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V Guard Industries Ltd
Earnings Call Analysis
Q1-2025 Analysis
V Guard Industries Ltd
V-Guard Industries has kicked off the financial year 2024-2025 with an impressive performance, reporting a consolidated net revenue of INR 1,477 crores for Q1 FY '25. This reflects a 21.6% year-over-year growth. The substantial revenue increase was driven by robust demand across multiple segments, particularly the Electronic segment, which saw a remarkable growth of 41% year-over-year.
The company operates across several categories including Electronics, Consumer Durables, and Electricals. The Electronics segment, primarily comprised of stabilizers and digital UPS, led the revenue growth, indicating strong market momentum. Meanwhile, the Consumer Durables segment, which includes fans, water heaters, and kitchen appliances, achieved a top line growth of 26% year-over-year. However, the Electrical segment recorded more modest growth at 7%, primarily due to trade destocking in response to declining copper prices.
V-Guard's gross margin improved significantly to 36.3%, an increase of 380 basis points year-over-year. This improvement was attributed to effective pricing actions, a favorable product mix, and declining input costs. Despite the lower EBIT margins due to integration issues and hiring challenges, there is an expectation for margins to hover around 9% to 10% for the fiscal year.
Looking ahead, V-Guard has set a revenue growth target of 13% to 15% for FY '25, which aligns with historical performance trends. The management expressed optimism about continued revenue growth, especially with the upcoming festive season being a critical period for their kitchen appliance segment. While challenges persist in the kitchen segment, especially amid overall market softness, V-Guard is taking strategic actions to stimulate growth.
One of the operational challenges highlighted was in the kitchen industry, which has seen subdued demand for several quarters. V-Guard acknowledged the need for improvement in this segment and is actively implementing initiatives to enhance performance. They plan to repay loans associated with their Sunflame acquisition, having already settled a quarter of the total amount during the quarter, and expect to adhere to their repayment schedule.
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Ladies and gentlemen, good day, and welcome to the V-Guard Industries Q1 FY '25 Earnings Conference Call hosted by Nirmal Bang Institutional Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Natasha Jain from Nirmal Bang Institutional Equities Private Limited. Thank you, and over to you maam.
Thanks, Steve. On behalf of Nirmal Bang Institutional Equities, we welcome all of you to the First Quarter FY '25 Results Conference Call of V-Guard Industries Limited. We would like to thank the management for giving us an opportunity to host this call.
We have with us today the senior management represented by Mr. Mithun Chittilappilly, Managing Director; Mr. Ramachandran V., Director and Chief Operating Officer; and Mr. Sudarshan Kasturi, Senior Vice President and Chief Financial Officer.
Now I will 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. Thank you, and over to you, sir.
Thank you, Natasha, and Nirmal Bang team for hosting this call. A very warm welcome to everyone present on today's call. Thank you for joining today to discuss the operating and financial performance of our company for the first quarter of financial year 2024, '25. I trust all of you have had a chance to refer our investor presentation, which was shared yesterday.
It has been a positive start to the financial year -- fiscal year with a strong performance in the first quarter. We have reported a consolidated net revenue of INR 1,477 crores in Q1 FY '25, higher by 21.6% on a Y-o-Y basis. It has been an all-round performance aided by a very good performance.
The Electronic segment comprising majorly of stabilizer, digital UPS led the growth with a revenue growth of 41% Y-o-Y. In this segment, we also have solar power systems, which have seen good traction and is a category for the future.
The consumer durable segment, where we market fans, water heaters, kitchen appliances and air coolers also reports performance with the top line growth of 26% on a Y-o-Y basis.
In the Electrical segment, comprising of wires, pumps, switchgears and modular switches, we registered a growth of 7% in revenue on a Y-o-Y basis. Wires, which is the largest category under the electrical segment was impacted by trade destocking due to decline in copper prices in June.
Pumps reported growth in top line of 7% on a Y-o-Y basis. Also, the top line was soft. It is largely in line with our forecast and plan.
The overall kitchen industry has been facing subdued demand in the recent quarters. We recognize there is a task ahead of us to get the business in the growth part and there are several actions in progress in terms of functional integration and acceleration. Gross margins in functional business remained good.
EBIT margins have been lower due to higher [ AM ] Systems and filling up of critical vacancies which will be addressed going forward. In terms of geographies, all regions have done well. The non-south markets delivered a top line growth of 30% Y-o-Y, with revenues in south market growing 17% Y-o-Y. The contribution from non-south markets have crossed 50% in total revenues for this quarter.
Gross margin continued to improve with the benefit of softening commodity prices and various pricing actions and cost effectiveness initiatives flowing through. We reported a gross margin of 36.3% in this quarter, an improvement of 380 basis points Y-o-Y. This is a combination of pricing action, softening input prices and better product mix.
The recovery in margin is now largely complete. We expect to continue the margin improvement through benefits of manufacturing, premiumization and scale benefits from the Consumer Durables segment. Of late, we are also seeing some firming up of commodity prices, and we'll be taking pricing actions wherever necessarily to preserve margin.
Effective management of working capital has enabled us to deliver robust cash flows. We have repaid 1/4 of the loans raised for Sunflame acquisition this April. Another 1/4 will be repaid at the end of July. And we are on track to repay this loan as per plan.
