Gujarat-based MCBS’ FY19 rev declines 22% due to disruption caused by TRAI tariff order

MUMBAI: Ahmedabad-based Modern Communication and Broadcast Systems (MCBS) has seen a 22% decline in its revenue in FY2019 due to the effect of the Telecom Regulatory Authority of India’s (TRAI) new tariff order, which has disrupted the broadcasting industry.

In FY2019 (provisional financials), the company reported an operating income of Rs. 82.30 crore. MCBS reported a profit after tax (PAT) of Rs. 2.71 crore on an operating income of Rs. 105.6 crore in FY2018, compared to a PAT of Rs. 3.15 crore on an operating income of Rs. 103.5 crore in FY2017.

MCBS’ credit ratings have been reaffirmed by ICRA. The reaffirmation of ratings takes into account the extensive experience of MCBS promoters in the communication and broadcasting industry with its R&D capabilities supported by the Indian Space Research Organisation-approved (ISRO) facility and its reputed customer base.

The ratings derive comfort from its satisfactory financial risk profile characterised by comfortable capital structure, moderate coverage indicators, and low working capital intensity.

The ratings are, however, constrained by the vulnerability of the company’s top line to regulatory changes. Additionally, the ratings are constrained by MCBS’ high customer concentration risk, with a single customer contributing ~46% to its total sales in FY2019. Moreover, its profitability remains vulnerable to fluctuations in major raw material (steel) prices amid intense competition in the sector.

Incorporated in 1985 by GC Jain, MCBS is involved in manufacturing communication and broadcast systems, executing turnkey projects and undertaking system integration projects. MCBS is an ISO-9001-2000 registered company that manufactures Ku-Band Dish Antenna of different sizes for various reputed DTH service providers.

MCBS started manufacturing set top boxes (STBs) from FY2014, which are supplied to local cable operators and are sold under its own brand. In addition, MCBS is involved as a system integrator in the CCTV segment, head ends and fibre optical cables.

MCBS’ customer profile remains reputed, consisting of direct-to-home (DTH) service providers like Tata Sky Limited (TSL) and Pantel Technologies Private Limited, among others. Further, sales are also made outside Gujarat, which provides geographical diversification to a certain extent. It has executed several projects for many Government and private agencies like ISRO, Prasar Bharti, the Andhra Pradesh Government, Core Education and Technologies Limited, etc.

Apart from the decline in revenue due to TRAI tariff order impact, MCBS also faces intense completion from international suppliers as well as established domestic players also affected revenues.

It also faces high customer concentration risk with Tata Sky accounting for 46% of the total sales in FY2019. However, the history of repeat orders and Tata Sky’s healthy credit profile mitigate the risk to a certain extent.

Within the antenna and the STB segment, major competition comes in from international suppliers based in China, Taiwan, Malaysia, etc. These players have larger manufacturing capacities than MCBS, which provides them a cost advantage over the company. Further, several domestic players have started establishing facilities for STB. Hence, MCBS’ ability to establish its own brand in the STB segment remains critical.

MCBS’ major raw materials include galvanised steel sheets for the antenna segment as well as various electronic items for the closed-circuit television (CCTV) and STB segments, which are mainly imported.

Thus, its ability to procure raw materials at a competitive cost and pass on any adverse fluctuations in the same to its customers continues to be a key determinant of profitability. Further, in FY2018, the company imported 33% of its total raw material, exposing its profitability to fluctuation in foreign exchange rates.

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