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V Guard Industries Ltd
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Ladies and gentlemen, good day, and welcome to the V-Guard Industries Limited Q4 FY '22 Earnings Conference Call hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Trivedi from HDFC Securities. Thank you, and over to you, sir.
Yes. Good afternoon, everyone. On behalf of HDFC Securities, I would like to welcome the management of V-Guard Industries to discuss the post Q4 FY '22 results. We have with us today the senior management of V-Guard Industries, represented by, Mr. Mithun Chittilappilly, Managing Director; Mr. Ramachandran, Director and Chief Operating Officer; and Mr. Sudarshan Kasturi, Senior VP and CFO. I will now hand over the call to Mr. Mithun for his initial comments. Thank you, and over to you, sir. .
Thank you, Naveen, and HDFC for hosting this call. A very warm welcome to everyone present, and thank you very much for joining us today to discuss the operating and financial performance of our company for the fourth quarter and the financial year ended 31st March 2022. We are pleased to report a strong performance in the fourth quarter with revenues crossing the milestone of INR 1,000 crores for the first time, delivering a growth of 23.7% Y-o-Y, despite some challenges related to the third wave in the first few weeks of the quarter.
We were able to end the fiscal year on a very strong note. Electricals and Consumer Durables segment achieved strong growth, while Electronics showed a moderate growth. In Q4, we witnessed broad-based contribution from both south and non-south markets that witnessed Y-o-Y growth of 25.4% and 21.5%, respectively. We continue to grow well in the non-south markets, which is enabling the emergence of V-Guard as a strong nationwide brand characterized by a more diversified revenue profile.
On the product side, in the Electricals segment, comprising of wires, pumps, switchgears, modular switches we registered a growth of 32.6% Y-o-Y. In the Consumer Durables segment, where we market fans, water heaters, kitchen appliances and air coolers, Q4 revenues grew by 32.3% Y-o-Y. Our Electronics segment compressing of stabilizers and inverters, there was moderate growth as the demand for summer products have a slow start to the quarter. Margin pressures due to commodity price inflation continue in select categories.
In a competitive market, we have taken large price hikes over the last few quarters. We are actively working on addressing the remaining pricing gaps. In addition, we have instituted cost optimization measures across our operations to support and to restore our margins. EBITDA margins were at 10.6% in Q4 FY '22 compared to 12.9% in Q4 FY '21. Going forward, we expect margins to be driven by volume growth, pricing actions and better fixed cost absorption while advertisement, promotion spends increased further to normalize sales.
We have made the choice to migrate to new tax regime, enabling us to benefit from the lower rates. This effectively -- this is effective prospectively from FY '21. There is a write-back of tax in the current quarter. As a result, profit after tax improved to INR 90.6 crores in Q4, including INR 13 crores as write-back -- tax write-backs.
In February 2022, we invested a further INR 15 crores in VCPL or V-Guard Consumer Products Limited, our wholly owned manufacturing subsidiary. This is towards setting up manufacturing projects through VCPL. The first of which has already commenced operations in Uttarakhand. These new facilities will enable us to be more [indiscernible] in our operations and also derive long-term cost competitiveness.
During the year, we have taken a conscious call to increase our inventory norms with the risk of supply chain disruption diminishing. We are now moving towards normalizing inventory levels. There has been some improvement in our working capital position, as compared to the end of the previous quarter. We believe we are well placed to meet consumer demands over the coming months, and this will enable us to get back to normal inventory levels, resulting in stronger cash flows from the business in the coming quarters.
As we enter a new fiscal year, V-Guard is well positioned to benefit from the resilient consumer demand given a wider product portfolio, expanded national presence and investments in capacity and augmentation. With that, I conclude my opening comments, I would like to thank once again for your participation and would like to hand over the floor to the moderator for Q&A. Thank you.
[Operator Instructions] The first question is from the line of Rahul Agarwal from Incred Capital.
Sir, first question essentially was on the demand for stabilizers and inverters. You mentioned on the commentary that electronics growth has been slower. Could you help us understand what is really happening with that right now?
So currently, we had a slow start for the quarter for that category. Given the current year fully, the category was under tremendous pressure in terms of demand. That is both stabilizer and inverters. Because even in Q1, we had those lockdowns and we couldn't sell anything and they're extremely seasonal products.
But what we're seeing in April almost there has been strong demand. So you would have heard about strong demand for air conditioning. There is also power cuts. So there was strong demand for inverters. So I think this year, we should have a much better number from the Electronics division.
Right. So April, May has been much better than what we saw in fourth quarter. Is that understanding correct?
Yes. Although we are currently not talking about April, May, but I can say generally, the demand has been strong in April. May has been slightly weak in South and East, but north unless continues to remain strong.
