29 July 2016
1QFY17 Results Update | Sector:
Consumer
BSE SENSEX
28,052
S&P CNX
8,639
CMP: INR1,591
TP: INR1,625 (+2%)
V-Guard Industries
Neutral
Motilal Oswal values your support in
All-round performance impressive; growth outlook positive
the Asiamoney Brokers Poll 2016 for
Revenue growth across segments:
V-Guard Industries (VGRD) reported revenues
India Research, Sales and Trading
of INR5.7b (est. of INR5.9b) in 1QFY17, marking 14.7% YoY growth, led by strong
team. We
request your ballot.
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
VGRD IN
29.8
47.5/0.7
1636 / 787
12/66/71
47
34.3
Financials & Valuation (INR b)
Y/E MAR
2016 2017E 2018E
Sales
18.6 21.5
24.7
EBITDA
1.8
2.2
2.6
NP
1.1
1.5
1.7
EPS (Rs)
37.1 49.6
58.0
EPS Gr. (%)
57.4 33.6
17.0
BV/Sh (INR) 156.5 195.6 240.9
RoE (%)
26.3 28.2
26.6
RoCE (%)
25.4 28.1
26.6
P/E (x)
42.9 32.1
27.4
P/BV (x)
10.2
8.1
6.6
21.0
17.7
EV/EBITDA (x)
26.7
Estimate change
TP change
Rating change
growth in products like stabilizers (+22%), UPS (+26%), pumps (+32%) and fans
(+20%). However, cables and wires, which is the largest segment, posted flattish
growth of (0.5%). Realizations in the cables and wires segment continue to remain
subdued on account of a decline in commodity prices compared to the base
quarter. Non-south markets grew 13.7% YoY, while south markets grew 15.3%
YoY. South to non-south mix stood at 62:38 in 1QFY17 v/s 62:38 in 1QFY16.
Margins improve, generates cash of INR1b in 1QFY17:
Gross margins improved
300bp YoY to 30.9%, while EBITDA grew 47% YoY to INR638m in 1QFY17 (est. of
INR663m). EBITDA margins expanded 240bp YoY to 11.1% in 1QFY17 (est. of
11.3%). Management highlighted that the improvement in gross margin was led
by a mix of lower input costs, better inventory management and spreading of
fixed overheads over strong sales growth. Interest costs declined sharply to
INR6m (v/s INR40m in 1QFY16) due to ~INR444m YoY debt reduction.
Consequently, adj. PAT grew 70% YoY to INR428m (est. of INR448m). Working
capital cycle improved by 21 days YoY/ 6 days QoQ to 54 days of sales, mainly led
by a reduction in inventory levels and better credit terms. Accordingly, there was
a significant improvement in cash generation to INR1b in 1QFY17 compared to
INR1.35b for FY16.
Margin, volume prospects promising:
Management pointed out that copper
prices are likely to bottom out, and the cables and wires business is likely to post
positive growth. In 1QFY17, volume growth in cables and wires was 9-10%.
Management believes that margins have scope to improve. However, the
company will reinvest the same into A&P spends and people, and largely maintain
margins around 10%.
Valuation and view:
Management highlighted that the outlook for 2HFY17
appears positive on the back of 7th Pay Commission and an increase in rural
spending due to good monsoon. We maintain our estimates of revenue CAGR of
15% and PAT CAGR of 25% over FY16-18E. Maintain
Neutral
with a TP of INR1,625
(28x FY18E EPS).
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Chintan Modi
(Chintan.Modi@MotilalOswal.com); +912239825422
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