It has been a good start to the year, and we are optimistic of delivering good performance in the coming quarters as well. With that, I conclude my comments. I would like to thank Natasha and the team at Nirmal Bang for hosting this call, and I would like to request the moderator to open the floor for Q&A. Thank you.
[Operator Instructions] The first question comes from the line of Natasha Jain from Nirmal Bang Institutional Equities.
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?
First of all, 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, Ram?
Yes, sure, I will. See, 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. So price hikes are ongoing, including we wish to land some price hikes this month if it is possible. So it's ongoing.
We had improved our margins to the realization of input cost benefits towards the last quarter of last year. And we had taken some price increase therein for about 2-odd-percent in quarter 4 of last year. We have also taken to our quarter 1 of this year, yes. But I think there have been sharper increases in copper and aluminum prices that it may warrant some more corrections there.
And depending on the market situation, we will -- and competitive situation, we will progress to go ahead. I think the most of these increases -- yes, yes. I think the increase that we have taken in March quarter was to, what I would say, compensate for actions of price transition in the previous year, but subsequent increases have been responding to [indiscernible] costs.
And one more thing. Fans remains an extremely competitive category. We have a very, very aggressive market leader, and we have a start-up is also we are aggressive. So 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 to increases in commodity price.
Understood. Sir, that's very clear. So 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?
And on a related note, sir, gross margin improvement has also happened because of cost reduction initiative specifically in the Electronics segment. So given that second and third quarter are now going to be comparatively leaner for us, what kind of an overall gross margin also can we expect in FY '25.
So one thing is regarding gross margins. There is also an element of mix, for example, in the first quarter, the summer-based products have done extremely well, much more than -- and wires with this almost 30% of our revenues has grown early by a smaller percentage. So there is a big -- there is some effect of product mix, which will change in the next few quarters.
But largely, when we look at on a normalized level also, I think we're largely okay with gross margins. But I think, as Ram pointed out, there has been still some increases in aluminum and crude derivatives and all that. Copper wind up that is also did come down a little bit in June. So in that sense, there may be some more increases that may be require.
The next question is from the line of Rahul Agarwal from Ikigai Asset Management.
Firstly, I wanted to understand what really drove ECD as well as electronic margins. So basically, I understand the input pricing was weak and the summer was strong. And hence, 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?
See, 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. But you see the Electronics margins are always on the higher side comparing with the other segments. In the case of Consumer Durables, our margins used to be 5% to 6%, and it had crashed with all the increases in prices and the lack of further increases companies were able to do towards the market.
So various reasons. There are competitive pressures the quantum of increases were probably unheard of in the earlier years. So there were some resistance from trade in consumers and all that. So now I think we are largely back. I think in the case of Consumer Durables, we probably will see a little more -- probably should see a little more improvement in margins and after that will go forward. But I think this is sustainable. There may be -- there is an impact of operating leverage but it's probably 1% or 2%.
Secondly, 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?
Okay. Sudarshan, regarding working capital?
So that has have come down, they are lower than normative levels because it was a strong season, so that must be on time. Otherwise, similarly, even on the payable side, even in May and June, 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 the higher than usual.
So where should we see the numbers back in terms of, let's say, if we see a March balance sheet of '25 where should we first thing.
We should work on the normative levels of about 60, 62 days. That's how [indiscernible]. Currently, it's a bit on the lower side because of these factors I mentioned.
Perfect. And lastly, 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.
Factory CapEx, except for one project, which is the fans plant, other ones are complete.
And when does the fans plant get complete.
Building has just started.
Maybe 18 months?
Yes, may be 18 months.
Okay. So we should work with like INR 100 crores, INR 120 crores of CapEx for this year and next year? Is that fair enough?
Yes, that's fine. INR 100 crores to INR 120 crores is okay.
INR 100 crores to INR 120 crores of CapEx here. Because what will happen is as we get into next year, certain other -- so there is also investments in molds and dies that are going on. So and they are also going to come up. So there will be a normative CapEx of around INR 100 crores, INR 120 crores for the next two years also.
The next question is from the line of Ravi Swaminathan from Avendus Spark.
Congrats on good set of numbers. 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.
Given the fact that EC sales might still end up doing well because of the improved penetration level, et cetera. In the presentation, you had mentioned that the industry would be growing in a single digit. Can it separate positively by growing at a much, much higher number?
I think -- for stabilizers, I think we are expecting -- if you look at a very, very long-term that is about 10 years CAGR. It is somewhere around 8% to 9%. And that should be the growth that we also will be working with. But there are years when it goes up substantially higher because of the kind of weather we had. You also understand that we may not get this kind of weather every year. There are years where rains do a kind of happen a lot within summer and then summer does not really take off.
So this year was -- it was good on all the fronts. It was also good on all the geographies as well. So sometimes you have a very warm summer in south but in the non-south there is washed out. Sometimes there are very warm summer in non-south and south may get washed out was. So these kind of things happen. This is one of the areas where we are -- so 8% to 9% has been a very, very long-term CAGR, and that I think is the right number to move further.
And what is driving growth in the digital UPS products sir. So I mean what are the factors of growth in driving that particular product.
See, digital UPS also has -- I mean, digital UPS is also dependent on summer because what happens is 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. So that has been one of the main drivers. But apart from that, we also have a new division, which we started two, three years back, which is solar rooftop solution for [indiscernible]. So that is also driving huge growth within the inverter and battery segment.
And the solar rooftop -- what supplement of the overall Electronics mix will you see as a contributor and how fast is it growing? Is it like a high teen kind of growth segment.
