Sharp India Ltd. – A Turnaround , Mega Brand In Making

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:

India’s 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 ‘value-for-money’ range of products and focus only on high-end models across product categories. “We 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,” 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 company’s 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 – one primary color plus the normal red-green-blue – and it is Sharp’s 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 Sharp’s 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 AC’s 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 – plasmacluster ion generator and hybrid cooling – 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

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. The stock should be bought at every decline.

Websites:

1. http://www.sharpindialimited.com/index.php

2. http://www.sharpproducts.in/home.aspx

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21 Responses to Sharp India Ltd. – A Turnaround , Mega Brand In Making

  1. ltinvestment says:

    it already ran upto 36 and 5% upper circuit every day….looks like operators kind of stock based on its ramp

    • Not all re-rating can be termed as operator play. Who knows if operators are playing with the stock or not. I personally invest when I believe in the story. I see the stock turning around on back of its business performance, and have done ‘ground research’ on their products and therefore, I have a lot of conviction in the stock. One should invest only if one is convinced about the story. Please do your own research before investing. Operator or not can only be known in the hind sight.

  2. jasraj says:

    Your analysis is really top class.

    Could you please share the source by which you are saying market size as
    4.5-million-unit LED TV market
    3.4-million-unit room air-conditioner

    • Sure. Sunil K. Sinha, Chief Executive Officer and Regional Head of Sharp India ‘s Interview in “The Business line” news paper. You can google it too.

      • jasraj says:

        Thanks a lot …. google helped me …. i just wanted to see if any other data is also there …
        Did some analysis

        air-conditioner market last year
        ———————————
        Size – 3.4 million
        Sharp share on the whole -> 3.5%(since it is less than 4)= 120000

        Inverter market out of whole is around 2 lks
        Sharp share is 45% = 90,000units

        90000 units are in invertor category
        and 120000-90000=30,000 in simple category

        ratio is 3:1
        total sales from this would be
        30000 * 25000(average price of a simple ac) = 75cr
        90000*35000(average price of invertor ac) = 315 cr

        total ac sales last year = 390 cr

        wow

        air-conditioner market this year
        ———————————
        Size = 4 million
        sharp expects to garner 7-8 percent ..lets assume they get 7.5 share

        7.5 % = 3,00,000 acs total
        assuming the ratio tilts to 4:1 between invertor and simple

        invertor ac sale -> 2,40,000 * 35000 = 840Cr
        simple ac sale -> 60,000 * 25,000 = 150 cr

        that makes the sale only from ac at 990 Cr ….

        take a 20% discount on this due to couple o assumptions … the sales only from AC should be around 800 CR
        wow wow wow

  3. jasraj says:

    TV market last year
    ——————–
    total size – 4.5 million
    sharp share – 3 percent = 1,35,000 * 25000(average tv price) = 337 CR

    TV market this year
    ———————
    this year they plan to touch 5 percent of the market share… assume they keep it at 4 %
    and market it also stagnant
    that would make sharp share at 1,80,000*25000(average tv price) = 450CR

    Say 100 cr come from regrigerator and 100 from air purifiers…

    total sale for FY 2014 should be -> 450CR (TV) + 800CR(AC) +100CR( refrigerator) + 100 CR(air pruifier) etc = 1450 CR ….

    assume they achieve 50% of 1450 …. that would stand the sale at 750 CR

    and the company market cap should be around the same price till then ….

    i think this is a multibagger …..

    time to add more

    • Divi says:

      Aceinvestor..

      What is the fate of sharp..as it is in continuous LC..
      cani hold or sell..my average buy price is 50..i am holding 60000 units..

      • Your buying price is good. Why are you worried? I hope you have researched the stock well before buying. What do you think about the results? As far as LC are concerned, its been just two in a row. You do remember how many UCs in a row it had. Have conviction. No stocks goes up in one direction. Everything consolidates. If you have conviction only then buy stocks.

      • Divi says:

        my worry is it may go to again 50..so that i may loose opportunity by staying with this..
        I have expected at least 7-10 cr profit for the june quarter..
        my thinking is sept.Q may not be very good..may be good by considering lower base of last sept Q..or it may give negative PAT for sept Q..as AC salw wont be there..
        plese tell me u r opinion…

        • No company has a magic wand my dear friend. Let me ask you, forget we are talking about Sharp India – do you think a company that has posted a revenue growth of 170% YoY and has swung to solid profits instead of loss last year has done well or not? You will get your answer. I am not sure how you were expecting profits of “atleast” 7-10cr. Invest in the company only if you think its worth investing, not on borrowed conviction. Just FYI rs 70-78 is a support band. So watch out for reversal from this level.

