MAY 2008

M NEYBEE MONEYBEE SECURITIES PVT.LTD. 212 Veena Chambers, 21 Dalal Streets, Fort, Mumbai- 400001
KNOW VENTURE KNOW GAIN t: +91 22 40302010 f: +91 22 40302000 e: info@moneybee.in w: www.moneybee.in

RESEARCH REPORT
INDUSTRY: DIVERSIFIED COMPANY NAME: VIDEOCON INDUSTRIES LTD (VIL)

• Chairman: BSE Code: 511389

Venugopal Dhoot Face Value: Rs. 10 Recommendation: BUY
• Chairman’s Office: CMP: Rs. 351 (as on 13.05.2008) MARKET ON TOH
14 KM Stone, Market Cap: Rs. 7647 Cr.
Village Chittegaon Paithan Road,
Aurangabad, Maharashtra: 431105.
52 Wk Hi/Low: 869/242
Equity: Rs. 223Cr.
VIDEOCON
t: +91-02431-251501 BV: Rs. 260
w: www.videoconworld.com EPS (TTM): 43.42 CMP: Rs. 342
Price/ BV: 1.37 Price Target: Rs. 540
Price/ EPS: 8.06
1 YEAR CHART Dividend Yield: 1
% of Shares Dematerialised: 96.91
22500 1000

800 HIGHLIGHTS OF VIDEOCON INDUSTRIES LTD (“VIL”)

17500
600 • India’s No.1 Consumer Electronics & Home Appliances Company.
12500 • Implements Complete Backward Integration from sand to branded TV’s.
400 • 30% market share in Consumer Electronics & Durables.
• Low production cost from Ravva Oil drives up the bottom line.
7500 • Will soon foray into DTH, Retail, Telecom & Power.
200
• Diversified goods portfolio.
• Caters to lower, middle & premium segments of the market.
2500 0 • Wide distribution network.
SENSEX VIL • 9 major brands under its kit. Recently acquired Planet M.

VIL’S PORTAL

• Consumer Durables & Electronics Appliances

SHARE HOLDING PATTERN AS ON 31 MAR’ 08
st • Oil & Natural Gas Exploration
• DTH
• Retail
5% Promoters • Telecom
4% 5% • Power
4% Custodians • Broadband
• Semiconductors
MF/FI • Photovoltaic cells
14% FII • Digital Imaging
68%
• SEZ
Public • Steel
Corporate Bodies • News Channel
• Hospitality
Chart 2 Source: BSE India
PERFORMANCE

KEY FINNANCIALS (Rs. in Cr) • Sales- Increase in Turnover from 7,580 Cr to 8,710 Cr
• EBIDTA- Increase of 23% to Rs. 1,811 Cr
Yr Net Op OP Net EPS CEPS • Dividend- 35%
Ended Sales Profit Margin% Profit • Oil & Gas segment achieves higher OP margin.
2007 8710 1811 21 855 38 57
• However, electronics segment margins are getting shrinked.
2008E 10085 2017 20 929 42 63 • Huge capex allocation for breakthrough of new oil & gas exploration
2009P 11869 2374 20 1025 45 72 blocks.

MONEYBEE SECURITIES PVT. LTD. ~ RESEARCH REPORT ~ VIDEOCON INDUSTRIES LTD 1

 COLOUR TELEVISIONS (CTV) CONSUMER DURABLES & ELECTRONICS APPLIANCES
• In the last decade, consumer durables industry has witnessed a huge
spike led by increased in disposable income levels in families.
LCD • The rise in level income has transformed the visage of the Indian
lifestyle.
• Indian consumer durables industry has posted a growth of 21% in 2007
compared to 2006 with sales off Rs. 11,609 Cr & Rs. 10,684 Cr for
FLAT PLASMA consumer electronics & home appliances respectively.
• A new wave of high tech products has emerged in consumer preference.
• VIL’s dream to become one of the top five players in industry has been
CTV backed by recent appointment of Kwang-Ro Ro Kim former LG CEO as group
chairman & MD for its domestic as well as overseas business.
CONVEN
SLIM -TIONAL
COLOUR TELEVISION
TV

34" TV • CTV is the foremost product in the consumer electronics segment.

