ICICI Direct recommended hold rating on V-Guard Industries with a target price of Rs 168 in its research report dated October 29, 2018.
ICICI Direct's research report on V-Guard Industries
V-Guard’s Q2FY19 performance was largely impacted by Kerala floods and a weak summer for its products like stabilisers and pumps (both together contributed ~30% to FY18 topline). Hence, the large part of growth in Q2FY19 came in from consumer durable segment (up ~12% YoY) driven by newer products categories like switchgear, kitchen appliances. On the geographical front, non-south markets saw healthy topline growth of ~20%. Revenue contribution from non-south increased from 36% to 40% in H1FY19. However, south region (~60% in topline) has remained a laggard with muted topline growth of ~3% YoY. We believe the key trigger for the topline growth would be an improvement in sales of its flagship products and a demand recovery from southern markets EBITDA margin was under pressure mainly due to volatility in commodity prices and rupee depreciation. However, some price hike is on the cards to negate the impact of high input costs. We believe higher ad spends in the coming period would weigh on EBITDA margin expansion, going forward.
At the CMP, the stock is trading at 48x FY19E and 37x FY20E earnings. We value the stock at 35x FY20E earnings and maintain HOLD rating on the stock with a revised target price of Rs 168.
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