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First call India Equity Advisors Pvt. Ltd
1
Videocon Industries Ltd
BUY Target Price: Rs.252.00
CMP: Rs.223.25 Market Cap.: Rs.512115.78mn.
Date: December 14, 2009
Key Ratios:
Particulars FY09 FY10E FY11E
OPM (%) 19 19 19
NPM (%) 4 5 5
ROE (%) 6 7 8
ROCE (%) 15 16 16
P/BV(x) 0.71 0.66 0.61
P/E(x) 12.58 9.5 7.96
EV/EBDITA(x) 2.9 2.52 2.26
Debt Equity Ratio 1.17 1.14 1.11
Key Data:
Sector Consumer Durables
Face Value Rs.10.00
52 wk. High/Low (Rs.) 269.50/82.00
Volume (2 wk. Avg.) 227015
BSE Code 511389
SYNOPSIS
• Videocon Industries Limited, together with its
subsidiaries, engages in the manufacture,
marketing, and distribution of consumer durables,
color picture tubes (CPT), and cathode ray tube
glasses in India and internationally.
• Videocon Industries has decided to rise up to Rs 45
crore via preferential issue of equity shares to an
independent non-promoter investor.
• Videocon Industries is likely to acquire equity stake
in Finnish electronics company Elcoteq for about
USD 72 million.
• Consumer durable major Videocon will open over
10,000 new stores of its retail venture- Next and
Planet M over a period of next three years.
Share Holding Pattern:
V.S.R. Sastry
Vice President
Equity Research Desk
91-22-25276077
Dr. V.V.L.N. Sastry Ph.D.
Chief Research Officer
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First call India Equity Advisors Pvt. Ltd
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Table of Content
Investment Highlights ............................................................................................................ 3
Peer Group comparison………………………………………………………………………………………………….….….5
Keyconcern………………………………………………………………………………………………………………….…………5
Financials……………………………………………………………………………………………………………………………….6
Charts………………………………………………………………………………………………………………………….………...8
Outlook and conclusions…………………………………………………………………………………………………….....9
Industry Overview…….…………………….……………………………………………………………….………….…….. .10
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First call India Equity Advisors Pvt. Ltd
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Investment Highlights
Q4 FY09 Results Update
Videocon Industries disclosed a sharp drop in standalone net profit for the quarter ended
September 2009. During the quarter, the profit of the company declined 15% to Rs
1,492.60 million from Rs 1,755.30 million in the same quarter previous year. Net sales for
the quarter declined marginally 0.18% to Rs 26,212 million, while total income for the
quarter fell marginally 0.09% to Rs 26,286.70 million, when compared with the prior year
period. It reported earnings of Rs 6.51 a share during the quarter, registering 15% decline
over previous year period.
Quarterly Results - Standalone (Rs in mn)
As At Sept-09 Sept-08 %change
Net sales 26212.4 26260.2 0.18
Net profit 1492.6 1755.3 (15)
Basic EPS 6.51 7.66 (15)
Videocon to divest 25% Stake In Power Arm
Videocon Industries Ltd is holding discussions with private equity companies to divest 25%
stake in its power arm. The company expects to finalize the deal by April. Company is
developing power projects through special purpose vehicle Pipavav Energy Ltd, which it
has now renamed as Videocon Power Ltd.
Videocon to open 10000 stores in next yrs
Consumer durable major Videocon will open over 10,000 new stores of its retail venture-
Next and Planet M over a period of next three years as part of its plan to increase foot
print in the rural and hinterland areas.
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First call India Equity Advisors Pvt. Ltd
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Videocon to acquire stake in Elcoteq for USD 72 mn
Videocon Industries is likely to acquire equity stake in Finnish electronics company Elcoteq
for about USD 72 million. The loss-making Elcoteq aims to conclude negotiations as soon
as possible and close the deal by the end of the year. One of the world`s top electronics
manufacturing services providers, it designs and makes mobile phones, set-top boxes and
flat panel televisions for companies such as Research in Motion, Nokia, Sony Ericsson,
Cisco and Philips.
Consumer goods maker Videocon is looking to capture a slice of the growing global
electronics manufacturing services business, especially for iPods, iPhones and computers.
Globally, telecom and mobile handset makers such as Apple and RIM are increasingly
outsourcing manufacturing jobs to low-cost countries as part of their global cost reduction
initiatives.
Videocon Industries to raise Rs 45 crore via preferential issue of shares
Videocon Industries has decided to raise up to Rs 45 crore via preferential issue of equity
shares to an independent non-promoter investor. The board has also approved issue of up
to Rs 1,200 crore worth of equity shares on rights basis. Further, both proposals are
subject to requisite approvals.
