YES Securities' research report on V‐Guard Industries
VGRD reported better than expected revenue growth of beating estimates for 3rd consecutive quarter. The growth was driven by a strong performance across the product categories. Margin headwinds owing to high commodity cost inflation is now getting eased as commodity prices have corrected from its recent peak. Company expects margin to improve from Q3 as it takes pricing action in certain product categories and inventory adjustments will be done away with. The company is confident of growth momentum continuing in ensuing quarters with improving margin trajectory. Inventory has also reached its normalized level and Q2 has started on normalized inventory. Moreover, the company is also looking to increase in‐house manufacturing to 75% in next 2‐3 years from 60% currently which is expected to increase efficiencies and reduce supply‐chain shocks that it encountered in the past. Considering the above reasons and recent outperformance in terms of revenue growth, we continue to maintain our positive stance on the stock and our BUY rating. We believe VGRD’s brand strength, investments in own manufacturing and increased distribution in non‐South markets are now paying rich dividends with Southern market also gaining traction after a lull of couple of years. This improvement in execution and growth trajectory company should now start commanding higher valuation multiples.
We build‐in FY22‐24E Revenue/EBITDA/PAT CAGR of 14%/19%/19% with a revised PT of Rs289 and continue to value company at 40x FY24 EPS and maintain our BUY rating. Consistent delivery and margin improvement would be key for further earnings upgrades.
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