De-listing candidates: D-Link India

CMP: Rs.76
Mcap: Rs.226 crore
Non-promoters holding: 36.6%
Value of Non-prom. hldg: Rs.83 crore
Cash & Cash Equivalents for the year ended Mar'06: Rs.51.5 crore
Npat (12 mnths ended Mar'07): Rs.22 crore
Dividend paid out: Rs.6 crore
Retained Earnings for 06-07: Rs.16 crore
Cash & CE at the end of Mar'07 (approx): Rs.67.5 crore

Cost of a mgmt buyback -

@ 25% premium to the CMP - Rs.104 crore
@ 50% premium to the CMP - Rs.125 crore
@ 100% premium to the CMP - Rs.167 crore

Adjusting for the Cash & Cash Equivalents in the B/S:

@ 25% premium - Rs.36.6 crore
@ 50% premium - Rs.57.4 crore
@ 100% premium - Rs.98.9 crore

Based of last five years Cash Profits (Rs.28 crore), how much time will it take for the company earn the amount spent on the buy-back (net of the C&CE):

@ 25% premium - (36.6 / 28) = 1.3 years
@ 50% premium - (186 / 74) = 2.0 years
@ 100% premium - (320 / 74) = 3.5 years

A DEEP VALUE STOCK WITH GROWTH POTENTIAL....

D-Link India has been bearing the brunt of falling realisations in case of products like motherboards. It's margins have shrunk substantially over the past 3 yrs. However, the worst seems to be over for the company and over the next few years, growth in sales and profits will be driven by broadband and networking related products. Its only a matter of time before the CPE segment hits big in India.....the broadband sector in India is ripe for a growth seen in the telecom sector. What can be the potential size of this market:

Well here are some numbers to ponder:

1).One modem (cable or DSL) approximately costs Rs.1500-2000.

2).So if we hit 20 million broadband connections in the next few years with say 50% using DSL or Cable Modems, we are looking at 10 million modems and thats around Rs.1500 crore.

3).Even if the co. captures 20% of this, its looking at Rs.300 crore (same as its full year's turnover in FY07).

4). And as the number of broadband connections grow....so will D-Link's topline and therefore its stock price too!!