Reduce V-Guard Industries; target of Rs 235: HDFC Securities

HDFC Securities recommended reduce rating on V-Guard Industries with a target price of Rs 235 in its research report dated May 31, 2023.

Broker Research

June 01, 2023 / 17:10 IST

reduce

HDFC Securities' research report on V-Guard Industries

V-Guard continued to deliver a weak operating print with revenue (organic) up by 3% (HSIE 7%) and EBITDA contracting by 13% YoY (HSIE -9%), adjusting for Sunflame acquisition-related cost (INR 100mn). Electronics/Electrical revenue grew by 12/2%. ECD fell 3% YoY (impact of fan rating change); in comparison, Crompton/Havells/Orient reported +8/-14/-20%. South revenue fell by 3% while non-south grew 10% YoY. We believe V-Guard’s aspiration of clocking 15% organic growth in FY24 looks stretched, given (1) weak consumer demand; (2) disrupted summer season sales; and (3) single-digit growth in the south market (55% of sales) as V-Guard is fully indexed there. The company is aggressively driving Sunflame sales in MT/E-com channels (under-indexed vs industry). Stability in RM prices and liquidation of high-cost inventory shall aid GM expansion. Still achieving a 10% EBITDA margin looks difficult due to high competition in non-south, slow south growth and continuous reinvestment.

Outlook

We cut EPS by 4/2% for FY24/FY25. We value the stock at 30x P/E on Mar-25E EPS to derive a TP of INR 235. Maintain REDUCE.

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