Narsingh Equity - V Guard Industries IPO Detailed Analysis

·During the last five years, V-Guard’s sales registered a 19% CAGR, from Rs.110.6 crores in FY03 to Rs.222 crores in FY07. During FY07, company’s sales registered a growth of 31% over FY06. For the first five months of current financial year, company’s net sales stood at Rs.109.5 crores.
·During the last five years, company’s operating profit grew at 27% CAGR, from Rs.10.2 crores in FY03 to Rs.26.5 crores in FY07. During FY07, company’s operating profit jumped by 44% as compared to FY06. For the first five months of current financial year, company clocked an operating profit of Rs.14.4 crores
·During the last five years, company’s net profit clocked a growth of 29.4% CAGR, from Rs.4.8 crores in FY03 to Rs.13.5 crores in FY07. During FY07, company’s net profit grew 46.5% over FY06. For the first five months of current financial year, company’s net profit stood at Rs.7.5 crores.
·During FY07, company’s Debtor’s Turnover Ratio declined to 10.7 times from 12.7 during FY06. Consequently, company’s average collection period increased by 6 days to 34 days as compared to 28.6 days in FY06.
·During FY07, company’s inventory turnover ratio fell to 5.6 times from 6 times in FY06.

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·V-Guard Industries Limited (V-Guard) started its business as a partnership firm in 1977 with a name of Premier Electronics. Later on, in 1996, it got incorporated under the name of “V-Guard Industries Limited” as a public limited company.
·V-Guard trades in Voltage Stabilizers, Pumps, Water Heaters, UPS, Motor starters, Water purifiers, Water level controllers etc. and manufacturers PVC Insulated cables, Solar water heaters, Printed circuit boards, Windmill energy.
·Presently company has a building cable manufacturing facility at Coimbatore, Tamil Nadu with an installed capacity to manufacture 1,38,000 coils per month of standard length of 90 mts.
·Stabilizers, Pumps and Cables are the major contributors to the company’s revenue with 41.5%, 19% and 20% contribution to total sales during FY07.
·During FY07, V-Guards generated 76.4% of its revenues from trading and 23.6% manufacturing business. During the first five months of current financial year i.e. from March 07 to August 07, the contribution of trading business to total revenues fell to 73% whereas manufacturing business contributed 27%.
·V-Guard faces stiff competition for each of its products from both organized as well as unorganized players. Company’s major competitors include Vigil, Premier, Finolex Anchor, Crompton Greaves, Kirloskar etc. Further, there are always concerns about competition from Chinese manufacturers.
·Post issue promoters stake in the company will reduce to 67% from current 91%.

·To purchase capital equipments.
·To use funds for major expansion & new distribution or manufacturing plants including some of the follows:-
a) Cable manufacturing facilities in Coimbatore and Uttaranchal
b) Enameling plant at Coimbatore,Service and Distribution Centers at Bangalore
c) Hubli and Vijaywada
·To fund expenditure for general and corporate purposes & issue related expenses.

·Strong Distribution Network: V-Guard has developed a strong countywide distribution network. Presently, the company has around 108 distributors and more than 7000 dealers spread all over India. Further, the company has employed around 200 people in Marketing/Sales & distribution.
·Improved margins: V-Guard’s OPM improved from 9% in FY03 to 12% in FY07. Further, NPM improved from 4.4% in FY03 to 6%in FY07. For the first five months of current financial year, both OPM & NPM enlarged to 13% & 6.8% respectively.
·Enhanced profitability: During FY03-07, company’s ROA improved by 357 bps, ROE enlarged by 1080 bps and ROCE jumped by 265 bps. During FY07, company’s ROA improved by 260 bps to 17.3% and ROE jumped by 350 bps to 35.4%. Further, during FY07, company’s ROCE too improved by 320 bps to 23.1%.

·Concentration of business mainly in South India: Despite V-Guard has developed strong distribution network across India, company’s success in markets other than south India has been limited. Kerala, Andhra Pradesh, Karnataka and Tamil Nadu contribute a significant portion i.e. 44.5%, 11.7%, 20.3% and 19.2% of V-Guard’s total revenue for the year ended March 2007. Slow down in these markets can severely affect company’s performance.
·High dependence on Stabilizers, Pumps and Cable: Company had limited success in products other than stabilizers has been limited. The contribution of three products, viz. Stabilizers, Pumps and Cables to V-Guard’s total revenues during the year ended March 2007 was 41.5%, 19 % and 20%, respectively.