Got it, Mithun. And the second question was for VCPL. So could you help me with total investment till date in the subsidiary and what has the factory started to manufacture now? And what should we expect over the next 12 months in terms of manufacturing?
So far, investment in VCPL is about INR 60 crores. This is towards the first plant. That is the plant which manufacturers stabilizes and inverters. That plant has just about started operations.
So what we have started to manufacture is effectively stabilizers. And I think by August or September, we should start the full range of products.
When you say full range, we're basically talking about wires and fans also here?
No, no, no. I mean -- the plant is to manufacture only stabilizes and inverters.
Okay. Got it. And lastly, why has the employee cost come off quarter-on-quarter? That's my last question.
Why the employee costs reduced, come off?
Yes. The employee cost has actually gone down quarter-on-quarter. What is the reason for that?
The employee cost has gone down because there are some write-backs on incentives and variable pay. So that's one reason. Also the comparative Q3, there was one-off cost. So both these put together.
Could you quantify that, please? Like third quarter one-offs and fourth quarter, what is the write-back?
There was a INR 4 crore one-off in Q3, and there is a write-back of about INR 5 crores, INR 5.5 crores this quarter.
Next question is from the line of Sonali Salgaonkar from Jefferies India.
My first question is regarding the price hikes. Could you help us quantify your cumulative price hikes on an average in F '22? That's full fiscal as well as any incremental price hikes, which you have taken from first of April or hope to take in the coming quarters?
So FY '22, cumulatively, price hikes have been about 10%. That is excluding wires.
Wire will be something like...
Wires will be like 35%, 40%.
Wire will be about 30%, 35%. And the ex-wire will be about 10% for FY '22.
Sir, any price hikes, which you have taken in Q1 or hope to take?
Price hikes in water heaters and fans, some pricing action has been taken in April.
Yes, we have taken some price hikes for water heaters and fans. I don't have the exact number with me because they will be landing in phases. We will send the price list and it will be affected in phases depending upon geography and market.
I understand. Sir, my second question is regarding the current demand levels and inventory. Sir, are you seeing the demand of -- has peaked off in May -- by mid-May? Or do you foresee strong demand to continue by -- till the first week of June? And what are the current inventory levels in the channel?
So the inventory levels in the channel is fairly healthy. I think we are having almost -- we are doing secondary tracking. So we have data of the secondary inventory. Almost 75% of the channel partners, we have real-time visibility. So the inventory levels in the channels are not very high. And we ourselves have decided starting in January itself that we will tune down our inventory levels because we have not faced that much of supply chain shocks as we expected though except for a few items like electronics, where we'll continue to hold inventory.
So our inventory days have gone up by about 15 days on an average and it will come down progressively; starting in June, you will start to see some reduction and in September quarter, you will see some reduction.
As far as demand is concerned, see, we are in a business where almost 50%, 60% of our revenues are coming from demand for products from summer categories. So you can -- you will be reading in papers we had very high temperatures in March and April and May onwards, southern part of the country has received rains, eastern part of the country has received rains so the demand is according to that. Like I mentioned, the demand continues to be strong in North and West and let little bit weak in south and east.
Got it, sir. Sir, currently, what proportion of our manufacturing is in-house and what is the CapEx guidance?
About 60% is now in-house. The second question was?
CapEx .
CapEx guidance. So we will stick to what we said earlier about INR 200 crores over 3 years.
INR 200 crores in the next 3 years -- over the next 3 financial years.
Sir, my last question, what is the tax rate that we should expect going on from here, F '23 onwards?
We can take it at 25%, 25.2% that is the ticket rate.
25.2% will be the rate. And -- yes, you can take it for business. It will take some time for VCPL to start generating profits.
[Operator Instructions] The next question is from the line of Achal Lohade from JM Financial.
Congratulations for the good performance. What I wanted to check was specifically with respect to the Consumer Durable business. If you could talk a little bit about what drove this growth, any particular category or region? And while you have talked about 9% to 10% kind of price hike impact, any specific number you can provide for the Consumer Durables category, sir? What is the price hike impact?
Okay. So I'll just talk a little bit of a consumer durable segment and then Sudarshan can talk about the price impact. See, the Consumer Durable segment has had very strong growth. We don't like to give out product wise numbers because it's been an extremely competitive industry, and we don't want to -- no one gives out anymore product wise numbers so we also don't want to give out.
But I can tell you that the major component is water heaters and fans. If you remember that 2 years back, we had lost some share in water heaters because we were not able to supply and all that. So we have had very strong growth in water heaters. We have back -- we have gained back the shares we have lost. And we are going to continue strong now onwards. Fan, also, we have had some great new launches. We have mentioned that we've started a factory in Uttarakhand that was 1.5, 2 years back. So all the products coming from our own factory are unique.
