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Edited Transcript of VGUA.NS earnings conference call or presentation 28-Jul-20 10:00am GMT

·60 min de lecture

Q1 2021 V Guard Industries Ltd Earnings Call Sep 18, 2020 (Thomson StreetEvents) -- Edited Transcript of V Guard Industries Ltd earnings conference call or presentation Tuesday, July 28, 2020 at 10:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Mithun K. Chittilappilly V-Guard Industries Limited - MD & Executive Director * Ramachandran Venkataraman V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director * Sudarshan Kasturi V-Guard Industries Limited - Senior VP & CFO ================================================================================ Conference Call Participants ================================================================================ * Achal Lohade JM Financial Institutional Securities Limited, Research Division - VP * Akshay Bhor;Premji Invest;Analyst * Charanjit Singh;DSP Mutual Fund;Analyst * Hitesh Taunk ICICIdirect.com, Research Division - Analyst * Manish Agarwall Edelweiss Securities Ltd., Research Division - Analyst * Mayank Bhandari Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst * Prashant Kutty Sundaram Asset Management Company Ltd. - Research Analyst * Renu Baid IIFL Research - VP * Sonali Salgaonkar Jefferies LLC, Research Division - Equity Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, good day, and welcome to the V-Guard Industries Q1 FY '21 Earnings Conference Call, hosted by ICICI Securities. (Operator Instructions) Please note that the conference is being recorded. I now hand the conference over to Mr. Hitesh Taunk. Thank you. And over to you, sir. -------------------------------------------------------------------------------- Hitesh Taunk, ICICIdirect.com, Research Division - Analyst [2] -------------------------------------------------------------------------------- Thank you, Aisha. Good afternoon to everyone present in this call. ICICI Securities welcomes you all to the Q1 FY '21 earnings call of V-Guard. From the management, we have with us today Mr. Mithun Chittilappilly, MD; Mr. Ramachandran, Director and Chief Operating Officer; Mr. Sudarshan Kasturi, Senior VP and CFO. I now hand over the call to management for their opening remarks, post which you can take a question from the participants. Over to you, sir. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [3] -------------------------------------------------------------------------------- Thank you, Hitesh and ICICI Securities 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 first quarter ended June 30, 2020. During Q1 FY '21, revenues declined by 42% Y-o-Y to INR 406 crores. Non-South markets declined by 47%, while South declined by 38%. Non-South markets saw a larger impact due to more extended lockdowns, whereas opening up in South saw progressively improved demand in states such as Karnataka and Kerala. Similarly, all 3 product segments were impacted in the quarter marked by various stages of lockdown and disruptions. While electrical products were the least impacted electronics segment saw a sharper decline based on its linkage with larger appliances, which sees large demand and summer season like ACs. Gross margins contracted by 334 basis points Y-o-Y to 29.2%, moving to lower capacity utilization and product mix. However, gross margin improved in each successive month and had reverted back to normative levels in June. EBITDA margin for the quarter was 2.2% as compared to 10.2% Y-o-Y due to decline in turnover. Profit after tax during the quarter was accordingly subdued at INR 3.6 crores. PAT margin contracted to 0.9% as against 7.5% in Q1 last year. While these headline numbers indicate the effect of COVID-19 pandemic along the expected lines, we believe the business has demonstrated strong resilient -- strong resilience in facing these extremely challenging times. We have put in place cost containment measures, which will partly offset the impact of loss of turnover. Working capital has improved steadily as available inventory has been used to drive revenues. Collections were strong, and we have been able to reduce our debtor days, resulting in a total cash generation of INR 215 crores during the quarter. Even before COVID-19 pandemic, there was weakness in consumer demand based on conditions of tight liquidity and reduced discretionary spending. FY '21 had opened in difficult circumstances, but we believe that the situation reverts -- as the situation reverts to greater normalcy, we have the requisite framework to drive volume growth momentum by expanding further into non-South markets, introducing new and innovative products and entering additional product categories. We have put in place best-in-class processes and systems to future-proof the organization and create the framework for a secular growth. We will continue to build upon our competitive positioning in the consumer electricals -- electronics and consumer durable industry to drive value for all stakeholders. On that note, I would like to thank you once again for your participation. And I would like to hand over the floor to the moderator for question and answers. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- We will now begin the question-and-answer session. (Operator Instructions) (technical difficulty) -------------------------------------------------------------------------------- Hitesh Taunk, ICICIdirect.com, Research Division - Analyst [2] -------------------------------------------------------------------------------- Hello. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [3] -------------------------------------------------------------------------------- Hello. -------------------------------------------------------------------------------- Hitesh Taunk, ICICIdirect.com, Research Division - Analyst [4] -------------------------------------------------------------------------------- Yes, Mithun. