Exicom's Big Opportunity in the EV Charging Market

As the world focuses on reducing carbon emissions and promoting sustainable energy, electric vehicles (EVs) have grown in popularity in recent years.

Everyone, from the government to large automakers across the globe, is gearing themselves to transition from conventional fuel-based vehicles to EVs.

According to a CRISIL Report, the Indian EV industry is experiencing remarkable growth, with a surge of over 130% from the financial year 2022 to 2024.

Additionally, the EV passenger vehicle market is anticipated to expand at a CAGR of 50-60% between the financial year 2023 and 2028.

Similarly, the electric bus market is expected to achieve a CAGR of 40-50% during the same period.

The Road Ahead: Building a Robust EV Ecosystem

The government aims for an EV penetration of 30% for private (4-wheeler) automobiles, 70% for commercial vehicles, and 80% for two and three-wheelers by 2030.

These targets, while lofty, seem achievable owing to the substantial policy reforms by the government and the original equipment manufacturer's (OEM) commitment to producing high-quality vehicles in the country.

The momentum stems from a mix of factors, notably the FAME-II subsidy's availability, which has acted as a driving force. With a significant budget of US$ 1.2 bn dedicated to subsidizing different EV sectors, it has proven to be a catalyst.

The approval of a US$ 3.5 bn Production-Linked Incentive (PLI) scheme for automobile and auto component manufacturing also highlights the government's commitment to nurturing a local EV ecosystem.

Additionally, the state governments are actively backing the segment with their respective EV promotion policies, further reinforcing the manufacturing ecosystem.

Recently, the government unveiled a fresh EV policy designed to boost domestic manufacturing by attracting global players, potentially opening doors for Tesla's entry into India.

Among the measures introduced, global automakers can import completely built-up units (CBU) at a reduced import duty of 15% for vehicles priced at US$ 35,000 and above, for a five-year period. However, they must establish manufacturing facilities within three years.

Inadequate Charging Infrastructure: A Lucrative Opportunity

While the EV market has been making inroads in the past few years, the expansion has been slow.

One of the primary reasons for this is the high upfront cost of an EV.

EVs are expensive compared to conventional ICE vehicles due to the batteries, which fall between 35-40% of the price of a vehicle.

Apart from this, the lack of robust charging infrastructure also acts as a big deterrent to growth. As of now, India's 12,000 charging stations (although a 19x increase over the 650 charging outlets in 2019), compare poorly to China's over 800,000 publicly available EV charging outlets.

This stark difference highlights the critical need for an effective EV charging infrastructure.

As of financial year 2023, the EV charging market is valued at Rs 8.5 billion (bn). It is projected to reach Rs 13 bn in financial year 2024, driven by a doubling of EV passenger car sales and a more than 50% increase in the installation of public charging stations compared to the previous year.

India is projected to require more than 63,000 charging stations and cumulative investments of Rs 269 bn for their establishment over the next five years. Eventually, the demand could surge to 0.23 million (m) charging stations, requiring a total investment of Rs 1 trillion (tn) by 2032.

The anticipated growth of EV charging infrastructure in India indicates the vast potential of this sector. As the demand for EVs continues to rise, so will the need for charging stations, presenting a significant opportunity for companies operating in this space.

Exicom Tele-Systems: A Promising Player in Critical Power and EV Charging

Exicom Tele-Systems Limited, renowned for its power systems, electric vehicle (EV) charging and other related solutions, is poised to reap substantial benefits.

The recently listed entity, successfully raised around Rs 4.3 bn by offering 30.2 m shares to investors.

Exicom operations revolve around two primary business segments - the EV charger business and the critical power solutions business.

In the EV charger business, the company provides smart charging systems catering to residential, commercial, and public charging needs across India.

The public charging station market, currently at about 50% of the overall Electric Vehicle Supply Equipment (EVSE) market size in the financial year 2024, is set to grow at a CAGR of 45-50% from the financial year 2024 to financial year 2028.

Meanwhile, residential charging is expected to surge at a faster pace, with a CAGR of 60-65%. Its share is projected to rise from 13% of the EVSE market in financial year 2023 to around 16-18% by financial year 2024.

Exicom, which boasts a market share of 60% and 25% (as of 31 March 2023) in the residential and public charging segments is a major beneficiary of this boom.

Moreover, it stands out as one of the few companies in India offering a comprehensive portfolio of AC and DC chargers, ranging from 3.3kW to 360kW. With a pan-India after sales service, the company has successfully deployed over 35,000 EV chargers across 400 locations in India.

