V-Guard Industries Limited (532953) Earnings Call Transcript & Summary

On behalf of Equirus Securities, I would like to welcome the management of V-Guard Industries to discuss 2Q FY '21 results. We have with us the senior management of V-Guard Industries, represented by Mr. Mithun, Managing Director; Mr. Ramachandran, Director and Chief Operating Officer; and Mr. Sudarshan Kasturi, Senior VP and Chief Financial Officer. I would now hand over the call to the management for the comments. Thank you, and over to you, sir.

Thank you. A very warm welcome to everyone present, and thank you very much for joining us today to discuss the operating and financial performance of our company for the second quarter ended 30th September 2020. During Q2 FY '21, V-Guard recorded revenues of INR 616.7 crore, which is flat compared to the corresponding quarter of last year. This also represents a sharp rebound from the substantial weakness seen in Q1 caused by the strength of the virus pandemic. South revenues declined by 3.2% Y-o-Y, mostly due to the resurgence of cases in Kerala. Revenues from non-South market expanded 4.4% and represented 39% of total revenues compared with 37% of total revenues as on Q2 last year. The Northern and Western markets delivered encouraging performance, whereas Eastern markets were impacted by lockdowns in West Bengal and Bihar. Within our 3 product segments, Electronics and Electricals both grew at 2%, whereas there was a decline in revenues from consumer durables. Products such as fans, pumps, digital UPS registered good growth, but water heaters declined due to huge supply chain disruptions. Our water heater plant went through prolonged closure due to lockdown in Sikkim, which resulted in lost revenues of close to INR 30 crores for the quarter. During the quarter, we launched a range of new products like water purifiers, breakfast appliances, kitchen hubs and chimneys through the online channel. The initial response is very encouraging, and we will extend these to off-line channels at an appropriate time in the future. Online revenues, although small proportion of the total business, grew rapidly by 40% Y-o-Y. This is a trend we expect to be maintained over the next few years as e-commerce becomes more mainstream to consumer behavior based on wider data, accessibility and usage across the country. Gross margins for the quarter were lower by 220 basis points, largely due to the product mix and underutilization of the Sikkim plant. In the prevailing situation of uncertainty, we slowed down our advertisement and promotion spend, which was about 0.5% of revenues compared with 1.7% of revenues in the corresponding quarter of last year. We also kept tight control on other operating cost. EBITDA margin was 12% compared with 12.5% in the corresponding quarter of last year. Yes, I want to highlight that in Q2 of last year, we had a one-off write-back of ESOP provision to the extent of INR 10.2 crore. The corresponding write-back for Q2 this year is only INR 2.6 crore. The net -- net of this adjustment, EBITDA for Q2 FY '21 would be higher on a Y-o-Y basis. [ PPT ] during the quarter was at INR 71.2 crore, was lower by 7.2% due to the higher effective tax rate of 29.7%. The decline in PAT has been more. The [ ETR ] for the first half was higher due to lower profit contribution from our Sikkim unit. The [ ETR ] is expected to normalize on a full year basis. During Q2, our working capital proposition has improved to 53 days. Debtor position improved sharply to 31 days as we sustained working capital discipline across our distribution channel. Lower working capital has led to substantial cash flow from operations that stood at INR 325 crores for the first half of the year compared to INR 150 crores in the first half of last financial year. Our net cash position was in excess of INR 450 crores as on 30th September 2020. The supply chain related issues last year resolved in onset of the festive season. We now expect to get back on to the growth path during the coming quarter and through the rest of the year. Based on our brand position, strong consumer proposition, best-in-class systems and process and learnings for the last few months, we believe V-Guard is more future-proof organization with a resilient growth framework in place. On that note, I would like to thank you once again for your participation, and would like to hand over the floor to the moderator for the Q&A. Thank you.

[Operator Instructions] First question is from the line of Santosh Yellapu from Ashika Stock Broking.

Sir, congrats on a good set of numbers. Sir, I have 3 questions. First question, sir. Could you throw some color on what could be the reason for this drastic improvement, I should say, on the debtor days that you are seeing in the quarter 1? Second thing, sir, within the consumer durables, Electronics and Electronics which have been the product categories which have grown at the higher rate than the reported segment numbers for H1? And lastly, if you could throw some color on the performance of the Southern states during the quarter? And what do you see now happening as the quarter -- as we move into the third quarter as of now, sir?

See, regarding debtor days, there are 2 reasons. One is when we went into this lockdown -- in the beginning of lockdown in April, we took a call to focus on collections rather than trying to push it. So that has been one of the reasons why debtor position has been improved. The second reason is, like we mentioned earlier, there are some categories where our supplies are yet to get streamlined. For example, we have mentioned that water heaters, we have lost on sales because we have not been able to supply. There has been supply disruption in certain other categories as well. So the inventory that is being carried by the trade is also less than desirable, which has also led to the decrease in working capital. So these are the 2 reasons. In Consumer Durable segment, the fan business has grown well. The water heater business, of course, has done very badly because of supply disruption. We also had introductions of breakfast appliances in e-commerce channel, which has also done well. So I think it's been largely driven by the fan sales in consumer durables. Whereas the other segment like water heaters, which is the other large segment, has not performed well.

And lastly, the Southern Indian -- South Indian market's performance, sir?

Okay. In South, primarily, our sales have been impacted in the Kerala region because we've had a huge increase in cases in the last 40 days or so. We also are having some challenges in the southern part of Tamil Nadu, that is Madurai region. Again, there also sales have been slow because, I think, there have been more cases in that area. So these are the 2 areas within South India that has done poorly. Barring that, actually Karnataka and as well Andhra Pradesh has done well in Q2.

Next question is from the line of Renu Baid from India Infoline.

A few questions from my end. So first, would be, I'm just trying to understand a bit more on the new launches which you've announced this quarter. If you can throw some insights in terms of what are the 2 to 3 years -- sorry, 3- to 5-year plan for these categories targeted revenue growth, sourcing strategy across all these ranges? And given that some of these categories are very much different from our existing categories, how are we investing in the channels for the market for these? And the kind of investments that you plan in these categories over the next few years? That's my first question.

Ram, you want to take this?

Sorry, I missed the later part of the sentence. If you can repeat, please?

Yes. So my question is....

I had a signal drop, sorry.

To understand a bit more about the new launches that you've announced this quarter. The product category was slightly different, be it water purifiers or the kitchen hoods, chimneys. So, A, what are the revenue targets that you have from these categories or market share targets in these categories over a medium-term perspective? Their sourcing strategies for these product changes? And what would be the investment in channel required given that they are different compared to the rest of the electrical market in the [ shared segment ]?