• CTV has witnessed sales of Rs. 9,741 Cr with a growth of 12% compared
to 2006.
• VIL’s existing capacity
apacity is 5.6 mn units & has target of 6 mn units for 2008.
AIR CONDITIONERS (AC) • CTV segment has witnessed evolution of LCD’s, Flat, Slim & Ultra Slim
TV’s over conventional CTV.
• The market for Flat Panel Display’s has grown at an exponential rate of
SPLIT 430%. Sales have been boosted in Tier II cities as well.
• Plasma TV’s have found their place in corporate offices, shopping malls,
airports, railways, etc. where there is public viewing.
viewing
• FPD market is expected to grow at a CAGR of 65% for next 5 years.
• VIL is in talks with leading international players, including Samsung and
CASSETTE AC WINDOW Sony, for original equipment supplies of high-end
talks succeed, this will catapult Videocon’s
high LCDs. If the ongoing
Videocon’ ongoing efforts at going
global.
• VIL has set up a $200-million
million plant in Italy for manufacturing LCD panels,
is currently test marketing its products in the European markets.
TOWER

REFRIGERTOR
REFRIGERATOR
• VIL’s in-house
house capacity to manufacture compressors serves well for
company in terms of price benefit.
DIRECT • VIL’s refrigerators are put up for sale in the market under various brand
COOL names such as Electrolux, Kelvinator, Kenstar & Videocon.
• Refrigerator market has grown @ 22% in 2007 backed
back by strong sales of
FROST new product as well as replacement market.
FREE SIDE BY • Demand for frost free segment is on a higher side. Electrolux & Kenstar
SIDE looks after frost free segment.

AIR CONDITIONER
REFRIGERATOR
• AC market has topped the chart with a phenomenal growth of 59%.
• VIL believes per capita consumption for AC is on a higher side with
WASHING MACHINES increase in affordability. Consumers living in 3 or 4 BHK houses are going
for more than one AC & this trend has emerged across the board.
• Customers prefer for Split AC sine itt requires less space, low noise levels
WASHING & glossy appearance.
MACHINES
WASHING MACHINE
FULLY AUTOMATED
• Washing machines market contributed 25% growth to the overall home
appliance growth of 33% in 2007.
SEMI AUTOMATED • Top loading category is getting more popular than conventional front
loading
• With injection moulding & motors manufacturing under one roof VIL is
optimistic to do well in the years to come.
MONEYBEE SECURITIES PVT. LTD. ~ RESEARCH REPORT ~ VIDEOCON INDUSTRIES LTD 2
 MULTI BRAND SHOPPING CART MULTI BRAND SHOPPING CART

• Over the years Videocon’s tactic was to buy distraught companies all
KELVINATOR SANSUI KENSTAR over the world and revive them by making low-cost
low components in India
and elsewhere.
• Consumers depending on their annual income will switch onto different
brands from time to time.
ELECTROLUX AKAI KENWOOD • VIL’s study reveals that spotlight on one brand will not cater to different
segments of the market.
• VIL therefore serves a range of products through its multi brand
shopping cart.
HYUNDAI TOSHIBA NEXT • VIL’s multi-product plan has assisted company to achieve a place at top
of the podium with 30% market share.
• VIL is triumphant in churning loss making brands to productive assets by
integrating them with its existing manufacturing plants.
• VIL is the only domestic company to survive in razor thin margin industry
thanks to its diversified product portfolio.
MANUFACTURING CAPACITY (mn)

Components Capacity Finished Capacity

GLASS COMPONENTS
Products
CPTs 22 TV sets 5.6 • VIL’s glass components division coupled with Thomson CPT acts as a
Glass panels 32 Refrigerators 2.5 boon to its CPT segment.
• VIL’s high tech CRT products offers a better-quality
better range of panels &
Glass funnels 6 Washing Mc. 1 funnels which are prime necessities for large size, flat & slim CPT.
Compressors 5 AC 0.4 • Apart from glass shells company also has in house facility to
manufacture electron guns & metal parts for CPTs.
• VIL’ s glass division under
der the banner Videocon Narmada Glass (VNG)
supplies TV glass to CPT plants in Europe, South East Asia & Russia.
• VIL’s clientele includes BPL, JCT Electronics, Hotline, Samtel Colour,
Thomson & Toshiba.
• VIL produces rd32 mn CPT Glass panels per annum in India & Poland
making it as 3 largest CTV glass producer in world.
• VIL’s backward integration from sand to branded TV’s allows company to
THOMSON PLANTS enjoy cost benefit advantage over its peers.

