V-Guard Industries Limited has informed the Exchange about Transcript of Analysts/Institutional Investor Meet/Con. Call
August 3, 2022
The Manager Listing Department, BSE Limited, Phiroze Jeejeebhoy Towers, National Stock Exchange oflndia Limited, Dalal Street, Mumbai- 400 00 I
The Manager Listing Department,
Exchange Plaza, 5th Floor, Plot No. C/1, G Block, Bandra-Kurla Complex, Bandra-East, Mumbai- 400 051 Ref:- Symbol: VGUARD
Ref:- Scrip Code: 532953
Sub: Transcript of earnings call with respect to Financial Results for the quarter ended June
30, 2022.
Dear Madam / Sir,
This is with reference to the intimation dated July 29, 2022, filed with the stock exchanges in terms of Regulation 30 of the SEBI (Listing Obligations and Disclosure Requirements) Regulation, 2015 regarding the earnings call to discuss the financial results for the quarter ended June 30, 2022, which was held on Thursday, July 28, 2022.
The audio recording was filed with the stock exchange. We are enclosing the transcript of the Earnings call.
same
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is also being uploaded on
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the Company under
Kindly take the information on record.
Thanking you
For V-Guard Industries Limited JAYASREE KAMALA
Digitally signed by JAYASREE KAMALA Date: 2022.08.03 17:33:14 +05'30'
Jayasree K Company Secretary Membership No. A15900 Encl: as above
V-GUARD INDUSTRIES LTD. Regd. office 42/962, Vennala High School Road, Vennala, Kochi - 682 028. CIN: L31200KL1996PLC010010
P +91484 433 5000, 200 5000 E mail@vguard.in W www.vguard.in
V-Guard Industries Limited Q1 FY23 Earnings Conference Call
July 28, 2022
MANAGEMENT: MR. MITHUN CHITTILAPPILLY
MANAGING DIRECTOR, V-GUARD INDUSTRIES LIMITED MR. V. RAMACHANDRAN OFFICER, V-GUARD INDUSTRIES LIMITED MR. SUDARSHAN KASTURI CHIEF FINANCIAL OFFICER, V-GUARD INDUSTRIES LIMITED.
CHIEF OPERATING
MODERATOR: MR. DEEPAK AGARWAL
PHILLIPCAPITAL (INDIA)
PRIVATE LIMITED
Page 1 of 14
Moderator:
Ladies and gentlemen, good day and welcome to the V-Guard Industries Limited Q1 FY23
Earnings Conference call hosted by PhillipCapital (India) Private Limited.
V-Guard Industries Limited July 28, 2022
As a reminder, all participant lines will be in the listen-only mode, and there will be an
opportunity for you to ask questions after the presentation concludes. Should you need assistance
phone. Please note that this conference is being recorded.
I now hand the conference over to Mr. Deepak Agarwal from PhillipCapital (India) Private
Limited. Thank you and over to you, sir.
Deepak Agarwal:
Good afternoon, all. On behalf of PhillipCapital, I welcome all of you to the V-Guard Industries
Limited Q1 FY23 Earnings Call.
Today we have with us, the management of V-Guard represented by Mr. Mithun Chittilappilly
Managing Director, Mr. Ramachandran
COO and Mr. Sudarshan Kasturi
CFO. So, without
taking much of time, I would like to hand over the floor to the management for their opening
remarks, post which we will be open the floor for Q&A. Thank you and over to you, sir.
Mithun Chittilappilly:
Thank you, Deepak and thank you, PhillipCapital for hosting this call.
A very warm welcome to everyone present and thank you very much for joining us today to
discuss the operating and financial performance of our company for the first quarter of the
financial year 2022-23.
We are pleased to report a robust start to the financial year with the consolidated net revenues
of Rs. 1,018 crore in Q1 carrying forward the momentum from the previous quarter. This marks
the highest-ever revenue for us in the first quarter and is a successive quarter with revenues
crossing the threshold of Rs. 1,000 crore. We have delivered 80% YoY revenue growth in this
quarter, albeit on a low base given the impact of the second wave of COVID-19 across the
country last year.