So fundamentally, we already have kitchen portfolio. So we have induction cooktop, mixer/grinder, gas stoves. So we have already incubated these categories over the last 3 to 4 years. And our expansion into kitchen appliances, small kitchen appliances and kitchen hoods was completing this exercise so that we have a more comprehensive kitchen portfolio. That's the first part. We will be focusing initially with these newer categories that we have launched first on e-commerce and then we will move into organized retail before we move into wider distribution. So as with time, we will have a wider range of offering and better product capability and category understanding, right? And therefore, we'll have ability to service a wider network. In these categories, already e-commerce and organized retail together should be about 35% to 40% of the business, at least a couple of years from now. So we will be in the initial phase of our, what I would say, portfolio development. We will be focusing on this segment. Now we -- we are -- generally, what I would say, in the early phase. Our focus is on building our capability and understanding on the supply side and on the -- establishing product capability and getting the -- our offerings right in terms of consumer value proposition and trade value proposition. So that's our initial focus for the first 2 to 3 years. Coming to water purifier. So I think in case of water purifier, again, initially, also in the COVID context, we have started with e-com. Here again, e-com plus organized retail level will be about 30% to 40% of the market a couple of years from now. So I think that with a narrow focus in terms of addressable universe of retailers, yes. We will be able to cover out a wider portfolio of the consumer opportunity. So here, I think, in the case of water purifier, we are building a dedicated service network which is going to be company-owned unlike our rest of our portfolio which is going to be franchise owned. So we are setting up a direct service center in major cities across the country. So that's the investment that we are making for this category to be able to build. Now the supply chain is -- initially, as we have always done, we get into a category with and outsource OEM structure and progressively, we start to build and own product design and so that we are able to own the product and the platform. So I think that's how we will go. And when we reach some reasonable scale, I think we will -- and we have built a sufficient expertise and understanding, we usually move to building our own manufacturing capability. So this is the approach we have followed and we are following across different categories.

Sir, the next 2 questions essentially are to understand, given that you mentioned [indiscernible] business is now back to pre-COVID level. So initially, we were very skeptical on the festive offtake during Diwali, et cetera. So now after the supply chain hiccups are in place, we think we should be now back to double-digit growth for the rest of the year? And what could be the kind of pricing action required to offset the increase in commodity prices? That's it from my side.

Okay. So 2 parts of the question. I think we should have had decent single-digit growth last quarter if supply had been decent, right? But I think the changes -- so I think 2 factors have to change. I think our supply scenario has to strengthen as we go forward and which we believe should happen compared to where we were last year -- last quarter. And the other thing is sort of Kerala which had been in extended the phase of slowdown in last quarter because of COVID picking up in the last 45 to 50 days. So I think we believe that these 2 factors will ease. And we believe that in the coming quarters, we certainly should be able to do double-digit growth. I mean that's what we are expecting. Quarter 4, anyway, I think the base is weaker because it has only 20 days of sales in March. So, I think, double-digit growth for the second half should be possible unless there are significant, what I would say, interventions on the COVID side, either on market side or supply side. Supply side interventions are challenging because our -- it takes out the manufacturing infrastructure for an extended period of time, like what happened with for us. But then you are really stuck with not being able to service the market. On the other hand, if market side disruptions are there, some states go down, some of the states can address, which is why we could still have a flat growth in spite of a poor supply situation and the challenges in our biggest market, Kerala.

Right. And sir, last, on the pricing action required in the third quarter for increase in commodity costs? Is it required or you think you will be able to absorb?

Input prices have gone up, and we are watching it closely, and we will be attempting to transmit some of these input cost increases over the next 2 to 3 months.

Next question is from the line of Sonali Salgaonkar from Jefferies.

Sir, my first question is how much does Kerala contribute to our overall sales right now? And when do we foresee the revival in the current situation in terms of demand?

Kerala is about, I think, 20% of revenue. Ram, am I correct?

Yes, Mithun. Yes 20% is correct.

Slightly less than 20% of our revenues. Sorry, what was the second part of the question?

Sir, when do we foresee the revival in terms of demand in such a key market for us?

Well, I think, here, everywhere, one issue in Kerala, people are very well aware about the news and everyone reads the newspapers and stuff like that. So the level of fear is very high here. And that kind of plays out in -- with lack of footfalls and stuff like that. I think like other states, after some time people probably will get used to it because they hardly had any cases in the beginning of this issue. And when other states, the cases started reducing is when our cases started going up over here, So I think that normalizes and people start developing some confidence, they will start stepping out and buying again. So I think in Q3, it should be better.

Q3. Fair enough. Sir, my second question is on the festive season, what are the kind of initial trends we are seeing in the festive season considering that we are also trusting on appliances? So in terms of pricing or demand or the inventory levels currently.

See, festival season, so, we finished Onam and then now we are -- we finished some of the festival periods of the e-commerce players. So with the [ third ] season, Onam, we could see there is decent demand for television. The result is very neat based. We have not so far seen any down-trading and all by customers. So our sales mix pretty much remains where it was. Yes, maybe some of the products where there are very highly priced, super premium products, they may not be selling much. But their sales are a very small part of our overall sales any which way. For example, we launched a new range of fans from our new fan factory in Roorkeee. And that is actually about 25% more than our existing range. And we have a backlog of about 3 to 5 months for that product. So I think -- I don't think there is any down-trading asset. It's just -- every consumer segment is buying. I don't think there is any heavy down-trading. We have not felt it in any which way from the marketplace.

Understand. And how was the response in the initial days of e-commerce sales, sir?

E-commerce is an initiative, we started about 3 years back, and we are having good relationships with both the large e-commerce players. We have Android business plan that we manage with both of them. And it's been extremely good. Our only issue has been that some of these new categories like breakfast appliances, our supply chain is from China. So that has got impacted a little bit, and we were not able to supply it to the demand. But the initial feedback is very good. Even for e-commerce, I think, products like television sales has been strong. Ram, you want to supplement anything?

Yes. I think from -- I think, we -- the festival season, broadly in Kerala, has been moderate because of the COVID issue and the people not stepping out. As we move to the other parts, I think we will get feedback as we are just getting out of [indiscernible] But I think the offtakes are better. We are seeing good traction this month. Now coming to the e-commerce part, I think e-commerce performance has been reasonably good, a bit short of what we would have ideally liked to do. But 80%, 85% of that gap is contributed by our inability to supply. But I know growth over last year is very, very significant.

I understand. Sir, and in your commentary in the presentation, you mentioned that some of the key vendors suffered production stoppages due to COVID-related reasons and also some supply disruptions in the Sikkim plant. So are most of these behind us and resolved now?

