How improving covid situation can benefit V-Guard | Economic Times

Despite covid induced disruptions in April and May, V-Guard Industries was able to bounce back in June and report better than expected numbers in the first quarter of 2021-22. While disruptions were severe in its key market— southern region— increased sales in non-south regions helped V-Guard. The company has slowly transformed from a South India based stabiliser player to one of the leading national players in fast moving consumer electrical (FMCE) items. V-Guard is still market leader in the stabiliser segment. Its sales contribution from non-south regions has increased to around 43% now.Its strong performance in the first quarter was visible both in financial and operating parameters. Though low base effect was the main reason, V-Guard reported a seven times jump in net profit. V-Guard was able to pass on the rising costs to consumers and increase its gross margin by 380 basis points y-o-y during the first quarter. Due to strong business momentum, V-Guard also made small price increases in July and more is expected in coming months. This should help it to report good second quarter numbers. V-Guard’s margin profile is improving slowly due to strategic steps taken by the management. Its plan to shift production from outsourced facilities to in-house manufacturing is one such action. Margin profile is expected to improve further because V-Guard aims to take its in-house manufacturing share from 40-45% now to 60-65% in 3-4 years. Using indigenous materials and reducing consumption of imported materials is another such step and its imported materials consumption is now down to around 2%, compared to around 8% five years back.FMCE players like V-Guard are benefitting now from the government’s housing thrust and they should continue to benefit. Since V-Guard’s growth now is broad-based across products, categories and regions, it should be able to withstand regional shocks. Though V-Guard’s air cooler sale in first quarter was down due to loss of sale in peak summer, electrical and durable sales were able to compensate it. V-Guard is also diversifying its distribution channels and the contribution from organised retail and e-commerce has already reaching close to the 20% mark.85710624Analysts are attracted to V-Guard because of its share price correction. V-Guard is also a cash rich company with no debt and it is expected to report a free cash flow of Rs 250 crore in 2021-22. Selection MethodologyWe pick up the stock that has shown maximum increase in “consensus analyst rating” during the last 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.(Graphics by Sadhana Saxena/ET Prime)