{"id":1150,"date":"2019-04-29T19:39:00","date_gmt":"2019-04-29T19:39:00","guid":{"rendered":"http:\/\/oscillationss.blogspot.com\/?p=1150"},"modified":"2019-04-29T19:39:00","modified_gmt":"2019-04-29T19:39:00","slug":"nelco-ltd-sky-is-coming-down-result-update","status":"publish","type":"post","link":"https:\/\/oscillations.in\/?p=1150","title":{"rendered":"Nelco Ltd: Sky is coming Down-Result update"},"content":{"rendered":"
\n<\/p>\n
\nLast year when we picked Nelco Ltd (click here for earlier detailed post on Nelco ltd)<\/a> it
\nwas still in transition mode and much action was pending for execution but we
\nhad the faith in Nelco keeping in view its strong technical capabilities, the
\nscale of opportunity in Indian VSAT industry and its Tata parentage which
\nensured strong brand image and easy availability of capital\/funds. And after 1
\nyear the sky is getting clear. We picked it around 110-120 last time and it is
\nnow at 300 after one year and this is one of the best performer of my portfolio
\nin difficult last one year of stock market.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nLets\u2019 first of all focus on its
\nfinancial performance this year. Nelco has shown stupendous performance both in
\ntopline and in bottom line in FY-2018-19. Its topline this year has grown 27%
\nfrom 150 cr to 191 cr and the same has touched 51 cr in Mar-19 quarter from 39
\ncr in Mar-18. At this juncture I am more inclined towards growth in the topline
\nthan bottom line because there is still vast scope of scale in VSAT industry in
\nIndia. So capturing the major chunk of the future scale will be the major
\ngrowth catalyst and this is exactly what Nelco is doing right now.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nIt has invested quite a bit last
\nyear in expansions as its gross assets\/capital work in progress has touched 100
\ncr from 50 cr last year. I am sure that these investments are made for maritime
\nand aerospace connectivity because in Sep-18 its gross assets base including
\ncapital WIP was 70 cr and it has crossed 100 cr now only after the approval of
\nmaritime and aerospace connectivity by Indian government in Dec-18 (for which I
\nwas waiting for long time). <\/span>This expanded assets base is one of the reason
\nwhich has impacted its already good bottom line figures due to depreciation and
\ninterest charges as it has taken debt to the tune of 34 cr to fund its expansions.
\nStill it has managed to grow the figure of PBT at 20 cr from 15 cr last year.
\nHowever I think the maximum benefit of the expansions done this year will
\naccrue in the next year and we\u2019ll see high growth in top line but bottom line
\ngrowth will be even faster. <\/span><\/div>\n
\n
<\/span><\/div>\n
\nBut the most important move is the
\ndeclaration of dividend by the company. They have declared Rs. 1.5 dividend
\nwhich is a significant move and it shows the confidence of the company in the
\nstability of the future growth and profits. <\/span>Its dividend history was erratic
\ndue to subdued performance in last 2 decades and last time it gave dividend was
\nway back in 2013 (50 paise). So this dividend is very important indicator of
\nthe future growth. It has given great all round performance this year and I think
\nthis will take its stock price to new orbits. Its current PE is around 30 which
\nfor a company growing like Nelco is not expensive and we should see this
\ntouching 40 and the same will get re-rated after the June-19 quarter results
\nand any other favorable regulatory and policy action.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nIts transformation phase started in
\n2016-17 after it sold its loss making automation business and shifted focused
\non profitable VSAT business. But due to the dynamics of VSAT industry in India where
\nmuch action was needed at regulatory and policy front not much was in the hands
\nof Nelco even if it wanted to grow its business. Nelco needed to wait for some
\nimportant actions in external environment to settle some of the most pertinent
\nissues restricting the growth of satcom industry in India like Satellite
\ncapacity\/bandwidth was not available to Satcom industry in India even if they
\nwanted to grow their business, Internet connectivity in some high growth
\nsectors like marine and aerospace was not allowed. So for me, more than the
\naction in the topline and bottom line it was the action in the regulatory and
\nsatellite capacity fronts which was more important.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nGSAT
\nsatellites: Game changers by ISRO for India<\/span><\/u><\/b><\/div>\n
\n
<\/span><\/u><\/b><\/div>\n
\nAs I have noted in the last blog
\npost on Nelco that affordable supply (New satellites) and corresponding high