So actually, what happened is we started our Sikkim operations late. And also Sikkim was slower to open, and there were more controls in Sikkim compared to other parts of the country. So that also partly contributed to a slower opening in Sikkim. And after about 4 weeks of opening, these 2 -- 4 to 6 weeks of opening, these 2 factories went into containment zones. So they were out for about a month each. And after that, we came back for 3, 4 weeks. And again, there's always the factory, right? So we had significant COVID issues, about 6 or 7 people were impacted. And connected with them, some 70, 80 people who were also put on quarantine. So this -- a large portion of these are the supervisory staff and the operating leadership of the unit. This should come back. So that's impacted our September significantly and part of October even as we speak. And -- but I think this should -- stabilizer is back to normal from second half of last month. And water heaters, we expect that by end of this month or maybe first week of next month it should normalize. As -- because what happens is it takes people about 3 to 4 weeks to come back, those who have been COVID impacted. And we try to make sure that at least people who are put in quarantine stayed away for 3 weeks ago before they come back so that it's safe for others. So that's on the Sikkim side. And it so happened that both these products -- both these factories will make seasonal products. So that's in the case of water heaters, it's impacted our seasonal availability, though we are coming back now. And in the case of stabilizer, it has impacted on the television stabilizer availability, right, which is being made in that factory. Now as far as vendors are concerned, yes, we have had issues. We have had issues in kitchens. We have had issues in inverters, batteries. We have had issues in fans. So I think issues have been wide and across. So I think -- so main challenge is, while I think in the other categories, gradually supply is coming back. We are running hand to mouth, and as you may see from some of the other competitors also, some of the categories in the market, there are gaps in the market and people are able to grow in some categories much faster than what we may have been able to demonstrate. So not going to be feeing our plant, but also feeding market's requirements which may be higher than planned is a challenge. So today, as we speak, our inventory with our retail may be lower than normal inventory that would be that for trade. And our internal inventory also in many categories is lower, although overall inventory for V-Guard is high because we have made a call to carry high inventory as contingency for these kind of issues. But then in a number of categories, the inventory is not adequate still, internal inventory. But I think the supply chain is falling in place. So I think these were issues. We had expected these issues and anticipated these issues to hit somewhere around middle of last month. That has happened. And therefore, we did not talk too much about the disruption, and we just highlighted our challenge with the Sikkim factory because it was a very abnormal situation where for like 6 to 7 weeks the factory was not available to us, right? But otherwise, the other cases are, what I would say, there were interruptions but they were expected interruptions because we knew it's going to take time for the supply chain to recover.

I understand. And my last question is, how do you foresee the demand from real estate? Is it gaming space? And also your comments on the rural versus urban demand? That's it from my side.

So real estate demand, what we are hearing is, is because of the reduction in interest rates. There seems to be some uptick in real estate, although we'll have wait and see. As far as rural and urban, yes, smaller towns are doing better than larger cities. There are some exceptions like Bangalore is doing well because pretty much everything is open. So I think in the earlier part of the year, definitely, the smaller towns are outstripping the larger cities. The large cities of Delhi and Bombay were especially -- and Pune were very badly impacted. But now they've also started to come back to normal.

Next question is from the line of Charanjit Singh from DSP Mutual Fund.

Hello, sir? Hello? Can you hear me?

Go ahead, sir. You are audible.

So sir, just I want to understand on this new product introduction of new categories. So when we are thinking of introducing these products, what's our general thoughts of it in terms of which categories we want to get into, our right to win, plus in terms of the category sizes when you look at -- when in these big consequences? Because we already have certain categories which we can scale up twice well. And so in terms of the management bandwidth, putting on to these new categories versus existing categories, which you want to scale up, so how is that decision being taken for right now?

Ram, you want to take this?

Yes. So see, fundamentally, we are looking at V-Guard as a consumer franchise. And we are extending into relevant adjacencies. So let me talk about the 2 categories, right? So our entry into the kitchen adjacencies is actually continuing and completing actions which we have started about 5 to 6 years back, right? We had first quarter with the induction cooktop and then launched mixer grinder and then we went into rice cookers and gas stoves. And after that, we went into small kitchen appliances kitchen hoods so that we are able to complete the range of kitchen appliances. And so that's the journey as far as kitchen is concerned. Fundamentally, our thinking is we want to focus on India-centric categories where we will have a better right to win and kitchen being an India-centric category with local supply chain for most of the categories, probably barring small kitchen appliances here, that is -- I think -- so that's the context. That's how we thought about it. And the kitchen market -- a significant part of the kitchen market is also South and V-Guard has a strong presence in the southern market. It's a well-recognized brand. And we enjoy a good relationship with the consumers and trade, and we have the go-to-market infrastructure in these markets. So that was the context of getting into kitchen. That's a decision that we took about 5, 6 years back. And what you are seeing is a progressive culmination of the introductions to your kitchen. Water heater, yes, is a bit different -- sorry, water purifier is a bit different from -- it's not an immediate kitchen adjacency. That is certainly one more category that we are getting into here. I think -- to just go back in our history, right, we V-Guard had launched water purifier earlier and we had some experience and then we pulled out of it because at that point in time, the market in South was not that big and well-developed. At that time, we had certain challenges in terms of the markets that we were selling into and the need for this kind of a product at that time. So water is something that there is familiarity internally around the category. Yes, you're right. There are many horses. How should we grow our business, should we grow focusing on few categories or grow broadly. I think the activity in our space, right, is evolving where brands -- it's not just us but all brands, right? They are having a more wider portfolio of offering. And that's important because that also represents -- contributes to the stature of the brand, and that's critical, yes. But mostly, we have stuck to products which are fundamentally going into consumer home and they are adjacencies. So water purifier is also part of kitchen in how we thought about it as we said that we should make an offering to complete our offering in kitchen.

Okay. So the other aspect as in terms of the inventories question, how is the trend? If -- when the supply side normalizes, so South versus non-South in terms of inventory restocking by dealers, how is that propensity you're seeing for V-Guard especially? Because in non-South, we would be speaking with some of the very strong local brands. So whether dealers will prefer more local brands and they're restocking. So are there any trends to that?

No. See, fundamentally -- sorry, Mithun, I'll take this?

Yes, yes. Please, please.

