Pick of the Week: EPIC Energy

EPIC Energy

BSE Code: 530407 (Rs. 103.15)

EPIC Energy Ltd (EPIC)

EPIC is a manufacturer of energy conservation device and renewable devices like EPIC POWER SAVER 1090 and charge controller. In spite of mega power projects being lined up, we believe the gap between demand and supply of energy would prevail largely due to the increase in demand far outstripping the increase in supply. We believe energy conservation is the fastest way to bridge the demand supply gap, which is likely to immensely benefit EPIC in coming years. Renewable energy sources include: Solar Energy, Wind Energy, Hydro Power and Bio-Fuels.

Background: - EPIC was incorporated in August, 1991 by Mr Nikhil Morsawala as a Financial Services company, under the name Fastrack Holdings Pvt Ltd. Later EPIC changed its focus to Energy Conservation and Renewable Energy. It is now its mission to empower numerous commercial establishments and households in India, to save power and use Power generated from Renewable Sources with a view to reducing Greenhouse Gas emissions and reducing the Energy Demand Supply gap.

Company Profile: - Currently EPIC has manufacturing facilities one in Vadodara and Navi Mumbai. Both are ISO 9001:2000 certified. Its plants are equipped with state of the art technology. EPIC operates in States like Maharashtra, Gujarat, Tamil Nadu, Andhra Pradesh, Karnataka, Uttarakhand and Chhattisgarh. Company is currently managed by a team of professionals. Mr. Nikhil Morsawala is a Chartered Accountant and CPA (USA) by profession. He has 3 decade of business and corporate experience. Narhari Patil is an accomplished professional in energy audit, demand side management, electrical end-use efficiency, power quality and solar energy solutions. V Chandrasekhar has 2 decade of experience in the fields of electrical energy management and electronics. Mr. M. K. Pandey has 1 decade of experience in power system analysis, power & motor control centers and Mr. R. Senthil Kumar has 2 decade of experience in the Electrical and Electronics field.

Areas of operation :- Energy conservation: EPIC manufacture EPIC POWER SAVER 1090 (EPS), which is used to save power for various types of lighting systems, High intensity discharge lamps (HID), Air conditioners Etc. In this segment EPIC caters to public and private players. In the government sector, the major customers are Navi Mumbai Municipal Corporation, Thane Municipal Corporation, Madurai Municipal Coporation, Coimbatore Municipal Corporation and Tirupur Municipal Corporation. EPIC�s EPS 1090 equipment saves more than 30% of the energy consumed by Electrical Appliances like Street Lights which is a major source of expenditure for Municipal Corporations.

Power Retail: The company has launched its power boutique retails chain under the brand name S-URJA through which it will sell products like solar lanterns, solar water heaters, solar home lighting systems, mini windmills for home use and energy conservation equipment for home use. Recently the company opened its S-URJA shop in Navi Mumbai and gradually plans to expand its presence in 10 states. EPIC has set a modest target of installing and servicing energy saving and renewable energy devices in 5,000 households by March 2008.

Bio Fuels: EPIC is planning to acquire 500 acres of land in Gujarat where the company will grow Jatropha, which is an important raw material for Bio Diesel. Company is planning to invest Rs.65 million in this project of which Rs.50 million will append towards the land acquisition. Effect of the same is expected to reflect in revenues by 2010. For the same EPIC has initiated talk with few UK and Israel companies for technology transfer for converting these plants into Bio fuel.

Strong customer base: - EPIC supplies energy conservation devices to government bodies like: Navi Mumbai Municipal Corporation, Thane Municipal Corporation, Municipal Coporation, Coimbatore Municipal Corporation and Tirupur Municipal Corporation. EPIC has successfully completed pilot projects for BEST, Mumbai, Pimpri Chinchwad Municipal Corporation, Jalgaon Municipal Corporation, Konkan Railway Corporation Ltd, Raipur Municipal Corporation, Thirupathi Thirumalai Devasthanam, Karnataka PWD, MIDC, Pune Division, Central Power Research Institute, Lonavala Municipal Corporation. In the private sector EPIC caters to customers like: Sohum Health Resort, Alkem Laboratories Limited, Aditya Park Hotel, Hyderabad, Abhiman Residency, Mangalore, Mangalore And Rasilant Technologies Ltd EPIC�s ongoing pilot projects in private sector includes: J W Marriott, Mumbai, J W Marriott, Chennai, Raymond Limited, Jalgaon, JSW Limited, Bellary and Indian Market Research Bureau (IMRB).

Acquisition of Hydragen and SRS Engineers to augur well for company :- EPIC recently acquired a Bangalore based energy conservation company, Hydrogen Infrastructures Pvt Ltd (HIPL), which has a dominant installment base of 3000 KVA with Navi Mumbai Municipality for Rs.12.5mn (Gross) and also acquired SRS Engineers a Tamil Nadu based company for Rs.7.5mn (Gross), which has an extensive network of customers in Tamil Nadu covering nine municipalities. Apart from energy saving devices SRS Engineers is also specialized in manufacturing Automatic Timers. We expect this acquisition will provide synergy to existing business of company and enable it to have pan India footprint.

Moreover, it will help to develop strong network for after sales maintenance service to its customer.


High concentration on services- Lead to higher EBIDTA margin: - Currently EPIC has an installment base of energy saving equipment of around 7000 KVA (Including the recent acquisition). Currently EPIC 80% revenue comes from energy saving solutions and remaining from sale of solar products. EPIC operates on BOOT basis in most of the projects where the company will get a share in the energy saved after the energy saving devices is installed. The company gets 70% of the energy saved for 5 years and thereafter EPIC will get 15% of the energy saved for next 5 years. Due to high concentration of services the EBITDA margin remains at higher levels. It employs 55 engineers nationally, with 30 in Mumbai alone.

Capex on the card: - EPIC has planned to do capital expenditure of Rs.320 million over the next two years. The company is likely to spend Rs.220 million on energy conservation devices, Rs.35 million in the power retail domain and Rs.65 million on Bio Fuel project. This capital expenditure is expected to be funded through equity and internal accruals.

Key Concerns: - EPIC is likely to raise money through equity in the coming months to finance the capital expenditure requirements. �Increase in competitive dynamics.

Valuation: - We have a positive outlook over the strategic moves made by the company. Acquisition of Hydragen and SRS Engineers and setting up of retail chain under brand name S-URJA is likely to improve its revenue visibility on a consolidated basis. However in the short run the company would raise money both through equity and debt to finance its capex. At CMP of Rs.127, EPIC trades at a P/E of 45x FY07 EPS.