V-Guard Industries - Q1FY21 First Cut - ICICI Securities

(CMP: Rs. 166; MCap: Rs. 7126 crore)

V-Guard Industries performance during Q1FY21 indicates the effect of lockdown wherein operations were shut for almost 40 days. However, after almost nil sales in April, company has scaled up rapidly thereafter to reach 70% of last year's revenues in the month of May and 90% in June. With the improving performance during June, gross margins have once again reverted to levels that are comparable to last year.

Q1FY21 Earnings Summary

- Net sales of the company declined by ~42% YoY at to ~Rs. 406 crore. Segment wise, Electronics segment (largely includes stabilizer & UPS, contributes ~34% in topline) declined by ~51% YoY to Rs. 138 crore. Following the trend, Electricals (includes Pump and Wire & Cable business etc, contributes 45% in topline) and consumer durable segment (Fans, Water Heaters, Kitchen Appliances, Air Coolers) also declined by ~31% YoY and ~44% YoY to ~Rs. 183 core and ~Rs. 86 crore respectively

- Non-South saw a larger impact due to more extended lockdowns during the quarter, whereas opening up in the South saw improved demand in states such as Karnataka and Kerala

- The company has focused on rationalising the cost as the other expenditure (such as warranty cost, A&P spends and travelling cost) declined sharply by 43% YoY during Q1FY21. However lower operating leverage and pressure in gross margin (down by ~300 bps YoY) was on account of low sales volume and change in product mix respectively. As a result EBITDA margin declined by ~800 bps YoY to 2.2%

- Finally, PAT declined by 93% YoY to ~Rs. 3.6 crore mainly due to sharp drop in sales and operating profits

The lockdown situation has hurt overall performance of the company during Q1FY21 which was largely known. However, ~90% business recovery in the month of June'20 and faster normalcy in company's key operating regions (south regions) is encouraging. Further, working capital has improved sharply as available inventory has been used to drive revenues, even as manufacturing activities were stalled due to restrictions. Collections from the channel have driven down debtor days towards the end of the quarter. We believe that V-Guard is better placed among competitors (in term of strong supply chain and prudent working capital management) to reach normalcy of the business cycle with opening of economy. We will come out with Q1FY21 update post conference call with management.

Shares of V-GUARD INDUSTRIES LTD. was last trading in BSE at Rs.165 as compared to the previous close of Rs. 166.4. The total number of shares traded during the day was 32537 in over 1331 trades.

The stock hit an intraday high of Rs. 166.75 and intraday low of 163.05. The net turnover during the day was Rs. 5362378.

Source : Equity Bulls

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