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VETO SWITCHGEARS AND CABLES LTDResult Update (CONSOLIDATED BASIS): Q2 FY18

CMP: 249.80 DEC 21st, 2017

Overweight ISIN:INE918N01018

Index Details SYNOPSISVeto switchgears and Cables Ltd is engaged in themanufacture and sale of wires & cables and electricalaccessories in India.

During Q2 FY18, consolidated net profit grew 57.83%to Rs. 81.25 million from Rs. 51.48 million in Q2FY17.

Consolidated revenue for the Q2 FY 18, stood at Rs.636.53 million as compared to Rs. 583.79 million incorresponding quarter of the previous year, up by9.03%.

During Q2 FY18, consolidated EBIDTA was Rs.124.90 million as compared to Rs. 72.82 million in Q2FY17, higher by 71.53%.

The interest cost of the company decreased to Rs.3.63million in Q2 FY 18 from Rs.9.97 million in Q2 FY17.

During Q2 FY18, consolidated PBT increased by99.55 % to Rs. 117.21 million from Rs. 58.74 millionin corresponding quarter of the previous year.

EPS of the company stood at Rs. 4.43 per share in Q2FY18 as against Rs. 2.81 per share in Q2 FY17.

Revenues from Wires & cables grew 27% to Rs.325.14million in Q2 FY 18 from Rs.256.31 million incorresponding quarter of the previous year.

Under lighting and fitting segment, revenues of thecompany has increased by 163 % to Rs.184.68 millionin Q2 FY 18 as compared to Rs.70.27 million in Q2FY17.

In the first half of FY 2017-18, sales of the companywas Rs.1130.06 million as against Rs.1152.83 millionin corresponding period of the previous year.

Six months ended on 30th Sep 2017, PAT of thecompany grew 49.99% to Rs.141.18 million fromRs.94.13 million in corresponding period of theprevious year.

Net Sales and PAT of the company are expected togrow at a CAGR of 18% and 36% over 2017 to 2019E,respectively.

Stock DataSector Other Elect.Equip./ Prod.BSE Code 539331Face Value 10.0052wk. High / Low (Rs.) 257.60/124.15Volume (2wk. Avg.) 163000Market Cap (Rs. in mn.) 4578.11

Annual Estimated Results(A*: Actual / E*: Estimated)Years(Rs in mn) FY17A FY18E FY19ENet Sales 2390.75 2579.62 2904.65EBITDA 271.78 393.54 441.82Net Profit 182.30 284.12 327.21EPS 9.95 15.50 17.85P/E 25.11 16.11 13.99

Shareholding Pattern (%)

As on Sep 2017 As on June 2017

Promoter 48.66 55.05

Public 51.34 44.95

Others -- --

1 Year Comparative Graph

VETO SWITCHGEARS AND CABLES LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM P/E (X)(TTM) P/BV(X) DIVIDENDCompany Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)Veto Switchgears and Cables Ltd 249.80 4578.11 12.50 19.98 4.54 20.00Ram Ratna Wires Ltd 225.80 4967.60 11.44 19.74 5.21 25.00Universal Cables Ltd 186.95 6486.30 7.14 26.18 3.02 0.00KEI Industries Ltd 358.95 28127.80 14.65 24.50 5.94 30.00


QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results updates- Q2 FY18

(Rs in million) Sep -17 Sep -16 % Change

Revenue 636.53 583.79 9.03%

Net Profit 81.25 51.48 57.83%

EPS 4.43 2.81 57.83%

EBIDTA 124.90 72.82 71.53%

In Q2 FY18, the consolidated net profit grew 57.83% to Rs. 81.25 million from Rs. 51.48 million in corresponding quarter

of the previous year. Revenue for Sep quarter of FY 2017-18, increased to Rs. 636.53 million as compared to Rs. 583.79

million in corresponding quarter of the previous year, up by 9.03%. Reported earnings per share of the company stood at

Rs. 4.43 per share in Q2 FY18 as against Rs. 2.81 per share in Q2 FY17. Profit before interest, depreciation and tax was

Rs. 124.90 million as against Rs. 72.82 million in the Q2 FY17, up by 71.53%.

