Accumulate V-Guard Industries Ltd For Target Rs. 435 By Elara Capital Ltd
Top line, margin hit by wires destocking
V-Guard Industries (VGRD IN) Q3 saw 9% revenue growth with a margin contraction, as robust electronics performance was partly offset by slower growth in appliances and wires destocking dragging electricals growth. Management expects a gradual recovery in margin in Q4. We lower our TP to INR 435 on 38x December FY26E P/E, due to weakness in kitchen appliances and copper volatility curtailing margin recovery. We retain Accumulate, given the rise in-house manufacturing and growing penetration in non-South India region.
Electricals hit by commodity fluctuations; electronics surges: VGRD saw lower-thanestimated top-line growth in Q3, as robust performance from electronics, up 22% YoY to INR 2.9bn, was offset by muted performance from the electricals segment, which grew by a mere 1% YoY to INR 4.8bn, as wires, which form a majority of electricals, saw destocking due to commodity price fluctuations. However, this is likely to normalize in Q4FY25. The consumer durables segment reported 8% top-line growth while Sunflame took a hit from the continued weakness in consumer demand, up 4% YoY, despite higher ad spend incurred and festival demand in Q3.
Margin dips 50bp on higher ad spend: Margin fell by 50bp YoY to 8.2% in Q3, as internal cost optimization, higher share of in-house manufacturing and rising premium contribution benefits were offset by volatile copper prices, marring profitability of wires and higher ad spend incurred especially for Sunflame. Segment- wise, EBIT margin in the electronics spiked 730bp YoY to 19.6% while consumer durables EBIT margin rose 120bp YoY to 4.2%. Electricals EBIT margin fell 10bp YoY to 9%. Sunflame EBIT margin was at 2.8%, lower 800bp YoY. As per management, margin improvement due to inhouse manufacturing has been largely achieved, with similar margin expansion occurring in consumer durables once the new fans factory commences production.
Price chart
Capex of INR 1bn planned for in-house TPW, ceiling fans production: VGRD has planned a capex of INR 1bn for the next three years, of which INR 500mn will be utilized in the next year, with the balance incurred in phases, for setting up a new facility for in-house manufacturing of table pedestal wall (TPW) and ceiling fans. The company looks to scale up its fans offerings & improve product quality and margin through inhouse production, similar to the in-house battery manufacturing incurred in electronics segment. The new factory is set to be commissioned in the next 18 months.
Reiterate Accumulate with a lower TP of INR 435: We lower our EPS by 3% each for FY25E and FY26E, given the overall slowdown in the kitchen industry and delay in Sunflame’s turnaround along with copper volatility, dragging margin recovery. We cut our TP by 8% to INR 435 from INR 475 on 38x (from 42x) December FY26E P/E as we roll forward. We retain Accumulate given margin improvement, led by in-house manufacturing and growing Non-South presence. Earlier, Sunflame’s turnaround, rise in copper prices and synergistic benefits on margin may be catalysts for a rerating.
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SEBI Registration number is INH000000933
