What are the growth plans of Varun Industries (VIL)?
-Deepak Rawal
Varun Industries (VIL) has diverse business interests in steelware, oil and natural gas, wind energy, uranium, mining, gems and jewellery. It has invested in setting up of a flat steel plant and a pig iron plant which are expected to become operational by 2015.
VIL has also set up a series of retail outlets to cater to the domestic demand; integrating the stainless steel value chain from mines to market in the near future.
VIL's capital-intensive business justifies its high debt-to-equity ratio which currently stands at 3.95 (FY11). Its return ratios, namely return on capital employed (RoCE) and return on net worth (RoNW) have seen a significant improvement of around 5 percentage points and 14.6 percentage points respectively since FY09. Its operating profit margin and net profit margin have averaged 7.6 per cent and 1.8 per cent over five years.
The stock's PE is currently trading at a discount of nearly 76 per cent to its historic median PE of 12.8. Similarly, its price-to-book value (PB) is also at 63.6 per cent discount to its historic PB. Based on a low earnings per share growth of 4.2 per cent, its price-to-earnings to growth ratio comes at 0.7 times. VIL has corrected over 60 per cent in last one year and has been continuously declining since its promoters increased their pledged shares by 15 percentage points to 50 per cent compared to the December quarter. When this free fall gets arrested remains to be seen.
This article was originally published on May 11, 2012.
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