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Krishnan Thiagarajan

Mr K.R. Naik, MD... Broadband and wireless to power growth

INVESTORS with a medium-term perspective can consider taking fresh exposure in the D-Link stock; any declines, linked to broad market trends, could also be used to step up exposure. Considering the stock's recent sharp run up, investors would need to be patient to realise gains.

D-Link's prospects hinge on the growth of the broadband, wireless and VoIP (voice over Internet protocol) markets, of which the first two show great promise. The launch of BSNL/MTNL broadband services and the competitive pressure forcing the hand of private operators should open up the broadband market and see keen competition.

Considering the encouraging prospects, the stock is stiffly valued at 14 times its annualised 2004-05 earnings, but there is scope for appreciation from these levels.

Promoted by D-Link Corporation of Taiwan and Mr K. R. Naik, D-Link India has a spectrum of products catering to networking and communication requirements of enterprises and consumers. In networking, its product range consists mainly of switches; it caters to the small and medium enterprises with its parent's range of products.

It addresses the higher end of the enterprise market through its tie-up with Foundry Networks, the second largest vendor after Cisco for network infrastructure solutions.

As India emerges the global IT-enabled services hub, the increased IT spending on networks will help players such as D-Link.

As the market focus shifts towards wireless and broadband, the company's range of inter-networking products such as modems and routers can turn out to be a significant engine for revenue/earnings growth.

In the motherboard segment, it has a fairly well-established presence, through its tie-up with Gigabyte Technologies of Taiwan.

As the PC penetration rate picks up in IndiaD-Link will be able to leverage its established position to gain market share. And, finally, in structured cabling, the company is a fairly established player.

D-Link's earnings performance in the latest, October-December, quarter was strong on the revenue front, but slipped vis-à-vis operating profit margins and post-tax earnings over the corresponding previous period.

The loss of the software development division (building IP for in-house developed technologies) and the higher tax outgo eroded post-tax earnings.

As D-Link shifts its focus towards the higher end of its product range and the broadband/wireless markets takes off, both the operating margins and earnings performance may start improving over the next couple of quarters.

Moreover, it has spread its risks evenly by focussing on a range of networking and communication products.

A balanced revenue stream is protection against downside, even if the high-growth segments do not play out in a big way.

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