Maintain ADD on V-Guard Industries - Beat on all fronts - HDFC Securities

Mr. Naveen Trivedi, Institutional Research Analyst, HDFC Securities

V-Guard posted in-line but strong revenue growth of 58% YoY (HSIE 59%), clocking 2-year revenue CAGR of 7%. South region posted 50% YoY growth (1% 2-year CAGR) while non-south region registered 71% YoY growth (16% 2- year CAGR). Strong growth was visible across categories as Electronics (Stabilizer, UPS, etc), Electrical (Wires, Pump, etc) and Consumer Durables (Fan, Water Heater, KEA, etc) segments registered 62/58/55% YoY growth, clocking 2-year CAGR of 9/4/12%. Gross margin declined by 191/120bps YoY/QoQ to 31%. While oplev and cost control resulted in 450bps YoY EBITDA margin expansion to 12.9% (HSIE 11.5%). EBITDA grew by 143% YoY to INR 1.1bn (HSIE INR 0.98bn). Despite several challenges, FY21 saw 9% revenue growth (3% 2-year CAGR) and 21% YoY EBITDA growth (18% 2-year CAGR). Lockdown is expected to impact near term demand but healthy construction activities and normal trade inventory can result in quick recovery post ease-out in lockdown. We cut EPS by 5% for FY22 while maintain FY23. We value V-Guard at 35x P/E on Jun-23 EPS to derive a target price of INR 265. Maintain ADD.

Robust but in-line revenue: Net revenue grew by 58% YoY (-28% in 4QFY20 and +32% in 3QFY21), in line with our expectation. Electronics/Electricals/Consumer Durables segments grew by 62/58/55% YoY (-27/-32/-20% YoY in 4QFY20). Revenue grew by 9% in FY21 (-3% in FY20) and Electronics/Electricals/CD segments registered +1/+14/+9% YoY growth (-1/-7/-1% YoY in FY20). South revenue was up by 7% and non-south was up by 12% in FY21.

Beat in margin: Gross margin declined by 190bps YoY (+374bps in 4QFY20, - 55bps in 3QFY21). Employee cost was up by 32% YoY (-18% in 4QFY20, +7% in 3QFY21). EBITDA margin was up by 453bps YoY (-215bps YoY in 4QFY20, +424bps YoY in 3QFY21) to 12.9% (HSIE 11.5%). EBIT margin for the Electronics/Electricals/CD segments expanded by 772/330/152bps YoY (- 62/-188/-416bps YoY in 4QFY20). APAT was up by 110% YoY to INR 683mn (HSIE INR 721mn). For FY21, EBITDA margin was up by 62bps to 10.9%. EBITDA grew by a strong 15% YoY (11% in FY20).

ConCall and BS/CF takeaways: (1) Channel inventory is normal (last year was high); (2) strategically company is holding up extra 15days inventory to fill the channel quickly after ease in lockdown; (3) construction activities are healthy even during lockdown (some states classified construction activities as essentials); (4) plants were fully operational in April and partially in May;(5) A&P was 1% in FY21 vs. 2.3% in FY20; (6) company continues to focus on increase in-house manufacturing share; (7) new plants for fans and water heater capex was INR 800mn, capex for FY22/23 will be INR 600-700mn in each year; (8) gained market share in fans (mid-premium segment), while lost share in water heaters due to supply constraints; (9) company took 5- 10% price hike; (10) North/West/East region grew by 11/19/7% in FY21.

Shares of V-GUARD INDUSTRIES LTD. was last trading in BSE at Rs.269.4 as compared to the previous close of Rs. 262.9. The total number of shares traded during the day was 254264 in over 7486 trades.

The stock hit an intraday high of Rs. 274.9 and intraday low of 262.05. The net turnover during the day was Rs. 67905637.

Source : Equity Bulls

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