Break up of Expenditure

Value Rs in millionQ2

FY18

Q2

FY17

%CHNG

Cost of materialsconsumed 144.74 95.57 51%

Purchases of stock intrade 342.48 385.54 -11%

Employee BenefitsExpenses 20.02 31.92 -37%

Depreciation andamortization 4.06 4.11 -1%

Other Expenses 33.98 26.06 30%


Segment Revenue

COMPANY PROFILE

Veto switchgears and Cables Limited is one of the most respected cable manufacturers in India.. The Company is an ISO

9001:2008 certified company, engaged in the manufacture and sale of wires & cables and electrical accessories in India.

The product portfolio ranges from industrial cables, stand cables to telephone & co-axial wires, from general switches to

modular switches, from ceiling fans to rechargeable fans, compact fluorescent lamps, LED bulbs and other electrical

accessories. It is dealing in electrical accessories like switch socket, MCB, bell and all electrical accessories which are

used for household purposes and manufacturing wires and cables.

The Company supplies these products under the brands “VETO” and “VIMAL POWER” through large network of

dealers to the customers in India as well as selected customers abroad.

During 2017, the company has launched LED panel Lights, LED Flood Light, Slim Panel Light, LED Flood Light under

the brand name “Vyoma”. Its major distribution in India covers more than 10 states including major sale in Rajasthan and

Gujarat.

Details of Subsidiaries:

The Company has two subsidiary Companies. One in Jaipur and the other in Duabi, UAE. On May 29 th, 2017 Veto

Electricals Private Limited has inaugurated its manufacturing plant ( 100% Export Unit) at Mahindra SEZ, Jaipur and has

started commercial Production on July 1 2017.


FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as of March 31, 2016 -2019E

FY16A FY17A FY18E FY19E

SOURCES OF FUNDSShareholder's Funds

a) Share Capital 183.27 183.27 183.27 183.27b) Reserves and Surplus 625.62 826.12 1298.66 1594.76

1. Sub Total - Net worth 808.89 1009.39 1481.93 1778.03Non Current Liabilities

a)Long term borrowing 60.15 53.29 37.57 32.31b)Long Term Provisions 1.08 1.24 0.00 0.00

2. Sub Total - Non Current Liabilities 61.23 54.54 37.57 32.31Current Liabilities

a) Short term borrowings 340.14 233.56 74.74 61.29b) Trade Payables 106.42 86.48 88.21 93.50c) Other financial liabilities 0.00 0.00 77.50 82.46d) Other Current Liabilities 73.20 59.99 5.42 6.18e) Employee benefit Obligation 0.00 0.00 2.28 2.42f) Current tax liabilities 0.00 0.00 35.40 32.21g) Short Term Provisions 33.09 5.67 0.00 0.00

3. Sub Total - Current Liabilities 552.85 385.70 283.56 278.07Total Liabilities (1+2+3) 1422.97 1449.63 1803.06 2088.40APPLICATION OF FUNDSNon-Current Assets

a) Fixed Assets 209.40 198.75 236.31 270.58b) Intangible Assets 0.00 0.00 0.01 0.01c) Capital work-in-progress 28.61 77.67 66.80 74.14d) Goodwill Consolidation 0.01 0.01 0.00 0.00e) Non Current Investments 0.15 0.15 19.27 19.27f) Deferred Tax Asset [Net] 8.23 10.87 24.46 28.38g) Long Term loans and advances 185.19 66.68 0.29 0.32h) Other financial assets 0.00 0.00 29.22 31.15i) Other non-current assets 1.12 1.99 42.03 46.83

1. Sub Total - Non Current Assets 432.70 356.12 418.39 470.67Current Assets

a) Current Investment 2.94 0.00 0.00 0.00b) Inventories 351.26 390.97 428.50 477.35c) Trade receivables 417.79 565.94 790.06 949.87d) Cash and Bank Balances 154.02 97.91 40.14 54.19e) Short-terms loans & advances 64.26 38.69 33.69 36.69f) Current tax assets 0.00 0.00 2.25 2.39g) Other Current Assets 0.00 0.00 90.04 97.24

2. Sub Total - Current Assets 990.27 1093.51 1384.67 1617.73Total Assets (1+2) 1422.97 1449.63 1803.06 2088.40


Annual Profit & Loss Statement for the period of 2016 to 2019E

Value(Rs.in.mn) FY16A FY17A FY18E FY19E

Description 12m 12m 12m 12mNet Sales 1767.42 2390.75 2579.62 2904.65Other Income 2.42 7.32 15.88 20.64

