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

Ladies and gentlemen, good day, and welcome to the V-Guard Industries Q4 FY '25 Earnings Conference Call hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Natasha Jain from PhillipCapital India Private Limited. Thank you, and over to you.

Thank you, Ryan. I'm Natasha Jain. On behalf of PhillipCapital, welcome all of you to the Fourth Quarter FY '25 Earnings Conference Call of V-Guard Industries Limited. From the management today, we have Mr. Mithun Chittilappilly, Managing Director; Mr. Ramchandran V, Director and Chief Operating Officer; and Mr. Sudarshan Kasturi, Senior VP and Chief Financial Officer. I would now request the management to give their opening remarks, post which we shall open the floor for Q&A. Thank you, and over to you, sir.

Thank you, Natasha, and PhillipCapital for hosting today's call. A very warm welcome to everyone joining us today to discuss our company's operating and financial performance for the fourth quarter of FY '24-'25. I trust that all of you had the opportunity to review the investor presentation shared earlier. We have delivered a robust performance in Q4, marked by strong growth in both revenue and profitability. Consolidated revenues for Q4 FY '25 stood at INR 1,538 crores, a year-on-year increase of 14.5%, representing the highest ever quarterly revenue in our history. The Electronics segment comprising of stabilizers, UPS systems, and inverters continued its strong momentum, recording a growth of 26.3% Y-o-Y. The performance builds on the solid start the segment saw earlier in the year. The Electrical segment, which remains our largest revenue contributor and includes wires, pumps, switchgears, and modular switches, registered a Y-o-Y growth of 14.6%. In the Consumer Durables segment, covering fans, water heaters, kitchen appliances, and air coolers, we reported a 11.9% Y-o-Y revenue growth, supported by a good start to the summer season and healthy demand for cooling products. Sunflame reported a Y-o-Y top-line degrowth of 24% in Q4. While the kitchen appliance industry continues to face headwinds, this decline also reflects a high base effect from Q4 of the previous financial year. Additionally, the business has been impacted by continued slowdown in the CSD channel. Integration efforts for the Sunflame business are already underway. Once completed, we expect improved momentum in the general trade, modern trade, and e-commerce channels. While recovery in the CSD channel could take time, we have a clear road map of the strategic steps to get the business back on a stronger growth trajectory. In Q4 FY '25, revenue from non-South market grew by 18.6% Y-o-Y, while the South market grew at 15.3% Y-o-Y. For the full year, the non-South market contribution reached 47.5%, excluding Sunflame. We have reported a gross margin of 35.5% this quarter compared to 34.5% in Q4 of last year, an increase of 100 basis points. We have driven a meaningful improvement in gross margin through the year and believe that the margin recovery is largely complete. This recovery has been driven by increasing share of in-house manufacturing, cost efficiency initiatives, and gradual shift towards more premium product portfolio. We will continue to pursue further incremental gains in the gross margin going ahead. EBITDA excluding other income for Q4 stood at INR 143 crores, reflecting a Y-o-Y growth of 11.9%. For the full year, we reported an EBITDA of INR 513 crores, an increase of 20%. EBITDA margin was 9.2% compared to 8.8% in the previous year. Consolidated PAT for the quarter was INR 91 crores, up 20% Y-o-Y compared to PAT of INR 76.2 crores in Q4 of FY '24. For the full year, consolidated PAT was INR 314 crores, higher by 21.8% Y-o-Y. In recognition of the strong performance, Board of Directors recommended a final dividend of 150%, equating to INR 1.5 per equity share. Working capital remains efficient, ensuring strong cash flow generation. We have repaid ahead of time the entire term loan related to the Sunflame acquisition, and back to being a debt-free company. Overall, it has been a satisfying quarter and a strong year marked by strong double-digit growth in both revenues and profitability. This growth has been broad-based with meaningful contribution from all key segments. We are also progressing on initiatives aimed at structurally enhancing the performance of the Sunflame business. With that, I conclude my opening comments, and I would like to thank Natasha and the team at PhillipCapital for hosting this call, and we'll request the moderator to open the floor for Q&A. Thank you.

