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Business Overview

VGRD offers robust growth prospects due to (1) Scale up in diversified product categories, (2) Rising share of in-house manufacturing, (3) Penetrating Non-South region (47% of total Q1FY23 sales) and (4) High potential of distribution reach expansion and alternate sales channels. Target of Rs295 based on 40x FY24E EPS

Key investment rationale

* Traditionally, stabilizers and house wires formed 60% of total sales. Now, healthy scale up is achieved in water heaters (15% market share), fans (7% market share in South) and pumps (8-10% market share).

* In-house manufacturing share was at 40% earlier. It has now risen to 60% due to setting up of water heaters and ceiling fans plants. In three years, it will rise to 75% with setting up on new plants of TPW fans, inverters and batteries.

* Non-South region now forms 47% of total sales as on Q1FY23 vs. 21% a decade ago. VGRD is now well established in Central and Eastern region.

* VGRD currently has presence in 40,000 retail touch points and aims to add 3,000 touch points every year. It has large opportunities to grow as its peers are present in ~150,000 retail touch points. It is also expanding its footprints in alternate channels such as CSD (7-8% industry sales), modern retail and e-commerce.

Key medium term triggers

* VGRD has always focused on gross margin through better product mix, premiumization and timely pricing action. With price hikes taken in Q1FY23 and softening in commodity prices, gross margin is expected to revert to pre-COVID levels of 32-33% versus 30% achieved in Q1FY23.

* High growth prospects from Inverter category (Rs120bn industry where VGRD has only 3% market share) post setting up in-house mfg. plant of inverter & batteries.

Key risks

* Consumption slowdown and demand moderation in the economy.

* Heavy fluctuations and sharp rise in input costs.

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