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

Ladies and gentlemen, good day, and welcome to the V-Guard Q1 FY '27 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Aniruddha Joshi. Over to you, sir.

Yes. Thanks, Ananya. On behalf of ICICI Securities, we welcome you all to Q1 FY '27 Results Conference Call of V-Guard Industries Limited. We have with us today senior management represented by Mr. Mithun Chittilappilly, Managing Director; Mr. Ramchandran V, Director and COO; and Mr. Sudarshan Kasturi, Senior Vice President and CFO. Now I hand over the call to the management for initial comments on the quarterly performance, and then we will open the floor for question-and-answer session. Thanks, and over to you, Mr. Mithun.

Thank you, Aniruddha, and the team at ICICI Securities for hosting today's call. A warm welcome to everyone joining us to discuss our company's operating and financial performance for the first quarter of FY '27. I trust all of you had the opportunity to review the investor presentation shared earlier. We started FY '27 on a strong performance in the first quarter with all business segments reporting double-digit growth. Consolidated revenue for Q1 FY '27 stood at INR 1,810 crores, representing a Y-o-Y growth of 23.5%. The quarter benefited from a more favorable summer season compared to the last year's Q1. Despite supply chain disruptions and commodity cost pressures arising from the West Asia conflict, we delivered robust growth while maintaining healthy gross margin through proactive pricing actions, disciplined cost management and the inherent resilience of our business model and brand. The Electronics segment comprising of stabilizers, UPS systems and solar power systems reported a strong growth of 22.8% Y-o-Y with all major product categories contributing positively to the quarter. The Electrical segment registered a revenue growth of 27.7% Y-o-Y. while growth was aided by higher copper prices, while switchgear modern switches and pumps delivered robust volume growth. In the Consumer Durable segment, covering fans, water heaters, kitchen appliances and air coolers, we reported a revenue growth of 19.2% Y-o-Y. While there was a significant spike in induction cooks in the quarter, the broader kitchen portfolio -- appliances portfolio also delivered a healthy growth. The other categories also did well, resulting in a well-balanced performance in the segment. Sunflame reported revenue growth of 18.3% Y-o-Y in Q1. Over the past 2 years, we have focused on product quality, customer service and people capabilities. Functional integration is complete, and we now have embarked on a sales acceleration program. We are beginning to see the benefits momentum. From a geographic perspective, venues from South market grew by 3.7% Y-o-Y, while the non-South market grew by 12%. The difference in growth largely reflects the variations in the summer season across the various regions in the country. The gross margin remained healthy at 3.9%, in line with the corresponding quarter of the previous year despite higher input costs during the period. The stability in margins reflects our ability to respond swiftly through calibrated pricing actions while continuing to benefit from structural improvements from our manufacturing footprint and product mix achieved over the past few years. EBITDA excluding other income for Q1 stood at INR 191 crores, reflecting a Y-o-Y growth of 54.5%. EBITDA margin was at 10.5% compared with 8.4% in Q1 of previous year. Consolidated PAT for the quarter was INR 120 crores Y-o-Y compared to INR 74 crores in Q1 FY '26. Cash flow was strong with a net cash position at INR 670 crores compared to INR 15 crores a year ago. While working capital improvements were particularly favorable this quarter, we remain focused on disciplined working capital management on a sustainable basis. We will continue to monitor the geopolitical situation and will take appropriate action necessary to protect supplies and margins. We are hopeful that the growth momentum will sustain in the upcoming quarters as well. With that, I conclude my opening remarks. I would like to thank Aniruddha and the team at ICICI Securities for hosting this call. I would like to request the moderator to open the floor for Q&A.

[Operator Instructions] First question is from the line of Samir Gupta from IISL Capital.

Congrats on a good set of numbers. Two questions from my side. First question, could you just elaborate on the kind of inflation in the RM basket and the consequent price hikes taken? If you could also break them down into how much is already there in the reported quarter and how much would be at an exit level? Also, if you could spell out the quantum of price hikes and volume growth from an increment perspective? That would be my first question, sir.