[Operator Instructions] The first question comes from the line of Rahul Agarwal from Ikigai Asset.

Congratulations for another good quarter. Mithun, 2 questions. Essentially, one is there are a lot of highest ever for V-Guard, I think this year. I'm looking at 2 things, gross margins and working capital. I think in history of V-Guard, both these numbers look like best ever. Just wanted some outlook on gross margin as well as working capital cycle. How will this shape up over the next 2- 3 years? Obviously, you mentioned that we'll continue to improve this, but my sense is further improvements on gross margin will really need a lot of internal efforts as well as on working capital, I think we are very tight on receivables now. So, just some outlook on this. That's my first question.

I think, as far as gross margins are concerned, as I mentioned in the opening remarks, we are largely back to the pre-COVID levels. I think, of course, some more small improvements in gross margins are possible. I think we will be working on it. But I think largely, it has recovered from all the commodity inflation and all that. So as far as working capital is concerned, we may not see a very huge improvement. But some more possibilities are there. Like we had mentioned that we are we are working on a more premium portfolio in each category, so which also should kind of give gross margin a slightly improved trajectory. As far as working capital is concerned, I think, yes, we are at a very good place. I think as far as debtors are concerned, yes, I don't think it can go much lower than this. But inventory-wise, I think we still have a little bit of more inventory than we would like to. So maybe from the inventory side, some more small improvements is possible. But I think even working capital-wise, we are largely in line with whatever has been our steady state.

Got it. Fair point. And the second question was on alternate energy business across I mean, you have announced a battery manufacturing CapEx. So just a bit on that, why this decision? And what do you see going forward? Something on Gegadyne, if you can explain what's really happening there? And solar rooftops, which is essentially part of electronics, how do you look at these businesses? And any single segment which you think can be like an INR 500 crore top line annually? If you could highlight what could be a potential opportunity across these line items? That's all from my side.

So the solar rooftop business is growing very strong. It's housed within the electronics. We've had very, very strong growth, although we don't give out product-wise numbers. I think in about 4 to 5 years' time, we should hit really good numbers. And I think once it's large enough, we'll start disclosing the numbers. So solar rooftops is something that's doing very well for us. We've always been in the inverter business, but solar rooftop was something that was carved out about 4 years back. And I think we were right on time to take advantage of all the incentives given by the government. The government is giving a lot of incentives for individual houses moving to rooftops, and that's driving a lot of demand. I think we still have a lot of headroom because this entire demand is from some 7 or 8 different states out of the 35 states. On the second thing -- sorry, what was the second part? On Gegadyne, right? Okay. Ram, you want to take this question on Gegadyne?

Yes. I think we had invested in Gegadyne to help them to support and establish the technology. And I think where Gegadyne is today, I think in about 18, 24 months back, they had put up a pilot plant based on the funding that we had extended. And they have kind of stabilized to achieve their technology goals. And we have validated it and it's working well. So now they are in course of figuring out how to scale up and how to move forward and how to prepare for a commercial launch. But that will be at least another couple of years away because they will have to establish capacity for that. But yes, I think the progress on technology development has been good, and they have met the development objectives for which they were funded.

Got it. Anything on the battery expansion for V-Guard?

Yes. Mithun, you want to or shall I?

No, you can, please.

So, about 3 years back, we had initiated a project for setting up battery capacity in Hyderabad. And about 18 months back, this capacity was commercialized. And as we sit today, the factory is operating on full capacity utilization there. The business has been growing in high double digit, and that is warranting further increase in capacity together with what I would say, some shortfall or scope for us to feed some of our outsourced revenue through the factory. So I think this plant is expected to come up in the next 18 to 24 months. And we expect to be able to feed our growth from this plant. This plant may take about another 6 to 9 months to fully stabilize beyond the commercialization date. So we are looking at this capacity coming up 2.5 years from now. I mean, getting -- fully stabilized 2.5 years from now.

Yes. And the INR 50 crores can make how much amount of sales, what's the asset turn here?

