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www.careratings.com BSE-SME COMPANY RESEARCH REPORT MAX ALERT SYSTEMS LTD. November 15, 2012
www.careratings.com
BSE-SME COMPANY RESEARCH REPORT
MAX ALERT
SYSTEMS LTD.
November 15, 2012
www.careratings.com
F
DISCLOSURES
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This report has been sponsored by The Stock Exchange Investors' Protection Fund, Bombay Stock Exchange Ltd.
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1 This report has been sponsored by BSE Investors’ Protection Fund
Max Alert Systems Ltd.
Industrial Machinery November 15, 2012
ISSUE DETAILS
Issue price Rs. per share 20.00
Face value Rs. per share 10.00
No. of shares offered No. in lakhs 40.00 Total no. of shares (post issue) No. in lakhs 91.98
Issue size Rs. crores 8.00
Pre-issue net-worth Rs. crores 7.09
Post-issue net-worth Rs. crores 15.09
Source: Draft Red Herring Prospectus (DRHP)
BACKGROUND AND BUSINESS OVERVIEW
MASL was originally incorporated on January 16, 2004, as a private
limited company. The company was subsequently converted into a
public limited company, and consequently, the name was changed to
Max Alert Systems Limited vide fresh certificate of incorporation
dated March 26, 2012. Currently, MASL is engaged in providing
solutions for fire fighting, BMS and other allied activities. The
company also diversified into the business of telecom industry i.e.
installation of mobile towers. However, in the recent past, fire fighting
services, BMS and other allied activities comprise the main thrust of
business. The core competencies are its in-house technical knowledge,
skilled workforce, diversified product portfolio which enables to meet
varied client requirements.
IPO OBJECTIVE
Rs. Crore
Setting up crushing plant 8.6
Issue related expenses 0.6
Source: DRHP
INDUSTRY OUTLOOK
Crushers are machines which use a metal surface to break or compress
materials. Mining operations use crushers, commonly classified by the
degree to which they fragment the starting material, with primary and
secondary crushers handling coarse materials, and tertiary and
quaternary crushers reducing ore particles to finer gradations. Crushers
are used to reduce particle size enough so that the material can be
processed into finer particles in a grinder. Fire protection is the study
and practice of mitigating the unwanted effects of potentially
destructive fires. It involves the study of the behaviour,
compartmentalisation, suppression and investigation of fire and its
related emergencies, as well as the research and development,
production, testing and application of mitigating systems. A Building
Management System (BMS) is a computer-based control system
installed in buildings, which controls and monitors the building’s
mechanical and electrical equipment such as ventilation, lighting,
power systems, fire systems, and security systems. A BMS consists of
software and hardware; the software program, usually configured in a
hierarchical manner, can be proprietary, using such protocols as C-bus,
Profibus, and so on.
SHAREHOLDING PATTERN
# Inner ring represent pre-issue shareholding pattern, outer ring
represents post-issue shareholding pattern.
Source: DRHP
FINANCIAL SNAPSHOT
(Rs. lakhs) FY08 FY09 FY10 FY11 FY12
Net operating income 10 20 28.6 33.1 31.3
EBITDA 0.8 1.7 2.8 2.9 3.2
Adjusted PAT 0.5 1.5 1.3 1.7 1.7
Adjusted EPS* (Rs.) 1 3 2.6 3.3 3.3
Dividend, incl. tax
-
- 0.4
-
-
P/E (times) 19.8 6.8 7.7 6
NM
EV/EBIDTA (times) 15 8.1 5 5.6
NM Source: DRHP and CARE Research; Valuation ratios calculated @ IPO
price of Rs. 20 per share. EPS has been adjusted for bonus shares, NM: Non
Meaningful, #9MFY12
99.95%
56.48%
43.52%
Promoter Others
2 This report has been sponsored by BSE Investors’ Protection Fund
BACKGROUND
MASL was originally incorporated on January 16, 2004, as a private limited company. The company was subsequently
converted into a public limited company, and consequently, the name was changed to Max Alert Systems Limited vide
fresh certificate of incorporation dated March 26, 2012.
