PG Electroplast Q1 Results Review - Robust Guidance Intact; Product Business To Lead In FY24: Systematix

Systematix Research Report

PG Electroplast Ltd.’s strong Q1 (revenue/profit after tax up 26%/106% YoY; 9.7% Ebitda margin, up 57 basis points QoQ) was encouraging in a tepid business environment.

Tight working capital helped in Rs 540 million reduction in gross debt. Management reiterated its guidance of 30% YoY growth in FY24, led by 43% rise in the product business (washing machine, room ACs, coolers; likely revenue of Rs 19.2 billion), which would contribute to 68% of revenue (44%/62% in FY22/FY23).

It sees large opportunity in the consumer electronics vertical. A 50:50 joint venture with the Jaina Group will be to manufacture Google certified LED TVs.

Its working capital cycle is expected to improve (by 10-12 days) gradually with shift in sourcing from China to domestic vendors. While operating margins across segments may remain stable, a change in the mix could limit overall margins.

A Rs 1.8 billion capex (funded via operating cash flows) will be mainly on RACs (to double capacity) and backward integration.

We retain our estimates and expect 28%/28%/33% compound annual growth rate in revenue/Ebitda/profit after tax over FY23-25E (FY20-23: 50%/64%/209%), with ~200 bps expansion in its return on equity to 22% and ~19% return on invested capital in FY25E.

We remain constructive on PG Electroplast given its robust prospects and maintain 'Buy' rating at an unchanged target price of Rs 1,806, based on 28 times FY25E EPS of Rs 64.

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