V-Guard Industries
Revenue growth across segments
VGRD reported revenue of INR5.7b (est. INR5.9b) in 1QFY17, marking a 14.7%
YoY growth led by strong growth in products like stabilizers (up 22%), UPS (up
26%), Pumps (up 32%) and fans (up 20%) while Cables and wires which is the
largest segment posted flattish growth of (0.5%).
Realisations in the cable and wires segment continue to remain subdued on
account of decline in commodity prices compared to base quarter.
Non-south markets grew 13.7% YoY while south markets grew 15.3%. South to
Non-south mix stood at 62:38 in 1QFY17 v/s 62:38 in 1QFY16.
Overall electronics segment grew 22.9% YoY to INR2.2b while electrical segment
grew 9.1% YoY to INR3.3b and others segment grew 30.6% to INR0.2b.
Exhibit 1: Segment wise revenue break-up (INR m)
Segments
Electronics
Electrical / Electromechanical
Others
Total
1QFY17
2,204
3,334
188
5,726
1QFY16
1,794
3,055
144
4,993
YoYGr. (%)
22.9
9.1
30.6
14.7
4QFY16
1,546
3,412
176
QoQ Gr. (%)
42.6
-2.3
6.8
5,134
11.5
Source: Company, MOSL
Exhibit 2: Quarterly revenue trend (INR m)
Total Sales (INR m)
28%
3,340 3,529
4,082
7%
1%
4,224
4,777
17%
29%
3,954
4,313
12%
4,416
YoY Growth
4,993
4,334 4,163
5%
5%
0%
5,133
16%
5,727
15%
12%
5%
Source: Company, MOSL
Margins improve, generates cash of INR1b in 1QFY17
Gross margins improved 300bp YoY to 30.9% while EBITDA grew 47% YoY to
INR638m in 1QFY17 (est. INR663m). EBITDA margins expanded 240bp YoY to
11.1% in 1QFY17 (est. 11.3%).
Management highlighted that improvement in gross margin was a mix of lower
input costs, better inventory management and spreading of fixed overheads
over strong sales growth.
Interest costs declined sharply to INR6m (vs INR40m) due to ~INR444m YoY debt
reduction. Consequently, Adj. PAT grew 70% YoY to INR428m (est. INR448m).
The working capital cycle improved by 21 days yoy / 6 days qoq to 54 days of
sales, led mainly by reduction in inventory levels and better credit terms.
Accordingly, there was a significant improvement in cash generation of INR1b in
1QFY17 compared to INR1.35b for FY16.
29 July 2016
2

V-Guard Industries
Exhibit 3: EBITDA margins trend (INR m)
EBITDA (INR m)
EBITDA margins
12.4%
8.5%
8.3%
5.5%
404
356
217
8.0%
353
8.7%
435
8.4%
8.3%
634
365
346
638
223
192
11.1%
26%
32%
-47%
92
201
252
231
215
420
428
13%
-2%
Exhibit 4: PAT trend (INR m)
PAT (INR m)
YoY Growth
133%
109%
20%
70%
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Product wise revenue break-up (INR m)
Segments (INR m)
Stabilizers
UPS (Digital + Standalone)
Pumps
Cables & Wires (PVC + LT)
Water Heaters (Electric + Solar)
Fan
Others
Total sales
1QFY17
1,455
749
679
1,538
518
600
188
5,727
1QFY16
1,197
597
513
1,545
496
501
144
4,993
Growth%
21.6
25.5
32.4
-0.5
4.4
19.8
30.6
14.7
4QFY16
Growth%
1,001
45.4
544
37.7
741
-8.4
1,546
-0.5
404
28.2
720
-16.7
176
6.8
5,132
11.6
Source: Company, MOSL
Exhibit 6: Geography wise revenue break up (INR m)
South
Non south
3,560
2,170
Exhibit 7: Non south contribution continues to increase
South (%)
35
32
32
33
38
Non south (%)
31
30
32
38
3,140 2,910 2,710
3,000 2,910 3,470
2,960 3,080
1,670
1,400 1,250
1,490
1,910
1,340 1,250
1,670
65
68
68
67
62
69
70
68
62
Source: Company, MOSL
Source: Company, MOSL
Key highlights from conference call
The company intends to get deeper into Non south market over next 5-8 years
as the ~25% of retailers stock its products in non South against ~75% of retailers
stocking in South market.
In last 12 months, the company has not taken any price hike which gives it
headroom to increases prices incase of any cost inflation.
Higher gross margins were also a function of mix with higher contribution of
pumps and stabilizers which are higher margin business but gross margins will
come down in 2Q and 3Q.
The company’s performance could have been better but due to low inventory
could not supply to match demand.
3
29 July 2016

