veto switchgear 141015

7/25/2019 Veto Switchgear 141015

1/3

Visit us at www.sharekhan.com October 14, 2015

Veto Switchgear & Cables View: Positive

The growth connection CMP: Rs75

Key points

Spreading its wings: Veto Switchgear & Cables (VSC) is a well established regional brand in the electrical product

space (including cables & wires, switchgears and electrical appliances) with a visible presence in Rajasthan and

Gujarat, and a partial presence in Maharashtra. However, the company is now chalking out plans to expand its

presence in other regions by enhancing its existing distribution network of 2,500 dealers across the country which

would drive the growth in its core business in the coming years.

Simplifying and restructuring corporate structure: In line with its pan-India growth aspirations, VSC aims to

simplify the organisational structure by transferring related manufacturing business (revenues of Rs35-40 crore)housed in its unlisted holding company into the listed entity. Also, the management indicated its intentions to

leverage on the groups overseas presence (through unlisted group companies) to build the overseas and export

business of the listed entity. A more simplified transparent structure could not only boost its financials but also

result in a re-rating of the stock.

Multi-pronged growth strategy: The company has drafted a multi-pronged growth strategy that includes: (1)

growth of the existing business by expanding its distribution reach; (2) transfer of the related manufacturing

business to a listed entity; and (3) leverage on the groups overseas presence. With this strategy in place the

company could see an exponential growth over the next few years.

Key risk: During FY2015, VSC recognised an insurance claim amounting to Rs17 crore on account of fire but has not

been collected from the insurance company till date. In case the claim is not collected fully, there could be an

adverse adjustment of its financials. Also, its growth is dependent on the managements intended restructuring of

the groups structure in a transparent and time-bound manner.

Valuation: VSCtrades at close to its initial public offer price of Rs70 and does not appear cheap on historical

financials. However, the intended growth strategy and the simplification of the corporate structure could result in

a healthy growth over the next few years along with the potential for the re-rating of its valuation multiple.

Investors with higher risk appetite and longer-term investment horizon can look at the stock for handsome gains.

In the near term, announcements related to corporate restructuring and improving financial performance could

provide a fillip of 20-25% from the current levels.

Valuations

Particulars 2012 2013 2014 2015 2016E# 2017E#Net sales (Rs cr) 68.7 74.4 95.4 97.8 137.0 191.8

Operating Profit 11.2 11.4 11.7 15.7 21.2 28.8

Net profit (Rs cr) 7.2 5.9 6.1 7.1 9.4 12.6

Growth (%) -19 4 17 31 34

Adj PAT (Rs cr)* 7.2 5.9 6.1 -6.9 9.4 12.6

Adj EPS (Rs) 3.9 3.2 3.3 -3.8 5.1 6.9

PER (x) 19.0 23.4 22.6 -19.9 14.7 10.9

P/B (x) 5.1 2.3 2.1 1.9 1.7 1.5

EV/EBIDTA (x) 13.9 11.7 13.7 10.8 8.9 7.3

RoCE (%) 24.0 17.8 11.6 14.7 15.5 17.0

RoE (%) 26.7 9.9 9.3 -9.5 11.4 13.3

*the insurance claim not received yet been adjusted

#Rough estimates


2/3

Viewpoint October 14, 20152

sharekhan Viewpoint

Company background

VSC manufactures and sells wires & cables and electrical

accessories in India. Its product portfolio has a wide range

of products including industrial cables, electricals cables,

telephone and co-axial wires, general switches, modular

switches, ceiling fans, rechargeable fans, compact

fluorescent (CFL) lamps and other electrical accessories.VSC supplies its products under the brands Veto and

Vimal Power through its large distribution network of

2,500 dealers in India and select customers abroad. The

company has a state-of-art-the-manufacturing unit in

Haridwar, Uttarakhand and Mumbai, Maharashtra.

However, CFLs and fans are outsourced and not produced

in-house.

VSC is promoted by Veto Electropowers India Pvt Ltd

(VEIPL), which is a subsidiary of Gurnani Holding Pvt Ltd

that is owned by the Gurnani family based in Jaipur,

Rajasthan. VEIPL manufactures and exports wires and PVC

cables to mainly the Gulf countries. The group has a

diversified presence in the business of construction of

residential, commercial projects and development of

hotel properties. Among others, the group has developed

a 5-star hotel named Radisson Blu, which is owned by

the group and managed by Carlson Group of Hotels.

Simplification of corporate structure on cards: The group

has a strong presence in the Gulf region in dealing with

electrical wires, cables and equipment. However, now

the management intends to simplify the structure underthe listed entity. Initially, the management plans to

transfer related manufacturing business (accounting for

revenues of Rs35-40 crore) under its unlisted holding

company in the Gulf region to the overseas arm of the

listed entity. Recently, the board approved a proposal to

incorporate a subsidiary in Dubai under the name Veto

Overseas Pvt Ltd. We believe that gradually Veto Overseas

Pvt Ltd would become a major operating entity in the

overseas market for the group and may gain a substantial

scale soon.

