MIC Electronics - What to do now?

One of the readers of Indian Stocks News, “Optimist” asked me about my opinion on MIC electronics at it’s current state. Company’s stock price in recent times has been beaten down badly in stock markets. What to do with it now?

For those who don’t know much about company, MIC electronics is a small cap stock. The company was in business of manufacturing and marketing of semiconductor chips and LED display/lights. As per recent announcement from it’s management, company has decided to go only with LED technology business in future.

MIC electronics management has already declared their choice of going ahead in business only with LED technology and it’s applications. Let’s first talk about technology. LED (Light Emitting Diode), is a tiny small piece that throws out light by taking eelctricity as input. The best part is, it takes very very less electricity as input that makes it electricity saving lighting solution. Technologywise, it is the best new era lighting technology in market. So is the LED display screens that are used for out door video displays like large outdoor TV/video screens and advertising screens.

MIC has made these two products as their primary products in business line which has tremendous business opportunities. The problem in company looks to be distrust of people in management and recent lackluster performance of company. This is because of major chunk of shares pledged by promoter and sell of InfoSTEP. Revenue and profits have nosedived due to sell of this company. But it is still a profit making company.

Looking at recent interview of MD/CEO of MIC (click here for interview), company is focussing only on LED related products and comapny should achieve big breakthrough in 2012. If this happens, company should achieve good growth depending on their efforts.

I am not saying this is very safe investment, especially looking at promoters shareholding etc. but this is also fact that promoter has invoked few lakh shares from pledged shares due to SEBI's rules. Company's book value as per June 2010 was Rs. 36.34 which is good. We will have to look for it's latest numbers as per June 2011 in near future. Company has Rs0.35 EPS for March 2011 quarter. If we estimate the EPS to be at these levels for, say next 4 quarters, it could be 1.4 and for this forward EPS, P/E at current stock price of Rs15 is only 10.70. The stock is not expensive at this rate. Company had paid dividend in 2007, 2008, 2009 when it was doing good, though not at very high dividend yield, but that shows some shareholder friendly policy.

I am invested in MIC from last 2 years, although not a big chunk of portfolio but a few thousand shares. I have a long term view and I might even average my investment at this rate in next few days. I will remain invested in this stock for long term portfolio for one reason, I know the LED technology well and MIC is the only player in India in this segment. Even if management does average, they could do okay. It is a high risk high return investment for me. It could be a bit longer wait for investors if company's plans go thru. It is a bet that I will be taking for this reason and wait for at least 3-4 years.