Sharp India

j2eeprofession_ · June 13, 2014, 4:18am

Sharp India is a Manufacturer of Consumer Electronic Products in India. The company is a subsidiary of Sharp Corporation (Japan). Sharp Corporation is the fifth-largest television manufacturer in the world, after Samsung, LG,Sony and Panasonic. Sharp Corporation has three subsidiaries in India, namely, Sharp India, Sharp Business Systems and Sharp Software Development India Pvt Ltd. Last year, Sharp Corporation decided to restructure their business in india. As a part of this restructuring Sharp India was asked to take care of all the manufacturing related activities (manufacturing of home appliances). The marketing and after sales is being done by Sharp Business Systems.

Till last year, Sharp India was making losses. This was mainly due to additional depreciation on certain machinery, low LCD volume, pressure on prices / margins. Intense competition, increase in input cost and reduction in selling prices , wide & adverse fluctuations in the currency exchange rates was also affecting profitability of the company.

Turnaround:

Indiaâs growing stature in the world economy and stagnant Japan Economy had forced Sharp Corporation to concentrate higher on its Indian Subsidiary. Recent re-structuring was the first step towards it. To bloster profitability, the company last year decided to phase out its âvalue-for-moneyâ range of products and focus only on high-end models across product categories. âWe will focus only on products such as inverter air-conditioners, LED TVs above 32 inches, and frost-free refrigerators, in order to rationalise our product portfolio,â said Sunil K. Sinha, Chief Executive Officer and Regional Head of Sharp India in an interview to Businessline. Furthermore, company has started manufacturing newer products like inverter Air Conditioners (which are extremely efficient and very light on pocket), Air purifiers (which are considered the best in the world). The company has also given a special emphasis on after-sales support. To prove the companyâs commitment to after-sales service, Sinha (Sunil K. Sinha, Chief Executive Officer and Regional Head of Sharp India) has given his direct telephone number in the product guarantee cards and advertisements for customers. This is rare and genuine gesture on the part of company.

Products:

Sharp India is principally engaged in the manufacture and sale of Colour televisions (CRT TVs) and liquid crystal display televisions (LCD TVs) & LED TVs. In May 2013 (ie. Last year) Sharp India, also started to manufacture split Air Conditioners (This facility has an installed capacity of 5 lakh units a year. ). Recently, the company announced that it would start manufacturing Air Purification Systems. For Sharp India, TV and air-conditioner verticals contribute over 70 per cent of the top line.

TVs : No real introduction is needed. Sharp is a well known TV brand in the world. In (India) the 4.5-million-unit LED TV market, Sharp commands 3 per cent share. It hopes to cross 5 per cent this year. The LED television sets of Sharp are offering four colors â one primary color plus the normal red-green-blue â and it is Sharpâs unique selling proposition.

Air Purifier: The air purifiers work by using an electrical discharge to create both positive and negative ions, which are then surrounded in water and then released into the air. The Plasma cluster Ion Air Purifiers is Sharpâs effort to keep supplying the latest in technology products. The product is launched recently. Air Purifiers equipped with Sharp Plasmacluster Ion Technology are used by more than 5 crore families worldwide and is the best Air Purification System available to mankind. Sharp enjoys 56% market share worldwide and is No 1 in 17 countries. They are expecting the market for Air Purification to reach Rs 2000 crores by 2016. Sharp India plans 25% market share and clock a turnover of Rs 500 Crore from Air Purifier business alone. With this Sharp will provide the second growth driver to the stagnant Consumer Durable business, the first being the game changing Inverter ACâs being manufactured at our Pune factory.

Air Conditioner (Inverter Air-Conditioners): With less than 4 per cent share of the 3.4-million-unit room air-conditioner market, Sharp currently lags behind many other brands. However, if we consider only the inverter air-conditioners market, which is around 6 per cent (a little over two lakh units) of the overall market, Sharp India commands over 45 per cent share. In the current year they expect to garner at least 7-8 per cent share of the overall room air-conditioner market, which is expected to cross 4 million units. The customers would be able to save a substantial amount on power bills due to lower power consumption, as inverter technology is being used. The compressor runs on DC (direct current). Roughly, the AC does not consume more than 100 units per month on the aggregate.

Refrigerators: Sharp refrigerators are using two technologies â plasmacluster ion generator and hybrid cooling â preventing dryness, uneven cooling and overcooling of food, fruits and vegetables to keep them fresh. (As a personal disclosure I own a Sharp Refrigerator and its pretty awesome).

