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Result Synopsis

VGRD reported inline revenue growth of 14.1% driven by strong performance of electronics segment (+18.8%) followed by Electricals (+16.3%). Consumer durables revenue grew 10.6%, while Sunflame Appliances revenue declined 1.1% on yoy basis. Non-south revenue grew 16.9%, while south revenue grew 13.6%. Sunflame appliances revenue de-growth was attributed to lower demand for kitchen appliances and significant decline in CSD orders. Gross margins for the quarter expanded by 207bps yoy on back of continued moderation in input costs, benefit of pricing actions and cost effectiveness. Company believes gross margin has further room for expansion as company’s gross margins are still 1.5% below pre-covid levels. VGRD has started to make inroads in the non-south market resulting in non-south revenue growing faster than the South. On the Sunflame front restructuring is under way and company expects initiatives taken will take 3-4 quarters post which company will sunflame can see sustainable growth. We expect strong growth (ex of Sunflame) to continue in ensuing quarters as well, however margin is expected to remain in the similar range. Considering recent correction in the stock price and rolling forward our target multiple to FY27 EPS we upgrade the stock to ADD with the revised PT of Rs467.

We believe VGRD’s brand strength, investments in own manufacturing and increased distribution in non-South markets are now paying rich dividends with non-south market with improved growth is also witnessing margin improvement. Moreover, material margins have been improving trend. We are factoring FY24-27E Revenue/EBITDA/PAT CAGR of 14%/20%/23% and our EPS for FY26 gets trimmed largely on account of some restructuring in sunflame appliances. We, however upgrade our rating to ADD given correction in the stock price and ex of sunflame business is on sound footing

Result Highlights

* Quarter summary – V-guard has registered revenue growth 14.1% YoY driven by strong growth in Electronics and Electricals which grew 18.8% and 16.3% respectively yoy basis, Consumer durables have grown at 10.6% yoy, while sunflame has registered marginal decline.

* Margin – Gross margin has expanded on moderation in input costs, pricing actions and cost effectiveness. Gross margins have expanded by 207bps company believes margin recovery is not yet fully complete, there is scope for another 100bps improvement. EBITDA margin showed improvement of 36bps on higher gross margins.

* South vs Non-south – South markets witnessed a YoY growth of 14% whereas non-South markets grew by 17% in Q2FY25. Non-south market contribution stands at 45%.

* Debt – The company now has net cash of Rs42.6mn vs net debt of Rs1596mn as on Q2FY24. The company has further repaid long term debt taken for sunflame acquisition and expect to repay entire debt by end of the fiscal.

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