A Diversified Conglomerate

Transcription

1 A Diversified Conglomerate Sector: Consumer Goods, Oil&Gas, Telecom CMP : Rs. 231 /share 1 Year Target Price : Rs. 300 / share SENSEX : 19,424 SENSEX P/E : NIFTY : 5,907 NIFTY P/E : Videocon Industry P/E Scrip Details Market Cap : Rs. 7,368 Crs Nominal Value : Rs. 10 /share Share Capital : Rs. 319 Crs. 52 Week H/L : Rs. 246 / 161 BSE Code : NSE Code : VIDEOIND Shareholding Pattern (%) Categories Sep 12 Sep 11 Promoters FII DII Others TOTAL Script Performance vs Broader Indices NVS Brokerage Pvt. Ltd. Strong Buy 10th December, 2012 Videocon Industries Ltd. (VIL), an Indian Multi-National Company, is one of the pioneer and leader of India Inc. led by Mr. Venugopal Dhoot. The group has 17 manufacturing sites in India and plants in China, Poland, Italy and Mexico. It is also the third largest picture tube manufacturer in the world and owns Oil & Gas assets at key global Locations. VIL had a Topline of Rs 13,553 Crs for the year ended 31st Dec 2011, with consumer durables contribution Rs. 11,565 Crs., oil & gas Rs Crs. and others Rs. 625 Crs. The Oil & Gas Assets consist of the stake in Ravva oil fields in South India, stake in Mozambique (Rovuma Area 1 Concession oil field) in Africa, stake in Brazil oil fields and stake in many other Oil fields in East Timor, Indonesia & Australia. Cove Energy owns 8.5% in Rovuma Basin, whereas Videocon owns 10%.In July 2012, Thailand's state run oil company PTT Exploration had put in a bid for $2 billion for 8.5 % held by Cove Energy. Videocon Industries current Market Cap. stands at Rs. 7,368 Crs., can easily fetch a valuation of Rs. 15,000 Crs from sale of its 10% stake. We believe the stake sale of Mozambique oil assets will help the company substantially reduce its debt, provide tremendous liquidity and substantially reduce its interest burden by Rs Crs. (current calendar year 2012 interest burden likely to be over Rs Crs.) which would straight augment the profitability of the company by equivalent amount (FY13 EPS could be between Rs /share). Videocon Telecommunications, a fully owned subsidiary of consumer electronics behemoth Videocon Industries, bought spectrum for six circles (Bihar, Haryana, Gujarat, Madhya Pradesh, Uttar Pradesh East and Uttar Pradesh West) worth Rs 2,221 crore. At the CMP of Rs. 231 /share, the MCAP of Videocon works out to around Rs. 7,368 Crs, making it a Compelling Buy with a Target Price of Rs /share in the short term and over Rs. 350 over a period of months. Q3FY12 Financial Performance (Standalone) (Rs. In Crs.) Quarter Ended % Change 9 Months Ended Year End % Change Q3FY12 Q2FY12 Q3FY11 Q o Q Y o Y 30th Sep'12 30th Sep'11 FY11 12 Total Income % 7% % EBIDTA % 5% % 2359 PAT % 87% % 546 EPS % 88% % Operating Margin 18% 19% 18% 18% 19% 18% PAT Margin 0.5% 2% 4% 1% 5% 4% Share Capital Reserves 9619

