"At current market price of Rs 246, V-Guard Industries is valued at P/E of 70x on trailing 12 months EPS which is very expensive," says Akash Jain, Vice-president, Equity Research at Ajcon Global Services.
At current market price of Rs 246, V-Guard Industries is valued at P/E of 70x on trailing 12 months EPS which is very expensive.
The company has witnessed a significant rally from the year 2010 as it had captured significant market share of around 50 percent in voltage stabilizers business. It is also present in digital UPS systems, pumps, house-wiring, induction cooktops, switchgear, mixer grinders, solar water heaters where there is significant competition which may affect its pricing power.
We believe that the company would not enjoy past run rate of growth as the base has gone up and believe that honeymoon period is over. The company has an asset light model wherein outsources more than 50 percent of sales. No doubt it has robust fundamentals like healthy return ratios and is a cash rich company, but at current market price there is no margin of safety.
In Q3FY18, the company witnessed Y-o-Y growth of top of 23 percent across all segments. What was surprising to us was the stellar recovery in UPS, cables (adjusted for LT cables) & fans with 32 percent , 31 percent and 37 percent Y-o-Y growth respectively.
The company is putting thrust on branding which is reflected in increase in ATL spending to 3.7 percent of sales.Disclaimer: The author is Vice-president, Equity Research at Ajcon Global Services. The views and investment tips expressed by investment experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.