See, fundamentally, we have been -- if you look at our CAGR over the last 5 years, just leave out March quarter of last year and then otherwise, look at our CAGR or normalize it and look at our CAGR, non-South is growing at about 18%, 19%, right? And probably 2x to 2.5x our growth in South, which may be around 7% to 8%. So we have been enjoying significant traction. And that as we speak, right, we should end the year with non-South contributing about 40% of our business. And for the kind of product portfolio that we are in today, right, this -- ideally, non-South should be about 62%, 63% of the market. And where we are 2/3 of the journey. Mind you, we've been on this journey now for about 10 years. And so we think that we've have made good progress. And there is another part to this, which is that a number of categories we have recently launched like switches, switch gear, kitchen, water purifier. These are some examples that we are talking about, right? These are not present in all markets. And these are not present in non-South yet in any significant way. If we're selling some switches and switch gears over the last -- just before the lockdown we have started to roll it out to non-South markets. So what happens is, if you actually look at the core categories, which -- this ratio would be more in the region of around 45%, okay? And we believe that we can grow 10% faster in non-South every year, and that should add about 2% to 3% share. The contribution of non-South should go up by 2% to 3%. And so we think over a period of 4 years, 10 to 12 percentage points, we should be able to move, which will take us to about the 50% to 53%. And if you just -- at that stage, also, if you would be looking at the core categories, they will be at about 56%, 57%, maybe 5%, 6% lower than it should be ideally. So I think our journey is reasonable and going well. Second thing is, I think we have strongly rebounded. And when we have said that we have had losses and we talked about the INR 30 crore loss, right? Fundamentally, we are talking about our plan versus actuals. And as you will see across different categories, depending on different companies' product portfolio, the demand on the market has been even higher than what companies had planned for, in some categories, particularly durables. I think durables, as a category, has seen far better traction than what manufacturers would have planned or anticipated in this quarter. That's probably what to do with filling the gap. A similar demand does exist for our category. And in fact, we have been able to reduce our outstanding in the market from 50 to 55 days to about the 30-odd days. And this all has happened. And simultaneously, we are able to keep supplies going. And as we speak today, our inventory is far lower, probably about 10 to 15 days lower than what we would normally have in the market as a normal course of business. And as also, our internal inventories are low, which basically means that the mix availability across our different selling points is weak and poor. So I think, yes, you're right, but the market is actually leaning towards stronger brands. So stronger brands, leading brands, right, who have reach and who have distribution capability, right? They are getting traction. And that's visible also from the fact that our business, in some of the non-South markets has grown in double-digit like North and West, where market has opened and we did not have any lockdown issues in spite of lack of availability. So I think the market is actually favoring larger players and larger brands who have the ability to reach. So we have distribution and infrastructure across the country. We have 30-plus warehouses across the country, right? And we are like in a 150-kilometer radius to most major markets in the country. So I think for us and for players like us, right, the market is more favorable today.

Next question is from the line of [ Sarmanjit ] Singh from SMC Global.

Sir, I want to ask certain questions. First of all, can you throw some light, how much the EBITDA margins you are getting from the non-South market? And what is the trend in the past 3, 4 years, means how does operating profit margins, especially in the non-South market, you are getting right now? And first of all, this question is. And secondly -- second question is, what is the percentage of the digital -- how much digital is contributing to your net revenue from operations? What is the percentage of that? And how things are -- third question is how things are shaping up in Kerala post-COVID? And fourth, what are the different strategies you are adopting, especially in the non-South market to promote your products, if you can explain?

So regarding -- we don't give zone-wise EBITDA, but non-South EBITDA is about 4%, 5% lower than the Southern EBITDA, primarily because our scale in those markets are not as high as South where our throughput is high. There are certain markets like Eastern markets and states like UPS where our EBITDA is similar to South as well. So it's not like entire non-South EBITDA is a one block. There are certain individual branches where the EBITDA is closer to what is in South because of the throughput of the branch. In terms of e-commerce, it's a journey we started about 2 years back. For our relevant category like let us take like stabilizers, where we started first between 6% to 8% of overall sales, growing very, very fast. Similar in the case of water heaters. So 6% to 8% is our e-commerce sales, whereas actual sales in the market is close to 20% -- 15% to 20% depending on the category. So we have still room to grow. There are certain categories which we have not taken e-commerce and there are certain categories where e-commerce is not applicable. So that is why I said for relevant categories like water heaters and stabilizers, for us, it's between 6% to 8% and growing fast. In terms of Kerala, I mentioned earlier also to someone else's question that Kerala's issue is that we have had a spike in COVID cases. So I think in a few weeks, this should start subsiding down. Also, people will get more used to it. I mean, see, in the beginning when people see 10,000 cases per day or 7,000 cases per day, there is a lot of panic and fear. But after some time, probably people will get used to it, and that's what we're seeing in some of the other markets like Karnataka and all that. So, yes, we believe that consumer behavior also will likely change and people will become more acceptable to the risk they are taking while getting out. Any other question I missed?

Sir my last question is, what are the different strategies you are creating means you are doing in the non-South market? If you can share because there are other strong players, especially in the northern side of the country So to the likes of Havells and other players also. So what are the different approach you are adopting something competitive strategy you are adopting it, if you can share it?

Okay. Ram, you want to take this?

Yes, yes. So I think fundamentally, we still have huge opportunity to improve our reach and availability of our product portfolio. So that continues to remain our important and major focus, and that is one of the fundamental pillars of driving growth. The second pillar is we continuously reevaluate our product offerings so that -- for competitiveness. So fundamentally, we are looking at the value proposition of our portfolio, retail models that are not giving us the kind of traction and we develop and launch modules in segments which are very comfortable and then we try to adapt our models to offer a competitive value proposition in terms of future functionality to the consumer, right? So I think the expansion and distribution reach and increasing or improving the addressability of our product portfolio, right? But these 2 remain our primary strategy for, what I would say, developing our growth in the non-South. The third area that we are focusing is on making sure that our partners are profitable. So we try to make sure that the people which who we do business with, right, they are able to enjoy good retention. And therefore, right, they have incentive and motivation to work with a brand like us. As that's the third piece that we work with. And the fourth piece, of course, is we make sure that in every way, right, we are a preferred partner for them.

Next question is from the line of Akshay Bhor from Premji Invest.

My first question is more of a clarification. When I look at the GSK retail data for the month of June to August, it's actually gained share in the water heater segment. So just wanting to understand, if retail market share should have been still fine, but you're not able to ship, in other words, outside, but that should get autocorrected over a period of time. Is that safe to understand? Or is that something which you [ pursue ] as well?

Mithun, shall I answer?

Yes. Yes.

Yes. Basically, see, the -- I think the early market share gains would probably reflect the inventory which is sitting with the pipeline, right? Our issues, so us and like anybody else, right, all of us entered into the market with high inventory. So the month of May and the month of June, right, I think -- and probably, I would say, to some degree, July, all of us had good ability to service demand in the market, okay? And whatever uptakes that we are talking about, right, would connect with the supplies, which would have been made prior to lockdown or in this period, yes? Our challenges in water heater have commenced from August, I think -- I think part of August and September is going into lockdown. And then again, part of September and October, we had this COVID issue and the factory operations are significantly impacted. So I think that has affected our ability to sell it because whatever inventory we had, our team has liquidated in the early part of this quarter. And so we had significant challenges. Actually, we had challenge starting July itself because, I think, we started our operations a bit late. So right through July, August and September and even the current month as we speak, we are going to be having some availability issues in water heater.

