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Highlights of our interaction with VGRD CFO Sudarshan Kasturi: The company has a strategy in place to achieve 15% CAGR over the medium term which includes i) more in-house manufacturing to launch new products at a faster pace; ii) focus on technology with higher R&D investments to boost cost-effective product innovation iii) aggressive digital thrust to achieve supply chain efficiencies; iv) integrating IT systems of Sunflame appliances for better planning and management.

* Well defined Growth Strategy: The company has prioritized consumer durables as its growth drivers. Manufacturing capacities and increased R&D effort will boost product innovation, thereby leading market share gains.

*SEPL acquisition to trigger geographical and product diversification: SEPL derives 80% of revenue from non-South region, while VGRD entire revenue from kitchen appliances comes from South. SEPL’s acquisition is ripe with growth opportunities in the kitchen space.

* Festive season sales begin on positive note: VGRD has had a great festive season with >20% growth in ONAM sales. An upbeat real estate and home renovation market augurs well for revenues from consumer durables. Channel partners of electrical products, especially in the south, have high hopes from festive season. Current ONAM sales were reportedly the best in past three years (Earlier seasons were impacted by floods or price hikes from raw-material volatility.)

*Stable raw material prices and in-house manufacture augur well: The company has own manufacturing facilities for key product categories like consumer durables. It is also setting up new manufacturing facilities for Kitchen and batteries to promote efficiency, as also increase margins, which has been below par off late

Our take: The management vision and strategies to achieve 15% revenue CAGR over medium term reflect company’s conviction in good measure. The SEPL acquisition and integration will pave for geographical as well as product diversification. We reckon FY25 will reflect the full impact of the management vision and strategy, while FY24 will largely be an year of consolidation. We expect company to deliver FY23-25 Revenue/EBITDA/PAT CAGR of 16%/33%/40% on consolidated basis. We maintain our target multiple to 40x and upgrade the stock to ADD recommendation with revised TP of Rs345.  

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