Sunflame Enterprises Private Limited (532953) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call to discuss V-Guard Industries' acquisition of Sunflame Enterprises hosted by Incred Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Agarwal from Incred Equities. Thank you, and over to you, sir.

Thanks, Steven, and good evening, ladies and gentlemen. Incred Equities is pleased to hold this call for V-Guard Industries to discuss the acquisition of Sunflame Enterprises. We have with us the senior management of V-Guard Industries, led by Mithun, Managing Director of the company; Mr. Ramachandran, the Chief Operating Officer; and Mr. Sudarshan Kasturi, the Chief Financial Officer for V-Guard. We thank the management and the Investor Relations team for their continued support and giving us this opportunity to hold the call. I now hand over to Mithun to share his brief thoughts on the proposed acquisition, after which management will be happy to take questions. Over to you, Mithun.

Thank you, Rahul, and Incred for hosting this call. A very warm welcome to everyone present for this call. I trust all of you had a chance to refer to our press release, which was sent out on Friday. We have signed definitive agreements to acquire 100% stake in Sunflame Enterprises Private Limited for a consideration of INR 660 crores. This will be on a debt-free and cash-free basis, subject to customary closing adjustments. We expect this transaction to close by the middle of January 2023. This acquisition, once completed, will significantly enhance V-Guard's presence in the kitchen appliances segment. Sunflame is a well-established pan-Indian brand, with a wide portfolio and strong product development capabilities. We plan to finance the transaction through a mix of internal accruals and debt. We strongly believe that this acquisition is highly complementary to V-Guard. There are multiple levers for unlocking synergies in areas like geography, product portfolio and trade channels. Further, the recently established integrated manufacturing facility of Sunflame will enable significant scale-up of the overall kitchen portfolio. The acquisition is a key milestone in V-Guard's journey to build deeper engagement with our consumers. We believe that this will be value-accretive to the shareholders of V-Guard. With that, I conclude my opening comments and would like to thank the team at Incred and Rahul Agarwal for hosting this call. I would like to request the moderator to open the cost Q&A.

[Operator Instructions] The first question is from the line of Rahul Gajare from Haitong Securities India Private Limited.

Mithun, congratulations on this acquisition. I've got a couple of questions and I'll just start with the breakup of -- I mean you've been indicating that you're looking at internal accrual and debt. Could you give us some sense on what are the kind of debt you're looking at? Have you already tied up the debt or cost of debt, et cetera. So that's the first question.

Okay. Sudarshan, do you want to answer the first part regarding debt?

Yes, we are looking at a debt of about INR 350 crores to INR 400 crores and the balance will be from internal accruals. We have not tied up yet, just speaking to a few people. We should be finalizing in a few days.

The indicating cost, I think, Sudarshan, we have not yet tied it up, but...

We have not tied up so didn't want to put that number. So we'll discuss that once we're tied up, yes.

My second question is with revenue of almost INR 350 crores that the company has done last year. Could you give us a sense of the breakup coming from North, South, East, West, the regional breakup of this INR 350 crores? And also, what was the margin last year? Because I think you did talk about the profit margin. You didn't talk about EBITDA margin. And how the company has done in the first half of this year on the financial...

Okay. Okay. So I think the South to non-South split for Sunflame is roughly 80-20, that means 80% coming from non-South and about 20% coming from South, roughly the split. As far as the EBITDA number is concerned, I think it's around 12% to 13%, Sudarshan?

Yes, it's 12% EBITDA, right.

12%.

And how has the performance during the first half of this year.

I don't think we will be able to answer that. But what I can say is that we have been in talks with the promoters of these companies for the last 5 to 6 years. So we have seen this company up close with fairly granular level up close. And I can tell you that it's fairly consistent. So there has been -- they probably got one of the strongest cash flows that we have seen in the industry. The business is managed in a very steady and safe manner, and that's what I can say. So I think that even this year, they will have a reasonable growth, yes.

So because I was looking at the last 10 years of growth. We've seen about 6%, 7% revenue growth in the last 8, 9 years, since I think 2012. And I think even at the bottom line, I think that number was hovering around, I think, about 5%, 6%. So the growth has been muted. So I actually wanted to understand, is there a reason why the company was not able to grow in the last couple of years?

