Buy V-Guard Industries Ltd For Target Rs.255 - ICICI Direct
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High cost drags margin, overshadowing sales growth
About the stock: V-Guard is among India’s leading fast moving consumer electrical goods companies with market leadership position in the stabiliser business
The company has a wide portfolio of products ranging from switchgears, water heaters, stabilisers, fans and many more
V-Guard has maintained strong return ratios with RoE and RoCE at ~18% and ~24%, respectively (three year’s average)
Q3FY22 Results: Strong revenue growth led by consumer durable segment, but higher operating costs drag EBITDA margins
Revenue growth of 16% YoY to | 967 crore in Q3 was led by 28% & 18% growth in consumer durables and electrical segments, respectively
EBITDA margin declined 487 bps YoY to 9% due to higher raw material costs and other costs (like advertisement expenses)
PAT declined 31% YoY to ~| 54 crore dragged by lower margins, higher depreciation and tax outgo in Q3FY22
What should investors do? V-Guard’s share price has grown at a CAGR of 10% in the past five years (from ~| 148 in February 2017 to ~| 215 levels in January 2022).
We maintain our BUY rating on the stock
Target Price and Valuation: We value V-Guard at | 255 i.e. 35x P/E on FY24E EPS
Key triggers for future price performance:
Expansion in non-south regions (revenue contribution increased from 37% in FY18 to 41% in 9MFY22) and government housing thrust (to build 1.3 crore new houses under PMAY) will be key growth driver for V-Guard
New product launches in the consumer durable category
Plan to increase in-house manufacturing from current 55% to 60%, which will help the company to improve profitability
Alternate Stock Idea: We also like CGCEL in our coverage universe
Market leader in the domestic fan industry with value market share of 27%. The company has increased focus on increasing market share in home appliances categories
BUY with a target price of | 525
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