Wednesday, July 15, 2015

How V-Guard Leads in Investor Return Ratios

Mithun K Chittilappilly, Managing Director, V-Guard Industries
V-Guard Industries, the noted electrical appliances and electrical cables player clearly leads most of its peers in crucial investor return ratios like Return on Capital Employed (RoCE) and Return on Equity (RoE). V-Guard recently worked with an external consultant to develop an integrated supply chain system for the Company, from procurement, planning, distribution and inventory management, which will help drive further benefits for the full of FY16 and beyond.

Return on Capital Employed (RoCE) continues to be the benchmark in assessing how well a company is utilizing its employed capital, comprising both shareholders’ equity as well as debt.

Kochi headquartered V-Guard Industries comes out with flying colours in this test, among its industry peers. V-Guard has an industry leading RoCE of 28.01%, ahead of large players like Bajaj Electricals (7.90%), Finolex Cables (20.17%), and TTK Prestige (21.01%).

This electrical appliances and electrical cables player also has a Return on Equity (RoE) ratio that is higher than most of its peers.

V-Guard’s Net Revenue from operations for FY 2015 was Rs.1,745. 92 crores; an increase of 15% over previous financial year (Rs.1,517.56 crores). Profit Before Tax for the Financial Year was Rs.101.45 crores against the Profit Before Tax of Rs.94.28 crores achieved during FY 2014.

The entrepreneurial firm started by legendary Keralite businessman Kochouseph Chittilappilly has a neat and conservative balance sheet that enables this kind of high return ratios.

The equity base is less than Rs. 30 crore and debt level is lower than peers. The firm which started off in voltage stabilizers and branched out to numerous electrical appliances, is also noted for its industry leading Asset Turnover Ratio, that indicates management efficiency.

V-Guard has significantly brought down the debt on its balance sheet by Rs. 41 crore during the year to Rs. 68 crore thereby reducing the financial cost. Debt-equity ratio remains robust at 0.2x.

In addition to Chairman Kochouseph Chittilappilly, V-Guard is led by its young and dynamic Managing Director, Mithun K Chittilappilly. Its scrip had more than doubled during the past 12 months.

During FY 2015, in light of the macro challenges and strained channel health, V-Guard operated in a prudent manner focussing primarily on cash flows, through better inventory and debtor management. Its working capital cycle saw an improvement of 6 days YoY and 7 days QoQ to 70 days resulting in strong cash flows from operations of Rs. 84 crore during the year.

From its outset nearly three decades back as a small-scale unit, V-Guard’s founder Kochouseph Chittilappilly has laid great emphasis on an asset-light development model, which V-Guard follows even to this day.

To facilitate this, it has evolved a rigorous quality management program, even while much of the manufacturing of appliances is outsourced.

Non-South markets have scaled up rapidly and grown by 28% in FY 15 and now account for 33% of revenues from 30% in FY14 and 25% in FY13. This bears testimony to the acceptance of the V-Guard brand in these markets and marks a significant step towards further diversification of the revenue base. Uttar Pradesh, Rajasthan, West Bengal, Orissa, Bihar and the north eastern states have been the key contributors to the strong growth.

Though having a sizeable advertising budget, all other unnecessary expenses have been systematically curtailed over the years.

This philosophy extends even to its corporate headquarters in Kochi, which even while being magnificent, is one of the most energy efficient corporate HQs anywhere in India due to its green design that ensures natural lighting and ventilation to the maximum possible.

The management is noted for its ethical practices, and high level of corporate governance in comparison with its peers in the small-cap / mid-cap sector.

Despite following conservative financial policies, V-Guard has demonstrated high growth appetite in entering new segments, and has almost never failed to garner a market share for itself in each specific segment.

The V-Guard stock is backed by some of the most discerning FIIs and DIIs, and has been a 19X multibagger since its IPO 7 years back.

V-Guard worked with an external consultant during the year to develop an integrated supply chain system for the Company, from procurement, planning, distribution and inventory management, which will help drive further benefits going into FY16.

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