Understood. That's fine. The next question I had is more to understand this market share shift that have happened, and I think some of the players have done double-digit growth. You're probably flattish. But there are some who would have lost launch in this period. I just want to understand the smaller players are so-called unorganized, what is your expectation on when they would be able to come back? Are you already seeing the -- coming back in the market? And would you expect that going into, let's say, another couple of quarters down the line, the market share kind of goes back to the pre-COVID levels?

Mithun, I'll take it?

Yes, yes.

Okay. Yes. So I think -- see, basically, if you look at someone like us, right, I think some of our competitors actually gotten to activating their supply side even as early as first week of May, depending on where their manufacturing units were in the first week of May. Someone like us, we were able to start off somewhere around middle of June, and we anticipated that by middle of August we will have supply challenges and that has happened. So we had anticipated because we are in a number of categories and our supply chain, a large part of our supply chain is outsourced. And so therefore, it is -- and because we are not the strong leaders in those categories, the priority that we may be able to get from those vendors when they have labor availability issue and material availability issue, obviously, we are going to have issues. So that was anticipated. Now that being the case for someone like us, right, I think it is fair to say that as you go down the value chain, you will find that these challenges will be continuing right through into, I would say, August, even early part of September for smaller players. I think you can certainly -- I think September onwards, I think you can start to see them gradually coming back, right, and gaining traction. And maybe, I think, in the coming quarters, I think things will ease out better for them. So I would sense, maybe September quarter, some more time, but certainly from the coming quarter for some more time. But certainly, from March quarter, right, business will -- the competitive landscape, right, will fall back to the earlier level.

So one more point here to understand is these smaller companies, one of the reasons why they were able to keep their offload providers they were making on their own is they used to use migrant and informal labor. So there is no EPSI -- PF, ESI and all those kind of benefits for factory employees. So when you have such a small-scale operation, and when this happened, all these laborers are left and they are not coming back because there's nothing for them to come back, at least for some time because there is no loyalty for them to stay with this particular unit. So that also is one of the reasons why some of the units are hugely impacted. I'm talking about the small brands.

Just one thing, Mithun, so there is -- so while we are anecdotally hearing that people are coming back and that's why I was saying that you might start to see their operations get to normalize in this quarter and maybe supply starts to get more normal in the next quarter, which is like Jan, Feb, March. But on the other hand, I'm reading that -- some of the other data that I'm reading is reflecting that this scale of movement is not supported by some data. So we don't know at this stage how severe is the picture. But if we look at our vendor base, we find that in most cases, now, labor availability is back to about 80% to 90% -- 80% to 85%. So I think maybe for smaller units, it will take a bit more time in. Probably after the festival period, maybe people may be more comfortable to come back. NREGA data, right? It is apparently reflecting that laborers still not moved to cities. So it's conflicting to what we are hearing.

Next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

The first question is on the second half, you said you were looking at maybe growth coming back. Any number you'd like to put over here because you're actually looking at almost a very weak Q3 also which we had last time and also, Q4, obviously, had a very -- the base was extremely weak. Because like you highlighted that typically, towards the fourth quarter, you would want to build up inventory and that was not able to happen into the trade. So is it fair to assume that one can actually assume as much as like a 15%, 20% kind of a top line growth in the second half of the year, given how the basis have been for us in the last year? Or do we have this confidence for that?

What we are feeling and what we are forecasting at this point is that we'll probably hit last year's revenue for the full year.

You will hit last year's revenue for the full year?

Yes, we should be able to hit last year's revenue for the full year. So that's what we...

Which means you will be able to -- should be able to do about a 20% number for the second half of the year?

Because we are almost INR 350 crores drop in March last year.

Yes, correct. Correct. Correct, sir. Sure. And second thing was a little -- a concern which has actually been happening in the past as well for you. You're speaking about the competitive intensity being much higher in the southern market. The larger organized players also kind of getting aggressive. So has that kind of accentuated in this period when you've actually seen the larger organized players becoming more aggressive and maybe V-Guard maybe losing out on that bit as well? Has there been any share shift in account of that?

Mithun, can I answer that?

Yes.

Yes. Yes. So a couple of things, right? So I just want to dial us back to about 3 years back, right? So V-Guard had an outsourced model and that gave us a competitive advantage. So once demon and GST came in, what we found is -- we found that we had almost nearly 4% competitive impact on the corporate revenues. And what we have been busy over the last 3 years is to restore our competitiveness. And we have come to a point, not only we have restored our competitiveness but also -- relative competitiveness but also we have improved our margins in this period, and we are able to demonstrate consistently double digit. Last year, you saw we had crossed 7% EBITDA also. So I think -- so that has been our focus, and that is why a lot of work in V-Guard has been focused on the supply side, right? We have expanded our manufacturing footprint. We have gone in for deep supply chain interventions, right, which has helped us to overcome this competitiveness issue of about 4-odd percent, which we encountered the moment we moved into GST. Because earlier, right, we used to source from vendors, right, and had vendor price, whereas the manufacturers were probably paying in excise on the MRP, right? So I think that was the context. And so I think because for energy has been focused in that direction. Yes, that's the first part. The second part is, till we are able to institutionalize our interventions, right, the competitive disadvantage is going to remain. For example, right, our Sikkim factory for water heater, right? We should have actually been able to commission. I mean we -- there was a Phase 1 that we had done, but there is a Phase 2 of the project, which we should have commissioned by March, April, which because of COVID got delayed into August, September, which is supposed to help us to insource the entire water heater production, right, from China into India. And that helps us to have significant competitive advantage to compete with local offerings. So I think -- so to answer your question, right, 2 things. I think that we -- then there is another part also, which is that the market is shifting towards -- more aggressively towards organized retail and e-commerce, right? And that is also requiring companies like us to adjust our product portfolio and offerings. That is something that requires us some time to prepare in terms of creating propositions for various channels. So I think -- just to address the question on competitiveness, I think that we have made a huge journey in the last 3, 4 years. So I think overcoming this challenge and also simultaneously improving our margin. The part of doing that also, we have obviously repositioned our product post our relaunch to be -- what I would say, to command, what I would say, better realization across our product offering and portfolio. So that's broadly about how we have dealt with the competitive environment over the last 3 to 4 years. So coming to whether we have had dents in any of our categories in South, I would say if you look at water heaters, yes, this year, we might see some ground in the last 2 months, but we will come back now once our supply revives. I think different organizations are enjoying different growth. And that's a function of -- see, for example, we enjoy large market shares in South, okay? But we enjoy lower market shares in non-South. So if someone is growing aggressively in non-South, it may be hard for us to reflect the same growth in South because we may already have, in some categories, disproportionate market shares, right? So I wouldn't say -- I think, by and large, we have maintained market share across most categories. By and large, that's what we have done. I think that we could have better participated in organized retail and e-commerce, which we have taken a more painful path to build different approach to e-commerce and that is paying dividend to us so that we are able to build our e-commerce portfolio more profitably because of the route and pathway that we have taken. And we are gaining aggressive traction there. But we are challenged with our ability to meet the e-commerce requirement, right? And so our supply chain is still to fall in place to be able to help our e-commerce still to meet the market demand. So we are having some challenges there. So I don't think we have lost ground anywhere. I don't think we have lost ground anywhere. I don't think we have lost ground anywhere. And there has been a bit of pressure on Kerala because of this situation in Gulf and before that monsoon and all that, right? So I think last couple of years, right, Kerala has had -- I think the last 4 years ago, there have been some significant challenges in Kerala, right? I think 2, years, we had floods.

