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* Revising estimates amidst Corona outbreak V-Guard Industries Ltd (VGIL) is one of leading player in Electrical consumer durables space. Its major product segment includes Stabilizers, cables & wires, UPS, pumps and Electrical appliances.
* We upgrade VGIL to Accumulate from Hold as we believe that near term headwinds has been factored in stock prices and future earnings outlook is healthy.
* 9MFY20 profitability grew by 44% YoY led by 300bps YoY improvement in operating margin and tax cuts.
* Management focus on expansion non-south, new product launches and expanding retail chains will continue to accelerate growth.
* Given its strong retail presence, healthy balance sheet with Rs.250cr cash, we expect VGIL to bounce back, as trade pick-ups post lockdown.
* We value the stock at P/E of 31x on FY22E, with a target price of Rs.182 and recommend to Accumulate.
Corona update and impact on industry and company
VGIL has shut down its plants as per government directives on account of outbreak Covid-19. We expect material impact on earnings in Q4FY20 as well as Q1FY21 as Q4 & Q1 contributes 25% & 28% to the overall sales. The months of Jan & February (Q4FY20) remained strong, however, March month was fully impacted. We expect revenue growth to come back post lock down. New product launches, brand building, expanding retail chains, growing non-south markets and exploring inorganic growth opportunities underlines our confidence in VGIL. We expect stable growth in south market coupled with continued strong momentum in non-south market will support top-line growth.
We lower full year revenue estimates by 14.1% & 17.3% for FY20 & FY21E to factor in the lock down impact. Further, given lower operating leverage, we downgrade EBITDA margins estimates by 40bps for FY21E. Consequently, our EPS estimates stand reduced by 17.6% & 24.6% for FY20E & FY21E.
Outlook & Valuation
VGIL has delivered strong earnings momentum despite weak macros, unfavourable seasonality and other disruptions. Healthy balance sheet, strong retail network and increasing presence in non-south markets, we remain confident in VGIL. We value VGIL at P/E of 31x on FY22E, with a target price of Rs.182 and recommend Accumulate rating.
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