03 june 2020 results review 4qfy20 v-guard industries - 4qfy20... · 3qfy20) and cd seg (fan, water...

03 June 2020 Results Review 4QFY20

V-Guard Industries

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Miss on all fronts V-Guard posted a weak show in 4QFY20 with revenue/EBITDA decline of 28/42% yoy. The revenue decline was broad based as Electrical/Electronic/CD segments dipped by 32/27/20% yoy. In Jan/Feb, V-Guard saw a healthy growth of 7% yoy, which was close to 6.5% yoy growth clocked in 9MFY20. Lockdown impacted channel filling of seasonal products during the last 2 weeks of March. Channel inventory is at 40 days (20-30 days normally) and liquidation of inventory will be a challenge for the co. V-Guard is also holding high inventory (105 days vs. 75 days), resulting into higher NWC days. South performance remained challenging in FY20 and posted 6% yoy decline. Non-south revenue mix has increased to 41% in FY20 (34% in FY17). We cut our EPS for FY21/FY22 by 14/9% (18% cut in FY21/FY22 in our 4QFY20 Preview) in order to factor in channel liquidity concerns and weak demand. We value V-Guard at 28x on Mar-22E EPS, deriving a TP of Rs 145. Maintain REDUCE.

Miss on revenue: Revenue was down by 28% yoy to Rs 5,366mn (+12% 4QFY19 and +5% 3QFY20) vs est decline of 10%. Electrical Seg (Cables, Pump) was down by 32% yoy (+21% in 4QFY19, +5% in 3QFY20), Electronics Seg (Stabiliser, Inverter) dipped by 27% yoy (-1% in 4QFY19, +1% in 3QFY20) and CD Seg (Fan, Water Heater, Gas Stoves) was down by 20% yoy (+15% in 4QFY19, +10% in 3QFY20). Loss of sales during March had a heavy impact in 4QFY20 (Rs 2.5bn, 35% of 4Q), especially as co is no. 3 or 4 player in most non-south markets, and channel partner prefers to stock up products of market leaders on priority. We expect FY21 to remain challenging for V-Guard due to co missing out on sales of seasonal products and weak sentiments.

EBITDA decline by 42% yoy: GM expanded 374bps yoy to 33.3% vs our estimate of expansion of 241bps yoy. Employee/Advertising/Other expenses grew by -18/-42/+31%. Co was not able to reduce overhead cost which led to EBITDA decline of 42% yoy to Rs 451mn vs est of Rs 741mn. EBITDAM contracted by 215bps yoy to 8.4% (HSIE +50bps). APAT declined by 45% yoy to Rs 325mn (exp Rs 557mn). Co plans to take sharp cut in overhead cost in the coming quarters and we expect EBITDA margin will sustain in FY21/22.

Call & other takeaways: (1) Channel inventory currently stands at ~40 days, expected to normalize by July, (2) Revenue in May was ~70% of May 2019, (3) Southern and Eastern markets have shown good recovery while West has been most impacted, (4) 60-70% of co’s dealers are open right now with the number increasing progressively, (5) Inventory level has seen a sharp increase in FY20 due to loss of sales in March, (6) Net debt for the co improved to negative Rs 1.4bn from negative Rs 1.6bn in FY19.

Financial Summary

YE Mar (Rs mn) Q4

FY20 Q4

FY19 YoY (%)

Q3 FY20

QoQ (%)

FY19 FY20P FY21E FY22E

Net Sales 5,366 7,397 (27.5) 6,266 (14.4) 25,664 24,820 23,752 28,076

EBITDA 452 781 (42.2) 594 (24.0) 2,194 2,533 2,366 2,868

APAT 325 592 (45.1) 429 (24.2) 1,733 1,776 1,779 2,185

Diluted EPS (Rs) 0.76 1.39 (45.2) 1.00 (24.2) 4.06 4.15 4.15 5.10

P/E (x)

44.4 43.4 43.3 35.3

EV / EBITDA (x)

34.3 29.8 31.6 25.9

RoCE (%)

21.1 20.5 17.7 21.5 Source: Company, HSIE Research

REDUCE CMP (as on 02 June 2020) Rs 180

Target Price Rs 145

NIFTY 9,979 KEY CHANGES

OLD NEW

Rating REDUCE REDUCE

Price Target Rs 157 Rs 145

EPS % FY21E FY22E

-14% -9%

KEY STOCK DATA

Bloomberg code VGRD IN

No. of Shares (mn) 428

MCap (Rs bn) / ($ mn) 77/1,028

6m avg traded value (Rs mn) 84

52 Week high / low Rs 260/149

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) (11.0) (22.4) (25.7)