Solar rooftop is growing very fast. It's very small as of now, and we don't give out product wise numbers.
Understood, sir. And my second question is, say, the real estate linking products like wire, switches, switchgears et cetera. Are you seeing any signs of major uptick in terms of real estate led demand. It can actually kind of improve the growth from single digit or high single digit or a much higher.
So V-Guard wire and in 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 applying to very large builders and infrastructure players and so on and so forth. So for us, this is more a normal. But yes, our partners do supply to medium-sized builders and all that.
We are -- I mean, so we have to understand that there is a lot of real estate activity happening. But what we are seeing is that it's probably getting more formulas. So earlier also, this is going on but just probably split among a lot more -- smaller and larger number of builders, which is now what we're seeing is a few builders are enjoying majority of the fix.
So I think for us and that is when we will see our peers also, we are not seeing that much of an improvement in that sense. But the retail sale is more stable. And for example, when the interest rates were low, we did see some uptick because when interest rates are low, people tend to make investments in real estate and stuff like that.
So yes, we cannot say that there has been a huge tailwind for us specifically. But companies which are focusing on projects will probably get some of that. And one of the reasons we don't do projects is, the margins and projects are 10% to 15% lower in a product category with very small gross margin. So it will actually become -- it does not make sense for us to supply the products.
Understood, sir. And my last question is...
I'm sorry to interrupt Mr. Ravi, sir. Could you please follow back in the question queue for further questions.
[Operator Instructions] The next participant is from the line of Aditya Bhartia from Investec.
My first question is on other expenses. We saw a really sharp increase in the first quarter. I understand that A&T is one part of it. But even if we strip off A&T, it appears that other expenses have actually risen sharply. Is there any one-off in this quarter? Or if there's nothing then what is that on account of?
Yes, I'll ask Sudarshan to take this.
So there are some a few different parts to it. One is A&T as mentioned, 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 some one-offs, yes, because there were some releases in the last -- in the previous year.
I think this one's early. 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.
So you're saying in the preceding quarters, there were some releases of provisions and in this quarter, given that there are no releases, particularly, we are kind of seeing a sharp jump.
Yes. And this quarter also, the mix was like that. So freight and warranty is higher there...
And how should we kind of then think about it going forward? Freight and warranty is something that we can normalize a bit depending on mix. But [indiscernible] any thing appears to be in a similar kind of range?
Yes, it's better to look at it as a 12-month number, not by quarter. So we have our cost progress in the previous year, it will take you something.
If I just look at last year, the average works out to be closer to INR 200-odd crores. While this quarter, we have spent almost like INR 250 crores. So the jump was...
Better if you look at it as a percentage of turnover for FY '24.
Some of the expenditure is sitting in other expenses are also volume related, like as you sell more transportation, more warranty provisioning, as we manufacture more in our own factories, more outsourced manpower cost. All these are sitting in other expenses.
My second question was on the growth that you've seen in Electronics segment. While I understand that you don't break up the segment, just wanted to understand, is it getting largely driven by stabilizers? Or would digital EPS would have also seen a big improvement?
And a related question to that, we used to struggle with profitability on the digital UPS side. Have you seen a significant improvement around that?
No. I think both have grown well. Like I mentioned, both stabilizers has grown well and inverter battery has grown well. So to formulize it is one that is driving, both of them have grown well. In terms of profit -- you asked about profitability of digital UPS?
Yes.
Okay. Ram, you want to take this?
I think the profitability has significantly within UPS has 2 components, inverters and batteries. Inverter gross margin and profitability has significantly improved over time with the investment that we made in manufacturing and having more inverter manufacturing in-house. What I would say, the battery margins, of course, continue to be under pressure.
We have already taken action there in terms of setting up our own facility. I think the benefits from that probably should be reasonably toward later part of the year or maybe next year to be more precise. So that to give you a picture on inverter and batteries.
the next question is from the line of Hardik Rawat from IIFL Securities.
Congratulations on a strong set of numbers. You mentioned in your earlier remarks that largely, the price increases that you've taken in your finance portfolio was to transfer the increase in commodity prices, would that be correct?
Yes, that would be correct. Like, see, pre 2020, we had a gross margin structure for fans. And it is completely destroyed after the Russia-Ukraine war and significant increases in aluminum and lack of increases done by the industry. There are two reasons. One is hypercompetitiveness. Second is the kind of increases we have to do, It is not possible to do it in one shot.
So the industry took two, three years to actually do this over time. And then, of course, the prices also cooled off a little bit in between. So yes, it's largely to accommodate the RM increase.
So the price, there was a bit of pressure on the input prices as a result of change in the regulatory?
Yes, that also. So I think there were two shocks. One was the shock given by the Russia-Ukraine war. The second shock was given by we -- which meant that there was almost 7% to 10% price increases in the entry-level products and maybe 5% increase in the premium level products. So this is also largely meant that if you wanted to buy a branded product, it is getting too expensive for -- especially for a value-conscious consumer.
So could you please share with us the quantum of price increases you've taken in the category?
You're rolling out from 2021. That will...
No, not 2021, this quarter and in the last three months.
So I think, as Ram mentioned earlier, we have taken around 2% in Q4 and another 2% in Q1.
And lastly, with regards to the debt repayment that you mentioned, 1/4 by July, could you please repeat that the debt repayment for the Sunflame -- the loan that you taken for the Sunflame acquisition?