They are significantly better than what's available in the market and coming with attractive proposition. So these have done well, and they have driven growth. Plus, we had a lot of supply shocks in FY '21. And then in FY '22, we decided that we'll keep more inventory, and we have taken advantage of the demand. So that's basically what I said. The smaller part is the kitchen appliances segment. That has also grown very well. We've had some new launches like water purifiers and kitchen hoods only in the e-comm channel and they are also continuing to do well.
Right. And the price hike impact, I wanted to also check in the Consumer Durables segment specifically?
Yes, that 10% applies to durables also. It's -- these price increases have been across the board. So more or less all categories.
Yes. The cost increase in durables has been much more sharper because the durables use a lot of aluminum. They use a lot of aluminum. They use a lot of crude derivatives and packaging. Everything is sharper. So I think that the problem with durables have been that there has been sustained increases in commodity. So by the time, we correct commodity prices and move on, the next round of hikes are required. So it's been a constant challenge. The good news is barring aluminum, the rest of the commodities seems to have plateaued. So this is good news for the segment in the coming years.
Right. And just a related -- I don't know if it was covered. What is the incremental price hike required to restore gross margins?
In select categories, see, there are some pricing gaps still exist in select categories.
Sudarshan, if I can handle. Yes. So I think it can range anywhere from 2.5 -- I mean, I would say 2% to 5%, depending on the category. At an aggregate level, maybe about 3-odd percent, right, so...
Yes, correct. Aggregate level will be about 3% in gross margin.
And you mentioned something I couldn't hear that in April, you have taken certain price hikes, couldn't understand the quantum, and you said, will land in phases depending on market. What was the...
I didn't have the number with me about the exact quantum of price hikes. I said price lists have been announced -- increases have been announced. The effective landing will vary. It would have started, but it may not be, but I don't have the figure with me.
Got it. And specifically in the Electronics business segment, you mentioned that it was slow. Can you elaborate a little bit? Is it to do with specific to south region -- in South.
Yes, Ram, you can take this.
Yes. So I think, see, as far as the Electronics segment is concerned, see, fundamentally, if you look at our overall growth, right, what you would see is that growth in non-summer categories have been stronger. The summer categories have been flat to very moderate growth, 4% to 5% when you look at the annualized number. And even for the quarter, the growth in the summer categories have been moderate.
This is basically Jan and Feb was weak and the demand for summer categories started to pick up because with COVID coming in, the trade was not in a mode to upstock. So categories like stabilizer, inverter, even air coolers, which is within the Consumer Durable category or pumps, which is within the Electrical category. So these categories have been depressed until the middle of March, right, because the trade was a bit worried about the revival of COVID from Jan. However, as the summer started to pick up, the business started to pick up and we had a strong March. And that's the reason why the quarter number was a moderate growth in the Electronics category because Jan and Feb was pulling it back.
However, since then, the current quarter, last 45, 50 days, the summer has been very strong, particularly across North and West and the Electronics categories have now recovered to normal growth rates that you typically see for summer. Okay?
Got it. So does it also mean -- sorry, I'm trying to understand a bit more detail here. Is it more of a south problem than really the non-South in terms of this delayed start of summer?
No, the delayed start of summer -- I mean, it was not a delayed start of summer really. It is the sentiment in the market post the COVID...
I think, Ram -- in the last 3 years, every year, we sold inventory into the trade. And in the summer, it was either a lockdown or COVID. For example, FY '21 April was a lockdown. FY '22 April also -- FY '22 May was a lockdown. So both these years, the trade picked up inventory but they were not able to sell out. So they were not willing to upstock this time and they waited for the real summer to happen. So basically, the channel inventory was almost nil, as we entered summer this year.
Understood. Understood. And -- sorry, just one more question. In terms of the gross margins, earlier we used to talk about 100 basis improvement year-on-year. I know we have gone through a very volatile RM cost inflation scenario. But if we were to assume the RM prices are here to stay, how do you see the gross margins trending over the next 3, 4 years, given the in-house manufacturing, the premiumization and so on and so forth. .
See, we would like to increase gross margin by 1%. But like yourself mentioned, we are in an environment where we are taking about 13% to 15% average price increase. Usually, to put it in perspective, in a normal year, even with the reasonable inflation, our average price increase will be 2.5% to 3.5%. So there's almost 4x price increases we have to take. So I think the way to look at it is like this.
So when the raw material prices are plateauing and the commodity prices are plateauing, at that time, we can start to -- again, hope to achieve this 1% improvement in EBITDA margin. Until that time, I think it may be difficult.
The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance.
A couple of questions on...
