F

Videocon Industries Ltd BUY

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C.M.P: Target Price:
Rs.272.00 Rs.313.00 October 12th, 2010
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SYNOPSIS
1 Year Comparative Graph
Videocon Industries, the 2.5 billion USD flagship S
company of the Videocon Group. Videocon's
business consists of manufacturing, marketing T
& distribution of consumer electronics products
and oil & gas extraction. C
The company's board has also approved to
Videocon Industries Ltd BSE SENSEX issue, offer and allot equity shares, on
A
preferential basis.
Stock Data L
Sector Consumer Durables The company's board has revised the minimum
Face Value (Rs.) 10.00 floor price for conversion of the 5% ($90 million)
294.50/184.60
L
52 wk. High/Low (Rs.) and 4.5% ($105 million) FCCBs.
Volume (2 wk. Avg.) 242000 The company has launched its mobile services
BSE Code 511389 in Mumbai, Chennai and many more circles.
Market Cap (Rs.mn.) 76766.56
Videocon Industries Ltd has advises that M/s. R
Share Holding Pattern Anadarko Petroleum Corporation (Anadarko),
the Operator of block BM-C-30 offshore Brazil in E
the Campos Basin.

S
E

Financials FY10E
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(Rs. in mn.) FY09 15M CY11E
V.S.R. Sastry
Equity Research Desk
Net Sales 93812.70 147755.00 137575.21 R
vsrsastry@firstcallindiaequity.com EBIDTA 17918.50 27021.03 24952.89

Dr. V.V.L.N. Sastry Ph.D. PAT 4006.60 7879.59 7624.70

C
Chief Research Officer EPS 17.46 27.92 27.02
drsastry@firstcallindia.com H
P/E 15.57 9.74 10.07

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 Table of Content

Content Page No.

1. Peer Group Comparison 03

2. Investment Highlights 03

3. Company profile 06

4. Financials 07

5. Charts & Graph 09

6. Outlook and Conclusion 11

7. Industry Overview 12

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Peer Group Comparison

Market
Name of the company CMP(Rs.) Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Videocon Industries Ltd 272.00 76766.56 17.46 15.57 0.87 20.00

Bajaj Electricals Ltd 326.30 31923.20 12.60 25.90 6.58 120.00

Whirlpool of India Ltd 314.20 39863.10 12.85 24.45 19.96 0.00

Blue star Ltd 473.00 42539.80 23.07 20.50 8.65 400.00

*As on 12/10/2010

Investment Highlights

Results Updates (Q3 FY10) (Standalone)

For the third quarter, the top line of the company increased 18%YoY and stood at
Rs.28936.50mn against Rs.24613.70mn of the same period of the last year. The
bottom line of the company for the quarter stood at Rs.1536.90mn from
Rs.1243.50mn of the corresponding period of the previous year i.e. an increase of
24%YoY.

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EPS of the company for the quarter stood at Rs.5.45 for equity share of Rs.10.00
each.

Expenditure for the quarter stood at Rs.23766.80mn, which is around 19% higher
than the corresponding period of the previous year. Raw material cost of the
company for the quarter accounts for 34% of the sales of the company and stood
at Rs.9759.60mn from Rs.8208.10mn of the corresponding period of the previous
year i.e., an increase of 19%YoY. Purchase of Traded goods increased 23%YoY to
Rs.8296.80mn from Rs.6748.10mn. and accounts for 29% of the revenue of the
company for the quarter.

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 OPM and NPM for the quarter stood at 18% and 5% respectively from 19% and
5% respectively of the same period of the last year.

Extension of Current Accounting Year

Extension of Current Accounting Year, Videocon Industries Ltd has extend the current
accounting year by a period of 3 (Three) months. As such, the current accounting year
shall be a period of 15 (Fifteen) months beginning on October 01, 2009 and ending on
December 31, 2010. The subsequent accounting years, as such, shall begin on 1st
January and will end on the following 31st December every year.

Conversion of fully paid-up Equity Shares

Videocon Industries Ltd has confirmed conversion of 1,35,294 partly paid-up Equity
Shares into fully paid-up Equity Shares, pursuant to the payment of the First and
the Final Call Money by the respective shareholders. These partly paid-up Equity
Shares were allotted on April 22, 2010, on Rights Basis.

Allotment of Equity Shares

Videocon Industries Ltd has issued and allotted 75,41,300 Equity Shares, on
preferential basis, at a price of Rs. 211.96 per Equity Share, being the price
determined in terms of Regulation 76(4) of the Securities and Exchange Board of
India (Issue of Capital and Disclosure Requirements) Regulations, 2009.

