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V-Guard Industries Ltd.: Stellar end to the year - Views on News from Equitymaster

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V-Guard Industries Ltd.: Stellar end to the year
Jun 14, 2012

Dear Subscriber:

We present herewith the March 2012 quarter result analysis of V-Guard Industries Ltd..

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Equitymaster Research

V-Guard Industries Ltd.: Stellar end to the year

Performance summary
  • Net sales increased by 24.6% YoY during the fourth quarter of the financial year 2011-2012 (4QFY12). For the full year ended March 2012 (FY12), net sales grew by 36.7% YoY.
  • Operating margins improved by 3.2% YoY to 11.9% from 8.7% seen during the same period last year. For FY12, margins declined to 9.4% from 10.1% seen in FY11.
  • Net profits grew by 34.7% YoY during the quarter. For FY12, net profits increased by 19.1% YoY.
  • The company has recommended a dividend of Rs 3.5 per share (dividend yield of 1.5%)

Financial snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 2,227 2,775 24.6% 7,266 9,936 36.7%
Expenditure 2,032 2,444 20.3% 6,536 9,001 37.7%
Operating profit (EBDITA) 194 330 69.9% 730 935 28.1%
Operating profit margin (%) 8.7% 11.9%   10.1% 9.4%  
Other income 7 9 25.6% 17 24  
Interest expense/(income) 36 44 21.6% 113 170 50.2%
Depreciation 21 27 29.6% 79 97 22.1%
Profit before tax 145 268 85.6% 555 692 24.7%
Tax 39 77 98.2% 165 184 11.5%
Extraordinary items/prior period items 36 -   36 -  
Net profits 142 192 34.7% 426 508 19.1%
Net profit margin (%) 6.4% 6.9%   5.9% 5.1%  
No. of shares       29.8 29.8  
Diluted earnings per share (Rs)*         17.0  
P/E ratio (x)*         14.5  
*On a trailing 12-months basis
What has driven performance in 4QFY12?
  • V-Guard Industries Ltd reported a revenue growth of 24.6% YoY during the quarter. The growth was driven by a healthy growth in each of the product segments. As stated by the company, the largest segments of stabilizers and cables witnessed a growth of 15% YoY each. In terms of region, the growth was driven by the non-South markets which grew by 40% YoY during the quarter. The South market witnessed a healthy growth of 38% YoY.

  • V-Guard reported an increase of 3.2% YoY in operating margins during the quarter. This was on account of savings in nearly all the expense heads except for the staff costs which registered a slight increase during the quarter (all as percentage of sales).

    Cost break-up
    (Rs m) 4QFY11 As % of Sales 4QFY12 As % of Sales
    Raw material 1,605 72.1% 1,959 70.6%
    Staff cost 104 4.6% 160 5.8%
    Selling & distribution expenses 185 8.3% 158 5.7%
    Other 139 6.2% 168 6.1%
    Total 2,032   2,444  

  • V-Guard reported a 34.7% YoY increase in profits during the quarter. This was on account of better operating margins and higher other income during the quarter. The growth in net profits would have been better if not for the higher depreciation charges as well as higher tax outflow during the quarter. Effective tax rates increased to 28.6% from 26.8% seen during the same period last year.

What to expect?
At the current price of Rs 246, the stock is trading at a multiple of 14.5 times its trailing twelve month earnings per share. Owing to the erratic prices of its main commodities - copper and aluminium- the company has given a guidance of operating margins at around 10% levels in FY13. The management is also aiming at reducing its working capital cycle which in turn would help in reducing its short term borrowings. The company has already reduced its cash conversion cycle to 75 days in 4QFY12 from 93 days in 4QFY11. This has helped it bring its debt to equity down to 0.5 times at the end of March 2012 from 0.8 in March 2011. For FY 13, it plans to reduce the cash conversion cycle further through the use of vendor financing. We recently recommended the stock on account of its good growth prospects and cheap valuations. Since then the stock has crossed out our maximum buy limit of Rs 200. Hence we suggest that investors do not purchase more of the same and instead Hold' their investments from a long term perspective.

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