Relative (%) 0.3 (5.3) (10.8)

SHAREHOLDING PATTERN (%)

Dec-19 Mar-20

Promoters 62.81 62.73

FIs & Local MFs 13.09 13.44

FPIs 13.51 13.39

Public & Others 10.59 10.44

Pledged Shares 0.00 0.00

Source : BSE

Naveen Trivedi [email protected] +91-22-6171-7324 Aditya Sane [email protected] +91-22-6171-7336

Page | 2

V-Guard Industries: Results Review 4QFY20

V-Guard Industries Quarterly Commentary Particulars 1QFY20 2QFY20 3QFY20 4QFY20 Industry/ Co Strategy

- Co has witnessed consistent slowdown in industry growth for 6 quarters - Summer products invenory levels were low - Capex in FY20 and FY21 is expected to be Rs 600-700mn each - Co is looking to make acquisitions to acquire capacity and geographic access - Co plans to increase non South retailer count by 3.5-4k each year

- Tight liquidity conditions and reduced discretionary spending continued to put pressure on demand - Co faced increased competitive intensity - Target growth for FY20 is 11-12% - Diwali sales were modest but not great. Co expects Dec-Mar to be strong - Co plans to enter water purifiers and few more KEA appliances in the next 6 months

- Demand continued to be under stress and mgt expects gradual recovery - Demand in Dec-Jan was encouraging vs demand in Oct - Hyper competitive environment caused pricing pressure (especially fans, water heaters, switchgears) - However, co does not want to take aggressive price cuts to drive volumes and maintain margins

- Channel inventory is currently ~40 days (normally 20-30 days), expected to normalise by July - Inventory with co is ~100 days due to loss of sales in March - Revenue in May was ~70% of May 2019 - Southern and Eastern markets have shown good recovery while West has been most impacted - 60-70% of co’s dealers are open right now with the number increasing progressively

Revenues

Electronics - Avg realisation in stabilizers improved due to the growth in RAC. Price increase stood at 2-3% - Co expects growth to be ~15% for FY20

- Stabilizer performance continued to be strong

- AC industry in 9MFY20 grew in double digits - TV segment saw no growth - MT in stabilizers is 3-4% of revenues

- Stabilizers may be impacted in FY21 as RAC is a discretionary product. - Co still has opportunity for stabilizer sales in non-south markets as monsoon has not yet arrived.

Electricals - Cables saw a price hike in 1QFY20 - Pricing in wires was flat yoy - Copper prices saw deflation

- Pumps performed well for the co

- Co is not focused on solar agri pumps and hence no benefit from the provisions in the budget

- Modular switches have seen strong response since stores started opening up. - Wires have seen strong demand in May due to construction work continuing partially during the lockdown.

CD - Co expaned its share in premium fans to 25%. Earlier it stood at 10-15%

- Competitive intensity was high as 25 new brands have launched water heaters in the last 18 months - Supply of gas water heaters was impacted due to the requirement of ISA mark by Govt. Co expects water heaters to bounce back in 3Q

- Fans, Water Heaters saw double digit growth - Co lost mkt share in 1HFY20 in water heaters as key brands cut prices 8-10%. - Table/pedestal/wall fans are mostly imported in India while ceiling fans are manufactured locally.

- Continued impact on Fans is likely to be weak as it is not a discretionary product. - Fan shops were allowed to open in Kerala and sales were much stronger than RAC sales. - Air Cooler GM is for the 35-45% depending on the variant.

Margins

Gross Margins - GM gap between south and non south markets has reduced. It stands at ~1.5% now vs ~5% 5 years ago - Electronics GM saw expansions of ~1.5%

- Co believes a GM of 32% is sustainable in FY20 - Price hikes in water heaters, stabilizers and inverters will aid GM expansion

- GM increase was across the portfolio, even stabilizers - Dec saw some increase of RM prices but have begun correcting again - There is now no significant difference between south and non south margins

- Co has continuously focused on optimizing its supply chain and driving pricing efficiency to expand GM. - Co has also stopped production of low margin products - Approx half of theexpansion in GM is attributed to cost control initiatives by co and half to price increases.

