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Dolat Capital Report
V-Guard Industries Ltd.'s revenue (including Sunflame) grew 7.6% YoY in Q4 FY23-was ahead of our estimate. However, excluding Sunflame, revenue increased by mere 2.3% due to softening consumer demand (four-year compound annual growth rate of 9.8%).
V-Guard's gross margin improved 210 basis points in Q4 due to moderation in raw material cost and exhaustion of high cost inventory. Ebitda margin fell 190 bps to 8.7% due to one time cost of Rs 100 million related to Sunflame acquisition and higher advertising and promotion spends.
With taming inflation and revival in demand environment, management has targeted for 14-15% revenue growth (excluding Sunflame) in FY24E and further expansion in gross margin in Q1 FY24.
Normalisation of advertising and promotion expenses to 3-3.5% of sales is likely to squeeze Ebitda margins in the near term. However, synergies from merger and acquisition and merger of Sunflame and Simon Electric, coupled with premiumisation will alleviate margin pressure to some extent.
We have built in revenue/profit after tax CAGR of 16/40% respectively over FY23-25E.
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