INSUBCONTINENT EXCLUSIVE:
Sharekhan has a buy call on V-Guard Industries with a target price of Rs 264.
The current market price of V-Guard Industries is Rs
217.25.
Time period given by brokerage is one year when V-Guard Industries price can reach defined target
Investment rationale by brokerageStock price moved up by 26 per cent in past two months: The stock price of V-Guard (VGRD) has moved up by
26 per cent since our last update (dated on October 26, 2018)
The run up in stock price can be attributed to improving demand environment (strong demand from independent houses in tier 3-4 cities and
replacement demand) and factoring in impact from Kerala floods combined with miss out on Onam sales
The recovery of lost sales in Kerala has gradually started and wires, cables and pumps initially will be key beneficiaries from replacement
seasonal products such as water heaters and other products such as digital UPS, appliances, wires and switchgeaRs Going ahead, we expect
annual revenue contribution from non-south region to be about 36-37 per cent from existing 35 per cent and gradually moving to 50 per cent
in couple of years with its existing as well as extended new product offerings (air coolers, kitchen appliances and switchgears).
Extended
distribution network coupled with thrust on innovation, branding and promotion to tap potential market share: The company currently has
about 30,000-35,000 retail touch points and envisages adding 3,000-5,000 retailers across country every year over next five years with
higher additions in non-south region
meaningfully adding to revenue growth and operating leverage to expand to existing investments
Cost optimisation (through methods such as lean manufacturing and efficient raw-material utilisation) is an endeavor being taken across its
10 plants to improve efficiency and margins.
H2FY2019 to be stronger vs
H1FY2019: The company expects to report 15 per cent revenue growth in second half of FY2019, driven by introduction of new products in
non-south markets, acceleration in spend owing to general elections, favourable base of summer products and price hike (2.0-2.5 per cent),
The company has guided for 10 per cent operating margin for FY2019
For 3QFY2019, we expect revenue to grow by 18 per cent, led by growth in segment of water heaters and wires and cables
Gross margin for quarter is expected to be lower because of higher commodity prices, marginally offset by price hikes undertaken
Going ahead, softening of copper prices would reduce some margin pressure in near term
Thus, we expect operating profit margin to stand at 10.2 per cent in Q3FY2019 as against 9.3 per cent in Q3FY2018
Adjusted PAT is expected to grow at 28 per cent in Q3FY2019.
Maintain Buy with a revised target price of Rs 264: VGRD has a strong brand
portfolio dominating in southern region
The company is aggressively trying to expand in non-south region, where there is lot of pent-up demand for its products
H2FY2019 looks bright with softer commodity prices (copper down 8 per cent y-o-y), recovery from Kerala, improving demand outlook
(elections), shift in festive season and favourable base
In view of decent earnings visibility, we maintain our Buy rating on stock with potential price target of Rs 264 (rolling over target price
