V-Guard Industries - Stellar performance; Result Update Q2FY15 :: Edelweiss PDF link

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V-Guard Industries Ltd. has reported strong Q2FY15 numbers. Revenue for the quarter grew by robust 29% YoY, driven by a 47% YoY growth in non-South markets and 21% YoY growth in the Southern markets, which contribute 33% and 67%, respectively to the company’s total revenues. Buoyed by a good Onam season and power cuts in southern markets, sales of digital UPS, stabilizers and fans witnessed growth of 134%, 25% and 37%, respectively. EBITDA margins expanded by 20bps YoY to 8.3% and were broadly in line with expectations. PAT for Q2FY15 grew by 32% YoY to INR 19.2 cr due to marginal improvement in EBITDA margins. The management has maintained guidance of 20% growth in revenue with 8.5-9% EBITDA margins which appears to be achievable considering 22% growth in sales in H1FY15 and a low base of H2FY14. The management believes that future growth would be driven by expansion into new geographies and improved demand in some of the southern markets like Andra Pradesh which grew by 45-50% in Q2FY15.

Strong revenue growth across geographies

Revenue for Q2FY15 grew by 29% YoY to INR 431 cr, which was driven by a 47% YoY growth in non-South markets. Southern markets also recovered to register 21% YoY growth due to a good Onam season and power cuts led by coal shortage. The topline growth in Q2FY15 was driven by Digital UPS, Electric Water Heaters, Fans and Stabilizer businesses, with their sales witnessing YoY growth of 134%, 43%, 37% and 25%, respectively. The Electronics segment revenue grew by 43% YoY on the back of strong performance of Stabilizers and Digital UPS, while the Electrical segment revenue grew by 23.6% YoY, led by strong growth in Fans at 37% YoY and Electric Water Heaters at 43% YoY.

Margins remain in line with stable ad spend

EBITDA margins for Q2FY15 stood at 8.3%, up by 20bps YoY due to a 50bps YoY improvement in gross margins. But the other expenses witnessed 50bps YoY increase on one-time warranty expense and service transport cost of INR 4.5 cr.  Ad spend-to-sales ratio stood at 3.3% in this quarter, which was flat from last year and the management has maintained a guidance of 3.5-4% for FY15. The working capital increased by 12 days on QoQ basis to 82 days, as stocking up of products leading up to the winter season led to an increase in inventory. The working capital is expected to normalise by the end of the year.

Non-South markets remained strong

The non-South markets accounted for 33% of Q2FY15 sales (vs 28% in Q2FY14). Revenue for the non-South markets increased by 47% YoY to INR 142 cr, led by strong performance of Electric Water Heaters following the launch of new products and a decent pick-up in the Inverter business. V-Guard has built a strong distribution network in non-South regions and continues to expand into new geographies, which has yielded robust growth in non- South business.

Management maintains 20% revenue growth with 8.5-9% margins

The management has maintained 20% growth in revenue with 8.5-9% EBITDA margins for FY15. This would largely be driven by expansion into new geographies in non-South markets and improved demand in some of the southern markets like Andra Pradesh which grew by 45-50% in Q2FY15. Further, any improvement in consumer sentiment and construction activity would boost the demand for its major products such as Pumps and Wires.

LINK

https://www.edelweiss.in/research/V-Guard-Industries--Stellar-performance;-Result-Update-Q2FY15/10005149.html