MVL Industries: Indian Equities

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MVL Industries: Indian Equities
MVL Industries operates in the consumer electronics (CE) industry.
The company largely supplies televisions, vcd/dvd players and the like.  It owns the ‘Media’ and ‘MVL’ brands.
The company operated with a high debt load in the last financial year – which comprised largely of secured loans from banks.
The company also owns quoted investments – the largest of which are holdings in MVL Limited, which has seen a decline of over 75% in value over the last year – resulting in market value of holdings amounting to about 40cr.
The balance sheet largely comprises of receivables although they are reported to be less than six months old.  It is difficult to ascertain their recoverability from publicly available information.
However, the company has reported consistent growth in operating profits and revenues over the last five years – reporting over 30cr in operating profits on revenues of over 470cr in the last financial year.  The interest expense, arising out of the above debt, makes the net profit far more sensitive to revenue changes.
The business is exposed to high interest rates at the peak of the interest rate cycle – both on its own debt as well as diminished consumer demand that relies on loan financing for CE purchases.
The products are subject to a high risk of technological obsolescence as rapid innovation renders current products out of date in ever shorter timeframes.
The business is a low-margin business reflecting a variety of factors foremost of which is that it is essentially a retail/trading/distribution outlet with brands that are not prominent.  It is dependent on suppliers for products and its earnings are subject to heavy competition from unorganised players as well as high taxes imposed by the government.
Management have not exhibited exemplary fidelity to the company’s minority shareholders by – engaging in reinvestments in unprofitable growth, refusing to pay out dividends, and allotting new shares to promoters on a preferential basis.  Overall they have raised substantial financing from outside sources over the last few years that have diluted minority shareholders.
By: AI

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