Consumer demand has held up despite significant price increases during the last four quarters.
While Electricals and Consumer Durables segments continue to report strong growth, the
Electronics segment has also stepped up to deliver an improved trajectory this quarter.
During the quarter, we witnessed a broad-based contribution from both South and Non-South
markets that witnessed YoY growth of 68.2% and 95.6% respectively. With the near doubling
of revenues from the Non-South markets compared to the corresponding quarter last year, they
contributed almost 47% of the total revenue in Q1, higher than 43.2% last year
Q1. The
sustained growth in the Non-South markets bodes well for the progression of V-Guard as a
strong nationwide brand characterized by a more diversified revenue profile.
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V-Guard Industries Limited July 28, 2022
On the products side, the Electricals segment, which is our largest revenue contributor
comprising of Wires, Pumps, Switchgears and modular Switches, we registered a growth of
61.6% YoY. In the Consumer Durables segment where we market Fans, Water Heaters, Kitchen
Appliances and Air Coolers, Q1 revenues doubled registering a growth of 99.7% YoY.
In our Electronics segment comprising of Stabilizers, UPS and Inverters, we improved traction
during the summer months to achieve a growth of 90.8% YoY. Input prices are still higher on a
YoY basis and gross margin in Q1 FY23 was 29.8% vis-à-vis 33.0% in last year
Q1. We expect
this to recover to normative levels in the next one or two quarters.
On a QoQ basis, we have witnessed a slight improvement in gross margin as the price actions
undertaken in prior quarters for some products have now flowed through the distribution
channels. At the start of the quarter, we undertook further price action of around 3% across select
products. However, as we witnessed the commodity prices peak out, it obviated the need for
further pricing actions, especially in the Consumer Durables segment. We are closely monitoring
the situation and a slight easing of commodity prices is helping to address the gaps in select
categories, where the complete
transmission to the end-consumers had not fully been
undertaken.
The EBITDA margin was at 8.1% during the quarter, has declined on a QoQ basis as significant
drop in copper prices in during June affected the margin for Wires and this is likely to extend
some more impact in Q2 as well. With the risk of supply chain disruptions minimizing, we have
started to reduce inventory levels. We had a strong positive cash flow for the quarter. We believe
we are well placed to meet consumer demand over the coming months and this will enable us to
get to normative inventory levels resulting in stronger cash flows from the business.
With that, I conclude my opening remarks. I would like to thank PhillipCapital and Deepak
Agarwal for hosting this call and would like to ask the moderator to open the floor for Q&A.
Thank you.
Moderator:
Thank you. We will now begin the question and answer session. The first question is from the
line of Rahul Agarwal from InCred Capital. Please go ahead.
Rahul Agarwal:
On the ECD, Mithun, I thought that the growth was very strong. Could you elaborate a bit on
which categories did well and what is the outlook on the ECD margins
they are still hovering
in single digits. I am pretty sure, because of price hikes and raw materials coming down, the
margins should actually track back. So, any comments please?
Mithun Chittilappilly:
The two large categories in ECD are Fans and Water Heaters. Fans had a pretty strong quarter
because of a very good seasonal demand in the first half of the quarter. However, the demand in
June was slightly subdued. Water Heaters also had a very good growth in the first quarter, but it
would have been on a lower base.
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V-Guard Industries Limited July 28, 2022
Rahul Agarwal:
What about on the margins?
Mithun Chittilappilly:
Like we said in the opening speech, a lot of the commodity prices have started to correct and
that correction is ongoing. We think that there is some respite for us. I think, Q3 onwards we
should start to see the margins normalize.
Rahul Agarwal:
My next question is on the acquisition, on the balance 26% in Guts Electro-Mech. Could you
help us recap what this is about and what this company does, the subsidiary?
Ramachandran V.:
Guts is a company which is in the business of Switchgears and we had acquired them as part of
building a supply capability for V-Guard Industries Limited and at the time that we had acquired
the company, we had structured the transaction to be able to acquire 74% upfront and the
remaining 26% was supposed to be acquired after five years. I think we are now fulfilling the
last leg of the agreed transaction by acquiring the remaining 26%.