See, we are -- this investment is purely on machinery, okay? And we are looking at the possibility to install this machinery around our existing facility. In terms of throughput, I think this should give about INR 300 crores, INR 400 crores of throughput. It should support this investment in net sales.

The next question comes from the line of Naushad Chaudhary from Aditya Birla Mutual Fund.

Two questions. First on the Sunflame, sir, I think last quarter also, we indicated that the cleanup has been done and sequentially, we should experience improvement. But this quarter also, we have seen sequential decline in the margin as well as -- and also on the top line. Any sort of clarity what exactly are we doing here? How should we look at this piece of business?

Yes. Firstly, Q3 is a high quarter compared to Q4 because Q3 is when you have the festival season. And generally, Q3 sales are higher than Q4. So you may not make a sequential comparison. However, that being said, I think compared to last year, our results have already been published and it is challenged. So notwithstanding that, I mean, the business is under stress. We are okay as far as emerging channels are concerned. We are okay as far as GT is concerned, in line with the market. I think we have a bit of stress. I think last year, base was high, as Mithun has already explained. And also we have some stress in CSD, CPC channel. Now fundamentally, in terms of what we are going to do going forward, I think we are working on business integration of sampling with V-Guard, right? So this is a journey. And I think it will take some more time before the integration is complete. We have -- we are also -- as we had indicated last quarter, right, we are working on a project. And more or less, we are at a stage of closure on defining the way forward in terms of the strategy and pathway that we will take to grow the business again. I think that the business integration has taken a bit more time because we have had a few challenges. We've had to refresh the product portfolio. Typically, the cycle for product refresh is about -- I think we had explained last time also, the cycle for refresh is about 18 months. And we also had the team on board 7 or 8 months after the integration had happened. So I think some of -- those are some of our setup delays, which are impacting us. We remain hopeful that we will be able to get the business back on growth path on the back of improved product offerings and the integration of some of some of our capabilities into Sunflame, particularly in the area of customer service, logistics and quality, which these 3 quality management, these 3 areas, we expect that by September or October, we should be able to fully integrate and extend the similar delivery as what one witnesses in V-Guard. So this is a journey. It's taking time, and it's taking time longer than what we had anticipated.

So for FY '26 on a low base of '25, should we expect growth in this business and margin improvement? Or should that remain...

Sudarshan?

Yes, you're talking about Sunflame, right?

Yes, Sunflame. Should we expect growth and margin improvement? Or should it remain a pain point for us?

On the GT and e-commerce side, we are confident that we will see growth. However, on the CSD front, we really can't predict how long whether that slowdown is going to continue or not. But as Ram was saying, most of the business integration efforts are towards strengthening the product back end as well as selling capability and primarily in the GT and e-com channels. Yes. Short answer, growth will depend on how CSD sort of turns up. But on the GT, we are more confident.

And GT and e-com would be 50% plus of the overall revenue?

Yes, about 60%.

Okay. And last question on the Gegadyne. How the success of Gegadyne would help our base business, if you can run us through what exactly we are thinking? And if this goes well, how it will help in our base business?

So Mithun, I'll take this. So I think the investment in Gegadyne has been anticipating a shift in battery technology, which we expect to happen, right? I think over a period of time, alternate energy battery costs are coming down and they are at the TCO level, already, I think alternate chemistry batteries are having a better TCO compared to lead-acid batteries. I think as the unit economics of the -- as the unit price of the alternate chemistry batteries start to come down, there will be a shift in the market towards alternate energy batteries. And that's the play that in which we are invested in as far as Gegadyne is concerned. I think the -- as I already explained earlier, I think it will take a couple of years for the benefit of Gegadyne to materialize because these batteries have to be commercially produced for which capacity has to be set up. I think the technology targets are met, and we have given them a go ahead to figure out how to, what I would say, commercialize the battery output. So I think that work on that is underway.

And supposingly, if this goes well 3, 4 years down the line, would this kind of change help the industry to consolidate further and the guys who are ready with the technology and integration should benefit more? How would you be positioned from 3, 4 years point of view if you succeed in this, would you have better advantage versus what you are today?

