Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- V-Guard Industries Ltd (BOM:532953, Financial) reported a consolidated net revenue of INR1,477 crores in Q1 FY25, marking a 21.6% YoY increase.
- The Electronic segment, including stabilizers and digital UPS, saw a significant revenue growth of 41% YoY.
- The Consumer Durable segment, which includes fans, water heaters, kitchen appliances, and air coolers, achieved a 26% YoY top-line growth.
- Non-south markets delivered a top-line growth of 30% YoY, with revenues in south markets growing 17% YoY.
- Gross margin improved to 36.3% in Q1 FY25, an increase of 380 basis points YoY, driven by pricing actions, softening input prices, and a better product mix.
Negative Points
- The Electrical segment, including wires, pumps, switchgears, and modular switches, registered a modest 7% YoY revenue growth, impacted by trade destocking due to declining copper prices.
- EBIT margins were lower due to higher advertising and promotional expenses and the filling of critical vacancies.
- The overall kitchen industry has been facing subdued demand in recent quarters, affecting V-Guard's performance in this segment.
- The company faces competitive pressures in the fans category, with price hikes primarily driven by increases in commodity prices rather than organic growth.
- Other expenses saw a sharp increase in Q1 FY25, attributed to higher factory-related costs, freight, and warranty expenses.
Q & A Highlights
Q: Firstly, congratulations on a good set of numbers. My first question is on the consumer durables segment. Firstly, can you call out the growth in fans, particularly? And if there was any meaningful price hike. And if there was a price hike, can you please break it between commodity cost pass-through versus an organic price side?
A: (Mithun K Chittilappilly, Managing Director) We don't give out product-wise numbers for various reasons. But we can say that the fans category has done reasonably well. Regarding price hikes, I'll ask Ram to comment. (Ramachandran V, Director & Chief Operating Officer) On price hikes, I think one-off price hikes have been taken and they are also ongoing because there has been some subsequent increase in prices of copper and aluminum. Most of the price hikes are in relation with increase in commodity prices. So I wouldn't say that there is any organic price hikes. Most of them have been to offset increases in commodity price.
Q: My next question is on the Electronics side. Now while we are on a consistent trajectory, upward trajectory in terms of EBIT margin improvement, are we where we were broadly targeting to be? Or is there still a scope of improvement?
A: (Mithun K Chittilappilly, Managing Director) Regarding gross margins, there is also an element of mix. For example, in the first quarter, the summer-based products have done extremely well. But largely, when we look at on a normalized level also, I think we're largely okay with gross margins. There has been still some increases in aluminum and crude derivatives.
Q: Firstly, I wanted to understand what really drove ECD as well as electronic margins. Is this more to do with operating leverage here that a 20% EBIT margin for Electronics and a 5% ECD is more seasonal and one-off and hence, it might obviously taper down going into the following year. Is that correct?
A: (Mithun K Chittilappilly, Managing Director) If you look at the previous year also, the Electronics margin was around 18%. So yes, you can attribute that maybe 1% or 2% due to operating leverage. In the case of Consumer Durables, our margins used to be 5% to 6%, and it had crashed with all the increases in prices. Now I think we are largely back. I think in the case of Consumer Durables, we probably will see a little more improvement in margins.
Q: On the working capital. Broadly, it is maintained at 50 days of sales, but I wanted to understand what is driving the receivable days coming sharply down to 35. And what is adding the credit has increased to 75 days. What are the reasons here?
A: (Sudarshan Kasturi, Senior VP & Chief Financial Officer) Receivables have come down because it was a strong season, so that must be on time. Similarly, even on the payable side, both were big months. So therefore, it's a point in time at year-end, the volume of buying that was done in May and June is higher than usual. We should work on the normative levels of about 60, 62 days.
Q: Where are we on the factory CapEx? If you could just update us across the manufacturing plants, what is the status update that will be helpful.
A: (Mithun K Chittilappilly, Managing Director) Factory CapEx, except for one project, which is the fans plant, other ones are complete. (Ramachandran V, Director & Chief Operating Officer) Building has just started. Maybe 18 months. (Mithun K Chittilappilly, Managing Director) INR100 crores to INR120 crores of CapEx here. There will be a normative CapEx of around INR100 crores, INR120 crores for the next two years also.
Q: My first question is with respect to the stabilizer business. I know that this quarter would have been a fabulous growth because of the strong traction in air-conditioning sales. But sales, I think over a slightly more normalized manner and over a longer time period, like two, three years period, what kind of growth rate that we should think of for this particular subsegment.
A: (Mithun K Chittilappilly, Managing Director) For stabilizers, we are expecting a very long-term CAGR of around 8% to 9%. There are years when it goes up substantially higher because of the kind of weather we had. This year was good on all fronts. So 8% to 9% has been a very long-term CAGR, and that I think is the right number to move further.
Q: What is driving growth in the digital UPS products?
A: (Mithun K Chittilappilly, Managing Director) Digital UPS is also dependent on summer because as the summer gets really warm, power cuts tend to start to begin and usage of inverters go up, especially in Tier 2 and rural areas. Apart from that, we also have a new division, which is solar rooftop solution for residential. So that is also driving huge growth within the inverter and battery segment.
Q: Are you seeing any signs of major uptick in terms of real estate led demand for products like wire, switches, switchgears, etc.?
A: (Mithun K Chittilappilly, Managing Director) V-Guard wire and electrical business is largely retail, which means that almost 90% to 95% of the sales come from the trade that is retail shops. We don't have a big business supplying to very large builders and infrastructure players. So for us, this is more normal. But yes, our partners do supply to medium-sized builders. We are not seeing that much of an improvement in that sense. The retail sale is more stable.
Q: My first question is on other expenses. We saw a really sharp increase in the first quarter. Is there any one-off in this quarter?
A: (Sudarshan Kasturi, Senior VP & Chief Financial Officer) There are a few different parts to it. One is A&T, so that's one factor. Certain factory-related costs also appear in other expenses, and compared to one year ago, manufacturing expenses have gone up. There have been some one-offs because there were some releases in the previous year. There's a big jump in freight and warranty, which is for this quarter because for electronics and the durables, which were in the high-growth category, these tend to be higher than average.
Q: Are we seeing signs of rest
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
