24 October 2016
2QFY17 Results Update | Sector:
Consumer
BSE SENSEX
28,179
Bloomberg
Equity Shares (m)
M.Cap. (INR b) / (USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val (INR m)
Free float (%)
S&P CNX
8,709
VGRD IN
300.9
58.4/0.9
199/79
6/89/109
62
34.5
CMP: INR194
TP: INR215 (+11%)
V-Guard Industries
Neutral
All-round performance, but valuations rich
Financials & Valuation (INR b)
Y/E MAR
Sales
EBITDA
NP
EPS (INR)
EPS Gr. (%)
BV/Sh (INR)
RoE (%)
RoCE (%)
Payout %
Valuations
P/E (x)
P/BV (x)
EV/EBITDA(x)
Div. yield (%)
EV/Sales (x)
Estimate change
TP change
Rating change
52.3
12.4
32.8
0.4
3.1
34.5
9.6
23.5
0.5
2.7
27.1
7.5
18.2
0.6
2.3
2016 2017E 2018E
18.6
1.8
1.1
3.7
57.4
15.6
26.3
25.4
21.9
21.4
2.4
1.7
5.6
51.5
20.1
31.5
31.4
20.6
24.8
3.1
2.2
7.2
27.4
25.9
31.2
31.2
19.4
Broad-based revenue growth across segments:
V-Guard Industries’ (VGRD)
revenue increased 14.2% to INR4.95b (our estimate: INR5.2b) in 2QFY17 from
INR4.33b in the year-ago period, led by strong growth in Stabilizers (+15%), UPS
(+13%), Pumps (+20%), Water Heaters (+25%), Fans (+18%) and new product
categories (Kitchen Appliances and Switchgears +40%). However, Cables and Wires
– the largest segment – grew marginally by 3% YoY due to lower realizations
(+3%). Non-south markets grew 16% YoY, while south markets rose 13.4%. Onam
season offered some support with festive demand-related categories doing well.
Healthy margin expansion:
Gross margin improved 400bp YoY to 32.7%. EBITDA
grew 46% YoY to INR533m (our estimate: INR509m) in 2QFY17, with margins
expanding 240bp YoY to 10.8% (our estimate: 9.8%). Management highlighted that
improvement in gross margin was led by lower input costs (~200bp) and supply
chain initiatives (~200bp) undertaken last year. Management believes that
margins have scope to improve, but will largely be maintained at around 11% due
to reinvestments in A&P and people. Non-south region profitability further
improved, and management intends to further increase its thrust on advertising
and brand building in this market to boost its share.
Outlook encouraging:
Led by improved consumer sentiment in the Onam season,
management believes the upcoming festive season will drive healthy revenue
growth (guided for +15% in FY17). Also, it believes gross margin expansion is
sustainable due to benefits of supply chain initiatives undertaken last year.
Management expects ramp-up in advertisement spends in 2HFY17 and guided for
EBITDA margin of 11% in FY17.
Valuation and view:
Management highlighted favorable 2HFY17 outlook on the
back of 7th Pay Commission payout, increased rural spending due to better
monsoon, softer inflation, RBI rate cut and stable GDP growth. We increase our
EBITDA estimates by 10%/20% for FY17/FY18, given higher gross margins and
operating leverage benefits; expect revenue CAGR of 15% and PAT CAGR of 39%
over FY16-18. Due to rich valuations, we maintain our
Neutral
rating with a target
price of INR215 (30x FY18E EPS).
Niket Shah
(Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Chintan Modi
(Chintan.Modi@MotilalOswal.com); +912239825422/Chitvan
Oza
(Chitvan.Oza@MotilalOswal.com); +912230102415
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 INR4.95b (est. INR5.2b) in 2QFY17 as against
INR4.33b in 2QFY16 marking a YoY growth of 14.2%. led by strong growth in
products like stabilizers (up 15%), UPS (up 13%), Pumps (up 20%), Water
Heaters(up 25%) and fans (up 18%) while Cables and wires which is the largest
segment posted a marginal growth of (3%). Newer categories (Kitchen appliance
category and switchgears posted a healthy 40% growth during the quarter.
Onam season was positive with categories related to festive season doing well.
Realisations in the cable and wires segment continue to remain subdued on
account of decline in commodity prices compared to base quarter. However,
volume growth has been healthy with 15% volume growth. Excluding cables
segment, revenue growth for company would have been 21% on top-line front
in this quarter.
Non-south markets grew 16% YoY while south markets grew 13.4%. South to
Non-south mix stood at 69:31 in 1QFY17, same as base quarter.
Overall electronics segment grew 15.5% YoY to INR1.36b while electrical
segment grew 13.7% YoY to INR3.43b and others segment grew 15.2% to
INR0.15b.
VGRD will be expanding to the north markets and expand their range in the
Kitchen and home appliances range to cater to a wider audience
Exhibit 1: Segment wise revenue break-up (INR m)
Segments
Electronics
Electrical / Electromechanical
Others
Total
2QFY17
1,366
3,432
153
4,951
2QFY16
1,182
3,019
133
4,334
YoYGr. (%)
15.5
13.7
15.2
14.2
1QFY17
2,204
3,392
130
QoQ Gr. (%)
-38.0
1.2
17.6
5,727
-13.5
Source: Company, MOSL
Exhibit 2: Quarterly revenue trend (INR m)
Total Sales (INR m)
28%
4,082 3,340 3,529
7%
1%
4,224
4,777
29%
4,416
5%
YoY Growth
4,993
5%
0%
4,334 4,163
5%
5,133
16%
5,727
15%
4,951
14%
3,954
17%
4,313
12%
12%
Source: Company, MOSL
Margins improve, generates cash of INR0.8b in 1HFY17
Gross margins improved 400bp YoY to 32.7% while EBITDA grew 46% YoY to
INR533m in 2QFY17 (est. INR509m). EBITDA margins expanded 240bp YoY to
10.8% in 2QFY17 (est. 9.8%).
Management highlighted that improvement in gross margin was a mix of lower
input costs, better inventory management, spreading of fixed overheads over
2
24 October 2016