How much would be Kerala down? Let's say, this quarter -- I'm assuming Kerala is still not back to normal, how much would be Kerala back as of now in terms of, let's say, recovery as a market?

Sudarshan, about -- I think we -- this quarter, we are down some 17%, 18%.

Yes, Kerala is down 18% this quarter.

Yes. That is activities were largely down. So whereas if you look at Karnataka and Andhra Pradesh, we are in double digits. So similarly, Southern Tamil Nadu has also dragged us down, right, which is adjacent to Kerala, right? It's kind of common landmarks. So that's the thing. And that's why I said, Kerala has been on and off having challenges and probably would have reflected a slower long-term growth in the last 3 years because of these natural calamities and also the issues in Gulf, right? So -- but otherwise, we are fine. I don't think we have lost ground. There is definitely mall growth we have moderated by 1% or 2%, but that is again because of slower growth in this market. Also, I think we have to remember a significant shift in market has happened, particularly in the durables category to e-commerce and organized retail and some of us are taking a bit more time to align right?

One last bit is on the margin side. So while you said that the margin trajectory will improve. Just want to understand, because of this COVID period, you've actually seen a lot of these players actually pulling back out of the costs, some costs being sustainable, some being nonsustainable. Are we now -- can we more comfortably say that the margin band which used to be there in the past, that's now shifted upwards to maybe about 50 to 100 basis points while we go forward, even in a normalized situation. Is that a fair assumption to make?

No. I think what we are saying is we would like to focus on gross margins rather than on EBITDA because I think our gross margin will [ fight to achieve ] because below gross margin is what you will manage your COVID period, you will cut cost otherwise. I think, Sudarshan, we have -- we, I think, have a 1.7% or 2.7% lower. I'm forgetting. I think 1.7% lower gross margin this quarter, right, over same period last year?

Yes, yes.

And that is fundamentally coming from lower capacity utilization of Sikkim factory because these factories were closed while the operational costs were borne by the company. And significant, what I would say, see water heater makes more than average margin because compared to -- because you also have wire which is 20%, 25% of our revenue, which is at a lower gross margin, right? So I think there is also some margin erosion because of mix, right? Having not sold some amount of water heater and some amount of stabilizer. I think these 2 factors fundamentally explain our gross margin erosion. Otherwise, on gross margin terms, we are more or less there. I think there will be some cost pressure which is building up as we speak, which you might probably see going forward maybe in quarter 4 or something like that, for which, I think, companies will have to take some action in the coming months, mainly arising out of commodity pressures. So I think some actions are underway, and some actions will have to be initiated to neutralize that. But I think that's business, as usual, companies have been doing this over many years. So it's more a matter of timing. So it's not a structural issue. I think, I wouldn't, at this stage, guide a gross margin improvement, okay? I wouldn't say that because, I think, we still have the challenges on, what I would say, addressing the commodity thing, which we have to act on.

Next question is from the line of Mayank Bhandari from B&K Securities.

Sir, I just want to understand about the employee cost. In last quarter, we have seen 10% in the employee cost, whereas this quarter it is, again, close to about 10%. So have really not -- I think we had held the increments. So how we should expect this going forward?

Mithun?

Employee cost, Sudarshan, it's largely unchanged. There should not be any Q1, Q2 difference unless there is some....

No, no. The -- no, no. Let me answer that. When you compare this quarter to corresponding quarter last year, it is an ESOP write-back difference. Last year, Q2 had a write-back of INR 10 crore, which is a one-off benefit. So that's...

But in Q1, I think we had withheld salary increments and that impact has not come in this quarter. I mean you've not restored it as of now.

When you adjust for that, the employee cost this quarter will be lower than the corresponding quarter of last year.

He's asking about Q1. Q1 to Q2, there should not be much difference, right?

There is not too much, much difference.

Okay. Okay. And sir, in terms of gross margins, you were highlighting that the company has always been following a strategy of killing the low-margin SKUs and getting into more higher-margin SKUs. So that kind of strategy, because now you are -- now you guided that there will not be any gross margin improvement or maybe there will be minimal gross margin improvement. So what is your take on that? Like have we not been following their strategy of killing low-margin SKUs and getting into higher-margin SKUs?

Yes. I think what we meant is, for the next couple of quarters, we may not see much of improvement because of the cost pressures. The natural improvement in gross margin because of more richer mix in both SKU and product, that will happen. So that we have said even before that we would like to see some 0.5% improvement every year. But may not see that for next quarter is what we meant.

Yes, I was responding to his question of gross margin improvement for the coming 6 months, right? So I was just telling him that there is the input cost increase which has to be addressed by companies, right? So -- but the strategic portfolio improvement is something which is something that as a company we will make happen in the coming period, right, as we have been doing over the years.

Next question is from the line of Ankur from Qatar Capital.

Sir, from a competitive landscape, when I think about the product basket, I see all the competitors including V-Guard, they're launching all in the similar categories. So how does one differentiate oneself when you are in the market? Like, let's say, an electric kettle or a toaster or any of the grinder, mixer, every single branded national player or even a local player is planning the launch such products or it already has such products. So how are we differentiating ourselves while putting ourselves in the marketplace?

Ram, you want to take this?

Yes, yes. 2, 3 things, right? So one is we are working on design language for our product, right, so that we are able to stand out as unique and differentiated. I think we have already done work on brand identity and packaging. And I think product design is one area that we are working on so that we are able to impart a distinct identity to our products. The other thing, yes, I think initially, when we get into any category, right, we -- our focus is going to be to understand the category. Our focus is to build capability, build competency. And as we understand that better, right, it gives us the ability to experiment more with newer feature, functionality and additions, right? So this is a journey. Fundamentally, one area that, along with our brand relaunch, what we have tried to do, we have tried to focus on -- see, one of our strengths is electronics. I think that that's an area that, among our immediate peers, we understand better, right? And we've -- so when it comes to smart products, right, we had been first to market and we have tried to create differentiated offerings of smart products across various categories, right, whether it was inverter or fan or water heater, right? So that's an example there. But basically, we are working on consumer insighting based products, right? So I think that's going to be our fundamental approach. So we are looking at consumer segments. We are looking at their needs and how best to fulfill their needs. So I think you will see that our -- the way our products will evolve in terms of feature and functionality, we'll try to address consumer needs in a unique and differentiated way. So I think some part will be feature functionality, but there will also be a common design identity, which we are in progressively putting in our products.