Rahul Agarwal:
What is the cost of this and is this a manufacturing facility for Switchgears?
Ramachandran V.:
Yes. This is a manufacturing facility for Switchgears. This company was in the business of
Switchgears manufacturing, sales and supply. We had acquired the company to secure
Switchgears supplies and to support the growth of the Switchgears business of V-Guard.
Rahul Agarwal:
What is the investment needed for acquiring this 26%?
Mithun Chittilappilly:
It is about Rs. 6.5 crore, I think. Ram?
Ramachandran V.:
Yes, Mithun.
Sudarshan Kasturi:
Investment, is it? It is about Rs. 6.2 crore.
Rahul Agarwal:
Other expenses at Rs. 145 crore for the quarter. Any one-offs here as it looks a bit higher on a
historical basis.
Sudarshan Kasturi:
See the other expenses have certain items which are factory expenses and certain items which
are volume related. So, a lot of them are in line with the turnover growth. Other than that, A&P
has gone up and a few overhead items.
Mithun Chittilappilly:
Travelling has gone up.
Sudarshan Kasturi:
Traveling is the main thing.
Mithun Chittilappilly:
So, basically, travel; some are volume related, like freight outward and all that. Some are factory
related like packing material and outsourced manpower etc.
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V-Guard Industries Limited July 28, 2022
Sudarshan Kasturi:
Out of that total increase is about Rs. 55 crore, about Rs. 30-32 crore is all volume related items
and about Rs. 7-8 crore is A&P. The balance is likely travel, selling, manpower cost and so on.
Moderator:
The next question is from the line of Aditya Bhartia from Investec. Please go ahead.
Aditya Bhartia:
On the Electronics segment
if we look at the growth of the segment on a, let's say, three-year
basis, essentially comparing it versus pre-COVID time, the growth appears to be pretty tepid. It
is something like in Q1 FY20 we had some Rs. 280 odd crore of revenues from the segment.
Now it has grown only to around Rs. 300 crore. So, what is that really on account of because
what we were picking is that at least for ACs demand has been fairly robust this season?
Mithun Chittilappilly:
There was a good demand for ACs from April 1st to, let's say, May 10th, but the last 45 to 50
days were quite bad. So, the demand was not as it should have been. However, our AC sales
were good, we had very good growth in the AC sales and Stabilizers sales. But the growth in
Inverters and Batteries business was not as good. We had some supply issues for Inverters also
because we were not having the requisite electronics items. So, some of the supplies were also
impacted. Ram, anything to add to that.
Ramachandran V.:
Just one more point. I think Q1 FY20 was exceptionally strong for Stabilizers. So, I think that is
one factor that we need to keep in mind.
Aditya Bhartia:
When you think about this segment and both Stabilizers and the Digital UPS separately, what is
the kind of growth potential that you see over a five-year period? Are these categories likely to
be growing at a very slow pace or could they be actually plateauing out at some stage?
Mithun Chittilappilly:
So, Stabilizers is a fairly mature category. I think, V-Guard holds very high market share in the
organized trade. So, unless the categories grows, the ability for V-Guard to grow faster than the
category growth may be limited. In the case of Inverter Battery, V-Guard is a very small market
shareholder. So, definitely the growth prospects are very good. We are setting up two factories.
One to manufacture Inverters and one to manufacture Batteries. We are hoping that in the next
18 months, they should come online and that will really improve the competitiveness for V-
Guard products. Today we are just having a 3% share of a Rs. 12,000 crore market in Inverters
and we can definitely improve that.
Aditya Bhartia:
Sir, how exactly have lower copper prices impacted our margins in the Electricals vertical? Is
there any inventory write-off or inventory revaluation also that may have taken place? What
could be the quantum of overall impact of low copper prices?
Mithun Chittilappilly:
So, just in the month of June, we had a write-off of about Rs. 10 crore would be the impact of
copper crash. So, that has impacted the results by about 1% in EBITDA margins for the whole
organization. So, mainly coming from Wires.