In the beginning, the company was engaged in the business of fire fighting services, BMS and other allied activities;
however, later on it diversified into the business of telecom industry i.e. installation of mobile towers. In the recent past,
fire fighting services, BMS and other allied activities comprise the main thrust of our business.
Key milestones of the company
Year Milestone
2005 Incorporation as “Max Alert Systems Pvt. Ltd.”
2005
Certificate for “Huawei India Excellent Partner Award” from Huawei Telecommunications (India) Company
Pvt. Ltd.
2012 Conversion of the our Company into a Public Limited Company
Source: DRHP
BUSINESS OVERVIEW
Currently, MASL is engaged in providing solutions for fire fighting, BMS and other allied activities. The company also
diversified into the business of telecom industry i.e. installation of mobile towers. However, in the recent past, fire
fighting services, BMS and other allied activities comprise the main thrust of business. The core competencies are its in-
house technical knowledge, skilled workforce, diversified product portfolio which enables to meet varied client
requirements.
The existing business comprises from the basic level detection and water-based fire protection systems to the
sophisticated gas-based fire suppression systems; the company provides a complete range of fire protection solutions as
under:
• Consultancy Services
• Design
• Engineering
• Installation, testing and commissioning
• Training
• Annual maintenance of gas detection systems
• Maintenance of fire & gas suppression & security system
MASL operates out of its leased offices located in Mumbai and Panaji and owned office in Ernakulam.
3 This report has been sponsored by BSE Investors’ Protection Fund
MANAGEMENT STRUCTURE
As on June 18, 2012, the company had 13 employees.
Organization structure
Source: DRHP
CORPORATE GOVERNANCE
MASL has a six-member Board, and half of the Board comprises Independent Directors. MASL also has three sub-
committees under the Board, i.e. Audit Committee, Shareholders’ Grievances Committee and Remuneration
Committee. All the three committees are headed by the Independent Directors, as per the listing guidelines of the
exchange.
Board of Directors
Person Age Qualification Role
Mr Anilkumar Chandra 40 Diploma in Electronic Engineering Director
Mr Lenin Chandran 38 Diploma in Electronic Engineering Managing Director
Mr Santhosh Balachandran 45 M.Com. Whole-time Director
Mr Pramod Chhabinath Yadav 28 B.Com, M.B.A. Independent Director
Mr Valiyakath Adimakungu Noushad 39 B.A Independent Director
Mr Binaykumar Doodhnath Pandey 27 B.Com, C.S, C.A (inter). Independent Director
Source: DRHP and CARE Research
There are no litigations against the company, its promoters/promoter group or directors.
Board of Directors
CEO
Company Secretary
Project Head
Project Managers
Finance Controller
Accounts and Taxation
Executives
4 This report has been sponsored by BSE Investors’ Protection Fund
IPO DETAILS
Size
The issue comprises an offer for sale of 40 lakh equity shares of face value of Rs.10 each at a fixed price of Rs.20 per
share. This would constitute 43.49% of the post-issue paid-up capital.
Terms
The offer comprises 40 lakh equity shares of face value of Rs.10 each to be issued at a price of Rs.20 per share, of
which 6 lakh equity shares are reserved for market makers of the issue and remaining 34 lakh equity shares, i.e. the net
issue would be available for subscription by public. The net issue would constitute 36.97% of the post issue equity share
capital.
The issue is being made through fixed price process, and at least 50% of the net issue to public would be available to
allocation on proportionate basis to retail individual applicants.
The trading lot for the issue has been fixed at 6,000 equity shares.
Objective
The main objects of the issue are as follows:
Particulars Rs. crore
Setting up crushing plant in Deoghar, Jharkhand (capacity of 250 tonnes per hour) 8.6
Issue related expenses 0.6
Source: DRHP
Means of Finance
Particulars Rs. crore
IPO 8.0
Internal accruals 1.2
Source: DRHP
No independent agency has appraised the project costs and the company has not yet finalized or acquired any
land/lease rights for the proposed crushing plant or placed orders for the machinery.
5 This report has been sponsored by BSE Investors’ Protection Fund
GROWTH DRIVERS
Growing awareness among consumers about fire fighting system.