Yes. So I think if you look at the pricing action, I think almost I would say maybe 80%, 85% of the pricing actions are complete. A lot of them have kind of stabilized that going up or they have started to normalize. Some of the commodities are remaining at elevated levels. So that's where we are right now. If you divide this 22%, 23% between price and volume, price growth is about 14% and volume growth will be about 9%. This is a blended weighted average...

And the quantum of pricing would be similar across the segments?

Electric will be higher. Ram, you want to take.

No, I think it will vary, right? It will vary depending on the category. And it is higher in some and lower in some as far as the pricing growth is concerned. It's quite a wide range.

I will say it's almost from 5% to 30%...

17%, 18%, 5% to 18%...

Yes. Got it. Got it. No worries, sir. Second question is, sir, on the gross margin. Now you've taken price hike, there is RM inflation, but the gross margin is still flattish on a Y-o-Y basis. Would it imply that one, we have passed on large part of the commodity cost inflation in 1Q itself? Or we might have still consumed some lower cost inventory and some bit of margin pressure is yet to be seen in the P&L...

No, I think largely it is passed through. Like I said, almost 75%, 80% we have passed through. We -- of course, we do have raw materials and all that. But a lot of the inflation has happened during the month of March. So we are now -- if you look at June, we would have consumed everything. So it's largely true. And like I said, it's fluctuating. It's not like I said, some raw material prices have eased, some have continued to stay elevated and some are going up as well. So it's still a mixed bag. But as we stand today, we are in a pretty comfortable position. It doesn't look like a lot more increases are warranted. Some product segments, we are still required to take some more actions, and that will probably happen in the next -- in the current quarter.

Got it. And when you say that 75% to 80% is pass-through, so the balance or it would have still resulted in a GM contraction, but it has not resulted is because of your own efficiencies and manufacturing...

No, I think it's a moving thing, right? So as we will have raw materials procured at various rates, it's a moving target, right? And the -- let me put it this way, all the larger categories, we are largely fine. Some of the smaller categories, we still have some pricing actions to take, but that may not impact the overall gross margin. As we stand today, we are hoping to hold this gross margin...

The next question is from the line of Rahul Agarwal from IKIGAI Asset.

Congrats for a good quarter. Sir, 3 questions. Firstly, on the South India growth, you commented that largely because of summer variations across the country, if you could elaborate more on that, a bit of state level discussion might help. Second question was on ECB. You mentioned on your opening commentary that ECB across segments is doing okay. If you just comment on fans versus what other categories actually contributed here. I understand kitchen has obviously had abnormal demand this quarter, but if you just elaborate on that a bit. And third is on the balance sheet. The creditor number looks very high to me. If you could please explain that -- those were my questions.

Okay. So we don't give a state-wise numbers, but we can say that the summer in South India was fairly good in almost all the states, okay? If you go to the other parts, Western India also experienced a decent summer. Both North and East, it was disturbed. North was highly disturbed. So if you ask me like South is the best, followed by West, then East and then last place. The North was the most impacted. North our summer products did not take off because it was raining multiple interruptions for the summer. So that is as far as the various difference between the zones. That is one part. The second is on the ECB. ECB, I think fan has also grown. It has not grown exponentially high, but it has done reasonably well. So in fan, we experienced good demand for pedestal fans in South India. And unfortunately, we were caught off guard by the demand because the summer was very strong. And we -- getting into April, we were not having adequate inventory. So we did lose out on some sales. Ceiling fan okay, okay because there was a targeting change in January. So a lot of sales happened in November, December before the star rating. So the channel also was having a lot of inventory. But overall, has done reasonably well. Kitchen has done well. It's not only in, others have also done well. Where we have not done that well is air coolers, primarily because of two reasons. Like we said, we were -- we did increase prices, but we found that certain players in the market had not increased prices or delayed prices and all that. So there was some market share loss in air coolers. But I think most of the issue was contributed by the fact that for us, North India is the Northern zone is the main contributor for air coolers and Northern zone did not really take off for air coolers. The last part, Sudarshan, you want to take it?

