Monday, July 30, 2012

Zicom Electronic Security Systems - Security For Your Portfolio

Zicom Electronic Security Systems Ltd (ZICOM) , incorporated in 1995, is a pioneer in the field of Electronic Security in India. Today the brand "Zicom" is synonymous with Security Systems in India.
The company currently operates in 2 businesses :
(a) Providing Electronic Security Systems & Services , and
(b) Fire Prevention & Protection .
Electronic Security Systems & Services (ESSS) 
Under ESSS, ZICOM offers a wide array of products and solutions which are state-of-the-art, reliable and high quality - CCTV Surveillance System, Access Control System, Fire Alarm System, Multi-Apartment Video Door Phones, Alarm System, Fingerprint Locks, Video Door Phones and Telecom Tower Security.

ZICOM, through its 100% subsidiary Zicom SaaS Private Ltd (Zicom SaaS) has recently pioneered a new managed security services offering called "SaaS"  (Security As A Service), wherein the company provides full monitoring & security services to offices, factories & residential premises for a monthly/annual fee, saving the customer from investing capital upfront in installing the desired security solutions. The "SaaS" offering is primarily targeted towards Retail, Banking, Financial Services and Insurance (BFSI), and also customers having remote assets such as mobile towers, windmills, etc.

Zicom SaaS has also forged an initiative "Make Mumbai Safe" (Website : to sensitize Mumbaikars on creating safer housing societies & to instill good security practices with the larger goal of making the metropolis a safer place to live in.

ZICOM has also ventured into the niche of Security Training & Education, wherein through it's partly owned subsidiary Institute Of Advanced Security Training & Management Pvt Ltd (ASTM), it provides the entire gamut of training in Security, Safety & Loss Prevention. ASTM  aims to build large scale education infrastructure, curriculum and delivery module, to redefine careers in the security industry. Currently ASTM is training 200,000 security guards across 5 states in India, and has got funds from the prime minister’s National Skills Development Council (NSDC) for this purpose. ASTM also provides Security & Safety Audits as part of it's offerings.

Fire Prevention & Protection (FPP)
In the FPP space, the company through its subsidiaries Unisafe & Phoenix International provides complete Fire Protection Services which includes design, installation, testing, commissioning, service and maintenance of all kinds of Fire Protection Systems. The company already has a major presence in Gulf states, and is now entering the huge Indian market, which is growing at a fast clip (20-30% per annum) .

The company has a state of the art manufacturing facility at Parwanoo in Himachal Pradesh. The facility started commercial production in 2009, and now boasts multiple assembly lines for manufacturing various products.
Subsidiaries & JV's
The company has several wholly/partly owned subsidiaries as well as JV's carrying out the above businesses in various countries The following is the list of subsidiaries / JV's with Zicom's holdings in brackets : 

Unisafe Fire Protection Specialists LLC , Dubai (49%)
Unisafe Fire Protection Specialists India Private Ltd, India (100%)
Unisafe Fire Protection Specialists Singapore Pte Ltd, Singapore (100%)
Phoenix International WLL, Qatar (49% - 5% directly & 44% through subsidiary)
Ciao Zicom Security Systems, Brazil (38%) - JV with Ciao Telecom Inc., USA
Zicom Security Projects Pte, Singapore (100%)
Zicom SaaS Private Ltd, India (100%)
Institute Of Advanced Security Training & Management Pvt Ltd, India (17%)
(Website :

Zicom Electronic Security Systems - Brief Stats 
Company Website :
BSE Scrip Id, NSE Symbol : ZICOM
BSE Scrip Code : 531404
CMP : Rs 51.95 (closing price, BSE 27th June, 2012)
FY11-12 EPS : Rs 4.32 * (Standalone) ; Rs 14.79 * (Consolidated)
FY11-12 Dividend : 10% (Rs 1/- )    
* - on equity of 12.7 Cr, fully diluted equity will rise to 17.63 Cr after recent preferential issue

Investment Rationale & Considerations

Crime is an unfortunate reality of life . Outrages such as terror attacks like the one in Mumbai now infamous as "26/11", or at the opposite end of the spectrum, something as mundane as a robbery in our  neighborhood, serve solely to bring this reality in to focus. Where there is crime, crime prevention must surely be on hand, and security systems & services will always be an integral part of the same.

Similarly fire - fire again is an ever present risk humans are exposed to, and need to safeguard against. Unfortunately it takes incidents like the recent fire at Mantralaya, Mumbai, where sadly lives were lost (besides considerable property & important documents), to remind us that we are hopelessly lax in this respect, and need to take fire prevention & protection measures much more  seriously to make our environment safer. Needless to say, this incident has shaken the city's Municipal Corporation & Fire Department out of their stupor & hopefully fire prevention measures already stipulated will now be enforced seriously. Likewise, it is expected that their counterparts in other urban areas in India have also taken note, and are doing the same.  
ZICOM is already an established player in security systems & services in India. It recently bagged the "Brand Excellence Award” in Best Surveillance Brand Category, by VarIndia, at the Infotech Forum, 2012. Again, the expertise of UNISAFE in fire prevention & protection is unquestionable.