Total Income 1769.84 2398.07 2595.50 2925.30

Expenditure -1508.71 -2126.29 -2201.96 -2483.48

Operating Profit 261.13 271.78 393.54 441.82Interest -45.50 -41.24 -18.56 -15.14

Gross profit 215.63 230.54 374.98 426.68

Depreciation -19.75 -16.64 -17.14 -18.17

Exceptional Items -42.10 0.00 0.00 0.00

Profit Before Tax 153.78 213.90 357.84 408.50

Tax -22.85 -31.60 -73.71 -81.29

Net Profit 130.93 182.30 284.12 327.21Equity capital 183.27 183.27 183.27 183.27

Reserves 625.62 826.12 1298.66 1594.76

Face value 10.00 10.00 10.00 10.00

EPS 7.14 9.95 15.50 17.85

Quarterly Profit & Loss Statement for the period of 31st Mar, 2017 to 31st Dec, 2017E

Value(Rs.in.mn) 31-Mar-17 30-Jun-17 30-Sep-17 31-Dec-17E

Description 3m 3m 3m 3mNet sales 685.04 493.53 636.53 617.44Other income 3.11 3.17 4.85 4.05

Total Income 688.15 496.70 641.38 621.49

Expenditure -609.12 -416.49 -516.48 -533.96

Operating profit 79.03 80.21 124.90 87.53Interest -9.07 -7.84 -3.63 -3.05

Gross profit 69.97 72.37 121.27 84.48

Depreciation -4.26 -3.68 -4.06 -4.42

Profit Before Tax 65.71 68.70 117.21 80.06

Tax -8.89 -8.77 -35.97 -15.32

Net Profit 56.82 59.93 81.25 64.73Equity capital 183.27 183.27 183.27 183.27

Face value 10.00 10.00 10.00 10.00

EPS 3.10 3.27 4.43 3.53


Ratio Analysis

Particulars FY16A FY17A FY18E FY19E

EPS (Rs.) 7.14 9.95 15.50 17.85

EBITDA Margin (%) 14.77% 11.37% 15.26% 15.21%

PBT Margin (%) 8.70% 8.95% 13.87% 14.06%

PAT Margin (%) 7.41% 7.63% 11.01% 11.27%

P/E Ratio (x) 34.97 25.11 16.11 13.99

ROE (%) 16.19% 18.06% 19.17% 18.40%

ROCE (%) 19.96% 19.68% 23.61% 22.64%

Debt Equity Ratio 0.49 0.28 0.08 0.05

EV/EBITDA (x) 18.46 17.54 11.82 10.45

Book Value (Rs.) 44.14 55.08 80.86 97.02

P/BV 5.66 4.54 3.09 2.57

Charts


OUTLOOK AND CONCLUSION

At the current market price of Rs. 249.80, the stock P/E ratio is at 16.11 x FY18E and 13.99 x FY19E respectively.

Earning per share (EPS) of the company for the earnings for FY18E and FY19E is seen at Rs. 15.50 and Rs. 17.85

respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 18% and 36% over 2017 to 2019E,

respectively

On the basis of EV/EBITDA, the stock trades at 11.82 x for FY18E and 10.45 x for FY19E.

Price to Book Value of the stock is expected to be at 3.09 x and 2.57 x for FY18E and FY19E respectively.

The electric wire and cable market in India is expected to grow steadily during the next four years and post a CAGR of

almost 16% by 2020. As per the latest presentation of Indian Brand Equity Foundation, India is the Third Largest

Producer and Fourth largest Consumer of electricity globally. Also, as per the latest announcement of Power Minister

India is expected to switch over to LED bulbs by the end of 2018 which would result in a massive saving of 100 billion

units of electricity and Rs. 140000 million per annum to the nation. Apparently, one unit saved equals 1.3 unit

generations and after accounting for transmission losses, judicious use of energy would result in reduced production costs

as well as help conserve the environment. The Company has major earning in the state of Rajasthan and Gujarat. But this

year its focus is to widen and cover more and more states of India. Almost 10 stated have become a major part of its

distribution Network stating Maharashtra, Punjab, Madhya Pradesh, Haryana, Uttar Pradesh, Jharkhand, Kerela, New

Delhi and Assam. The company has broadened its network and distribution. It has also had major success in some of the

biggest cities of UAE. The company and its Board have started working towards making Veto a globally established

brand. Its products are marketed in both domestic and international markets. Hence, we say that, we are Overweight in

this particular scrip for Medium to Long term investment.