On the creditors part... Yes. So we usually import a portion of our copper purchases where we pay in advance -- this quarter, we only bought from domestic suppliers who give us credit. So it's a sort of one-off.

So I think our purchase mix was like maybe 80-20, where 80% was domestic and 20% were imports or even 70-30. But now it is like 95-5. There's hardly any imports because there are some suppliers from West Asia who could not supply because of the war. And even the other Asian countries also, we do not keeping rates are too high and volatile and all that. So we are finding it difficult to get ships and all that stuff. So the domestic suppliers give us credit, whereas all the others are paid on LC and stuff like that. So that's one of the main reasons the payables have gone up.

So the payables are going to be like similarly for the full year or we'll see this again going back to 70 days kind of?

It's sort of unusually good this quarter. We'll come back to normative levels or maybe slight improvement.

The next question is from the line of Aditya Bhartia from Investec India.

My first on I think as of now, we are mainly focusing on solar inverter. I wanted to understand how big could the solar rooftop of pumps be for us? And what is the strategy behind the larger solar piece? What kind of growth are we anticipating over the next 3, 4 years? And how large could this portfolio be today?

So we are not going to give out any specific numbers on any categories, but I will ask Ram to answer this in as qualitative way as possible.

Yes. So basically, we are just about 18 months into this category, okay? And mainly, we are focusing on the domestic part of the market, which is mostly B2C. And we are focusing on rooftop and next-generation battery. I think that's still to come though, and we will be launching that in the next 2, 3 months. So this is the space that we are going to play. Yes, I think this space is going to grow fast in the coming period. And hopefully, we also look to gain advantage out of that.

Sure. And as of now, it's all B2C and nothing is tender -- is my understanding correct?

So we have a small part which is going into the solar pump business, but that is maybe like a couple of crores in Q1. So it is a very -- the solar pump business, we've just started supplying to Maharashtra state garment. And that's a B2G business, but that's very small, and that's also new. We just started it like 3 months back or something like that. So -- but yes, bulk of the sales will continue to be B2C, where we are supplying rooftop solutions, solar rooftop solutions for residential customers mainly and for small offices, small SME also we will be supplying. We don't supply to large -- very large institutions in that sense.

Understood, sir. And sir, my second question is on Southern India outpacing non-South and this, I think, the fourth consecutive quarter where this has happened. Would you attribute that largely to weather? Or is there something else that's playing a part as well given that we already have a fairly high market share in South and still we are kind of growing fairly fast over there?

Ram, you want to take this?

Yes, yes. I think currently, our view is this is due to weather. So 2 things have happened this quarter. One is we have been -- given the uncertainty prevailing and the significant increase in input costs, we've been aggressive in pricing transmission. And probably also in non-South markets, we have landed pricing corrections ahead of some of our competitors. Obviously, we have much stronger brand equity in South. So it was easier to transmit, sustain and make sure that also deliver the business interest, right? That's one part of it. Second part of it is certainly the -- as far as East is concerned and North is concerned, we have seen a significant impact because of season. It started last year. Last year was -- I mean, year before last, for example, if you look at -- I mean, we had extraordinary growth in some of these markets. And therefore, last year, when the summer was not good, it's reflected in the performance in these 2 regions. So that's, I think, how I would put it. The -- some of these regions, particularly East and is also impacted because of monsoon. Last year, the monsoon was also quite aggressive there. So all these factors have impacted our business in the East. I think although East has recovered significantly subsequently, but it has still -- as Mithun said, in terms of order of performance, right, it was still #3 and the North has been quite strong. Mainly, we have been impacted. And if you look at -- I mean, we don't share our category-wise numbers. But if you were to look at the category-wise numbers, you will find that the impact is straight on categories which are seasonal.

