V-Guard Industries' Moves
Beyond South India
Kochi-based V-Guard is thinking pan-India and more
than just stabilisers. Leading the charge is 33-year-old
managing director Mithun Chittilappilly.
Mithun Chittilappilly wants to make V-Guard “truly national”
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.
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).
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 VGuard 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.”
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 GROWTH
They did that, and more. From Rs 300 crore in 2008-2009, VGuard'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.
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.
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
A STREET SMART TECHNOCRAT
About 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.
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.
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.