So I think there are a couple of reasons. We're not going into too much detail. I can tell you that the company is under-indexed in e-commerce and modern trade channels. And these 2 channels today contribute roughly 25% to 40% of the revenue of category, depending on which category you take. And the promoters had not decided to participate in this channels for various reasons, of margins, for cash flows, et cetera. So they have suffered in that sense. But in the growth in the [ GP ] has been according to what the market has grown, which has also been in the same level as you indicated. Ram, anything you want to add on this?

I think [indiscernible], Mithun. I think mainly the -- if you look at the last 6 to 7 years, organized retail has significantly expanded. It's now more than half the market, but they are extremely under-indexed. So they have not been able to participate in this shift, and they've done so consciously. So -- the other thing is their operating model is, by and large, the [ GP ] business is on cash. So that's the other part, hypercompetitive market. They are running the business on cash. Yes.

So yes, Sunflame operates on mostly cash-and-carry business. So one of the few industry players who do not offer credit to distributors. So you can understand the strength of the brand.

I'll just ask 1 last question before I go back to the queue. In terms of the total sales, how much is manufactured in-house for the company? And what does factory in Faridabad really bring to the table? And how much is the outsourced? So we could just discuss something on the manufacturing side of it.

So I don't have the outsourced produced products. But I can tell you the factory in Faridabad has been set up with an eye to substitute imports of chimney. Chimney is a very large part of their business, maybe the second largest category of their sales. And that's one of the few facilities in India, which actually manufactures chimney. Chimneys are mostly hobs -- sorry, not hobs, hoods. Hoods are generally imported into India from China and other countries. But with Sunflame, we have an opportunity to manufacture and they've already started manufacturing ample chimneys in India.

And I believe the in-house manufacturing is about 55%?

Yes.

55% or 65%.

[indiscernible].

So mainly the major categories like cooktops, induction -- I mean, gas cooktops, induction cooktops and chimneys, what is mainly made in this factory. And that should be the more significant part of the business. I'm sure that's upwards of 70%, 75%, right [indiscernible]. As far as chimney is concerned, this new facility is very new, probably just over a year old. Chimney manufacturing has just commenced and it is about 3 to 4 months' old. So I think the part of the chimney transition, that I think [indiscernible].

[Operator Instructions] The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

Good acquisition, Mithun. So maybe I joined a little late. If you could help us with the key categories which are contributing to that INR 350 crores revenue, that will be useful to [indiscernible].

So its -- cooktops in the sense of both on-the-counter cooktops and building cooktops and chimney and induction cooktops. So all types of cooktops and chimney will be roughly 60%, 70% of revenues.

It's a full platform. It's a full platform with a wide range of kitchen options. The dominant ones are these mentions. But they have a complete range of kitchen options including [indiscernible].

Okay. And what would be the contribution of each of these sub -- 3 subcategories? I mean...

So, Bhavin, we would not be having that readily with us or we would not like to share at this stage. The business still belongs to the current promoters, right? So...

Could you help us with the geographical breakup you mentioned, modern trade and online contribution is low, but what is it currently?

I think 12% or something like that, e-com plus modern trade, maybe 12%, 10% to 12%. And whereas the market maybe close to 40%, 45%.

And any geographical breakup in terms of what is the East West, North, South and what are the critical strengths of the channel?

So Bhavin, the brand is extremely strong in non-South. non-South contributes roughly 80% and South is about 20%.

Okay. And within -- like we've been told it is very significantly strong in West and North India...

It's very strong in strong in North and West. North and Western market is the bulk of the revenues.

Correct. And within these regions is true because what we understand is they are strong grower in the metro and the larger cities and not as strong in the rural belt.

So I think, like we mentioned earlier, this is a company that does not give any credit to distributors. And yes, we don't have the exact data on what is rural and metro and all that. But yes, chances are that they are more strong in cities because that's where the stronger distributors will lie, and they don't offer credit.

Okay. So -- and correct me if I'm wrong, larger metro cities and especially West and North are not as strong for V-Guard. So it seems like there is a complementary channel that we are getting. So how would we be able to leverage this channel and brand for some of the other kitchen categories, let's say, for an example, mixer grinder and juicer, et cetera, where we have the product categories already?

Yes. So I think V-Guard is extremely strong. V-Guard is selling these kitchen products only in South India. We are hardly having any presence outside of South. We are mainly selling in South and across e-com channels. So in that sense, it's extremely complementary, where this company has good network in the northern and western markets. And V-Guard is traditionally into electrical products and consumer durables. So we are present in the white goods channel and electrical goods channel, whereas Sunflame is predominantly present in the kitchen channel. So kitchen channel is also different because it also includes retail stores and all that where V-Guard is currently not present. So yes, in that sense, it complementary.