Yes. So 2, 3 things. So one is that Gegadyne has its own journey, okay? And our business is a small part of Gegadyne's journey and future, right, because we are -- basically we have invested in this fundamentally to support our inverter battery business. And also wherever there is possible to have energy storage integrated with our existing products and categories. So that's our scope. And so our scope is a narrow part of the overall Gegadyne journey, which has a far more significant potential, multiple times. But our -- as far as V-Guard is concerned, our objective is fundamentally centered around growth for our battery business, and it will help us to obviously grow because it's a differentiated product, right? It doesn't have lithium. It gives a far longer life than even lithium-based batteries. And it is far more stable and safe as a technology. So I think that it has benefits to help us to be able to price and probably earn a better margin, right, compared to other alternate chemistries. So I think that's how it will benefit V-Guard. And probably we will have the comfort of having a more stable and reliable battery, which we can launch in the market.

Any plan on increasing the stake in this company? And V-Guard will come up with the commercial plant, how much minimum CapEx would require?

I think that depends on the size of the CapEx and that also depends on the plans of the promoters of Gegadyne. I think the shareholders of Gegadyne will make that call in terms of what is the size and what the investment will be.

Do we have any exclusive rights with this company?

Yes. We have exclusive rights for our categories, which is for the inverter battery space and for any potential application for our categories.

The next question comes from the line of Keyur Pandya from ICICI Prudential Life Insurance.

Congratulations to the team for great results. Sir, I just want to understand from the Electronics segment perspective, so stabilizer as a category of Electronics segment has grown for the last 2, 3 years in high double digits. And in the backdrop of such high base and the recent news of relatively weaker summers, how do you see performance of electronics as well as the ECD, that is fans and coolers performance in FY '26? Some thoughts would be useful.

Yes. So, I think this year, April, we had intermittent showers in South and Eastern part of the country. And summer here has been more less warm when we compare with last year. So definitely, sales of cooling products will get impacted like air conditioner stabilizers, air coolers, fans, pumps, and to some degree, inverters as well. But we are not yet completed. So, we still have 45 days to go. I think till June 30, we have summer in many parts of the country. So, we'll wait and see. But yes, so it depends on what will happen in the next 45 days. But some parts of North, et cetera, are warm. But yes, we have a bigger skew towards South. So, there could be some challenge in terms of these categories for South India.

And in your earlier remarks, when you talked about margin, I mean, in the longer journey of a stable margin or improving margin, do you see this year margins get impacted because of either mix change or negative operating leverage if season is bad?

No, I don't think...

Basically, you have levers of non-South or some other levers of manufacturing, which would offset the margin contraction.

So, I think we are not only dependent on -- last year, we had a tailwind in first quarter definitely. But the following quarters, we did not have any support from the summer categories. Definitely, first quarter of last year, we had a very good tailwind from that perspective. So, to some degree, we could expect a muted first quarter. But I think for the full year, we don't expect a huge impact because we are also having other categories. And like you said, we also have summer still -- there is a chance of summer still being warm in the northern part and the other western part of the country, which should support some demand. So, I don't think it will have a huge impact. We are quite confident as far as margins are concerned. I don't think we'll have a huge [Technical Difficulty]

Understood. Sir, just last question. Some thoughts on how the demand has been for the house wire segment or other categories related to real estate and your non-South initiatives, any specific regions, focus regions in previous year, or, say, FY'26, I mean, more detailed or specific of the non-South initiatives and wires demand?

So, wires has grown by about 10-odd percent in the fourth quarter. There were some challenges for the growth because of reduction in -- there were some fluctuation and reduction in copper prices. But in April, we have seen that there has been an improvement in increase in copper prices. So, I think this quarter, it should do better than previous quarter. The second question is on certain regions. I think today, V-Guard is fairly well diversified with almost every part of the non-South market almost contributing equally. Of course, the Western markets -- the East has a slightly higher weightage when you compare in the non-South. But otherwise, it's pretty much well spread. We have, barring the small states, almost all the large states, we are getting good contribution.

[Operator Instructions] The next question comes from the line of Aniruddha Joshi from ICICI Securities.