\ndemand (Marine\/Aerospace\/Remote areas) is the most significant factor for a new
\ntechnology\/product to achieve widespread acceptability and growth. So this
\nyear, as Government created the new supply avenues by launching new satellites
\nit has also created the scope for demand growth by allowing internet
\nconnectivity in marine and aerospace sector and this has really opened the
\ndoors of huge growth for Nelco.<\/span><\/div>\n
\n
<\/span><\/div>\n

<\/p>\n

\nThis year, ISRO has done some
\nserious work in creating the satellite communication capacity for India. ISRO
\nhas launched GSAT-19 in June 2017, GSAT-29 in Nov 2018, GSAT-11 india\u2019s
\nheaviest satellite launched in dec-2018 and GSAT-20 another heavyweight was
\nlaunched in Jan-2019. So by mid-2019, these
\nsatellites will cover the entire nation and together they have the capacity for
\n100 Gbps internet capacity but this will provide more benefit to rural and
\nremote areas of India. As I have shared in the last post, the main motive behind
\nthese satellites is creating fast reliable internet capacity in rural india. This
\nmassive capacity will also support commercial and industrial applications like
\nATM, Marine and aerospace connectivity, Oil and gas sector, mining, education
\nsector etc. India has huge ambitions for smart cities and without satellite
\ninternet connectivity in smart cities is not possible especially keeping in
\nview the mission criticality of satellite internet. Similarly, IOT also needs
\nreliable satellite internet.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nSo the supply of this massive
\nbandwidth will create the demand for VSAT in remote areas and other industrial application
\nlike marine and aerospace. So many of Government\u2019s public welfare and e-governance
\ninitiatives like e-banking, e-health, e-governance aimed to grow rural India
\nwas on hold due to lack of cheap and reliable internet connectivity in remote
\nand rural areas.<\/span><\/div>\n
\n
<\/span><\/div>\n
\n<\/div>\n
\nAs I have explained in the old
\npost, in remote and tough terrains building of terrestrial communications is
\nvery costly and not suitable for mass scale application. Satellite internet is
\nthe best choice here as one satellite is enough to cover large area cost
\neffectively. Like, take the case of Indonesia, which has string of 13677
\nislands so instead of creating terrestrial infrastructure for telephony it has
\nlaunched dedicated satellite for telephonic communication in the country and
\nthis has proved very cheap as compared to creating time consuming and costly
\nphysical infrastructure.<\/span><\/div>\n

<\/p>\n

\n
<\/span><\/div>\n
\nSatellite
\nInternet can fight on cost<\/span><\/u><\/b><\/div>\n
\n
<\/span><\/u><\/b><\/div>\n
\nSo we will see satellite internet
\ncreating its own space and there may be a situation where it can give tough
\nfight to terrestrial internet on low cost. The biggest factor affecting the
\ncost of satellite bandwidth is not the cost of satellite but it is the high
\ncosts of satellite launch. Like, for example, cost of satellite launch by Arianespace’s
\nrocket is around $100 million after subsidies. SpaceX due to its backward
\nintegration offers the same at around $62 million and India\u2019s ISRO is at $60
\nmillion and it is looking to reduce the cost even further and ISRO will launch
\nall of its future heavy satellite on its own.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nSo due to heavy launch costs, the
\nfocus was always on to create long life satellites in order to get the maximum
\nout of the launch costs and it was not possible to use new age technologies in
\nspace communication instantly as the same is being used in terrestrial
\ncommunications like 3G\/4G\/5G. Further, the focus is always on reducing the
\nweight of the satellite as every KG costs big to launch. So it has resulted in
\nlight weight space hardware and machinery which often creates problems in launching
\nand sometimes entire satellites is destroyed. <\/span><\/div>\n
\n
<\/span><\/div>\n
\nSo this risk of failure and high
\nlaunch costs discouraged the satellite use for mass scale applications like
\npersonal internet. The high cost of a space program has traditionally put it
\nbeyond the reach of most countries. For example, Intelsat, the firm which
\ncurrently operates more communications satellites than any other, has been
\naround for 54 years and has launched just 94.<\/span><\/div>\n
\nBut space launch costs are
\ndeclining fast and trend is expected to continue and costs will be reduced even
\nfaster which will pave the way for massive growth in space technologies for the
\nbenefit of army, industries and general public as a whole.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nAlong with ISRO, Elon musk owned