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V-Guard Industries Limited July 28, 2022
Aditya Bhartia:
Would will still be carrying some high-cost inventory and consequently, should we estimate
some impact flowing through the second quarter as well?
Mithun Chittilappilly:
So, I think what could happen is some impact will be there in the month of July, but August and
September, the company should get benefit of the lower cost input.
Aditya Bhartia:
You have referred to coming back to normative margins in one to two quarters' time. What do
you consider as the normalized margins for the company? Should we look at something like
32% odd?
Sudarshan Kasturi:
Yes. 32-33% of gross margin is about what we are talking about.
Mithun Chittilappilly:
So, pre-COVID margins is what we intended. That's about 32%.
Moderator:
Next question is from the line of Charanjit Singh from DSP Mutual Fund. Please go ahead.
Charanjit Singh:
On the Fans segment, what is the mix for us in terms of premium vs. economy? On the capacity
set up to ramp up your premium offerings, how is that scaling up? From the in-house
manufacturing perspective, what proportion is now being catered
to by the in-house
manufacturing in the Fans segment
the proportion of in-house vs. outsourced manufacturing
within the Fans segment?
Ramachandran V.:
The manufacturing initiative is going well and we expect to fully utilize the core segmental
capacity, which is divided into two parts and we plan to fully utilize the major part. As far as the
manufacturing shift is concerned, that is going well. Most of those Fans are in the premium
segment and therefore, the premium segment is significantly expanding in relation to the popular
segment.
Now coming to our ratio, we should now be in the region of 40-50% in the premium segment.
This should get better as we move forward, particularly with the BLDC coming in and also the
energy efficiency part also coming in.
Charanjit Singh:
From the Water Heaters perspective, now what will be our market share and how is that market
shaping up in terms of the competitive intensity going forward?
Mithun Chittilappilly:
See we do not want to give out any market share numbers. All we can say is that we are doing
extremely well in the Water Heaters business. We had lost some share in FY21 and FY22 we
regained some of that share back and FY23 we are growing from there. So, that is all that we
can comment as of now.
Charanjit Singh:
On the Pumps market, if you can give some color in terms of how the outlook is there and what
kind of price increases you would have taken here? How is the competition that is coming from
the unorganized sector and in the segment?
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V-Guard Industries Limited July 28, 2022
Mithun Chittilappilly:
So, Pumps is part of the Electricals basket for us, but that it is not a very large category. It is
probably 10% of the total revenues of the company or a little less than that. The Pumps category
has been impacted in terms of huge input price increases. There have been multiple rounds of
price increases. Some increases are yet to be passed on to the market as many of the leading
players have refused to take probably the last round of price increase. The good news is that the
commodities have started to correct like iron, steel, copper and all that. So, I think Pumps should
bounce back. The volumes in Pumps are impacted. The margins in Pumps are impacted.
Charanjit Singh:
From the overall Consumer Electricals volume growth perspective, will you be able to share any
outlook, in terms of the volume growth expectations for key product categories?
Mithun Chittilappilly:
We have our annual operating plan but we do not give out the product-wise numbers. However,
at V-Guard, we typically target for 15% growth in volumes and that is what we will be targeting
this year.
Moderator:
Next question is from the line of Jay Shah from Capital PMS. Please go ahead, sir.
Jay Shah:
On the business side, in the Electronics segment and in Wires and Cables, what is the demand
mix that we are seeing? Is it more from real estate or is there more demand coming in from the
data centers and the new kind of CAPEX?
Mithun Chittilappilly:
I am guessing you are talking about Wires, right?
Jay Shah:
Yes, Wires & Cables.
Mithun Chittilappilly:
In the case of Wires, V-Guard's pro
business is only 5-7% of total revenues. 95% of our
Cables go to the retail market. Having said that, the improvement in demand from the
construction sector has meant that the brands which were focusing on in the B2B business have
also pivoted. So the hyper-competition in the retail business is slightly less now because the
construction demand is decent. That is one way to look at it.