POLAND MEXICO CHINA THOMSON CPT

•1Integrated •1 CPT Plant •22 CPT plants
CPT, Glass & • VIL is only one of its kinds in the world to convert sand to TV.
Component • VIL has led to discovery of world famous technologies like Super True
plant Flat CPT, Slim CPT, Extra Slim CPT & HD 16:9 format CPT.
• VIL had bought debt free Thomson’s CPT division for US$ 290 mn.
• Clientele includes TTE, Sanyo, Sharp, JVC, Konka, Skyworth, Beko, Vestel,
TTE & Horizont.
• VIL will have access to Thomson’s R&D facilities which will facilitate up
THOMSON VIDEOCON DEAL gradation of technology.
• VIL has an edge over its competitors since it has an access to more than
1000 patents.
• VIL would further strengthen its position by selling new high tech
products in domestic as well as overseas market.
T VIL
VIL • Globally, prices of CPT are on lower side due to intense competition.
$240M H $224 However, raw material prices are not decreasing in synergy with finished
O M products.
VIL M • VIL’s integration of glass shell unit with Thomson CPT would enable it to
S enjoy cost benefit in terms of production cost & it will also reduce
O VI throughput time.
TUBE N $16M • Along with Thomson VIL also acquired Indian operations of AB
Electrolux, Sweden.
• VIL’s strategic partners Thomson & Electrolux both acquired 15% & 5%
stake respectively in VIL showing signs of faith in top drawer of the
company.
• VIL-Thomson
Thomson synergy has devised a bunch of strategies for its cost,
*VI: VIDEOCON INTERNATIONAL
production, sales & industry to register them as one of the largest CPT &
glass shells manufacturer in the world.

MONEYBEE SECURITIES PVT. LTD. ~ RESEARCH REPORT ~ VIDEOCON INDUSTRIES LTD 3

 VIL’S OIL & NATURAL GAS PARTICULARS CRUDE OIL & NATURAL GAS
OIL FIELD RAVVA
LOCATION ANDHRA PRADESH • Oil is the single most important commodity that holds the position of a
key factor in each and every economy of the world.
OIL RESERVES 250 MM BARRELS • India held’s sixth spot as largest consumer of oil in the world & will soon
YIELD 50000 BOPD* grab fifth spot in next 2 years.
• Primary energy requirement would grow at double the current level in
VIL’S SHARE 25% (12500 BOPD)
order to fuel the needs of growing economy.
CRUDE TYPE PREMIUM LIGHT • Oil demand is fuelled by growing competitiveness of the industrial
SULPHUR CONTENT BELOW 0.01% sector.
• India’s demand for oil is expected to grow at an annual growth rate of
SUPPLIER HPCL & BRPL 3.6% whereas domestic production is expected to grow at approximately
INDIA’S TOTAL OIL 660000 BOPD 2.5%.
PRODUCTION (ITOP) • Over the past decade, domestic production of crude oil has not
RAVVA FIELD’S SHARE IN 8% APPROX. remained in tandem with growth in domestic consumption over the
same period.
ITOP
• The demand supply gap will make India one of the largest crude oil
CONSORTIUM MEMBERS & THEIR SHARE IN FIELD consumers along with China; together, the two countries will account for
ONGC 40% nearly 35% of the world’s incremental energy demand.
• Eleventh Five Year Plan estimated that oil consumption would increase
CAIRN ENERGY UK 25% at 2.4% annually
MARUBENI CORP. JAPAN 12.5% • Companies are on constant hunt for alternative fuels like gas since crude
GAS PRODUCTION 2.7 MMSCMD prices are on a roll.
SUPPLIER GAIL • Demand for natural gas stands at 231 mmscmd whereas India’s current
gas production is 94.84 mmscmd.
* BARRELS OF OIL PER DAY • With 62% of total CBM area remains unexplored; VIL has realized the
potential & is now venturing into gas distribution as well.
• VIL plans to undertake gas distribution in Andhra Pradesh in Phase I & in
Gujarat & Tamil Nadu in Phase II. VIL dispatches 1000 million cubic
CRUDE OIL (MMT) meters of gas annually.
400 • Company is constantly on the lookout for strategic tie-ups in exploration
300 & Prospecting. A consortium comprising of VIL, GAIL, OILEX, BPCL &
HPCL with participating interest of 25%, 25% 25%, 12.5% & 12.5%
200 respectively was allotted Block No.56 in Oman for further exploration &
100 development.
• Oilex currently has drilling underway at the Block 56 where the
0 exploration well, Sarha-1, spudded on 31 December 2007 and has
Demand recorded oil shows in the two main objective horizons.
• The well is the first of three exploration wells which will be drilled in
Supply continuous sequence by Oilex at Block 56, to be followed by four wells in
Q3 and a further four wells in Q4.
• Sarha-1 has a best estimate resource of 20 million barrels of oil in place
SOURCE: DGH (mmstboip) in the shallower, Permian objective, plus significant
additional exploration upside in the Cambrian formation. The second
and third wells, Ghadaq-1 and Alyanbhou-1, have a best estimate
resource of 14 mmstboip and 135 mmstboip respectively, suggesting
FINANCIAL PROJECTIONS- RAVVA OIL FIELD (Rs. in Cr) significant potential for a large scale discovery within Oilex's Oman Block
56. VIL also has an MOU with Oilex in Australia for exploration projects
Financial Year 2007 2008E 2009P in & around the sea.
No. of 12500 12500 12500 • Optimal locations for infill wells have been selected on the basis of 3D
seismic data. An extensive offshore infill development and exploration
Barrels/Day drilling programme on Ravva commenced in October 2006 and is nearing
Annual 0.45 0.45 0.45 completion. Production has now commenced from three new infill wells
Production (Cr) and one appraisal well. In addition, two water injection wells have also
been drilled and put into service to enhance the reservoir water-flood
Net Sales 1410 1825 2007 scheme. The Ravva field has been on plateau for a number of years and
Selling 78$ 100$ 110$ the current drilling programme is aimed at continuing the strong
production performance at Ravva.
Cost/Barrel • The rig is currently operating on an exploration well, RX-8, on the
Production 14$ 20$ 20$ MM301 prospect, which has to date discovered 44m of oil and gas pay in
Cost/Barrel four Lower to Upper Miocene age sands. A further three work-over wells
are planned to enhance production capacity. Earlier in the year the RX-
EBDITA from 1150 1462 1642 10 exploration well encountered 11m of gas pay in Late Miocene sands.
Ravva Field • The work programme at WA-388P (Western Australia) comprises further
technical studies and reprocessing of existing seismic data and
EBDITA/Barrel 64$ 80$ 90$ acquisition of 3D seismic over parts of the block, anticipated to
VIL’s Share in 460 584 657 commence in 2008.
EBDITA@ 40%

