Ladies and gentlemen, good day, and welcome to the V-Guard Industries Q1 FY 2025 earnings conference call, hosted by Nirmal Bang Institutional Equities Private Limited. 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 during the conference call, please signal an operator by pressing the star then zero on a touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Miss Natasha Jain from Nirmal Bang Institutional Equities Private Limited. Thank you, and over to you, ma'am.
Thanks, Steve. On behalf of Nirmal Bang Institutional Equities, we welcome all of you to the first quarter FY 2025 results conference call of V-Guard Industries Limited. We would like to thank the management for giving us an opportunity to host this call. We have with us today the senior management, represented by Mr. Mithun Chittilappilly, Managing Director; Mr. Ramachandran V., Director and Chief Operating Officer; and Mr. Sudarshan Kasturi, Senior Vice President and Chief Financial Officer. Now, I will hand over the call to the management for initial comments on the quarterly performance, and then we will open the floor for question and answer session. Thank you, and over to you, sir.
Thank you, Natasha, and Nirmal Bang team, for hosting this call. A very warm welcome to everyone present on today's call. Thank you for joining today to discuss the operating and financial performance of our company for the first quarter of financial year 2024-2025. I trust all of you have had a chance to refer our investor presentation, which was shared yesterday. It has been a positive start to the financial year, fiscal year, with a strong performance in the first quarter. We have reported a consolidated net revenue of INR 1,477 crore in Q1 FY 2025, higher by 21.6% on a YOY basis. It has been an all-round performance, aided by a very good summer. The Electronics segment, comprising majorly of stabilizers, digital UPS, led the growth with a revenue growth of 41% YOY.
In this segment, we also have solar power systems, which have seen good traction and is a category for the future. The Consumer Durables segment, where we market fans, water heaters, kitchen appliances and air coolers, also reported a strong performance with a top line growth of 26% on a YOY basis. In the Electricals segment, comprising of wires, pumps, switches, and modular switches, we registered a growth of 7% in revenue on a YOY basis. Wires, which is the largest category under the Electricals segment, was impacted by three weeks stocking due to decline in copper prices in June. Sunflame reported a decline in top line of 7% on a YOY basis. Also, the top line was soft. It is largely in line with our forecast and plan. The overall kitchen industry has been facing subdued demand in the recent quarters.
We recognize there is a task ahead of us to get the business in the growth path, and there are several actions in progress in terms of functional integration and sales acceleration. Gross margins in Sunflame business remain good. EBIT margins have been lower due to higher A&P, ex-A&P spends and filling up of critical vacancies, which will be improved going forward. In terms of geographies, all regions have done well. The non-South markets delivered a top line growth of 30% YOY, with revenues in South market growing 17% YOY. The contributions from non-South markets have crossed 50% in total revenues for this quarter. Gross margins continue to improve, with the benefit of softening commodity prices and various pricing actions and cost-effectiveness initiatives flowing through.
We reported a gross margin of 36.3% in this quarter, an improvement of 380 basis points YOY. This is a combination of pricing action, softening input prices, and better product mixes. The recovery in margin is now largely complete. We expect to continue the margin improvement through benefits of manufacturing, premiumization, and scale benefits from the Consumer Durables segment. Of late, we are also seeing some firming up of commodity prices and will be taking pricing actions wherever necessary to preserve margins. Effective management of working capital has enabled us to deliver robust cash flows. We have repaid 1/4 of the loans raised for Sunflame acquisition this April. Another 1/4 will be repaid at the end of July, and we are on track to repay this loan as per plan.
It has been a good start to the year, and we are optimistic of delivering good performance in the coming quarters as well. With that, I conclude my comment. I would like to thank Natasha and the team at Nirmal Bang for hosting this call, and would like to request the moderator to open the floor for Q&A. Thank you.
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on the line of Natasha Jain from Nirmal Bang Institutional Equities. Please go ahead.
Thank you. Firstly, congratulations on a good set of numbers. My first question is on the Consumer Durables segment. Firstly, can you call out the growth in fans particularly, and if there was any meaningful price hike? And if there was a price hike, can you please break it between commodity cost pass-through versus an organic price hike?
Okay. First of all, we don't give out, you know, product-wise numbers for various reasons. But we can say that the fans category has done reasonably well. Regarding price hikes, I'll ask Ram to comment. Ram?
Yeah, sure, I will. See, on price hikes, I think, you know, price hikes have been taken, and they are also ongoing, because there has been some subsequent increase in prices of copper and aluminum. So, price hikes are ongoing, including we wish to land some price hikes this month into the quarter. So it's ongoing. We had, you know, we had improved our margins, you know, through the realization of input cost benefits, towards the last quarter of last year. And we had taken some price increase, I think it was about 2% odd in quarter four of last year. We have also taken 2% odd in quarter one of this year. Yeah.
But, I think, there has been, there have been sharper increases in, copper and aluminum prices. That may, it may warrant, some more, corrections. Yeah. And depending on the market, situation, we will land a competitive situation, we will progressively go ahead. I think, most of these increases-- Yeah, yeah. I think the, the increase that we had taken in last quarter was to, you know, what I would say, compensate for, absence of price transmission the previous year. But subsequent increases have been responding to input cost increase.
One more thing, you know, fans remain an extremely, you know, competitive category. We have a very, very aggressive market leader, and we have a startup who's also very aggressive. So, most of the price hikes are in relation with, you know, increase in commodity prices. So I wouldn't say that there is any organic price hike. Most of them have been to offset increases in commodity price.
Understood, sir. That's very clear. So my next question is on the Electronics side. Now, while we are on a consistent trajectory, upward trajectory in terms of EBIT margin improvement, are we where we were broadly targeting to be, or is there still a scope of improvement? And on a related note, sir, gross margin improvement has also happened because of, you know, cost reduction initiatives, specifically in the Electronics segment. So, given that second and third quarter are now going to be comparatively leaner for us, what kind of an overall gross margin also can we expect in FY 2025?
So one thing is, regarding gross margins, there is also a, you know, element of mix. For example, in the first quarter, the summer-based products have done extremely well, much more than... And wires, which is almost 30% of our revenues, has grown only by smaller percentage. So there is some effect of, you know, product mix, which will change in the next few quarters. But largely, when we look at, you know, on a normalized level also, I think we are largely okay with gross margin. But I think as Ram pointed out, there has been still some increases in aluminum and, you know, crude derivatives and all that. Copper went up, but it also did come down little bit in June.
