Exicom’s financial performance in the last few years-

*Click on the image to enlarge.

Exicom’s revenues have grown at ~26% CAGR from FY21-24. However, its revenue growth hasn’t been consistent, as evident from the above table. Let us break it down and see which of its business segments is a majority contributor.*Click on the image to enlarge.

The segmental breakdown reveals that Exicom’s muted performance in FY23 was primarily on the back of its critical power business. The telecom sector tends to be somewhat cyclical, with substantial investments coinciding with the introduction of new technologies like 4G or 5G. Currently, the Indian telecom sector is focusing on upgrading and replacing existing tower infrastructure to support the 5G rollout, rather than adding new towers. This focus on upgrades rather than expansion could possibly be one of the major factors that contributed to slower growth in FY23.

However, FY24 marked a resurgence for Exicom’s critical power business supported by increased replacement of lead-acid batteries with Li-ion batteries, the upgradation of telecom sites, and a steady growth in new tower additions.

At the same time, Exicom’s EV charging business has shown remarkable growth, with a CAGR of ~76%. FY23 was a significant inflection point for this segment, with revenues nearly tripling from Rs 71 Cr in FY22 to Rs 220 Cr.

The management is also very keen on growing exports as a percentage of its revenues in the years to come. As of FY24, exports only formed a mere ~7% of its revenues. *Click on the image to enlarge.

Both the telecom and EV charger businesses hold significant growth potential internationally. According to Exicom’s recent conference call, the company is focusing on expanding into Europe, Southeast Asia, and the Middle East. They have already initiated a few pilot projects in these regions and are feeling optimistic about the prospects.

Moving forward, Exicom plans to focus on building a strong sales network, customizing its products to meet the specific needs of these markets, and investing in obtaining the necessary certifications for these regions.*Click on the image to enlarge.

Exicom’s EBITDA has exhibited robust growth, growing at a ~55% CAGR from Rs 30 Cr in FY21 to Rs 112 Cr in FY24. During this period, its EBITDA margins have also doubled, reaching approximately 11% in FY24.

This improvement can be largely attributed to the significant growth in its EV charger segment and a better product mix supported by a diverse range of products.*Click on the image to enlarge.

As evident from the above chart, Exicom’s PAT was negligible two years ago. However, since FY22, the company has seen significant growth, driving its PAT from Rs 3 Cr in FY21 to Rs 64 Cr in FY24.

Its PAT margins have also improved impressively, rising from 0.58% in FY21 to 6.27% in FY24.

However, there is a catch! If you check the company filings, you’ll notice that Exicom’s reported PAT for FY23 is around Rs 8 Cr. You might wonder, Why?

Exicom reported a loss of ~Rs 24 Cr from discontinued operations in FY23, which reduced its reported PAT to around Rs 8 Cr. This loss was due to the company transferring its business of manufacturing and servicing Li-ion batteries from “Exicom Energy Systems BTA” to “Exicom Energy Systems Pvt. Ltd.” on a slump sale basis.

For a clearer picture of its earnings from core business operations, we are considering Exicom’s FY23 PAT as Rs 32 Cr, excluding the loss from discontinued operations.