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [5] -------------------------------------------------------------------------------- Yes. I think -- I don't know what's going on. And we will hold. -------------------------------------------------------------------------------- Hitesh Taunk, ICICIdirect.com, Research Division - Analyst [6] -------------------------------------------------------------------------------- Yes. Yes, you don't hear anything, do you? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [7] -------------------------------------------------------------------------------- I think we are out of the call, I think, maybe. I don't know we'll just hold and see, let them call. -------------------------------------------------------------------------------- Operator [8] -------------------------------------------------------------------------------- (inaudible), you can go ahead, please. -------------------------------------------------------------------------------- Unidentified Analyst, [9] -------------------------------------------------------------------------------- Hello? Hi, sir. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [10] -------------------------------------------------------------------------------- Yes. Yes, please go ahead. -------------------------------------------------------------------------------- Unidentified Analyst, [11] -------------------------------------------------------------------------------- Yes, yes. Sir, I just wanted to check with you. In terms of demand from metro and nonmetro, how different has it been for across the products? And second question is with respect to July demand, how it is panning out? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [12] -------------------------------------------------------------------------------- Ram, you want to take this one? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [13] -------------------------------------------------------------------------------- Yes. I think the nonmetros have been better than metros. I think metros are impacted for various reasons. So I mean, that's the first question. Nonmetros have been better than metros. Also, I think that the early part of the lockdown, the nonmetros have been operational formally, informally also it looks like based on the inventory level and the offtake that we have been able to observe, yes? Coming to July. I think July is comparable to June, a bit better, actually. But what has happened is after about 12th or 13th, right, many areas have gone into lockdown. So as an example, let us say that around 75%, 76% of the outlets that we serve were open at the beginning of the month and that has dropped to about 55%, 54% by around 17th, 18th, yes? And this has now recovered around 23rd, 24th to something like, I'd say, closer to 70%, yes? So that basically happened because many places progressively got added into the lockdown, right? Like Karnataka went in as an example or some parts of Maharashtra. So it's a very dynamic situation. And even the outlet numbers are changing week-on-week and month-on-month, yes? -------------------------------------------------------------------------------- Unidentified Analyst, [14] -------------------------------------------------------------------------------- Got it, sir. And in terms of cost price, so basically, say, we had seen employee costs drop by around 10%. So is it like -- was it a salary cut or something like which we have given to employees or -- and how could we look at employee costs for the year? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [15] -------------------------------------------------------------------------------- Sudarshan -- yes, Sudarshan do you want to go for this? -------------------------------------------------------------------------------- Sudarshan Kasturi, V-Guard Industries Limited - Senior VP & CFO [16] -------------------------------------------------------------------------------- Yes, Mithun. Yes, we've not resorted to any salary cuts or whatever. We are saying, both on-roll employees and contract labor. On a full year basis, again, I mean, that call we will take perhaps in 6 months or 8 months. For now we have held on to the increments. So there has been no cost increase, therefore, it is flat. We will review the situation later and see if we decide to give an increment or not. So we will know it. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [17] -------------------------------------------------------------------------------- The reduction could be because we are not paying variable pays because our targets are not getting achieved. -------------------------------------------------------------------------------- Unidentified Analyst, [18] -------------------------------------------------------------------------------- Got it, sir. Got it. Got it. And in terms of ad spends also, how is it likely to pan out? Usually, we spend around 3%, 4% of top line mostly so? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [19] -------------------------------------------------------------------------------- See, that business is not back to normal. Even today, like Ram mentioned, we are serving only 70% of customers. So when business goes to normal at that time, we will review this. But as of now, we are not planning to spend -- I mean it's like bare minimum, as you can see, ad spend. And I guess, it will be a very similar kind of a strategy taken by all peers. -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [20] -------------------------------------------------------------------------------- Just one more point. The supply side is also very dynamic, right? So different areas get into containment zones for different suppliers or supply sources can get impacted. And also the attendance is thin and weak, generally operating between 50% to 70% at these places. So I think marketers will take some more time before they own their purse because supply has to be streamlined also. -------------------------------------------------------------------------------- Unidentified Analyst, [21] -------------------------------------------------------------------------------- Got it, sir. And my last question is with respect to commodity prices then softening. Will it be a big advantage to us in terms of gross margins and all these things? