We are positive on the long term prospects of the company, given its market leadership position, strong financial track record, strong levers for margin expansion and quest to become a pan-India player. At CMP the stock trades at 46X & 39X FY20E & FY21E respectively. We are valuing the company 47XFY21E EPS to arrive at a target price of INR 282 and maintain BUY rating.
Growth momentum back V-Guard’s 1Q performance was robust owing to benefits of a harsh summer and favorable base. Stabilizer biz (cash cow) fired led by >20% growth in RAC market. V-Guard is expected to regain lost ground in FY20 led by (1) Healthy growth of stabilizers, (2) Robust festive season performance (Kerala foods impacted last year), (3) Favorable base in the rest of FY20 (adj. EBITDA declined by 9%). We moderate our growth assumptions and hence cut EPS by 2% over FY20-21E. We value at 35x on Jun-21 EPS, arriving at a TP of Rs 261. Maintain BUY.
VIL aims for 15% revenue growth over the next few years, driven by expansion in the Non-south markets and scaling up of new product categories. It expects EBITDA margin of 9.5% to 10% for FY20. We have marginally tweaked our earnings estimate and maintained Accumulate rating on the stock with a target price of Rs245 based on 38x FY21E EPS.
We upgrade to Buy with a revised PT of Rs. 280: V-Guard is expected to post strong earnings growth during FY2020 due to low base (Q2and Q3 of FY2019 was affected by Kerala floods). Further, its focus on non-South region has started bearing fruits in terms of improving overall revenue growth. It is cash positive with Rs. 300 crore which will aid in inorganicexpansion (at better valuation in current environment). The management’skey focus areas would be increasing non-South presence, expansion intoadjacencies and improving efficiencies. We expect revenue/operating profit/ net profit to grow at 15.0%/25.7%/26.7% respectively during FY2019-FY2021E. We revise our price target to Rs. 280 increasing valuation multiple owing tomultiple growth levers. Consequently, we upgrade V-Guard to Buy.
We maintain Hold rating with a revised PT of Rs. 255: V-Guard’s growth revival hinges upon better performance of its Stabilizer segment, sustained growth momentum in cables and better pan-out of summer season next year. Although we have factored in almost 15% y-o-y CAGR growth in revenues along with improvement in margins over FY2019-FY2021E, the stock is currently trading at 38x its FY2021E earnings which provides an unfavourable risk reward ratio. Hence, at this stage, we maintain our Hold rating on the stock with revised PT of Rs. 255.
Over FY19-FY21E, we expect VIL to register healthy earnings CAGR of 28% (partly aided by a suppressed base). Robust free cash flow, healthy return ratios, lean working capital cycle, and high fixed-asset turnover will support VIL’s valuation.VIL expects to revert to normal revenue growth (15%) and EBITDA margin (10%) level in FY20. We slightly tweak our earnings estimate and revise our target price to Rs245 (from Rs250 earlier) based on 38x FY21E EPS. Post the recent uptick in stock price, our rating stands downgraded to Accumulate from Buy earlier.
We model revenue earning CAGR of 15%, 23% in FY19-21E led by strong performance by new product categories and expansion in new geographies. However, rising competition coupled with higher discounts in the non-south regions would restrict upward movement of EBITDA margin in future. Hence we believe, at the CMP, the stock discounts near term positives of earning growth, lower working capital requirements and positive free cash flows. We maintain our HOLD rating on the stock with a revised target price of Rs 235/share.