Outstanding performance continues; Maintain
‘BUY’ and Upgrade TP to Rs. 519
Robust growth in top‐ and bottom‐line: V‐Guard’s top‐line grew by 43%
YoY to Rs. 3,135mn in Q2FY13 due to strong growth in pumps, PVC cables,
LT cables and digital UPS. The company has increased EBITDA by 99% YoY
to Rs. 300mn and expanded the margin by 270 bps to 9.6% as Q2FY12
performance was marred by copper price crashing. Net income increased by
163% YoY to Rs. 180mn.
Summer and power cuts help top‐line growth: Top‐line of UPS and digital
UPS grew by 27% and 255% due to lack of power availability & supply issues
in South India. Sales of other products such as PVC cables and pumps grew
by 40% and 54% YoY, respectively due to rebound in construction work in
South India, extended summer and delayed rains.
Improvement in cash conversion cycle: V‐Guard has improved its cash
conversion cycle to 71 days in Q2FY13 vs 94 days in Q2FY12 due to better
inventory management and increase in creditor days through vendor
financing. However the debtor remained same ~46 days and the management
is planning to decrease through channel financing after the successful
implementation of vendor financing. The management is planning to
decrease the conversion cycle by 5 days per quarter in the ensuing four
quarters through better inventory management, debtor days reduction,
channel financing and vendor financing.
Outlook & Valuation: We believe that the company will register 35% and
30% revenue growth in FY13E and FY14E respectively. We expect the net
income to grow by 56% and 39% in FY13E and FY14E respectively. At CMP
of Rs. 427, the stock trades at 16.1x of FY13E and 11.6x of FY14E earnings. We
maintain our “BUY” recommendation and revised our target price to Rs. 519,
which has a potential upside of 22%. We have increased our FY13E and
FY14E EPS by 6% and 10% from our earlier estimates due to robust
performance in H1FY13.
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