Having expertise in both these domains allows ZICOM to offer innovative & comprehensive solutions to clients which cover security, fire protection etc. Just one random example of the same is their offering "8 Ka Dum", a 24 x 7 Intrusion Detection and Monitoring Service with 8 security benefits to safeguard Shops/Offices from a variety of mishaps like - theft, fire, misuse, forced intrusion, etc.

Increasingly, the realty sector in India is getting more innovative & tech-savvy, and installing the latest security gadgets & solutions is fast becoming the norm in premium properties, with realtors touting these features as a value add to quality consious buyers. ZICOM appears to have the necessary pedigree to grab it's fair share of a pie that is sure to grow for decades to come. 

No doubt there are some red flags too that need to be considered and discussed, such as :
(a) Low promoter shareholding,
(b) Attitude towards minority shareholders, and
(c) Recent Equity Dilution
Let us look at these 3 issues .

Low Promoter Holding : Whereas the promoter holding as per the latest declaration is just 16.48% (which will rise to 24% post conversion of warrants outstanding), if the shareholding of a PAC, Venu Raman Kumar & his wholly owned company Aark Singapore Pte Ltd (together 20.63%) are considered as quasi-promoter holding, this would rise to a more respectable 37% (and go beyond 40% post the warrants conversion). [ Note : Mr V. Raman Kumar is the Founder & ex-CEO of MModal Inc (formerly CBay Systems) and one can read some coverage about his investment in Zicom here here . ]

Nevertheless, a larger promoter shareholding would have inspired more confidence.

Attitude Towards Minority Shareholders  : In 2010 the company sold 2 of it's divisions to Schneider Electric, but paid out only a very small "one time special dividend" to shareholders, thus leaving investors (particularly those who might have entered the stock on expectations of a handsome payout) an unhappy lot, and raising questions about the promoter's shareholder friendliness.

The sale of the two divisions at the time was explained by the company as being required to achieve the twin purposes of (i) reducing the huge debt , while (ii) leaving sufficient cash for future acquisitions & expansions, and also to take on newer deep pocketed players entering the security market .

Let's see as to what has actually transpired subsequent to the sale : Interest outgo was halved in the year subsequent to the sale. The company has robustly scaled up the retained businesses, and is now almost back to the revenues achieved prior to the sale of the 2 divisions. Their recent acquisition "Phoenix International WLL" will also start contributing to the consolidated numbers from the current or next quarter. Besides, the author also feels that the company's Managed Security Services offering SaaS , launched last year, is an offering with immense potential, and once sufficient scale & coverage is achieved, will contribute significantly to the top & bottomline.

Taking the above into consideration, it does appear that substantial value has been added to the company in the last 2 years post the sale, and the promoters have indeed delivered results, though  it is undeniable that if the choice was left to them, shareholders would have certainly opted to have had a quick return by way of a huge dividend cheque.

One more pertinent point to note in this context is that the company has maintained an unbroken dividend record for more than a decade , even though it has kept payouts on the lower side, to conserve capital for growth of the business. So perhaps the investor unfriendly tag may not be wholly justified.

Recent Equity Dilution : The fully diluted equity will rise to 17.63 Cr from 12.7 Cr post the recent preferential issue, after pending warrants  are converted. However the author feels that the growth momentum, both in the Security Systems & Services business, and in the Fire Prevention & Protection business - post the launch of Unisafe in India & acquisition of the stake in Phoenix International WLL -  will propel earnings growth in the years to come.  

Conclusion & Recommendation

All things considered, in the author's personal opinion, the investment rationale for this particular company does look compelling.
The author therefore recommends readers of this blog to closely study & track this company going forward, and take an appropriate call based on their own conviction in this idea, after proper research.

Author : Bosco Menezes

Recommendation Date : 30.07.2012

Disclaimer/Disclosure :
At the time of writing this article the author has a position in the stock covered by this report. The author or any of his dependent family members may make purchases or sales of the securities mentioned in the report while the report is in circulation. Readers/recipients of this report are strongly advised to do their strict due diligence, and should be aware that the value of investments can go down as well as up. The author shall not be liable for any direct or indirect losses arising from the use of the contents of this report, and readers are therefore cautioned to use the information contained herein at their own risk. In fact, readers would do well to seek the advice of a qualified independent advisor. The author certifies that all of the views expressed in this report accurately reflect his personal views about the subject company at the time of writing this report. Feedback / brickbats may be hurled at the author at