Mr. Sharma your voice is breaking. I request you to use the handset?
I am using the handset. Is it better?
Yes.
Yes. So I was saying that just on the demand again, and as you said -- and not just for you for the sector as a whole, we've seen price hikes in the region of 12% to 15%, which is quite abnormal, right? I mean typically, we take about 2%, 3% annually. So I understand summer has been good, so cooling products would have done well and continue to do well. But from a full year perspective, do you believe this inflation/price shock, if I may call it, would lead to more of price growth and volumes actually start suffering, as we get into Q2? Or do you believe the ticket sizes are small, demand is pretty inelastic? And therefore, we see a healthy volume growth. Is there any guidance you want to give on top line growth for next year -- sorry, FY '23?
Ram, you want to take this?
Yes. I think it's a bit hard at this stage to give guidance on volumes. I think as -- in general, we are not expecting -- because the ticket sizes are small, we're not expecting demand to drop off. I think, however, when you look at growth and what we have seen in the last 2 years, right, it is also a function of how this COVID and supply side is interrupting the market. If you look at our last 2 years, fundamentally, we've been impacted on summer categories. And if you see that the categories that we sell around the year, we've been able to recover and our business has gone on.
I think a bit of that pressure has been there on wires because of the slowdown in the building sector. So I think we will also need to look at these kind of things. So I think how the demand for housing is going to go -- and that will, to some degree, also impact some of the electrical categories. But consumer categories, we're not expecting because most of the categories that we are into, they are not high ticket size and the penetration is still quite low, and the replacement cycles are short.
So I think we should be okay there. Similarly, I think if you look at the Electronics segment for our portfolio, I think that what has become very clear now. It's like this is the fourth year -- I mean we had 3 consecutive years where the summers were bad. The first year, of course, was because of COVID. The second year was again COVID. Third year was again COVID. And this year, the things have really picked up from April, right.
So I think if you're going to be looking at our kind of portfolio, I would say that the consumer part should not get impacted. The electronics part should fundamentally be also dependent on how weather will go. And as also some related categories, which are very strongly summer driven, like air coolers and stuff like that. And I think that's what you should watch for.
And as far as the electrical is concerned, I think you should keep an eye on how the construction industry is moving and what is the uptick for housing demand.
So on a related -- if I may ask you, obviously, you would be fairly very tuned to the real estate market. So obviously, we see good numbers from the listed guys. But I guess, overall, I'm not too sure whether we're seeing a huge uptrend across the country or maybe just limited to the metros. So in your view, are you seeing that uptake? Are you expecting that to continue? Or do you think that may also start seeing down -- on the housing side?
Mithun, do you want to take this one?
Yes. So I think -- see, if you look at the electricals business, even with these kind of price increases, there has been -- of course, it's not a huge volume growth, there has been a decent volume growth. And if you look at the nonwire business where the price increases are not so high, that is switchgears and modular switches. They're also seeing good growth.
So I think so far, I would say the housing demand is pretty good. We -- for example, we don't sell to builders or large infrastructure players and stuff like that. Our sale is primarily retail -- 95%, 97% is retail. So I would say that, yes, housing demand has been strong across maybe because people are able to borrow money at low interest costs and all that. I think -- so the interest cost is something that if it goes up significantly, it could affect so people could postpone the decision to build houses and stuff like that. Because in India, most people are anyway -- it's all -- people take loans to do all these things. So loan interest and EMI is going to be a huge driver for this.
Right. Secondly, on the margins, as you also rightly pointed out, we are starting to see RM prices correct or at least flatten out right now and hopefully, going forward, come off also. So are you hopeful of maintaining a double-digit margin -- EBITDA margin that is next year?
I mean anything you can comment on that? And specifically on the durables as well, where margins have been a little weak right this year, so the low single-digit margin there at the [ EBIT ] level. So any specific commentary on margins?
So I think as a company, yes, we should be able to maintain 10% EBITDA double-digit margins because I think -- personally, for V-Guard, I think the worst is over in terms of commodity inflation, I'm hoping. I don't see any more results for it to go up further again. And I think it has reached a level where beyond these people are not willing to pay for.
So I think what we will see is probably a decline in commodity prices. Copper has already started to decline. So when this happens, 2 things will happen. There will be margin expansion in all categories. But there will be a demand contraction in wires because in wire, copper reduction -- sales price reduction, which also means retailers will start destocking. And that would already -- that would have already started. So it is the same scenario what happened -- after, I think, 2014, '15, what happened when there is a decline in commodity prices. And we can expect that, that kind of scenario. So it's probably going to happen.
I think even this year, we are not that off from some double digits. Having gone through the worst at commodity situation, we are still at 9.5%.