Sudarshan, you want to take this regarding?
In April, we repaid 1/4 of the term loan we had taken and it's about INR 70 crores we repaid. And a similar amount will get repaid by the end of this month.
And for the entire year FY '25, we should expect the entire loan to be repaid?
Yes, that's what we are aiming to, either by end of this year or by end of Q1 next year, we should have paid.
The next question is from the line of Aniruddha Joshi from ICICI Securities.
Sir, just wanted to understand the stabilizers and UPS market. So is the market growth, it's simply so strong? Or have we gained the market share? And with improving quality as well as quantity growth for electricity in India, how do we model this? Because these are considered to be sunset categories in India.
So -- but we still see V-Guard continues to do extremely well in both the categories quarter-after-quarter. So how should we see from the, let's say, growth rate in medium term for both the categories?
And again, where is the reason means, for air conditioner is one which I can understand. But apart from that, what are the other reasons where these products are used? And if you can a bit elaborate more on whether these products are getting used in urban markets, rural markets. Essentially, what is the TAM for these products?
Yes. I'll make a couple of comments, and then I'll pass it to Ram. I think -- see, in 2008, it is almost 16 years back when we went for an IPO. All the analysts told me that you will go out of business in three years. And now it's been 14 years or 15 years, and we are still growing.
So I don't have an answer for this. I can give you the same answer what I told them that the mess in the power distribution system in India is very, very large. So just sitting in Bombay and Delhi, you cannot assume that the entire country will have prioritized clean power.
So I don't think it -- I think it will be very difficult because power is a state subject -- there is politics involved. There is a union of the state electricity boards involved and all kinds of stuff happening. So it's going to be very difficult to prioritize power for the entire country.
So what we are expecting is the larger cities will get privatized first and then it will more. But even there, I think after a point, the central government has not been able to really push for privatization of power barring big metros in the country. This is my answer. I mean this is my comment, and Ram you want to take the rest of the question?
I think what we have observed is stabilizer usage continues to grow. And as also inverter battery probably. Yes. Can you hear me now?
Yes. Yes, now it's fine sir.
I'm saying as also inverter battery, I think what also happens is while the power situation improved, it is not necessarily 100%. And there are interruptions maybe the length of interruption is short -- getting shorter, yes. But it is there. And the people want to have reliable power at home. So they want to have an alternate mean. Such that they can continue with life uninterrupted, right?
Even in large metro cities, particularly in peak summer like this even in central Delhi, sometimes power is going up because the load is very high. So load shutting continues to happen in larger cities also. So -- but this is what we are observing, and this is why the category is going up.
I think for inverter battery as a category, I think the rooftop is also developing as a segment, and that is fast-growing with incentives and support from government. I think that's an area also, which is going to be a significant driver of growth for that segment.
Stabilizer yes, as Mithun already said that, you will have a good year or a bad year, once in four years, we've always witnessed a very strong summer, and we find them that on a CAGR basis will end up as a long-term growth when we look at a 4- to 5-year average, which is no different from what it was 5 to 10 years back. So we still continue to believe that 8% to 9% growth, long-term growth will come on a 4- or 5-year cycle. Maybe some years, it will be like 6%, 7% and then it will be like 12%, 13% or 11%, 12%.
And just last question, in terms of kitchen appliances as well as Sunflame. So kitchen appliances under V-Guard branded. So I guess, overall, this portfolio -- is the restructuring largely over? And should we see revival in growth rates, let's say, from H2 onwards? Or do you think that some amount of restructuring of the portfolio as well as the slowdown in the market may continue for some more period of time. Yes, that's from my side.
Yes, Ram, you want to take this?
Yes. So I think you must have seen some results have already started to come out in the kitchen space. So I think the kitchen demand continues to be under check. And we now -- I think almost 7 quarters that we are continuously witnessing a strength in this segment, yes. So I think that's the first observation.
At our end, on the V-Guard side, we had in the system setting up our own manufacturing facility. The main challenge with V-Guard was to improve the competitiveness of the V-Guard offering and to that end, we have set up a facility in Vashi. The facilities has come up, and it is still maturing.
And I think by October or November, I think we should start to get output in line with what we need, so that we are able to derive 100% of output from that factory. I think once we have our own manufacturing facility that also besides the supply competitiveness, it is also giving us a lot of flexibility to improve our offerings in the market, right, in terms of the competitive value proposition.
So I think this is fundamentally going to be the main piece that is going to drive our business and towards that end, we are already feeling traction in some of the categories like e-commerce where anticipation of what I would say, the manufacturing facility coming up.
We have tried to be competitive with our offerings. So I think we are seeing good and encouraging traction. So I do believe that with the facility full swing by around November or December, and with some newer launches that are coming, I think the V-Guard kitchen business should start to do well.
Regarding the Sunflame business, I think we know -- we -- it was in Q1 last year, that progressively we could assemble our team right to manage Sunflame all the Q4, was when wie did the transaction. But Q1 was when actually we could put this management team on Board in Sunflame. I think we are now about -- the team is about 3/4 into to the company.
I think they are settled down well. But they have a clear idea of how to play and how to win games. There is still work happening in terms of developing our long term strategy for Sunflame and that's going to take another three to six months.