V-Guard Industries
strong sales growth and various supply chain initiatives undertaken over past
year. Also, management highlighted that gross margin improvement of 200bp
sustainable of total benefit as it was due to supply chain initatives.
Interest costs declined sharply to INR5m (vs INR22m) due to debt reduction.
Other Income grew from INR 17m in 2QFY16 to INR38m in 2QFY17.
Consequently, Adj. PAT grew 70% YoY to INR392m (est. INR341m).
The working capital cycle improved by 9 days yoy to 67 days of sales, led mainly
by better credit terms.
Accordingly, there was a significant improvement in cash generation of INR0.8b
in 1HFY17 compared to INR0.57b for 1HFY16.
Exhibit 4: PAT trend (INR m)
PAT (INR m)
YoY Growth
133%
26% 32%
-47%
634
638
533
223
192
13%
-2%
201
252
20%
231
215
420
428
392
109%
70%
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% 8.7% 8.4% 8.3%
11.1% 10.8%
70%
353
435
365
346
92
Source: Company, MOSL
Source: Company, MOSL
Exhibit 5: Product wise revenue break-up (INR m)
Segments
Stabilizers
UPS (Digital + Standalone)
Pumps
Cables & Wires (PVC + LT)
Water Heaters (Electric + Solar)
Fan
Others
Total sales
2QFY17
821
545
497
1,540
919
336
293
4,951
2QFY16
716
484
414
1,491
736
285
210
4,334
Growth%
14.7
12.7
20.0
3.3
24.9
17.9
39.5
14.2
1QFY17
Growth%
1,455
-43.6
749
-27.2
679
-26.8
1,538
0.1
518
77.4
600
-44.0
188
55.9
5,727
-13.5
Source: Company, MOSL
Exhibit 6: Geography wise revenue break up (INR m)
South
Non south
3,560
3400
2,170
Exhibit 7: Non south contribution continues to increase
South (%)
35
1550
65
68
68
67
62
69
70
68
62
69
32
32
33
38
Non south (%)
31
30
32
38
31
3,1402,910 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
Source: Company, MOSL
Source: Company, MOSL
24 October 2016
3