Sure. And for us to actually scale up some of the -- like just your thoughts, would we want to continue this brand? -- I mean what is the kind of time line we have got with the Sunflame brand and how do you want to leverage that?

Sorry, can you repeat the question?

So have you got the brand rights, Sunflame brand rights...

The brand is owned by the company. The brand is owned by the entity. It's not owned the promoters. We intend to keep the brand separate. Ram, do you want to add anything?

Yes. So mainly Sunflame is highly reputed and well-known brand. It enjoys a very high top-of-mind awareness and this is a fundamental reason why we have put this kind of money. So [indiscernible] the investment towards the brand, not so much towards the underlying business, right. So the brand has the strength. And of course, that's an integral part of this transaction. In terms of -- Sunflame will operate as an independent platform and -- Sunflame will continue to operate as an independent platform. And it enjoys enormous opportunities to scale up the business. I think fundamentally, as we said, emerging channels are under-indexed, extremely under-indexed. I think Sunflame is, although it enjoys a very high level of awareness, but I think from an availability standpoint, it is quite weak. So I think there is a good opportunity for Sunflame to grow in South. So yes, I think these 2 brands and these 2 business systems will operate independently.

Okay. So what is the thought for -- because we were looking to grow in some of the categories like mixer grinder in some of the kitchen appliances. It would be now like is the Sunflame brand for the kitchen and V-Guard for the electricals? Or if you could just help us with what's the longer term thought process?

To put it in perspective, the combined V-Guard and Sunflame business will cross something like INR 500 crores. So V-Guard does about INR 150 crores, INR 140 crores and Sunflame does about INR 350 crores. We will independently continue to drive both the brands. And we will come out with the real -- correct strategy on what will be the brand architecture and price position, segment in due course. But at the moment, we are not planning to integrate it. It will be running as a separate team. But yes, there are some complementary, for example, there are certain products that Sunflame is selling where V-Guard has the manufacturing capability and sourcing capability. And there are a lot of products that Sunflame is having manufacturing and sourcing capabilities where V-Guard is selling. So we will use these networks. But they will continue to operate independently as independent brands.

Last question from my side. In the agreement, we have like -- in order to restructure the employees, I mean, do we have to retain them? Any of these clauses if you could help us with.

Ram, do you want to take this?

No, I think as we said, right, so these are 2 separate -- Sunflame will operate as an subsidiary of V-Guard and it will operate with its business system. See, [indiscernible] Sunflame is an extremely successful business, right? Generating very strong cash flows and highly profitable, even on a scale of around INR 350 crores to INR 360 crores. And it has its unique attributes and features, which contribute to making Sunflame and giving it the strength that it has in the market, right? And it is our desire to maintain and build on these strengths, right? And as these will be independent entities, they will continue to operate the way they are operating for time being.

So from our -- we are keen to retain all the team members of Sunflame. There are roughly 300 to 350 employees in Sunflame. Our focus will be to retain all of them as much as possible because there is a lot of wealth of knowledge, product planning, what you call, product development capability in the company, which we would like to harness.

[Operator Instructions] The next question is from the line of Achal Lohade from JM Financial.

Congratulations for the acquisition. A couple of questions from my end. One was, if we look at the FY'22 revenue, there was a substantial growth. Can you explain to us because last 5 years was not much of a growth while FY'22, it saw a significant 20% plus kind of a growth. Is it possible to get some more color on FY'22, the growth driver...

See, some of FY'21, I think they had a dip in revenue. So some of the -- some of it is pent-up demand. Yes. So I didn't -- I think maybe what we should look at is 5% to 6% growth from [ FY'22 ]. I think FY'22 shows a big growth because FY'21 they had almost -- because smaller companies had a bigger impact with COVID with the first 3, 4 months of not operational.

Mithun, I think the growth should be looked at over '20, '21 and '22 because from March '20, the COVID impact started. So '20, '21, '22, you should average and then look at the growth. It will then -- the CAGR will be like what Mithun explained.

Understood. Secondly, I mean, you said that you're going to keep it as an independent entity. How do you look at the growth given where it is currently given our bandwidth? How do we look at growth? Can this be a 15%, 20%? Can this be more than 10%, 15% for next 2, 3 years, at least?

