ICSA power

GUEST COLUMN

Let's face it. Few of us have any investing guts left. Suggest a reasonable stock and the first response is 'when it gets cheaper'. Discuss a new business and the second response is 'It's going to get worse before it gets any better.'

Conventional wisdom: when the wicket begins to turn, play straight. Apply this percentage cricket concept to the stock market. And you are left with a few companies that will probably do exceedingly well, good economy or bad. ICSA India is one of them.

The company's business model is interesting. The company's products are interesting. The company's growth prospects are interesting. But tarry too long on these and there is a danger of missing its DNA.

This is how the story begins: G. Bala Reddy was a social sciences post graduate who applied for a job in an NBFC. Since he possessed no financial qualifications, the employers assigned him the most challenging job -- going door to door, saying hi and asking for deposits.

Bala Reddy was committed; he canvassed deposits from friends, acquaintances, friends' friends and five-minute acquaintances. His company was safe, he would tell them. His company would deliver returns on time, he insisted. Not a flicker of worry, he assured. He did this well; at one point he was bringing in 90 per cent of the company's deposits without a drift of an idea where his financial honchos were deploying it.

Then one day, his company was cleaned out. Just cleaned out. A conservative Hyderabad would not forget; so Bala Reddy was advised that he should take the first Falaknuma and get the hell out to wherever the train took him. Bala Reddy did something completely contrarian: he assumed moral responsibility, brought out the company's management, persisted with debtors, recovered outstandings, paid off creditors, swore never to take debt and exited the business. Exited.

A working man can never be truly sedentary, so in a city where everyone and his brother-in-law was getting into construction, Bala Reddy did something similar: became a sub contractor's sub contractor for a power transmission towers erection assignment, got another assignment, graduated to becoming the official sub-contractor, attracted the attention of the customer, graduated to contractor status among the many contractors servicing the project and then eventually the glorified turnkey operator. Sole.

And Bala Reddy might still have been only negotiating for structurals and cables on L-one or looking up the tenders page each morning had it not been for something that would keep him thinking: that however hard he tried, however meticulously he worked, however committed he remained, the transmission network that he helped commission usually started with a disadvantage from day one: it would suffer from a systemic loss (transmission and distribution loss). Result: only a third of the generated power would actually be transmitted and distributed.
 
So our friend began to extend himself once more and this time he did something daring for a man who had never written a line of code in his life; he recruited five software professionals to sit in his back-office, he worked out small software packages that enumerated the kind of losses inherent in the system and while he was doing all this, he started talking to the state electricity boards in Andhra Pradesh, he started speaking to government customers, he started speaking to anyone he could find on how there was a critical need to enumerate. To prove. To document.

And something interesting happened: the opposition in the AP state assembly accused the state government of not meeting its commitment to supply nine hours of uninterrupted power to farmers across the state.

The government pleaded innocence; but more than the usual statements of 'the opposition does not know what it is talking about' counter, it did something unexpected: it sought to recruit the first software solutions provider that it could think of, who possessed some insight on the subject. Insight? There was no one who had heard of the concept. But ah yes, there was this EPC contractor who had been taking this case from desk to desk with missionary gleam, saying that this needed to be done, saying that this would save the country resources and saying that he could do it.

Ergo, ICSA landed its first software solutions assignment on August 15, 2002. Only on the basis of retrospective spiel, not track record.
 
Within a few weeks, ICSA was surprising the very people who had recruited him. He was telling them of the precise number of hours that electricity was being supplied, he was telling them that much of the problem was on account of industrial and high tension consumers drawing power off the lines en route. He was telling them that most farmers on fields never even got the power that had been promised on the floor of the assembly.

More importantly, he was telling them that the supply and use of energy could be audited. Could be enumerated. Could be demonstrated. In a country where people had broadly spoken generally "“ mota-moti "“ ICSA was providing credible irrefutable evidence.

The word spread within the energy transmission community that there was this one instance where in-system energy had been audited. Someone gave another assignment. The success of that became the industry grapevine. A third assignment happened. Its positive result became the new benchmark. The AP transmission reforms acquired momentum.
And then Bala Reddy struck really lucky. The country announced the Electricity Act 2003. SEBs were funded. Balance sheets were cleaned. There was a provision for energy audit. Suddenly, ICSA had found a national market. As opposed to Bala Reddy asking every secretary worth her visiting card for an appointment with her boss, the reverse began to happen. A power-starved nation began to seek out the man who would tell it how to use EPC intervention and software solutions to reduce T&D losses.

It is this mix of hardware and software that makes ICSA unique. It is the extension of T&D insight to oil and gas pipelines (enables the client to know precisely where surface erosion has taken place without needing to change the entire pipe) that makes ICSA unique. It is the ability to accurately control street lighting from a remote location through 'intelligent' automation that makes ICSA unique.

It is the ability to generate a six month payback for the client that makes ICSA unique. It is the national choice of adding 30,000MW for $30bn across six years or discovering 15,000MW from within the system for only $5bn within less than two years that makes ICSA unique. It is the 'capital-light model' and the highest ROCE among peer groups in the IT and engineering spaces in India that makes ICSA unique.

Bull market, bear market, this company may always remain in fashion.

Mudar responds with speed atzmudar@trisyscom.com. Has a fiduciary interest with ICSA.