Profitability - Co is focusing on driving WC efficiencies

- Cost saving measures are being driven by the co

- Co is maintaining control over WC and focusing on cost optimization

- Co has deferred increments but it has not cut salary. - Focus is on cutting down on discretionary expenditures. - Co is also renegotiating rental contracts.

Page | 3


Quarterly Financial Snapshot: Consolidated

(Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ (%)

FY20 FY19 YoY (%)

Net Revenue 5,366 7,397 (27.5) 6,266 (14.4) 24,820 25,664 (3.3)

Material Expenses 3,578 5,208 (31.3) 4,186 (14.5) 16,582 17,992 (7.8)

Employee Expenses 432 525 (17.9) 584 (26.1) 2,068 2,020 2.4

ASP Expense 199 340 (41.6) 313 (36.6) 1,113 1,348 (17.4)

Other Operating Expenses 707 542 30.5 589 20.1 2,524 2,110 19.6

EBITDA 452 781 (42.2) 594 (24.0) 2,533 2,194 15.4

EBITDA (Adjusted) 452 781 (42.2) 594 (24.0) 2,705 2,294 17.9

Depreciation 71 55 27.8 73 (3.3) 281 218 28.7

EBIT 381 726 (47.6) 521 (26.9) 2,252 1,976 14.0

Other Income 52 68 (23.2) 54 (4.7) 240 183 31.4

Interest Cost 9 2 286.2 10 (13.0) 37 13 194.8

PBT 424 791 (46.4) 565 (25.0) 2,455 2,146 14.4

Tax 99 199 (50.3) 137 (27.6) 603 491 22.9

PAT 325 592 (45.1) 429 (24.2) 1,852 1,656 11.9

APAT 325 592 (45.1) 429 (24.2) 1,776 1,733 2.5

EPS 0.76 1.39 (45.2) 1.00 (24.2) 4.15 4.06 2.2 Source: Company, HSIE Research

Quarterly Performance Analysis

As a % of Revenue Q4FY20 Q4FY19 YoY (bps)

Q3FY20 QoQ (bps)

FY20 FY19 YoY (%)

Material Expenses 66.7 70.4 (374) 66.8 (13) 66.8 70.1 (329)

Employee Expenses 8.0 7.1 94 9.3 (128) 8.3 7.9 46

ASP Expenses 3.7 4.6 (90) 5.0 (130) 4.5 5.3 (77)

Other Operating Expenses 13.2 7.3 585 9.4 378 10.2 8.2 195

EBITDA Margin (%) 8.4 10.6 (215) 9.5 (107) 10.2 8.6 166 EBITDA Margin (%) - Adjusted

8.4 10.6 (215) 9.5 (107) 10.9 8.9 196

Tax Rate (%) 23.3 25.1 (181) 24.2 (84) 24.6 22.9 169

APAT Margin (%) 6.1 8.0 (195) 6.8 (78) 7.5 6.5 101 Source: Company, HSIE Research

Revenue was down by 28% yoy vs est decline of of 10%. Employee/Advertising/Other expenses grew by -18/-42/+31%. GM expanded 374bps yoy to 33.3% vs our estimate of expansion of 241bps yoy. EBITDAM contracted by 215bps yoy to 8.4% (exp +50bps).

Page | 4


Segmental Performance

(Rs mn) Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ (%)

FY20 FY19 YoY (%)

Segmental Revenues

Electronics 1,503 2,055 (26.8) 1,538 (2.3) 7,545 7,599 (0.7)

Electrical 2,422 3,552 (31.8) 2,709 (10.6) 10,530 11,286 (6.7)

Consumer Durables 1,441 1,790 (19.5) 2,020 (28.6) 6,745 6,779 (0.5)

Total 5,366 7,397 (27.5) 6,266 (14.4) 24,819 25,664 (3.3)

Segmental EBIT

Electronics 213 303 (29.9) 244 (13.0) 975 952 2.4

Electrical 192 349 (44.9) 208 (7.8) 1,027 840 22.2

Consumer Durables 35 118 (70.1) 113 (68.7) 448 319 40.3

Total 440 771 (42.9) 566 (22.2) 2,450 2,112 16.0

Less: (a) Interest Cost & Bank Charges 9 2 286.2 10 (13.0) 37 13 193.6

(b) Other Un-allocable Expenses

7 (23) (132.3) (9) (178.8) (42) (47) (9.8)