Okay. So we don't want to give any numbers, but I can say that with the kind of products they have, with the kind of brand recall it enjoys, with the kind of awareness and top-of-mind awareness and with the kind of consumer base it has over the last 40 years, Sunflame should be definitely much larger than what it is today, and that's our aim.

Right. Just to add on to the same point, would you be required to make any investments further on the sale of the distribution, branding, et cetera, to pick up that growth trajectory?

I think, like we said, we don't want to give out any specific numbers. But yes, there is a lot of work to be done on the distribution side because we do think that Sunflame is not represented adequately in certain geographies like South, partly in East. We also think that they are not properly indexed in the modern trade and e-commerce channels, where we got a good team running those category -- running those type of channels. So there will be the initial low-hanging fruits that we will go after.

Understood. Just 1 clarification. You said that the distributor sales are cash-and-carry. Did I hear that correctly?

Yes.

So but if I look at the balance sheet, I see the debtor days somewhere between 50 to 60 days in the past. How do we explain that? Does that mean that all distributors are credit...

So I think -- yes. So I think Sunflame also has a [indiscernible] business, whereas it gives credit. The general trade is on cash-and-carry, mostly on cash-and-carry. And I think Sunflame also used to supply to some modern trade outlets, but it's very small compared to the actual percentage of the market.

Right. What would be the CSG mix, sorry, this is the last question. Because the debtor day seems to be very large -- non-distributor sales, the receivable days are very large. If you could clarify?

Ram?

Yes. I think it's about between 20% to 27% or 28%. I think the cash flows there can be variable. So sometimes if there are delays. And I think at that point in time, you could look at a picture at a point in time, maybe higher or lower. Also, they add some organized retail businesses also in the past, which they -- because of their philosophy to maintain profitable and fast cash flow business. So they have vacated some of these customers also. And also one of the reasons why if you look at that 3-year growth, it will be more like 5% to 6%.

The next question is from the line of Renjith Sivaram from Mahindra Mutual Fund. [indiscernible] one of speaker, please, sir, there's a lot of background noise...

Is it fine now?

No, sir. It's still there.

Is it fine now?

Yes, sir. So it seems like we lost the connection for Renjith. We'll move to the next question from the line of Nirav Vasa from Anand Rathi.

[indiscernible].

Sir, Vasa, sorry to interrupt, your voice is breaking up some. Maybe request you to move to a better reception area, please?

Is it clear now?

Sir, still...

Hello, is it clear now?

Yes, now it is clear.

[indiscernible]

Sorry, sir, it is breaking...

[indiscernible]

No, sir. Sir, maybe we request you to rejoin the queue please, once you get a better reception area? We move to the next question from the line of [ Khadija Mantri ] from Sharekhan.

Sir, I understand that would will be raising debt of about INR 450 crores of funding the acquisition. So could you just tell us how the debt will be raised and what would be the interest rate for the same?

Sorry, what is your first part of your question? I had the interest rate.

Yes. So we would be raising debt of about INR 450 crores -- INR 400 crores to INR 450 crores of funding the acquisition, as per my understanding. So yes, what would be the interest rate that we would be incurring for the same?

We are still negotiating terms. So I don't want to put out a specific number. It might come in the way of the negotiations.

Okay. Okay, sir. But the rest of it would be funded by internal accruals. I understand we have cash and investment of about INR 150 crores. So that should be sufficient?

Yes. The cash balance has gone up since the last reporting, yes. The balance -- approximately INR 400 crores will come from debt and the balance from internal accruals.

Okay. And sir, in consumer durables, so kitchen appliances, we have INR 140 crores to INR 150 crores of revenue. But are these products profitable if we exclude fans and water heaters in the kitchen appliances? Are we making operating profit on these?

Yes. The kitchen appliances, the gross margin is good. Even EBITDA is positive, but EBITDA is low to question of scale. But even within our portfolio, at the INR 150 crores, the gross margins are still good.

The next question is from the line of Rahul Agarwal from Incred Equities.

Congratulations to the team for the acquisition. Sir, I got 2, 3 questions. Firstly, on the distribution channel and service network of Sunflame, could you explain how the company is structured in terms of distributors, dealer, retail touch points, what's the route like for the company right now?

Ram, you want to take this?