MONEYBEE SECURITIES PVT. LTD. ~ RESEARCH REPORT ~ VIDEOCON INDUSTRIES LTD 4

 INVESTMENT IN NEW BUSINESSES (Rs. in mn) DHOOT SMELLS TRANSITION

• VIL is now heading for pursuing growth in domestic market by venturing

DTH into several new businesses such as DTH, Retail, Telecom and Power.
100000 • VIL’s new campaign has got off the ground by proposing four SPV’s & is
on the watch out for partners coupled with financial & strategic potency.
RETAIL
• VIL has allotted huge capex for its new ventures (refer chart).
• VIL has recently pitched for Motorola’s handset business which has been
TELECOM
10000 valued at US$ 3.8billion.
• A mix blend of debt, equity & internal accruals will auger well for VIL’s
125000 POWER
20000 fund raising plans. VIL’s management is confident of accruing their
reserves by Rs.10000 Cr. over five years.

DTH

• VIL’s, media arm Bharat Business Channel has coup in Israeli technology
EMERGENCE OF NEW DISTRIBUTION PLATFORMS (mn) firm Gilat Satellite Networks for its foray into direct to home (DTH).
Gilat's super encryption technology is an asset to Videocon.
• VIL will have direct access to Gilat’s market who is active throughout
2006 2010E Asia Pacific, working with service providers like Bharti Broadband, HCL
Comnet, Tatanet India, China Unicom, ChinaSat and Optus.
• DTH is seen as the successor to the virtually redundant conditional
16 access system or CAS, which itself was introduced to combat local cable
14 operators who under-reported subscriber numbers, sometimes by as
much as 80 per cent.
• The firm also has satellite telephony as also satellite-based internet-
access, which incorporates the most advanced IP technologies for real-
7 time audio, video and data.
• VIL has recently picked up 8% stake in IOL Broadband. Currently there
2.2 are more than 50m users of internet in India & is expected to touch
0.2 0 100m users in 2010.
• The idea is to have a DTH project at a cheaper cost than what has been
touted till now by Tata Sky and the Subhash Chandra-controlled Dish TV,
DTH IPTV Digital cable the two private sector DTH service providers in the country.

