Videocon Industries Equity Research

HomeCompanyVideocon Industries Equity Research

Date of Research – 21 January 2016

Price – Rs. 111.10

About the Company

Videocon Industries Limited (“Videocon” or the “Company“) operates in 3 key sectors: consumer electronics and home appliances, power business and telecommunications.

Consumer Electronics and Home Appliances: The Company manufactures consumer electronics and home appliances, including finished goods such as television, home entertainment systems, refrigerators, washing machines, air conditioners and other household appliances and components such as glass shell (panels & funnels), compressors, motors etc.

Power Business: The Company is developing the Pipavav power project and Chhattisgarh power project through its wholly owned subsidiaries, Pipavav Energy Private Limited and Chhattisgarh Power Ventures Private Limited respectively. Both the plants are designed to have a capacity of 1200 MW and comprises two units of 600 MW each.

Telecommunication: The Company operates the GSM mobile services through Videocon Telecommunications Limited (VTL) to provide unified access services in the following 6 circles in India: Gujrat, Haryana, Uttar Pradesh (West), Uttar Pradesh (East), Madhya Pradesh-Chattisgarh, Bihar-Jharkhand.

** In FY 2013, the Company has changed its financial year period from January – December to July – June. As such, the figure for financial year ended June 2013 contains figures for last 18 months and can’t be compared.

** In FY 2014, the Company has changed its financial year period from July – June to January – December. As such, the figure for financial year ended Dec 2014 contains figures for last 18 months and can’t be compared.

**Financial Year – January to December

Key Financial Figures

Consolidated(Rs. Cr)
ParticularsFY 2010FY 2011FY 2013 (18 Months)FY 2014 (18 Months)FY 2015
Total Income from Operations15,028.6912,919.4718,805.7520,462.2313,803.59 
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)1,868.712,252.41209.11(112.69)1,491.52 
Finance Costs1,089.21977.794,077.504,971.773,191.09 
Other income156.91106.31890.3014,108.99522.68 
Exceptional items17.34– 
PAT (before Minority Interest and share of Associates)(297.21)545.56(3,103.15)4,966.46(2,213.21) 
Profit/ (loss) attributable to Minority Interest(0.19)(380.76)(153.38)(24.95) 
Share of profit / (loss) of Associates103.73(0.61)(2.03) 
Consolidated Profit / (Loss) for the year(297.02)(2,826.12)5,119.64(2,186.23) 

Profitability Analysis

ParticularsFY 2010FY 2011FY 2013 (18 Months)FY 2014 (18 Months)FY 2015
Operating Profit Margin Ratio12.4317.431.11(0.55)10.81 
Net Profit Margin Ratio(1.98)4.22(16.50)24.27(16.03) 

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

Key Balance Sheet Figures

Sources of Funds / Liabilities(Rs. Cr)
ParticularsFY 2010FY 2011FY 2013FY 2014FY 2015
Share Capital347.96333.94334.09334.46334.46
Share application money pending allotment500.00544.87– 
Reserves & Surplus8,067.836,945.044,379.609,870.787,755.57 
Net worth (shareholders funds)8,915.797,823.854,713.7010,205.248,090.03 
Minority Interest0.3210.41207.9895.3170.36 
Long term borrowings14,373.9227,283.3531,078.6635,504.3232,488.80 
Current liabilities2,361.763,418.9913,318.6813,099.8418,596.88 
Other long term liabilities and provisions201.27213.58 
Deferred Tax Liabilities674.12735.12149.94709.25704.36 
Total Liabilities26,325.9239,271.7249,468.9559,815.2360,170.15 


Application of Funds / Assets(Rs. Cr)
ParticularsFY 2010FY 2011FY 2013FY 2014FY 2015
Fixed Assets13,086.1716,534.8719,419.4720,316.1920,388.64 
Noncurrent Investments348.801,108.32754.902,147.352,634.01 
Current assets12,887.1021,620.7321,880.4831,345.0431,656.25 
Long term loans and advances4,213.29
Goodwill on consolidation (net)3.837.791,107.951,107.951,109.33 
Total assets26,325.9239,271.7249,468.9559,815.2360,170.15  

Efficiency Analysis

ParticularsFY 2010FY 2011FY 2013FY 2014FY 2015
ROE / RONW(3.33)6.97(1.52)50.17(27.36)

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

Valuation Analysis

ParticularsFY 2010FY 2011FY 2013 (18 Months)FY 2014 (18 Months)FY 2015
Total Income from Operations (Rs. Cr.)15,028.6912,919.4718,805.7520,462.2313,803.59 
Growth (%)40.80 %(14.03 %)45.56 %8.81 %(32.54 %) 
PAT (Rs. Cr.)(297.21)545.56(3,103.15)4,966.46(2,213.21) 
Growth (%)(171.45 %)283.56 %(668.80 %)260.05 %(144.56 %) 
Earnings Per Share – Basic (Rs. )(13.27)17.86(89.91)160.45(65.37) 
Earning Per Share – Diluted (Rs. )(10.99)17.86(89.91)160.45(65.37) 
Price to Earnings9.740.93– 

Dividend History

The Company has maintained an average dividend yield of 0.68 % over the last 5 financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Videocon’s average current ratio over the last 4 financial years has been 4.45 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Videocon’s average long term debt to equity ratio over the last 4 financial years has been 3.30 which indicate that the Company is operating with a high level of debt and may face some difficulty to withstand any economic slowdown.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Videocon’s average interest coverage ratio over the last 5 financial years has been 1.30 times which indicates that the Company has been generating enough for the shareholders after servicing its debt obligations.

Ownership pattern

In its latest stock exchange filing dated 31 March 2016, Videocon’s reported a promoter holding of 65.92 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 11.13 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.

About the Author

Rajat Sharma pictureRajat Sharma is a well known stock market analyst and commentator. He has covered Indian markets for over a decade and is regarded for consistently identifying early stage investment opportunities. Attorney by qualification, Rajat has done extensive work for improving corporate governance and disclosure standards.


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