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Videocon – A clear winner?

May 15, 2000

Videocon International Limited, a leading appliances company, is a market leader in the television and washing machines segments. The company has plans to foray into the emerging areas like set-top boxes and Wireless Application Protocol, which would give it a cutting edge. In spite of these favorable circumstances, the stock lags leading market indices.The company commands a 35% market share in washing machines and 10% in refrigerators. The company’s Bazooka television series commands a good brand value. Videocon was the first company to introduce web-based television in India. The company has also a strong distribution network coupled with a good brand recall. The company posted a 42% increase in sales and 77% increase in bottom line for 3QFY2000.

The consumer durables sector has seen a buoyant demand in FY99 thanks to the cricket world cup fever and the pay-commission revision. This year all the companies are gearing up for the Euro 2000 and the Olympics, which could act as a catalyst for demand.

But, since it is a volume driven business, to withstand competition, the company may be forced to reduce prices, which could affect margins. The company has a strong focus on research and development to enhance its product portfolio to suit different sets of customers. This could differentiate the company from its competitors and help limit the decline in profitability.

The stock is currently trading at Rs 58 at a P/E multiple of 2.8 on the FY99 earnings. The price to book value ratio works out to 0.27, which indicates potential of the stock.

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