Moderator:
Next question is from the line of Bhavin Vithlani from SBI Mutual Fund. Please go ahead, sir.
Bhavin Vithlani:
In the Durables segment after the Q4 FY22 call, you had highlighted that the target is to take the
margins to about 7% this year and double-digit in the latter years, but we have seen that the
margins are sub 2%. Where do we see the margins, going forward, and what will drive the
margins higher?
Mithun Chittilappilly:
So, Consumer Durables has two components, large categories in it, which is Fans and Water
Heaters. Inherently, Water Heaters is the higher margin business for us than the other businesses,
for V-Guard. So, Water Heaters typically kicks in in terms of revenues and margins in Q2 and
Q3. So, I think some of it is also seasonality. We are hopeful on hitting the number, may not be
double digit, but I think we probably can hit 7% margin in the March quarter because the prices
of many of the raw materials have come down. For example, the major cost in Fans has two
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V-Guard Industries Limited July 28, 2022
components - one is aluminum and second is copper; both had peaked in the month of May.
Once these higher value inventories start reducing and we procure raw materials at the new
prices, the margin should improve. Probably you would have seen the worst for Consumer
Durables in the last four quarters in terms of margins.
Bhavin Vithlani:
On Switches and the Switchgears, it is an area that you have now identified and we have seen
that you have be successful in growing the Fans and Geysers segment exponentially over the
last three years. If you could just give us a road map on the Switches and the Switchgears
segments; also you have done a couple of acquisitions in this space?
Ramachandran V.:
I think we want to aggressively grow these two categories, but I think, we are relatively young.
In Switches, we are about 3-4 years old and maybe in Switchgears about 6-7 years old. These
two categories are growing well and we are able to grow the categories at a faster growth rate
than our overall business growth. So, I think we should be able to grow them at about 25-30%
over the next three to four years.
Bhavin Vithlani:
When do you believe that this category would hit Rs. 500 crore; I believe that it is currently
about Rs. 150 odd crore.
Ramachandran V.:
I think you can compound it at 25% per annum and probably you may reach to some number
but I think our base numbers maybe a bit better than what you said.
Bhavin Vithlani:
In your press release, you mentioned there were some inventory losses. So, would it be possible
for you to quantify the kind of inventory losses which are there in the Wires segment? And what
is the kind of inventory that you would generally carry for the Wires as a segment?
Sudarshan Kasturi:
The impact of copper drop during Q1 was about Rs. 10 crore, so it impacted margins maybe
about 1% at the company level. Typically, we tend to have RM plus FG anywhere between 45
and 60 days.
Moderator:
Next question is from the line of Keshav Bharadia from PhillipCapital. Please go ahead.
Keshav Bharadia:
Why did the margins in the ECD business get impacted? How do we see the in-house
manufacturing share in 2-3 years and how much can it increase from the current 60%?
Mithun Chittilappilly:
So, the ECD margins have been impacted mainly because of the Fans business. I think, the Fans
business has been one of the most impacted categories, primarily because most of the Fans
produced by us and competitors are aluminum Fans and basically, the component aluminum had
shot up significantly after the Russian invasion of Ukraine as Russia is one of the major
producers of aluminum. Now, I think the aluminum prices are coming down. So, I think the
Durables margins should improve. So, this is one reason.
Second is we are a relatively newer brand if you look at Fans, Kitchen Appliances. Apart from
Water Heaters, our market share in Consumer Durables is quite low. So, obviously, being a
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V-Guard Industries Limited July 28, 2022
smaller, market share holder and smaller brand in this segment will mean that our ability to pass
on pricing can only be there after the leaders in the segment pass on pricing. Typically, we may
be carrying less inventory in terms of strategic buying of raw material and all that, because we
are small in those categories as compared with some of the larger companies. So, that is one of
the reasons, but I think now the commodity prices are cooling down and Durables margins have
already improved, even if you look at Q1 and that will improve going forward.
Keshav Bharadia:
And on the in-house manufacturing share in 2-3 years?
Mithun Chittilappilly:
Right now it is about 60%. I think it will go to about 75% in the next 2-3 years.