Subsidiary executes Farmout Agreement with Anadarko
Videocon Industries has entered into the Nunukan Production Sharing Contract (PSC) in
Indonesia through its wholly-owned subsidiary, Videocon Indonesia Nunukan Inc.
(Videocon).Videocon has executed a Farmout Agreement with Anadarko Indonesia
Nunukan Company (Anadarko), a wholly-owned subsidiary of Anadarko Petroleum
Corporation, USA. Pursuant to the agreement, Videocon will acquire a 12.5% participating
interest in a Production Sharing Contract (PSC) covering the area referred to as Nunukan
Block, Indonesia.
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Its capital outlay for the transaction is estimated at $11.125 million, which will be incurred
up to end 2010. The closing of the transaction under the agreement is subject to normal
conditions precedent in these kinds of transactions, including consent and waiver of first
right of refusal by P T Medco E&P Nunukan (Medco), a company existing under the laws of
the Republic of Indonesia, the only other existing participating party, other than Anadarko
under the Joint Operating Agreement (JOA) and subject to regulatory approvals of the
government of Indonesia.
Videocon plans to increase its LCD segment share
Videocon, the domestic consumer electronics major, is aiming for higher share of LCD TV
segment. The company is looking to increase its LCD segment share which currently
stands at around 12% to 18% by the end of this financial year. It also indicated that the
benefit coming from the proposed 5% reduction in customs duty on LCD panels by the
finance ministry in the budget has passed on to the customers
Peer Group Comparison
Name of the company CMP (Rs.)
Market
Cap.(Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend(%)
Videocon Industries 223.25 512115.78 17.74 12.58 0.71 10.00
Bajaj Electricals 783.00 13671.9 64.50 12.15 5.80 100.00
VIP Industries 149.00 4197.1 9.11 16.30 3.03 10.00
Bharat Electronics Ltd 1895.00 151600.0 124.03 15.28 3.98 187.00
Key Concerns
Cheap imports from Singapore, China and other Asian countries
Recession in global economy
Fluctuations in exchange rates
High competition from global players
Adverse Govt. policies
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First call India Equity Advisors Pvt. Ltd
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Financials Results
12 Months Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) FY08 FY09 FY10E FY11E
Description 12m 12m 12m 12m
Net Sales 101051.30 93716.40 104962.37 117557.85
Other Income 288.20 310.10 341.11 375.22
Total Income 101339.50 94026.50 105303.48 117933.07
Expenditure -79056.70 -76375.20 -85019.52 -95221.86
Operating Profit 22282.80 17651.30 20283.96 22711.21
Interest -4011.00 -6244.40 -6743.95 -7418.35
Gross profit 18271.80 11406.90 13540.01 15292.87
Deprecation -6602.10 -5761.70 -6049.79 -6352.27
Profit Before Tax 11669.70 5645.20 7490.22 8940.59
Tax -3126.70 -1575.00 -2097.26 -2503.37
Profit After Tax 8543.00 4070.20 5392.96 6437.23
Equity capital 2293.00 2294.10 2294.10 2294.10
Reserves 65384.90 69455.10 74848.06 81285.29
Face value (Rs.) 10.00 10.00 10.00 10.00
EPS 37.26 17.74 23.51 28.06
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First call India Equity Advisors Pvt. Ltd
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Quarterly Ended Profit & Loss Account (Standalone)
Value(Rs.in.mn) 31-Mar-09 30-Jun-09 30-Sep-09 31-Dec-09E
Description 3m 3m 3m 3m
Net sales 22143.60 24613.70 26212.40 27523.02
Other income 62.40 113.90 74.30 78.02
Total Income 22206.00 24727.60 26286.70 27601.04
Expenditure -18063.00 -20003.50 -21231.70 -22293.65
Operating profit 4143.00 4724.10 5055.00 5307.39
Interest -1556.30 -1577.40 -1616.00 -1696.80
Gross profit 2586.70 3146.70 3439.00 3610.59
Deprecation -1481.90 -1503.20 -1396.40 -1466.22
Profit Before Tax 1104.80 1643.50 2042.60 2144.37
Tax -375.00 -400.00 -550.00 -578.98
Profit After Tax 729.80 1243.50 1492.60 1565.39
Equity capital 2293.00 2293.00 2294.10 2294.10
Face value(Rs.) 10.00 10.00 10.00 10.00
EPS 3.18 5.42 6.51 6.82
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First call India Equity Advisors Pvt. Ltd
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Charts:
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First call India Equity Advisors Pvt. Ltd
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1 Year Comparative Graph
Outlook and Conclusion
At the current market price of Rs.223.25, the stock is trading at 9.5 x FY10E and 7.96 x
FY11E respectively.