In that sense, there may be some more increases that may be required.
Understood, sir. Thank you. I'll get back in the queue.
Thank you. The next question is from the line of Rahul Agarwal from IKIGAI Asset Manager. Please go ahead.
Yeah, hi. Good afternoon, and thank you for the opportunity. Firstly, we wanted to understand what really drove ECD as well as Electronics margin. So basically, I understand that input pricing was weak and, you know, the summer was strong, and hence, is this more to do with operating leverage here that a 20% EBIT margin for Electronics and a 5% ECD is more seasonal and one-off, and hence it, it might obviously taper down, going into the following year? Is that correct?
See, if you look at the previous year also, the Electronics margin was around 18%. So yes, so you can attribute that maybe 1% or 2% due to operating leverage, but Electronics margins are always on the higher side, you know, comparing with the other segments. In the case of Consumer Durables, our margins used to be, you know, 5%-6%, and it had crashed with all the increases in prices and the lack of, you know, further increases companies were able to do towards the market for various reasons. There were competitive pressures. The quantum of increases were, you know, probably unheard of in, you know, in the earlier years. So there was some resistance from trade and consumers and all that. So now I think we are largely back.
I think in the case of Consumer Durables, we probably will see a little more, probably should see a little more improvement in margin, and after that we'll go forward. But I think this is sustainable. There may be, you know, there is an impact of operating leverage, but it's probably, you know, 1%-2%.
Okay, got it. Secondly, on the working capital, broadly it is maintained at 50 days of sale, but I wanted to understand what is driving the receivable days coming, you know, sharply down to 35, and what is driving the creditors increase to, you know, 75 days? What are the reasons here?
Okay, yeah. Sudarshan, regarding the working capital?
Okay, so debtors have come down to lower than our normative levels because it was a calm season, so customers pay on time.
... Otherwise, similarly, even on the payables side, even May and June both were big months. So therefore, it's a point in time measure, and the volume of buying that was done in May and June is higher than usual.
Where should we see these numbers back, you know, in terms of, let's say, if we see a March balance sheet, 2025, where should we sustain?
We should work on the normative levels of about 60-62 days. That's our standard. Currently, it's a bit on the lower side because of the factors I mentioned.
Perfect. And lastly, where are we on the factory CapEx? If you could just update us across, you know, the manufacturing plants, what is the status update? That will be helpful. Thank you.
Factory CapEx, except for one project, which is the fans plant, other ones are complete.
When does the fans plant get complete?
That building has just started.
Maybe 18 months?
Yeah. Maybe 18 months.
18 months.
Okay, so we should work with, like, INR 100-INR 120 crores of CapEx for this year and next year. Is that fair enough?
Yeah, that's fine. INR 100 -INR 120 is okay.
INR 100-INR 120 crore of CapEx, yeah. But just see, what will happen is, as we get into next year, you know, certain other, you know... So there is also investments in molds and dies that are going on, so, and they, they are, they are also going to come up. So there will be a, you know, normative CapEx of, you know, around INR 100 crores, INR 120 crores for the next two years also.
Perfect. Thank you so much for answering my questions. All the best, and congratulations for a good quarter.
Thank you.
Thank you. The next question is from the line of Ravi Swaminathan from Avendus Spark. Please go ahead.
Hi, sir. Thanks for taking my question, and congrats on a good set of numbers. My first question is with respect to your stabilizer business. I know that this quarter would have been a fabulous growth, because of the strong traction in air conditioning sales. But safe to think over a slightly more normalized manner and over a longer time period, like 2, 3 years period, what kind of growth rate that we should think of for this particular sub-segment, given the fact that AC sales might still end up doing well because of the improved penetration level, et cetera. In the presentation, you had mentioned that the industry would be growing at a single digit. Can it surprise positively, by growing at a much, much higher number?
See, I think, for stabilizers, I think we are expecting, you know, if you look at a very, very long term, that is about 10 years CAGR, it is somewhere around 8%-9%, and that should be the growth that, you know, we also will be working with. But, you know, there are years when, you know, it goes up substantially higher because of, you know, the kind of weather we had. And we also understand that, that we may not get this kind of weather every year. You know, there are years where our rains do, you know, kind of happen a lot within summer, and then summer does not really take off. So this year was, you know, it was, it was, it was good on all the fronts.
It was also good on all the geographies as well. So sometimes you have a very warm summer in South, but then the non-South gets washed out. Sometimes we have very warm summer and, you know, non-South, South India gets washed out. So these kind of things happen. This is one of the rare years where we are... So 8%-9% is, is been our very, very long term CAGR, and that I think is the right number to go with this.
Understood, sir. And what is driving growth in the digital UPS products, sir? So, I mean, what are the factors of growth driving that particular product?
See, digital UPS also has, I mean, digital UPS is also dependent on summer, because what happens is, as the summer gets really warm, power cuts tend to start to begin and, you know, usage of inverters go up, especially in, you know, Tier 2 and rural areas. So that has been one of the main drivers. But apart from that, we also have a new division, which we started, two, three years back, which is, you know, solar rooftop solution for residential. So that is also driving, you know, good growth, within the, you know, inverter and battery segment.
Okay. And the solar rooftop, what percentage of the overall Electronics mix will it be as a contributor, and how fast is it growing? Is it like a high-paying kind of growth segment?
No, solar rooftop is growing very fast. It's very small as of now, and we don't give out, product sales numbers.
Understood, sir. And my second question is, say, the real estate leading products like wires, switches, etcetera, are you seeing any kind of major uptick in terms of real estate, like, demand, which can actually kind of improve the growth from, say, a single -digit or high single -digit to a much higher number?
So V-Guard's, you know, wire and, you know, Electricals business is largely retail, which would—which means that almost 90%-95% of the sales come from the trade, that is retail shops. We don't have a big business supplying to, you know, very large builders and infrastructure players and so on and so forth. So for us, this is more a normal thing. But yes, you know, we, our partners do supply to, you know, medium-sized builders and all that. We are... I mean, like, so we have to understand that there is a lot of real estate activity happening, but we—what we are seeing is that it's probably getting more formalized.
