Nelco: Fine Tuning For Growth

Nelco: Fine tuning for growth

Tata Group owned Nelco emerged as the biggest beneficiary, in recent times, of regaining market participant’s confidence which reflects in its re-rating. The stock has returned over 200% in the last three years.

Unfortunately, the stocks performance subdued over the last one year and lags broader markets.

However new product offerings, stable management, good growth prospects, and steady dividend payouts make Nelco an ideal candidate for growth ahead.

The company, which provides systems and solutions in the areas of VSAT connectivity, and integrated security and surveillance, will roll out in-flight data connectivity services by January.

It has obtained a license from the Department of Telecommunications for providing in-flight and maritime connectivity (IFMC) services earlier this year.

In-flight communications services are quite expensive for routine calling and mainly useful for accessing internet services during flights.

Most of the aircraft comes factory-fitted with communication equipment, and Nelco is open to working with India-bound international carriers.

In 2018, as many as 7,500 aircraft adopted IFC for passenger broadband services and adoption is expected to grow to more than three-fold by 2028 according to industry statistics.

In May 2018, a high-level inter-ministerial committee, headed by then telecom secretary Aruna Sundararajan, approved the move to allow air travelers to access the Internet over smartphones and make calls once the aircraft achieves a height of 3,000 meters.

Subsequently, in December 2018, the government launched the In-flight and Maritime Communication (IFMC) license regime allowing companies to offer in-flight connectivity services for 10 years.

Based on a custom tariff plan, the process would allow air passengers to connect onto an ‘on-air network’ or inflight Wi-Fi service and receive a one-time password (OTP) to activate ‘secured’ data services.

State-run Bharat Sanchar Nigam Limited (BSNL), Indo Teleports Limited (ITL), a Bharti Airtel subsidiary, and Hughes Communications too hold a license for in-flight connectivity.

Why does NELCO look interesting ahead?
Nelco, a part of US $ 116 Bn Tata group, started in 1940 as a revolutionary electronics company and has had many firsts to its name over the years

Nelco is focused on helping its enterprise & government customers unlock potential by offering solutions in the areas of VSAT connectivity, Satcom Projects, and Integrated Security & Surveillance Solutions.

To address the needs of our customers across industry verticals, these solutions are backed by Nelco’s values and proven expertise in consulting, customization, system integration, end-to-end management, as well as robust infrastructure and processes.

NELCO is one of India’s leading VSAT providers. It connects businesses to what’s critical for their pan-India spread and remote operations through reliable, flexible, swift and cost-effective satellite communication services.

In addition, it offers end to end networking solutions (Satcom Projects) and maintenance of private hubs and hybrid networks for its customers, from the government to corporates.

On the Financial numbers side, NELCO reported a decent performance in FY18 with Sales totalling Rs 191 crs & PAT of Rs 22 crs on an Equity of Rs 22.82 crs. The company has paid a dividend of 15%

In the H1 of FY20 NELCO has reported a Topline of Rs 102 crs against Rs 94.22 crs but PAT is down to Rs 4.57 crs from Rs 13.86 crs in H1 last year.

However, on a like to basis PAT is better as last year’s PAT included Rs 8 crs deferred tax credit while in Q1FY20 there was an exceptional charge of Rs 1.15 crs. Hence the real PAT is Rs 5.72 crs as compared to Rs 5.86 crs in H1 last year.

The VSAT industry in India will more than double in two to three years’ time once the license for offering maritime and aero communication services are given.

Hence long term prospects for NELCO can witness a significant change going ahead.

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