I think the GP markets are doing better for Sunflame compared to organized retail. While Sunflame is to looking to leverage the V-Guard business systems. As its profit is taking a bit of time. But I think -- for example, e-commerce and organized retail, I think from the coming quarter, I think our systems should be able to better support the requirement of Sunflame.
So I think that's broadly to give you an idea on Sunflame. I think the fundamentals are strong and positive. Margins are intact.
Growth is the challenge for the industry and for Sunflame, and the growth levers are yet to get pressed right. And that's why you are not seeing the result coming in because that is preparatory work which has been happening at our end. This facilitate the sale of Sunflame business to be leveraging the V-Guard infrastructure and business systems.
The next question is from the line of Achal Lohade from Nuvama.
Congratulations for the great set of numbers. Sir, I just wanted to clarify. You said the summer season was good but ex of summer season, would you be able to quantify if the growth was in single digit, double digit because I think wires you said very slow growth. And so as kitchen, you said things are under pressure. So if you could just clarify nonsummer product, how the momentum was in fourth quarter and how it is playing out in first quarter?
Actually I think it's slightly difficult to do that because -- okay, yes, definitely, summer -- so I think if you look at Q4 and Q1. We definitely got a few percentage points boost in sales because of summer, and I'm very sure about that. So let's see, I think it's going to be very difficult to say if summer was not what would have been.
So I think the way you have to look at is it is like this. So if you look at last four years, we have been struggling in the electronics category. Our CAGR was very low. Stabilizer was not -- the growth rates were in low single digits. And now it has got up to the long-term CAGR of 8%, 9% or 10%. So I think one has to look at it like that rather than saying that the ex-summer what would have been that like.
One more thing to notice is, a lot of our channel, which sells Consumer Durables, especially kitchen is the same channel, the same distributor and same retailers who sell stabilizers and air conditioners. So when you have this kind of a summer, the working capital, deployment of retailers and distributors will move to the summer categories and the others will get cited and that's there is no phenomenon that we see every time. So that is also there as an added reason for some of the slowness in the non-summer categories.
Right. Sorry, maybe I wasn't that clear. In terms of the categories which are not summer-driven, like wires, kitchen appliances, et cetera. If the growth was weak? Or are you seeing any improvement on that count?
Mithun, can I take that?
Yes.
So I think, see, wire business responds to copper. So if copper prices goes up or goes down, it influence the sentiment for wire. For this and that will influence the sales of wire because the stock up or stop down. So if you take out the wire and if you kick out summer categories, we are really looking at about some 20%, 25% of our revenue.
And a large portion of that is water heater. Because the switches and switchgear, they're fine. I think we have double-digit growth. We don't have an issue there. Our penetration is low. These are growing categories, and they are doing well. Then the other part there is really water heater.
Water heater we see summer, I mean, the winter is to start and we will get a better picture. Because whatever happens with the water heater, three seasons. It's basically trade upstocking. I think with the water heater, the growth has been lower than typically what we would expect for reasons that we have talked about because the entire working capital of trade partners is focused on summer categories, whether it is AC, whether it is air cooler.
Because these categories have seen abnormal growth, right, 40%, 50%, 70% kind of growth. And they have to purchase the stock base and sell them, right? So really focus their working capital there. I think clear picture on water heater will be visible in the upcoming four, five months right.
I think last year was a challenging year for water heater as weather had not supported the category. So we do hope that consequently, the current year should be favorable as far as water heater is concerned. Kitchen, I think kitchen is an industry-wide problem. For us, our indexation to kitchen for at least the V-Guard recent business is very small, although V-Guard and Sunflame is strong.
I think we had as far as Sunflame is concerned, I think broadly, our performance is closer to plan. I think as our business systems and practices are traveling to Sunflame. There are some challenges in terms of timing of accounting and all of those things.
And therefore, although broadly, the performance of Sunflame is close to the annual plan, what is reflecting as sales maybe a little lower. We had forecasted that our Q1 will be lower in several years itself than we have made a forecast for this year.
But I think we are getting into festive season, quarter 2 and quarter 3 are the strongest quarter for kitchen. Given that kitchen as a category has been under stress for now almost six to seven quarters. We are hoping that this festive season really see some sales uplift. But yes, that's the part, which is perfect uncertain as we speak [indiscernible].
And just one more question with respect to rooftop solar.
Sorry to interrupt, sir. Could you please fall back in the question queue for further questions. The next question is from the line of [indiscernible] from Summer Wealth.
Hello, [indiscernible] your line has been unmuted. Please go ahead with your question.
Hello. Am I audible?
Yes ma'am.
So my question is, could you provide any guidance on expected top line and margin improvement.
You're asking about expected top line and the expected margin?
Yes.
So we don't give a guidance as such, but we always said that we should grow around 13% to 15% in revenues. And margins, I think we have largely come back. I think we should hover around between 9% to 10% EBITDA margin for the year.
Sir, my next question is, are you planning to expanding a new segment or any product category as of now?
I think we do look at new categories, but we are not ready to talk about it publicly.
The next question is from the line of Priyank Chheda from Vallum Capital.
Sir, my question is on the rational for you to keep that the kitchen businesses in a separate entity on kitchen appliance businesses in V-Guard, another one in Sunflame. And when you are investing further into the kitchen appliances in V-Guard while Sunflame is operating at 50% utilization. So how do we see these two businesses under the same parent group operating in two different companies.
Got it. Rama, will you take this?