Expansion in existing product portfolio.
Exploring untapped markets and segments.
Growth in bid capacity and pre-qualification capability.
Increased government spending in infrastructure sector.
RISK AND CONCERNS
No entry barriers in this industry, which put the company to the threat of competition from new entrants.
Industry is prone to change in government policies; any material changes in the duty may adversely impact its
financials.
Proceeds of the issue to be deployed in Crusher plant for mining where there is no significant track record
The company any long-term supply contracts with our customers which may adversely affect operations.
The company is largely dependent on its major clients, ~93% of revenues in 9MFY12 (refers to the period
April 01, 2011 to December 31, 2011), resulting in concentration risk.
The company has not obtained the shops and establishments registration for its Panaji (Goa) branch office
from the local authorities and may receive a notice for the same in this regard from the relevant state
authorities.
The company operates in a working capital intensive industry.
FUTURE STRATEGY AND EXPANSION PLANS
As per the DRHP, MASL plans to:
Setting up of crushing plant to cater of its use in construction projects.
Extend product portfolio and customers.
Diversify customer base.
Management speak: “MASL was initially engaged in the business of fire fighting services, BMS and other allied activities. Later on
the Company diversified into the business of telecom industry i.e. installation of mobile towers. However in the recent past, fire fighting
services, BMS and other allied activities comprise the main thrust of business. MASL’s core competencies are its in-house technical
knowledge, skilled workforce, diversified product portfolio which enable to meet varied client requirements.”
6 This report has been sponsored by BSE Investors’ Protection Fund
INDUSTRY OUTLOOK
Crushers
Crushers are machines which use a metal surface to break or compress materials. Mining operations use crushers,
commonly classified by the degree to which they fragment the starting material, with primary and secondary crushers
handling coarse materials, and tertiary and quaternary crushers reducing ore particles to finer gradations. Crushers are
used to reduce particle size enough so that the material can be processed into finer particles in a grinder.
Fire Fighting
Fire protection is the study and practice of mitigating the unwanted effects of potentially destructive fires. It involves
the study of the behavior, compartmentalisation, suppression and investigation of fire and its related emergencies, as
well as the research and development, production, testing and application of mitigating systems. In structures, be they
land-based, offshore or even ships, the owners and operators are responsible to maintain their facilities in accordance
with a design-basis that is rooted in laws, including the local building code and fire code, which are enforced by the
Authority Having Jurisdiction.
Three main goals of fire protection are:
Continuity of operations
Property protection
Life safety
Building Management System
A Building Management System (BMS) is a computer-based control system installed in buildings that controls and
monitors the building’s mechanical and electrical equipment such as ventilation, lighting, power systems, fire systems,
and security systems. A BMS consists of software and hardware; the software program, usually configured in a
hierarchical manner, can be proprietary, using such protocols as C-bus, Profibus, and so on.
Functions of BMS are:
Controlling
Monitoring
Optimizing
Overall growth drivers for all the three industries are:
India’s increasing population and accelerated growth in the Indian economy.
Strong emergence of high growth verticals like Malls, multiplexes, retail chains, manufacturing plants, IT, and
BPOs.
Increased government spending in the infrastructure sector.
7 This report has been sponsored by BSE Investors’ Protection Fund
FINANCIAL ANALYSIS
In 9MFY12, MASL reported revenue from operations of Rs.31.3 crore.
Raw Material cost forms the largest portion of cost for MASL. In 9MFY12, raw material cost as a percentage
of revenue from operations was at 61.0%.
The company reported EBITDA margins and PAT margins of 10.1% and 5.5%, respectively, in 9MFY12.
The company has a debt of Rs 6.81 crore on its book and contingent liability of Rs. 1.31 crore in form of bank
guarantee as on December 31, 2011.
The company has reported negative cash flows at operating levels since last two years.
The company has not paid dividend since last two years.
