V-Guard Q3 Results Review - Operating Margins To Improve Further; Reiterate Add: Yes Securities

Yes Securities Report

V-Guard Industries Ltd.'s reported revenue growth of 18.8% aided by consolidation of Sunflame appliances. Excluding sunflame appliances revenue growth stood at 11.0%. The growth was led by electronics segment which grew by 16.9%, while electricals and consumer durables revenue grew by 9.6% and 11.1% respectively.

The growth for V-Guard was broad based with both South as well as non-south contributing equally to the growth. Gross margins for the quarter expanded by 429 basis points YoY on back of softening of commodity prices and is now has recovered towards pre Covid levels.

V-Guard recent acquisition of Sunflame appliances which was declining for past three quarters has been arrested and Sunflame appliances have managed muted 2% revenue growth. V-Guard is working to develop modern channels to accelerate the growth for Sunflame appliances.

V-Guard has started to make inroads in the non-south market and its efforts in increasing inhouse manufacturing is bearing fruits as seen from the gross margin improvement. There is still scope of improving margins further as certain categories like electrical critical dimension margins have been lower.

Management believes that 9.5%-10% Ebitda margins are sustainable in long term with room for improvement. We expect synergy benefits from Sunflame appliances to accrue as new management has stabilised and they have started to implement their strategies.

We believe V-Guard brand strength, investments in own manufacturing and increased distribution in non-South markets are now paying rich dividends with non-south market with improved growth is also witnessing margin improvement.

Moreover, material margins have inched up to pre-Covid levels. We are factoring FY23-26E revenue/Ebitda/profit after tax compound annual growth rate of 14%/25%/27% and continue to value company at 40 times resulting in target price of Rs 361 maintaining our 'Add' rating.

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