INDUSTRY OVERVIEW

Wires and cables play an indispensable role in today’s digitally-enriched life and find extensive usage across a number of

applications in several industries. The continuously rising set of applications of wires and cables across the burgeoning

power, automotive, telecommunication, and construction industries are expected to bode well for the global consumption

of wire and cable materials in the next few years. The market for wire and cable materials, thus, is projected to tread along

a healthy growth path over the period between 2016 and 2024.

Over the years, the global cables and wires market has been exhibiting strong growth momentum, supported by demand

from power supply companies, telecom operators and other end-user industries such as building & construction and

industrial segments.

The main customers for the wire and cable industry are the automotive, telecommunication and construction industries. In

the past few years, these three have witnessed a rapid expansion and have led to an annual growth of about 25% in India.

The electronics market of India is one of the largest in the world and is anticipated and projected to grow at a compound

annual growth rate (CAGR) of 24.4 per cent during 2012-2020. The electric wire and cable market in India is to grow at a

CAGR of 16.18 percent over the period 2015-19 as power cables led the revenues of the wires and cables market with

more than 50 percent contribution to the total market in fiscal year 2014.

One of the major tax reforms, The Goods and Services Tax (GST) Amendment Bill passed during the year, aims at

streamlining the country’s complex tax system, reduce fragmentation in markets, lower business costs, and widen the tax

base. Robust implementation of these legislative changes will be key to boost prospects of the organized market.

Increase in Urban Population and Per-Capita Income has been growing at a steady rate and is expected to increase further

due to affordability and changing life styles of the people. The demand of manufacturing of wires & cables and electrical

accessories & other allied products in India is also hence likely to increase. The company has proposed to expand its

manufacturing capacity so as to meet the increased demand both in domestic and foreign markets. De-licensing and

Removal of Tariffs for the Industry, Low Entry Barriers, and Increased Demand for Housing, Increased Growth in the

Emerging Markets and in the Production of Renewable Energy and Increased Growth in the Emerging Markets and in the

Production of Renewable Energy are also its basic growth drivers of the market. The company is also looking forward to

housing projects of Government and semi government agencies.

Market Overview:

The Indian wire and cable industry is growing satisfactorily and getting more and more consolidated and becoming

largely organized now. However, slowdown in construction activity has been one of the major factors for a sluggish

growth. Construction is also one of the core sectors of Indian economy and future of the industry is important for

commodities. Construction cables and wire sector anticipated to see steep growth in demands in coming days owing to

huge government’s spending in infrastructure, smart cities, real estate boom, and housing explosion.

Initiatives such as excise duty exemption for Ferro-silicon-magnesium and pig iron used for manufacturing components

for wind-operated electric power generators and the target set by the Jawaharlal Nehru National Solar Mission to generate


more than 1,00,000 MW of solar power by the end of 2022, will boost the demand for electrical wires and cables in this

region.

The Central Government’s ‘Housing for All by 2022 (20mn houses for urban poor and 30mn for rural poor) and Smart

Cities (development of 100 cities) missions promise to trigger fast-paced rollout of new homes. This should usher in

multi-year growth for electrical products and appliances. Increasing consumer focus on aesthetics and energy efficiency

has also resulted in notable shift towards branded products. With its ability to offer competitive pricing, superior product

range & quality, upgraded technology and innovations, more safety features, and increased brand awareness, VETO is

well placed to offer an enriching consumer experience.

Strengths:

Established brand in North West India and central;

Experienced management team

Organized and comprehensive product offering

Established reputation for quality products

Driving growth through innovation and marketing

Its relationship with customers

Its relationship with more than 2,000 dealers;

Dedicated team of technical manpower


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Name of the Analyst Qualifications SectorsCovered

Exposure/Interest tocompany/sector UnderCoverage in the CurrentReport

Dr.C.V.S.L. Kameswari M.Sc, PGDCA,M.B.A,Ph.D (Finance)

Pharma &Diversified

No Interest/ Exposure

U. Janaki Rao M.B.A CapitalGoods


B. Anil Kumar M.B.A Auto, IT &FMCG


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