Edelweiss - Logix Microsystem (LGXM IN, CMP INR 206, MCap INR 1.76 bn, Not Rated) - Visit Note

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Apr 16, 2007, 3:04:30 AM4/16/07
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Logix Microsystem (LGXM IN, CMP INR 206, MCap INR 1.76 bn, Not Rated)

 

We met the management of Logix Microsystem recently. Key takeaways are:

 

Background

 

Established in 1993 as a software services firm, Logix Microsystems has transformed itself into a niche software solutions company with 86% of its 9MFY07 revenues coming from products under the Izmocars brand name. Its three business verticals include:

 

  • Professional services: This segment provides business solutions in the ERP, CRM, and offshore development domains with expertise in SAP, Siebel, & Microsoft CRM packages.

 

  • Software distribution: The company distributes
    • Host connectivity, business intelligence & knowledge management products for Hummingbird, Canada
    • Firewall and VPN products for Secure Computing, USA
    • Content keeper for Total Systems, Australia

 

Software distribution and professional services together contributed ~25% and ~14% of total revenues in FY06 and 9MFY07 respectively. The company has consciously de-focused itself from these low margin businesses.

 

  • Automotive products: This segment provides an online platform with niche product offerings to the US automotive industry which was valued at USD 650 bn in 2004 with over 20 mn vehicles sold annually. There are an estimated 27,000 new car dealers in the US offering over 43 makes and 450 car models. Major OEMs include GM, Toyota, Ford, Chrysler, Mercedes and Honda. The number of online purchasers has almost doubled with 15% of total cars being sold through the web as compared to 8% last year.

 

The company initiated Izmocars in 2002 offering custom designed websites, lead generation tools, customer communication & response tracking solutions, and online marketing tools to automotive dealers and OEMs across the US. The company has significantly expanded its client base of 12 dealers in its first year of operations to 600 dealers at present. The management aims to empanel 3000 dealers, i.e. 11% of total auto dealers in the US, with itself by end of FY08. Average revenue has increased from USD 6,000 per dealer in FY05 to USD 9,000 currently. This 50% increase in average revenue per dealer can be attributed to auxiliary products like Rainmaker (online marketing tool aimed at increasing traffic to the dealer's web sites) offered to its dealers. Products offered under Izmocars are as under:

 

     

 

Acquisitions

  • The company acquired CarSite, the USD 1.4 mn automotive portal business of PowerOne Media, for USD 1 mn last quarter.
  • Logix Microsystems is planning to acquire a US based company providing automotive CRM software for USD 25 mn. The company plans to fund this acquisition through equity dilutive instruments.

 

 

Financials & outlook

 

  • At the CMP of INR 206 the stock trades at 20.3x its 9MFY07 annualized EPS of INR 10.1
  • The company has recently launched Carazoo.com (a portal to buy and sell new as well as used cars) targeting the Indian passenger car industry.
  • In March 2006, the company raised ~INR 370 mn by way of preferential issue of 1.43 mn shares at INR 250 per share.
  • The management has given the following guidance:

 

FY07

FY08

Sales (INR mn)

330

600

Net Profit (INR mn)

100

180




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