Financial Performance:

The following is a yearly snapshot of financial performance of the company:

(in Cr.)	2014	2013	2012	2011	2010
Income Statement
Revenue	154.29	77.78	83.76	111.62	106.96
Other Income	0.03	0.07	0.39	0.69	1.06
Total Income	154.32	77.85	84.15	112.30	108.03
Expenditure	-144.61	-74.06	-81.51	-109.58	-103.91
Interest	-1.35	-0.17	-0.95	-0.26	-0.13
PBDT	8.35	3.61	1.69	2.46	3.99
PBT	2.77	-1.30	-0.50	0.82	1.61
Tax	0.00	0.00	0.00	0.00	0.00
Net Profit	2.77	-1.30	-0.51	0.82	1.61
OPM %	6.29	4.86	3.15	2.44	3.85
NPM %	1.80	-1.68	-0.60	0.73	1.50

As evident from the table above the company has managed to turn around this year. Revenues have grown 100% YoY and has also given profits this year. Introduction of new products, especially the split ACs has done the trick. The product is very well received by the public. As shown in the table below, the Air Conditioners seem to have heavily impacted the sales this quarter.

The following is a quarterly snapshot of financial performance of the company:

(in Cr.)	Mar-14	Dec-13	Sep-13	Jun-13	Mar-13	Mar-14
Income Statement
Revenue	69.41	25.03	30.09	29.76	18.84	154.29
Other Income	0.01	0.00	0.01	0.01	0.01	0.03
Total Income	69.42	25.04	30.10	29.77	18.85	154.32
Expenditure	-59.77	-22.99	-31.26	-30.60	-16.76	-144.61
Interest	-0.39	-0.42	-0.38	-0.17	0.11	-1.35
PBDT	9.26	1.62	-1.53	-1.00	2.20	8.35
PBT	7.50	0.15	-3.19	-1.69	0.09	2.77
Tax	0.00	â	â	â	0.00	0.00
Net Profit	7.50	0.15	-3.19	-1.69	0.09	2.77
OPM %	13.90	8.17	-3.85	-2.81	11.09	6.29
NPM %	10.81	0.62	-10.61	-5.68	0.47	1.80

The increased sales were heavily influenced by production of Inverter Air Conditioners. Traditionally Q4 is the weakest quarter for Air Conditioners but still company has managed to show outstanding growth. The present quarter should be an even bigger blockbuster on back of really hot summer. Lower exchange rate is very favorable to company as most of the components are imported. The company had indicated last year that they would like to start manufacturing other home appliances also apart from split Air conditioners and TVs. Walking the talk, recently, they announced that they have started manufacturing of Air purifiers and expects to earn around rs500cr by 2016-17 by this segment. (More info on http://www.thehindubusinessline.com/companies/sharp-india-launches-air-purifiers/article6101662.ece).

Given the growing emphasis of our P.M. Shri. Modi ji on Indo-Japan ties this company is surely going to be a winner. Furthermore, in future there is every possibility that Sharp Corporation might provide some technical assistance in Solar panel manufacturing from Sharp Solar (A bit speculative at the moment). As far as Balance sheet is concerned, this year the accumulated losses of the company has reduced dramatically from 3.19 cr to around 42 lacs only. It is expected that in the present FY, the losses would be completely wiped off and due course they would announce dividend. The promoter company owns 75% of Sharp India.

Technicals:

The stock has given a huge breakout at the levels of rs 28 after years of consolidation. The breakout has happened on massive volumes with 100% delivery (its in T2T segment). Such breakouts take the stock to dazzling heights in 2-3 yrs time. The re-rating along with massive growth in revenues and profits will keep the stock busy for the next couple of years, atleast.

dkirand · June 15, 2014, 5:18pm

Hi J2EE,

Not sure if you have read this post by Neeraj already -http://neerajmarathe.blogspot.in/2011/03/sharp-india-ltd-how-blatant-can-one-be.html

I don’t know much about Sharp, but thought will point you to an authority source before you take a call one way or another. Would be good to check with Neeraj.