So now considering the steep impact on the business of Sunflame, and if I look at the goodwill as well as the intangibles, let's say, between the stand-alone and consol balance sheet. So, I guess there is this INR 700 crores of intangibles. I guess it is primarily linked to Sunflame. So, has the in a way management thought about almost INR 700 crores intangibles, any like write-off or in a way revaluation of at least these intangibles?

No, there is -- we are required to review carrying value of intangibles on an annual basis. We have done that, and we sort of concluded this for impairment. That is something we will review again next year. So, at that time, we'll see.

Understood. And in a way, what are the other ways we are looking at Sunflame? Because the V-Guard part of the business is doing phenomenally well. If we exclude Sunflame part of the business, V-Guard has done wonderfully well. So, what are the triggers that we are looking at to in a way improve the Sunflame business? Or what can be the in a way potential? Because I guess the way Sunflame was doing the business earlier, it was high on trade margins and even debtor days, et cetera, were materially higher to the trade. So now, since we have changed that proposition, I guess the value proposition for the trade may not be working out the way it was working out earlier. So what can be the potential here or like rebranding under it V-Guard or like V-Guard Sunflame or something like that? So what can be the potential change that we can do or increasing the share of voice materially in that, something like that?

Okay. So just a couple of things. One is the GT part of Sunflame is growing. The Sunflame has 2 main channels, I mean, 3, but where the CSD, which is canteen stores departments and defense canteen contribute about 35% to 40% of Sunflame's revenues. What happened is about 1.5 years back, they have added many brands. And even V-Guard was added. For example, V-Guard, which was doing INR 10 crores of business between CPC and CSD, today does close to INR 140 crores of revenue. The same Sunflame team only sells the V-Guard products into CSD. So we have a single team managing it. So in that sense, it has not been a complete issue. So one of the reasons, let's say, Sunflame CSD business has come under pressure is CSD, which used to have 4 or 5 brands today is having 12 to 15 brands in each category. So they've added a lot of brands, and that has created a lot of problems for them in the sense of a lot of overstocking has happened. Now they are in a course correction mode, and they are only ordering whatever is selling and stuff like that. That is one of the reasons why Sunflame business has got into trouble. The GT has not had an issue. We have not changed much. We are continuing with whatever the earlier promoters were doing. Most of the distributors are continuing for Sunflame. So the GT business has not been much impacted. And CSD margins for Sunflame were higher because the overhead cost for Sunflame for doing CSD was lower. So when there was a drop in the CSD business, it has impacted margins. Ram, do you want to add on to this?

Yes. I think we haven't changed much. Fundamentally, what has happened is it's a small entity. I think they lost about 2.5 years in COVID. And then as they came out of COVID, we did the transaction. So 3, 3.5 years, not much activity on product refresh has happened, right? And after that, our team came on board about 8 months later, and they took some time to settle down. And then they have initiated interventions on refreshing the product portfolio. In the last 3, 4 months and in the upcoming 3, 4 months, I think most of these SKUs are coming to market. So this is the first issue. Second issue is, I think that the service infrastructure has also been a challenge. And we are working on the integration of service with V-Guard. I mean, V-Guard service or V-Guard quality management systems and the V-Guard logistics systems. These are far, far more efficient. And I think those are the areas which will witness changes in the next 3 to 6 months and which are beneficial changes. I think the product refresh is an ongoing exercise, and it will happen. Also, what had happened is in e-commerce, I think that V-Guard goes to e-commerce directly as a company Sunflame used to go through intermediaries. And so we are transitioning this. And it has taken us some time to set up the required infrastructure and systems and also to build recommendations before what I would say, growth can be triggered. So I think fundamentally now these areas, organized retail, modern trade, -- sorry, organized retail, which is e-commerce plus modern trade is already integrated now with V-Guard. And as we make the differentiated offerings and our approach is to have a differentiated SKUs. So even in e-commerce, we are not pushing the button aggressively because the pricing dynamics on e-commerce is very different from general trade. So a lot of the challenges are fundamentally related to resetting our product portfolio and offerings, right? In the meanwhile, the market had significantly refreshed the portfolio. So the issue is not one of business system or brand. The issue is one of the competitiveness of offerings because of the limited product refresh before we took over the business.

