Buy V-Guard Ind; target of Rs 249: Sharekhan

“In Q4FY2011, V-Guard Industries (V-Guard) recorded its highest ever quarterly revenue, driven by higher sales in the non-south region and a whopping growth in the sale of products like cables, pumps and fans. The non-south region accounted for 22% of the sales in FY2011 as compared to 15% in FY2010. For FY2011, the revenue grew by 59.9% year on year (YoY) to Rs726.3 crore.”

“The operating profit margin (OPM) remained subdued at 8.7% during the fourth quarter due to a higher raw material cost. The margins vary across product categories; ranging from 4-6% in products like cables and fans to as high as 17-19% in stabilisers and solar water heaters. Segments like stabilisers, uninterrupted power supply (UPS) systems and digital UPS reported a lower margin for the quarter on account of slack sales. However, the cable segment reported an improvement in profit in spite of higher copper prices on account of the operating leverage emerging from a higher volume sale. The company’s interest cost jumped due to higher working capital borrowing during the quarter. Its working capital requirement is expected to go up further, in line with the growth in sales. The tax rate was lower because of the increased contribution from its new Kachipuram plant, which enjoys tax benefits. Aided by a lower tax rate and a muted growth in depreciation, the company registered a growth of 73.5% inadjusted net profit during the quarter under review. There was also a exceptional item of Rs3.6 crore on account of profit on sale of land.”

“V-guard remains our preferred pick on the Indian consumption boom theme. The company has continued to deliver results in line with its growth guidance. We are also positive about its various marketing initiatives that are helping in brand building and smoothing its foray in the non-south markets. We have also rolled forward our target multiple to FY2013 estimates. At the current level, the stock is trading at 10.7x and 7.6x its FY2012 and FY2013 expected earnings which looks attractive given the company’s sound growth trajectory. We maintain our Buy recommendation on V-Guard with a revised price target of Rs 249,” says Sharekhan research report.  

What stocks does Deutsche hold?

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management.Moneycontrol.com advises users to check with certified experts before taking any investment decisions.