After rallying 3,985% since 2008, V-Guard bets on phone-operated fans

After a 3,985 percent rally since its 2008 listing, V-Guard Industries Ltd. -- which has evolved into one of India’s leading consumer-durable companies -- has found its next big growth plan: Internet of Things.
 

The company, which started 40 years ago with a mere Rs 100,000, now has products ranging from food mixers to fans and is betting that rising personal incomes in the world’s second-most populous nation and more than a billion mobile-phone connections will boost its sales further.

“IOT is the next big step for our company as smart-phone users are expected to rise every passing day and more people are becoming tech savvy,” Managing Director Mithun Chittilappilly said by phone from his office in Kochi, a city in southern India. The company plans to sell “smart fans” after introducing water heaters and power back-up systems that use similar technology, he said.

V-Guard expects sales to rise 12 percent in the fiscal year through March 31, missing its target of 15 percent annual growth though the end of March 2022, after it passed on a higher tax rate to its customers following the recent introduction of a national goods and services levy. Revenue growth is expected to recover to at least 15 percent in its new financial year starting April, Chittilappilly said.

Still, increasing competition along with higher copper prices are emerging as V-Guard’s “key risks,” according to Sathyanarayanan M., an analyst at Cholamandalam Securities Ltd., who rates the stock as underperform. “IOT is still in a nascent stage and it really needs to be seen how things pan out on that front,” he said. V-Guard has 10 buy ratings, six holds and two sell recommendations.

Chittilappilly, however, sees smart products comprising at least 10 percent of V-Guard’s total sales within seven years from 2 percent now and contributing to a widening of its gross margin by 50 basis points annually from fiscal year 2020. Earnings before interest, taxes, depreciation and amortization, or Ebitda, as a percentage of sales was 10 percent in the 2016-2017 fiscal year, according to data compiled by Bloomberg.

Revenue will get a further boost as the “price premium of IOT products over normal appliances starts coming down,” Chittilappilly said. Sales rose 11 percent in the March to December period of this financial year compared with the same nine months a year earlier, the company said in a filing Monday. They increased 16 percent in the 2016-2017 fiscal year.

“IOT is the future for sure and V-Guard has a kind of first-mover advantage as it’s among the top three Indian companies for products that can be upgraded with IOT services,” Aditya Bhartia, an analyst at Investec Capital Services India Pvt. in Mumbai who rates the shares as buy, said by phone. V-Guard is “an extremely well-managed company with a very strong brand value,” he said.