Arihant Capital Markets has come out with report on V-Guard Industries IPO. They have recommended to ignore the issue.
V-Guard Industries has opened for subscription with its initial public offer (IPO) of 80,00,000 equity shares of Rs 10 each for cash at a premium, at a price band of Rs 80-85 per equity share.
Arihant Capital Markets report on V-Guard Industries IPO
Investment Positive
Strong Presence and Dealer Network
VGIL has been present in the industry for the last 3 decades which has helped it in understanding changing needs and demands of its customers. The V-Guard brand enjoys strong recall and credibility, especially in south India. The company has been able to establish a strong dealer network countrywide. The sales of the company are through the distribution network that has been developed over a period of last thirty years. Presently the company has around 108 distributors and more than 7000 dealers across the nation. Further, the company also provides after sales services at distributors end with total 107 service centers.
Strategic sourcing
VGIL follows a manufacturing model wherein products are sourced from SSI units/small manufactures across south India. The company contracts with third parties for the manufacture of voltage stabilizers, pumps, UPS, electric water heaters and electric fans which are manufactured according to the specifications given by the company. VGIL has diversified competencies in this area by maintaining good and cordial relations with the suppliers.
Concerns
Competition
VGIL operates in a competitive environment. Their competition varies for each product and region.
Concentration in Southern India
VGIL is predominantly a regional player, with over 90% of the revenue (in FY 2007) coming from southern states and Goa. Kerala, Andhra Pradesh, Karnataka and Tamil Nadu contribute a very significant percentage of VGIL’s revenues.
Valuations
The issue is priced at 16x FY07 earnings on post issue capital at floor price and at 17x at cap price. VGIL’s competition varies for each product and region.
Recommendation
VGIL is presently into manufacturing and marketing of Electronic Voltage Stabilizers, Cables, Pumps, Water heaters, UPS, Fans etc. With a well-established position in south India, V-Guard Industries has only recently ventured into Maharashtra, Haryana, Madhya Pradesh, Orissa, Himachal Pradesh, Chhattisgarh, Uttar Pradesh, Gujarat, Punjab and Rajasthan on a very small scale. Based on the valuations of 16x and 17x at a price band of 80 and 85 respectively the issue looks to be priced expensively as compared to its peers. Keeping in mind the present geographical concentration, cheaper valuations of competitors and high dependence on trading income we recommend our investors to avoid the issue.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Source: Moneycontrol.com
Tuesday, February 19, 2008
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