Hello, can't hear you, Mithun.
Sudarshan was saying that even this year with the worst of the commodity price inflation, we are only 0.5% off 10% EBITDA margin, which is a pretty good number in my view.
Understand. And just 1 last one, if I may. On the span segment, right, I think you've done very well. The new factory started -- I'm assuming, doing very well for us. I'm guessing this is more like a INR 400-odd crore category for us. But when do you think you could touch INR 1,000 crores, any time lines that you want to share?
No, we wouldn't like to give out any projections, sorry.
Next question is from the line of Sanjay [ Awatramani ] from Envision Capital.
Sanjay, your audio is very low. I request you to please pick up a bit.
Yes. So all my questions have been answered. Just wanted a confirmation that you mentioned that the wire prices which have been hiked in FY '22 was in the range of 30% to 35%, right?
Yes, about 35%.
About 35%, correct.
Okay. And excluding wire, I mean, all the categories would be increase of 10%.
Correct, 10%.
Okay. Okay. And just wanted to know, I mean, the CapEx, which you have guided for INR 200 crores in the next 3 years. So will this start in FY '23 or some of it is already done?
The projects have spread over multiple years. Some projects have -- will get done in FY '23, some in '24 as well.
I think for sake of simplify, you can probably pencil in INR 70 crore CapEx per year, more or less. I think that's... .
Okay. Okay. So INR 70 crores every year starting FY '23, right?
Will happen is these tactics will all start at the same time, and they will all be starting in staggered manner. So they probably will get spread out.
The Next question is from the line of [ Aniket Mittal ] from SBI Mutual Fund.
Just a few questions on the Consumer Durable front. So firstly, in terms of our manufacturing facilities that we had opened recently in water heaters and fans. You could give certain -- throw some light on that in terms of how are they shaping up in terms of production utilization from these 2 factories, and that would be helpful.
So starting with water heaters, which is a first factory we set up. So basically, we were completely dependent on China for imports 3 years back and that -- 3 to 4 years back. And then -- and we took the call to have our own manufacturing for glass coated or vitreous enamel coated tank or VET tanks in India. And since we already had a plant running -- a small plant running in Sikkim, we decided to expand it.
And that has been extremely timely because by the time -- the plant was not even commissioned when COVID hit. In fact, engineers from China and Turkey wherein Sikkim commissioning the plants and COVID started. So we got a little bit hit on that side. But of course, in the current year, we had full -- we were able to extract a good amount of capacity from the plant. If I'm not mistaken, the plant is producing something like at maybe 70% of its capacity in the last year.
And this year, probably will track something like 85% of its capacity. So that's the -- and the plant primarily produces all types of vitreous coated products. Apart from this plant, we have also tied up with OEM vendors in India to make the same type of products because we didn't want to take a risk Sikkim being a remote location. So we wanted to do some risk management so we also have started some OEMs, which will support for the next few years.
So that's as far as the water heater business is concerned. And it's really bounced back, and we are definitely -- we have taken back all the shares we have lost. In terms of the fans, V-Guard was primarily a company that have pretty good presence in the TPW fans whereas presence in ceiling fans is pretty poor. Primary because we were neither playing in the super economic segment or nor playing in the premium segment.
So with the current plant, we have now started to play in the mixed segment range, your decorative segment. And we have today launched -- we have 3 platforms that are being manufactured in the plant. One platform is all the 3 -- 2 of them are doing extremely well. The third one, which is BLDC fan, has just been launched. So the fan plant in Uttarakhand is also running at close to about 70% capacity, and then probably in the next 24 months, it will hit 100%.
Okay. That's very helpful. Just to understand on the margin front, right? I mean, if I look at the EBIT margins for the Consumer Durables segment during this quarter, it's about 1.7%. Now obviously, as these plants are ramping up, there has been a certain amount of fixed cost reduction that will also come in. And I'm assuming there are certain price hikes that are still pending. So if you could just give some color on that 1.7% number what is the impact because of the lack of price hikes that you've taken? And because of the fixed cost absorption that's not really come through. So what I mean is if these 2 sort of come into the number, what would be the margins looking like?
Compared to steady-state operation, the on-cost from factory about 2% will be there in the current year. And then there are some pricing gaps.
Okay. So 2% plus the price hikes would be like a...
[indiscernible] pricing gap, maybe there.
And just one question actually on the category side. I understand you do not want to talk about your growth guidance for this. But maybe within both fans and kitchen appliances, if you could talk about what are the type of initiatives that you're taking in terms of expanding your product portfolio and distribution reach then that would be helpful.
Okay. So I think broadly, I will ask Ram to talk a bit about product planning and NPD. That will be better, as the company what we have been doing. Ram, do you want to catch up on this?