So earlier also, this was you know, it was going on, but you know, it is probably split among a lot more you know, smaller and larger number of builders, which is now you know, now what we're seeing is you know, a few builders are enjoying you know, majority of the sales. So I think for us, and actually when we our peers also, we are not seeing that much of an improvement you know, investment. But but the retail sale is more stable. And for example, when the interest rates were low, we did see some up-upside, because when interest rates are low, people tend to make investments in you know real estate and stuff like that. So yeah, we cannot say that you know there has been a huge tailwind for us specifically.
But companies which are focusing on projects will probably get some of that. And one of the reasons we don't do projects is the margins in projects are 10%-15% lower in a product category with very, you know, small gross margin. So it does not make sense for us to supply to projects.
Understood, sir. My last question is-
Sorry to interrupt, Mr. Ravi sir. Could you please call back in the question queue for further questions?
Sure.
Okay, thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference room, please limit your questions to two per participant. The next participant is from the line of Aditya Bhartia from Investec. Please go ahead.
Hi, good afternoon, Mithun, Ram, Sudarshan. My first question is on other expenses, which saw a fairly sharp increase in first quarter. I understand that A&P is one part of it, but even if you strip off A&P, it appears that other expenses have actually risen quite sharply. Is there any one-off in this quarter, or if there's nothing, then what is this on account of?
Yeah, yeah. I'll ask Sudarshan to take this.
So there are some, a few different parts to it. One is A&P, as you mentioned, so that's one factor. Certain factory-related costs also appear in other expenses. You know, compared to one year ago, manufacturing expenses have gone up.
There are some one-off, yes, because there were, there were some releases in the last, in the previous year, nothing unusual, really. There's a big jump in freight and warranty, which is for this quarter, because, you know, for the, for Electronics and the Durables, which were the high growth category, these tend to be higher than average.
Understood. So you're saying in the preceding quarters, there were some releases of provisions. And in this quarter, given that there are no releases, optically, we are kind of seeing a sharp jump?
Yeah, and this quarter also, the mix was like that, so freight and warranty is higher than-
Warranty [alone].
Understood. And how should we kind of then think about it, going forward? Freight and warranties is something that we can normalize a bit depending on mix. But rest everything appears to be in a similar kind of a range?
Yeah, it's better to look at it as a 12-month number, not by quarter. So if we have our cost progress in the previous year, no, it will, it will tell you something.
Sure, sure. Because if I just look at last year, the quarterly average works out to be closer to INR 200 odd crores, while this quarter we have spent almost like INR 260 crores. So the jump was-
Better, better to look at it as a percentage of turnover for the other expenses for FY 2024.
See, some of, some of the expenditures sitting in other expenses are also, volume related. Like, as you sell more, more transportation, more warranty provisioning, as we manufacture more in our own factories, more outsourced, manpower costs, all these are sitting in other expenses.
Sure, sure, sure. My second question was on the growth that we've seen in Electronics segment. While I understand that you don't break up the segment, just wanted to understand, is it getting largely driven by stabilizers or would digital UPS have also seen a big improvement? And a related question to that, we used to struggle with profitability on the digital UPS side. Have we seen a significant improvement around that?
No, I think, both have grown well. Like I mentioned, both, stabilizers has grown well, and inverter battery has grown well. So it's not like it is one that is driving. Both of them have grown well. In terms of profit, you asked about profitability of digital UPS?
Yeah.
Okay, Ram, you want to take this, regarding-
Yeah. I think profitability has significantly... UPS has two components, inverters and batteries. Inverter gross margin and profitability has significantly improved over time, you know, with the investment that we made in manufacturing and having moved inverter manufacturing in-house. What I would say is this: the battery margins, of course, continue to be under pressure. We have already taken action there, in terms of you know, setting up our own facility. I think the benefits from that probably, you know, it should be visible towards later part of the year or maybe next year, to be more precise, right? So, that's to give you a picture on inverter battery.
Perfect. That's helpful, sir. Thank you so much.
Thank you. The next question is from the line of Hardik Rawat from IIFL Securities. Please go ahead.
Thanks for the opportunity and, congratulations on a strong set of numbers. You mentioned, in your earlier remarks that, largely the price increases that you've taken in your fans portfolio was to, transfer the increase in commodity prices. Would that be correct?
Yeah, that would be correct. Like, see, pre, you know, 2020, we had a gross margin structure for fans... and it was completely, you know, destroyed after the, you know, Russia-Ukraine war, and significant increases in aluminum. And lack of, you know, increases done by the industry. There are two reasons: one is hyper-competitiveness, second is the kind of increases we had to do, it was not possible to do it in one shot. So the industry took 2, 3 years to, you know, actually do this over time. And then, of course, prices also cooled off a little bit, you know, in between. So yeah, it's largely to, you know, accommodate the RM increases.
There was a bit of pressure on the input prices as a result of change in the regulatory...
Yeah, that also. Yeah, that also is there. Yes, correct.
So also-
So I think there were two shocks. One was the shock given by the Russia-Ukraine war. The second shock was given by the, which meant that there was almost 7%-10% price increases in the entry-level products, and maybe 5% increase in the premium level products. So this also largely meant that, you know, if you wanted to buy a branded product, it was getting too expensive for, you know, especially for a value-conscious consumer.
Got it. So, could you please share with us the quantum of price increases you've taken in the category?
You're talking about from 2021? That will-
No, not 2021. This quarter, and in the last three months.
So, I think, as Ram mentioned earlier, we have taken around 2% in Q4 and another 2% in Q1.
Okay, that helps. Lastly, with regards to the debt repayment that you mentioned, 1/4 by July, could you please repeat that, the debt repayment for the Sunflame, the loan that you taken for the Sunflame acquisition?
Yeah.
Sudarshan, you want to take this ? Regarding the-
Yeah. So we... In April, we repaid 1/4 of the term loan we had taken. And, it's about INR 70 crores we repaid. And, yeah, a similar amount will get repaid by end of this month, so.
For the entire year, FY 2025, we should expect the entire loan to be repaid or...?
Yeah, that's what we are aiming to. Either by end of this year or by end of Q1 next year, we should have paid in full.