Keshav Bharadia:
How much of the high-cost inventory are we holding right now, is it worth one month or two
months?
Mithun Chittilappilly:
So, like Sudarshan mentioned, if you look at the overall company, our FG inventory is at about
70 days or 80 days. If you look at specifically copper and Wires, it is about 60 days including
RM and FG.
Keshav Bharadia:
Can you give me the utilization levels for different plants?
Sudarshan Kasturi:
No, I do not have that data handy; we will come back.
Mithun Chittilappilly:
We will share it offline.
Moderator:
Next question is from the line of Rakesh Roy from Indsec Securities and Finance Limited. Please
go ahead, sir.
Rakesh Roy:
Can you highlight on your Non-South market performance, especially which region did well in
Q1?
Mithun Chittilappilly:
See if you look at Non-South, northern and western markets had very good summer, whereas
eastern markets, there were intermittent rains right from May onwards. So, both north and the
western markets did well.
Rakesh Roy:
Any addition to dealer or distributer in the Non-South market in Q1?
Mithun Chittilappilly:
We would have done it. I mean, we are not carrying any specific numbers with us. But like we
said our target is to add 3,000 to 4,000 retailers every year.
Rakesh Roy:
Any chance to take another price hike in near future?
Mithun Chittilappilly:
I think for most categories, it may not be required, because all the raw material prices have come
down. There may be some small increase required in some parts of Durables, but largely, I think,
it may not be very large increases may not be required is what we believe.
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V-Guard Industries Limited July 28, 2022
Moderator:
Next question is from the line of Hitesh Taunk from ICICI Direct. Please go ahead, sir.
Hitesh Taunk:
What is the price hike you have given for the Q1?
Sudarshan Kasturi:
Price hike for Q1 is about 2-2.5%.
Hitesh Taunk:
One more book-keeping question, why is the employee cost high on a QoQ basis?
Sudarshan Kasturi:
So, there are two factors. There is a variable pay accrual this quarter. Last quarter it was not
required. So, it's about a Rs. 7 crore difference on account of that and the other one is the
increment kick in in Q1. So, that is the difference between the two quarters.
Hitesh Taunk:
About the Kitchen Appliances category, logic pertaining to our built-in Kitchen category. So,
what is the kind of distribution are we planning on going forward in this category and what is
our strategy to take it forward? Are we looking for some kind of market share and what is the
current market share?
Mithun Chittilappilly:
So, V-Guard is not present in the entire spectrum of built-in Kitchens. We are only doing Hoods
and Hobs. Today, they are primarily a traded business, selling only through Amazon and
Flipkart, i.e., only through online partners. We are not intending to go to offline as yet. So, that
that is as far as the built-in part is concerned. It is very small today. It is not a very large business.
Moderator:
The next question is from the line of Prasheel Gandhi from Nirmal Bang. Please go ahead.
Prasheel Gandhi:
What is the channel inventory at your channel partner
is it high or low?
Ramachandran V.:
Channel inventory is more or less normal. Channel inventory is normal and nothing abnormal at
this stage. I think Wires might be a bit lower because with the expectation of price reduction, in
the later part of the quarter the sales were lower. So, I think Wires will be lower. But otherwise,
by and large, inventory should be normal.
Prasheel Gandhi:
You highlighted that there was some demand slowdown in June. Do you think it is some
transitory kind of a slowdown?
Ramachandran V.:
See, it is related to weather. What we observed is categories which are weather dependent, they
had a bit of slow down, primarily Stabilizers, Inverter Battery to some degree and Fans and
maybe Pumps. So, a bit of slowness was there in these categories, but it is not across all
categories. It is in these categories. Mainly, the slowness was in Non-South.
Prasheel Gandhi:
Do you engage in any kind of hedging for your raw materials?
Sudarshan Kasturi:
No, we have Forex, not materials.
Moderator:
Next question is from the line of Bhavin Vithlani from SBI Mutual Funds. Please go ahead, sir.
