HDFC Securities recommended reduce rating on V-Guard Industries with a target price of Rs 157 in its research report dated July 29, 2020.
HDFC Securities' research report on V-Guard Industries
V-Guard posted a disappointing set of numbers as the company clocked revenue/EBITDA decline of 42/87% YoY (HSIE expectation -45/-52% YoY). Non-south performance remained weak and contracted by 47% (21% dip in 4QFY20). The company is the No. 3-4 player in non-south markets, and channel partners continue to prefer market leaders on priority. It impacted V-Guard even in 4QFY20. Stabiliser was most impacted (51% dip in Electronics segment) as demand of RAC was impacted sharply by the lockdown. Electricals/Consumer Durable segments have declined by 31/44% YoY. Gross margin declined by 334bps YoY on account of unfavorable mix (low Stabilizer mix). Negative oplev contracted EBITDA margin by 794bps to 2% (historical low). Demand improved sequentially since May as the company reached 70% of last year’s sales and achieved 90% in June. However, sporadic lockdowns hampered the rate of recovery in July. V-Guard has been losing market share in the past six months, particularly in the non-south market.
We expect only a gradual recovery and weak FY21 revenue. We cut EPS estimate for FY21 by 3% while maintain estimates for FY22/FY23. We value V-Guard at 30x P/E on Jun-22E EPS and derive a target price of Rs 157. Maintain REDUCE.
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