All right. Got it. Thank you so much. I'll get back in the queue.
Thank you. The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah, thanks for the opportunity. So just wanted to understand the stabilizers and UPS market. So, is the market growth itself is so strong or have we gained the market share? And, with improving quality as well as quantity of power in India, how do we model this? Because these are considered to be sunset categories in India, so but we still see V-Guard continue to do extremely well in both the categories quarter after quarter. So, how should we see from the, let's say, growth rate in medium term for both the categories? And again, where is the usage? Means, for air conditioner is one which I can understand, but apart from that, what are the other uses where these products are used?
If you can a bit elaborate more on whether these products are getting used in urban markets, rural markets. Essentially, what is the TAM for these products?
Yeah, thanks.
I'll make a couple of comments, and then I'll pass it on to Ram. I think, see, in 2008, it is almost 16 years back, when we went for an IPO, all the analysts told me that, "You will go out of business in 3 years." And, now it's been 16, you know, you know, 14 years or 16 years, and we are still growing. So I don't have an answer for this. I'll give you the same answer what I told them, that the, the mess in the power distribution system in India is very, very large. So just sitting in Mumbai and Delhi, you know, you cannot assume that the entire country will have privatized clean power.
So I don't think it's, I think it's going to be very difficult because power is a state subject. There is politics involved, there is a union of the state electricity boards involved, there's all kinds of stuff happening. So it's going to be very difficult to, you know, privatize power for the entire country. So what we are expecting is the larger cities will get privatized first, and then it will move on. But even there, I think after a point, the central government has not been able to really push for, you know, privatization of power but in the big metros in the country. This is my answer. I mean, this is my comment. And, Ram, you want to take the rest of the question?
I think what we have observed is, you know, stabilizer usage continues to grow, yeah. And, you know, as also inverter battery, yeah. Probably, you know-
[Line is breaking.]
Yeah. Can you hear me now?
Yeah, yeah, now it's fine, sir.
Yeah, yeah. I'm saying as also inverter battery, I think, what also happens is, you know, while the power situation improves, it is not necessarily 100% and, you know, there are interruptions. You know, maybe the length of interruption is short, it's getting shorter. Yeah? But it is there. And the people want to have reliable power, you know, at home. So they want to have an alternate means, so, so that they can continue with life uninterrupted, right? Even in, you know, large metro cities, you know, particularly in peak summers like this, you know, even in Central Delhi, sometimes the power is going off because the load is very high.... So load shedding continues to happen in larger cities also.
So but this is what we are observing, and this is why the category is going up. I think for inverter battery as a category, right, I think rooftop is also developing as a segment, and that is fast growing, you know, with incentive and support from government. I think that, you know, that's an area also which is going to be a significant driver of growth for that segment. Stabilizer, yes, as Mithun already said, you will have a good year or a bad year. You know, once in four years, you know, we've always witnessed a very strong summer.
We find then that, you know, on a CAGR basis, we end up at a long-term growth when we, when we look at a 4 year-5 year average, which is no different from what it was, you know, 5 years-10 years back. We still continue to believe that, you know, 8%-9% growth, you know, long-term growth will come on a 4- or 5-year cycle. Maybe some years, you know, it will be like 6%, 7%, and some years it will be like 12%, 13% growth, 11%, 12% growth.
Okay. Okay, sure, sir, understood. And, just, last question. In terms of kitchen appliances as well as Sunflame, the kitchen appliances under V-Guard brand itself. So I guess overall, this portfolio means is the restructuring largely over? And, should we see revival in growth rates, let's say, from H2 onwards? Or, do you think that some amount of restructuring of the portfolio as well as the slowdown in the market may continue for some more period of time? Yeah, that's from my side. Thanks for the patience.
Yeah, Ram, you want to take this?
Yeah. So I think, I think you must have seen, some results have already started to come out in the kitchen space, right? So the, I think the kitchen, demand continues to be under stress. And, you know, it's been now, I think, almost seven quarters that, you know, we are continuously witnessing a stress in this segment. Yeah? So I think that's the first observation. At, at our end, on the V-Guard side, you know, you know, we had invested in setting up our own manufacturing facility. The main challenge with V-Guard was to improve the competitiveness of the V-Guard offering. And, to, to that end, you know, we had set up a facility in Vapi. The facility, has come up and, you know, it is still, maturing.
You know, by, I think by October or November, I think we should start to get, you know, output that, you know, in line with, you know, what we need, so that we are able to derive 100% of output from that factory, yeah? I think, once we have our own manufacturing facility, that also, you know, besides the supply competitiveness, it is also giving us a lot of, flexibility to improve, you know, our, offerings in the market, right, in terms of, the competitive value proposition. So I think this is, fundamentally going to be the, you know, the main piece, that is going to drive our business.
And towards that end, you know, we are already seeing traction in some of the categories like e-commerce, where, you know, we in anticipation of what I would say the manufacturing facility coming up, right, we have, you know, tried to be competitive with our offerings. So I think, you know, we are seeing, you know, good and encouraging traction. So I do believe that, you know, with the facility in full stream by around November or December, and with some newer launches that are coming, I think the V-Guard kitchen business will should start to do well, yeah.
Regarding the Sunflame business, no, I think, you know, you know, we, you know, it was in Q1 last year that, you know, progressively, you know, we could assemble our team, right, to manage Sunflame, although Q4 was when we did the transaction. But Q1 was when actually we could put the management team on board in Sunflame. I think we are now about the team is about three quarters into the company. I think they're settled down well, and they have a clear idea of you know, how to play and how to win. Yeah. There is still work happening in terms of developing a long-term strategy for Sunflame, and that's going to take another you know, three to six months, right?
I think the GT markets are doing better for Sunflame compared to organized retail, where Sunflame is looking to leverage the V-Guard business systems. This process is taking a bit of time, but I think, for example, e-commerce and even organized trade, I think from the coming quarter, I think our systems should be able to better support the requirement of Sunflame. Yeah. So I think that's broadly to give you an idea on Sunflame. I think, you know, the fundamentals are strong and positive. Margins are intact. Yeah. Growth is a challenge for the industry and for Sunflame, and the growth levers are, you know, yet to get pressed, right?