PBT 424 791 (46.4) 565 (25.0) 2,455 2,146 14.4

Capital Employed

Electronics 2,260 2,376 (4.9) 1,586 42.5 2,260 2,376 (4.9)

Electrical 2,803 2,579 8.7 2,345 19.5 2,803 2,579 8.7

Consumer Durables 2,553 1,765 44.7 2,238 14.1 2,553 1,765 44.7

Total 7,616 6,720 13.3 6,169 23.4 7,616 6,720 13.3 Unallocable Capital Employed

2,322 2,277 2.0 3,918 (40.7) 2,322 2,277 2.0

Total Capital Employed 9,938 8,997 10.5 10,087 (1.5) 9,938 8,997 10.5 Source: Company, HSIE Research

PBIT Margin

% Q4FY20 Q4FY19 YoY (%) Q3FY20 QoQ

(%) FY20 FY19

YoY (%)

Electronics 14.1 14.8 (62) 15.9 (175) 12.9 12.5 39

Electrical 7.9 9.8 (188) 7.7 24 9.8 7.4 231

Consumer Durable 2.5 6.6 (416) 5.6 (315) 6.6 4.7 193

Total 8.2 10.4 (222) 9.0 (83) 9.9 8.2 164

Source: Company, HSIE Research

Electrical Seg (Cables, Pump) was down by 32% yoy, Electronics Seg (Stabiliser, Inverter) dipped by 27% yoy and CD Seg (Fan, Water Heater, Gas Stoves) was down by 20% yoy

Page | 5


Product-wise Performance Products FY15 FY16 FY17 FY18 FY19 FY20P

Revenue (Rs mn)

Stabilizers 3,268 3,677 4,289 4,433 4,485 4,622

UPS (Digital + Standalone) 2,221 1,961 2,336 2,846 3,113 2,923

Pumps 1,890 2,100 2,617 2,754 2,751 2,585

Cables & Wires (PVC + LT) 5,836 5,887 6,388 6,885 7,656 7,025

Water Heaters (Electric + Solar) 2,280 2,543 2,676 2,858 3,245 3,213

Fans 1,375 1,767 2,008 2,284 2,595 2,588

New Products Total 589 689 830 1,151 1,817 1,863

Total 17,459 18,624 21,144 23,211 25,662 24,820

Revenue Growth YoY(%)

Stabilizers 22.7 12.5 18.2 5.0 2.6 3.1

UPS (Digital + Standalone) 20.6 (11.7) 21.4 29.0 12.2 (6.1)

Pumps (6.5) 11.1 27.9 13.0 1.0 (6.0)

Cables & Wires (PVC + LT) 6.8 0.9 7.6 21.0 13.5 (8.2)

Water Heaters (Electric + Solar) 30.1 11.5 11.3 12.0 16.0 (1.0)

Fans 34.3 28.5 16.6 21.0 17.5 (0.3)

New Products Total 43.7 17.0 26.4 38.7 64.3 2.5

Total 15.0 6.7 15.5 15.0 12.4 (3.3)

Revenue Mix (%)

Stabilizers 18.7 19.7 20.3 19.1 17.5 18.6

UPS (Digital + Standalone) 12.7 10.5 11.0 12.3 12.1 11.8

Pumps 10.8 11.3 12.4 11.9 10.7 10.4

Cables & Wires (PVC + LT) 33.4 31.6 30.2 29.7 29.8 28.3

Water Heaters (Electric + Solar) 13.1 13.7 12.7 12.3 12.6 12.9

Fans 7.9 9.5 9.5 9.8 10.1 10.4

New Products Total 3.4 3.7 3.9 5.0 7.1 7.5

Total 100.0 100.0 100.0 100.0 100.0 100.0 Source: Company, HSIE Research

Page | 6


Long term performance trends

Net Revenue Gross Margin

Source: Company, HSIE Research Source: Company, HSIE Research ASP Expense Employee Expense

Source: Company, HSIE Research Source: Company, HSIE Research EBITDA APAT

Source: Company, HSIE Research Source: Company, HSIE Research

(30.0)

(20.0)

(10.0)