V-Guard Industries
Key highlights from conference call
The company has guided for a 15% revenue growth and 11% margins at EBITDA
levels for FY17. Also, the capex guidance for year is INR400m mainly for scale up
of new Sikkim plant.
Stabilizers:
This segment reported a healthy 14.7% revenue growth in this
quarter. Luminous and Microtek have entered this space so there is some
pressure in northern markets due to it.
Cables:
Currently, the plant operates at ~90% utilization levels and is mainly
selling into southern markets. This segment is under pressure due to realizations
falling though it reported a healthy 15% volume growth in this quarter.
Pumps:
This segment has grown by 20% overall with ~35% growth in Non-south
markets. Non-south business has increased by 35%; the mix of residential
pumps to agricultural pumps is 85:15 for V-Guard. Also, its 40HP pump launched
specially for agricultural segment is expected to drive further growth in this
segment.
Water Heaters:
The Company intends to sell 22,000-25,000 pieces this year in
this segment. It has not yet launched advertisements for recently launched
Verano but will start from 3QFY17. This product is launched initially only in
southern markets as there are capacity constraints in it.
Fans:
For the company, ~25% of revenue comes from economy segment in fans
while balance is mid-premium range segment; thus the management believes
there won’t be a huge material impact due to EESL scheme (as it mainly impacts
lower end segment). Also, the management believes EESL product quality has
been poor in UP market so don’t foresee a significant impact on revenue front
due to it.
New product segment (Kitchen appliances and switchgears):
Kitchenware
segment is expected to report strong overall year growth due to new variant
launches in some segments (mixer grinders), launch of products in Tamil Nadu
and Karnataka (with campaigns) and gas cooktops in Kerala (launched during
Onam). In Switchgears, the company is mainly into low voltage/production
switchgears and not into modular segment.
Valuation and view
We value VGRD at 30x FY18E EPS which we believe is justified considering:
Strong return ratios
: V-Guard derives 60% 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 31% 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 408 higher than south of 216
distributors. However, revenue per distributor in non-south markets stands at
INR15-20mm as against INR55-60m in south markets, implying significant
scalability from non-south markets. Distributor margins and discounts in non
south margins are currently slightly higher than south markets, which we expect
to decline going forward, thus improving margins.
We value VGRD at 30x FY18E EPS, and value the stock at INR215. Maintain
Neutral.
24 October 2016
4

V-Guard Industries
Exhibit 8: Price to earnings (one year forward)
40
32
24
16
15.4
8
0
20.2
P/E (x)
5 Yrs Avg(x)
8 Yrs Avg(x)
Exhibit 9: Price to book (one year forward)
P/B (x)
9.0
29.7
6.0
4.7
5 Yrs Avg(x)
8 Yrs Avg(x)
8.3
3.0
3.5
0.0
Source: Company, MOSL
Source: Company, MOSL
24 October 2016
5

V-Guard Industries
Story in charts
Exhibit 10: V-Guard's ad spends highest among peers
4.3%
3.1%
1.3%
39.1
26.1
9.3
FY10
16.7
Exhibit 11: Revenue/ Distribution pan India trend (m)
South
55.9
Non South
71.6
75.7
57.8
45.1
20.6
55.9
57.7
Pan India average
49.1
0.7%
35.2 33.1
25.8
21.9
4.3
FY08
4.8
FY09
36.9
23.0
37.8
20.7
32.6
17.8
29.8
15.1
FY11
FY12
FY13
FY14
FY15
FY16
Source: Company, MOSL
Source: Company, MOSL
Exhibit 12: Distribution network pan India trend
South
Non south
408
328
167
97
95
77
59
34
90 100 103 110 134
78
220
Exhibit 13: Robust RoCEs
RoCE (%)
31
18
20
21
25
20
19
31
15
187
208
216
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Source: Company, MOSL
Source: Company, MOSL
Exhibit 14: Annual sales trend
Total Sales (INR m)
43%
Growth YoY
21,399
24,796
Exhibit 15: Annual PAT trend
PAT (INR m)
46.8%
57.1%
15%
6%
16%
255
426
508
27.0%
Growth YoY
58.0%
51.5%
27.4%
23.7%
629
11.5%
701
707
0.8%
1,117 1,693 2,156
60%
17,459 18,566
37%
13,583
14,924
37%
10%
17%
4,541
7,263 9,936
Source: Company, MOSL
Source: Company, MOSL
24 October 2016
6

