PremiumThe management expects that with softening prices of key commodities and liquidation of high-cost inventory, especially in the consumer durables segment, margin improvement should be visible in ensuing quarters.
MUMBAI: Declining commodity prices have led to improved outlook for various electrical product manufacturers, including V-Guard Industries Ltd. Shares of V-Guard scaled fresh 52-week high this week, despite weakness in broader markets, and have remained at around those levels.
The company had reported a soft Q2 performance, with the impact of higher key raw material prices visible. While Q2 revenues rose 8.6% year-on-year (YoY) to ₹980.7 crore, Ebitda at Rs. 70.7 crore 24.4% YoY. Ebitda stands for earnings before interest tax depreciation and amortization. Net profit was down 27% on year.
Gross margin compressed 230bps YoY, and 10bps sequentially, which was attributed to higher material cost over normalised levels, and sale of high-cost wire inventory at lower realization due to falling copper prices. Analysts indicate impact of ₹160 crore or 160 basis points.
Though the company has been taking price hikes in segments such as consumer durables and electronics, these have put pressure on demand. Analysts say that unprecedented input cost inflation over the past 12-18 months, which led to double-digit price hikes across product categories, put pressure on demand from rural, small town, and entry level segments. Moreover, in 2QFY23, fans (transition to BEE rating change) and wires (falling copper prices) led to channel destocking, said analysts at JM Finacial Institutional Securities Ltd.
The management, however, expects that with softening prices of key commodities and liquidation of high-cost inventory, especially in the consumer durables segment, margin improvement should be visible in ensuing quarters.
Sudarshan Kasturi, Sr. VP & CFO, finance & accounts at V-Guard Industries, expects margins to normalise by Q4.
Analysts also expect margin recovery to take place in the second half of FY23. Analysts at HDFC Securities though have cut their FY23 Earnings estimates by 4% to account for the miss on margin in Q2, but have maintained FY24 and FY25 earnings estimates
In a positive, the company’s net revenue registered a 17% three-year CAGR (compound annual growth rate), with electronics and electrical segments growing 11% and 15%, respectively. Analysts at HDFC Securities highlighted that consumer durables clocked 24% three-year growth, better than Havells’ and Crompton’s, which were up 16% and 10%, respectively.
V-Guard’s performance is better on account of the lower fan mix (which was impacted in the later part of Q2) in its consumer durables portfolio, they added. South and non-south delivered revenue growth of 13% and 22% three-year CAGR respectively.