-

10.0

20.0

30.0

-

2,000

4,000

6,000

8,000

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

2Q F

Y20

3Q F

Y20

4Q F

Y20

Net Revenue YoY Gr. (%) - RHSRs mn %

25.0

27.0

29.0

31.0

33.0

35.0

-

500

1,000

1,500

2,000

2,500

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

2Q F

Y20

3Q F

Y20

4Q F

Y20

Gross Profit Gross Margin (%) - RHS

Rs mn %

-

2.0

4.0

6.0

8.0

10.0

12.0

150

250

350

450

550

650

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

2Q F

Y20

3Q F

Y20

4Q F

Y20

ASP expenses (% of Sales) - RHSRs mn %

4.0

5.3

6.5

7.8

9.0

-

100

200

300

400

500

600

700 3Q

FY1

74Q

FY1

71Q

FY1

82Q

FY1

83Q

FY1

84Q

FY1

81Q

FY1

92Q

FY1

93Q

FY1

94Q

FY1

91Q

FY2

02Q

FY2

03Q

FY2

04Q

FY2

0

Employee Expenses (% of Sales) - RHS

Rs mn %

5.0

7.0

9.0

11.0

13.0

-

200

400

600

800

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

2Q F

Y20

3Q F

Y20

4Q F

Y20

EBITDA EBITDA Margin (%) - RHSRs mn %

1.0

3.0

5.0

7.0

9.0

-

100

200

300

400

500

600

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

2Q F

Y20

3Q F

Y20

4Q F

Y20

APAT NPM (%) - RHS

Rs mn %

Page | 7


South Sales Performance Non-South Sales Performance

Source: Company, HSIE Research Source: Company, HSIE Research Sales Performance EBITDA Margin

Source: Company, HSIE Research Source: Company, HSIE Research APAT Performance In-house manufacturing vs Outsourcing


(40.0)

(20.0)

-

20.0

40.0

-

1,200

2,400

3,600

4,800 3Q

FY1

74Q

FY1

71Q

FY1

82Q

FY1

83Q

FY1

84Q

FY1

81Q

FY1

92Q

FY1

93Q

FY1

94Q

FY1

91Q

FY2

02Q

FY2

03Q

FY2

04Q

FY2

0

South Sales Growth (%) - RHSRs mn %

(40.0)

(20.0)

-

20.0

40.0

-

1,200

2,400

3,600

4,800

3Q F

Y17

4Q F

Y17

1Q F

Y18

2Q F

Y18

3Q F

Y18

4Q F

Y18

1Q F

Y19

2Q F

Y19

3Q F

Y19

4Q F

Y19

1Q F

Y20

2Q F

Y20

3Q F

Y20

4Q F

Y20

Non-South Sales Growth (%) - RHS

Rs mn %

(10.0)

-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

-

11,000

22,000

33,000

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

Net Sales Growth (%) - RHS Avg. Gr (%)

Rs mn %

6.0

7.5

9.0

10.5

12.0

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

EBITDA Margin (%) Avg. Margin (%)