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V-Guard Industries Limited July 28, 2022
Bhavin Vithlani:
In the previous call you had mentioned about indigenization TPW manufacturing which is
currently being imported. So, if you could just give us an update where are we? What is the kind
of investment and the capacity that we are looking to create in that sub segment? What is the
kind of share that TPW has in the overall Fans segment for us?
Ramachandran V.:
So, TPW would be roughly about 25-30% of our business. You can take 30% of our business
would be TPW and main challenge that we had with TPW was it was imported. So, duty and
freight were major challenges and that affecting our competitiveness and that is also reflecting
in the significant drop that you see in our Consumer Durables business. So, with that context
and also to ensure supply security, we have decided to invest in setting up a TPW facility. As
far as the facility is concerned, we would be investing probably some Rs. 30-35 odd crore in
plant and machinery for TPW manufacturing. Obviously, we will start small with a few SKUs
and then progressively expand to address the category needs.
Bhavin Vithlani:
What are the timelines that we are looking at and when will the facility be ready?
Ramachandran V.:
Should be another 12 months, I suppose.
Bhavin Vithlani:
Till such time, margins for the Fans segment will continue to be subdued.
Ramachandran V.:
Yes, for TPW Fans, it will be better than before.
Mithun Chittilappilly:
We have two approaches. One is setting up our own factory, but even before that we had invested
in our own molds and dyes. The India made TPW Fans have already started to come into the
market. So, some part of the issues will get solved there, but I think our range will be a challenge.
The entire range, we can indigenize only once our factory comes in. So, today, we are only
probably going to make the most voluminous and most popular scales in India through a vendor
in Hyderabad.
Bhavin Vithlani:
On Fans after the new manufacturing, we entered the decorative segment. If you could just
give us timelines and the way forward, how are we looking to move up on the premium and
super-premium sub segments of that? That will also require significant investment in brand
building. If you can just highlight the way forward on moving up the value chain on the ceiling
Fans segment?
Ramachandran V.:
The investment that we have made in the plant is primarily focused towards the premium and
super-premium categories. In fact, I think 85-90% of the output is targeted towards that and 10%
of the capacity is targeted towards mid-end Fans. We hope to get to about 85-90% capacity
utilization during the season or probably even close to full utilization from coming seasons. That
journey is progressing well for us. Mainly, we will be focusing the manufacturing to only the
decorative segment which are premium and super-premium Fans. We will continue to source
entry level Fans from the market or what I would say the popular segment from the vendor
ecosystem and that strategy will continue.
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V-Guard Industries Limited July 28, 2022
Bhavin Vithlani:
In the current quarter, it seems like there is a margin impact in the Electronics segment also. Is
that due to the Inverters segment or Stabilizers? How do you see margin stabilization going
forward?
Sudarshan Kasturi:
The mix of Stabilizers sold in this quarter is very different from last quarter and even the
proportion of Stabilizers and Inverters to the total is also different. There is a significant mix
impact.
Bhavin Vithlani:
So, the margin decline that we are seeing is a function of mix impact and not decline in the
individual category margins. Is that the correct interpretation?
Mithun Chittilappilly:
No, I think there is some impact. So, Sudarshan, there is some impact on the Inverter Battery
business in Q1. That is true. But there is also a larger impact of the mix in terms of the product
mix and the category mix.
Bhavin Vithlani:
So, would the sustainable margin comeback to that 17% odd that we are seeing historically or is
this the new normal?
Mithun Chittilappilly:
No, I think 17% is probably what happened in Q1 FY20. That was probably a year where we
had extraordinarily high sales because summer was very good. So, I think 15-16% may be the
correct Electronics margins.
Moderator:
Next question is from the line of Yash Khemka from Yashwi Securities Private Limited. Please
go ahead, sir.
Yash Khemka:
How are you looking forward towards the demand scenario of Electronics segment? A corollary
question to this is that the copper prices are reducing; how would the margin for Electronics
segment, in particular, be impacted in the upcoming quarters?
