V-Guard Q1 Results Review - Summer Products Led Healthy Quarter; Improved Outlook Priced In: Systematix

Systematix Research Report

V-Guard Industries Ltd.’s strong Q1 FY25 (revenue/Ebitda/profit after tax up 22%/49%/54% YoY) was driven by summer products in the Electronics (revenue up 41%) and electrical consumer durables (revenue up 26%) segments.

Superior segment mix drove Ebitda margin to a healthy 10.5%. Electricals revenue (up 7% YoY) was impacted by channel destocking led impact in wires demand (inline with peers) on softening copper price in June.

Sunflame result (revenue down 7% YoY, 4.7% Ebit margin) stayed weak; recovery is likely in the upcoming festivals. Non-South markets led growth (up 30% YoY; 50.9% mix versus 48.4% YoY) whereas South markets grew by 17%. V-Guard’s performance in last two quarters has improved; outlook looks promising too.

Most of the margin expansion levers are in place. Adequate price action and rise in own manufacturing mix (65%, aims 75% in two-three years) will drive Ebitda margin back to 10.5% level. TPW fans plant at Hyderabad is expected to start in 18 months. After strong Q1, we increase earnings estimates by 3-5%. We now expect 16%/28%/36% CAGR in revenue/Ebitda/PAT over FY24-26E (after a low 13%/14%/9% CAGR over FY19-24).

Tight working capital management would aid healthy operating cash flows and 26% return on invested capital in FY26E.

While we are positive on V-Guard’s prospect, after ~25% rally in the scrip in the last two-months and now at 42 times FY26E price/earning, we maintain Hold rating, with a higher target price of Rs 439 (40 times FY26E P/E, earlier Rs 420 at 40 times).

Growth and margin trajectory in Sunflame is the key monitorable.

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