Sunflame acquisition augurs well for V-Guard Industries, says Sharekhan; sees 23% upside on these positives

V-Guard Industries Limited’s acquisition of leading kitchen appliances brand Sunflame Enterprises Private Ltd (SEPL) augurs well for the company. Brokerage firm Sharekhan sees a 23 per cent upside or Rs 60 per share gain. The stock was recommended at a price of Rs 261.

V-Guard shares today ended at Rs 271 on the NSE and were down 0.55 per cent from the previous closing price.

V-Guard acquired 100 per cent stake in Haryana based SEPL for a consideration of Rs 660 crore on a cash-free and debt-free basis. The transaction is expected to close by mid-January 2023.

Sunflame’s acquisition is in line with company’s strategy to become a significant player in the domestic kitchen appliances industry which currently forms just 4-5 per cent of its total revenue, Sharekhan said in a report.

V-Guard will likely benefit from Sunflame’s brand which has a pan-India presence with a strong brand recall, it said. It could help in unlocking synergy benefits in areas like geography, product portfolio and channels since Sunflame has strong presence in north and west, while V-Guard is predominantly present in the south market, the brokerage firm said further.

“Its wide portfolio, product development capabilities and the recently established state of-the-art integrated manufacturing facility would help V-Guard scale up its kitchen appliances business,” Sharekhan said in a report.

In the long run, a meaningful contribution from this acquisition would help grow the bottom-line, it said.

“We expect Revenue/PAT CAGR of 19/23 per cent over FY2022-FY2025E EPS (not factoring in Sunflame acquisition). We retain a Buy on V-Guard with a revised price target (PT) of Rs. 320, rolling forward our estimates to September FY2024E EPS,” the brokerage added.

V-Guard Fundamentals 

The company had performed consistently well with steady cash flows and strong operating margin of 12-13 per cent, this brokerage said.

The acquisition is reasonably priced at Enterprise Value/sales of 1.9X.

Caveats 

Although revenue growth will likely be incremental, the acquisition maybe earnings neutral, or even marginally dilutive for FY24E due to rise in interest cost and decline in other income due to lower cash.

Relatively weak demand environment in some of the product categories coupled with intense competition in some of its business segments is a key concern, the brokerage firm said.

Technical View 

The stock has outperformed Nifty50 by over 12 per cent, giving returns of 21 per cent against 9.5 per cent returned by the latter over a 1-year period, according to a data sourced from Trendlyne. Momentum indicators RSI and MFI are at 65.4 and 63.3. A number below 30 indicates that the stock is in oversold territory while number above 70 suggests that the stock is in oversold situation.

All 16 moving averages reflect a bullish trend.

Technical Analyst Nilesh Jain recommends a buy on decline in this stock. The stock is trading near an important breakout zone and if a level of Rs 280 is breached, a further upside of Rs 320 will open, Jain said.

The chart structure is positive, and despite Wednesday’s market crash, the declines in this stock were limited, he further added.

Jain, who is Assistant Vice President - Lead Derivative and Technical Research at Centrum Broking, recommends a stop loss of Rs 320.    

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(Disclaimer: The views/suggestions/advises expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)