scorecardresearchV-Guard Industries hits 52-week high; Brokerages see more upside

V-Guard Industries hits 52-week high; Brokerages see more upside

Updated: 19 Dec 2022, 03:40 PM IST
TL;DR.
On December 09, V-Guard has signed a definitive agreement to acquire a 100% stake in Sunflame Enterprises for a consideration of 660 crore in an all-cash deal. According to ICICI Direct, V-Guard will benefit from this acquisition as its revenue from kitchen appliances will improve.
For the September quarter, the company reported a 26.5% decline in its consolidated net profit of  <span class='webrupee'>₹</span>43.66 crore.

For the September quarter, the company reported a 26.5% decline in its consolidated net profit of 43.66 crore.

Shares of V-Guard Industries, an electrical and home appliance manufacturer, hit a new 52-week high of 274.9 apiece during Monday's intra-day trade. Yer-to-date (YTD), the stock has risen from 221.65 to its current level of 274, producing a return of nearly 24%. At 2:45 p.m., the stock was trading at around 272.95, up by 1.47% on the NSE. 

The stock's 52-week high and low levels were 181 apiece and 274.9, respectively. At the current market price of 274 apiece, the stock has climbed 51.38% from its one-year low.

However, domestic brokerage firms have increased their target prices and remain bullish on the stock after the company reached a definitive agreement to buy a 100% stake in Sunflame Enterprises for 600 crore on December 09.

The acquisition is in line with V-Guard’s strategy to strengthen its kitchen appliance portfolios, where the company had a very limited presence, said ICICI Direct in its research report.

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Stock price chart of V-Guard Industries.

According to the brokerage, V-Guard will benefit from this acquisition because its revenue from kitchen appliances will rise to 10% of its total revenue, up from 5% in FY22.

"We introduce FY25E estimates for V-Guard factoring in the acquisition and better margin profile of ‘Sunflame’. "We model consolidated revenue, earning CAGR of 17%, 18%, respectively, in FY22-25E," said ICICI research.

Sunflame is a leading kitchen appliance company with a strong presence in chimneys, cooktops, cookers, and small appliances. 

In the last 3 years, Sunflame’s revenue grew at 15% CAGR, which is higher than industry growth of 10-12%, supported by new product launches and geographical expansions. Sunflame is a dominant player in non-Southern regions, accounting for 80% of revenue.

The Sunflame acquisition will provide significant synergies to V-Guard in areas like geography, product portfolio, and channel. Post the acquisition V-Guard will leverage its established distribution networks in the south region to scale up its kitchen product ranges, the brokerage pointed out.

ICICI Direct outlined three key triggers for the stock's future performance including an expansion into non-Southern regions, expansion into high-margin product categories such as kitchen appliances, and a plan to increase in-house manufacturing from the current 55% to 60%, which will help the company improve profitability.

The brokerage has a "buy" call on the stock with a 12-month target price of 310 per share. It valued the company at 35x FY25E earnings.

Similarly, Phillip Capital also maintained its "buy" call on the stock with a revised target price of 315 apiece from 307 earlier.

"We expect VGRD’s proven capability in geographical and portfolio expansion to enable synergies across Sunflame’s business."

"We are convinced that this acquisition will successfully monetize the V-Guard brand equity in southern India while increasing channel sweating in the rest of the country and on the new channel. Also, now SEPL will help VGRD to increase its presence in kitchen appliances in the north market," said the brokerage. 

Phillip Capital expects this acquisition will result in an EBITDA/PAT increase of 11%/3% in FY24 for V-Guard.

For the September quarter, the company reported a 26.5% decline in its consolidated net profit of 43.66 crore. The company posted a net profit of 59.40 crore in the July-September period of last fiscal.

However, the company's revenue from operations rose marginally to 986.14 crore during the quarter compared to 907.40 crore in the similar quarter of last year.

In terms of category, revenue from the consumer durables segment was 337.17 crore in Q2FY23, up 20.66% year on year, while revenue from the electronics segment came in at 227.36 crore, up 8.70% year on year.

An average of 21 analysts polled by MintGenie have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.

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First Published: 19 Dec 2022, 03:03 PM IST