And that's why you're not seeing the result coming in, because there is preparatory work which has been happening at our end to facilitate you know the scale-up of Sunflame business, right? So the you know leveraging the V-Guard infrastructure and delivery system.
Okay, sure, sir. Very helpful. Many thanks.
Thank you.
Thank you. The next question is from the line of Achal Lohade from Nuvama. Please go ahead.
Yeah, good evening, gentlemen. Thank you for the opportunity. Congratulations for the great set of numbers. Sir, yeah, just wanted to clarify, you said-
...The summer season was good. But except summer season, would you be able to quantify, you know, if the growth was in single digit, double digit? Because, I think wires you said very slow growth, and so is kitchen, you said, things are under pressure. So if you could just clarify non-summer product, how the momentum was in fourth quarter and how it is playing out in first quarter.
So Achal, I think it's slightly difficult to, you know, do that, you know, because. Okay, yes, definitely, summer. So I think, if you look at Q4 and Q1, we definitely got a few percentage points boost in sales, because of summer. I'm very sure about that. So let's see. I think it's going to be very difficult to say that if summer was not good, you know, what would have been? So I think the way you have to look at it, it is like this: So if you look at last four years, we have been struggling in the Electronics category. Our CAGR was very low. Stabilizer was not, you know, the growth rates were in low single digits.
And now it has caught up to that long-term CAGR of, you know, 8%-9% or 10%. So I think one has to look at it like that, rather than, you know, saying that except summer, what would have been the case? One more thing to note is, see, a lot of our channel, which sells Consumer Durables, especially kitchen, is the same channel, the same distributor, and same retailers which sell, you know, stabilizers and air conditioners. So when you have a this kind of a summer, the working capital deployment of retailers and distributors will move to the summer categories, and the others will get sidelined. And that's been a phenomenon that we see every time.
So, that is also there, you know, as an added, you know, reason for some of the slowdown in the non-summer categories.
Right. Sorry, maybe I wasn't that clear. In terms of the categories which are not summer-driven, like wires, kitchen, appliances, et cetera, you know. If the growth was, you know, weak, or are you seeing an improvement on that count?
Yeah.
Mithun, can I take that?
Yeah, yeah.
Yeah, yeah. So I think, see, wire business, you know, responds to copper, okay? So if copper prices goes up or goes down, you know, it influences sentiment for wire purchase, and, you know, that will influence the sales of wire because they stock up or stock down. So, so if you take out the wire and if you take out summer categories, we are really looking at about some 20%, 25% of our revenue, and the large portion of that is water heater, okay? Because the switches and switches, they're fine. I think we have double-digit growth. We don't have an issue there. Our penetration is low. These are growing categories, and, you know, they are doing well. Then the other part there is really, you know, water heater.
Water heaters, we'll see, you know, summer, I mean, the winter is to start, and, you know, we will get a better picture. Because whatever happens with water heater, you know, pre-season, it's basically, you know, trade up stopping. I think, with water heater, you know, the growth has been, you know, lower than typically what you would expect, for reasons that Mithun talked about, because the entire working capital of trade partners is focused on summer categories, you know, whether it is AC, whether it is air cooler. Because these categories have seen abnormal growth, right? 40%, 50%, 70% kind of growth. And they have to purchase these stocks and sell this, right? So they really focus their working capital there.
I think, clear picture on water heater will be visible, you know, in the upcoming, four or five months, right? I think last year was a challenging year for water heater, as weather has not supported the category. So we do hope that, you know, consequently, the current year should be favorable as far as water heater is concerned. Kitchen, I think kitchen is an industry-wide problem. For us, you know, our indexation to kitchen for at least the V-Guard kitchen business is, very small, although V-Guard and Sunflame is strong. I think, you know, we, we had, you know, as far as Sunflame is concerned, I think broadly, you know, our performance is, closer to plan.
I think, you know, as our business systems and practices are traveling to Sunflame, there are some challenges in terms of timing of accounting and all of those things. And therefore, you know, although broadly you know, performance of Sunflame is close to the annual plan, you know, what is reflecting as sales may be a little lower. We had forecasted that our Q1 will be lower in February itself, when we had made the forecast for this year. But I think, you know, we are getting into festive season. Quarter two and quarter three are the strongest quarters for the kitchen.
Given that kitchen as a category has been under stress for now almost six to seven quarters, we are hoping that, you know, festive season will, you know, really see some sales uplift. But yeah, I think that's the part which is a bit uncertain as we speak, right? So for us and for the industry.
Understood. Just one more question with respect to rooftop solar-
Sorry to interrupt, sir. Could you please fall back in the question queue for further question?
All right. Thank you.
Thank you. The next question is from the line of Kawal from Samar Wealth. Please go ahead. Hello, Mr. Kawal, your line has been unmuted. Please go ahead with your question. Hello, Mr. Kawal, your line has been unmuted. Please go ahead with your question.
Hello, am I audible?
Yes, ma'am.
... Okay. So my question is, could you provide any guidance on expected top line and margin improvement?
You're asking about expected, top line and the expected margin?
Yes, sir.
So we don't give a guidance as such, but we always said that, you know, we should grow around 13%-15%, you know, in revenues. And margins, I think we've largely come back. I think we should hover around between 9%-10% EBITDA margins for the year.
Okay, sir. So sir, my next question is, are you planning to expand in a new segment or any product category as of now?
I think, you know, we do look at new categories, but, you know, we are not ready to talk about it publicly.
Oh, okay, sir. Thank you.
Thank you. The next question is from the line of Priyank, Priyank Chheda from Vallum Capital. Please go ahead.
Hi, this is Priyank Chheda from Vallum. So my question is on the rationale for you to keep the two kitchen businesses in a separate entity, one kitchen appliance business in V-Guard, another one in Sunflame. And when you are investing further into the kitchen appliance in V-Guard, while Sunflame is operating at 50% utilization. So where, how do we see these two businesses under the same parent group operating in a two different companies?
Okay, got it. Ram, you want to take this?