I think two things. I think firstly, when we set up our manufacturing capacity in parts. This project has commenced even before the Sunflame transaction could be from that, right? And the transaction process is always uncertain. After waiting for a long time, we could wait no more, and so we decided to go out and make the investment in the terms of growing our kitchen business, the first part.
Secondly, the 55%, 70% of the output of Vashi plant is basically going to be towards mixer grinder for which the capacity is not existing in Sunflame. So I think this factory should be able to produce -- will be producing mixer grinder for V-Guard. And that should, in the future, right, also be able to support the mixer grinder and the fulfills the requirement of Sunflame.
So I think that as far as our investments separately in these two places are concerned. The Sunflame plant has been operating in possible period at least close to the full capacity utilization. Recently, we have reorganized the manufacturing layout to -- and the manufacturing system to increase the capacity in company, factory to support the future growth here. So that's on the manufacturing side.
On the strategy side, yes, I think we are going to retain both the businesses. Today, the V-Guard kitchen portfolio is approximately INR 200-odd crores annually, maybe a bit more this year. And Sunflame is, of course, expected to do about INR 350 crores. So as we see INR 325 crores to INR 350 crores. So I think these businesses are significant.
We are in the course of doing -- I mean we are engaged in the consulting engagement to deliver a long-term strategy for these are playing the kitchen businesses and then how the two brands will coexist and how they will operate there. Over the mix term obviously, the back end will be integrated, right, whereas the front end will be focused to drive the two brand sides.
So that's how the efficiency will play out. I think the front end will be up. So even at the front end, right, front end for categories like some of the channels will be common, like e-commerce and all, 1/3 of the business is common whereas GB infrastructure right, the front end infrastructure, that will be independent for the two brands.
So [indiscernible] then on a broader kitchen appliances stuff. You did mention that the categories under that has for a multiple quarters now. Can you specify any particular category in a kitchen appliance has a segment is very broad. So any particular categories which you would like to call out, which are working well in any particular category, which are yet under the checks, which you don't see any ratio.
We may not be significant player in every part of the different portfolio. But from my understanding, certainly, gas stove, mixer grinder, induction cootopr till last quarter, who was all doing well, but I understand even would kitchen [indiscernible] some understood. This is what I understand, yes. So small domestic appliances, not for sure, but what I understand is even the platforms, e-commerce platforms are under stress on the kitchen portfolio, implying even small domestic appliances may also be under pressure there.
And do you see anything changing in this as a broader category now that government focus is back on to the rural spending socialized reforms, do you see anything changing for this category after so many quarters of [indiscernible]?
I think that there may be two factors, right? So one is, I think people spent a lot of time at home during COVID period, right? And while most categories compressed during COVID period, I think kitchen is the category did exceedingly well and it is quite possible that this has been one factor which is contributed as the category came out of COVID that is the pressure has come down, right, that the consumer demand has come down.
The other thing is, see, typically, when you look at the overall consumer durable space, right, the most widely penetrated category is kitchen, right? Because when you take a product category like gas stove or you look at our mixer grinder. These are highly penetrated categories, right, maybe [indiscernible] building is still sitting with premium with, let's say, higher income outsource.
So it's quite possible that during the COVID phase and the post-COVID phase, the overall balance sheets have come down, right, and they have been under stress. And particularly for I would say, middle class and lower middle class [indiscernible]. And it's quite possible that the households are busy repairing their balance sheet and they are only making essential replacements, right?
And also -- and that's reflected in the consumption data also, right. I think, yes, there are some positive signs. I think monsoon is extremely favorable. This year, monsoon progress has been -- it's been on time and is progressing well, and that should augur well the rural markets, right? That's one part of it. I think the other part of it is also, right? The budget has talked about a lot of -- bringing a lot of focus on developing the farm and agri sector. I think that's a very, very positive and convincing, right? That kind of focus has been after some time, and it is probably responding to the challenges and stress that this sector is facing.
I think this will have a positive implication on the mid term, right? Mid term demand over three to five year horizon. So I think these are favorable factors. I think the fiscal deficit is also forecasted to be lower, right? And that should probably keep inflation on the lower side and which might be positive for consumption.
So this is how it's playing out. And so I think, yes, when you look at our [indiscernible] horizon, things are looking good, right? Things are looking better for consumption. And hopefully, it should reflect in kitchen categories.
And just on the competitive pressure. If you can comment within the...
Could you please fall back in the question queue?
The next question is from the line of Natasha Jain from Nirmal Bang Institutional Equities.
Sir, if Mithun sir can address my question, I had recently concluded exhausted channel checks pan India and the feedback I got from the ground was, why products for V-Guard is probably one of the best in terms of quality? We do lack in terms of visibility, especially as we move from down south to Northern India.
So can you throw some light as to what is that advertising strategy? Are we doing anything specific in terms of addressing the western and northern market. Specific meaning onboarding some kind of a bigger or a larger-than-life iconic celebrities to improve visibility or target the influential management space? What is our broader strategy here?
Okay. So I'll answer your question and then maybe I'll ask Ram to pitch in after I do. So as of now, we don't have any plans to getting the celebrity. I think what one has to understand is that we are in a multi-product category. So we have like 7, 8 lines categories. So the problem of getting a celebrity is you can only do it for one category usually because they are recently tied up.
They will not -- because different companies have there getting [indiscernible]. Although you can get a celebrity for a single category, getting it from multi-category, it's usually difficult and that's what we have faced in the past. And that's one of the reasons. Second is, we really believe that our product work should speak for itself.
