Nov 08, 2011, 06.01 PM IST | Source:

Buy V-Guard Industries; target of Rs 228: Mehta Equities

Mehta Equities is bullish on V-Guard Ind and has recommended buy rating on the stock with a revised target price of Rs 228 in its November 4, 2011 research report.

Mehta Equities is bullish on V-Guard Industries and has recommended buy rating on the stock with a revised target price of Rs 228 in its November 4, 2011 research report.

V-Guard registered a healthy growth in its topline for the quarter ended Sept 2011 with a growth of 38% (yoy) to Rs 219 Cr backed by good volumes in segments like water heaters (55% yoy), wires (42% yoy), stabilizers (28%yoy). While other segments like pump, solar heater & Fan underperformed due to more than expected rains in south India. Growth in Net sales was higher due to 36% increase in Electrical / Electromechanical segment revenues to Rs 144.02 crore contributing 66% of the total revenues while Electronic segment revenues rose 44% to Rs 66.46 crore contributing 30% of revenues.

EBIDTA for the quarter declined by 13% to Rs 15.09 Cr against Rs. 17.26 Cr on YoY basis and margins for the quarter stood at 6.9% vs 10.9%. The subdued performance on profitability was mainly on the back of higher Selling & Distribution Expenses which grew by 210 bps from 7.7% last year. The net profit was down by 22% to Rs 6.84 Cr due to unfavourable market conditions, increased selling expenditure, material cost, the overheads and interest cost. Overall profitability was majorly affected by additional discounts and incentives given in segments like Fan, Pump, wire, Solar water heater & digital UPS. Wire segment witnessed pressure due to fall in copper prices in September end forcing the company to offer discounts on products produced with higher value copper. Profitability of solar water heater segment was impacted due to capital subsidy scheme by Ministry of New and renewable Energy (MNRE), forcing the company to cut prices while this may be able to recover these amounts in subsidy by next year. VGuard expects its solar water heater manufacturing. The plant is being set up at a capex of Rs 7-8 Cr on 35 acres of leased land. The new plant, the company's second solar water heater manufacturing facility. The facility will roll out solar water heaters which use polymer plastic tanks to reduce corrosion, instead of conventional steel tanks,

We believe electrical consumer goods counter to remain under pressure due to unfavourable market conditions, increasing selling expenditure and increasing interest cost burden. Over performance of the company stands good as we expect good demand growth with higher rural spending to lead in coming quarters. We see that VGuard business is no different to outperform the industry consensus and we remain cautious in the near term. On the valuation parse we believe the stock has limited upside from the current levels considering the industry outlook. On overall valuations at the CMP Rs 208, the stock trades at 9.5x on its FY 13E earnings with EPS of 21.7 (Earlier Rs 22.3). Hence we have a cautious outlook for the near term on the business outlook and maintian our recommendation with a target of Rs 228 in the near term, says Mehta Equities research report.

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