Overseas endeavour along with ambition for pan-Indiapresence: Veto Switchgear & Cables (VSC) is a well

established regional brand in the electrical product space

(including cables & wires, switchgears and electrical

appliances) with a visible presence in Rajasthan and

Gujarat, and a partial presence in Maharashtra. However,

the company is now chalking out plans for pan-India

presence and beefing up its existing distribution network

of 2,500 dealers across the country. At the same time,VSC is setting up manufacturing facilities for wires and

cables in the Mahindra Special Economic Zone (SEZ),

Jaipur to support the expansion plan with a better cost

structure (the SEZ unit will get tax benefits).

Apart from pan-India growth aspirations, VSC plans to

build the overseas and export business by leveraging the

groups overseas presence and rich experience in the Gulf

region. It also plans to incorporate a subsidiary in Dubai

under the name, Veto Overseas Pvt Ltd. Veto Overseas

Pvt Ltd would be involved in manufacturing and sourcing

from China and selling in the Gulf and the other

international markets.

Earnings growth along with restructuring to result in

re-rating: The ambitious pan-India expansion plan along

with an enhanced manufacturing base will drive the

domestic business of the company. Whats more, its

overseas endeavour could propel the overall earnings to

a higher growth trajectory. Apart from a strong earnings

trajectory, a simplified structure under the listed entity

could result in a re-rating of the stock and add value to

the shareholders.

Valuation: VSC trades at close to its initial public offer

price of Rs70 and does not appear cheap on historical

financials. However, the intended growth strategy and

the simplification of the corporate structure could result

in a healthy growth over the next few years along with

the potential for the re-rating of its valuation multiple.

Investors with higher risk appetite and longer-term

investment horizon can look at the stock for handsome

gains. In the near term, announcements related to

corporate restructuring and improving financial

performance could provide a fillip of 20-25% from thecurrent levels.

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.


3/3

Viewpoint October 14, 201533

sharekhan Viewpoint

Disclaimer

This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This document may contain confidential and/or privileged material and is not for any type of circulation and any

review, retransmission, or any other use is strictly prohibited. This document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official

confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report.

The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such.

While we would endeavour to update the information herein on a reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (SHAREKHAN and affiliates) are under no obligation to update or keep the information

current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investmentdecision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient

of this document should make such investigations as he deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his ownadvisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of SHAREKHAN may have issued other

reports that are inconsistent with and reach different conclusion from the information presented in this report.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to

law, regulation or which would subject SHAREKHAN and affiliates to any registration or licencing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons

in whose possession this document may come are required to inform themselves of and to observe such restriction. Either SHAREKHAN or its affiliates or its directors or employees/representatives/clients or their relatives may have position(s), make market, actas principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before

publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved

in, or related to, computing or compiling the information have any liability for any damages of any kind. The analyst certifies that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies

and its or their securities and do not necessarily reflect those of SHAREKHAN. Further, no part of the analysts compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document.

Please refer the Risk Disclosure Document issued by SEBI and go through the Rights and Obligations and Dos and Donts issued by Stock Exchanges and Depositories before trading on the Stock Exchanges. Please refer disclaimer for Terms of Use.

Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; e-mail: [email protected] Contact: [email protected]

REGISTRATION DETAILS Regd Add:Sharekhan Limited,10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station,Kanjurmarg (East), Mumbai 400042, Maharashtra. Tel: 022 - 61150000. Fax: 67481899; E-mail: [email protected]; Website: www.sharekhan.com;

CIN: U99999MH1995PLC087498. Sharekhan Ltd.: SEBI Regn. Nos. BSE- INB/INF011073351 ; CD-INE011073351; NSE INB/INF231073330 ; CD-INE231073330; MCX

Stock Exchange- INB/INF261073333 ; CD-INE261073330; DP-NSDL-IN-DP-NSDL-233-2003 ; CDSL-IN-DP-CDSL-271-2004 ; PMS-INP000000662 ; Mutual Fund-ARN20669 ; Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX-10080 ; (MCX/TCM/CORP/0425) ; NCDEX-00132 ; (NCDEX/TCM/CORP/0142) ;

NCDEX SPOT-NCDEXSPOT/116/CO/11/20626; For any complaints email at [email protected] ; Disclaimer: Client should read the Risk Disclosure Document

issued by SEBI & relevant exchanges and Dos & Donts by MCX & NCDEX and the T & C on www.sharekhan.com before investing.

veto switchgear 141015

Documents