But, sir, over a period of time, like in every single category, say, let's say, electronics and mobile. So mobile or refrigerated market or team market, every market has seen some emerging leader or an emerging player which is trying to build a very strong brand identity around that particular distinct -- that category. In this particular space, that is kitchen appliance and the small appliance space where every single manufacturer or the brand is trying to first start with the outsourcing model and trying to switch to manufacturing. Don't you think that all these small changes, they're not appealing to the market because consistently, I have seen just distribution -- we have a larger district -- where we have a larger company where a national payer who will always try to...

So my answer to that -- my answer to that would be 2, right? So first thing is, I think when you look at a company and when you look at a business, not in the short term, but in the midterm, say, over 3 years or over 5 years, look at the health of what they are doing, right? So if their gross margins are good, right, and they are able to generate profitable growth, they are definitely creating a proposition which is, what I would say, ringing with the customer there. So I think, yes, a lot of people are trying to do a lot of things, right? We live in a democracy. Every company and every businessman has the right and opportunity to attempt various things, right? And entry barrier is low because in the past and for some time now, but maybe I don't know how long it will last with the tariff barriers coming up. I think access to technology and product and design is not a big issue. Now how is V-Guard different, right? So what are we doing, right? So we -- of course, we are, what I would say, progressively and today, I think 80% to 85% of our designs are owned by us, right? So we have an R&D team. We have a design team, right? And we -- what I would say, we're involved in creating the offerings that we make, right? So we own the design, we own the molds, okay. We do outsource because that's a commercial decision. Outsourcing is the cheaper way for us, and it helps us to avoid making investment, right? So that is one part of the story. So I think what I would urge you is to look at what route people are taking to get into certain businesses, right, progressively over a period of time? Are they owning the designs? Are they owning the molds and assets? And are they involving in defining the future functionality of the product? That's the first part. The second part is, progressively, are they having capability to embrace manufacturing as a capability over a period of time, right? I think this is also a critical thing that you'll have to look at. So I think these will show -- these 2 actions show you that these are companies which have deeper commitment. And I think finally, you need to see -- the proof lies in the result, right? Are they able to do -- for example, we may be doing a smaller kitchen appliance business compared to many players. But we have mostly been breakeven or we've been making money even on a smaller franchise. So I think it's a question of, are you able to position your product right in terms of price positioning, in terms of placing it vis-à-vis the right brands. That's where your marketing skills come in. So yes, you're right, a lot of people will try a lot of things, and you cannot stop them. But I think you need to look at the results of what they are able to do even on, let's say, in the initial stages with the kind of revenues that they do and how they are able to position the product? And what kind of investments they are making in terms of embracing the required capability to win the game over the long term. This is how I would suggest to you to discern between the various players who are trying various things in the market.

Sure. Sure. Sure. And sir, my second question is on the channel. So now over a period of time, like you have mentioned it several times during the call, that over the last 3, 4 years, the channel via which we do our sales has shifted significantly. So now in that I would think about V-Guard and, let's say, an emerging brand on a national scale. So let's say, there are challenges of us being an emerging brand because it's a pull game rather than a push game. So now how do you think about the channel sales, that is the digital and the modern retail, let's say, 3, 4 years down the line when you would have executed your strategy?

So I think -- see, the fundamental thing is, firstly, right, you need to work towards fuel for growth. Basically, you can't get into a battle with an empty pocket, right? You need ammunition. So you need fuel for growth. And V-Guard has been working over the last 4, 5 years -- last 5 years or 6 years, right, to generate the fuel for growth, right? And this is the investment that has enabled us, right, to build our product portfolio, to invest in the talent, to invest in the right infrastructure, to invest in technology and in the manufacturing assets. And that's what we have been able to do, and we have made this even as we make money. So I think we will have to prioritize the journey right way. Second thing is we, as a company, have always made hard choices. So if you look at something like e-com, we have chosen not to go the easy way but we have chosen to go the hard away. And we believe that this will pay us good dividends over the longer term. I think, look, as far as e-com is concerned, it's a new game for everybody. And I think the organization which builds the understanding and capability will win the game. Of course, different brands have different brand awareness and natural, what I would say, as -- natural pull. But I think it's possible for an emerging player to garner a higher share than current share in the channels. As far as organized retail is concerned, I think V-Guard has a long history of working with organized retail. And here, I'm talking about fundamentally the regional retailers, I think it is one of the oldest, and probably, brand with the longest engagement in this channel. So stabilizer has existed in the consumer durable channel with these regional retailers long before many brands have been there. And I know -- have personally seen the kind of relationship and rapport that V-Guard enjoys in this channel. So I think entering RSS with all these products and building franchise for that will not be an issue. It's more a commercial decision about V-Guard deciding to invest -- to build this channel for the entire portfolio, where it anyways, having a significant presence with stabilizer and water heater. It's a call, as I said, you have to organize the investments and resources and then you have to commit it towards this channel. So I think this won't be a big issue. Modern retail, yes, I think -- modern retail, yes, that's a slower game and the more challenging game. But, I think, we will have to bring the right kind of strategy and the right kind of capability behind to do this. And we have started working on this, right, over the last few years.

Okay. And sir, just an extension of this question. Because modern -- because in the new channels, that is the digital sales and the modern retail, we have a very big competitor that is the private label themselves. So let's say, I was just browsing through Amazon website, they have their own fans, they have their own electrical appliances and all of that. So now how do you think of that? You just think of them as another competitor in the game? Or would you take their business very, very seriously because...

I think under the law of our land, right, e-commerce players, they are basically a platform, right? And it's the consumer who chooses what he wants to buy. Even today, as we speak, in our company, right, 30%, 35% of the market is unorganized. So there is an organized market and there is an organized market, right? So I think if you have your own labels, I think that the category that would suffer will be unorganized sector rather than the organized players. And second thing is -- so, yes, competition is real. I think...

Sir, but the important part of the channel that is the consumer channel, the consumer interface and also a channel where the highest margins are given by the manufacturers. So maybe on price or maybe on other aspects like, let's say, the Amazon ads or promotions which we are able to do.

