The Kerala-based V-Guard Industries is into manufacturing and marketing of electronic stabilisers, electric motors, building cables and water heaters. The company has a strong presence in the southern part of India. It has a dealer network all over India with over 108 distributors and around 7,000 dealers.

Plans?

Of around Rs 68 crore, which the company intends to put up, it plans to use Rs 44 crore to set up facilities for manufacturing of cables at Coimbatore and Uttaranchal. It also plans to set up an enamelling plant at Coimbatore. For this, it intends to use around Rs 9 crore. It intends to use around Rs 5.6 crore to set up pilot production plants for water heaters, fans and pumps at Himachal Pradesh and Coimbatore. For investment in setting up its service and distribution centres at Bangalore, Hubli and Vijaywada, it has allocated around Rs 9.56 crore.

Investonomics

V-Guard Industries has a presence in a domain that is unorganised. Hence, clarity as regards margins flow cannot be ascertained. However, the company, considering the last four years, has seen a steady increase in its net profit margin, which hovers around 6-6.5%. Also, on the operational level, the company has demonstrated linear growth. Its operating margin is around 12-13%.

The company?s products such as voltage stabilisers, pumps, UPS, electric water heaters, and electric fans, have copper as an important ingredient.

Considering the market situation, where copper prices are on the rise, the company will have to bear the brunt of further increase in copper prices.

The company is also into trading of products, which contribute 74% to the revenues.

In this model, wherein a party A manufactures products, according to your specifications, and you in turn sell the product to party B, margins are low.

Valuation

Considering the annualised earnings and post-issue equity dilution, the company quotes a P/E of around 13(x) and 14(x) at the lower and the higher end of the price band respectively. Considering the company?s presence in varied and unorganised sectors, it is difficult to draw a parallel of its performance.

However, an extensive and penetrative distribution and dealer network of its products would be a crucial factor given its presence in the domain, mainly dominated by domestic unlisted entities, which have strong dealer and distribution network.

Investors must consider these facts before investing.