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Result Synopsis

VGRD reported flattish revenue growth of 1.4% on back of higher base of previous year. The growth was driven by Consumer durables which grew by 4.5% yoy followed by electricals which registered growth of 1.6% yoy. Electronics segment saw revenue decline on back of subdued demand. Its non?south growth of 10% significantly outperformed south which registered decline of 5% yoy. Margins for the quarter were impacted by sale of higher cost inventory at
A&P spends and other travelling expenses reverting to the pre?covid levels. Even in the other categories, input costs remain significantly higher than long term averages, despite some reduction seen in the last few months. Company expects material margin to return to its normalized levels as most of the high?cost inventory has been liquidated by Q3. The company has started its journey of increasing in?house manufacturing to 75% in next 2?3 years for which company has earmarked capex of Rs750mn in next 2 years. Considering improvement inefficiencies owing to improvement in supply chain and continuing strong growth in non?south markets, we continue to maintain our positive stance on the stock and our BUY rating. The company has successfully completed transaction of SEPL in the month of January. We believe VGRD’s brand strength, investments in own manufacturing and increased distribution in non?South markets are now paying rich dividends with Southern market also expected to gain traction after a lull of couple of years. Moreover, material margins in the non? south region are now comparable to that of south. Considering larger play in kitchen segment improvement in execution and growth trajectory company should now start commanding higher valuation multiples. We build?in FY22?25E Revenue/EBITDA/PAT CAGR of 17%/17%/16% and continue to value company at 40x resulting in PT of Rs320 maintaining our BUY rating. Consistent delivery and margin improvement would be key for further earnings
upgrades.

Result Highlights

* Quarter summary – V?guard has registered revenue growth 1.4% YoY which has been credible given the high base of the previous year. Consumer durables have been the growth driver with revenue growing 4%.
* Margin – Margins were impacted on high?cost inventory and normalization of expenses. Company expects gross margin to return to pre?covid levels immediately and then gradually improve gross margins as in?house manufacturing proportion increases.
* South vs Non?south – South de?growth is largely on account of higher base. YTD growth in south market is 15%. Company is gaining traction in the non?south market with non?south registering growth of 10.5%.
* Consumer durables – Consumer durables margins should improve as company has made backend investments to prop up its manufacturing capabilities and thereby improve efficiency.

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