V-Guard products are consumed by the mass market. As per NCAER, the number of middle income households is going to increase by 70% to 238 mn households by 2015. The growing middle class in India, lower penetration of household appliances, increasing housing activity will lead to sustained demand for the company's product portfolio. Also, the increased per capita availability of power from 700KWH in FY08 to 1000KWH by FY12 will result in higher demand.
V-Guard over the last decade has expanded its product portfolio from stabilizers and cables to many other products such as pumps, electric and solar water heaters, UPS, Digital UPS and Fans. These products have high demand especially in the semi-urban and rural market. It has also over the past few years built a wide distribution network (177 distributors,1256 dealers and ~ 6000 retailers) and thus addressed the wide spread market. As it has a strong brand name, it has been able to enter newer consumer related products and has significant presence. We believe the robust product portfolio along with a wide reach will enable its top line and bottom line to nearly double by FY12.
V-Guard is poised for high growth due to its product portfolio which caters to the mass market. There are not any listed comparable peers and thus, we have compared it to its closest peer set of consumer electronic industry. The average consensus PER at which the consumer electronic companies trade is ~14.9x FY12 and a consensus P/Sales of 1.1x FY12. V-Guard is currently trading at 9.4x FY12E and P/Sales of 0.6x FY12. We believe given the growth trajectory, the valuations are attractive and the gap between its closest peer and the company will diminish. We have valued V-Guard at a PER of 12x (~20% discount its listed electronic industry peers) and initiate with a BUY and a price target of Rs208.
