CyanConnode “scale of the opportunity in focussed markets suggests significantly more upside in the share” (LON:CYAN)

CyanConnode Holdings plc (LON:CYAN) Executive Chairman John Cronin and Chief Financial Officer Heather Peacock caught up with DirectorsTalk for an exclusive interview to discuss record revenues, India’s £30 billion ‘Revamped Power Distribution Scheme’, share of the Indian smart meter market, opportunities in other countries and the key priorities over the coming year.

Q1: Heather, CyanConnode provided a trading update for the nine-month period, you must be very pleased with the record revenues and cash collection. Can you just explain for us what’s driven this tremendous result?

A1: We’ve been delighted to see this continued growth with revenues in the first nine months and the cash received from customers both being higher than for the whole of the previous financial year.

To achieve this, we’ve continued rolling out our existing backlog with volumes continuing to increase, including from our recent orders such as the one back in August 2021. Much of the backlog that was delivered during the period was against basis of credit and we’re starting to collect against milestones too, all of which has helped cash.

We’ve continued to have to mitigate against the continued component shortages and, in many cases, we have to order months in advance of the requirements due to the lead times. In certain cases, we’re having to source components from alternate suppliers and then the disadvantage of this is that we have to pay upfront rather than having 30 to 60 day payment terms.

Q2: Now the Indian government recently announced an approximate £30 billion ‘Revamped Power Distribution Scheme’. Can you tell us more about that and how the business will be able to take advantage of that opportunity now that you’ve established a leading position in the market?

A2: This is aimed at creation and strengthening of the transmission and distribution infrastructure, which we provided by an outlay of 15% against the total project cost of approximately £15 billion of installing the approximate 250 million smart meters that India’s installing at the moment.

The timeline for replacing these 250 million meters with smart meters has been split in to two phases. The first phase of that first 100 million customers will be metered with smart meters with the prepayment mode by December 2023. The second phase of the 150 million customers will be metered with smart meters with prepayment mode by March 2025.

Also, the Ministry of Power of the government of India has also floated a standard bidding document and a contract agreement that can be directly adopted by utilities, furling out the smart metering program so this just makes things so much easier in the bidding process, because it’s just a standard process that they have to go through. These steps have acted as a catalyst, as the scale of tenders have gone up from a few thousand to millions of units.

We believe that with our knowledge, skills and experience and our proven technology, which sees 99.5% and above SLAs, we believe that we’re in a really good position to capture a good portion of the market.

Q3: Just turning to you, John. Do you have any thoughts on the share of the Indian smart meter market that you might be able to capture and what that could be worth in module and additional services and software revenue?

A3: We’ve analysed scenarios, especially for the Indian market, to ascertain the potential value to our company and our shareholders from the roll-out, remember the roll-out is something like 250 million smart meters.

So, what we’ve done is two scenarios for India, base case assumptions look at about 7.5% market share of the 250 million that is planned to roll-out and if you take, what we’ve already rolled out, 1 million modules that’s ordered and contracted, there’s about 18 million modules to go starting in FY23. We deem this to be very conservative, this assumption, especially as the group today has deployed modules which we understand represent circa 10% of the roll-out in India so far.

Now, we have done an upside scenario, and that is we capture 15% of the Indian market share, that’s something like 37 million modules, which over an 8-year period will amount to a substantial amount of revenue and profits.

We believe this target is achievable when you consider that the company is a leader in RF mesh networks in India, and it has operated and expanded in India. Over the years, it has close ties for instance, with EESL IntelliSmart and as a management team which has experience in delivering large scale deployment projects.

Q4: Now, you’ve clearly got a management team that has a wealth of experience in large scale deployment projects and global partners. What other countries and opportunities are you looking to deploy smart technology to?

A4: The company first has made significant progress in 2021, putting in place, as you mentioned, key management personnel and building important relationships with key stakeholders in the Indian power and infrastructure sector.

The groundwork laid in 2021 should underpin a year of excellent developments growth for the group in 2022 and while the shares perform one in 2021, the scale of the opportunity in our focussed markets suggests significant more upside in the shares in our view.

You mentioned which countries, well apart from India, there’s Thailand, there’s several countries then within Africa, there’s the Middle East, Indonesia, and we’re also ensuring rollout of the not-spots in the UK via the SMETS2 DCC project so there’s a lot going on.

Q5: So, in summary, what are the key priorities over the coming year?

A5: So, the priorities are to focus on winning opportunities, they’re already out there in the market, such as 35 million units being tendered right now in India alone so that’s a fairly large number.

To help achieve this, we have formed a vertical global sales and business development structure that is headed up by Anil Dauliani as the President.

Another priority is to ensure supply chain management is secured through looking at alternative component suppliers, as we know there’s been a worldwide shortage.

Now, the cash management is also a key focus for us, and today we have something like £1.5 million in the bank, with debtors equating to some £5.5 million in India alone, much will become due in the coming months.

All of this puts CyanConnode in a very strong position to win more business.

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