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Inspiring show; beat across the board

V-Guard posted a stellar set of numbers as revenue/EBITDA grew by 32/91% YoY (HSIE 14/34%). Growth was visible across the board as all segments grew >30%. Growth was led primarily by positive sentiment, re-stocking of distribution channels and pre-buying. Growth in Non-South markets continued to be a key driver with 43% YoY growth while South markets grew by 25% YoY. Stabilizers, wires, fans, kitchen appliances and digital UPS were the leaders in growth while water heaters struggled due to supply disruptions. Effective cost control and price hikes led to robust margins despite high commodity inflation. We expect V-Guard to sustain its strong growth momentum in the near term, led by (1) pent-up demand (summer driven products), (2) price hike, (3) share gain from unorganised player, (4) pick-up in housing activities and (5) favourable base. EBITDA margin should sustain at 10.5-11% during FY22-23. We increase our EPS estimates by 15/16% for FY22/FY23. We value V-Guard at 35x P/E on Mar’23 to derive a target price of Rs 255. Maintain ADD.

* Strong growth across the board:Revenue grew by 32% YoY (+5% in 3QFY20 and flat in 2QFY21), beating our expectation of 14% YoY growth. Growth was visible across categories as Electronics/Electricals/Consumer Durables segments grew by 35/31/31% YoY. Non-south markets continued to grow ahead of southern markets with a growth of 43% YoY vs 25% in southern markets. Non-south revenue mix grew to 41%. Strong growth momentum is expected to sustain in the coming quarters too.

* Robust margins: GM saw a contraction of 55bps YoY to 32.6% (+318bps in 3QFY20 and -220bps in 2QFY21). Employee/other expenses grew by 7/4% YoY while S&D expenses remained muted. EBITDA margin expanded by 424bps YoY to 13.7% (+192bps in 3QFY20 and -54bps in 2QFY21) vs HSIE 171bps YoY expansion. EBITDA grew by 91% YoY (HSIE 34%). EBIT margins for Electronics/Electrical/Consumer Durables segments expanded by 880/110/440bps YoY to 25/9/10%. PBT clocked 92% YoY growth while PAT grew by 80% YoY due to lower tax rate in the base quarter.

* ConCall takeaways: (1) Secondary sales were in line with primary in 3QFY21, it was ahead of primary in 2QFY21; (2) MT and e-comm mix is 12- 15% excluding wires; (3) V-Guard took 3-3.5% price hike in 3Q (15% in wires), and further 4-7% hike is expected in 4QFY21; (4) V-Guard is facing supply constraints across products like fans, modular switches and mixers; (5) the company has 40,000 retail touch points, of which 18,000 are in south.

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