Q3FY17 RESULT UPDATE GEOJIT Research RETAIL EQUITY RESEARCH V-GUARD INDUSTRIES LTD Electrical Equipments BSE CODE:532953 NSE CODE: VGUARD Bloomberg CODE:VGRD IN SENSEX: 28,240 Accumulate Rating as per Mid Cap 12months investment period CMP Rs208 TARGET Rs231 RETURN 11% 6 th February, 2017 Earnings momentum continues... V-Guard Industries Ltd (VGIL) is one of leading player in Electrical consumer durables space. Its major product segment includes Stabilizers, cables & wires, UPS, pumps and Electrical appliances. Q3FY17 PAT growth was robust at 30% YoY despite demonetisation headwinds. Gross margins improved by 270bps YoY to 33.6% led by lower cost. While improvement in EBITDA margin was limited to 10bps to 8.4%. With improvement in liquidity situation and Q4 historically being strong quarter, the earnings growth momentum is expected to continue. The implementation of GST will help the organised players like VGIL in gaining market share. Approved issue of bonus shares in ratio of 2: 5 (2 shares for every 5 shares held). We factor earnings to grow at 28% CAGR over FY16-FY19E. We value VGIL at 30x P/E on FY19E with a target price of Rs231 and we upgrade to Accumulate from Hold. Revenue growth momentum stable... VGIL s Q3FY17 revenue grew by 10% YoY, led by strong growth in Pumps which grew by 38%, Fans 15% and Stabilizers 9%. While other products segments like UPS grew by 5%, Appliance 8%, Electric water heater 6% and cables & wires 6% YoY reported a stable growth. Revenue from non-south market grew by 23% YoY led by strong festive sales. The revenue growth from south was modest by 5% YoY largely due to impact of demonetisation and cyclone in Chennai. With easing of liquidity situation and Q4 being historically a strong quarter for VGIL we believe that revenue growth is expected to be robust. Overall despite the impact of demonetisation VGIL reported a stable revenue growth which is reassuring. With new product launches and higher brand building measures, we believe that the long term growth momentum will continue. We factor revenue to grow at 14% CAGR over FY16- FY19E. EBITDA margin expansion healthy... Gross margins improved by 270bps YoY to 33.6%. The improvement in gross margins is largely due to better product mix and lower cost. While due to higher branding building measures, increased employee cost & other expenses the improvement in EBITDA margin was limited to 10bps YoY to 8.4%. We revise our EBITDA margin estimates by 30bps to 11% for FY17E. Key highlights... Commercial production from new plants for manufacture of Stabilizers and Electric water heaters is expected to commence during Q4FY17. VGIL is looking for inorganic growth opportunity in the electrical appliance business. The board has approved issue of bonus in the ratio 2 shares for every five shares held. Valuations Q3FY17 earnings grew by 30% YoY despite the demonetisation headwinds. With improvement in liquidity situation and Q4 historically being a strong quarter for VGIL, the earnings momentum is expected to continue. In the long term, benefits of GST and shift of business to more formal