-

2.5

5.0

7.5

10.0

-

800

1,600

2,400

3,200

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

EFY

22E

APAT NPM (%) - RHS

Rs mn %

60%

59%

60%

57%

60%

60%

60%

58%

57%

40%

41%

40%

43%

40%

40%

40%

42%

43%

0%

20%

40%

60%

80%

100%

FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

Outsourced In-house

Page | 8


South and Non-South Sales Mix Dealer Network


Key Assumptions Assumptions FY16 FY16 FY17 FY18 FY19 FY20P FY21E FY22E

Revenue Growth (%) 15.0 6.7 15.5 15.0 12.0 (3.3) (4.3) 18.2

Stabilizers 22.7 12.5 16.6 5.0 1.2 3.1 (11.0) 20.0

UPS (Digital + Standalone) 20.6 (11.7) 19.1 21.8 9.4 (6.1) (11.7) 22.8

Pumps (6.5) 11.1 24.6 14.0 (0.1) (6.0) (6.9) 17.4

Cables & Wires (PVC + LT) 6.8 0.9 8.5 21.0 11.2 (8.2) (6.1) 15.8

Water Heaters (Electric + Solar) 30.1 11.5 5.2 12.0 13.5 (1.0) 3.4 13.6

Fans 34.3 28.5 13.6 21.0 13.6 (0.3) 4.9 20.8

New Products Total 43.7 17.0 20.5 38.7 57.9 2.5 8.3 21.7

Gross Margin (%) 25.4 28.9 28.3 29.3 29.0 32.2 31.2 32.1

Employee (% of sales) 6.3 6.8 7.9 8.5 7.9 8.3 9.7 9.4

ASP (% of sales) 4.0 4.3 2.5 4.3 2.5 3.0 2.7 2.7

Distribution (% of sales) 1.0 1.0 1.2 1.2 1.2 1.2 1.2 1.2

Other Expenses (% of sales) 6.5 7.2 6.7 7.2 8.9 9.5 7.6 8.5

EBITDA Margin (%) 7.6 9.6 10.0 8.1 8.5 10.2 10.0 10.2

Adjusted EBITDA Margin (%) 7.6 9.6 10.0 9.6 8.9 10.3 10.0 10.2

Tax rate (%) 30.3 30.6 29.0 24.9 22.9 24.6 25.0 25.0

79%

75%

70%

67%

67%

65%

66%

61%

59%

21%

25%

30%

33%

33%

35%

34%

39%

41%

0%

20%

40%

60%

80%

100%

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

South Non-South

103 110 134187

208 216 231

97 95

167220

328

408445

0

120

240

360

480

FY11

FY12

FY13

FY14

FY15

FY16

FY17

South Non-South

Page | 9


Change in Estimates

(Rs mn) FY20 FY21E FY22E

OLD NEW Chg (%) OLD NEW Chg (%) OLD NEW Chg (%)

Sales 26,148 24,820 (5.1) 25,742 23,752 (7.7) 28,950 28,076 (3.0)

EBITDA 2,822 2,533 (10.3) 2,694 2,366 (12.2) 3,067 2,868 (6.5)

APAT 2,028 1,776 (12.4) 2,058 1,779 (13.6) 2,391 2,185 (8.6)

EPS 4.7 4.1 (12.6) 4.8 4.2 (13.7) 5.6 5.1 (8.8)

Peer Set Comparison

Company Mcap

(Rs bn) CMP

(Rs/sh) Reco TP

EPS (Rs) P/E (x) EV/EBITDA (x) Core RoCE (%)

FY20P FY21E FY22E FY20P FY21E FY22E FY20P FY21E FY22E FY20P FY21E FY22E

Havells 342 548 ADD 515 11.7 10.7 14.2 46.8 51.4 38.6 32.4 32.9 25.5 21.0 18.3 24.0

Voltas 184 556 ADD 551 16.8 13.1 19.3 33.2 42.5 28.8 26.7 37.3 24.4 22.1 15.9 24.0

Crompton 151 241 ADD 221 7.0 6.2 7.4 34.5 38.6 32.6 25.0 28.0 23.5 38.6 31.0 35.8

V-Guard 77 180 REDUCE 145 4.1 4.2 5.1 43.4 43.3 35.3 29.8 31.6 25.9 20.5 17.7 21.5

Symphony 63 900 REDUCE 867 26.0 22.5 28.9 34.6 40.1 31.1 28.5 32.5 25.2 42.2 31.1 40.0 Source: Company, HSIE Research

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Financials Income Statement Year End (March) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E Net Revenues 17,459 18,623 20,856 23,117 25,664 24,820 23,752 28,076 Growth (%) 15.0 6.7 15.5 15.0 12.0 (3.3) (4.3) 18.2 Material Expenses 13,023 13,246 14,949 16,348 18,213 16,825 16,347 19,069 Employee Expense 1,097 1,266 1,640 1,973 2,020 2,068 2,305 2,643 ASP Expense 690 803 529 991 650 745 641 758 Distribution Expense 181 194 247 279 309 299 286 338 Other Expenses 1,059 1,248 1,293 1,521 2,129 2,205 1,668 2,236 EBITDA 1,330 1,780 2,087 1,870 2,194 2,533 2,366 2,868 EBITDA Growth (%) 8.5 33.8 17.2 (10.4) 17.3 15.4 (6.6) 21.2 EBITDA Margin (%) 7.6 9.6 10.0 8.1 8.5 10.2 10.0 10.2 Adj. EBITDA Margin (%) 7.6 9.6 10.0 9.6 8.9 10.3 10.0 10.2 Depreciation 154 154 162 191 218 281 293 326 EBIT 1,176 1,627 1,924 1,679 1,976 2,252 2,072 2,542 Other Income (Including EO Items) 45 72 135 111 183 240 300 372 Interest 206 89 21 17 13 37 - - PBT 1,015 1,610 2,038 1,774 2,146 2,455 2,372 2,913 Tax 307 493 591 442 491 603 593 728 RPAT 707 1,117 1,447 1,332 1,655 1,852 1,779 2,185 Adjusted PAT 707 1,117 1,447 1,601 1,733 1,776 1,779 2,185 APAT Growth (%) 0.8 57.9 29.5 10.7 8.2 2.5 0.2 22.8 EPS 1.7 2.7 3.4 3.8 4.1 4.1 4.2 5.1 EPS Growth (%) 0.4 57.3 28.5 10.4 7.9 2.2 0.2 22.8