Yeah, yeah. I think, two things. I think, firstly, you know, when we set up manufacturing capacity in Vapi, okay, this project had commenced even before the Sunflame transaction could be firmed up, right? And the transaction process is always uncertain, and, you know, after waiting for a long time, we could wait no more. So we decided to go ahead and make the investment in the interest of growing our kitchen business. That's first part. Secondly, the 65%-70% of the output of Vapi plant is basically going to be towards mixer grinder, for which the capacity is not existing in Sunflame.
So I think this factory should be able to produce, will be producing a mixer grinder for V-Guard, and should in the future, right, also be able to support the mixer grinder and the food processor requirement of Sunflame. So I think that's as far as our investment separately in, you know, these two places are concerned, right? The Sunflame plant, you know, you know, you know, in festival period, at least, you know, close to the full capacity utilization. Recently, we have reorganized the manufacturing layout to, and the manufacturing system to increase the capacity in the Sunflame factory to support the future growth there. So that's on the manufacturing side.
On the strategy side, yeah, I think, you know, we are going to, you know, retain both the businesses. Today, you know, the V-Guard kitchen portfolio is, you know, approximately INR 200 odd crores annual, maybe a bit more this year. And Sunflame is obviously you know expected to do about INR 350 crores, right? So we see INR 325-INR 350 crores, yeah. So I think the businesses are significant. We are in the course of you know doing a, I mean, we are engaged in a consulting engagement to you know deliver a long-term strategy for the V-Guard play in the kitchen business, right? And how the two brands will coexist and how they will operate, right?
Over the near term, obviously, the back end will be integrated, right? Whereas the front end will be focused to drive the two brands, right? So that's how the efficiency will play out. So even at the front end, right, you know, front end for categories like some of the channels will be common, like e-commerce and all. You know, 1/3 of the business is, you know, common, whereas GT infrastructure, right, the front end infrastructure that will be independent for the two brands then.
So perfect, I get that. And then on a broader kitchen appliances stuff, you did mention that the categories under stress for multiple quarters now. Can you specify any particular categories? The kitchen appliance as a, you know, segment is very broad. Any particular categories which you would like to call out, which are working well, and any particular categories which are yet under stress, which you don't see any issues?
Yeah, look, we may not be significant player in every part of the kitchen portfolio, but from my understanding, certainly gas stove, mixer grinder, induction cooktop, till last quarter, you know, hoods wasn't doing well, but I understand even the hoods, kitchen hoods are, you know, and ovens are come under stress. This is what I understand, yeah. So, small domestic appliances, not so sure, but what I understand is even the platforms, the commerce platforms are under stress on the kitchen portfolio, implying even small domestic appliances may also be under pressure, yeah.
Right. And do you see anything changing in this as a broader category, now when, you know, government focus is back on to the rural spending socialist reforms, do you see anything changing for this category after so many quarters of drought?
I think that there may be two factors, right? So one is, I think, you know, you know, you know, I think, you know, people spend a lot of time at home during COVID period, right? And, you know, while, you know, most categories, you know, compressed during COVID period, I think kitchen as a category did exceedingly well. Yeah, and it's quite possible that, you know, you know, this has been one factor which has contributed. As the category came out of COVID, I think, you know, the pressure has come down, right? That the consumer demand has come down.
The other thing is, you know, see, typically, you know, when you look at the overall consumer durable space, right, the most widely penetrated category is kitchen, right? Because, when you take a product category like, you know, gas stove or, you know, you look at a mixer-grinder, these are highly penetrated categories, right? Maybe, maybe hoods and built-in is still sitting with, you know, premium, with, let's say, you know, higher income households, right? So it's quite possible that, you know, the, you know, you know, during the COVID phase and, you know, the post-COVID phase, the household balance sheets have come down, right? And, you know, they've been under stress and particularly for, I would say middle class and lower middle class, the stress may have been, you know, aggressive.
It's quite possible that, you know, the households are busy repairing their balance sheets, and, you know, they are only making essential replacements, right? That's reflected in the, you know, consumption data also, right? I think, yes, you know, there are some positive signs. I think monsoon is extremely favorable. You know, this year monsoon progress has been, it's been on time, and it's progressing well, and that should augur well for, you know, the rural markets, right? That's one part of it. I think the other part of it is also, right, you know, the budget has talked about a lot of bringing a lot of focus on developing the farm and agriculture.
I think, you know, that's a very, very, you know, positive and prominent thing, right? You know, that kind of focus is seen after some time, and it's probably responding to the challenges and stress that, you know, this sector is facing. I think this will have positive implication on the midterm, right? Midterm demand, you know, over a three to five-year horizon. So I think these are favorable factors. I think the fiscal deficit is also forecasted to be lower, right? And that should probably keep, you know, inflation on the lower side and which might, you know, be a positive for consumption. So this is how it's playing out.
And so I think, you know, yes, you know, when you look at a midterm horizon, you know, things are looking good, right? Things are looking better for consumption, and hopefully it should reflect in different categories here, the demand.
Just on the competitive pressure, if you can comment within this kitchen lineup?
Could you please fall back in the question queue?
No problem. Thank you.
Thank you. The next question is from the line of Natasha Jain, from Nirmal Bang Institutional Equities. Please go ahead.
Yeah. Thank you for the follow-up. Sir, if Mithun sir can address my question. I had recently concluded exhaustive channel checks pan-India, and the feedback I got from the ground was, while products for V-Guard is probably one of the best in terms of quality, we do lack in terms of visibility, especially as we move from down South to Northern India. So can you throw some light as to what is our advertising strategy? Are we doing anything specific in terms of addressing the western and northern markets? Specific meaning, you know, onboarding some kind of a bigger or a larger-than-life iconic celebrity to improve visibility or target the influencer management space. What is our broader strategy here?
Okay. Okay. So I'll answer the question, and then maybe I'll ask Ram to pitch in how to do. So as of now, we don't have any plans to get in a celebrity. I think what one has to understand is that we are in a multi-product category, so we have, like, seven, eight large categories. So the problem of getting a celebrity is, you know, you can only do it for one category usually, because they are easily tied up. They will not, you know, because different companies are there, you know, getting. So we, although you can get a celebrity for a single category, getting it for multi-category, it's usually difficult. And we. That's what we have faced in the past, and that's one of the reasons.