Kiran

j2eeprofession_ · June 16, 2014, 3:59am

I do not understand one thing: On what basis did the author of that blog decide that it is sharp business system that will make more money. The argument could very well be the other way round too. Sharp india manufactures at 15k sells to sharp business system at 19k and sharp business system sells to customers at 20k. Before doubting the company do look at point 8 of the notes attached in the FY14 results. By the way this blog post I had read during my research. This is not really my concern here, as I would give the benefit of doubt to the Japanese promoters. What is slightly bothering though is that it is going from one UC to another UC. This is unsettling.

Tolaha · June 16, 2014, 6:04am

If SBS makes profit, the Japanese promoters get to keep all of it. If SI makes it, the promoters will have to share it with all their shareholders as it is a listed company.

From what I understand, the reason for having either the trading or the manufacturing entity (as done by Suzuki) separate from the listed entity is to ensure that the promoters can use the capital markets for their needs but can skimp when it comes to sharing the moolah.

Going ahead, do we need to be concerned if a company has Japanese parentage?

j2eeprofession_ · June 16, 2014, 6:59am

On what basis did the author of that blog decide that it is sharp business system that will make more money. The argument could very well be the other way round too. Sharp india manufactures at 15k sells to sharp business system at 19k and sharp business system sells to customers at 20k.

If SBS makes profit, the Japanese promoters get to keep all of it. If SI makes it, the promoters will have to share it with all their shareholders as it is a listed company.

From what I understand, the reason for having either the trading or the manufacturing entity (as done by Suzuki) separate from the listed entity is to ensure that the promoters can use the capital markets for their needs but can skimp when it comes to sharing the moolah.

Going ahead, do we need to be concerned if a company has Japanese parentage?

I agree with you and was sure that somebody would bring up this point. All said and done, the maruti stock is up more than 40% since that announcement. In a bull market lot of things get discounted and its important to note, Japanese managements are far better than quite a few of their Indian counterparts(personal opinion). But still I will maintain that I would not be doubtful of Sharp’s Management until and unless proved otherwise. Secondly, its not that Sharp India, does not own the brand. So any improvement of brand equity helps Sharp India too (by improving the volumes). Also, for products it does not manufacture, Sharp Corporation directly provides it to Sharp Business Solutions, and therefore, Sharp India is relatively insulated from currency fluctuations too. Even I would not mind Sharp India and Sharp Business Solutions to be amalgamated, but whatever we have seen so far ( in terms of results), I believe this arrangement is boding well for Sharp India.

Guys, on a separate note, has anyone of you had any experience of sharp products that was bought in recent past?

manishinlucknow · June 16, 2014, 4:07pm

Why do we need separate companies for manufacturing and sales. Obviously for the unethical reasons which we all know.

I have not analysed sharp india, but from below argument, it is quite possible that SBS makes more profit. Sharp India makes a profit of rs 4K after doing all the hard work - factory, employees, expenses etc and makes significant investments to generate returns of 4K , whereas SBS makes a profit of 1K without incurring much cost. so apparently ROCE for SBS will be much high with reduced risks, all at the cost of Sharp india shareholders.

Also, Japanese brand doesnt guarantee success.

In TV and AC segment, LG , Samsung, DAIKIN, VOLTAS ETC have strong brand recall, there is stiff competition, I dont think sharp has strong brand presence there.

From screener, sharp india doesnt look cheap also, in fact looks expensive.

j2eeprofession_ · June 17, 2014, 6:51am

Manish,

Screener and allied platforms works on historical data and therefore, its obvious that it would not show Sharp in bright light. Not even a single guy considered my buying decision of india’s biggest microlender (last year) as sane, because everybody was stuck with over-analysis. Everything has a price, and one should know if the price that you are paying is deserved by the company or not.

Also, If you compare the stocks then you know that everything is relative. Turnaround stocks can give you huge returns if you buy them at right price and at right time. Mature businesses give not so great returns, although the great ones could be steady compounders. It depends on the risk profile of individual.

Also, I never said Japanese management 'guarantees" anything :).

Lastly, its on continuous circuit and this is what troubles me the most. I am not comfortable with this stock movement.

hiteshrandhawa · June 18, 2014, 9:54am

Although this is a thread for Sharp. But amongst Consumer Durables I like the story of IFB Industries better (betterhas notbeen used as arelative term as compared to Sharp as I don’t know much about Sharp, hence please take the mention of IFB in isolation).