The next question is from the line of Sonali Salgaonkar from Jefferies.

Sir, my first question is regarding the CapEx. Do we retain the CapEx guidance of about INR 2 billion to INR 2.5 billion per annum? Or are we looking into new categories or adding on to CapEx in new categories?

Capex, INR 2.5 billion unlikely. It won't be that high. INR 150 crores, INR 170 crores is okay.

Maybe for the next 2 years, it will be an average of INR 150 crores each INR 150 crores to INR 10 crores...

Understood. Sir, my second question is regarding Cables and Wires division, particularly in wires, 2 questions here. Firstly, this quarter's growth, could you help us understand how much was volume led, particularly in wires? And how much was value led? And secondly, one of the key competitors, a new entrant is thinking of launching their wires around the festive season. So any thoughts on that? Any channel feedback on that?

So as far as wires is concerned, there has been significant price increase. So volume growth is very minimal. It's hardly any, I would say, because of the quantum is so large that we believe that some customers have decided to postpone because we're talking about a huge increase in the price. So we believe there has been some deferment or postponement and all that. because the sales -- quantum of price increase is very high. But value growth is there, obviously, because of price growth. And we have also held margins reasonably well in that segment. So that way, it's fine. As far as the new entrant is concerned, Ram, do you want to take this?

Yes. I think, yes, there have been a number of entrants. I mean there are a number of companies which have got into wire or which have become more aggressive in this category over a period of time. I think the competitive intensity is going to remain high in this category. But we remain focused on making sure that our interests are protected, and we have necessary contingency plans in place to protect our business interest. I think the retail wire business is not going to be easy. It's going to take time to build equity and brand awareness. And there is not enough room in this category for physical distribution. So working the last mile and building business is going to be harder here. And the role of influencer is also going to be significant. So we have necessary interventions in place to protect our business interest. But I think what basically will happen is with more players coming in, some impact will be there on the unorganized sector and maybe a portion of the -- maybe companies may grow slightly lower than market growth, right, maybe by 1% or 2% or something like that. I don't see a very significant impact beyond that, at least not in the first 1 or 2 years.

Understood. Sir, and lastly, on guidance, I generally understand you give a medium-term guidance. But given the very strong performance in Q1, would you want to hazard a guess on the FY '27 guidance either in terms of sales growth or the margins?

See, we have always said we will grow by 15%. But obviously, this year, we have some price growth as well. So it can be higher. So we will take a call because things are still volatile. We don't know the commodity prices, some are going up, some are coming back to normal and all that. But definitely, it will be more than 15%, but I don't want to give out any specific numbers. But this year, maybe we may do a bit more than 15%. But definitely, our longer term, 15% is something that we hope to grow.

While retaining our 9% EBITDA margin, right?

Yes. Yes, yes. 9% to 10% EBITDA margin, we should be maintaining yes.

The next question is from the line of Mr. Achal Lohade from Nuvama Institutional Equities.

Congratulations for a good set of numbers. Mithun, the question I had in mind first was in terms of -- if I look back last 15, 17 years, we have expanded geographies, categories. Now from here on, how do we see that journey? Will this be more geographical and more deeper penetration and wallet share gain? Or we could look at any category which could add substantial growth to our overall number? It will be a mix of both.

