Videocon International Ltd. Rs.67.15

Incorporated in 1985, Videocon International Ltd (VIL), the flagship company of the Videocon Group, is India's largest manufacturer of Consumer Electronics & home appliances. It manufactures, markets & exports a wide variety of televisions, audio systems, VCD/DVD players, air conditioners and other electronic components. VIL can boast of having a product for every segment of society from economy to value added hi-tech products. Fired by a passion for innovation, VIL has kept pace with the changing face of technology constantly upgrading its manufacturing facilities to incorporate advanced technology and high standards of quality into its product range, right across the spectrum.

Videocon’s USP lies in introducing innovative products and having state-of-the-art ultra modern manufacturing plants spread across all over India and also in Russia, Bahrain & Italy. At its modern plant at Chitegaon and Aurangabad, the company has undertaken complete backward integration to manufacture all critical and important components of its products, such as Electronic Tuners, FBTs, ATDMs and Deflection Yokes thereby reducing costs, ensuring quality control and becoming vertically integrated. Its subsidiary Videocon Narmada Glass has the distinction of having set up India's first plant with 1.7 million units capacity for the manufacture of Glass Shells for Color Television Picture Tubes, in technical collaboration with Techneglas Inc., USA world leader in Glass Shell Technology. It also enjoys the credit of bringing international brands like Toshiba, Sansui, Akai & recently Hyundai to India. The company has also set up 25 branches across the globe to give a fillip to its international operations. Recently, it acquired Thomson's colour picture tube plant located in Anagni, Italy which has capacity to produce 3 million units per annum. With all this consolidation, the Videocon group is looking at reaching international sales of $1 billion in three years.

VIL derives almost half of its profit from its glass shell business due to which it enjoys the highest operating margin of 16 per cent compared to its peers. Fundamentally, its a very strong company with a book value above Rs180 due to huge reserves and posted an EPS of Rs25 for the year ending Sept 2004. Its first quarter ending 31 December 2004 is also quite impressive with net sales growing 18 per cent to Rs1165 cr. and the NP increased 26 per cent to Rs55 cr. leading to a quarterly EPS of Rs7.75 on current equity of Rs71.10 cr. FIIs and MFs are also active in this scrip with 4 per cent and 2.65 per cent stakes respectively. With the rural demand picking up coupled with the increased spending by urbanites and the huge potential in the export market, we expect VIL to clock a turnover of Rs4250 cr. and NP of Rs200 cr. for FY05 which would mean an EPS of Rs28. Thus the scrip is trading extremely cheap (below 3 PE of FY05 EPS) and investors are advised to buy with a price target of Rs110 in 12 months time. At the same time, investors should remain cautious as the promoters don’t enjoy a good reputation in the capital market and some analysts even doubt the group’s financial numbers as the dividend payout ratio is very poor.