Vindhya Telelinks ltd

Stock Opportunities Not-so-Hidden Gems
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Vindhya Telelinks Limited was established in joint sector between Universal Cables Limited and Madhya Pradesh State Industrial Development Corporation Limited to implement a Project for manufacture of Jelly Filled Telephone Cables (JFTC). The Plant located at Rewa (M.P.), India started commercial production in 1986.

The company has since then become the leading supplier of Jelly Filled Telecommunication Cables and Optical Fiber Telecommunication cables to BSNL, MTNL and other leading user organizations like Railways, Defense, Coalfields, NTPC, SAIL, Atomic Energy, Bharti, Tata Tele Service, Reliance Infocom etc.

EPC Division of Vindhya Telelinks Ltd since its inception in 2007 has become one of the leading players for Telecom Network Rollout, also providing solutions for Power Distribution and Sewerage projects. EPC Division has vast experience of working in hilly and inhospitable terrains and has successfully executed several projects in India and nearby countries. The EPC Division has a strong presence in the Northern Region of India and is well equipped to execute the Network for Spectrum Project as per the specifications and requirement of the Defence Services.

Major triggers that can shoot the price of Vidhya Telelinks are:-

  1. MP Birla Group company Vindhya Telelinks, which manufactures telephone cables in collaboration with Sweden’s Ericsson Cables had bagged a part of Rs 7,582 crore contract from BSNL to build an optic fibre cable network for India’s armed forces; according to the management this order is primarily divided into two parts; supply and execution of the project, followed by the AMC. The AMC is about Rs 440 crore which is to be done for seven year subsequent to the execution of the project and the project is valued about Rs 1,036 crore. This will be in the name of Vindhya Telelinks Ltd. In the another package, Vindhya Telelinks Ltd is partnering with Larsen and Toubro (L&T) wherein they will be having some revenue around Rs 125-150 crore – that will be in addition to Rs 1,036 for one package.

  2. After Rs 1,036 crore plus Rs 125 crore odd, they would be doing about Rs 900 crore for this year because this project is to be done over a period of 18 months, so it will be divided into two financial years meaning this financial year one can expect a turnover of 900 cr + with only one quarter left for results, the combined turnover of the 3 quarter is ~500 Cr which implies that the coming quarter results one can expect 400 cr + turnover with ~10% margin in the profit for a company with just 600 cr market cap.

  3. In addition to laying this mega network on turnkey basis in the northern region, Vindhya telelinks Ltd. would also be involved in creating OFC Network in other parts of the country and would be partnering with L&T for the same.

  4. The recent bulk deals by Reliance and Sundaram mutual funds at around the current market price justifies the credibility of management and better future prospects of the company.

  5. Government is working hard for Digital India Mission and is spending aggressively on Defence by the way of which lot of orders are expected to flow for Vindhya Telelinks.

Promoter holding: 43%
Mutual fund: 4/
FII: 9/

Recent Announcement
Vindhya Telelinks Ltd has informed BSE has entered into a Definitive Joint Venture Agreement with Visabeira Global SGPS., SA, Republic of Portugal, primarily for EPC business.

Corporate_Announcement.jpg683Ă—966 226 KB

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Discl: holding small position for tracking purpose.

For 2014-2015
Total income up: 53%
EBIDTA up: 103%
EBID up: 106%
PAT up: 177%
EPS up: 2.77 times
PE: 19

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Thanks - why is the company just not generating any cash flows - OCF is consistently negative and debtors are going up like crazy. The company’s revenues are going and sitting as receivables on BS and not translating into cash at all.

Receivables are Rs. 360 Cr up from Rs. 275 Cr in march 2014. that’s 200 days of sales and 4x the EBITDA that they generated.

Infact when i add up the debt it totals Rs. 300 Cr. - at say 12 % ROI, that’s almost 35 Cr. of interest repayment - plus repayment of principal plus fixed asset creation. So, does not look like this company can ever generate free cash - a thesis so far validated by its record over the years.