V-Guard Industries
Valuation and view
We value VGRD at 28x FY18E EPS which we believe is justified considering:
Strong return ratios
: V-Guard derives 57% of revenues through outsourcing
model thereby helping to keep business model asset light and enabling the
company to focus on branding. Outsourcing model leads to higher ROCE with
overall corporate RoCE of 33% for FY18E and a debt free balance sheet.
Significant potential for growth and margin expansion:
V-Guard has over
the past five years significantly expanded its presence in non-south markets with
distributors in non-south markets standing at 328 higher than south of 208
distributors. However, revenue per distributor in non-south markets stands at
INR17-20mm as against INR55-60m in south markets, implying significant
scalability from non-south markets. Distributor margins and discounts in non
south margins are currently higher than south markets, which we expect to
decline going forward, thus improving margins.
We value VGRD at 28x FY18E EPS, and value the stock at INR1,625. Maintain
Neutral.
Exhibit 8: Price to earnings (one year forward)
40
32
24
16
8
0
15.2
19.7
P/E (x)
5 Yrs Avg(x)
7 Yrs Avg(x)
Exhibit 9: Price to book (one year forward)
10.0
25.9
8.0
6.0
4.0
2.0
0.0
4.5
3.4
P/B (x)
5 Yrs Avg(x)
7 Yrs Avg(x)
6.6
Source: Company, MOSL
Source: Company, MOSL
29 July 2016
4

V-Guard Industries
Story in charts
Exhibit 10: V-Guard's ad spends highest among peers
4.3%
3.1%
55.9
1.3%
0.7%
39.1
35.2
33.1
26.1
25.8
21.9
4.3
FY08
Source: Company, MOSL
4.8
FY09
9.3
FY10
36.9
16.7
23.0
Exhibit 11: Revenue/ Distribution pan India trend (m)
South
Non South
Pan India average
77.7
71.6
49.1
57.8
45.9
20.4
37.3
20.7
56.3
32.7
17.7
FY11
FY12
FY13
FY14
FY15
Source: Company, MOSL
Exhibit 12: Distribution network pan India trend
South
Non south
328
220 208
187
Exhibit 13: Robust RoCEs
RoCE (%)
37
24
25
27
27
27
28
38
38
78
90
34
59
100
77
103 97 110 95
167
134
Source: Company, MOSL
Source: Company, MOSL
Exhibit 14: Annual sales trend
Sales (INR m)
60%
43%
33%
9,646
41%
13,602 15,176
12%
17,459 18,623
15%
21,520
16%
24,667
15%
Growth (%)
Exhibit 15: Annual PAT trend
67%
47%
24%
629
FY13
FY14
701
12%
1%
FY15
707
34%
17%
1,117 1,492
FY16 FY17E FY18E
Source: Company, MOSL
PAT (INR m)
Growth (%)
58%
1,745
4,541
7,263
255
426
19%
508
7%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E
Source: Company, MOSL
FY10
FY11
FY12
29 July 2016
5

