V-Guard

V-Guard

V-Guard Industries

V-Guard Industries

V-Guard Industries

V-Guard Industries

V-Guard

V-Guard

V-Guard

V-Guard

V-Guard

V-Guard

VGuard Industries

VGuard Industries

V-Guard Industries

Investors with a medium-to-long term horizon can buy the stock of V-Guard Industries (V-Guard) due to the high potential of the consumer durables business and the discounted valuation of the stock. At Rs 84, the stock trades at 12 times its trailing one-year earnings. Comparable peers in both cables and consumer durables trade at 13-20 times.

From manufacturing voltage stabilisers, V-Guard has diversified into agricultural pumps, water heaters, UPS, fans, domestic wiring cables and low-tension (LT) power cables. Increasing presence in the semi-urban and rural markets has helped it record a robust 24 per cent five-year compounded annual sales growth. With rising copper prices, the company is considering price hikes to maintain margins.

Last April, the company commenced commercial production at two new power cable facilities, one of which is in Uttaranchal. It plans to expand capacity by setting up a factory in the South, land for which has already been acquired.

Strong revenue growth

For the nine months ended December 2009, the company reported a 35 per cent growth in sales, buttressed by a 41 per cent growth in the electro-mechanical division (PVC insulated and low-tension power cables, water heaters and fans) .

About 30 per cent of the company's revenues (domestic wires: LT power cables- 5:1) are from the cables division. V-Guard now concentrates only on the retail segment (domestic wiring for individual houses and small and mid-sized projects) for its power cable sales; hence, there is no need to worry about the slow pick-up in capex activities in the core infra sectors.

The company's commissioning of the cable factory in Kashipur, Uttaranchal, is expected to give it a presence in the northern market. This factory makes building wire cables (two lakh coils per month at optimum capacity). V-Guard has also begun work in the newly set up LT cable factory at Coimbatore last year. The company had by December-end spent close to Rs 40 crore on these two projects (a total of Rs 44.78 crore was the estimated outlay on these projects at the time of the initial public offer).

V-Guard brand fans and water heaters are well recognised in the consumer markets of the South. The company's stabiliser sales come mainly from the semi-urban regions where the demand for voltage stabilisers is still high due to frequent power outage and voltage fluctuations. Though there is a risk of the new-age electronic items with in-built stabilisers slowly eating into the market, the company's focus on the Tier-II and Tier-III cities and diversified product lines will help sustain sales growth over the long term. The company has a network of 170 distributors and over 200 service centres pan-India.

An eye on margins

Copper is the main raw material . Sharp price corrections in copper in 2008 impacted the company's operating profit margins and in the December '08 quarter, the company's OPM dipped to a low of 5 per cent (on inventory devaluation and fall in realisation). However, the company booked all copper-related inventory losses in that quarter and has been seeing margins improving ever since.

For the nine-months ended December '09, operating margins stood at 12 per cent, up from the 9 per cent reported in the same period last year. From its lows of $2810/tonne on the London Metal Exchange in December '08, copper's price has risen to $7367/tonne now, a 162 per cent rally (still 17 per cent below its July '08 peak). Prices look likely to remain firm on tight supply conditions and rising Chinese imports.

The company's margins are susceptible to sharp price shifts in copper. Over the short term, however, margins may be held around the prevailing levels or may rise, with the company considering price hikes following similar moves by the competitors.

Financials

Net profits (before considering taxes and exceptional items) fell 16 per cent in FY-09 over the previous year. This was mainly on copper prices peaking in the mid-year and bottoming out in December. Sharp price shifts over a short period saw margins crumble as realisations could not match up with costs. However, for the nine months ending December '09, the company's net profit grew close to 70 per cent at Rs 19.38 crore on a sales growth of 35 per cent. The debt-to-equity ratio stands at a low 0.2, giving the company leeway to leverage for expansion plans.