Yes, yes. So mainly, I think our focus has been on developing new platforms to fundamentally increase our -- increase market addressability as well as improve the competitiveness of our positions in different segments. So mainly, that is our focus and approach. In fans, I think we have fundamentally been focusing on BLDC as well as the preparation for the energy efficiency norms that are coming in.
And that's fundamentally where we are working on. And I think we have already launched, as Mithun had said, 2 new platforms, Romanza was the recent one, which was about 2 months back and before that was Glado Prime. So I think these are the platforms, which we expect to drive, particularly Glado, Romanza and we're talking about the BLDC offerings. I think this is what will drive our growth for the next 12 to 18 months as far as fan is concerned.
I think -- as far as the kitchen appliances are concerned, I think fundamentally -- that again, we have fundamentally been focusing on improving our portfolio presence in terms of addressing subcategories and subsegments in the market, right? And there is a bit of work which has happened in terms of improving our what I would say, competitiveness. Fundamentally, both the aesthetic side as well as the efficiency side, right, in terms of cost and margins so that we can be more price competitive. So these are the 2 areas where we are fundamentally focusing on.
I think mainly, our focus is going to be to improve our product capability, market addressability and the portfolio competitiveness. So that's going to be our fundamental drivers more than, I would say, GTM, which is going to be more ongoing in terms of expanding reach and penetration.
[Operator Instructions]
The next question is from the line of Dhruvesh Shah from JM Financial.
Sir, V-Guard has always opted for growth with conservative approach, maintaining healthy cash flow and balance sheet. But after many years, we observed that we have reported negative operating cash flow versus an EBITDA reporting of INR 338 crores, right? So as explained by you, this is mainly because of the inventory pile up or inventory -- or raw material that we are trying to stock up because of the inflation expectation. But the same is observed since 2Q FY '22, it's been 9 months but we have allowed this metrics to deteriorate for 3 straight quarters. So I would just like to know, is there any change in stance in terms of conservatism or are we changing growth at the cost of balance sheet?
Okay. So first of all, we are not stocking raw material because we think the price will go up, so we can have an arbitrage. We are stocking up the raw materials because we got very badly hit and screwed in FY '21. In fact, we would have lost nothing less than INR 250 crores, INR 300 crores of revenue and maybe INR 100 crores of gross margin in FY '21. Because we do not supply, we lost share, we lost sales. Retailers are screaming at us.
So we said we are not going to be putting ourselves in that place ever again. So that is why we are stocking up raw materials not to make profit because thinking the raw material will go up. So please, there is a huge distinction in between these 2 strategy. The second thing is to put it in perspective, V-Guard in a year consumes like INR 35 crores to INR 40 crores of electronics. Today, we are stocking almost INR 40 crores, INR 50 crores of electronics in our warehouse.
That means V-Guard is stocking 1 year worth of electronic components. And V-Guard is one of the few companies where we do not have a single day of -- a single month of sales miss or single amount of production miss because of lack of ships. In fact, V-Guard has more stocks than some of the automotive companies in the country. We caught this very early on. So that is just to put it in perspective. Now about balance sheet, yes. So we would have probably -- our inventories are probably higher by about INR 150-odd crores.
I think they will definitely come down. They've already started to come down. You would have seen that sequentially it was some -- INR 35 crores, INR 40 crores of production has happened by March. Another INR 150 crores production is expected in the next 4 to 5 months. So definitely this year, we will see a definite positive cash flow. So the reason is we took a strategic call that I think losing market share and having a lot of cash in the bank does not give us any joy. So we decided that instead of focusing on cash flows, we'll focus on market shares. Cash flows will follow.
If I may just -- add just one point. Actually, our typical finished good inventory, which we operate with as a norm is about 45, 46 days. And what we have decided is to increase our overall inventory by about 30 days, which was 1 month equivalent, which is -- which I think RM prices together meant that we were carrying about INR 300 crores, INR 350 crores of extra inventory -- which had converted the cash -- which was in our book into inventory.
I think in the hindsight, it is possible to understand how COVID will go. But sitting where we were sitting at the point in time when we have got hit, for example, in water heater, we had actually degrown about 20-odd percent last year, for mount up supplies so as an example, as 1 category. And there were other categories where we had challenges in the peak of COVID, as the business started to recover.
We couldn't participate in that growth because our inventory norms were far too tighter compared to our competitors -- so I think that was -- some of our competitors. So that was the background and context in which we made that call. And I think somewhere in the month of November or December I think -- it was about October, I think or November last year, we took the call to get back to normal inventory. However, what happens is that as we enter the summer months, right? In general, we stock up because many of our factories are seasonal. And therefore, we need to start producing earlier so that we have adequate inventory for the season.