V-Guard Industries
Financials and valuations
Standalone - Income Statement
Y/E March
Net Sales
Change (%)
EBITDA
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
PBT bef. EO Exp.
PBT after EO Exp.
Current Tax
Deferred Tax
Tax Rate (%)
Reported PAT
PAT Adj for EO items
Change (%)
Margin (%)
Net Profit
FY11
7,263
60.0
728
10.0
79
648
113
20
555
591
161
4
27.9
426
400
57.1
5.5
400
FY12
9,646
32.8
936
9.7
97
839
170
24
692
692
202
-19
26.6
508
508
27.0
5.3
508
FY13
13,602
41.0
1,099
8.1
114
985
200
36
821
821
156
36
23.4
629
629
23.7
4.6
629
FY14
15,176
11.6
1,225
8.1
120
1,105
211
48
943
943
225
16
25.6
701
701
11.5
4.6
701
FY15
17,459
15.0
1,330
7.6
154
1,176
206
44
1,014
1,014
305
2
30.3
707
707
0.8
4.0
707
FY16
18,623
6.7
1,780
9.6
154
1,627
89
72
1,610
1,610
493
0
30.6
1,117
1,117
58.0
6.0
1,117
(INR Million)
FY17E
21,520
15.6
2,217
10.3
167
2,050
9
90
2,131
2,131
639
0
30.0
1,492
1,492
33.6
6.9
1,492
FY18E
24,667
14.6
2,565
10.4
185
2,380
0
113
2,493
2,493
748
0
30.0
1,745
1,745
17.0
7.1
1,745
Standalone - Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Deferred Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Total Investments
Curr. Assets, Loans&Adv.
Inventory
Account Receivables
Cash and Bank Balance
Loans and Advances
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
FY11
298
1,421
1,720
61
1,394
3,175
1,462
324
1,137
14
0
2,898
1,424
1,231
71
172
874
712
162
2,023
3,175
FY12
298
1,808
2,106
43
1,091
3,240
1,625
395
1,230
111
0
3,365
1,574
1,478
34
279
1,466
1,222
245
1,899
3,240
FY13
298
2,315
2,613
79
1,650
4,343
1,888
506
1,382
88
0
5,079
2,486
1,988
149
455
2,205
1,959
246
2,873
4,343
FY14
298
2,886
3,184
95
1,084
4,363
2,280
618
1,662
35
0
5,053
2,525
2,121
28
379
2,386
2,069
317
2,667
4,363
FY15
300
3,478
3,777
92
728
4,597
2,407
783
1,624
12
0
5,613
2,609
2,437
22
545
2,652
2,255
397
2,961
4,597
FY16
301
4,407
4,708
75
71
4,854
2,537
926
1,611
0
194
5,360
2,047
2,792
76
445
2,311
1,914
398
3,049
4,854
(INR Million)
FY17E
301
5,585
5,886
75
0
5,960
2,837
1,093
1,744
0
194
6,711
2,421
2,889
890
512
2,689
2,212
477
4,022
5,960
FY18E
301
6,946
7,247
75
0
7,322
3,137
1,278
1,859
0
194
8,384
2,591
3,176
2,028
589
3,116
2,543
573
5,269
7,322
29 July 2016
6

