Buy V Guard; target of Rs 244: Cholamandalam Securities

Cholamandalam Securities is bullish on V Guard has recommended buy rating on the stock with a target price of Rs 244 in its research report dated August 02, 2018.

Broker Research

September 18, 2018 / 14:05 IST

Cholamandalam Securities' research report on V Guard

In 1QFY19, VGIL reported a revenue growth of 13.5% YoY to INR 6,349mn (net of GST), marginally below our estimate of INR 6,417mn; According to the management, the growth adjusted for GST related price impact stood at ~19% YoY. In terms of geography (reported basis) South markets grew by 4.2%YoY (GST adj. 12% YoY) to INR 3.55bn and accounted for 56% of total sales in 1QFY19. Non south market accounts for 44.1% and grew by 22.5% YoY (GST adj. 30% YoY) to INR 2.8bn. UPS segment (Digital & Standalone) which accounts for 16% of 1QFY19 revenue, grew by 16% YoY. Pumps was flat (accounts for 11% of 1QFY19 revenue), cables & wires which accounts for 27% of 1QFY19 revenue grew 10% YoY, stabilizers was fat (accounts for 22% of 1QFY19 revenue), Fans (accounts for 11% of 1QFY19 revenue) grew by 22% YoY and water heater (accounts for 8% of 1QFY19 revenue) grew by 14% YoY. Newly launched products such as Kitchen appliances, air cooler, switch and switchgears (accounts for 4% of 1QFY19 revenue) grew by 102% YoY. Kitchen appliances (accounts for 2% of 1QFY19 revenue) grew by 79% YoY. Switchgears (accounts for 2% of 1QFY19 revenue) grew by 57% YoY. Modular switches and Air cooler posted revenue of INR 32mn and INR 29mn respectively.

Outlook

We are positive on the long term prospects of the company, given its market leadership position, strong financial track record, strong levers for margin expansion and quest to become a pan-India player. At CMP the stock trades at 44.5X & 34.3X FY19E & FY20E respectively. We are valuing the company 40XFY20E EPS to arrive at a target price of INR 244 and upgrade the stock to BUY rating.

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