So I think that we could not transmit the decision that we made to cut inventory to be visible on our -- in our inventory numbers. But I think what you will see is between April to July or maybe August, right, we will progressively start seeing our inventory coming back, right? So it's the kind of time it takes to correct because many of our categories are seasonal. So I think the correction will happen or reflect only after the season is through.
Okay. Fair. So can we expect that apart from the coming year's cash flow, we will also report the INR 300 crores, INR 350 crores EBITDA of this year as well completely, without impacting the growth in the margin for FY '23? Can we expect that? Or how would you look at it? Or the cash flow impact shall continue for the year or 2?
So I think you're asking whether the INR 300 crores of EBITDA will -- I mean, EBITDA minus depreciation will convert into cash flow plus this year's EBITDA. Is that what you are asking? .
Correct. Correct. Yes.
So you also understand that there is CapEx also going on. So Sudarshan, do you want to?
Yes. So 1 is the working capital impact, I think, which we have explained. There is a reason why stocks are high. At some point, we will bring it back to normal. Then there is CapEx. These investments are being made to get long-term cost competitiveness. And these investments help us to either stop exports or bring in-house what we are sourcing some OEMs. And this -- and these interns will give us better gross margin. So they will be productive. So that's the reason the investments are being made.
So in terms of that, yes, I think you will see some part of the cash coming back to the earlier level, but some of it will go into CapEx as well. But if you add back the CapEx, yes, ideally we should be back to that earlier level.
Okay. And just the continuation and the last point, so this inventory while selling it, we won't have to face any medium margin or market share problem out there, right?
Yes, there is one point. In FY '21, you would also see that our debtors were at some 30 days. Now the V-Guard has never had debtors at 30 days. It's always been about 45 to 50 days. So maybe FY '21 is not the right cash position to judge. Maybe you can look at the FY '20 cash and then work from there.
Okay. Yes. But the investors that you are planning to put across on table in coming next 6 months, that won't be faced by margin pressure, right? Because we are taking price hikes as well and we are seeing that competitors are also facing pressure in terms of demand pressure when the prices are high and they are losing market share, right? So they have to sell at lower price because of which the margins are...
I'm sorry, I didn't understand the question. .
The inventory that we are planning to sell in the next 6 months, would there be any margin pressure on the same given we would want that inventory to be out of our books? Or do we don't expect any push and that we...
Let me just answer that, Mithun -- Mithun, let me just answer that. I think our -- see our inventory will regularize in normal course as we -- our planning cycle is based on normative data for -- based on sales forecast plus safety stock, right? So the inventory will progressively come down because we have only been taking production and we are ordering materials based on the sales forecast.
So it will even out. We are not -- we have not kept -- I think Mithun already explained, we have not kept the inventory to take advantage of input costs. And we will not be managing the inventory with that kind of perspective. So I think as far as input cost increase is concerned, I think that will be transmitted in normal course of business. And that has no bearing on how we are going to set our inventory norm or how slow or how fast we will move it down. So they are disconnected. I hope I'm clear, right?
Yes. This was good.
It's -- basically, as a policy right -- as a company, as a policy, I think inventory holding is a function of what service level -- what SLA we want to meet for our trade partners and for our internal partners, which is our sales force, right?
So based on the fill rate and the service level that we want to meet to them. And there is some safety stock and there is some stock, which is produced for meeting the forecast. So that's the basically thing. So we don't do strategic buying. I think the only exception, I think, was what Mithun had talked about in a couple of instances where for reasons that we fear supply security, we are keeping inventory, not for reasons of fluctuation in prices.
[Operator Instructions] The next question is from the line of Hitesh Taunk from ICICI Direct.
Most of my questions have been answered. Just wanted to know a few things for the product development front. Sir, we had a purchase -- I mean we had a stake in Gegadyne Energy. And we were planning to launch innovative products in the fast charging at -- through the fast charging battery technology. Throughout the product categories, be it stabilizer, UPS, also in the Consumer Durable categories. So where are we in that product launches?
And as per your definition, what is the current premium product contribution in our top line? And what is the contribution is going to be in the next 1 or 2 years through the innovative product launches or say, premium product ranges through this kind of technology?
Ram, do you want to take this?
Yes. So I think we had clarified earlier also, Gegadyne is a technology company at this stage in the journey. It's a technology start-up. And mainly, they are engaged in the, what I would say, process of technology development and validation. Now this -- they will be developing the technology to be ready for commercialization and give pilot products to us.
So where we are at this stage? I think they are in the course of setting a pilot plant and the machinery for this is supposed to come from China. And I think this -- although the machinery is produced, it is stuck waiting to be shipped out from there. So I think that's where we are now. I think in the meanwhile, they continue with their development activity so that they are able to move their know-how and the capability in terms of developing their battery technology further.