Yes, I think I would like to avoid discussing too much in detail because the promoters still manage their business. It's not our business at this stage and it's not fair for us to comment on that. But yes, I mean, that the model is comparable. I mean the [ GP ] business is still distributors and dealers, yes. And they are probably somewhere in the region of around 10,000 to 15,000 touch points [indiscernible] in the country, yes. I hope that would suffice.

Got it, sir. Secondly, the question to Mithun on the ROI of the tradition, assuming that V-Guard always has been very careful on the return on investment and the ROC has been broadly ranging up upwards of 20%. Mithun, any thoughts how would you -- how do you rate this INR 650 crores investment? How would you get up to 15%, 20% return on the capital there?

I think we are fairly confident of getting there. So -- we're quite confident. So otherwise, we would have not gone for it.

Okay. Got it. And thirdly, on the balance INR 25 crore payment to be paid after 2 years, what could be a reason for this?

No, it's basically escrow. So it's basically the escrow amount and the promoters felt it was okay that to leave the cash back with us rather than in a bank.

So essentially, we pay the entire INR 650 crores. And of that INR 25 crores...

No, no, no. Ram, you want to explain?

So typically, what happens is after the acquisition is done, there are sometimes, some adjustments that happen once the post-closure data is available. And there may be some adjustments [indiscernible] and all that. And typically in any transaction, some amount -- is set aside in escrow. In this case, I think the promoters of the entity has felt that it is better to let this INR 25 crores behind with us rather than to put it in a bank and maintain an escrow. So I think that's the background. So the INR 25 crores will be paid to them at the end of 2 years. This is normal and customary in every transaction. But it vary from transaction to transaction based on the comfort between the 2 parties. In this case, this is the number in our...

Got it, sir. And lastly, giving some kind of 7%, 8% final closure on the debt to be taken of about INR 400 crores, would you agree fiscal '24 will be EPS accretive because my sense is the EBITDA is similar range, about INR 40 crores, and we would also lose some interest on your cash. So how do you look at fiscal '24 on EPS...

First year will at least be EPS neutral, if not accretive. But Year 2 onwards, it will be.

The next question is from the line of Naveen Trivedi from HDFC.

A couple of questions from my side. I just want to understand, one, considering South contributes around INR 60, INR 70 crores revenue for the business, if you can highlight, one, how is the market share for the brand in the non-South market? And considering you have been following the brand since last 4, 5 years, any particular challenges in the South side, if you can also highlight?

Yes. I think the Sunflame as a brand started out from Delhi. The promoter -- for any company that starts out from Delhi, North will be the largest market. So it's not surprising that the South is, what you call, market share is low or maybe because they've got into South later. Or there is more competition from locally present brands like 3P, Butterfly and all that. So it's not a big surprise that it happened. It happened as it happens like that. We don't want to comment on any market share and all that. I mean I can tell you that overall as a business for the last 4, 5 years, it has been fairly stable. Yes, it has not grown as fast as some of the other kitchen players, but it has probably administrated better and predictable cash flows than any other company, actually.

Sure, sure. So do you think that the brand is required a more innovation side process -- sort of a drive? Or you think that the pricing strategy should also be correct -- basically more correction in the South side?

These are all very premature questions at the stage like Ram, mentioned. For another month at least, it still belongs to the promoter family. So they will continue to run it. Once we take over and once we analyze and put our management team in place and we will hire advisers, then we'll come back with what should be the strategy on how to scale up. Once we lead, we'll come back to you because it's very premature sitting here and deciding what to be done and how to grow. But we are very confident that the brand has the strength to grow. And that part, we're very confident. How to do it? We will come back.

Sure, sure. Just last question. Any added spend, sort of a number, if you can share?

Add spend? It's about, I think 5% to 6%. Ram, am I correct?

Yes, yes. 5% to 6% is the expense.

The next question is from the line of Renjith Sivaram from Mahindra Manulife Fund. We lost his connection on again. We will move to the next question from the line of Nirav Vasa from Anand Rathi.

Is my voice clear now?

Yes, sir, please proceed.

Yes. Sir, with regards to the revenue booking of INR 350 crores versus -- because what I was seeing is that historically, the average run rate was INR 250 crores. And last year, we had seen unprecedented commodity inflation. So what percentage of the INR 350 crores revenue would you attribute to a higher commodity price and growth?