Mkt. leader with >50% market share in Frontload Washing Machines.
Strong Brand Name and Good Distribution Network(Ask any housewife or even a washing machine salesperson of another company @ good frontload washing machines and more often then not you will get the answer as IFB)
Increasing Distribution Network in Tier1,2,3 cities
Segment growing at >20% where as penetration is still low at 7%
Has diversified into other white goods as well
80% revenue comes from home appliances and 20% from engg. division (both seem to be doing well)
Engg. division manufactures automobile components (which I believe should do well in future)
Export plans lined up as well for white goods
Strong B/sand almost a zero debt company
With Cash and Liquid investments of @ Rs.100 Crs. on a Mkt. Cap. of Rs. 500 odd Crs.

I need to dig a bit further into IFB industries.

Buthave a taste for IFB Industries, as Iprefer Consumption stories with Good Brand Names, Good Distribution Networks, Good Penetration in Tier 1,2,3 cities, Good Market Share in an Under Penetrated but Growing Segment.

Discl: I am invested in IFB Industries.

Cheers!!!

anon34631667 · June 18, 2014, 10:41am

@HR

One thing that deters me from investing in IFB group companies is they dont pay dividends EVER. Not even a token 10 paise dividend

i havent studied IFB industries in detail but was attracted to IFB agro some time last year but noticed ageneral aversion to declaring dividends in this group which puts me off.

hiteshrandhawa · June 18, 2014, 10:50am

Hi S Khan,

Yes true, I was wondering about the same and then thought would dig further into as why don’t they pay dividends and do they fund capex through internal accruals or something. Still need to dig into this though.

Apologies on my part as I should have mentioned this above.

Cheers!!!

hiteshrandhawa · June 18, 2014, 11:25am

@HR

Hi S Khan,

I had come across the below article which mentions that they have not been paying dividends to fund expansion plans (Please Note: This was published in July 2010 and I haven’t verified if Mgmt. did walk the talk).

http://www.thehindubusinessline.com/todays-paper/tp-corporate/out-of-bifr-ifb-to-invest-rs-62-cr-in-capacity-expansion/article1000011.ece Link: http://www.thehindubusinessline.com/todays-paper/tp-corporate/out-of-bifr-ifb-to-invest-rs-62-cr-in-capacity-expansion/article1000011.ece

Also one more negative that I had come across is that the promoters had issued fresh shares to themselves which resulted in dilution whereas there was no actual need to raise capital.

That apart although IFB is doing well in the segment but still it does face competition from deep pocket MNCs like LG, Samsung, Whirlpool, etc.,.

The company does cast its fair share of doubts with respect to corporate governance.

J2EE Professional,

Apologies for hijacking the thread, but thought let me post a couple of negatives on IFB Industries as I highlighted few positives as well above.

The discussion on Sharp can proceed now

Cheers!!!

sood · June 18, 2014, 12:36pm

I do happen to own 2 sharp ACs (window). The clincher for me was the 3 year comprehensive warranty they offer. They promise 1 day resolution but it took me 2 weeks, several phone calls and finally mails to all kinds to people to get the service centre (1 km away) guys to fill gas (almost annual ritual where I live). They came near midnight to deliver and told me they are too busy attending to service calls. I hope that does not mean their products have too much trouble but it was peak summer season and I didnt have to pay anything even after over a year.

Few days back I went to a multibrand showroom and asked the guy to show me the cheapest window AC around. He pointed to Sharp lying in a corner. Their EER was better than all other two star ACs , the coil quality was good, they still have 3 year warranty and it was few thousand cheaper (21.5k) than other 2 star ACs . The Sharp showroom was out of stock. They have just one window model and apparently it is selling so they dont promote it too much. I did take a look at the delivery guy’s list but it had all brands of ACs (even lloyds).

I dont own sharp but In a moment of greed a fortnight ago, I did buy the lloyd pack (fedders lloyd and lloyd electric) , available at below 5 multiples. Their promoters are buying too.

j2eeprofession_ · June 18, 2014, 4:14pm

The product profile of IFB Industries and Sharp India is pretty different. Sharp is mainly in “Inverter” ACs, LED/LCD and now Air Purifier and IFB is just like any other White goods maker. Also, the technology of their ACs and especially Air purifier is considered one of the best.

By the way IFB was not paying dividends because it had accumulated losses. These losses are wiped out this year. So probably from noonwards they could pay dividends.

