Buy This Stock For 30% Near Term Return: Company Rising Manufacturing Investment

Target Price, CMP and performance

The Current Market Price (CMP) of V‐Guard Industries (VGRD) is Rs. 224. Yes Securities has estimated a Target Price for the stock at Rs. 293. Stock is anticipated to give a 30.90% return, in 1 year.

VGRD reported better than expected revenue growth of 23.7% beating estimates for the third consecutive quarter. The growth was driven by a strong performance in consumer durables and electrical segments which grew 32.3% and 32.5% respectively. The company has now started to deliver on the margin front as well despite continued commodity price inflation.

The company is confident of growth momentum continuing in Q1FY23 onwards and on margin front, they expect to achieve double‐digit EBITDA margins assuming the worst of commodity inflation is behind them. Current high levels of inventory are also likely to get normalized by Q2FY23 as inventory has already started to reduce from May.

 

Advantages of the Stock: Yes Securities

Retaining the buy rating, the brokerage firm said, "The company is also looking to increase in‐house manufacturing which is expected to increase efficiencies and reduce supply‐chain shocks that it encountered in the past. We believe VGRD's brand strength, investments in own manufacturing, and increased distribution in non‐South markets are now paying rich dividends with Southern market also gaining traction after a lull of couple of years. This improvement in execution and growth trajectory company should now start commanding higher valuation multiples. We have upgraded our EPS in FY23 and FY24 by 8.5% and 5.8% respectively and now build‐in FY22‐24E Revenue/EBITDA/PAT CAGR of 13%/20%/20%. Consistent delivery and margin improvement would be key for further earnings upgrades. Considering the above reasons and recent outperformance in terms of revenue growth, we continue to maintain our positive stance on the stock and our Buy rating."

About the company: V‐Guard Industries

The company soon extended their range of products to Voltage Stabilizer, Digital UPS, Inverter and Inverter Batteries, Electric Water Heaters, Solar Water Heaters, Domestic Pumps, Agricultural Pumps, Industrial Motors, Domestic Switch Gears, Distribution Boards, Wiring Cables, Industrial Cables, Induction Cooktops, Mixer Grinders, Fans, Rice Cooker, Gas Stoves & Solar Power Systems.

During the quarter, the company has made further investments of Rs. 151.7 mn in V‐Guard Consumer Products Ltd taking total investments to Rs. 600 mn. The first project under VCPL started with the manufacturing of electronics. Its first plant has been commissioned and has started producing stabilizers and inverters, full range of products to be manufactured is expected from June. The company's working capital has increased on higher inventory levels which is a conscious decision by the company. Inventory levels will be normalized by Q2. CFO in FY22 was negative at Rs. 343 mn. The company is expected to incur a CAPEX of Rs. 2bn in next 3 years. In FY22 company has undertaken a price increase of 10% ex‐wires and in wires price increase is in the range of 30‐35%.

Disclaimer

The above stock was picked from the brokerage report of Yes Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.