V-Guard Industries - Play on the consumer theme - Outperformer - Cholamandalam Securities

Growing consumer spend to aid VGIL

VGIL has a wide product profile catering to the mass consumption market in the household electrical appliances segment. With growing per capita income, higher disposable income, nuclearisation of families & increasing aspirational levels, demand for these products is expected to remain strong. According to NCAER, the number of high income households rose from 13.8 million households in 2001-02 to 46.7 million households in 2009-10. Going ahead, the numbers of middle income households are expected to increase by 70% to 238 million by 2015. Moreover, VGIL is likely to gain on increasing urbanization and change in consumer preference. The robust rise of middle income households, growing disposable income, strong demand, expansion into new geographies by increasing outlets and new product lines will drive revenues for VGIL in the next two years.

Outlook & Valuation

VGIL, at CMP of INR 392, trades at 19.37X and 15.63X to its FY13 & FY14 earnings respectively. The EPS of the company has been growing at a CAGR of about 21.39%.Given the growing consumer demand, entry into new products, successful diversification into newer segments, increasing market share, increasing outlets, and strong distribution network provide earnings visibility for the stock. We expect V-Guard to report an EPS of INR 20.24 in FY13E and INR 25.08 in FY14E. At the CMP of INR 392, the stock trades at 19.37X EPS of FY13E and 15.63X EPS of FY14E. We Initiate coverage of V-Guard with an OUTPERFORMER rating and price target of INR 426 based on a target PE multiple of 17x its FY14E EPS (PEG-0.79).Key Risks to our recommendation include steep increase in raw material cost and slow down in the Indian economy which will lower consumption demand.

V-Guard Industries (VGIL) was started in 1977 by Shri.Kochouseph Chittilappily to manufacture and market Voltage Stabilizers under the brand name V-Guard. VGIL emerged as a leading player in the stabilizer segment and became a household brand. V-Guard began to aggressively diversify from 1992 and became a multi product company with presence in Stabilizers, Pumps, Cables, UPS, Water Heaters, Fans, Switch Gear and Induction Cooker. VGIL manufactures as well as outsources in all these products with share of manufacturing and outsourced at 59% and 41% respectively in FY12. VGIL has a strong distribution network with 230 exclusive distributors, 1,200 channel partners and 11,000 dealers across India.

Source : Equity Bulls

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