Conference Call - Courtesy of Capital Market
V Guard Industries
Expects to sustain a top-line growth of 15% in FY16 with margins between 8-8.5%
V Guard Industries held a conference call to discuss the quarter and year ended March 2015 result, which was addressed by Mr. Mithun Chittilappilly , MD of the company.
• The mgmt said that "FY15 turned out to be a mixed bag year. Consumer spending picked up in the first half owing to the formation of a stable, majority government. The sentiment in the second half was impacted on account of largely unchanged ground realities with rural incomes under pressure and construction activity not picking-up.
• Net sales for Q4 FY15 were up by 4% to Rs 442 crore while net profit declined by 2% to 20 crore. Wire segment revenues impacted due to lower realizations on account of soft commodity prices. Key markets for pumps segment impacted by local issues
• Ad expenditure to sales at 3.0% vs 3.4% in Q4 FY14
• The company delivered a top-line growth of 15% in FY15 led by strong growth in the water heaters, stabilizers, digital UPS and fans segments. The new kitchen appliance category also received a strong response. Gross margins were higher 60 bps in FY15, despite the significant impact of copper inventory write down, driven by better product mix and lower discounts in the non-South markets. To enhance brand recall in the non-South markets, the company continued to spend aggressively on advertising and promotions which stood at 4% of sales. Non-South markets account for 33% of revenues from 30% a year ago.
• During the year, stabilizer grew by 23% with 20% volume growth. Fan segment has grown by 34%. Induction cooktop was introduced in Tamil Nadu.
• Switchgear grew by 40% in FY15, but it is still small business.
• In stabilizer business, there is some competition from local and branded players in Northern region. Even in such scenario, the company has increased its share in not- so- strong region.
• Capacity utilization in cable business was 80% in FY15. The mgmt is expecting 100% capacity utilization in next 2 years.
• Volume in cable business impacted due to fluctuation in commodity prices. House-wiring cables were impacted by the significant reduction seen in copper prices this quarter, leading to lower realizations.
• Prices for copper were stable from March, till March it was showing downward trend. The mgmt said the copper prices might be not in its favor in first 6 month of FY16, which may result in muted growth for cable and wire business in H1 FY16
• U.P., Rajasthan, West Bengal help to grow in non-south market. Kerala and Maharashtra has shown muted growth. Karnataka is showing signs of recovery.
• The company is selling its fans in South India and West Bengal only. In last 2 years, it has replaced lower margin products in fan with higher margin products. 40% of its fans sales come from premium products.
• The company’s electric water heater sale was Rs 175 crore in FY15 vs Rs 138 crore in FY14.
• In order to improve the quality of customer service and prepare for the next level of growth, the company invested in a franchise-based after-sales service system, upgraded the IT infrastructure and also setup a unified third-party call center. The company expect that these investments will yield benefits going into the next financial year.
• The mgmt said that it will see reduction in employee cost with sales- services person letting off with after-sales service system, upgraded IT infrastructure and also setup a unified third-party call center. For FY16, the mgmt expects employee cost to be around 5% of sales.
• The company’s debt came down by Rs 41 crore to Rs 68 crore. It will future come down in FY16.
• Debtor days stable at 51 days YoY. Inventory days at 74, 8 days improvement YoY.
• The company expects to sustain a top-line growth of 15% in FY16 with better performance in wires and pumps segments and with margins between 8-8.5%.
• For FY16, the mgmt expects around 10% volume growth in cable and wire business at stable copper prices. It expects water heater to grow by 20% and fan by 25%.
• South will pose challenge for growth in FY16.
• The mgmt focus is on increasing distribution in non-south and starting price parity across nation. The mgmt will also focus on market diversification and product diversification. Water heater and fans will be growth driver for the business.
• Capex for FY16 will be around Rs 20-25 crore.
Product wise sales break up is as under: -
Disc: Not invested.