Equity Market Pundit

Trying to create some excitment again in the Indian primary market is the V-Guard IPO (I hope it is not caught off guard). People who would have invested in Reliance Power would have sure learnt there leasons of not forgeting the fundamentals. Some time you can just jump into the trend when the euphoria is high but you should never forget to buy a return ticket or else the fine to be paid can be huge.

Now V-Guard is a Kerala based companie. It manufactures and markets voltage stabilisers under the brand name, V-Guard. The product basket includes various other electrical istrument from UPS to Solar water heater, and Cables. The company is said to be well established in south India and now looking aggresively towards the north. So to cater to rising demand, a second building-cable manufacturing plant is to be set up at Kashipur in Uttaranchal. It will have a capacity of 2,00,000 coils a month of standard length of 90 metres. Moreover, a low-tension cable manufacturing plant and an enameling plant, with a processing capacity of 100 tonnes, is to be put up at Coimbatore, where the existing building-cable unit is located. Development-cum-pilot plants are to be built at Coimbatore (for pumps) and in Himachal Pradesh (for fans and water heaters). Service and distribution centers are to be put up at strategic locations in India. All the projects are to be commissioned by December 2008. An initial public offer (IPO) will partially fund these expansion plans. Also the point to be kept in mind is V-Guard brand enjoys strong recall and credibility, specially in south India. But the same can be its weakness as it is right now concentrated only in that area.

The company is offering on block 8 million shares of Rs 10 each in the price band of Rs 80 to Rs 85 per share. The issue will constitute 26.80% of the fully diluted post issue paid up equity share capital of the company. CRISIL has assigned a CRISIL IPO Grade 3/5. Now for V-guard Sales clocked a CAGR of 19% to Rs 222.27 crore in FY 2007 from FY 2003. Pofit after tax posted a CAGR of 29% to Rs 13.50 crore. The reported profit was Rs 18.41 crore in FY 2007,after accounting for an EO income of Rs 4.91 crore on account of profit on sale of investment in two amusement parks at Cochin and Bangalore. The EPS on adjusted net profit excluding EO was Rs 4.5 on post-IPO equity for FY 2007. The five-month annualised EPS for the current year on post-IPO equity works out to Rs 6. On the offer price of Rs 80-Rs 85, the P/E works out 17.8 – 18.9 times FY 2007 earning and 13.3 – 14.1 times latest five-month annualised EPS. Much larger players with much more well known brands like Finolex Cables and Bajaj Electric trade around TTM P/E of 16 times. Numeric Power, leader in UPS, trades at TTM P/E of 11 times.

So it seems that the issue is well priced and hance only long term investors should subscribe given the growth rate it has had till date. Applying for listing gains wont be a risk worth taking given current market scenario.

Website : http://www.vguard.in