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Company Profile

Videocon Industries (VIDEOCON), the 2.5 billion USD flagship company of the
Videocon Group, is a diversified company. It was incorporated on 1979, engages in the
manufacture, marketing, and distribution of consumer durables, color picture tubes
(CPT), and cathode ray tube glasses in India and Internationally. The Company has
interest in four major sectors, including consumer durables, display industry and its
components, color picture tube glass, and oil and gas. The ISO 9002 certified company
has entered into a license agreement with CopyTele, Inc. under which Videocon will
manufacture and market products, including TVs, using CopyTele`s display
technology.

In addition, the company has access to facilities in Italy, Poland, Oman, China and
Mexico. Significant Events In August 2009, Videocon Industries Ltd. has introduced
its concept stores, DigiHome, to reach out to consumers.

Subsidiaries
Mayur Household Electronics Appliances Pvt. Ltd.
Godavari Consumer Electronics Appliances Pvt. Ltd.
Pipavav Energy PV1.Ltd.|w.e.f.26th March, 2008)
Videocon International Electronics Ltd.
Videocon Energy Ventures Ltd.
Paramount Global Ltd.
Middle East Appliances LLc
Global Energy Inc
Videocon Display Research Co.Ltd.

Business Areas

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Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY08 FY09 FY10E CY11E

Description 12m 12m 15m 12m

Net Sales 101051.30 93812.70 147755.00 137575.21

Other Income 288.20 340.10 425.13 436.99

Total Income 101339.50 94152.80 148180.13 138012.20

Expenditure -79056.70 -76234.30 -121159.10 -113059.31

Operating Profit 22282.80 17918.50 27021.03 24952.89

Interest -4011.00 -6363.60 -9093.63 -7890.48

Gross profit 18271.80 11554.90 17927.39 17062.42

Depreciation -6602.10 -5771.50 -6983.52 -6472.56

Profit Before Tax 11669.70 5783.40 10943.88 10589.86

Tax -3126.70 -1776.80 -3064.29 -2965.16

Net Profit 8543.00 4006.60 7879.59 7624.70

Equity capital 2293.00 2294.10 2822.30 2822.30

Reserves 65384.90 69296.30 77175.89 84800.59

Face Value(Rs.) 10.00 10.00 10.00 10.00

Total No. of Shares 229.30 229.41 282.23 282.23

EPS 37.26 17.46 27.92 27.02

* The company has extended the Current accounting year by a period of 3 months.
The current accounting year shall be a period of 15 (Fifteen) months beginning on
October 01, 2009 and ending on December 31, 2010. The subsequent accounting
years shall begin on 1st January and will end on the following 31st December every
year.

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) 31-Dec-09 31-Mar-10 30-Jun-10 30-Sep-10 E

Description 3m 3m 3m 3m

Net sales 28065.60 28408.30 28936.50 30383.33

Other income 38.20 53.30 117.40 119.75

Total Income 28103.80 28461.60 29053.90 30503.07

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Expenditure 23172.40 -23222.20 -23766.80 -24914.33

Operating profit 4931.40 5239.40 5287.10 5588.75

Interest -1697.60 -1733.70 -1734.20 -1820.91

Gross profit 3233.80 3505.70 3552.90 3767.84

Depreciation -1392.10 -1409.20 -1416.00 -1387.68

Profit Before Tax 1841.70 2096.50 2136.90 2380.16

Tax -525.00 -600.00 -600.00 -666.44

Net Profit 1316.70 1496.50 1536.90 1713.71

Equity capital 2312.70 2312.70 2822.30 2822.30

Face Value(Rs) 10.00 10.00 10.00 10.00

Total No. of Shares 231.27 231.27 282.23 282.23

EPS 5.69 6.47 5.45 6.07

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Key Ratio

Particulars FY08 A FY09 A FY10 E CY11 E

EBIDTA % 22% 19% 18% 18%

PAT % 8% 4% 5% 6%

P/E ratio (x) 7.30 15.57 9.74 10.07

ROE - % 13% 6% 10% 9%

ROCE - % 11% 8% 11% 10%

EV/EBIDITA (x) 1.42 3.48 2.84 3.08

Debt Equity Ratio 1.19 1.28 1.25 1.20

Price/Book Value 1.24 0.87 0.96 0.88

A-Actual E-Expected

Charts:

Net sales & PAT

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P/E Ratio (x)

P/BV (X)

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 EV/EBITDA(X)

Outlook and Conclusion

At the market price of Rs.272.00, the stock is trading at 9.74 x and 10.07 x for
FY10E and CY11E respectively.

On the basis of EV/EBDITA, the stock trades at 2.84 x for FY10E and 3.08 x for
CY11E.

Price to book value of the company is expected to be at 0.96 x for FY10E and 0.88x
for CY11E respectively.

EPS of the company is expected to be at Rs.27.92 and Rs.27.02 for the earnings of
FY10E and CY11E respectively.

We recommend ‘BUY’ in this particular scrip with a target price of Rs.313.00 for
Medium to Long term investment.

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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 $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.

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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).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.

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________________ ____ _________________________

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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