Wednesday, July 4, 2012

>V-Guard Industries Ltd.: Launched induction cooktops and domestic switchgears in Kerala

Management re-iterates 25% growth in revenues during FY13
V-Guard management has re-iterated guidance of 25% growth in revenues in FY13. Growth will come from across product categories. Management has indicated Non-South markets will grow at a higher pace as compared to the South markets in FY13. During Apr-May, 2012 it has witnessed descent growth which has further given it confidence to achieve its yearly guidance.

OPM to be maintained at ~10% for FY13
The management has maintained its guidance of ~10% OPM for FY13. It had taken price hikes in March, 2012 (~3%) which will ensure margin maintenance. Also, as the company derives only ~6% of its revenues from imported products, it will not get significantly impacted due to the rupee depreciation and thus maintain its margins.

Non-South India to contribute ~40% of revenues over next 4-5 years
V-Guard’s is looking to derive ~40% of its revenues from Non-South India markets over the next 4-5 years. It believes this can be achieved by increasing its dealer network and launching complete range of products in these geographies. Also, it is enhancing its team strength in these geographies which will enable it to further penetrate these markets

New product launched in FY12 to do meaningful contribution only in next 4-5 years
V-Guard has launched induction cooktops and domestic switchgears in Kerala during FY12. The company plans to do a pan South India launch over the next 18-24 months. It also plans to introduce mixer-grinders by CY12. The management believes it will be able to leverage its brand and service capabilities to be able to enter the kitchen appliance market. It targets revenues of Rs 1bn from these businesses over the next 4-5 years. Manufacturing of all these products will be outsourced.

Production: Outsourcing mix to remain similar
V-Guard manufactures its requirement of cables, LT cables and solar water heaters (SWH) in-house. It also manufactures ~10% of its pumps, fans and electric water heaters requirement. The other products such as stabilizers, UPS, DUPS are completely outsourced. On a blended basis, it manufactures ~40% of its sales. Management believes this ratio of manufacturing to outsourcing will continue to remain similar going ahead too.

Working Capital cycle to reduce further
V-Guard is trying to reduce its working capital days by ~15-20 days in FY13. It will do so by engaging in supplier financing (similar to its peers such as Bajaj Electricals and Havells India). By engaging in supplier financing it will reduce its working capital requirement and thus generate free cash flows. Going ahead, the management expects to get ~60-70% of its supplier under this scheme.

Outlook and valuation
V-Guard has been delivering robust growth over many years and now with increased focus on improving working capital; we believe its growth will be qualitative too. V-Guard is currently trading at a PER and EV/EBIDTA of 9.7x and 6.5x FY14E which is attractive given an earning CAGR of 19% during FY12-14. We continue to remain positive on the growth prospects of the company and the space in which it operates. Maintain BUY and price target of Rs266 (11x FY14E).

To read report in detail: V-Guard