I think the current -- this could again change. It depends on how things in China shape up. I think by August or September, they hope to commence the -- what I would say, is the pilot plant. They will be in a position to supply a sample battery pack to us, which we will be able to test, evaluate and then decide how we go forward once we are confident that the technology is ready for large-scale commercialization.
Now the second question, which is related to what is our expectation of contribution of revenue from innovative products? I think, yes, we have not internally set a target or a goal for how much of the revenue should come from innovative products. I think where real technology development is involved, it is difficult to define time lines because they are in, what I would say, pre-commercialization stage, right. So I think it's a bit difficult to put a number out for what would be the contribution of such products, right, because there is uncertainty also associated with the technology development products, right -- projects.
If not the future, sir, what is the current contribution? Whatever definition you have premium products?
No, we are not -- okay, we are not presently having a definition where we are defining what constitutes premium. See, we are a multi-category business, right? Some are more consumer involving like the Consumer Durable category. And then there are other categories, which are less consumer involving like a wire or switchgears or maybe inverter battery, these are less consumer engaging. So I think it's difficult to apply a uniform definition and the stretch it across. So we haven't attempted to do that thus far.
Okay. Sir, my next question is -- pertains to our market share. You have guided that there is -- we have gained a market share -- we have regained our market share in the water heater category. Sir, is there any other category top 2, 3, 4 products where we have gained the market share during this quarter or say a year.
So I think we have had a strong growth this year across consumer durable categories, right? And obviously and naturally we would have gained market share in those categories because if you exclude air cooler, I think the growth across all these categories should be close to [ 44%, 45% ]. So obviously, we would have gained shares in all these categories. For sure, we have gained share in fans; for sure, we have gained share in water heater, this year over last year.
But then in water heater, you may bear in mind, as I think, Mithun already talked about, the year before for reasons of supply chain challenges, we had lost ground. And what we have done is we have regained that lost ground and probably traveled a bit more, right. So that's as far as water heater is concerned. So fan and water heater would be 2 categories. Kitchen also, I think we are steadily improving our presence and market position in that category. But we still remain a very small player at this stage.
I now hand the conference over to Mr. Naveen Trivedi from HDFC Securities.
Yes. Just had 2 questions before we end the call. Like -- the Consumer Durable business has already reached to more than INR 1,000 crores sort of a revenue mark, almost doubled in the last 4 to 5 years sort of a time frame. Just wanted to check what is sustainable growth rate for the business, especially when the -- many subcategories of the segments have reached to healthy scale.
And second question is, at this scale [indiscernible] EBIT margin is sustainable considering, we are seeing EBIT margin ranging from 1.5% to 6% in the last 4, 5 years. So once we reach to stable sort of a demand environment in the RM environment, what is sustainable number we can look for? That's all from my side.
Consumer Durable, it's a combination of various categories at various maturity stage. For example, water heater is the -- probably the most important category for us in Consumer Durables. It is a 25-year-old category for V-Guard. We are 1 of the largest players in the country. Our EBITDA margins are very high. But we also have a lot of new categories where we are losing money.
So I think it's always going to be difficult because we are always going to launch new products. And some of them may come in Consumer Durable. So when you talk about Consumer Durable as a whole segment it's going to be difficult because we are going to be talking about products with varying maturity and varying EBITDA margins.
We believe that in the fans side of business, we are still in investment phase. So at least for the next 3 to 4 years, we don't foresee making huge EBITDA margins because we want to get to a reasonable size before we start thinking about EBITDA margins in fans. It doesn't mean that we losing -- we're losing money in fans, it is just that our focus today is all ensuring that we are serving all the segments of the market. We are establishing V-Guard as a great kind of option to consumers and then we take away share.
And there are some new categories like air coolers, kitchen appliances, water purifiers and where they're very, very tiny in their market share and they're probably -- they're going to be losing money. Water purifiers, we are not losing money because we are selling only on e-commerce [indiscernible]. So I hope I have answered your question. So it's going to be very difficult for us to give you range, but definitely 1.5% EBITDA margin is not sustainable EBITDA margin. It's probably one of the worst. We'll only see it going up from here.
Ladies and gentlemen, that's for our last question for today. I now hand the conference over to Mr. Naveen Trivedi for closing comments. Thank you, and over to you, sir.
Yes. Thank you, everyone, for participating on this call. We also thank the management of V-Guard Industries for giving us the opportunity. Any last comments, Mithun?
No. Thank you, Naveen and HDFC for hosting this call. Thank you all for listening in.
Thank you very much. Ladies and gentlemen, on behalf of HDFC Securities, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines. Thank you.