Hold V-Guard Industries; target of Rs 273: Emkay Global Financial

Emkay Global Financial recommended hold rating on V-Guard Industries with a target price of Rs 273 in its research report dated May 28, 2021.

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Emkay Global Financial’s report on V-Guard Industries

V-Guard reported in-line EBITDA in Q4, driven by operating leverage and healthy performance across segments. Revenues for non-South market jumped 71% yoy while its revenue contribution rose to 44% from 41% in Q4FY20. EBIT margins of Electronics and Electricals segments expanded and were above estimate. Commodity headwinds impacted gross margins, leading to a 190bps contraction yoy. VGRD generated FCF of Rs1.6bn vs. Rs557mn in FY20. The company has intentionally planned for keeping 15 days of finished goods inventory due to the potential risk of labor/material shortages after lockdowns ease. Continued shift from unorganized/smaller players is benefiting established players such as VGRD.

Outlook

We have cut FY22E EBITDA by 9% due to commodity inflation. A&P spends should return to 2.4% of revenues along with full revenue recovery as investments in brand and new product launches will continue. Maintain Hold with a TP of Rs273 (40x on FY23E EPS).

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