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V-Guard's takes 5% price cut in wires & cables segment in Q1FY23

V-Guard has taken a price cut of 5% in the wires and cables segment for Q1FY23, as metal prices cooled off due to lower demand amid recession fears. Copper and Aluminum consist of 30-50% of the total cost for manufacturing wires and cables and have fallen between 21-35 percent from the recent highs.

Sharad Dubey

Updated Jun 28, 2022, 09:49 IST

Courtesy: vguard.in

Photo : ET Now Bureau

New Delhi: V-Guard has taken a price cut of 5% in the wires and cables segment for Q1FY23, as metal prices cooled off due to lower demand amid recession fears. Copper and Aluminum consist of 30-50% of the total cost for manufacturing wires and cables and have fallen between 21-35 percent from the recent highs.

There is a lag of 2-3 months for price changes, however as per channel checks undertaken by ET Now suggests that inventory liquidation has also been seen across geographies amongst the dealers.

The southern-based consumer durable company hosted an analyst meeting with Phillip Capital with a focus on the non-south markets, which contributed 42% of the total revenue in FY22. The target is 50% over the next 2-3 years.

In the non-south market, the company has a strong presence in Uttar Pradesh, West Bengal, Odisha, Maharashtra, and Gujarat and has added more than 3000 touch points in north markets last year. For new product lines like kitchen appliances, the company planning to launch in the north market

Increased prices of commodities have hit demand. However, premium fans and water heaters, stabilizers have seen higher demand. April and May 2022 witnessed strong demand, but from June 2022 weakness in volumes with softness in commodity. Softness in commodities resulted in the reduction in channel stocking – impacted primary sales in June 2022 for wires and cables.

Brokerage Phillip Capital stated in a note that V-Guard's increasing the contribution from its own manufacturing and has now started focusing on premium products, which should help improve gross margins and market share going ahead. The company trades at 35x/27x on our FY23/24 EPS estimates and at an EV/EBIDTA of 22x/17x.

The company is now focusing on higher-margin products, and digital platforms and working on OMNI Channel for distribution, as stated in its corporate presentation.

60% of 25 analysts tracking the stock have a 'Buy' rating, while only 8% of them have a sell rating, as per Bloomberg Data. The 12-month potential target price is Rs 271 per share which translates into a 19% potential from the current market prices.

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