V-Guard's 2QFY16 PAT increased 20% YoY to Rs231mn (10% ahead of estimate) led by 57% YoY reduction in interest; debt declined 86% YoY. EBITDA at Rs365mn was 2% below estimate due to flat revenue (4% below estimate). EBITDA margin though at 8.4% was 20bps ahead of estimate led by lower other expense; ad spend at Rs80mn was flat YoY. South revenue improved 3% YoY (warm weather aided stabiliser and fan sales) but non-south revenue declined 5% YoY led by decline in sales of stabilisers (short summer) and wires (destocking led by fall in copper price). 1HFY16 CFO has been strong at Rs575mn (vs –Rs93mn in 1HFY15) led by a 24 days reduction in inventory (64 days). We do not need to cut our implied 2HFY16 revenue growth of 20% (as management’s new reduced guidance implies 20% YoY growth in 2HFY16) as 2HFY15 was weak (8% YoY growth vs 22% YoY in 1HFY15). At CMP, V-Guard is trading at 23x FY17E P/E, a ~15% discount to Havells standalone despite its higher FY15-17E EPS CAGR of 31% vs Havells’ 12% and higher FY17E RoE of 24% vs Havells’ 20%.