In a way, this CSD CPC issue is kind of a structural, I guess, it is with many consumer brands, including Sunflame. So now with so much new brands coming in plus they going for inventory correction also. So do we see the growth rates coming back in a way, I mean, the business recovering back to, let's say, FY '23, '24 levels immediately or it will be a course correction over the next 2, 3 years?

No, I think our business across the other channels will grow. I think CSD, CPC we don't have a view at this stage, but I would think that whatever damage has to happen has happened, it should probably be better going forward because I'm sure that they have taken aggressive actions. I think it's natural, the market is limited. So when more brands get in, rediscovery will happen and some things will move and some things will not move and they will correct it. So we do hope that this is what we have to do. And we will do better than where we are today, but this is something that we cannot control. So we don't want to give you a point of view on that subject, right, because we don't know how it will evolve. As Mithun said, look, one side we have been hurt. On other side, we have been beneficiary also, because we have been able to significantly grow our business because more SKUs we could launch. So on an aggregate, the company has done well, but one side has benefited but the other side is a big stress.

No, no, sir, this is very helpful. Just last question. If we divide the market as per the channels, general trade, modern trade, e-commerce, MFI and this CSD, CPC. So what will be the share of all the channels for the market or for V-Guard per se?

Ram, you want to take this?

Yes. I think we -- it is similar for the -- I mean, it's hard to answer this because the portfolio of every company is different. Product portfolio of every company is different. And the share of different channel is also different. But for example, right, if you were to look at the portfolio or the bundle that V-Guard is in, in terms of categories, right? I think it would be fair to say that, let's say, if we exclude wires, maybe about 40% to 45% of the business may come from non-GT, which is modern trade, RFS, e-commerce and CSD, CPC, right, and MFI and all these things. So GT is now about 55% to 60%. So I think in electrical categories like wires, switches and switchgear, I mean, these channels are not that significant in any way. So it's more or less GT-oriented any way. Even pumps, right? So I would say wires switches switchgear and pump, it is more or less 98% GT.

We take the next question from the line of Natasha Jain from PhillipCapital India Private Limited.

I have 2 questions. One, in terms of other expenses, there is a very sharp increase this quarter. So can you highlight what is that about?

Yes. One second. Sudarshan, do you want to take?

So other expenses gone up by about 16% compared to a turnover growth of about 14%. But some portion of it is related to factory expenses. Some manufacturing expenses also get captured under the client. And as new factories come in and they scale up, so that cost goes up. The routine overheads are pretty much normal. So much of it is contributed by factory-related costs and some increase in A&P and volume-related stuff.

Understood. Sir, my next question is on the stabilizer business. So when I was on the ground, I saw certain of your peers, especially Voltas has also come out with AC stabilizers and even Everest, pricing of Everest is way cheaper than V-Guard. While V-Guard still remains the leader, I just want to understand from your perspective, how you're seeing this competition coming up, especially Voltas because what I saw later on in the season was Voltas even started giving its stabilizer along with its AC. So any comment on that, sir?

Ram, you want to take this?

Yes, yes. See, these competitors have been around. I mean they are not new competitors. They have been around for many, many years. And Everest pricing vis-a-vis V-Guard has always remained the way it is presently. It has not got adverse. I think that there have been some challenges in the air conditioning industry. And it may be that some of these kind of measures may have been taken up tactically, maybe by Voltas or something like that. But generally, yes, we are only around 55-odd percent of the market, 55%, 60%. There's the remaining 40%. This keeps changing. Brands come and brands go and brands become active and brands become slow, meaning they taper off. But that's what I would like to say. Mithun, do you want to add anything more?

No, I think a lot of air conditioner companies have stabilizers like an accessory. And when, I guess, maybe the season is slow this year, they must be -- instead of discounting the product, they may give free accessories. And this is not a new thing. It has been going on for some time. I mean it's at least till last 10, 15 years, starting with Godrej and all that, we've seen companies launching, like Ram said, they will launch and they will sometimes discontinue, sometimes continue. But anyway, we don't hope to own 100% of the market. Like Ram said, we will be at 40%, 45% of the organized market, and that's comfortable for us.