I think the price growth for that particular year was between 6% to 8%, if I'm not mistaken, Ram?

[indiscernible]

About 6% to 8%. The right way to understand the growth is, 2020 March, I think COVID had hit us and '20 March was not normal for most companies. So -- and '21 was a disturbed year, right? So that's why '22 is looking a very big year. Just average it across all 3 years, then we will find that it is a 5% to 6% growth.

Exactly, sir. Because the number that we were seeing was coming to around INR 250 crores to INR 260 crores of revenue on an average for the last 3 years. So on an average, revenue...

[indiscernible] The exit number is correct. But the growth number, you should divide across 3 years. [ INR 260 crores ] [indiscernible] it will not swing, okay? But what will happen is when you're looking at the growth, but please look at it as average the growth across 3 years.

I think -- FY'20 to FY'22, the CAGR is about 5% to 6%, is what we can tell you. That's how we should look at it. It's not INR 250 crores, it was above that because there were also other -- so please also understand that the -- it had other companies and other promoter-owned entities, which were merged into Sunflame Enterprises only in the last year.

So that is what brings my next question -- to share some numbers or color on the related party transaction?

There is no related party transaction as of today because it's only one company. See -- Ram, you want to explain?

[indiscernible] until a year back, right? So at the point where the business is being offered to us, I think all of these have got consolidated progressively over the last 18 months. So..

So what you're looking at INR 250 crores is a stand-alone number. It does not include some of the other promoter-owned entities, which also carried our business.

And sir, what I was seeing on their website is that they are also present in FMEG as well. So in FMEG, we're present across some product categories like water heaters and other categories. So how do you intend -- do you intent to keep Sunflame brand in FMEG as well? Or do you want to consolidate under V-Guard only?

So Sunflame has its own customers and its own distributors and there are customers and distributors willing to buy Sunflame water heaters and Sunflame fans. So we will -- like we said, we will continue all the product verticals of Sunflame. Now sometime in the future, we may decide to ensure for better profitability and so still we may source the products through our factory where V-Guard has a larger presence in fans and water heaters. So those are calls we would take going forward. But as those product lines will be maintained. It's not [indiscernible], it's only like some -- it's not a very large [indiscernible].

It's not significant. And I think as we have said earlier, right, we have acquired the Sunflame [indiscernible] has a very strong platform in the kitchen space. And it will run as an independent entity, and it will be driven by the [indiscernible] and what will get added as the promoters move out. So this team will decide the future direction of this entity. Fundamentally, synergies will be leveraged. So if we have a better supply cost advantage, maybe extending our supply chain to any of their product categories and that will certainly be explored.

Sir, my final question is based on the existing manufacturing capabilities which this company has, what is the maximum revenue that can be generated from it?

I think they have adequate capacity to meet their growth objectives for the upcoming 3 to 4 years. This particular place has also got the land for further expansion.

Sir, any number that if you can give maybe with regard to some capacity that we have for capacity [indiscernible] capacity, or something like that.

No, no. No, I'm saying it's not material because the capacity in this industry is flexible, right? A lot of it is also assembly. And the second thing is they can run shifts also. They're running 2 shifts, they can go 3 shifts also. And there is space also there. So I'm just saying that it's not materialize, let me see if I have a specific number with me. I may not ready given...

Given that we are not owners of the business yet, there's only a limited amount of brand data we can give out at this stage. So we'll come back on this once we have run the business for a couple of quarters. So at that time, we may be able to disclose more.

The next question is from the line of Renjith Sivaram from Mahindra Mutual Fund.

Yes. Sorry, my line got disconnected last time. So I just wanted to -- when I look at the functioning, it as having this INR 265 crore kind of revenue for a long period of time and suddenly last year it came to INR 350 crores. So if you help us understand that what the categories that gave this INR 100 crore of incremental revenues. And what will be the percentage of revenues that come from the normal categories and what were the additional categories [indiscernible]? Can you give any color on this?

Yes, yes, yes. Let me just explain. I mentioned this to you earlier on. So I think it's not the right way to look at it, yes. March of 2020, sales was not normal because of COVID. I think after 20th or 15th, typically in most companies, 60% of the business to 70% of the business happens after 20th of the month, okay? So that particular year number is not a correct number. '21 was also a disturbed year due to COVID. The '22 is a year where they could get the full normal and proper and regular revenue. There is also an impact of increase in input cost, okay? That's one thing. And the other thing is there are other -- there were other entities of the promoter family, which also used to do business in this space, right, which has all got [indiscernible] in the last year, which you see on the -- which is the year that went by '22. So I think please don't read too much into these trends and numbers, yes? That's all I would say.