Balance Sheet Year End (March) FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E SOURCES OF FUNDS

Share Capital - Equity 300 301 425 426 427 428 428 428 Reserves 3,478 4,407 5,919 7,090 8,570 9,509 10,336 11,444 Total Shareholders Funds 3,777 4,708 6,344 7,516 8,997 9,938 10,765 11,872 Long Term Debt 212 56 24 0 0 0 0 0 Short Term Debt 368 15 1 - 100 100 100 100 Total Debt 580 71 25 0 100 100 100 100 Net Deferred Taxes 92 75 40 29 22 (22) 29 29 Long Term Provisions & Others 181 176 67 118 148 465 123 139 TOTAL SOURCES OF FUNDS 4,630 5,029 6,475 7,664 9,268 10,480 11,017 12,141 APPLICATION OF FUNDS

Net Block 1,624 1,611 1,684 2,006 2,135 2,675 2,683 2,957 CWIP 24 21 238 149 227 819 819 819 Non Current Investments - - 3 91 91 91 91 91 LT Loans & Advances 176 180 201 221 321 257 272 287 Other Non Current Assets - 2 - - - - - - Total Non-current Assets 1,824 1,814 2,125 2,468 2,774 3,842 3,866 4,154 Inventories 2,608 2,047 2,743 3,105 3,709 4,764 4,360 4,692 Debtors 2,437 2,792 3,121 4,445 4,672 3,218 3,079 3,538 Other Current Assets 358 242 316 727 760 1,033 984 1,028 Cash & Equivalents 22 270 1,038 802 1,678 1,524 2,420 2,969 Total Current Assets 5,425 5,351 7,218 9,078 10,818 10,538 10,844 12,227 Creditors 1,935 1,511 2,186 3,286 3,561 3,007 2,822 3,291 Other Current Liabilities & Provns 685 625 682 597 764 893 870 950 Total Current Liabilities 2,619 2,136 2,868 3,883 4,325 3,900 3,692 4,241 Net Current Assets 2,805 3,216 4,350 5,196 6,493 6,638 7,152 7,986 Total Assets 4,630 5,029 6,475 7,664 9,268 10,480 11,017 12,141


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Cash Flow Year ending March FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E Reported PBT 1,610 1,610 2,037 1,773 2,146 2,455 2,372 2,913 Non-operating & EO Items 84 - 176 173 77 - - - Interest Expenses 78 89 (4) (4) 13 37 - - Depreciation 154 154 162 191 218 281 293 326 Working Capital Change (116) (517) (418) (1,183) (321) (299) 383 (286) Tax Paid (498) (511) (656) (408) (498) (647) (593) (728) OPERATING CASH FLOW ( a ) 1,311 825 1,298 542 1,635 1,826 2,456 2,225 Capex (140) (108) (422) (413) (357) (1,401) (302) (600) Free Cash Flow (FCF) 1,171 717 876 129 1,278 425 2,154 1,625 Investments (194) (209) (3) (62) (255) 535 (165) (165) Non-operating Income 18 - (631) 203 7 (11) - - INVESTING CASH FLOW ( b ) (315) (317) (1,055) (271) (605) (877) (467) (765) Debt Issuance/(Repaid) (574) (178) (153) (32) 96 293 (286) - Interest Expenses (73) (89) (10) (7) (13) (37) - - FCFE 524 450 714 90 1,361 681 1,868 1,625 Share Capital Issuance 31 58 92 27 1 1 - - Dividend (325) (246) (91) (358) (700) (827) (952) (1,078) Others - - - - 28 (21) (4) 16 FINANCING CASH FLOW ( c ) (941) (456) (161) (369) (587) (591) (1,242) (1,062) NET CASH FLOW (a+b+c) 54 53 82 (99) 443 358 746 398 EO Items, Others (0) (2) - - - - - - Closing Cash & Equivalents 22 76 150 50 847 1,164 1,910 2,309

