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ICICI Securities
V-Guard (Buy)
Target: ₹210
CMP: ₹163.10
V-Guard’s Q1-FY21 performance was severely impacted by the lockdown, wherein topline, bottomline fell 42 per cent and 93 per cent, respectively. While EBITDA fell 87 per cent y-o-y, the company took significant cost saving measures (in employee, advertisement and other costs) to cushion operating profit in Q1-FY21.
Going forward, the company expects a sharp margin recovery with improvement in sales. V-Guard saw a sharp recovery in sales on a month on month basis with 90 per cent business recovery in June 2020 compared to almost zero sales in April 2020. While the business recovery was faster in south region (59 per cent of sales) due to fewer Covid-19 infections, non-south region’s recovery was delayed owing to pandemic related lock-downs.
Business contribution of non-south regions has increased from 33 per cent in FY15 to 41 per cent in FY20. While intermediary lockdowns in selected regions weigh on recovery process, the good part is that low inventory at channels would lead to a faster sales recovery for the company as and when normalcy returns in economy.
We revise our FY21, FY22 earnings estimates upward marginally and maintain our positive stance.
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