We take the next question from the line of Achal Lohade from Nuvama Institutional Equities.

Congratulations for good numbers. My first question is pertaining to wires. You did mention about 10% growth. Is that the volume growth you talked about, 10% Y-o-Y in 4Q?

Okay. We need to come back on that, whether it is - are you talking about 10%...

It's a value growth.

It's a value growth, sales growth.

In 4Q?

Yes, in Q4, yes.

Does that mean the volume was pretty much flattish given the average copper prices were about 10%, 12% up Y-o-Y?

I think price growth was about 8% and volume growth was 2%, something like that.

Volume growth was about 2% to 3%.

And you were saying that 1Q, it is improving. Have I understood right, the volume growth?

Yes. First quarter, sequentially, we are seeing an improvement because there was an uptick in copper prices in April.

Understood. The second question I had was with respect to pumps business, right?

This is towards the end of March.

We were talking full year numbers until now. Q4 volume growth is 5%, price growth of 12%.

Okay. Sorry, Q4 -- sorry, that is a full year number. Q4 growth 17%, 5% volume growth and 12% value growth.

So 17% revenue growth in cables and wires, have I understood right for 4Q?

Yes.

Okay. Understood. The second question I had was with respect to the pumps business. Do we have any exposure in terms of solar pumps, the way we have gotten to solar rooftop? Is there any case for solar pumps as well?

So something that we looked at it, but the go-to-market is through the agricultural department of various states. So we typically don't like dealing with these kind of customers. So we have not got into it. No, we don't do solar pumps.

See, actually, the problem is the channel is very different as far as most of this is agricultural pump. The channel is very, very different from our remaining part of the business, right? And we don't have a pathway. And this space is also highly volatile, the agriculture business. It is very much dependent upon rains, and also the size and type of pump varies also across, right?

Ram, you're talking about solar pumps?

No, no. I'm just saying that, basically, it's for agricultural applications. And yes, a lot of it either travels through similar channel or it is through government business, right? So yes, the skills required there, we don't have teams which are focusing on this kind of business, right?

It's primarily government tenders. We are not present in that.

Fair point. And just last question with respect to CapEx, how do we see current year and over next couple of years? Do we see any substantial step-up in the outsourcing mix?

I think we will continue around INR 100 crores per annum. I think we don't expect any major increase from this. In fact, a lot of our plants are up and running, and there are a couple of more factories that has to come. And there is, of course, going to be more active investment in molds. I mean investments in molds have gone up in the last 5, 6 years, and that will continue, and that's going to be a major part of the CapEx.

The next question comes from the line of Aditya Bhartia from Investec.

My first question is on employee expenses and OpEx expenses [Technical Difficulty]

Aditya, there's an echo coming.

Is it better?

It's still there.

So I was asking about employee expenses and OpEx, which have almost doubled in the last 3 years. Just wanted to understand, is there an element of factory overheads not being absorbed properly given that we are still in the ramp-up phase? Or is it just a function of us doing more business in-house and therefore, gross margins correspondingly increasing, but associated costs now getting recorded in staff expenses and other expenses?

So I don't think the employee expenses has doubled last...

Not doubled in 3 years. But against the published numbers, when we look at it's showing about a 26%, 28% growth. And the increase is basically because there were some write-backs last year.

So if you look at Q4, I think there were some write-backs in the previous year of ESOP and subs...

ESOP and variable pay, some write-backs were there. This year, the full provision is there.

I was looking from a 3-year perspective that on a 3-year basis, let's say, in FY '22, we used to have roughly INR 270-odd crores of employee expenses, which now are INR 520 crores. Other expenses used to be INR 470 crores, INR 480 crores, which are now almost INR 1,000 crores. So from that perspective, I was saying that is it also because of the change in mix of procurement, wherein we are doing a lot more in-house?

So, if you take employee expenses, the underlying growth rate for the last 3 years is about 15% to 16%, which is really the routine increments and some head count increases, and so on. The rest of it are explained by when new factories come out, there are people getting added there.