      • Divi says:

        Aceinvestor..

        Normally if we see the result ..its very good..
        I expected 7-10 cr..based on its Q4 numbers..and I thought Q1 numbers wll be very good based on its turnaround and scorching summer (more over hitachi has given very sound results)..so hitachi results has also given me confidance on sharp to expect 7-10 cr PAT. every thing is fine except pat..as it is hampered by higher raw material cost and other expenditure.so that its PAT margins has got reduced..I am ver fine with top line growth..and thought of maintaining PAT margins same as Q4 (10%)..
        I am very fine if it stops at support band..
        what is u r expecation on FY15 eps ..now I am thinking it some where at 8..
        and also what is u r expectation on its price range in one year down the line.

        I have some exposure (3%) in Liberty shoes ..I wanted to increse it to 10%..as due to restructuring 15 cr will be added to bottom line..is it right time to load up liberty or can wait..

        • liberty should be added at every decline. I know i would if i had money. Sharp has broken out after years of consolidation. BUT, it moved up way too much. Its consolidation is very important if you want to make money from this stock in the long run. Read last 3 yrs announcements, management changes and interviews – read between the lines. Remember, market is smarter than all of us. I would also suggest you to look at waterbase, if you feel sharp is little too risky for your profile. But, convince yourself first, get conviction and then only invest. Do not go by what people say or tell you. If you have conviction, you “will” make money, not overnight though.

      • Divi says:

        Aceinvester..
        my risk tolerance is very high..
        I am not having enough funds to load..here is my PF.
        Sharp – 18% (turnaround story)..intially it was 11%..at 50..now it is at 18%..
        HSIL – 17% (turnaround story)
        Mayur uniquoters – 12%
        Kaveri seeds – 10%
        Cera saniteryware – 9%
        PI IND – 8%
        AVANTI FEEDS – 8%
        Natco Pharma – 8%
        JK Cement – 7%
        Liberty – 3%..

        On results day of sharp ..I thought of selling some quantity from sharp and load into liberty.and water base..but not able to sell since resutls day…

        since last 2 years..I am able to clock 20% gain from my PF for every Quarter..but this time..I am doubt full due to sharp..if it stops at support band then…i am very much in line to reach my target for this Q…

        are you holding sharp…

  4. Divi says:

    Ace brother..

    Do u have any conf.call updates for sharp for the Q1.
    I could not find in web..

    or will u have any chance to meet management of sharp..
    just i need revenue mix in their top line numbers..
    in this blog..I red following..
    TV manufacturing capacity of the plant is about 3lacs/year and that of ACs is about 1.75 lacs/year…if we go by these numbers then its topline for FY15 could be at worrest case 400 cr..

    if this is the case then thier Q1 numbers could be more than 79 cr. by considering peak season) or plant is not upto its full capacity..
    or if plant is in full capacity..then above mentioned capacity numbers could be wrong..
    my opinion is For Q2 and Q3 only TV sales only the saving grace..if we know their tentetive capacity per yer then we could arrive tentative EPS for FY15..as my caluculation with above mentioned numbers .are not meeting Q1 results..

    I am clue less in estimating forward eps…as my earlier calculation went on tos.

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  6. deep275 says:

    Hi Ace,

    I like this company. I wished I had bumped into your blog few months back. Do you think one can still enter sharp India.

    Similar japanese story is Panasonic Energy which has moved sharply from 75 to 230 levels is 5 months ..

    #Deepak

  7. Stinkyfeet says:

    Thanks for the detailed research/study on Sharp India. Ace, I know one thing i.e Sharp makes quality and innovative products. Unlike copycats who don’t spend time/money on innovative research, Sharp is one company who have a passion to innovate. That’s why I have a foresight/foretaste that Sharp has a long way to go. I own two to three brands of Ac’s and I can feel the difference that Sharp products have. To add to the flavor they have an equally competent A.S.S.

    Musing over the insights of legendary investors, when one thinks about “you are buying a part of the business and not the shares of the company” I feel I do relate well with Sharp’s business and products and with the Japanese major Sharp holding almost 75% of Sharp India and Japan’s keep interest in the India growth story, Sharp could well turn out to be a multibagger in the future. Thanks, once again, for your valuable information and reco.

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