\nSpaceX is doing great work in reducing the cost of launch rockets. Its Falcon 9
\nhas reduced the cost of space travel to ISS (International space station) by
\nalmost 20 times at $2,720 per kilogram as compared to $54,500 per kilogram
\nearlier. And with current focus, it is expected that space launch costs will go
\neven lower due to focus on reuse of launch vehicle, more demand resulting in
\nfurther cost reduction due to economies of scale, advanced engineering and
\ntechnical advances. Reduced launch cost will result in heavier, strong,
\nreliable, and better performing spacecraft to be developed at lower cost and
\nthis will revolutionize every sphere of connectivity. At present , due to
\nweight issues more reliable and strong models are not being used but low launch
\ncosts will result in better design and materials which will further reduce the
\ncost of space shuttle as the same can be designed keeping in view the
\nperformance rather than low weight.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nSo much work is under way in space
\ntechnologies and as per our past experience commercial aspect can really
\ntransform anything and result in advance technologies and cost reductions.
\nEarlier avatar of satellite internet was mainly for defense and national security
\nwhere cost was never a constraint but now as people in remote areas has money
\nfor connectivity and industries are finding novel applications for satellite
\ninternet like IOT the satellite connectivity sector is going to witness radical
\ninnovations and investments to create the economies of scale.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nMarine and
\nAerospace connectivity: Big growth factors in the near future<\/span><\/u><\/b><\/div>\n
\n
<\/span><\/u><\/b><\/div>\n
\nIndian Government in Dec-2018 has
\nallowed internet connectivity for maritime and aerospace sector and this is one
\nbig event which will create the demand for satellite internet and attract more
\ninvestments in the sector.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nAt present, I think maritime
\nconnectivity has high growth prospectus than aerospace because worldwide this
\nindustry is one of the few which has embraced satellite internet quite early.
\nJust for a perspective, maritime connectivity in Europe is growing some 20%
\nyearly and generates revenues of some $1 billion. Actually shipping sector due
\nto its dynamics is more suitable for satellite internet. First of all, still sea
\nroute accounts for more than 90%of world trade and this is really big!! We
\nthink that now is the age of aviation but shipping is still the cheapest when
\nit is about global trade.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nVSAT provides these giant ships
\nfast and reliable internet connectivity which is vital for their operation and
\nsafety in the vast sea. Further, internet connectivity is a major factor for
\nemployees while choosing shipping lines for jobs because they are away from
\ntheir families for long long time so connectivity is a big factor for them. Same
\nis true for passengers on cruise ships where internet connectivity is a major
\ndifferentiating factor as they need fast and reliable internet for their
\nentertainment, connectivity and business needs while at sea.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nAlso, fishing sector was one of the
\nfastest in recent times in using VSAT on their vessels due to crew safety and
\nwelfare, weather mapping, regulations and vessel safety. India also has vast
\nfishing lines and I think this is going to be one of the first to embrace
\nsatellite internet.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nAcross globe, maritime VSAT is set
\nto grow fast and the same thing is true for indian shipping lines also. Global
\nsatellite leasing revenues for maritime applications alone are going to touch
\n$1 billion by 2026 from the current levels of $500 millions.<\/span>
\n
<\/span>
\nFor offering maritime connectivity to Indian and foreign vessels sailing into Indian waters, Nelco has already entered into partnership with global satellite communication giant Speedcast International Ltd. As per the deal customers\/vessels of the both the companies will be able to connect to the network of both the companies while moving in or out of Indian waters. <\/span>This is one of the first such partnership for Indian maritime connectivity.<\/span><\/span>
\n
<\/span>
\nAlthough there will be competition but i expect Nelco to capture significant share of maritime connectivity just like it did in Oil & Gas and ATM industry in the recent times where it has emerged as one of the fastest growing player. I am expecting Nelco to be very aggressive in its expansions.<\/span><\/span><\/div>\n