Ramachandran V.:
We are setting up two manufacturing facilities, one for Batteries and one for Inverters and
Stabilizers. Both of these should help to improve our competitiveness and obviously will have a
positive margin impact because the investment is hypothesized on getting a payback for the
investment. As far as the Inverters and Batteries are concerned, making this investment will help
to improve our competitiveness. It will also help improve our flexibility and therefore, should
help us to grow the business better because we will be able to be more responsive in the season
to market needs. We will have more flexibility to address the market demand through a mix of
own and sourced product portfolio. So, there will be favorable consequence because of our
manufacturing investment on the overall health of the Electricals and Electronics business. There
is some amount of margin stress which is seen QoQ, but that is also because, some of the impact
of input cost increase has been later in some categories, like in the case of Batteries, the lead
impact has come later whereas in some other categories, the commodity impact has come much
earlier in the year. A bit of that is seen. But in other categories, progressively as we go forward,
as commodities correct, they should also get corrected. There may be some marginal drop in
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V-Guard Industries Limited July 28, 2022
Stabilizers or Inverters, but that is consistent with the increase in input cost that has happened
and that should roll back as the input cost roll back over time.
Yash Khemka:
How are you seeing demand in Cables and Switchgears in Q2, would it be strong?
Ramachandran V.:
On Switches and Switchgears, I think as Mithun had said earlier in general, as far as the demand
from the construction segment is concerned, it has been stable and therefore, we expect to see
continued demand. Having said that, our incumbent market size and market position is fairly
small. So, as far as we are concerned, we believe we should be able to post a decent growth
consistent with how we have been growing in the last 2-3 years.
Moderator:
The next call is from the line of Nikhil Kale from Axis Capital. Please go ahead.
Nikhil Kale:
Just going back to the Electronics margin, now you talked about the new facilities that you are
looking to put up for Inverters and Batteries and that would improve your competitiveness. Just
wanted to understand will it be fair to assume that given that you see margin benefits, and if that
is the case, would the strategy be to retain the margins or pass it on to consumers and try to gain
incremental market share?
Mithun Chittilappilly:
So, if you look at the Inverters and Batteries business, today, V-Guard is not very competitive
in terms of pricing. So, some of that margins will be passed on and some of it will be retained.
But you will still see some margin improvement. That is what we expect.
Nikhil Kale:
Would you then still keep it like the 15-16% kind of a range for the Electronics segment over
the medium term?
Mithun Chittilappilly:
Yes, in Electronics, anyway, I think, we should expect a 16% margin. Yes, we should go back
to the 16% margin in my view. That is possible. Today, I think V-Guard's products are not very
cost competitive, especially in the Batteries segment where we are outsourcing the production.
Nikhil Kale:
As we move towards more in-house manufacturing, from a company perspective or company
level, how are you looking at the margin improvement? Is there any target that you are looking
at in terms of incrementally taking your margins to a particular level over the next 3-5 years?
Mithun Chittilappilly:
We have always mentioned that we will look at 10% EBITDA margin and improvement from
there on and I think that is possible with these initiatives. But these initiatives will take 2-3 years
to gain through because in the first one year and one and a half years may be there will be
excesses and a lot of inefficiencies in the manufacturing process which will then be streamlined
going forward. So, yes, we are seeing that happening and whenever we setup a plant, it is with
the clear IRR and it is with the clear return that we do that with the clear margin improvement
program for the category.
Moderator:
As there are no further questions, we have reached the end of Q&A session. I would now like to
hand the conference over to Mr. Deepak Agarwal for closing comments.
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V-Guard Industries Limited July 28, 2022
Deepak Agarwal:
Thank you, management for giving your valuable time for this call and allowing us to host this
call. Thanks everyone for joining this call.
Management, are there any closing remarks that you would want to make?
Mithun Chittilappilly:
Thank you Deepak and PhillipCapital for hosting this call.
Moderator:
On behalf of PhillipCapital (India) Private Limited, that concludes this conference. Thank you
for joining us. You may now disconnect your lines.
The transcript has been edited for clarity and it may contain transcription errors. Although an effort has
been made to ensure high level of accuracy, the Company takes no responsibility of such errors
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