Key Ratios Particulars FY15 FY16 FY17 FY18 FY19 FY20P FY21E FY22E PROFITABILITY (%)

GPM 25.4 28.9 28.3 29.3 29.0 32.2 31.2 32.1 EBITDA Margin (%) 7.6 9.6 10.0 8.1 8.5 10.2 10.0 10.2 EBIT Margin 6.7 8.7 9.2 7.3 7.7 9.1 8.7 9.1 APAT Margin 4.1 6.0 6.9 6.9 6.8 7.2 7.5 7.8 RoE 20.3 26.3 26.2 23.1 21.0 18.8 17.2 19.3 RoIC (or Core RoCE) 18.2 24.1 26.8 20.5 21.1 20.5 17.7 21.5 RoCE 18.8 24.4 25.4 22.8 20.6 18.3 16.6 18.9 EFFICIENCY

Tax Rate (%) 30.3 30.6 29.0 24.9 22.9 24.6 25.0 25.0 Fixed Asset Turnover (x) 7.3 7.4 7.5 6.9 7.1 5.8 5.1 5.3 Inventory (days) 54.5 40.1 48.0 49.0 52.7 70.1 67.0 61.0 Debtors (days) 50.9 54.7 54.6 70.2 66.4 47.3 47.3 46.0 Other Current Assets (days) 7.5 4.7 5.5 11.5 10.8 15.2 15.1 13.4 Payables (days) 40.4 29.6 38.3 51.9 50.6 44.2 43.4 42.8 Other Current Liab & Provns (days) 14.3 12.2 11.9 9.4 10.9 13.1 13.4 12.3 Cash Conversion Cycle (days) 58.2 57.7 58.0 69.4 68.5 75.2 72.7 65.2 Net D/E (x) 0.1 (0.0) (0.2) (0.1) (0.2) (0.1) (0.2) (0.2) Interest Coverage (x) 5.7 18.2 91.7 101.2 na na na na PER SHARE DATA (Rs)

EPS 1.7 2.7 3.4 3.8 4.1 4.1 4.2 5.1 CEPS 2.1 3.0 3.8 4.2 4.6 4.8 4.8 5.9 Dividend 0.5 0.7 0.7 0.7 1.4 1.7 1.9 2.2 Book Value 12.6 15.6 14.9 17.7 21.1 23.2 25.1 27.7 VALUATION

P/E (x) 106.8 67.9 52.8 47.9 44.4 43.4 43.3 35.3 P/BV (x) 14.3 11.5 12.0 10.2 8.5 7.8 7.2 6.5 EV/EBITDA (x) 57.2 42.5 36.1 40.5 34.3 29.8 31.6 25.9 EV/Revenues (x) 4.4 4.1 3.6 3.3 2.9 3.0 3.1 2.6 OCF/EV (%) 1.7 1.1 1.7 0.7 2.2 2.4 3.3 3.0 FCF/EV (%) 1.0 1.5 1.2 0.2 1.7 0.6 2.9 2.2 FCFE/Mkt Cap (%) 0.7 0.6 0.9 0.1 1.8 0.9 2.4 2.1 Dividend Yield (%) 0.3 0.4 0.4 0.4 0.8 0.9 1.1 1.2


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Rating Criteria BUY: >+15% return potential ADD: +5% to +15% return potential REDUCE: -10% to +5% return potential SELL: >10% Downside return potential

Date CMP Reco Target 4-Jun-19 234 BUY 249 9-Jul-19 238 BUY 250 25-Jul-19 240 BUY 261 22-Sep-19 225 BUY 261 11-Oct-19 225 BUY 255 8-Nov-19 243 NEU 242 9-Jan-20 213 NEU 233 3-Feb-20 218 NEU 232 2-Mar-20 203 ADD 217 17-Apr-20 161 REDUCE 157 3-Jun-20 180 REDUCE 145

From 2nd March 2020, we have moved to new rating system

RECOMMENDATION HISTORY

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V Guard TP

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HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board: +91-22-6171-7330 www.hdfcsec.com

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