@HR

Tolaha · June 18, 2014, 5:45pm

The air purifier market in India seems to be attracting a lot of attention. A few of the competition:

http://www.indiawaterreview.in/Story/News/panasonic-enters-indian-water-purifier-market-eyes-rs-500-cr-sales-by-2015/890/1#.U6HNm_mSyHc

On a quick google search, found a lot of deals especially from Kent starting at 2500 Rs.Eureka Forbes, Kent, OSIM, Sanyo seem to be some of the existing players. Maybe once Indian manufacturing sector starts growing like China and we start polluting like China, this would be a good business to be in!

j2eeprofession_ · June 19, 2014, 10:37am

Actually the earnings would be very strong for Sharp India in this financial year. Lets do some simple Math here:

Sharp as 4% share in 34lacs AC market, which sharp expects to take it to 7-8% in an year.Lets assume for safety its just 4% of 34lacs:

4% of 34lacs = 136000 ACs

Now, Sharp sells these ACs from rs22k - 46k+. Assuming Sharp India sells this to Sharp Business Systems at a 30% discount we get roughly16k-30k selling price. Assume for safety and simplicity the average is 20k.

136000*20000rs = Rs 2720000000 = 272 cr

Now we come to Lets come to LED TVs.

3% Share in 45lacs LED TV market. It expects to cross 5% this year. But we’ll consider 3% for safety.

3% of 45lacs = 135000

Now again, Sharp sells these TV from rs22k - 50k+. Assuming as discussed earlier, Sharp India sells this to Sharp Business Systems at a 30% discount we get roughly16k-35k selling price. Assume for safety and simplicity the average is 20k.

135000 * Rs 20000 = Rs 2700000000 = 270cr.

Assuming roughly they make 50cr from Air Purifiers, but lets not include it.

272+270 = 542 cr of topline.

This quarter they have given a PAT margin of more than 10%, but lets consider that at 7% and with this we get a PAT of 37cr and an EPS of 14+rs for FY15.

This is a very safe estimate. Yes, it is possible that Sharp India sells, at higher discount to Sharp Business Systems (unlikely but possible, have asked info on this from CS) but remember we have considered lower range of product prices (just 20k), not considered revenues from Air Purifiers (Higher margins), have not considered the increase share of Sharp products or even the markets itself expanding (e.g. AC market which is growing at around 15% per Annum).

If we increase the base price by even 10% (say 22k), the earning increase very substantially. So I guess this is safe calculation. Next two quarters would stand the test of this calculation.

If we believe that sharp even sustains its market share then Sharp India could end this FY with around 550cr revenues and therefore, the stock seems to be going from one UC to another (Although I am still not comfortable with this kind of price action).

bomi · June 19, 2014, 1:38pm

1). In the year ended March 2014, Sharp India had a Revenue of 154cr and a PAT of 2.7cr (i.e. 1.75%) In your analysis you are assuming that going forward the company will generate PAT of at least 7%. What is the basis of that assumption? Can you please share.

2). Also raw Material consumed as a % of Net Sales has been increasing every year:

Mar 10 51%

Mar 11 49%

Mar 12 66%

Mar 13 73%

Mar 14 77%

I am not saying what you have stated is wrong. Perhaps you have considered some information that I do not have. Hence, please share the same.

j2eeprofession_ · June 19, 2014, 3:34pm

The factory started working in may 13 and as you must be knowing it takes around 2-4 quarters for the production to become stable, depending upon whether it was a green field or a brown field expansion. You are taking previous years numbers which are not comparable because the structure of the company has completly changed. As I mentioned in my note above, i took this quarters numbers as benchmark (mar 14 quarter) as I believe this quarter the production has started properly.

1).

bomi · August 8, 2014, 6:57am

J2EE P…,

I think you are onto something. I was skeptical of this company but then I saw that the price has moved from 50 in June to about 80, now. Has the company declared results of June14 quarter? Their website is not very informative. Please share if you have the numbers. Thanks.

j2eeprofession_ · August 8, 2014, 1:53pm

latest results -> http://www.bseindia.com/xml-data/corpfiling/AttachLive/Sharp_India_Ltd_060814_Rst.pdf

j2eeprofession_ · August 31, 2016, 7:13am

anyone tracking this? Open offer as expected has been accounced by Foxconn. I wish you understand if this would also lead to delisting as foxconn would already be holding 75% promoter stake and with this open offer for public , wouldnt this lead to increase of stake of foxconn beyond 75% - which is the max shareholding allowed under rules?