Unlesss cash flows improve drastically, it looks like a waiting debt bomb that can explode.

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looks interesting however we need to be careful about the corporate governance
see the news below available on internet

Harsh Lodha Indicted[edit]
Harsh Lodha and his brother, Aditya Lodha were indicted in 2013 for malpractice. Three members of the Birla Corporation, Om Prakash Agarwal, Suresh Kumar Sharma, and Shashi Agarwal claimed there was malpractice in the firm and alleged misconduct in falsifying the information about the number of partners in the firm. This was a problem as Aditya Lodha has a part in the Chartered Accountant firm Lodha and Company. His brother, Harsh, is the chairman of Birla Corporation. At the time, Lodha and Company was the auditor of Birla Corporations. As a result, the ICAI suspended Harsh and Aditya Lodha for 3 months.[11]

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Hi guyz,

Its time to revive this thread. We are standing at the same place since July last year - CMP of 600Rs. I feel the only issue here is the Operating cash flows. Consistently showing negative operating cash flows over last couple of years. Investigated deeper into the issue - read AR of last 5-6 years. There seems no fraud/siphoning of money by the promoters. No sales reversal or bad debts provided. This is a genuine issue with the company since its clients are government entities. Its operating profit goes into increase in debtors (or increase in working capital). Looking at ROE, sales growth and profit growth, company’s performance looks phenomenal. But, its entire profits goes into investing in debtors. Over years it has been managing its investing cash out flows either by taking loans from bankers or having inter corporate loans. Such companies will hardly able to generate positive operating cash flows. Look at L&T the classic example. Over years it has been not able to generate positive operating cash flows.

So, coming to the question - Should we invest in such companies? And if yes, then why should we? Please do consider L&T thesis while providing response.

I am double minded here. Do tell me if I am missing something here.

1 Like
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Hi Abhishek, tried analyzing this company more. Adding to your analysis, see my quick takeaways -

  1. Company has diversified into EPC business (as mentioned in AR also) and EPC remains growth engine. Over last 8 quarters EPC revenues have grown 5x!

    Pasted image720Ă—168 13.9 KB

  2. EPC order book as of today stands at Rs. 1500 crs. for MCap of Rs. 700 crs. only!!

See below BSE announcement and adjust this for 9mFY2016 EPC sales.
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/1D9C6CBD_64AB_44E1_AA6D_F3C5DEE86264_195539.pdf

  1. Q4 is typically strongest quarter for capital goods company as corroborated by past 3 years also.

  2. VTL’s investments in group companies are valued at Rs. 1000 crs., so effectively we are getting operating business generating Rs. 80 crs. PAT for free!! But, VTL has no plans to monetize their investment, so this point is absolutely irrelevant and should be given zero weightage in valuation.
    Small Cap Big Idea: Vindhya Telelinks - YouTube

  3. BSNL order book (of Rs. 1400 crs.), which mgmt. is bragging about, was received in June 2014 and was expected to complete by Dec 2015. But in these 18 months total EPC sale has been only Rs. 563 crs.! Is the order book confirm/binding?

It is either a gold mine at this price or a super-dudd stock.

Better way is to reach out to management to seek clarification on EPC order book and estimated time to realize this or wait for FY2017 annual report or meet management in 2016 AGM :slightly_smiling:

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Thanks pratik,

The order book is genuine. we know it’s a govt contract…and govt and delay go hand in hand…but what is important here is can company generate substantial cash flows to stop further keep investing in receivables/working capital…we are getting this business at cheapest valautions…but what to do with the cheap valuations if company’s business doesn’t seem sustainable…but then look at l&t…same cash flow pattern…am I missing here something…

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They had received bigger order than this in 2010 - but quick math suggests it never showed up on P&L till date!! So order book sanity is questionable

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Ohhhh…thanks for pointing out that…let’s keep track…and wait for annual report to open…

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There is good article in moneylife. I thought of sharing portion of that

Full article at

The telecom business was the mainstay of the company until recently. Cables contributed to 74% of its revenues for the quarter ended 31 December 2014. But four quarters later, the EPC division contributed to 71% of its revenues for December 2015. The basic business of the company has changed.

