ICICI Direct's research report on V-Guard Industries
V-Guard has signed a definitive agreement to acquire 100% stake in Sunflame Enterprises (Sunflame) for a consideration of Rs 660 crore, on a cash-free and debt-free basis. In the last 3 years, Sunflame’s revenue grew at 15% CAGR (higher than industry growth of ~10-12%) supported by new product launches and geographical expansions. It will finance this acquisition through a mix of debt and internal accruals (V-Guard had net cash of ~Rs 151 crore as on September 2022). With the offer price, Sunflame is valued at 1.9x FY22 sales and 20x FY22 earnings. “Sunflame” is a leading kitchen appliance company with a strong presence in chimneys, cook tops, cookers and small appliances. The acquisition is in line with VGuard’s strategy to strengthen its kitchen appliances portfolios where the company had a very limited presence. Post-acquisition, V-Guard’s kitchen appliances revenue contribution to its total revenue will increase to ~10% from 5% in FY22. We introduce FY25E estimates for V-Guard factoring in acquisition and better margin profile of ‘Sunflame’. We model consolidated revenue, earning CAGR of 17%, 18%, respectively, in FY22-25E.
Outlook
We roll over our valuation on FY25E and revise our rating on V-Guard from HOLD to BUY. We value the company at 35x FY25E earnings with a revised target price of Rs 310/share.
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