2 COMPANY PROFILE The Videocon Group is a USD 5 bn industrial conglomerate headquartered in Gurgaon, India with interests all over the world, and is an Indian multinational company. The Group has 17 manufacturing sites in India and plants in China, Poland, Italy and Mexico. In 2005, Videocon Group acquired the French media services and technology major Thomson SA's colour picture tubes manufacturing business, for Euro 240 million (Rs 1,200 crore), through its offshore entity Eagle Corporation Ltd. Under the agreement, Videocon acquired Thomson's manufacturing facilities in China, Mexico and Poland. The Videocon group's core areas of business since 1979 are consumer electronics and home appliances. They have recently diversified into areas such as power, oil exploration and telecommunication. Consumer Electronics and Home Appliances Videocon Industries Limited manufacture, assemble and distribute a comprehensive range of consumer electronics, products and home appliances, including finished goods such as television, Home entertainment systems, refrigerators, Washing machines, Air Conditioners and other small household appliances and components such as glass shell (panels & funnels), compressors, motors etc. Power Business The Company is developing the Pipavav power project through a wholly- owned subsidiary of the Company, Pipavav Energy Private Limited. The Project is designed to have a capacity of 1200 MW and comprises two units of 600 MW each. The Company is also developing the Chhattisgarh power project through a wholly- owned subsidiary of the Company, Chhattisgarh Power Ventures Private Limited. The Chhattisgarh power project is designed to have a capacity of 1200 MW and comprises two units of 600 MW each. Telecommunication Videocon Group operate the GSM mobile services through Videocon Telecommunications Limited (VTL). VTL was granted a licence by the Government of India to provide unified access services in the following 21 circles in India: Delhi, Mumbai, Tamil Nadu, Chennai, Kolkata, Maharashtra, Gujrat, Andhra Pradesh, Karnataka, Kerala, Haryana, Uttar Pradesh(West), Uttar Pradesh (East), Rajasthan, Madhya Pradesh, West Bengal, Himachal Pradesh,, Bihar, Orissa, Assam, North East, Jammu & Kashmir. Crude Oil and Natural Gas The company has interests in exploration production in India, Brazil, Mozambique, East Timor, Indonesia and Australia. An important asset for the group is its Ravva oil field with one of the lowest operating costs in the world producing ~50,000 barrels of oil per day.

3 Oil & Gas Assets The gas find in Mozambique is one of the largest seen this century. In June 2012, Texasbased Anadarko Petroleum, the operator of the Rovuma Offshore Area discovered new gas reserves in the area. As a result of this discovery, the gas field, which holds proven reserves of 60 trillion cubic feet (TCF) could come to have as much as 100 TCF. Cove Energy owns 8.5% in Rovuma Basin, whereas Videocon owns 10%. In July 2012, Thailand's state-run oil company PTT Exploration had put in a bid for 1.22 billion ($2 billion) for 8.5 % held by Cove Energy. Videocon Industries current Market Cap. Stands at Rs. 7,368 Crs., can easily fetch a valuation of Rs. 15,000 Crs from sale of its 10% stake. Consumer Durables Videocon Industries Ltd. (VIL), a Mumbai based Comglomerate is one of the pioneer and leader in the consumer durable industry in India from past many decades. Televisions Washing Machines Refrigerators Microwave Ovens Air Conditioners Mobile Phones Videocon Telecommunications, a fully owned subsidiary of consumer electronics behemoth Videocon Industries, bought spectrum for six circles worth Rs 2,221 crore. Bihar Haryana Gujarat Madhya Pradesh Uttar Pradesh East Uttar Pradesh West Telecom Telecom Industry, after going through its worst, is expected to perform well in the future due to less competition and high Entry Barriers.

4 1. Videocon Energy Ventures Ltd. 2. Videocon International Electronics Ltd. 3. Videocon Telecommunications Ltd. 4. Videocon Oil ventures Ltd. 5. Videocon Hydrocarbon Holdings Ltd. 6. Videocon Energy Ltd. 7. Proficient Energy Pvt. Ltd. 8. Applied Energy Private Ltd. 9. Videocon Power Ventures Ltd. 10. Middle east Appliances LLC 11. Videocon Global Ltd. 12. Videocon Electronics Ltd. 13. Eagle ECorp Ltd VIL - SUBSIDIARIES VIL - FINANCIAL PERFORMANCE AT AGLANCE (Consolidated) (Rs. in Crs) FY 2011 FY 2010 FY 2009 FY 2008 FY 2007 Total Income EBIDTA PAT EPS Operating Margin 10% 14% 18% 22% 15% PAT Margin 10% 2% 4% 9% 6% Share Capital Reserves VIL - Q3FY12 FINANCIAL PERFORMANCE (Standalone) Rs. in Crs Quarter Ended % Change 9 Months Ended Year End % Change Q3FY12 Q2FY12 Q3FY11 Q o Q Y o Y 30th Sep'12 30th Sep'12 FY11 12 Total Income % 7% % EBIDTA % 5% % 2359 PAT % 87% % 546 EPS % 88% % Operating Margin 18% 19% 18% 18% 19% 18% PAT Margin 0.5% 2% 4% 1% 5% 4% Share Capital Reserves 9619 VIL, in past few years, has invested huge amount of funds to foray into Oil & Gas Sector and Telecom Sector. Company has been reeling under the pressure of huge Interest Outgo (around Rs. 1,000 Crs in FY12).VIL is also operating as one of the leading Broadband Player in India offering Dish to Home (DTH) Services. However, Companies efforts in building up long term portfolio s have paved the way for a strong and a solid future ahead.