The EPC division has a strong presence in the northern region of India and, currently, concentrates on three primary business verticals: telecom, power and sewerage projects.

The division had a robust order book position of over Rs1,500 crore on 31 March 2015. In the telecom vertical, it won a package of the defence Network for Spectrum (NFS) project as a lead bidder in July 2014 and has been awarded the contract to roll-out a state-of-the-art intrusion-proof network for defence services in the states of Himachal Pradesh, Punjab, Haryana and Delhi & NCR (national capital region).

Its power vertical had bagged a big project worth Rs475 crore in 2014-15 for strengthening of distribution network under the special plan in the state of Bihar.

Vindhya has entered into a joint venture agreement with Visabeira Global SGPS, SA (Republic of Portugal) to handle EPC project business in telecom, energy, renewable energy and other infrastructure sectors in India and other territories.

Vindhya has a fantastic return on equity (RoE) of around 32%, based on its trailing 12 months’ earnings on a stand-alone basis. Set against that, the valuation looks attractive at around 8 times its trailing 12 months’ earnings. The company has been financing its capital needs in the past few years by resorting to debt funding, leading to a rise in debt levels. The debt-equity ratio was at 1.03 on 31 March 2015. But, thankfully, there has been no equity dilution.

Promoter holding stood at 43.52% on 31 December 2015. The stock has delivered tremendous returns in the past few years and its share price zoomed by 350% to Rs629 on 22 February 2016 from Rs140 on 16 May 2014. Will the stock do well in future as well? The EPC business is competitive and returns from EPC tend to be lumpy which means cash-flows get affected. But it would be worthwhile keeping a watch on the stock because of its low valuation.

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So should we understand that because of this transformation from a product company to service cum product company…working capital need would be low…and company can generate positive operating cash flow…let me check the half yearly balance sheet…

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Share price is continuously deteriorating making it more valuable. ROCE is 30%+, debt to equity is around 0.85 which is manageable. Is this the right time to buy?

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Promoter shd dispose of Birla copr share and consolidate all 3 cable cos Universal, Birla and Vindhya in 1 .

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Hi Himan02,

Check the cash flows. They have been consistently negative. Such businesses are tough to generate positive cash flows in long term. Check Sterlite and other peers. How are they able to generate positive OCF? Also, there is a lot of cross holding among group companies which makes the structure complicated. Why do we want to apply our mind here, when we have much better companies in the pool. Management is not minority shareholders friendly.

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Hi,

Noticed that the discussion had halted due to the lack of a track record of generating cash flow.

  1. For FY16, OCF = ~70 crores

  2. Looking at the half yearly balance sheet i.e. 6MFY2016-2017 (screenshot below); Long term and short term borrowings have come off.
    a. Long term borrowings have come down from 87 crores to 25 crores and
    b. Short term borrowing has come off as well from ~205 to ~180 cr levels.

blob.jpg1048Ă—518 142 KB

Now that it is fairly clear that the co. has transformed itself into an EPC player (as evident by the changing segment sales in the screenshot below), how would you value the company viz a viz other EPC players.

Looks fairly attractive valuation wise.

Views invited. Thanks

blob.jpg1061Ă—487 170 KB

1 Like
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Any updates on trigger from Universal cable. Is it a good buy. Universal cables also looks a good best rite now at current price. Suggest if anyone has any views or info.

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what trigger are you talking about from universal cable?

you are right universal cable looks good as Government is planning electrification of all the villages of India. I am invested in universal cable.

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Both Vindhya and universal cable were up today close to 10%. What is going on with the companies?? any restructuring??

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guys any updates on this company…

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I am looking for information related to developments going on in vindhya Telelinks. Guys pls share some information to research more about the company