8 This report has been sponsored by BSE Investors’ Protection Fund
FINANCIAL STATISTICS
Income statement
(Rs. crore) 2008 2009 2010 2011 2012#
Net operating income 10.0 20.0 28.6 33.1 31.3
EBITDA 0.8 1.7 2.8 2.9 3.2
Depreciation and amortization 0.0 0.0 0.2 0.2 0.1
EBIT 0.8 1.6 2.6 2.7 3.0
Interest 0.1 0.5 0.7 0.9 0.9
PBT 0.6 1.7 2.1 2.1 2.2
Ordinary PAT 0.5 1.5 1.3 1.7 1.7
Adjusted PAT 0.5 1.5 1.3 1.7 1.7
Adjusted EPS* (Rs.) 1.0 3.0 2.6 3.3 3.3
Dividend, including tax - - 0.18 - -
* Calculated based on Ordinary PAT on Current Face Value of Rs. 10/- per share, EPS has been adjusted for bonus shares
Balance sheet
(Rs. crore) 2008 2009 2010 2011 2012#
Tangible net worth 0.9 2.4 3.7 5.4 7.1
Debt 2.3 4.1 4.6 7.0 6.8
Deferred tax liabilities 0.0 0.0 0.1 0.0 0.0
Total capital employed 3.2 6.5 8.3 12.4 13.9
Net fixed assets (incl. refundable security deposits) 0.5 0.7 1.8 1.7 1.6
Investments 0.0 0.0 0.0 0.4 0.5
Inventory 0.1 1.2 3.3 3.5 5.1
Receivables 3.0 5.6 5.1 7.9 9.6
Cash and cash equivalents 0.3 0.6 0.6 1.2 0.5
Current assets, loans and advances 3.9 8.5 11.1 15.3 18.3
Less: Current liabilities and provisions 1.2 2.7 4.6 5.0 6.4
Total assets 3.2 6.5 8.3 12.4 13.9
9 This report has been sponsored by BSE Investors’ Protection Fund
Cash flow statement
(Rs. crore) 2009 2010 2011 2012#
EBT
1.7 2.1 2.1 2.2
Depreciation
0.0 0.2 0.2 0.1
Interest paid
(0.5) (0.7) (0.9) (0.9)
Tax paid
(0.2) (0.8) (0.3) (0.4)
Change in deferred tax liability
0.0 0.1 (0.1) -
Net working capital
(2.9) (0.7) (3.2) (2.2)
Operating cash flow (1.9) 0.2 (2.2) (1.2)
Capital expenditure
(0.3) (1.2) (0.1) 0.0
Investments
- - (0.4) (0.1)
Investing cash flows (0.3) (1.2) (0.5) (0.1)
Change in borrowings
2.3 1.2 3.3 0.7
Issuance of equity
0.1 0.0 0.0 0.0
Dividend paid
- - - -
Financing cash flow 2.4 1.2 3.3 0.7
Net change in cash
0.2 0.1 0.6 (0.7)
Closing cash balance 0.6 0.6 1.2 0.5
Ratios analysis
2009 2010 2011 2012#
Growth in net operating income 100.6% 43.2% 15.8% NM
Growth in EBITDA
108.9% 67.9% 4.3% NM
Growth in PAT
192.0% -11.6% 34.1% NM
Growth in EPS 192.0% -11.7% 27.4% NM
EBITDA margin
8.3% 9.7% 8.7% 10.1%
PAT margin 7.1% 4.5% 5.2% 5.5%
Return on capital employed (RoCE) 28.8% 25.1% 22.9% NM
Return on equity (RoE) 89.0% 42.8% 38.2% NM
Net debt-equity (times) 1.5 1.1 1.1 0.9
Interest coverage (times)
3.1 4.0 3.2 3.4
Current ratio (times)
3.1 2.4 3.1 2.9
Inventory (days)
13.3 32.9 42.2 NM
Receivable (days)
78.3 68.0 71.5 NM
Price/EPS (P/E) (times) 6.8 7.7 6.0 NM
Price/Book value(P/BV) (times)
4.2 2.7 1.9 1.5
Enterprise value (EV)/EBITDA (times) 8.1 5.0 5.6 NM
Source: DRHP and CARE Research; Valuation ratios are calculated @ IPO price of Rs. 20 per share.
#9MFY12, NM: Non Meaningful
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