Recommendations » India

V Guard Industries Q3FY13 results update

Contributed by Nirmal Bang

V Guard posted a steady quarter in terms of Net Sales/EBITDA/PAT growing 42.7%/13.6%/23.3% YoY respectively. The EBITDA margin declined by 150bps YoY to 7.4% and by 220bps QoQ. The margin declined on account of jump in Other expenses as a % of sales and significant decline in EBIT margin in all the business segments except Electrical. The EBIT margin in Electronics was 8.4% in Q3FY13, decline by 50bps YoY and EBIT margin in Others was 10.9%, down by 1240bps YoY. Expansion of warehousing facilities/sales offices and accelerated investments in new product development led to margins dipping. In order to reap the benefit of festive demand, the advertisement expenditure was increased to 4.5% of revenue in Q3FY13 as against 4.1% in Q3FY12 also led the margin compression.

- Net Sales for Q3FY13 increased by 42.8% YoY to Rs. 348.1 crore and by 11.6% QoQ. The revenue was up due to the good growth recorded in the Electronics (47.4% YoY growth) and Electricals (40.9% YoY growth). Stabilizer, Pump, Wire, LTT Cables, Fans and Inverter reported a strong revenue growth during the quarter. The company has reported a steady growth of 40% in South markets and 49% growth in non-South markets in Q3FY13 as against Q3FY12.

- The PAT was up by 23.3% YoY to Rs. 15.4 crore and down by 14.6% QoQ. The PAT margin declined by 50bps YoY to 4.4% and by 140bps QoQ. The increase in depreciation and interest cost by 19.4% and 7.8% YoY respectively. The decline in tax rate and jump in Other income supported the profitability of the company.

- The company had successfully launched two products in Kerala 1) domestic switchgear and 2) induction cook top and is planning to roll out in other Southern states in the next 12 months and prior to that other non-southern state. Management had launched induction cook-top in Karnataka during Q3FY13E. The company expects to launch mixer grinder by Q1FY14E in Kerala and after 6 months in Karnataka and later to other parts of South India.

Valuation & Recommendation

At CMP of Rs. 496, the stock is trading at a PE of 20.2x in FY13E and 14.8x in FY14E. V Guard has outperformed BSE Consumer Durable Index with 175.9% return in one year as compared to just 27.3% return by the latter during the same period. We remain positive on the stock owing to strong domestic business, steady penetration in non-south market and gradually expansion of product portfolio. We are upbeat on the stock on the account of core business momentum remains robust with healthy EPS growth, cash flow generation and high RoEs. We have revised our target price of Rs. 535 per share at PE 16x FY14E (Rs. 464 per share). We recommend a “HOLD” rating and advise our investors to buy on decline.