May 22, 2013, 01.28 PM IST
Nirmal Bang has recommended hold rating on V-Guard Industries with a target of Rs 535, in its May 21, 2013 research report.
Nirmal Bang`s research report on V-Guard Industries
"V-Guard Industries posted a steady quarter in terms of Net Sales which grew by 36.4 percent YoY. The company posted a subdued quarter in terms of EBIDTA and PAT as the company has witnessed one-off items (increased advertisement expenses, Inventory write-downs due to weak copper prices and additional discount in PVC wires, Scrapping in the process of consolidation of Solar water heater factory shifting at Perunthurai, Increased inward freight expenses and Additional discounts in Inverters and Stabilizers segments that have enabled inventory liquidation) which have impacted the EBIDTA for the company to the tune of Rs. 27.6 crore in Q4FY13. The EBITDA margin declined by 670bps YoY to 5.4 percent and by 200bps QoQ. Excluding the impact of one-off items, the margin would have stood at 9 percent instead of 8.1 percent for FY13.”
Also Read: See 9.5% margin growth in FY14: V Guard
“Net Sales for Q4FY13 increased by 36.4 percent YoY to Rs. 371.4 crore and 6.7 percent QoQ. The revenue was up due to the good growth recorded in the Electronics (38.4 percent YoY growth) and Electricals (39.3 percent YoY growth). The company reported a decline in EBIDTA by 39.6 percent YoY to Rs. 19.9 crore and by 22.4 percent QoQ. The significant fall in EBIDTA was incurred due to the one-off items which impacted the EBIDTA amounting to Rs. 27.6 crore. The PAT declined by 53.4 percent YoY to Rs. 8.9 crore and by 41.8 percent QoQ. The PAT margin declined by 460bps YoY to 2.4 percent and by 200bps QoQ. The increase in depreciation and interest cost by 7.6 percent and 43.1 percent YoY respectively and a fall in Other income by 39.6 percent YoY impacted the profitability of the company. The decline in tax rate to 21.1 percent in Q4FY13 as against 28.6 percent in Q4FY12 and 20.7 percent in Q3FY13 supported the profitability of the company.”
“At CMP of Rs. 488, the stock is trading at a PE of 16.1x in FY14E and 11.8x in FY15E. We have revised our estimates for FY14E to incorporate the slow-down in the overall sector (as management has reduced the guidance to 25 percent revenue growth from 30 percent earlier in FY14E) and increase in other overheads (mainly advertisement expenses an increase by +50 percent YoY). We have reduced our estimate for FY14E with EPS expected at Rs. 30.3 as against Rs. 33.4 per share. We believe that EBIDTA margin to bounce back 9.2 percent in FY14E and 9.4 percent in FY15E as the margin for FY13 (8.1 percent) was impacted by one-off times which are mostly non-recurrence in nature. Due to high ad spend, Q1 will have a tepid margin though we believe that the margins will bounce back from Q2FY13 onwards on account of lower ad spend."
"We have also introduced FY15E estimates. We have achieved our target price of Rs. 535 (recommended on Q3FY13 result update) on 8th May 2013. We roll-over our target multiple from FY14E to FY15E to a target price of Rs. 535 per share at PE 13x FY15E. We recommend a “HOLD” rating and advise our investors to BUY on decline,” says Nirmal Bang research report.
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