5 VIL - SWOT Analysis Strengths With a vast experience of over 33 years in the Consumer Electronics and Home Appliances Sector, VIL is regarded as a Veteran in this sector. Apart from a strong market position in the Consumer Electronics and Home Appliances Sector, VIL has also recently diversified into areas such as power, oil exploration and telecommunication. Opportunities Exposure to Western culture has resulted in an increased awareness and education about the consumer products and appliances contributing to rise in demand for the products. Up gradation of standard of living and higher disposable income has lead to higher ownership aspirations at household level. Technological advancement and production of user friendly devices (made by Consumer Electronics and Home Appliances Sector), have resulted into these home appliances becoming need of the day and not luxury. With increasing Government incentives for exports and easy credit availability, VIL has great scope for organic as well as inorganic expansion. Risk and Concerns With increase in demand for Consumer Electronics and Home Appliances, there are new players entering the market resulting in intense competition. With rapid change in technology the product lifecycle has shortened to a large extent. Increased competition in the Oil and Gas sector could adversely affect the expansion plans by limiting the number of exploration blocks that will be available to the company in future.

6 VIL - A Fortune in the Making VIL operates in the following areas of business : Consumer Goods, Oil & Gas, Telecom and Broadband (DTH) Sector. Company has made huge investments in all its arrays of business to ensure that they can reap full benefit of their ventures once Investor Interest starts creeping in the invested sectors. In Consumer Goods, VIL is launching many new technologies like LED TVs, 3D TVs, DTH LED TVs, net connected TVs with many attractive designs and aesthetics to delight Indian consumers with wide range of products. VIL bought spectrum for six circles worth Rs 2,221 crore (Bihar, Haryana, Gujarat, Madhya Pradesh, Uttar Pradesh East, Uttar Pradesh West). The government has agreed that it will adjust Rs 1,500 crore that Videocon had paid for spectrum in 2008 but lost in the February order of the Supreme Court against the payment due after the current auction. Thus, though VIL has bought spectrum worth Rs 2,221 crore, all it needs to pay the government is Rs 721 Crs. And, out of that, it has the option to pay only one third upfront and the rest in installments over 10 years, with interest of 9 per cent per annum. The oil & gas assets consist of the stake in Ravva oil fields in South India, stake in Mozambique (Rovuma Area 1 Concession oil field) in Africa, stake in Brazil oil fields and stake in many other oil fields in East Timor, Indonesia & Australia. The Oil & Gas Assets of VIL are itself valued at several times its Market Cap. of Rs. 7,368 Crs as on 10th December Cove Energy owns 8.5% in Rovuma Basin, whereas Videocon owns 10%.In July 2012, Thailand's state run oil company PTT Exploration had put in a bid for $2 billion for 8.5 % held by Cove Energy. Videocon Industries can easily fetch a valuation of Rs. 15, Crs from sale of its 10% stake. This will make VIL a Zero Debt Company.This will substantially reduce its debt and reduce its interest burden by Rs Crs. (current calendar year 2012 interest burden likely to be over Rs Crs.) which would straight augment the profitability of the company by equivalent amount (FY13 EPS could be between Rs /share). At the CMP of Rs. 231 /share, VIL is trading at a Forward P/E of 8x and 0.76x its Price to Book Value. MCAP of VIL works out to around Rs Crs, making it a Compelling Buy with a Target Price of Rs /share in the short term and over Rs. 350 over a period of months.

7 NVS BROKERAGE PRIVATE LIMITED Registered Office: 1 &1-A, 3rd Floor, Birla Mansion, 134,Nagindas Master Road, Fort, Mumbai Corporate Office: 702/703, Embassy Centre, Nariman Point, Mumbai EQUITY RESEARCH DESK Boardline : Mr. Rau Thakur Tel : / 09 / 10 Mr. Tejas Parekh Mr. Percy Wadia Fax : / Ms. Devanshi Dhruva research@nvsbrokerage.com Web : EQUITY DEALING DESK Mr. Nalin Shah Mr. Jesal Shah Mr. Rau Thakur Mr. Raju Mudhupog Ms. Rinku Saraf