economy, the organised players like VGIL is expected to benefit by higher market share gain. Considering strong earnings outlook we value VGIL at a P/E to 30x (27x) on FY19E with a target price of Rs231 and we upgrade to Accumulate from Hold. Company Data Market Cap (cr) Enterprise Value (cr) Rs6,298 Rs6,310 Outstanding Shares (cr) 30.2 Free Float 34.0% Dividend Yield 0.3% 52 week high Rs226 52 week low Rs79 6m average volume (cr) 0.1 Beta 0.8 Face value Rs1.0 Shareholding % Q1 FY17 Q2 FY17 Q3 FY17 Promoters 65.7 65.5 65.4 FII s 12.9 12.9 13.0 MFs/Institutions 12.3 11.5 10.6 Public 8.0 8.8 9.5 Others 1.1 1.3 1.5 Total 100.0 100.0 100.0 Price Performance 3mth 6mth 1 Year Absolute Return 5.9% 48.4% 133.9% Absolute Sensex 3.5% 3.8% 16.0% Relative Return* 2.4% 44.6% 117.9% *over or under performance to benchmark index 250 200 150 100 50 Y.E Mar (Rs Cr) FY17E FY18E FY19E Sales 2,083 2,404 2,788 Growth (%) 11.9 15.4 16.0 EBITDA 229 264 307 Margins (%) 11.0 11.0 11.0 PAT Adj. 158 194 233 Growth (%) 41.9 22.7 19.6 Adj.EPS 5.2 6.4 7.7 Growth (%) 41.2 22.7 19.6 P/E 39.7 32.4 27.1 P/B 10.4 8.1 6.4 EV/EBITDA 27.5 23.8 20.5 ROE (%) 29.5 28.2 26.5 D/E 0.0 0.0 0.0 Anil R Analyst V Guard Sensex Rebased Jan-16 Apr-16 Jul-16 Oct-16 Jan-17
Quarterly Financials Profit & Loss Account (Rs mn) Q3FY17A Q3FY16A YoY Growth % Q2FY17A QoQ Growth % Sales 460 416 10.4 495 (7.2) EBITDA 39 35 11.5 53 (27.6) Depreciation 4 4-4 - EBIT 34 31 11.7 49 (30.3) Interest 1 1-1 - Other Income 3 2 83.7 4 (11.4) Exceptional Items - - - - - PBT 37 31 19.6 53 (29.2) Tax* 9 10 (3.9) 13 (30.7) Reported PAT 28 21 132.8 39 (6.8) Adjustment - - - - - Adj PAT 28 21 30.1 39 (28.7) No. of shares (mn) 30.2 30.2-30.2 - EPS (Rs) 0.9 0.7 30.1 1.3 (28.7) Old estimates New estimates Change % Year / Rs Cr FY17E FY18E FY17E FY18E FY17E FY18E Revenue 1,936 2,305 2,083 2,404 7.6 4.3 EBITDA 207 254 229 264 11.0 4.0 Margins (%) 10.7 11.0 11.0 11.0 +30bps - PAT 141 181 158 194 12.0 7.2 EPS 4.7 6.0 5.2 6.4 11.0 7.0
Standalone Financials Profit & Loss Account Sales 1,746 1,862 2,083 2,404 2,788 % change 15.0 6.7 11.9 15.4 16.0 EBITDA 133 178 229 264 307 % change 8.5 33.8 28.7 15.4 16.0 Depreciation 15 15 16 18 19 EBIT 118 163 213 246 288 Interest 21 9 2 1 0 Other Income 4 7 12 21 25 PBT 101 161 223 266 312 % change 7.6 58.7 38.7 19.4 17.2 Tax 31 49 65 72 80 Tax Rate (%) 30.3 30.6 29.0 27.0 25.5 Reported PAT 71 112 158 194 223 Adj* - - - - - Adj PAT 71 112 158 194 223 % change 0.8 57.9 41.9 22.7 19.6 No. of shares (mn) 30.0 30.1 30.2 30.2 30.2 Adj EPS (Rs) 2.4 3.7 5.2 6.4 7.7 % change 0.8 57.3 41.2 22.7 19.6 DPS (Rs) 0.5 0.8 0.8 0.8 0.8 CEPS (Rs) 3 4 6 7 8 Balance Sheet Cash 2 7 4 44 114 Accounts Receivable 244 279 331 428 481 Inventories 261 205 270 295 372 Other Cur. Assets 55 45 53 72 92 Investments - 19 22 37 52 Gross Fixed Assets 219 229 259 274 289 Net Fixed Assets 156 155 169 166 162 CWIP 1 0 5 15 20 Intangible Assets 7 6 5 4 3 Def. Tax (Net) (9) (7) (5) (3) 2 Other Assets - - - - - Total Assets 716 709 853 1,059 1,297 Current Liabilities 224 179 193 227 255 Provisions 44 40 45 51 60 Debt Funds 71 19 12 7 2 Other Liabilities - - - - - Equity Capital 30 30 30 30 30 Reserves & Surplus 348 441 574 743 950 Shareholder s Fund 378 471 604 773 980 Total Liabilities 716 709 853 1,059 1,297 BVPS (Rs) 13 16 20 26 33 Cash flow Net inc. + Depn. 86 127 175 213 252 Non-cash adj. 23 16 (12) (23) (29) Changes in W.C (21) (12) (107) (100) (113) C.F.O 88 131 55 89 110 Capital exp. (12) (14) (34) (24) (19) Change in inv. - (19) (3) (15) (15) Other invest.cf (3) 2 12 21 25 C.F - investing (15) (32) (24) (18) (9) Issue of equity 4 3 - - - Issue/repay debt (9) (57) (7) (5) (5) Dividends paid (13) (33) (25) (25) (25) Other finance.cf (55) (7) (2) (1) (0) C.F - Financing (74) (94) (34) (31) (31) Chg. in cash (1) 5 (3) 40 70 Closing cash 2 7 4 44 114 Ratios Y.E March FY15A FY16A FY17E FY18E FY19E Profitab. & Return EBITDA margin (%) 7.6 9.6 11.0 11.0 11.0 EBIT margin (%) 6.7 8.7 10.2 10.2 10.3 Net profit mgn. (%) 4.1 6.0 7.6 8.1 8.3 ROE (%) 20.3 26.3 29.5 28.2 26.5 ROCE (%) 14.6 17.6 20.3 20.1 19.3 W.C & Liquidity Receivables (days) 47.6 51.2 53.5 57.6 59.5 Inventory (days) 72.6 64.7 61.6 62.2 62.8 Payables (days) 60.6 56.1 48.3 46.2 45.4 Current ratio (x) 2.1 2.4 2.8 3.0 3.4 Quick ratio (x) 1.1 1.6 1.7 2.1 2.3 Turnover & Levg. Gross asset T.O (x) 8.2 8.3 8.5 9.0 9.9 Total asset T.O (x) 2.5 2.6 2.7 2.5 2.4 Int. covge. ratio (x) 5.7 18.2 10.4.1 272.0 653.2 Adj. debt/equity (x) 0.2 0.0 0.0 0.0 0.0 Valuation ratios EV/Sales (x) 3.6 3.4 3.0 2.6 2.3 EV/EBITDA (x) 47.9 35.5 27.5 23.8 20.5 P/E (x) 88.3 56.1 39.7 32.4 27.1 P/BV (x) 16.8 13.4 10.4 8.1 6.4
Recommendation Summary (last 3 years) Dates Rating Target 270 220 170 120 70 20 Apr-13 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16 Source: Bloomberg, Geojit BNP Paribas Research 11-June-13 Accumulate 55 22-July-13 Hold 55 25-Oct-13 Hold 54 22-Jan-14 Accumulate 51 6-May-14 Accumulate 58 31-Jul-14 Hold 76 20-Jan-15 Hold 111 12-May-15 Hold 98 6-August-15 Hold 104 19-Ooctober-15 Accumulate 103 2-Februray-16 Accumulate 101 29-July-16 Hold 166 26-October-16 Reduce 196 13-December-16 Hold 191 06-February -17 Accumulate 231 Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. 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Disclosure by GBNPP regarding the compensation paid to its Research Analyst: GBNPP hereby confirms that no part of the compensation paid to the persons employed by it as Research Analysts is based on any specific brokerage services or transactions pertaining to trading in securities of companies contained in the Research Reports. 4. Disclosure regarding the Research Analyst s connection with the subject company: It is affirmed that the I Anil R Research Analyst(s) of GBNPP have not served as an officer, director or employee of the subject company 5. Disclosure regarding Market Making activity: Neither GBNPP/its Analysts have engaged in market making activities for the subject company. 6. Disclosure regarding Directorship: Mr. C J. George, MD of Geojit BNP Paribas Financial Services Ltd is currently serving in the board of V-Guard Industries Ltd as a Non Executive Director. 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