The other expenditures?

Even people cost. Similarly, on other expenses, there are manufacturing expenses going in, where the new factories start coming in, and then we see that the growth rate is higher. Once all the factories are set up and they've had 1 full year of operation, then this will start getting into normalized level of.

So you can say, at least -- maybe if you look at other expenditures and as a percentage of sales, close to 1% to 1.5% is because of factory.

Okay.

Employee cost is largely okay. Maybe, there has been addition of Sunflame employees into our employment...

Sunflame is an addition in the last 3 years, plus new factories.

Okay. And do you think some of these costs are today not being properly absorbed, and there is scope of increasing capacity utilization at our facilities, and therefore, operating leverage benefit should be playing out? Or all that has already happened, and we are at a reasonable utilization level at the facility?

Factory. So, for example, the first factory that was set up in the Sun factory and the Uttarakhand factory for Electronics, they are largely stabilized and delivering the results. Even battery factories an extent it started. But the Vapi plant for kitchen is not operating at the full capacity. There are some factories...

Typically, the first year of operation, you will find that there is under absorption, but it takes about that much time for the factory to up and reach its potential.

And sir, my second question is on the outlook that you gave in the presentation, wherein you have mentioned that there was strong prefilling in the channel in anticipation of a good summer. And at the same time, you also mentioned that you're excited about the new product launches. So just 2 clarifications on that. Given that summer so far has been weak, does it mean that channel has much more inventory than what is required excess inventory and to that extent, primary sales in the next few quarters could be very weak? And the second question is the new product launches that you're speaking about, are these usual product refreshes that you'll be doing, usual product launches that you would be doing? Or is there something more to it, maybe a new product category or a complete change in product supply?

So, as far as the new product, I think one of the key launches we have had last month was for fans. We have launched a mid-market range of BLDC fans, which comes in various configurations. And I think this segment - V-Guard was slightly less than indexation in delivery, was slightly less than what we would have liked to be, and this should address that. This launch should do well. I think the initial response has been great. I was there when we had the great launch with all the key retailers of the country. So I think whether there is summer or not summer, I think this product would sell. So that's point #1. We are also having a key launch for water heaters going to happen in the next couple of weeks. That is also addressing the premium end of the water heater market, and that also we are quite excited about. So these new launches should do well because in some sense, they are addressing a new pricing segment where either we were not present or our models are not very desirable. So in that sense, they should do well, whether the summer is good or bad. The second thing is in case of South India, yes, there has been strong preseason filling, and sell-out has been quite weak. But I think the other parts of the country, there has been reasonably decent summer. So we'll wait and see. We are not yet over in terms of North, at least till June 30, we typically get sales. So some of this issue is only related to the southern part. Well, last year in South India, we had a very, very warm summer.

Ladies and gentlemen, we take the last question from the line of Naushad Chaudhary from Aditya Birla Mutual Fund.

[Technical Difficulty]

I do apologize, Naushad. Your audio is not clear.

I hope it is better now. Just one clarification on FY '26 outlook, as the summer cycle is not doing well. Do we still maintain our 14%, 15% top-line growth and consistent EBITDA margin expansion for '26 as well?

So I think, like we said, we are really looking at 1 part of the country where summer has been impacted. There also, we have time till May 30, but South India typically March, April is the peak of summer. But the other parts of the country, it is still warm. So we'll wait and see. And like I said, last year, if you look at it, only Q1 was very, very strong. After that, in fact, Q2 and Q3, the performance is not that robust. So we are not sitting on a very high base. So we could have a situation where Q1 growth could be slightly impacted, but for the full year, we should still try and hit that 14%, 15% growth. And margins, we are quite confident of maintaining the margins. We are not so far that worried.

Thank you. Ladies and gentlemen, with that, we conclude the question-and-answer session. I now hand the conference over to the management for their closing comments.

Thank you all for taking time out to join our earnings call. I would like to thank Natasha and the team at PhillipCapital for hosting this call. We look forward to interacting with all of you in the next quarter. Thank you.

Thank you. On behalf of PhillipCapital India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.