via BL

V-Guard Subscription/Allotment Details

Sr.No.	Category			No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)			1.7420
1(a)	Foreign Institutional Investors (FIIs)
1(b)	Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)
1(c)	Mutual Funds
1(d)	Others
2	Non Institutional Investors			2.9155
2(a)	Corporates
2(b)	Individuals (Other than RIIs)
2(c)	Others
3	Retail Individual Investors (RIIs)			4.2429
3(a)	Cut Off
3(b)	Price Bids
4	Employee Reservation			0.8574
4(a)	Cut Off
4(b)	Price Bids

Grey Market - V-Guard, Rural Electrification

Rural Electrification 90 to 105 24 to 26


GSS America InfoTech 400 to 440 Discount


On Mobile Global 440 20 to 25


Bang Overseas 207 7 to 10


Shri Ram EPC 300 Discount


IRB Infra 185 12 to 15


Manjushree Extrusion 45 5 to 7


Tulsi Extrusions 85 10 to 15


V. Guard Ind. 80 to 85 8 to 10

V-Guard Industries IPO Review

Ppromoted by Kochouseph Chittilappily, V-Guard Industries manufactures and markets voltage stabilisers under the brand name, V-Guard. The product basket includes insulated electrical cables (for housing and industrial users), electric pumps, water heaters, solar water heaters, uninterrupted power suppliers (UPS) and fans. All the products are marketed und the V-Guard brand. The company has discontinued marketing water-level controllers, wall clocks, electric motor starters and water purifiers. About 42% of the revenue came from voltage stabilisers, 20% from cables, 19% from pumps, 7% from electric water heaters, 4% from solar water heaters, and 3% each from fans and UPS in the year ended March 2007 (FY 2007).

With a well-established position in south India, V-Guard Industries recently ventured into Maharashtra, Haryana, Madhya Pradesh, Orissa, Himachal Pradesh, Chhattisgarh, Uttarpradesh, Gujarat, Punjab and Rajasthan

Located at Comibatore in Tamilnadu, the facilities to build cables has a capacity to manufacture 1,38,000 coils per month of standard length of 90 meters. The remaining products are largely sourced from various suppliers and marketed under the V-guard brand. Supplies sourced include voltage stabilisers, pumps, UPS, electric water heaters and fans. These are manufactured to specifications.

To cater to rising demand, a second building-cable manufacturing plant is to be set up at Kashipur in Uttaranchal. It will have a capacity of 2,00,000 coils a month of standard length of 90 metres. Moreover, a low-tension cable manufacturing plant and an enameling plant, with a processing capacity of 100 tonnes, is to be put up at Coimbatore, where the existing building-cable unit is located. Development-cum-pilot plants are to be built at Coimbatore (for pumps) and in Himachal Pradesh (for fans and water heaters). Service and distribution centers are to be put up at strategic locations in India. All the projects are to be commissioned by December 2008. An initial public offer (IPO) will partially fund these expansion plans.

Strengths

The V-Guard brand enjoys strong recall and credibility, specially in south India.

Weakness

A regional player, with over 90% of the revenue (in FY 2007) coming from southern states and Goa. Of this, around 44% is derived from the market in Kerala. As has ventured into the north Indian markets recently, there will be no benefit of the strong brand name for leverage on. Thus, has to face strong competition from established players apart from small players

Valuation

Sales clocked a CAGR of 19% to Rs 222.27 crore in FY 2007 from FY 2003. Pofit after tax posted a CAGR of 29% to Rs 13.50 crore. The reported profit was Rs 18.41 crore in FY 2007,after accounting for an EO income of Rs 4.91 crore on account of profit on sale of investment in two amusement parks at Cochin and Bangalore. The EPS on adjusted net profit excluding EO was Rs 4.5 on post-IPO equity for FY 2007. The five-month annualised EPS for the current year on post-IPO equity works out to Rs 6. On the offer price of Rs 80-Rs 85, the P/E works out 17.8 – 18.9 times FY 2007 earning and 13.3 – 14.1 times latest five-month annualised EPS. Much larger players with much more well known brands like Finolex Cables and Bajaj Electric trade around TTM P/E of 16 times. Numeric Power, leader in UPS, trades at TTM P/E of 11 times.