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Recommendations India

V Guard Industries Q4FY14 results update

May 6, 2014, Tuesday, 06:50 GMT | 01:50 EST | 10:20 IST | 12:50 SGT
Contributed by Nirmal Bang

Finally regained its lost glory…

- Early start of summer and slight improvement in demand instigated the top-line growth: V Guard has reported a good quarter during Q4FY14 where net sales grew by 12.8% YoY to Rs. 418.9cr and by 19.7% QoQ. The electronic segment declined by 8.6% YoY (stabilizers, UPS and inverters), the electrical segment grew by 23.2% YoY, comprising (cables & wires, fans, electric water heaters etc) and the Other segment declined by 12.8% YoY. The Stabilizer (+15.7% YoY), pumps (+17% YoY) and wire segment (+33.2% YoY), registered strong growth due to the onset of early summer. A substantial improvement in EBIT margin YoY for Electronics by 470bps to 14.1% and Electrical by 340bps to 6% in Q4FY14, improved the overall margin for the company.

- Better operational eficiency and decline in A&P cost resulted signifcant jump in operating margin YoY: V Guard reported an increase in EBIDTA by 77.6% YoY to Rs. 35.4cr due to decline in raw-material cost, selling & distribution cost as a % of sales. However, the A&P cost cut down to 3.4% of sales in Q4FY14 as against 6.3% in Q4FY13 further helped in improvement in EBITDA margin. Management has maintained its A&P guidance of 3.5%-4% of the sales for FY15E. EBITDA margin increased by 310bps YoY to 8.5% in Q4FY14 and up by 20bps QoQ. Gross margin was up by 80bps YoY and down by 240bps QoQ to 23.9% in Q4FY14.

- Adjusted PAT up by two times YoY: PAT increased by two times YoY to Rs. 20.5cr and by 16.8% QoQ. Despite increase in tax rate which stood at 27.6% in Q4FY14 as against 21.1% in Q4FY13 and 19.5% in Q3FY14, PAT margin increased by 250bps YoY to 4.9% and marginally down by 10bps QoQ.

- FY15E Guideline: Management has guided 20% top-line growth for FY15E driven mainly by wire, pumps and inverter segemnt (expected power cuts post election). Further, management expects EBITDA margin to be in the range of 8.5%-9%. Tax rate will increase to 28% for FY15E and FY16E.

Valuation & Recommendation

We feel that the overall improvement in consumption, early start of summer (Q4FY14) and wide seasonal product-line has helped V Guard to deliver strong performance. In addition, the company has sharpened its focus on non-South market (+31% YoY revenue growth in Q4FY14 and contributes 29% to the total sales in Q4FY14 as compared to 25% in Q4FY13), helps in mitigating the regional concentration. Further, we feel that the company will continue its strategy of going slow on introducing new products, incubating them first in South before going pan-India. However, we feel that good growth in the non-South operations will provide upside potential which could yield better profitability going forward. We have introduced FY16E numbers. We expect V Guard to report a top-line growth of 17.5% in FY15E and by 18.1% in FY16E with an EBITDA margin of 8.8% and 9% respectively. At CMP, stock is trading at a PE of 16.6x FY15E and 13.1x FY16E. We roll-over our target multiple to FY16E (PE 16x), and arrive at a TP of Rs 626 per share. We recommend “BUY” rating.