Price to Book Value of the stock is expected to be at 0.66 x and 0.61 x respectively for
FY10E and FY11E.
Earning per share (EPS) of the company for the earnings for FY10E and FY11E is seen at
Rs.23.51 and Rs.28.06 respectively.
Videocon Industries has decided to rise up to Rs 45 crore via preferential issue of equity
shares to an independent non-promoter investor.
On the basis of EV/EBITDA, the stock trades at 2.52 x for FY10E and 2.26 x for FY11E.
We expect that the company will keep its growth story in the coming quarters also. We
recommend ‘Buy’ in this particular scrip with a target price of Rs.252.00 for Medium to
Long term investment.
Videocon Industries BSE SENSEX
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First call India Equity Advisors Pvt. Ltd
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Industry Overview
Consumer durables are the products whose life expectancy is at least 3 years. These products
are hard goods that cannot be used up at once.
The consumer durables sector can be segmented into consumer electronics, such as, VCD/DVD,
home theatre, music players, color televisions (CTVs), etc. and white goods, such as, dish
washers, air conditioners, water heaters, washing machines, refrigerators, etc.
With the increase in income levels, easy availability of finance, increase in consumer awareness,
and introduction of new models, the demand for consumer durables has increased significantly.
Products like washing machines, air conditioners, microwave ovens, color televisions (CTVs) are
no longer considered luxury items. However, there are still very few players in categories like
vacuum cleaners, and dishwashers.
Consumer durables sector is characterized by the emergence of MNCs, exchange offers,
discounts, and intense competition. The market share of MNCs in consumer durables sector is
65%. MNC's major target is the growing middle class of India. MNCs offer superior technology
to the consumers, whereas the Indian companies compete on the basis of firm grasp of the
local market, their well-acknowledged brands, and hold over wide distribution network.
However, the penetration level of the consumer durables is still low in India. An important
factor behind low penetration is poor government spending on infrastructure. For example, the
government spending is very less on electrification programs in rural areas. This factor
discourages the consumer durables companies to market their products in rural areas.
Sector outlook
There has been strong competition between the major MNCs like Samsung, LG, and Sony. LG
Electronics India Ltd. has announced its extension plan in 2006. The company is going to invest
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$250 million in India by 2011 and is planning to establish a manufacturing facility in Pune. TCL
Corporation is also planning to establish a $22 million manufacturing facility in India.
The Indian companies like Videocon Industries and Onida are also planning to expand. Videocon
has acquired Electrolux brand in India. Also, with the acquisition of Thomson Displays by
Videocon in Poland, China, and Mexico, the company is marking its international presence.
According to isuppli Corporation (Applied Market Intelligence), country's fiscal policy has
encouraged Indian consumer electronic industry. The reduction on import duty in the year
2005-06 has benefited many companies, such as Samsung, LG, and Sony. These companies
import their premium end products from manufacturing facilities that are located outside India.
Indian consumers are now replacing their existing appliances with frost-free refrigerators, split
air conditioners, fully automatic washing machines, and color televisions (CTVs), which are
boosting the sales in these categories.
Some companies like Samsung Electronics Co. Ltd. and LG Electronics India Ltd. are now
focusing on rural areas also. These companies are introducing gift schemes and providing easy
finance to capture the consumer base in rural areas.
Growth rates
The sectors that are projected to achieve ‘excellent’ growth rates of more than 20 per cent in
terms of quantity produced are: air-conditioners (25 per cent), split air-conditioners (60 per
cent), frost-free refrigerators (54 per cent), washing machines (20 per cent), fully automatic
washing machines (35 per cent), microwave ovens (35 per cent), high-end flat panel TV (100 per
cent), LCD TV (110 per cent), plasma TV (100 per cent) VCD/MP3 (20 per cent), DVDs (25 per
cent), DVDs-organized (25 per cent).
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First call India Equity Advisors Pvt. Ltd
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There is a need to remove some anomalies affecting the growth of the industry, the survey
pointed out.
Consumer electronic manufacturers were of the opinion that in the era of digital convergence,
differential taxation policies for IT and consumer electronics products create distortions and
anomalous situations.
________________ ____ _________________________
Disclaimer:
This document prepared by our research analysts does not constitute an offer or solicitation
for the purchase or sale of any financial instrument or as an official confirmation of any
transaction. The information contained herein is from publicly available data or other
sources believed to be reliable but do not represent that it is accurate or complete and it
should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s
affiliates shall not be in any way responsible for any loss or damage that may arise to any
person from any inadvertent error in the information contained in this report. This document
is provide for assistance only and is not intended to be and must not alone be taken as the
basis for an investment decision.
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First call India Equity Advisors Pvt. Ltd
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