V Guard Industries Ltd. :: Nirmal Bank

V Guard posted a strong quarter in terms of Net Sales/EBITDA/PAT growing 24.3%/69.9%/34.7% respectively. The EBITDA margin improved by 320bps YoY to 11.9% and 300bps QoQ on account of strong EBIT margin in all the business segment supported by decline in raw-material cost and selling & distribution expenses. The PAT registered a growth of 34.7% YoY to Rs. 19.17 crores and 54% QoQ. The PAT margin was improved by 50bps YoY to 6.9% and 200bps QoQ. We remain positive on the stock owing to strong domestic business, steady penetration in non-south market and gradually expansion of product portfolio, V Guard is set to outperform in the consumer durable space.

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 Net Sales for Q4FY12 increased by 24.3% YoY to Rs. 276.46 crs and was up by 8.8% QoQ on account of price hike to the tune of 2-3% during the quarter. The revenue was up YoY due to the good growth recorded in the Electronics (55.6% YoY growth) and Electricals (13.2% YoY growth). Electronics EBIT margins was maintained to 16.2% and Electrical EBIT margin improved by 340bps YoY to 8.3%. Stabilizer, Pump, Wire, LTT Cables, Fans and Inverter reported a strong improvement in EBIT margin which overall improved the operating margin for the company. The company also got the benefit of low cost raw-material inventory which also boosted the margin.
 The PAT was up by 34.7% YoY to Rs. 19.17 crores and 54% QoQ. The PAT margin was up by 50bps YoY to 6.9% in Q4FY12 and by 200 bps QoQ. The strong sales growth mitigated the impact of increase in interest and depreciation cost by 21.6% and 29.6% respectively. The tax rate also zoomed to 28.6% as against 21.4% in Q4FY11 and 24.1% in Q3FY12.
 The management has guided 25% top-line growth for FY13E where all the product segment is expected to register strong growth. Management also stated that due to rupee depreciation, the imports which accounts for 5% of the total sales will negatively impact the operating margins and further guided increase in advertisement expenditure to the tune of Rs. 46 crores in FY13E as against Rs. 38 crores in FY12 and increase in distribution margin will keep a check on operating margin which is expected to be around 10% in FY13E. The company is also on the verge of two product launches 1) domestic switchgear and 2) induction cook top in the near term.
Valuation & Recommendation
At CMP of Rs. 215, the stock is trading at a PE of 10.1x in FY13E and 7.6x in FY14E whereas on EV/EBITDA it is trading at 6.1x and 4.9x in FY12E and FY13E respectively. We believe that V Guard is well – placed amongst its peers on the consumer electrical space in India, on the account of increasing penetration into Northern India, extensive distribution network and continuous launch of products in the consumer durable space. We have introduced FY14E estimates. We have revised our target of Rs. 250 valued at PE 12x FY13E (Rs. 231). We recommend a “HOLD” rating.