December 5/2012

V-Guard Industries: A re-rating story playing out on the bourses

The stock of branded electrical equipment manufacturer V-Guard, which has been gaining new ground since the past few trading sessions, has again hit a new high of Rs. 541.80 on BSE today. The Kerala-based company is engaged in the manufacturing of stabilizers, cables, pumps and motors, geysers, water heaters, fans, UPS and switchgears. The company has been aggressively focusing on expanding its product line under the brand 'V-Guard'. The company's stock price has increased more than six-fold after listing on the bourses in early March 2008. In the last six fiscal years, the company's net sales has increased four-fold to Rs. 1000 crore while its net profit has tripled to Rs. 50 crore for the fiscal year 2012. For the trailing four quarters, the company's topline has grown 38% while its operating profit has grown by 63%. The company spent nearly 7% of its revenues on advertising and promoting its products.

The company is growing strongly in both South as well as non-south markets. While it is consolidating its position in the four states of South India, it is aggressively expanding its distribution network and market share in the rest of the states in India. UP and Punjab are the two non-south states where the company is doing very well. The company has opened two new branches in Guwahati and Patna respectively during the first half of the fiscal year, making it a total of 15 branches in the non-south region. The company's performance in the second half of the fiscal year has historically been better than that of logged in the first half. With a strong performance in the first half of the fiscal year characterized by increased penetration and growing market share, the company is all set to meet its target of 13% growth in topline for the entire fiscal year.

The stock price has undergone re-rating by almost tripling in the last one year. With a market cap of over Rs 1,500 crore, the company's stock is valued at 1.5 times its trailing four quarters’ net sales. The consumer goods stock has further room to appreciate as the company improves its cash flow position on account of its steadily improving performance.