\n
<\/span><\/div>\n
\nSimilarly, airlines are going to
\nadopt VSAT technology at fast pace in the near future as just like maritime aerospace
\nconnectivity is proving to be the decisive factor in choosing the airlines by
\npassengers. Further, the demand will be created by business class passengers
\nfor applications such as emails with large attachments, and video conferencing. <\/span><\/p>\n<\/div>\n
\nThere are some concerns over the
\nrules by Indian authorities that satellite bandwidth can be taken only through
\nISRO and this will render satellite bandwidth very costly as even at present satellite
\nbandwidth charges in India are some 6-7 times higher compared to other parts of
\nthe world. Due to capacity constraint in the satellite communication the
\ncharges are highest in India whereas for broadband the charges are lowest in
\nIndia. But I think this was when ISRO was not having bandwidth capacity for
\nleasing for commercial purposes but now after the launch of 4 giant GSAT satellites
\nlast year there will be no dearth of bandwidth capacity.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nSo Nelco is still in transition
\nphase and this year will be even more significant as the focus is on maritime
\nand aerospace connectivity and big investments will be done. <\/span><\/span><\/div>\n
\n
<\/span><\/span><\/div>\n
\nContinue to hold for further
\nre-rating.<\/span><\/span><\/div>\n
\n
<\/span><\/div>\n
\nOne last thing I would like to add
\nis that I got so many queries from worried investors about the fall in the
\nprice of a stock which they have bought at higher price. Some gets desperate
\nfor non performance of their stock over long time. Like, take for example,
\nNarayana Hrudayalaya and HCG which are one of my favorites in healthcare sector
\nand I am investing in these stocks regularly for last 2 years but both these
\nhave fallen (although almost all the stocks have fallen some 40-50%) in last one
\nyear. But both have invested quite a lot in building capacities and it\u2019ll take
\ntime for these capacities to reflect in the top and bottom line so for me
\ncurrent fall is a fantastic opportunity. Same is true for the likes of MCX, Laurus
\nlabs, Mahindra lifespace etc. which are fantastic stocks.<\/span><\/div>\n
\n
<\/span><\/div>\n
\nI see people getting worried when
\ntheir stock is not valued, not tracked, not followed by the market and it lies low and down. I
\nsee them talking about PE ratio assigned, traded quantity and coverage by
\nanalysts and when these are missing from their stock they shiver with fear. But
\nlet me tell you one thing-Divine is not divine because of offerings. Offerings
\ndo not transform something into divinity..they can’t even differentiate between a real or fake because mortal
\nbeings offer these as per their expectations. And divine is still divine even if not recognized by mortal beings and
\nif we can see the wisdom level in our mortal world chances are much higher that
\na real divinity is missed by mortals as they always value bunch of
\nofferings. But a true seeker always yearns for a Lord Buddha sitting alone under
\na tree\u2026eyes closed…unnoticed\u2026radiating divine\u2026<\/span><\/span><\/div>\n
\n<\/div>\n
\n(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post.<\/span> <\/span>Reach me at oscillationss@yahoo.in<\/span>).<\/span><\/div>\n

<\/div>\n","protected":false},"excerpt":{"rendered":"

Last year when we picked Nelco Ltd (click here for earlier detailed post on Nelco ltd) it was still in transition mode and much action was pending for execution but we had the faith in Nelco keeping in view its strong technical capabilities, the scale of opportunity in Indian VSAT industry and its Tata parentage which ensured strong brand image and easy availability of capital\/funds. And after 1 year the sky is getting clear. We picked it around 110-120 last time and it is now at 300 after one year and this is one of the best performer of my…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1150","post","type-post","status-publish","format-standard","hentry","category-blog"],"_links":{"self":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1150","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1150"}],"version-history":[{"count":0,"href":"https:\/\/oscillations.in\/index.php?rest_route=\/wp\/v2\/posts\/1150\/revisions"}],"wp:attachment":[{"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1150"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1150"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/oscillations.in\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1150"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}