I mean like -- so at any given point of time, we are incubating 2 or 3 categories. So if you ask me, a lot of our categories we were incubating like fans, inverter battery, kitchen to some degree, they've all started to become mature, and we have built a very strong back end that is R&D, manufacturing and new product development team. We also have a fairly decent marketing and sales team. So those kind of categories are now slowly moving to autopilot kind of mode where our bandwidth is not required so much. So then we have -- so when we have bandwidth, then we will like to, again, incubate categories. So we have talked about solar, which is something that we are incubating now. Lighting is something that we'll be launching in this financial year. So I think with lighting, we have completed almost all the large categories. Now I don't know whether -- so we'll keep looking at adjacencies. Solar is something if you asked me 10 years back, solar rooftop was there, but it was not expected to be such a large category. So sometimes these kind of opportunities do come up. So it's very difficult to say. But broadly speaking, yes, it will be a mix of both. I think geographical -- so if you look at -- ideally, if you look at the kind of penetration, the depth we have of distribution in South, that's something we would like to replicate in the other markets. And some markets is happening and some other markets is slow to start, but it's getting there. So it will be a mix of both. And of course, I think -- so if you ask me, there is no one answer like that. But yes, like solar definitely is an opportunity. We were already doing inverter battery business for Aegis. So when this came up, it became -- it was very easy for us to get into it in a way because we understood this product better than most companies in India. And we understand electronics better than most companies in India. So when those opportunities come up, we'll definitely get into it. Lighting was mostly a portfolio issue because we had a lot of distributors that forced to take competitor brands or lighting company brands or local regional lighting company brands because we were not offering lighting. So it was creating -- it was more of a portfolio issue. And again, we took it up when we had we have enough bandwidth on our hands. So we see, I mean, if something new comes up adjacent, we will look at it.

Just a comment on the battery energy storage front with the inverter battery thing, does that complete? Does that help? And what could be the opportunity or the market size according to you at this stage?

So there are 2 parts. One is the solar rooftop business. And the other one is within that a new part will be also BE, which is a battery energy storage system. This solar rooftop market is something that the government has put in a lot of incentives so that customers get a good payback, someone is investing. they are getting -- they are able to recoup their investment in 3 to 4 years' time. And that's why you see a lot of the customers buying this and moving at least part of their energy requirement from grid to their own rooftops. That's something that is new in terms of -- as an industry, it is just starting. And the incentive system and all that -- we have not started to -- they've not spell it out yet, but definitely, battery storage is going to be the next big thing. This can be huge because we're talking about an average price of between INR 1.5 lakh to INR 2 lakh per house. So the value is very high for a rooftop system. So even if you do 100,000 customers, we are looking at close to, I don't know, INR 100 crores or something else. So what I'm saying is this is a very large opportunity. And even now, as we speak, only maybe 8 states in India are properly implementing this, a few of the South states and some of the BJP rule states. So we still have a large part of the country where the solar rooftop is yet to even start in a meaningful way. So I think the government is on this job. And the recent changes of government in both West Bengal and Tamil Nadu will definitely increase the scope of this because these 2 states were very small adopters. So we'll see. I mean, so it can be very large. What I'm saying is this potential of this is quite large. And it's a win-win like the government able to move a part of its power to distributed renewable energy, customer is paying lower price. Of course, the electricity boards will lose some -- some of the high-paying customers, which I think government will have to find a way to compensate them.

Got it. Just another question on Sunflame. In terms of the growth, it looks good 18%, but it's on a low base. So the challenges what we faced after the acquisition, are we done with that? Or how do you see growth playing out from here on?

I'll just say just one thing about Sunflame is, Sunflame has a big presence in gas and not a very large presence in induction cook crop. So very unfortunate that Sunflame was not able to take advantage of this whole gas shortage like what V-Guard was able to do because V-Guard is quite large in the induction cook crop space. Ram, do you want to take the rest?

I think we are on course as we guided earlier. I think the integration is more or less behind us now. And we -- as I told you earlier also, Q2 onwards, we are expecting to have the NPD impact being rolled out. So we have focused interventions now. So over the next 6 to 12 months, we are working on improving our reach across general trade and organized retail. So I think we should start to see better growth. And I think we are already seeing that last quarter that we have done better compared to previous year. I think some challenges are there fundamentally related to pricing transmission and all that, which is slower. But I think the upcoming quarter, we should be able to complete the pricing transmission for kitchen category, particularly Sunflame.

Got it. This is very helpful. If I may ask one last question. In terms of category presence, if you could just talk about categories where we are among top 3 players or the market leaders.

Ram, you want to take this?