Veto Switchgears IPO Review by KM Global (Apply)

Review By K.M. Global Financial Services Ltd on December 5, 2012

Issue Period: December 3rd-5th
Issue Price (Rs): 48-50
Issue Size (Rs Cr): 25.0
Mcap (Rs Cr): 80-83
Listing: NSE Emerge
Promoters: Gurnani Group
Minimum Order Size: 3000 Shares
CRISIL Rating: SME Grade 4/5
BRLM: Keynote Capital Indian Overseas Bank

Veto Switchgears is engaged in the manufacture and sale of wires & cables and electrical accessories. Its portfolio includes industrial cables, general & modular switches, ceiling fans, CFLs and other accessories. Veto's products are manufactured in Hardwar, Uttarakhand and the installed capacity for wires & cables is 1.48 lakh bundles p.a. and for accessories is 3.8 crore pieces p.a. Its products are sold under the brands 'VETO' and 'VIMAL POWER' primarily in North-west India.

Strengths & Expansion Plans

Large Network of Distributors - Veto can utilize its network of over 2,400 dealers to leverage its brand and introduce new products.
Improving Margins - We believe that the operating margins should rise going forward as capacity utilisation improves from sub 30% levels due to higher working capital limits.

Risks

Reliance on Rajasthan - Veto could find it difficult to scale up as it relies on Rajasthan for 70% of its revenues. Building its brand in other states could take time and require substantial advertising.
Working Capital Cycle - Veto's large inventories and long working capital cycle could lead to margin pressures.

Conclusion / Investment Strategy

We recommend that investors subscribe to Veto Switchgears & Cable's IPO as the company has demonstrated steady growth and is available at an attractive valuation relative to large players such as V-Guard

Reviewer recommends Subscribing to the issue.