For example, we have made significant strides in the fan business without having any celebrity, without having any advertisement, solely on the basis of our product work. So I think we are doing similar work in other categories, and they will also -- because we believe that you can advertise, but if your product is also not up to the mark, then there is no point in advertising.
And that's something we have realized, and that's why we set up close to 5 to 6 plants for various categories because it all starts on the manufacturing side. We need the flexibility to do refresh our products faster. We need better quality, which we can only do in our own plants because vendors have a limit.
We need fit finish, design has to be outstanding. Again, this cannot be made with vendors. So those are the reasons why we have invested. So I think we are now starting to see the fruits of that.
Regarding advertisement, I think till 2020, I think we were spending between 2.5% to 3% on A&P. And I think post -- during COVID FY '21 and '22, we had cut our A&P. '23 was -- we really got impacted through margins. So if you look at the current year, our A&P for Q1 has gone up by some 30%, 40% in revenue. As it gone up faster one of -- double -- go faster than the revenue.
So we will -- we are pressing foot on the accelerator for A&P and that -- but I think you have to keep in mind that India is a very large country, and we have diverse markets and language. So I can say for sure that we are having very strong recall and following and preference in Southern and Eastern markets.
Northern and Western markets are yet to have the similar kind of acceptance as when we do the channel checks. But then having said that, if you look at Q1, North has grown by over 25%. Western markets have grown by over 27% and East has grown by 30%. So they are not that largely different, just to answer your question.
Ram, do you want to add anything?
Yes, I will. So if you look at V-Guard business last year, right, I think we -- or if you look at our current business, I think we are trending at about INR 2,500 crores revenues in non-South. And today, this is quite -- I mean, under the V-Guard franchise, I'm talking about and that INR 2,500 crores to INR 3,000 crores Will be our non-south business this year trending on and we got franchised.
So obviously, we can't build this kind of, what I would say, business, right, without brand awareness, yes? That's the first point. I think where people talk about brand awareness, right? So people talk basically about the top of mind recall, right? Top of mind recall so that people [indiscernible] yes, I know this brand, right? So we are really talking about top of mind recall, okay? I'm sure either recall will be good.
So the problem that top of mind recall is it takes time to build. So let me just go back, right? If you go back to our non-South business, it's not more than 15 years old yes? And if you really look at our presence in non-South, considering that we have staggered our entry into different markets at a state level or even at the district level. And if you also look at the fact that we have staggered our entry across different categories.
Broadly, we are a 7-, 8-year-old brand in both markets, right? In some markets, we are 2, 3 years old. Some markets we are 10, 12 years old, but depending on -- that's our -- actually, the breadth and depth of our presence. It's not actually 15 years also, its like 7- to 8-year-old brand. And now for that size our awareness is quite decent, right?
But we lack top of mind recall. Top of mind recall building, right? It really takes time. Of course, we can -- you can get a good celebrity and you can pump it up. But sustaining it will mean also sustaining the spending over a long period of time. Now as a business, right, we have a number of imperatives, right, when it comes to building business, right?
The most important thing that you have to invest is actually to build your capability, right? So and that's what we have done, right? We are building our -- we are investing along the path of doing business, right? We are investing to strengthen our quality. We are investing to strengthen our, what I would say, [ Chetan, Dinesh ].
We are [indiscernible] as Mithun talked about, right? The investment we are making -- we are actually making very deep investments and I think unfortunately, most of our investments are not visible, right? They are not visible because they are all driven towards capability. We believe that we will reap the best fruit, right? That well, we are really capable and equipped.
So that when we invest significantly in advertising, we are able to reap the fruits of it, right? So I think there is a lot of investment that's happening, investment in service, investment in quality, investment in design. And we are doing that. And today, if you look at V-Guard, we are far, far stronger than who or what we were 5 years back.
We are investing in talent, and we are investing in talent for the future of the business also not only to run the current business. So investments are happening in many areas. Huge investment is happening on technology and digitization. So not all -- see, there are -- yes, of course, we could do more on the front end there.
The problem with front end investing is also right, you have to sustain that investing to build the brand, right? It's not a one-year effort, but you need to do it over a 3- to 4-year horizon. Unfortunately, we've been passing through a lot of uncertain times, right with the demon GST then COVID and then the commodity shock, right? So yes, so I think that's been a bit harder for us to make land investment, right, because we are also investing on internal capabilities simultaneously as the business is under stress.
So internal investments have continued very, very strongly, even during the most difficult phases that most business has gone through and so that's how I would put it. I think we are very much committed to investing in the future of the V-Guard brand. It is just not visible in the way that you would typically expect to see because you'll be directed in different directions.
And the other final point I want to make is, you should correlate the brand, whatever you may be sensing. Fundamentally coming from a top of mind awareness issue, right? We can't build a INR 2,500 crore business in 12 to 14 years, right? We can't build this kind of a business, right, without brand awareness, right? I do hope you understand it. Not the absence of brand awareness, is the absence of top-of-mind awareness in newer markets where on an average, you would be not more than 7 to 8 years old.
The next question is from the line of Naushad Chaudhary from Aditya Birla Mutual Fund.
Congrats on a decent set of numbers. First thing I wanted to check on our outsourcing model in the last 3, 4 years, it has -- as a percentage of revenue, it has come down from 40% to roughly 33% last year. In next 2 to 3 years, how do you think this number should move?