No, no, I think -- no, that's what I was saying, right? So we have taken a more difficult path to enter some of these places where we would like to start slow and the right way, right, but build our business with the right margin and right profitability as V-Guard has always done as a company across our various product categories and portfolios. Even our smallest and most recent entered categories, we don't lose money. We breakeven or we make some money. So it's a matter of commercial discipline about how we run our business, and we bring the same approach to -- and we will bring the same approach. I think at the end of the day, you need to have STP GTM expertise to build strong and sustainable franchise in the consumer goods industry, right? So -- and our space is a consumer goods space. So I think, yes, there will be competition. But I think companies which will build capabilities on product, on go-to-market and consumer insight, these companies will always be able to grow their business and make healthy margins.

Next question is from Shirish Pardeshi from Centrum Broking.

I have a few questions. More questions are on channel. So you started saying that non-South sales is picking up. Would you be able to specifically give an example which is the fastest state in terms of growth? And what are the pain points you guys are encountering in that state?

See, yes, it's difficult to say because, see, when we started this year in April, the largest impact of COVID was felt in the largest cities of Bombay and Delhi and then Pune and all that. And in the first few months of post lockdown, Eastern markets and Southern markets started to do well. But later on, the cases spread. So I think this is an evolving situation. I don't think we can say that a state will grow faster than another state. But generally, we can say that where V-Guard has had success, we have done well in the Eastern markets, I mean, over the last 5 to 7 years and we have done well in the U.P. market, which is Uttar Pradesh market. These are the markets where we are seeing good success. But it doesn't mean that we have failed ourselves, but these are the market that has grown for us. The COVID-related rebound is an evolving thing. Today, for example, Eastern markets were the first ones to do well post lockdown, but then later on, the entire state of Bihar went for a 1-month lockdown and completely decimated the numbers. So it's very difficult to predict what the institutional services is planning to do this month or next month. So it is going to be an evolving situation. Probably -- we can't put a finger on a particular state that is doing exceedingly well because 1 month they will do well and then next month that will go down.

Okay. My follow-up on that, you mentioned that there's a lot of consumer interaction happening through the organized trade and few of my friends also raised the private label which is existing on e-commerce. So if alternate channel is the way forward, and it's slowly picking up, but it's growth rate which are faster, so would you be able to quantify what efforts we are trying to do to get our presence in organized trade? Maybe in terms of what are the growth rates we are estimating? And what is the contribution which you are having now and maybe 3 years from now you are targeting to achieve?

Ram, you want to take this?

Yes, yes, yes. No, I think -- see, look, I think this is a phenomenon not unique to us. It is across categories, right? I think -- in fact, I think companies in our space have some advantages, right? So the electrical channel -- most of the players in our space, right, have a portfolio which is overlapping electrical as well as consumer durables, right? While the consumer durable categories are more strongly evolving towards organized retail, the -- what I would say, the electrical categories still remain traditional. And for now, because of the method of purchase and the purchase -- path to purchase, right, it pretty much is likely to be remaining that way, at least for the coming 5 to 10 years. So I think, firstly, therefore -- I think this is a lesser challenge than what is thought out right now. As for these companies, although maybe for certain segments or sectors in the portfolio, the depression will be more felt. That's the first thing. The second thing is, as far as -- okay, as far as emerging channel is concerned, right? So what's got to be our strategy? Obviously, we would like to index our revenues, right, to come -- to give a higher share compared to share that we have in the traditional market, right? But this is a slower journey, and it takes its own time because I think the main challenge for us is 2, right? One is how do we manage the conflict with traditional retail, right? So I think that's one key challenge here. And second key challenge is we need to build a whole set of capabilities which are a bit different from what we do with the traditional trade, right? Be it content, be it, what I would say, supply chain or be it digital. So I think then a whole set of new capabilities have to be built, and that's the second part of it. The third part of it is how you design the business model, right, so that like some of you were expressing concern, whether it would be margin diluting, right? I think it's a question of how you design the business model, right, and how you design the right value proposition so that your partner and you both make money. So I think that's the challenge, right? And those -- that sit down who address it will, obviously, from a growth point of view, take a bit more time compared to those who jump in head-on and try to fix it as they go. So there are different approaches to this subject, right? So -- but I think at the end of the day, I think it is another channel and another way for consumers to buy what they want to buy. So I think it's not anything more than that. I think the only thing is the -- each pipe, right, whether it is e-commerce, whether it's modern retail, whether it's regional specialty, whether it's a direct dealer or a distributor, right, each pipe has different cost, right, and it has a different path to the consumer, right? And the challenge lies in designing product and, what I would say, the commercial parameters, right, so that it makes economical sense, right, for the company and also for the retailer, right? So that's a challenge and that requires to be solved, and that takes a bit more time.

Would you be able to quantify what kind of contribution coming from this emerging channels?

Yes. So for example, I think if you look at e-commerce, right, I think, e-commerce, we would be probably about 3% to 4% of -- I think about 3% of company revenue will come from e-commerce this year, right? And if you look at the concerned categories because some of the categories like wires or switches or switch gear are not on e-commerce. They're on [ pumps ], yes? So if you leave them out, then probably the percent will look more like 5% to 6%. So I think about 5%, you can say this year, we will get out it.

But that will be largely durable?

Yes, that's largely durable, Shirish. So -- and yes, we would like to grow, and we would like to make sure that we index e-commerce stronger than our open market share, right? So that will be our objective. So we would like to grow faster. But that requires that -- we have a lot of work to do to get there, and which is our focus for the coming years.

Okay. Just last 1 question. If you can comment upon our thoughts on CSD channel and exports in near, medium term, what kind of numbers growth you are expecting.

I think -- yes, I think we are not in CSD presently. We are not in CSD presently. Okay. See, I think fundamentally, V-Guard has primarily been focusing on what I would say, traditional retail. And we are expanding our -- we have expanded our focus to, what I would say, as e-commerce and modern trade. Within that, we have always been present in this specialty and we have a very decent share of business coming close to 10%, 11% coming from that channel. So I think we are well-indexed there, a bit lower, but that's something that we can always play with. In South, it will be quite high. In non-South, we have room to improve. When we come to exports, exports is a small part of our portfolio, and we are -- been focusing with export in adjacent geographies, right? Like in our region, right, like Sri Lanka or like Nepal or Bangladesh or something like that. So that's our focus. So we pretty much want to primarily focus on India and build our business and portfolio in India. We are not in CSD presently. And yes, we would like to get there. But getting into it, they have their own procedures and it takes some time.

Ladies and gentlemen, that was the last question for today. I will now hand the conference over to the management for closing remarks.

Thank you, Equirus and Manoj for hosting this call. And thank you, everyone, for participating in our conference call. Thank you.

Thank you very much. On behalf of Equirus Securities Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.