RETAIL, TELECOM & POWER

EXPECTED P&L FOR DTH INDUSTRY (2008-2016)
FY 2008 2009 2010 2012 2016 • VIL is eyeing the wholesale cash and carry business. It plans to set up 60
Net Sales 919 2221 4316 9314 20044 Cash & Carry stores at an investment of Rs 2,000 crore over the next
three years. VIL anticipates the business will contribute Rs 6,000 crore to
EBDITA -361 -288 269 1809 5515 the group’s overall sales by 2013.
PAT -472 -533 -132 1070 3367 • The cash & carry business will retail food, grocery, apparel, footwear,
consumer electronics, furnishings, hardware and general merchandise.
VIL plans to set up around 40 large stores, each consisting of 75,000 to
1,00,000 sq ft across the country, for its cash & carry business by 2012.
• VIL operates a chain of more than 1,000 retail stores nationwide under
the Next brand, through which it sells consumer durables.
• VIL’s recent acquisition Planet M will bolster its retail campaign. Planet
TELECOM BOOM M has 150 stores & is mainly into organized retail & home
entertainment
No. of Subscribers (mn) • VIL intends to swell the turnover from its retail business to Rs.2000 Cr. of
which half of it would be contributed by Plant M alone.
600 • VIL will set up a 1,000MW thermal power station at an investment of Rs
4,000 crore near Varanasi in Uttar Pradesh.
400 • VIL’s majority stake holder company Datacom has been recently
awarded 21 new telecom licenses. VIL is now waiting for spectrum
200 allocation.
• VIL points out that there should be 800 mn subscribers- a penetration
0 rate of 67% against 20%.
• VIL aspires to bring call rates as low as 20 paise/min.
2006 2007 2008 2010 • VIL is in the queue for down linking license to launch news channel.
• After disclosing its plans to invest Rs. 1100 Cr. to build a semiconductor
facility, company is getting into components used in photovoltaic cells,
which are used to generate solar energy. VIL is constructing a SEZ
primarily to inhibit both its semiconductor & photovoltaic units. The
global market of photovoltaic cells is about $1.5 billion.
• VIL has purchased 2000 acres of land to set up its 3 mtpa steel plant
5
 FINANCIAL PROJECTIONS- VIL (Rs. in Cr) INVESTMENT ARGUMENTS
Year Accounts (Sept) 2007 2008E 2009P • WELL POISED
Net Sales • GROWING CONSUMERISM
Crude Oil 1410 1825 1957 • RAVVA OIL FIELD
• MULTIPLE PRODUCT
Consumer Electronics 7300 8260 9912 • GLOBAL FOOTPRINT
Total 8710 10085 11869 • BACKWARD INTEGRATION
• MULTI BRAND
Expenditure 6899 8068 9495
• GLASS SHELL
Operating Profit 1811 2017 2374 • THOMSON CPT
Depreciation 418 488 599 • HUGE CAPEX
• BIG GETTING BIGGER
Interest 311 350 450
Tax 228 250 300
PAT 855 929 1025
RISKS & CONCERNS
No. of Shares 22.26 22.33 23
EPS 38 42 45 • Wafer thin margins in consumer durables & electronics segment
Cash EPS (CEPS) 57 63 72 • Organised retail stores pose a threat to company.
• Huge capex plans will leverage VIL’s balance sheet by raising debt or
P/E 8.06 - - equity or both.
P/CEPS 6 - - • VIL has a lot more on the plate & its management has an onerous
OPM% 21 20 20 task to execute its diversification plans in a judicious way.

FINANCIALS OF VIL. (RS IN CR) VALUATION

10000 • At the CMP of Rs. 342, the stock trades at a P/E of 8.14X
9000 discounting its FY09P EPS of Rs. 45.
8000 • VIL plans to become one of the top 5 leading consumer durables in
the world & we believe there is no stopping in it.
7000 • We anticipate VIL to realize gain from its diversified campaign. Sales
6000 will significantly excel in the years to come.
5000 • We commence coverage on the stock with a BUY recommendation
& a price target of 540 based on FY09 EPS of Rs. 45.
4000
3000
2000
1000
0
2005-06 2006-07 -Explored By: RIKEN MEHTA
Net Sales 7580 8710
Other Income 165 166
Gross Profit 6496 7064
Depreciation 335 419
Interest 226 311
Tax 95 228
Net Profit 819 859
Dividend (Rs.) 0 3.5
EPS 36.88 38.66

MONEYBEE SECURITIES PVT. LTD. ~ RESEARCH REPORT ~ VIDEOCON INDUSTRIES LTD 6

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DHIREN SHAH, MD
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search Analyst Sector: Cement, Telecom & Paper
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RIKEN MEHTA, Research Analyst Sector: Power & Textiles

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MONEYBEE SECURITIES PVT. LTD. ~ RESEARCH REPORT ~ VIDEOCON INDUSTRIES LTD 7