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
21,399
14.9
2,439
11.4
170
2,270
9
123
2,384
2,384
691
0
29.0
1,693
1,693
51.5
7.9
1,693
FY18E
24,796
15.9
3,075
12.4
191
2,883
0
154
3,037
3,037
881
0
29.0
2,156
2,156
27.4
8.7
2,156
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
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
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
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
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
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
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
5,360
2,047
2,792
76
445
2,311
1,914
398
3,049
4,854
(INR Million)
FY17E
301
5,750
6,051
75
0
6,126
2,937
1,096
1,841
0
6,687
2,319
2,814
1,042
512
2,596
2,119
477
4,091
6,126
FY18E
301
7,488
7,789
75
0
7,863
3,237
1,287
1,950
0
8,777
2,531
3,193
2,464
589
3,057
2,484
573
5,720
7,863
24 October 2016
7

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
Working Capital Ratios
Asset Turnover (x)
Inventory (Days)
Debtor (Days)
Creditor (Days)
Working Capital Turnover (Days)
Leverage Ratio (x)
Debt/Equity
FY11
13.4
16.1
57.6
3.5
28.5
FY12
17.0
20.3
70.6
3.5
23.9
FY13
21.1
24.9
87.6
3.5
19.3
FY14
23.5
27.5
106.7
3.5
17.3
FY15
23.6
28.7
126.0
3.5
17.2
82.3
67.5
15.4
3.4
44.4
0.2
25.5
25.0
2.3
72
61
36
98
0.8
26.6
27.3
3.0
60
55
46
71
0.5
26.6
27.4
3.1
67
52
53
73
0.6
24.2
27.0
3.5
61
50
50
63
0.3
20.3
27.8
3.8
55
51
47
61
0.2
FY16
3.7
4.2
15.6
0.7
21.9
52.3
45.9
12.4
3.1
32.8
0.4
26.3
25.4
3.8
40
54
38
58
0.0
FY17E
5.6
6.2
20.1
1.0
20.6
34.5
31.3
9.6
2.7
23.5
0.5
31.5
31.4
3.5
40
47
36
52
0.0
FY18E
7.2
7.8
25.9
1.2
19.4
27.1
24.9
7.5
2.3
18.2
0.6
31.2
31.2
3.2
37
46
37
48
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
(INR Million)
FY17E
2,384
170
9
691
-76
1,795
0
1,795
-400
1,395
0
0
-400
-71
-9
-349
-429
966
76
1,042
FY18E
3,037
191
0
881
-207
2,141
0
2,141
-300
1,841
0
0
-300
0
0
-419
-419
1,422
1,042
2,464
24 October 2016
8

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 (%)
Sep-16
Promoter
DII
FII
Others
65.5
11.6
12.9
10.1
Jun-16
65.7
12.3
12.9
9.2
Sep-15
65.9
7.5
17.1
9.6
Exhibit 16: Sensex rebased
Exhibit 18: Top holders
Holder Name
Nalanda India Equity Fund Limited
Naland India Fund Limited
ICICI Prudential Long Term Equity Fund Tax Saving
DSP Blackrock Micro Cap Fund
India Midcap (Mauritius) Ltd.
%
Holding
4.3
2.6
1.9
1.8
1.4
Note: FII Includes depository receipts
Exhibit 19: Top management
Name
Kochouseph Chittilappilly
Cherian N Punnoose
Mithun K Chittilappilly
Jayasree K
Designation
Chairman
Vice Chairman
Managing Director
Company Secretary
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
Ajeesh & Associates
Keyul M Dedhia & Associates
S R Batliboi & Associates LLP
Type
Cost Auditor
Secretarial Audit
Statutory
Exhibit 22: MOSL forecast v/s consensus
EPS
(INR)
FY17
FY18
MOSL
forecast
5.6
7.2
Consensus
forecast
4.9
6.0
Variation
(%)
14.3
20.7
24 October 2016
9

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24 October 2016
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10