Second is, we really believe that our product work should speak for itself. For example, we have made significant strides in the fan business without having any celebrity, without having any advertising, solely on the basis of our product work. So I think we are doing similar works in other categories, and they will also, you know, because we believe that, you can advertise, but if the product is also not up to the mark, then, you know, there is no point in advertising. And that's something we, we have realized, and that's why we've set up close to five to six plants for various categories. Because it all starts from the manufacturing side. We need the flexibility to do refresh of products faster.
We need better quality, which we can only do in our own plants, because vendors have a limit. We need a fit and finish, design has to be outstanding. Again, this cannot be made with, you know, vendors. So those are the reasons why we have invested, so and we are now starting to see the fruits of that. Regarding advertisement, I think till 2020, I think we were spending between 2.5% - 3% on A&P.
...And I think during COVID, FY 2021, 2022, 2023. FY 2021 and 2022, we had cut our A&P. 2023 was, you know, we really got impacted through margin. So if you look at the current year, our A&P for Q1 has gone up by some 30%-40% in revenue, and it's gone up faster, you know, it's gone up double, I mean, it's gone up faster than the revenue. So we will, we are pressing the foot on the accelerator for A&P and that. But I think we have to keep in mind that, you know, India is a very large country, and, you know, we have diverse markets and language. So, I can say for sure that we are having very strong recall and following and preference in southern and eastern markets.
Northern and Western markets are yet to have the similar kind of, you know, acceptance as, as they may be your channel checks. But then having said that, you know, if you look at Q1, north has grown by about 25%, western markets have grown by about 27%, and east has grown by 30%. So they are not that largely different, you know, just to answer the question. Ram, you want to add anything?
Yeah, yeah. I will, Mithun. So if you look at, you know, you know, if you look at, you know, we got the business last year, right? I think, you know, we are, you know, or if you look at our current business, I think, you know, we are trending at about INR 2,500 crores, you know, revenues in non- South. And today, you know, this is, you know, quite, I mean, under the V-Guard, franchise, I'm talking about, right? So the INR 2,500-INR 3,000 crores will be our, non- South business this year, you know, trending on the V-Guard franchise. Yeah.
So obviously, you know, we can't build this kind of what I would say business, right, without you know brand awareness. Yeah, that's the first point. I think, yes, you know, I think you know, when people talk about brand, brand awareness, right, so people talk basically about the top-of-mind recall, right? Top-of-mind recall is, you know, if so that, you know, people instantaneously say, "Yes, I know this brand," right? So we are really talking about top-of-mind recall. Okay? I'm sure you know aided recall will be good. So the problem with top-of-mind recall is it takes time to build. So let me just go back, right? If you go back to our non- South business, it's not more than 15 years old, yeah?
If you really look at our, you know, presence in non- South, you know, considering that, you know, we have staggered our, you know, entries into different markets, you know, at a state level or even at a district level. If you also look at the fact that we have staggered our entry across different categories, broadly, you know, we are a seven to eight-year old brand in most markets, right? In some markets, we are two to three years old, some markets we are 10-12 years old, right? Depending on, you know, that's actually our, you know, the breadth and depth of our presence, you know. It's not actually 15 years old, so it's like seven to eight-year old brand. And now for that size, you know, our awareness is, quite decent, right? But we lack top-of-mind recall.
Top-of-mind recall building, right? It really takes time. Of course, you can, you know, you can get a good celebrity and, you know, you can pump it up, right? But, you know, sustaining it will mean also sustaining the spending over a long period of time. Now, as a business, right, you know, we have number of imperatives, right? You know, when it comes to building business, right? The most important thing, you know, that you have to invest is actually to build your capability, right? So that's what we have done, right? We are building our... You know, you know, we are investing along the path of doing business, right? We are investing to strengthen our quality. We are investing to strengthen our, you know, what I would say, fit and finish.
We are in, you know, as Mithun talked about, right? We are making, we are actually making very deep investments. I think, you know, unfortunately, most of our investments are not visible, right? They are not visible because they are all driven towards capability. We believe that, you know, we will, you know, reap the best fruit, right, when, you know, we are really capable and equipped so that, you know, so when we invest in significantly in advertising, we are able to reap the fruits of it, right? So I think there is a lot of investment that's happening, you know, investment in service, investment in quality, yeah, investment in design, yeah, and we are doing that.
And today, if you look at V-Guard, you know, we are far, far stronger than, you know, who or what we were five years back. You know, we are investing in talent, and we are investing in talent for the future of the business also, not only to run the current business. So investments are happening in many areas. Huge investment is happening on technology and digitization. So not all. See, there are, yes, of course, you know, we could do more on the front end. The problem with front-end investing is also, right, you have to sustain that investing to build a brand, right? It's not a one-year effort, but you need to do it over a three- to four-year horizon.
Unfortunately, we've been passing through a lot of uncertain times, right, with the demonetization, GST, then COVID, and then, you know, the commodity shock, right? So, yeah, so I think that, you know, that's been a bit harder for us to make, for us to make planned investments, right? Because we are also investing on internal capabilities, simultaneously, as, you know, the business is under stress, right? So internal investments have continued, very, very strongly even during the most difficult phases that most businesses have gone through, yeah. So that's how I would put it. I think, you know, we are very, we are very much committed to investing in the future of the V-Guard brand.
It is just not visible in the way that, you know, you would typically expect to see, because it is directed in different direction.
... the other final point I want to make is, you know, you should correlate the brand. The brand, whatever, you know, you may be sensing, fundamentally coming from a top of mind awareness issue, right? We can't build an INR 2,500 crores business in, you know, 12-14 years, right? We can't build this kind of a business, right, without brand awareness, right? I do hope you understand it. Not the absence of brand awareness, it's the absence of top of mind awareness in newer markets, where on an average, we would be not more than seven to eight years old, right.
Sir, that's extremely helpful. Thank you for that, and definitely on the ground we have seen improvement in terms of quality as well as design. That's all from my side, sir. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Naushad Chaudhary from Aditya Birla Mutual Fund. Please go ahead.
Yeah, hi. Thanks for the opportunity, and congrats on a decent set of numbers. First thing I wanted to check on our outsourcing model. In last 3 years, 4 years, it has, as a percentage of revenue, it has come down from 40% to roughly 33%, last year. In next two to three years, how do you think this number should move?