We are hoping that in the next 2 to 3 years, we should move to 25% of outsource strength and 75% of in-house manufacturing.
And eventually, in long term, do you plan to make it zero?
No, I think we are always going to have categories where it's not going to make sense for us to manufacture. For example, we will always incubate categories by working with the best partners in manufacturing that category. And then once we gain scale, we'll solely in-source the product because if you want to make everything in your plant, you need to have a minimum order quantity and many of the categories are seasonal.
So you can't have a plant which is only working a few months of the year. So we're always going to have, and we are also what we probably do is, our mid-segment and premium segment. If you look at fans, we are manufacturing only the mid and premium segment. The economic segment, we are largely outsourcing because it doesn't make sense for us to make the plain model of fan in our factories.
Because our factories are more expensive. We have to pay -- we have to comply with all rules and regulations. We have to pay all the benefits and all the legally required wages and over time and all that. So when you do all that, but our vendors may not follow all this because they are all under the radar, and they are not listed companies and stuff like that. So typically, what we do is we -- in our own plant, we actually manufacture the hero products and the mid segment and premium segments.
Second question on stabilizer. If I heard it correctly, you mentioned this category, which was struggling with low single-digit CAGR growth and has now come back to 8%, 9%. So is this something just a beginning and you see this kind of run rate should at least continue for next couple of quarters?
I think typically, when we have a good first quarter, the following quarters also tend to be good because our distributors do not have much inventory. Our trade partners also do not have much inventory. So they actually buy throughout the year. When you have a very bad summer, the reverse is also true. You have a very sluggish market here, inventory goes up, your receivables go up and so forth.
And the long-term CAGR for this category is 8% to 9% or lower than this?
It's about 8% to 9%. If we look at the last 15, 18 years.
So if it is coming back from a low CAGR ideally, it should have been higher, 8% and 9% from a low CAGR shouldn't be disappointing numbers?
No. I think if you look at stabilizer we are having -- let's look at pre-COVID, it was having a CAGR of around 7% to 9%. Now post-COVID, it has dropped to 4%, 5%. And we are -- if you actually look at last 5 years, it will be 15% to 16%. But the thing is it may not repeat every year because we are selling on a high base for next year. So I am talking about a long-term CAGR to be about 9% to 10%.
The next question is from the line of Rahul Agarwal from Ikigai Asset Manager.
Just one question. While going through the website, it talks about a few context being done for business plan in tech designs. Just curious to know over the past years since you've run these things, how fruitful have they been in terms of incorporating certain ideas and designs into products? Could you -- if you can provide some examples? And what would you expect going forward?
Okay. Ram, you want to take this? Regarding big idea.
See this big idea context was started around 2009, 2010. Fundamentally as an engagement platform this student community. And I think there's been now running since then, right? So the primary objective of this is to engage student community. So I think it should be seen from that perspective. We do hire which gives us the opportunity to meet some bright students.
And we do hire some students into our system as management trainees, and we have done that in the last 4, 5 years. We've taken some of them onboard. As far as the idea part is concerned. Yes, I think there are a lot of ideas to just share at that kind of a platform. Of course, what we do with our business sometimes or many times, it may not look like how it is presented. But definitely, the thoughts inspire, let's say, exploration at our end in terms of the possibilities and how to go forward.
The next question is from the line of Aditya Bhartia from Investec.
So just a very small follow-up. Are we seeing signs of restocking in wires market in July?
See, I think we don't like to talk about an ongoing quarter. But I'll just say that today also I think copper has corrected by about 2%, 3% or something like that. So I think the bigger behavior is the trade will try to see we have reached the bottom. So unless we have sustained 2%, 3% increases in copper prices happening over a few weeks, are restocking that's not a strategy. Normalized sale is going on like Ram said, and I mentioned earlier also, the destocking has started sometime in May.
And so the destocking over the normalized sale is happening, but the restocking will happen only when you draw craft, retailers would see like, okay, the tide has turn the mirror [indiscernible] even that have to be a very strong upfront, but even medium term, small upfront by show also we do buy because they'll be sitting with less than desirable inventory.
Ladies and gentlemen, this will be the final question for today. It's from the line of Hardik Rawat from IIFL Securities.
I wanted to understand, based on how the first quarter has been, what is your outlook for demand across segments especially Consumer Durables. How do you see that evolving for the fiscal year.
So, I don't -- we don't give out any segment-specific guidance, but as a blended basis, on an overall basis, we are -- we could be doing well. Typically, when we have such a strong first quarter, it typically translate into decent numbers going forward. But I have to say that the kitchen segment demand is soft, but Q2 and Q3 are the [indiscernible] so we are eagerly waiting for that.
Wire is another item, which is not summer based. So in case of wire is really depending on copper price. I think wire we are less worried because it typically does bounce back quickly. So let's wait and see. I think, we typically look to grow between 13% to 15% in sales annually, and I think that should be possible.
Ladies and gentlemen, that was the last question for today's conference call. I would now like to hand the conference over to Ms. Natasha Jain for the closing comments.
Thank you, Steve. I will request the management to give their final remarks.
Thank you, Natasha and Nirmal Bang for hosting this call, and thank you all for your patient listening.
Thank you so much, sir. This concludes the conference. We thank all the participants, and you may disconnect your line now. Thank you.