ICICI Direct's research report on V-Guard Industries
V-Guard's Q3FY19 topline grew 14% largely driven by new categories (like kitchen appliances, switchgears), recovery in demand from south regions (contributes ~63% in topline) post floods in Kerala and expansion in new geographies (non-south regions). On product fronts, barring the wire and pump segment, all products recorded strong revenue growth led by water heater (up 17%), stabiliser (up 17%), fan (up 23%) and digital UPS (up 18%). Further, relatively newer categories like kitchen appliances & switchgears segment continue to grow at a higher rate of 45% & 55%, YoY respectively. EBITDA margin stayed under pressure mainly due to volatility in commodity prices and rupee depreciation. However, the company has initiated price hikes (~2-5%) to combat high input costs that would benefit it in coming quarters. Further, ad spends returning to normal 4-4.5% level vs. ~5% would help drive EBITDA margins We introduce FY21E estimates & model revenue, earning CAGR of ~14%, 18%, respectively, in FY18-21E. We believe key trigger for topline growth would be sales improvement of its flagship products while profitability would be driven by gross margin recovery.
Outlook
We believe that at the CMP the stock discounts near term positives of lower working capital requirements and positive free cash flows. At the CMP, the stock is trading at 47x FY20E and 38x FY21E earnings. We roll over our valuation on FY21E and value the stock at 40x FY21E earnings with a revised target price of Rs 205.
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Read More First Published on Feb 19, 2019 04:54 pm
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