So I think if you look at a like-to-like basis, the CAGR would have been not more than 5% to 6% for the last 5 years.

And what is the percentage from the stove, which is I think the main product of Sunflame of the top line?

I think hoods, hobs, chimneys, all put together is about 40% to 45%, I think. Let me complete this, stoves, cooking range, in-built, chimneys, induction cooktop also. All cooking and chimneys, it's about 45% to 50%.

Okay. So the modern [ hotpots ], which I think the market share is 1% to 2% is what we understand. That will be what percent -- the [ hotpot ], which is the modern deck, which go inside the [indiscernible] what will the percentage?

Yes, I don't think we are carrying that level of detailed information to share at this point in time, right? But I think they have a decent presence in in-built as well, not the numbers you mentioned.

Okay. Because why as per what we understand the reason for you to get into this will be like being a competitor to Faber or Elica, or it will be completely you want to be a competitor to TTK Prestige or Butterfly of the world? If you can explain what are the thought process in buying this company?

Okay. Ram?

Yes. So fundamentally, we got into the kitchen business somewhere around 2012, '13, and it has taken us 7, 8 years with the progressive introduction of models to build about INR 150 crores, INR 160 crores business in kitchen that we have as we speak today. And it might grow by some 15%, 20% in the current year that we are talking about. Now Sunflame on the other hand is a business, which is extremely strong in the non-South markets and building position in non-South would take us a long period of time. Also, in kitchen unlike in other categories, right, brand recall and brand connection with the consumer is a very critical driver. Thankfully, because of the heritage and history of V-Guard in South, this was a lesser barrier to that part. So looking at the time that is required for us to build our market presence in non-South, we thought it would be wiser to go for a platform for that. We can start to build a strong position in non-South markets also equally fast. So I think Sunflame has strong position even in chimneys also. So it's not that it is compete only with the traditional kitchen space, but it also completes with in-built kitchen space. They have a decent business in built-in and also in chimneys here. Growing these categories will also require you to grow the -- grow, let's say, your own channel. You have to put, in a lot of these cases, you will have to expand on the own brand shop kind of network. So investing shop-in-shop. So I think the promoters have been conservative, so they have a fairly decent lineup in this space. And they do decent numbers. They're not as insignificant as you may have mentioned, yes. So that is there. But I think the primary reason that we are getting into is to speed and raise in our national presence in the kitchen category. And I have access to a brand which has equity and heritage in the kitchen space.

Okay. And sir, lastly, sir, what's the percentage done through online? Or is it all offline for Sunflame?

Sorry?

What's a percentage of trade that goes through the online market -- or is it all offline for Sunflame?

I think almost 90% is offline, 10% coming maybe from e-com.

And any geography that you can share? What is the geography split?

No, we can't provide it at the moment.

The next question is from the line of Nikhil Kale from Axis Capital.

A couple of questions. First, I just wanted to understand what was the motivation of the -- mostly on promoters to kind of exit the business, considering that, as we mentioned, the business was really profitable [indiscernible] cash flows. Any succession issues are anything of that sort?

See, this is still owned by the family. It is all sensitive matters, so we don't want to comment. But we can say that the founder promoter is almost, I think, almost close to 80 years of age. So that is what the primary reason.

Got it. And secondly, sir, as you rightly mentioned the business has been really profitable and perhaps one of the reasons has been that the they have not been as aggressive on the e-commerce side. But going forward, do you see that as you maybe expand the presence on the e-commerce side and maybe on the modern trade, you could maybe need to spend more on add spends and all those other kind of expenses and maybe margins could...

I think doing business in the current environment where you have a very high growth in e-commerce and modern trade, requires different set of skills, which many smaller companies may not possess. But we are -- yes, we are having a good platform and team of people to deal with these kind of businesses today, which they may not have. So in that sense, yes, once we take over, we will try and align and index the market shares like what the total market looks like rather than what it used to be.

The next question is from the line of Achal Lohade from JM Financial.

Just one -- a couple of more questions. One is, given whatever you have said, is it fair to say that there are plenty low-hanging fruits with respect to leveraging the e-com part. So -- and given the operating leverage, could there be a possibility that this 12%, 13% can actually become 15%, 17% EBITDA margin on a sustained basis?