V-Guard Industries
Financials and valuations
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
Cash P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Capital Turnover (Days)
Leverage Ratio (x)
Current Ratio
Debt/Equity
FY11
13.4
16.1
57.6
3.5
28.5
118.7
99.0
27.6
6.7
67.1
0.2
25.5
18.1
17.9
2.3
72
61
36
98
3.3
0.8
FY12
17.0
20.3
70.6
3.5
23.9
93.4
78.5
22.5
5.0
51.9
0.2
26.6
20.1
19.9
3.0
60
55
46
71
2.3
0.5
FY13
21.1
24.9
87.6
3.5
19.3
75.5
63.9
18.2
3.6
44.6
0.2
26.6
21.0
20.9
3.1
67
52
53
73
2.3
0.6
FY14
23.5
27.5
106.7
3.5
17.3
67.7
57.8
14.9
3.2
39.6
0.2
24.2
20.1
19.6
3.5
61
50
50
63
2.1
0.3
FY15
23.6
28.7
126.0
3.5
17.2
67.5
55.4
12.6
2.8
36.2
0.2
20.3
19.4
18.5
3.8
55
51
47
61
2.1
0.2
FY16
37.1
42.2
156.5
7.1
21.9
42.9
37.7
10.2
2.5
26.7
0.4
26.3
25.4
24.7
3.8
40
54
38
58
2.3
0.0
FY17E
49.6
55.1
195.6
9.1
21.1
32.1
28.9
8.1
2.2
21.0
0.6
28.2
28.1
30.3
3.6
41
48
38
53
2.5
0.0
FY18E
58.0
64.2
240.9
11.1
22.0
27.4
24.8
6.6
1.8
17.7
0.7
26.6
26.6
33.4
3.4
38
46
38
48
2.7
0.0
Standalone - Cash Flow Statement
Y/E March
Oper. Profit/(Loss) before Tax
Depreciation
Interest and finance charges
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO expense
CF from Operating incl EO
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Invest.
Others
CF from investments
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
E: MOSL Estimates
FY11
591
79
112
181
-946
-344
3
-341
-86
-427
46
3
-37
593
-113
-104
375
-3
74
71
FY12
692
97
162
157
30
823
14
837
-293
544
0
15
-277
-310
-166
-121
-597
-38
71
33
FY13
822
114
180
256
-772
88
17
105
-256
-151
0
3
-254
575
-190
-121
265
116
34
150
FY14
943
120
191
189
-23
1,042
66
1,108
-324
784
0
44
-280
-591
-236
-122
-950
-122
149
27
FY15
1,014
154
206
307
-212
856
0
856
-94
762
0
0
-94
-405
-206
-156
-768
-6
28
22
FY16
1,610
154
89
493
-84
1,275
0
1,275
-129
1,147
0
-155
-284
-605
-89
-244
-938
54
22
76
FY17E
2,131
167
9
639
-159
1,508
0
1,508
-300
1,208
0
0
-300
-71
-9
-314
-394
814
76
890
FY18E
2,493
185
0
748
-108
1,822
0
1,822
-300
1,522
0
0
-300
0
0
-384
-384
1,139
890
2,028
29 July 2016
7

V-Guard Industries
Corporate profile
Company description
Established in 1977, V-Guard Industries is a
dominant player in south India in the light
electrical industry. Beginning with its flagship
product, voltage stabilizers (in which it is the
market leader), the company has, over last 10
years, expanded its product profile to include PVC
insulated cables, LT power cables, Fans, Geysers,
Solar water heaters, Pumps, UPS and Inverters.
The company, which went public in 2008 and has
seen revenue CAGR of 37% and a PAT CAGR of 32%
in the past five years.
Exhibit 17: Shareholding pattern (%)
Jun-16
Promoter
DII
FII
Others
65.7
12.3
12.9
9.2
Mar-16
65.7
8.2
16.7
9.4
Jun-15
66.0
5.8
18.4
9.8
Exhibit 19: Sensex rebased
Exhibit 18: Top holders
Holder Name
NALANDA INDIA EQUITY FUND LIMITED
NALANDA INDIA FUND LIMITED
ICICI PRUDENTIAL LONG TERM EQUITY (TAX SAVINGS)
DSP BLACKROCK MICRO CAP FUND
KOTAK MAHINDRA (UK) LIMITED A/C INDIA MIDCAP
%
Holding
4.3
2.6
1.9
1.8
1.7
Note: FII Includes depository receipts
Exhibit 19: Top management
Name
Kochouseph Chittilappilly
Cherian N Punnoose
Mithun K Chittilappilly
Designation
Chairman
Vice Chairman
Managing Director
Exhibit 20: Directors
Name
Kochouseph Chittilappilly
Cherian N Punnoose*
Mithun K Chittilappilly
A K Nair*
Name
C J George*
Joshna Johnson Thomas
Ullas K Kamath*
Ramachandran Venkataraman
*Independent
Exhibit 21: Auditors
Name
S R Batliboi & Associates
Keyul M Dedhia & Associates
Ajeesh & Associates
Type
Statutory
Secretarial Audit
Cost Auditor
Exhibit 22: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
41.6
50.6
Consensus
forecast
41.1
54.1
Variation
(%)
1.3
-6.4
29 July 2016
8

V-Guard Industries
NOTES
29 July 2016
9

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