Exicom Tele-System's Revenue Mix (2023-2024)

	6M 2023-24	6M 2022-23	2022-23
Critical Power Business	70.10%	67.10%	68.30%
EV Charger Business	29.90%	32.90%	31.70%
Revenue from Overseas Customers (Rs m)	426	169	622
% of total revenues	9.40%	7.90%	8.60%

Source: Exicom DRHP

Exicom's early mover advantage, paired with our vertically integrated operations, research and development (R&D) capabilities and diversified portfolio of EV chargers, position it to benefit from growth in the EV charger industry in India and globally.

In the other business segment, the critical power business, Exicom specializes in designing, manufacturing and servicing DC Power Systems and Li-ion based energy storage solutions to deliver back-up power during grid interruptions.

This facilitates comprehensive energy management at telecommunications sites and enterprise environments, both in India and abroad (South East Asia and Africa).

Apart from telecom infrastructure, critical power is important to businesses in a variety of industries, including data centres, hospitals, schools, universities, offices and more.

It ensures that systems remain operational and online even in the event of a power cut, fluctuation, brownout, or other problem with the mains supply.

Exicom's primary customer segment, the telecommunication power market is booming, driven by increasing demand for mobile data and voice services, as well as the adoption of advanced 4G and 5G networks.

Market projections suggest a robust growth rate of 9.4% CAGR from 2023 to 2028, reaching US$ 6.6 bn by 2028. Within this market, the DC power systems (Exicom's forte) segment should grow at 9.6%.

The company enjoys a strong track record of fostering long-standing relationships with an established customer base, all of which bodes well for Exicom.

Apart from the domestic market, Exicom caters to the international market as well, supplying its critical power systems.

In the financial year 2023, the top five customers (in the critical power business) contributed over 50% of the revenue.

Charging Ahead into New Markets

With a broad customer base in India, the company intends to leverage its track record by attracting new customers worldwide.

It seeks to broaden its customer reach across different regions, including overseas markets in the EV Charger Business. This expansion aims to capitalize on the increasing adoption of EVs in Southeast Asia and Europe.

To support this endeavour, they have begun establishing local sales and distribution networks in these regions and obtained the necessary global and local country certifications.

The company is also seeking a new set of customer base for its existing products. For instance, the Li-ion Batteries solutions, in addition to the telecommunications industry, are now being customised for data centres and home energy storage.

Their existing modular AC-DC power converters (rectifiers), which we have historically used in telecommunications networks, are proposed to be customised for powering battery swapping stations, 2W/3W portable chargers etc.

Going forward, Exicom's primary focus remains on enhancing its EV Charger portfolio to meet the evolving expectations of customers, both domestically and globally.

The company has outlined a capex of Rs 345 m in establishing two production/assembly lines to capitalize on the increasing demand for EVs in India.

The first line will focus on EV charger and critical power production/assembly, while the second will be dedicated to prismatic production/assembly for li-ion batteries.

Exicom Tele-Systems Financial Snapshot (2019-23)

	2020-21	2021-22	2022-23
Revenues (Rs in m)	5,129	8,428	7,079
Revenue Growth (%)	-	64.30%	-16%
Operating Profit Margin (%)	5.80%	8.00%	7.40%
Net Profit (Rs in m)	126	303	310

Source: Exicom DRHP

The company's revenues and net profit have grown erratically between 2021-2023.

The volatility stems from the company's unprofitable venture in manufacturing and servicing Li-ion batteries for electric vehicles.

However, in December 2022, the company divested this loss-making business to a promoter group company for a lump sum of Rs 168 m.

The drop in sales in the financial year 2023, comes from a slump in sales in the critical power business, which fell by 37% in 2023.

The company has some debt on its book, with a debt to equity of 0.4x in financial year 2023.

Looking ahead, the company orderbook presents a promising outlook. For the six months ended 30 September 2023, the company's total orderbook stood at Rs 7.3 bn, up 43% from the same period last year.

Valuations

After listing at Rs 265, a premium of 87% over the issue price of Rs 142 per share, the stock is available at a price to earnings ratio of 388 times. The company trades at a large premium to its peers.

Exicom Tele-Systems Peer Comparison

	Revenue (2022-23) (Rs m)	Return on Net Worth (%)	P/E (x)
Exicom Tele-Systems	7,079	13.40%	388
Servotech Power Systems	2,785	13.50%	125
HBL Power Systems	13,687	10.40%	53

Source: Exicom DRHP and Equitymaster.com

In conclusion

Exicom Tele-Systems Limited presents a compelling opportunity for investors seeking exposure to the burgeoning electric vehicle (EV) and critical power solutions markets.

The company's well-established presence, strong track record, and diversified product portfolio position it to capitalize on significant growth opportunities in both segments.

However, despite the positive odds, investors must conduct their own research before investing in any stock and ensure it matches their long-term goals and investment temperament.

That is what successful investing is all about.

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