So I think -- we don't want to give this kind of statement. So we can -- all we can say is that -- let me put this in an perspective, when we -- when I started the business in the [indiscernible] the V-Guard, 2006, 2007, which I joined after my studies and all that. So that is the first thing that has attracted because the promoter's character is very similar to -- and we thought and the culture is very similar to what we have. So that's all we can say at the moment. We don't want to talk about how much percent of EBITDA it will make in the next year or a year after that.

Got it. And just 1 more question. Given this acquisition is kind of now already done, would you be open to more acquisitions? Or you'll wait for first integrating this and then looking at more acquisitions? And, b, I think in a passing remark, you mentioned about certain ROCs or IRR on this investment, so if you could clarify on your thought process on the theme as well?

So we have done a projection on the combined -- ROC of the combined entity going forward. And we're confident that we can go back to the ROC of the company what it was before. We have to understand that we had -- we have about INR 300 crores of cash, which is not earning anything today. But then the combined ROC should look good. We may not look at anything big at the moment because we will be busy expanding -- team in place to run Sunflame and then get the synergies out. So at the moment, we are not looking at anything.

The next question is from the line of Rahul Gajare from Haitong Securities India Private Limited.

Sir, you partly answered the question that I had, the earlier participant asked about capacity constraints. And like you said, you know that 50%, 60% of the production is manufactured domestically, in-house. So therefore, revenue should not be a factor of growth. Now given that we've seen a CAGR of about 5%, 6% over the last couple of years. That's the reason why I wanted to understand how the first half performance has been. So any color whether it is similar to FY '21 level or similar to FY '20 -- current -- last year's numbers. Any sense on the first half performance?

Okay, it's a private listed entity. I mean, it's private entity, not a listed one. So they don't publish first half numbers. All we can say is that it's been a steady business over the years, and this year also will be somewhat similar.

Because this entire EPS accretiveness will be a function of the revenue growth. And that is the reason why I wanted to first look at that. There is a limit to how much data we can give out at this time because it's very premature, okay? So -- if you're looking at the EPS thing, just look at the PBT and the interest part, then it will be EPS neutral at rest in the first year.

[Operator Instructions] The next question is from the line of Hitesh Taunk from ICICIdirect.

Sir, I wanted to know what is the overall industry size in which Sunflame is operating? I wanted to know the industry size of cooktops and chimneys. If you can throw some ballpark numbers, so it would be very helpful.

I don't have the numbers of the specific categories with me. We don't have it at the moment. We'll have to get back on that.

Okay, sir. And sir, last question is, have you signed -- have we signed any kind of non-compete agreement with the existing promoters or family members?

Yes. We have signed non-compete agreement with them.

The next question is from the line of Mukul Deshpande from DAM Capital.

My question is, what are the medium-term growth drivers in the kitchen appliances space? And how are we aiming to expand our market share with the help of Sunflame?

So we -- like I said, one, there are geographical complementary -- there is -- for example, V-Guard is extremely strong in South, and we have like INR 140 crores kitchen business in South. Sunflame, largely 80% of the sales come from non-South, extremely strong in North. We got relatively low presence in the kitchen channel, and V-Guard's kitchen business is primarily through consumer durable retail outlets. Whereas for Sunflame, it comes from all types of kitchen channels, utensils channels and consumer durable, any trade outlet that sells kitchen products. So in that sense, it is complementary. So there is a channel and geographic complementary. Product wise, Sunflame has a much broader range than V-Guard. We have a very narrow range from where this revenue comes from. Sunflame has got much more broader kitchen range, which V-Guard does not have. So there are complementary products. There are complementary channels and complementary geographies. We also have complementary supply chain in the sense V-Guard's kitchen supply chain may not be the most mature, whereas it is definitely [indiscernible]. So these are the low-hanging fruits we see where we can leverage each other's strength.

Ladies and gentlemen, as there are no further questions, I now hand the conference over to Mr. Rahul Agarwal for closing comments. Over to you, sir.

Yes, I think a very good discussion. Thank you so much for letting us to host the call. Over to you, Mithun, for closing comments.

Yes. Thank you, Rahul, and Incred for hosting this call. And thank you all for participation. Thank you.

Thank you. Ladies and gentlemen, on behalf of Incred Equities, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.