V-Guard Industries' Moves Beyond South India

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V-Guard Industries' Moves Beyond South India
www.vguard.in
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• Kochi-based V-Guard is thinking
  pan-India and more than just stabilisers. Leading
  the charge is 33-year-old managing director
  Mithun Chittilappilly.

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• It was 2005. Mithun Chittilappilly
  had just returned from a two-year study break in
  Australia and rejoined V-Guard Industries, an
  electrical appliances manufacturing company
  founded by his father Kochouseph Chittilappilly
  in 1977. It was a good time to be a part of
  V-Guard. By all measures, it was on a smooth
  sail. Its bestselling product, the iconic
  stabiliser, was unchallenged in Kerala and had a
  dominant position in South India. The company,
  which was growing at a steady rate, had always
  been profitable and had zero debt. What could be
  wrong with this picture?
• He was about to find out in two years
  when the senior Chittilappilly decided to list
  V-Guard on the Bombay Stock Exchange. Those three
  months before the IPO taught me that V-Guard was
  big in Kerala but too small outside, says
  Mithun, 33, who became managing director in 2012.

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• Two key weaknesses were glaringly
  obvious Competition (companies like Finolex,
  Havells) was almost 10 times bigger than V-Guard,
  which had revenues less than Rs 200 crore the
  Kochi-based company was also overly dependent on
  stabilisers, which accounted for 50 percent of
  its revenues and 80 percent of profits.
• None of the top merchant banks were ready
  to handle the Rs 60-crore IPO. Not surprisingly,
  when it opened in early 2008, it failed to
  attract any institutional investors, save for the
  banks Kochouseph had known for long, as well as a
  family friend (who did not wish to be named).

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• The one saving grace was that the
  retail side of the offering was oversubscribed
  4.5 times, thanks to investors from Kerala. This
  reaffirmed what V-Guard already knew - In
  Kerala, the brand could move heavens, but outside
  it was hardly known.The company stock had an
  offer price of Rs 82 and opened on the BSE at Rs
  60 disappointingly, it was still selling at Rs
  60 after six months. As Mithun remembers, Then I
  got married in January 2009, the share was
  trading at about Rs 40. V-Guard owned land that
  was valued higher than its market capitalisation.

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• Mithun rallied the troops- 30 of his
  senior managers - and decided to face the
  challenge head on. We realised that if we wanted
  to bring the stock price back to Rs 80, we would
  need to grow by more than 25 percent
  quarter-on-quarter and year-on-year, he says.
• A BOLT OF GROWTHThey did that, and more. From Rs
  300 crore in 2008-2009, V-Guard's revenues raced
  to Rs 1,350 crore in 2012-2013 profits have
  grown four-fold to Rs 60 crore. Further, the
  company is no longer a one-product wonder. The
  share of stabilisers is now less than 30 percent
  of revenue while wires, cables and pump verticals
  are becoming equally important. Also, last year,
  25 percent of its revenues - set to increase to
  30 percent by 2013 end- came from markets outside
  Kerala and Chennai. Most significantly, V-Guard's
  stock price crossed Rs 550 this August (a 52-week
  high) on the BSE.

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• We estimate V-Guard's revenue to
  increase by 27.3 percent and net profit by 28.8
  percent over FY12-15E. The strong product
  portfolio, complemented by a sturdy brand and
  distribution network, and increased focused on
  growing in markets outside South India, should
  help it gain market share and become a formidable
  pan-India player over the next few years, says
  Niket Shah, analyst at Motilal Oswal Securities
  Ltd in his March 2013 report.

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• Even Mithun had not anticipated this
  degree of success. But he knows that the tougher
  challenge lies ahead. As V Ramachandran, a
  Hindustan Unilever and LG Electronics veteran who
  joined V-Guard in 2012, says, The real success
  will be when 75 percent of our revenue comes from
  non-traditional markets. The challenge is to
  replicate our success in markets in northern
  India.But the Chittilappilly family is not a
  stranger to challenges. Kochouseph overcame
  several, including labour strife, to create a
  successful company in a state that has otherwise
  been a tough terrain for entrepreneurs.

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• A STREET SMART TECHNOCRATAbout an hour's
  drive north of Kochi is Koonammavu, a town known
  for its rosary cottage industry. Over the past
  decade, Koonammavu has been in the news for
  another small unit that shares a compound with a
  school and a church. This is one of the 22
  self-help group (SHG) units that assemble
  stabilisers for V-Guard in Kerala there are 40
  more spread across South India. Thirty-one women
  - the SHG units are run only by women - ssemble
  250 stabilisers a day in Koonammavu alone.

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• The SHG legacy goes back to the late
  1980s when Kochouseph was forced to shut down one
  of his units due to labour unrest and was in
  danger of losing his company. I went to a priest
  who had earlier asked if I was interested in
  outsourcing some of V-Guard's work to a unit that
  provided employment to poor women, says
  Kochouseph, 62, who had started making
  stabilisers from a shed in Kochi. The priest
  readily agreed the success of the first unit
  showed it was a masterstroke. With a maximum of
  50 women per unit, there was no room for union
  leaders. When the company diversified into other
  products, Kochouseph moved the production to
  nearby states and later to northern India. The
  units in Kerala and other southern states
  continue to manufacture stabilisers.

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• Kochouseph's story is rare for a first
  generation entrepreneur in Kerala, where the
  economy is largely dependent on tourism and
  agriculture, and remittances from the Middle
  East. The private sector, composed of retail and
  services industries, is dominated by families who
  were also large landlords. His success was
  followed by the local media and one of Mithun's
  earliest memories is of his father getting
  felicitated by the government for being the
  highest tax payer. It was inevitable that we
  would join the family business, he says. His
  elder brother Arun looks after the two Wonderla
  amusement parks, one near Kochi and the other in
  Bangalore. The first of the two parks, near
  Kochi, was set up by their father in 2000.

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V-GUARD INDUSTRIES LTD33/2905 F, Vennala High
School Road,Vennala, Kochi-682028,Ph 91 484
3005000Fax [phone],E-mail
mail_at_vguard.inWeb www.vguard.in