Yeah, we are, we are hoping that in the next two to three years, we should move to 25% of outsourcing and 75% of in-house manufacturing.
Eventually, in long term, do you plan to make it zero?
No, I think we are always gonna have categories where it's not gonna make sense for us to manufacture. For example, we will always incubate categories by working with the best partners in manufacturing that category. And then once we gain scale, we will slowly, you know, in-source the product. Because if you want to make everything in your plant, you need to have a minimum order quantity, and you know, many of the categories are seasonal, so you can't have a plant which is, you know, only working a few months of the year. So we are always going to have, and we are also... What we probably do is, you know, our mid, mid segment and premium segment, if you look at fans, we are manufacturing only the mid and premium segment.
The economic segment, we are largely outsourcing, because it doesn't make sense for us to make the, you know, plain vanilla fan in our factories. Because our factories are more expensive, we have to pay, you know, we have to comply with all rules and regulations. We have to pay all the benefits and, you know, all the legally required wages and overtime and all that. So when you do all that, you know, but our vendors may not follow all this, you know, because they are all under the radar and they are not, you know, listed companies and stuff like that. So typically, what we do is we, in our own plant, we actually manufacture, you know, the hero products and the, you know, mid-segment and premium segments.
Understood. Second question on stabilizer, if I heard it correctly, you mentioned this category which was, you know, struggling with low single -digit CAGR growth and has now come back to 8%-9%. So, is this something just a beginning and you see this kind of trend that should at least continue for next couple of quarters?
Yeah, I think typically, when we have a good first quarter, the following quarters also tend to be good because our distributors do not have much inventory. Our trade partners also do not have much inventory, so they actually buy, you know, throughout the year. When you have a very bad summer, the reverse is also true. You know, you have a very, you know, sluggish market, your inventory goes up, your receivables go up, you know, and so forth.
The long-term CAGR for this category is 8%-9% or lower than this?
It's about 8%-9%. If you look at last 15 years-18 years.
So, if it is coming back from a low CAGR, ideally, it should have been higher. 8% and 9% from a low CAGR shouldn't be disappointing number?
No, I think, see, the stabilizer was having a, you know, let's look at pre-COVID, it was having a CAGR of around 7%-9%. Now, post-COVID, it has dropped to, you know, 4%-5%. And we are... See, if you actually look at last five years, it will be 15%-16%. But the thing is, it may not repeat every year, you know, because we are sitting on a high base for next year. So I'm talking about a long-term, you know, CAGR, it will be about 9%-10%.
Understood, sir. Thank you so much. Yeah, that's it for me.
Thank you. The next question is from the line of Rahul Agarwal from IKIGAI Asset Manager. Please go ahead.
Yeah, thanks for the follow-up. Just one question. I was going through the website, it talks about few contests being run for business plan and tech designs. Just curious to know, over the past years, since you have run these things, how fruitful has this been in terms of, you know, incorporating certain ideas and designs into products? Could you? If you can cite some examples, and what would you expect going forward? Thank you.
Okay. Ram, you want to take this, the Big Idea?
Yeah, yeah. See, this Big Idea contest was started around 2009, 2010, right? Fundamentally as an engagement platform with the student community, yeah? And-
... I think, we now are running, since then, right? So, the primary objective of this is, you know, to engage the student community, yeah. So I think it should be seen from that perspective. We, we do hire, you know, it gives us the opportunity to meet, you know, some bright, students, and, we do hire, you know, some students, you know, into our, you know, system as management training, and we've done that, you know, in the last four, five years. We've, we've taken some of them on board. As far as, the idea part is concerned, yes, I think, there are a lot of ideas, which get, shared at that kind of a platform.
Of course, you know, what we do with our business, you know, sometimes or many times, you know, it may not look like how it is presented, but, definitely, you know, the thoughts inspire, let's say, you know, exploration at our end in terms of, you know, the possibilities and how to move forward, right?
Got that. Okay, thank you so much. All the best.
Yeah. Thanks.
Thank you. The next question is from the line of Aditya Bhartia from Investec. Please go ahead.
Hi. So just a very small follow-up. Are we seeing signs of restocking in wires market in July?
See, I think, we don't like to talk about an ongoing quarter, but I'll just say that, you know, today also, I think copper has, you know, corrected about 2%-3% or something like that. So I think the typical behavior is the trade will try to see if we have reached a bottom. So unless we have, you know, sustained a 2%-3% increases in copper prices happening over a few weeks, our restocking does not start. It's normal, normalized sale is going on, like Ram said, mentioned earlier also. The destocking had started sometime in May.
And so the destocking is over, the normalized sale is happening, but the restocking will happen only if, when you draw a graph, you know, the retailers will see like, okay, you know, the tide has turned, and you know, so it doesn't even have to be a very strong uptrend, but even a medium-term, you know, small uptrend also, you know, that they will buy, because they'll be sitting with less than desirable inventory.
Understood, sir. That's it. Thank you.
Thank you. Ladies and gentlemen, this will be the final question for today. It's from the line of Hardik Rawat from IIFL Securities. Please go ahead.
Thanks for the follow-up. I wanted to understand, based on how the first quarter has been, what is your outlook for demand across, across segments, especially Consumer Durables? How do you see that, evolving, for the fifth quarter?
So we don't give out any, you know, segment-specific guidance, but as a blended basis, on an overall basis, you know, we are, we should be doing well. Typically, when we have a super strong first quarter, it typically, you know, translate into decent numbers going forward. But I have to say that the kitchen segment demand is soft, but Q2 and Q3 are the, you know, better seasons, so we are eagerly waiting for that. Wire is another item which is not summer-based. So in case of wire, it's really depending on copper price. I think wire we are less worried because it typically does bounce back quickly. So let's wait and see.
I think, you know, we typically look to grow between 13%-15% in sales annually, and I think that should be possible.
Thank you so much.
Hello, Mr. Hardik. Does that answer your question?
Yes, that does. Thank you so much.
Thank you. Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to Ms. Natasha Jain for the closing comments.
Thank you, Steve. I will request the management to give their final remarks.
Thank you, Natasha and Nirmal Bang, for hosting this call, and thank you all for your patient listening.
Thank you so much, sir. This concludes the conference. We thank all the participants, and you may disconnect your line now. Thank you.