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [22] -------------------------------------------------------------------------------- I don't think commodity prices have softened. Specifically, if you ask copper actually has shot up by close to, I don't know, some write offs figure, but there about 20% increase in copper has happened. Plastic prices have come down. But unfortunately, when the prices were at its lowest, we were not able to buy anything because of the lockdown. Sudarshan, you want to just explain this? -------------------------------------------------------------------------------- Sudarshan Kasturi, V-Guard Industries Limited - Senior VP & CFO [23] -------------------------------------------------------------------------------- (inaudible) the copper prices have gone up and that sort of gets reflected in the product selling price than we see in the next. Okay. Otherwise it's not much of an impact because the other materials don't make too much of an impact. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [24] -------------------------------------------------------------------------------- We have not seen huge reduction in commodity prices vis-à-vis, let's take Jan or Feb, in other materials. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- (Operator Instructions) The next question is from the line of Renu Baid from IIFL. -------------------------------------------------------------------------------- Renu Baid, IIFL Research - VP [26] -------------------------------------------------------------------------------- Just to understand a bit more on the inventory side, you mentioned that as in, the company has pretty much used to inventory, which it had to drive revenues. So how would be the inventory across the channel partners also? And have we seen the channel partners starting to upstock again? Or they continue to remain a bit more averse on the pre-stocking trend? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [27] -------------------------------------------------------------------------------- Ram, you want to take this? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [28] -------------------------------------------------------------------------------- Yes. Yes. Channel partners today, I mean, inventories, what I would say, inventory has normalized, I would say, a little lower than normal. I think on an average, what we are observing is inventory would be down to about 30 days, including -- we are looking at our -- I'm talking about a total channel inventory, which is a bit lower than normal because this includes the direct and indirect. So yes, there is -- they are thinner than what they would be before. But I think this is also how they are operating now compared to the way they were operating before. -------------------------------------------------------------------------------- Renu Baid, IIFL Research - VP [29] -------------------------------------------------------------------------------- Sure. And sir, based on the fillers that you have from the market in terms of consumption patterns, what is the expectation of we getting back to normalized 100% levels as last year's? Or should festive season be the next catalyst for demand to pick up? Or do you think the demand trends have been much more significantly impacted from a medium-term perspective? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [30] -------------------------------------------------------------------------------- See, I think we are in a position where we are not able to predict. Please understand this is a health issue. So without a health solution really neither me or Ram or Sudarshan will be able to give you an answer on this. It is really -- depends on when the country is able to tide over this crisis together and the markets one by one can open fully. Every day, every district is a different case. So it's very volatile in that sense. So it's very difficult to make any kind of prediction. Ram, if you want to add anything to this? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [31] -------------------------------------------------------------------------------- No. I just wanted to say the same thing. For example, we started this month, and we were feeling that it would go well. And then the -- one by one, the lockdown started to get announced and the number of outlets that we put -- to which we could supply shrunk by 30-odd percent, right? And then now we are seeing from 23th to 24th, the outlets are coming back, right? And we can see the consequence of the directly in numbers coming through, yes? So I think... -------------------------------------------------------------------------------- Renu Baid, IIFL Research - VP [32] -------------------------------------------------------------------------------- So what I was also trying to ask was that probably in the next couple of months or by the end of 2Q is the situation normalizes... -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [33] -------------------------------------------------------------------------------- No. That's what Mithun was saying. That's what Mithun was saying, right? See, it all depends because both the supply side and demand side picture is changing from time to time because it's not only a matter of demand, right? It's also a matter of supply. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [34] -------------------------------------------------------------------------------- So I think as you supplement, see Kerala had the best way of managing COVID in the beginning part of this pandemic, okay? But right now, we are hitting 1,000 to 1,500 cases a day. What it means is that no state can effectively manage this. So whenever the cases go up, they will lock it down and then they will restart again from 0. So this process is going to continue over and over again till we have a vaccine. That's what I think. So we can't really comment when we will go back to 100%. -------------------------------------------------------------------------------- Renu Baid, IIFL Research - VP [35] -------------------------------------------------------------------------------- Sure. But in general, what has been the feedback or inputs in terms of the demand pattern, both from secondary as well as tertiary sales? Have they also moved in line? Or how is it? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [36] -------------------------------------------------------------------------------- Yes. So wherever -- see wherever markets are opening and cases are relatively lower and people are feeling relatively safe to come out, the sales are happening. So that is definitely there. We can't really split this between what is the pent-up demand and what is the real demand, okay? That's the split, that none of us have. But what we can safely say is that 70% to 80% of last year's sales should happen provided we don't have a nationwide lockdown. This is what we believe. Certainly, so that's the broad number, I can say. It can go up, provided there are no localized lockdowns and stuff like that. It's really difficult to say. I mean we really can't give you any guidance. That's the honest truth. -------------------------------------------------------------------------------- Renu Baid, IIFL Research - VP [37] -------------------------------------------------------------------------------- Sure. Sir, I have a couple more questions. I will get back in the queue. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [38] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- The next question is from the line of Sonali Salgaonkar from Jefferies India. -------------------------------------------------------------------------------- Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [40] -------------------------------------------------------------------------------- Sir, my first question is regarding the unfavorable product mix that you have mentioned in the presentation. Any more color you would like to add as to which appliances have led to the maximum impact on our gross margins? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [41] -------------------------------------------------------------------------------- So if you look at the stabilizer business is the most impacted because in Q1, we typically sell air conditioner stabilizers, and that pretty much has not happened. So they have taken the biggest hit, and it is a product with higher gross margin. So it has definitely pulled down overall gross margin for the company. This has been one of the biggest impacts. -------------------------------------------------------------------------------- Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [42] -------------------------------------------------------------------------------- Understand. My second question is, I understand that there's a lot of uncertainty in the overall demand and the business scenario. But any rough EBITDA margin you would like to point out as to what we should expect in FY '21? Any range, considering that the first quarter was quite lower than what we generally register? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [43] -------------------------------------------------------------------------------- See. I think what we've seen is that we have given in the analyst presentation month-wise gross margin for April, May and June. So that gives you some color that, that kind of a revenue in June, what we did, that kind of a gross margin is possible. That's all I can say as of now. Sudarshan, do you want to add anything to this? -------------------------------------------------------------------------------- Sudarshan Kasturi, V-Guard Industries Limited - Senior VP & CFO [44] -------------------------------------------------------------------------------- Yes. That's all. I think if you are able to sell maybe 80% to 90% of last year, margins will look like that. That's the best we can say. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [45] -------------------------------------------------------------------------------- So I think if you're even to do 80% to 90% of last year, we could hit 9% to 10% -- between 8% to 10% EBITDA margins, correct? -------------------------------------------------------------------------------- Sudarshan Kasturi, V-Guard Industries Limited - Senior VP & CFO [46] -------------------------------------------------------------------------------- Yes. Something like that. Yes. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [47] -------------------------------------------------------------------------------- Something like that. But that's all we can say. -------------------------------------------------------------------------------- Sonali Salgaonkar, Jefferies LLC, Research Division - Equity Analyst [48] -------------------------------------------------------------------------------- Understand. Sir, in our factories right now, what kind of utilization are we updating at? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [49] -------------------------------------------------------------------------------- Ram, do you want to take this? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [50] -------------------------------------------------------------------------------- Yes. Yes, I think wire factories are running full stream. So the electrical categories are having good demand, right, as I think Mithun outlined in his statement. So there, the capacity utilization is very good, yes? And in the other cases, the utilization is in line with normal business requirement at this stage because what we did is our focus initially in the first 2 months was to go -- make sure that we collect all the moneys, and our cash position gets better. So our focus, I would say, in May and June, was primarily towards collections and that we have been able to get to a reasonably decent place. So -- and mostly, therefore, we are focused on utilizing the available inventory on hand. And our factories have started somewhere around middle of June, barring the wire factories. So what I would say, June, July, their run should be okay. It should not be an issue, yes? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [51] -------------------------------------------------------------------------------- So we're basically supplying to whatever demand that is there. We are not going to produce and then force the sales team to sell. So that's what I think the basic point is. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- (Operator Instructions) The next question is from the line of Achal Lohade from JM Financial. -------------------------------------------------------------------------------- Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [53] -------------------------------------------------------------------------------- Yes. My first question was with respect to -- in terms of the demand pattern, are you seeing any down-trading in general, in the industry as well as for our product? And two, are you also seeing any disruption at the -- in the unorganized industry? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [54] -------------------------------------------------------------------------------- So as of now, we can't get any clear trends on down-trading. Like Ram mentioned, one of the products that is selling very well was wires, where we only have really 1 or 2 SKUs in terms of pricing positioning. So really, we can't measure that. We have not seen that premium product is not selling and nonpremium product is selling. We've not seeing that kind of a trend. Sales are secular in that sense. I think we have to understand that what's right now happening is a pull demand. That means actually, retailers and distributors are calling us for stocks and then we are suppling. We are not shoving anything down the pipe or channel. So what we believe is, what we are supplying to is kind of like the normative demand. That is the first part of the question. So no, we don't have any evidence of down-trading as yet. What was the second one? -------------------------------------------------------------------------------- Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [55] -------------------------------------------------------------------------------- With respect to the unorganized industry? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [56] -------------------------------------------------------------------------------- Yes. In the case of wires and cables, definitely, we are feeling that there is an absence of the unorganized industry. And definitely, all the brands are benefiting as of now. Yes. That evidence is there. Yes. -------------------------------------------------------------------------------- Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [57] -------------------------------------------------------------------------------- And in the other product categories, sir? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [58] -------------------------------------------------------------------------------- No. No evidence. -------------------------------------------------------------------------------- Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [59] -------------------------------------------------------------------------------- No evidence. Got it. And the second question was with respect to the debtors, I see that Q-o-Q we have seen a reduction in the inventory. Can you help us with the channel financing, which was as of March '20 and June '20, could you please help us with that? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [60] -------------------------------------------------------------------------------- Sudarshan? -------------------------------------------------------------------------------- Sudarshan Kasturi, V-Guard Industries Limited - Senior VP & CFO [61] -------------------------------------------------------------------------------- Between March and June, there's not much difference. It's about the same. -------------------------------------------------------------------------------- Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [62] -------------------------------------------------------------------------------- Would you be able to help us with the quantum, sir? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [63] -------------------------------------------------------------------------------- Reduction in debtors is an actual reduction in debtors, not because of channel financing if that's what it is. -------------------------------------------------------------------------------- Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [64] -------------------------------------------------------------------------------- Correct. Correct. Correct. But... -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [65] -------------------------------------------------------------------------------- I think it's actual reduction in debtors. -------------------------------------------------------------------------------- Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [66] -------------------------------------------------------------------------------- Sure. Sure. Would you be able to give the quantum, what is the channel financing outstanding as of June? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [67] -------------------------------------------------------------------------------- The outstanding? -------------------------------------------------------------------------------- Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [68] -------------------------------------------------------------------------------- The channel financing done as of 31st -- 30th of June? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [69] -------------------------------------------------------------------------------- What is the total book of channel financing? -------------------------------------------------------------------------------- Sudarshan Kasturi, V-Guard Industries Limited - Senior VP & CFO [70] -------------------------------------------------------------------------------- Total outstanding will be about INR 80 crores or INR 90 crores. -------------------------------------------------------------------------------- Operator [71] -------------------------------------------------------------------------------- The next question is from the line of Mayank Bhandari from B&K Securities. -------------------------------------------------------------------------------- Mayank Bhandari, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [72] -------------------------------------------------------------------------------- Yes. Sir, I wanted to understand, particularly the consumer durables. How has been the growth in different categories, like fans, kitchen appliances? And considering that we have a low base, the growth looks -- I mean, this is a pretty sharp degrowth given that other competitors have given good commentary in terms of kitchen appliances, air cooler and fans? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [73] -------------------------------------------------------------------------------- Ram, do you want to take this? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [74] -------------------------------------------------------------------------------- Yes, yes, yes. I think we -- as Mithun said, see, we are not aggressively pushing numbers into trade at this time. We are just feeling whatever demand is coming from the market, yes? And across channel, our inventory is a little lower than desirable in our key markets, yes, particularly south, yes? So that's the situation. Second thing is, yes, we are -- you will generally see a trend in this environment that what I would say as leading brands and brands which withstand depth of distribution will have some advantage over the other brands. That's the second point. The third point we want to make is, by and large, our performance is similar to others. Maybe it's possible -- see, the weightage of e-commerce in some of our newer categories is not comparable as they are slower to enter e-commerce compared to, let's say, a stabilizer or a water heater. So I think whereas in some of the players where you might have sense better demand in kitchen and all, they have a stronger presence in e-commerce. Also, kitchen and all is a category also has a stronger presence in organized retail also, okay? So I think those influences are also there, yes, in the overall number, yes? But I think by and large, we will not be way off. -------------------------------------------------------------------------------- Mayank Bhandari, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [75] -------------------------------------------------------------------------------- Okay. Okay. And sir, any other cost-saving initiatives, apart from the employee cost and the advertisement expense? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [76] -------------------------------------------------------------------------------- No. By and large, like anybody and everybody in the marketplace, right, the cost sets are same across companies, yes? And we are focusing on these cost sets, whether it is what, I would say, establishment costs like rent, travel, yes, or whether it is what I would say as people and stuff like that. But there are... -------------------------------------------------------------------------------- Mayank Bhandari, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [77] -------------------------------------------------------------------------------- Yes. And anything else which is discretionary in nature is... -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [78] -------------------------------------------------------------------------------- So whatever is discretionary in nature, we are tackling, yes? -------------------------------------------------------------------------------- Mayank Bhandari, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [79] -------------------------------------------------------------------------------- Okay. And lastly, sir, what would be the CapEx? Any guidance for CapEx to this year? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [80] -------------------------------------------------------------------------------- Sudarshan? This year CapEx? -------------------------------------------------------------------------------- Sudarshan Kasturi, V-Guard Industries Limited - Senior VP & CFO [81] -------------------------------------------------------------------------------- Yes. See, right now, other than essential CapEx, things are on hold. We've got a couple of plans to finish. There is not too much of outstanding things left other than certain IT, infra and things like that, we don't see much CapEx happening at least. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [82] -------------------------------------------------------------------------------- See, we may have a CapEx for a wire plant, that's about INR 15 crores to INR 20 crores and then probably another INR 10 crores of IT and all that. So maybe INR 30 crores, INR 32 crores -- INR 30 crores, INR 35 crores of CapEx would happen at the max. -------------------------------------------------------------------------------- Operator [83] -------------------------------------------------------------------------------- The next question is from the line of [Bhavin A] from SBI Mutual Fund. -------------------------------------------------------------------------------- Unidentified Analyst, [84] -------------------------------------------------------------------------------- Mithun, just one question from my side. Given the current pandemic what is it that you are doing differently, which will help the company improve more on a structural basis? And if you could -- it'd be interesting if you could talk about the investment that you will be doing in terms of people which would be difficult to hire in other circumstances or the investment in research, development, innovation, will be helpful to know your thoughts on this? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [85] -------------------------------------------------------------------------------- So we were working on a digital workplace as a concept, we have got started from 2 years back. So we started with world-class VC system. We started with a world-class integration of VC system with Teams, Microsoft Teams. Then we invested in something called Degreed which is a learning platform, which can be used for both company-created content and external paid content as the manager, so we shift. So we have invested a lot of tech, not knowing that this pandemic is coming in our way. And now we are actually using a lot of that. We have constant training programs for not only our own employees, but even for key channel partners and their staff on how to sell particular product to customer, technical selling. So we are using this time to beef up those kind of activities because there is absolutely no visibility on when people can go visit the market, whether it's safe to visit the market and all that. So all the work is done over phones and videoconferencing. So I think we will probably accelerate that journey into a digital enterprise a little faster. I mean we had put some milestones, but COVID has forced us to fast track some of those milestones. This is one side. In terms of people hiring, I think from 2015 to 2020, we have hired quite a lot of people, and you will see our ballooning of employee cost that has happened. So I don't think we need to hire any more key resource. Not a lot of people and positions are left to be filled, in my view. There are very few and far between, which when we find the right resource, we will take them on board. The second is on e-commerce. We have -- we started the journey on e-commerce 2 years back, and now we are getting very good traction. Our margins on e-commerce are far superior than what we do in any other channel, and it's growing very, very fast. And we have even launched certain products where e-commerce is the first channel of choice. And we only will launch them in off-line much later. So all these experiments are working well. I will also ask Ram to supplement anymore to these comments. -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [86] -------------------------------------------------------------------------------- So actually, we've been having a long-term journey for organizations capability building, yes? Much of the focus in the last 5 years have been on the supply side, yes? And mainly, we've been working on cost. We've been working on in-sourcing manufacturing, yes? And we have also been working on working capital, yes? So that's been our work and there are some proofs related to that, which we should be able to capture over a period of time. But more than the financial benefit or the capability that is getting built, these are also built on robust digital friendly, what I would say, tech ecosystem, yes? So I think that a lot of focus in V-Guard has been on this over the last 5 years, and which I think may be another year or 2, we will continue so that our work on the supply side there will be complete and comprehensive, yes? We have commenced work on the market side, fundamentally, to help us to build leading capability on the market side, where we are trying to embrace the technology into our, what I would say, marketing process, yes? And this work just we started about 6 months back before the lockdown has started. That's something that we will continue over the next 3 to 4 years. These are like long-term journey. And fundamentally, what this journey is doing is helping us to deep rouge our capability, whether it's manufacturing, whether it is products, yes, whether it is go-to-market, yes? It's fundamentally building leading capabilities in this area. And also, what it is doing is, this is all being accompanied with the road map for the enterprise digitization that Mithun was earlier referring to, yes? The near-term benefit of enterprise digitization is basically connecting the organization for employee productivity, which I think we outlined. And the long-term business will be related to some of the areas that I talked about. So we have a pretty robust program. I mean this is a program which has been on for the last 4 to 5 years, and we have a road map for the next 3 to 4 years. And we are busy focusing on that, and we are busy putting that in place. -------------------------------------------------------------------------------- Operator [87] -------------------------------------------------------------------------------- The next question is from the line of Akshay Bhor from Premji Invest. -------------------------------------------------------------------------------- Akshay Bhor;Premji Invest;Analyst, [88] -------------------------------------------------------------------------------- I actually wanted to understand a little on the historical performance. If I look at pre-COVID about 4 to 6 quarters, the performance has been slightly tepid, both as compared to your own historical performance and then even with respect to peers as well. And this is in light of very good summers last year should have been favorable to some of the portfolio, and then the winter as well. So I just wanted to understand what is it that is kind of -- how can we attribute this performance to -- what can we attribute? And within that, specifically, is there any component of competitors, new competitors that are coming into -- especially in the Kerala market that you've pointed out some time in the past, any color would be helpful? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [89] -------------------------------------------------------------------------------- So see, what has been happening is, I think, post demon and GST, the market growth had slowed down significantly for all players. So every company in India was getting into every product category. And we also got hit in that mismatch, wherein which maybe 20, 30 brands and the water heater business, which is a INR 1,500-crores category. And then the same thing happened with even stabilizer. I'm told that Philips also now has stabilizers. So people started looking at companies with decent margin and they have started entering categories. I should not be talking about it because we have also entered a different category. But the thing is when everyone in the market tries to enter every category, there is going to be a blood bath. And that you will see not only with us, in time, you will see with other companies as well. So yes, there is a period where we had to show restraint, not react by dropping price and all that. We have lost share also. We have lost revenues also. But our margins are intact. I think after 4, 5 years, many of these people will leave. I mean again, you will hear about many of these companies getting into trouble also. I don't want to specifically name them, but we have some companies who are into batteries that got into kitchen appliances that got into trouble. So stuff like that, it keeps happening. So we can't really stop competition. It's a free country. Anyone can do pretty much anything. So we're not really worried about 1 or 2 quarters. But if you look at last 5 years, we have worked significantly to improve our gross margin. And this has also happened because we gave away -- we chose to do where we will do business. We chose to walk away from categories. So we have shut down a loss-making power cable business that was doing close to INR 90 crores 6 years back. We have shut down agricultural pump business that was doing INR 40 crores 5 years back. So last 5, 6 years, we have also restructured a lot of our portfolio to have a sharper focus. What does it mean is that, yes, year-on-year, you will not see such great revenue growth, but our business is very healthy, and we are more sharper focused. And it gives us bandwidth to go after categories that are of better margin profile. Ram, do you want to supplement to that? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [90] -------------------------------------------------------------------------------- Yes. A couple of things. So I think we have to see the macros also. So if you broadly look at the macros, see, the nominal growth, which used to be at around 14-odd percent, has dropped to about 8% to 9%. That's on one side. On the other side, if you look at the last 4 years, a significant part of this growth has happened on e-commerce and organized trades, yes? I think we have been led to enter e-commerce and organized trades on one side. The other side is, while the nominal growth has almost come down by 40%, the -- and part of the remaining growth has gone into organized trade and e-commerce. In the remaining part of the market, a lot of people have entered, which is what Mithun has been talking about, right? And mainly, we have been focusing on the traditional trade as a company. And we -- if this macro is understood, I think the performance would seem as strong and as good, okay? Because when 30%, 40% of the growth is happening outside the area that you focus, right, and you've not participated in that adequately. Because, as Mithun said, right, last few years, we've been working on building capability, and we are not very happy now that we have the right, what I would say, we are in the right place to scale up. And therefore, because it's required a lot of preparation. So that's one context I would like to bring to your notice, right? Second thing, I would like to say is, we -- post the demon and GST, right, the companies, which were -- we used to be an outsourcing company, yes, most of our business was outsourced. So when we move from outsourcing to manufacturing, right, we -- our competitiveness got impacted to the extent of about 4%. So that was -- the outsourcing gave us the advantage to be able to compete with people who had strong and deep market positions. And this is why you will see now that progressively, in the last 3, 4 years, we have gone in for insourcing manufacturing to the company, yes? So I think this period also a period where we have overcome this challenge where we lost this competitiveness, and we were able to restore our margins and hold and improve our margins in this environment because it meant that relatively, we have to improve our price positioning in the marketplace, yes? And the 4% is a huge, huge impact, yes? That's the second thing. The third thing is, we've been focusing on making sure that we are able to generate and convert our profitability into real cash, yes? And you would see that in our books today. And you will also see that much of the CapEx investment that has happened where we've set up 5, 6 factories over this period -- 4 or 5 factories over this period, and some of them are work in progress, this is the consequence of our ability to generate cash in the business, yes? So our focus has been fundamentally to make our business strong and robust, make sure that we become healthy, and our gross margins are protected and improved. I think we have improved our gross margin to the extent of around 6% to 8% over the last 5 to 6 years. Half of it has gone back into the business in terms of investment, right, to meet the cost on people that we have added and the investment that we have made on the technology side, right? So we are putting money back into the business so that we become strong and we become competitive, yes? So we have invested in manufacturing capability and R&D and product design and development, yes? And the fruit of this will be visible over a period of time, right? So... -------------------------------------------------------------------------------- Akshay Bhor;Premji Invest;Analyst, [91] -------------------------------------------------------------------------------- This is a very detailed and candid as well. Just a quick one, if I may? On the margin front -- the EBITDA margin front, any aspirations that you have? I've seen -- your gross margins have seen a very smart improvement last year, any targets? And also, if you could indicate what is the price differential in the non-South region now, which you used to indicate earlier, anything on that front would be helpful here? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [92] -------------------------------------------------------------------------------- See, we had earlier stated that we would like to hit 10% and then improve 0.5% EBITDA every year. But this is at a time when sales were at a normal run rate. Today, sales were -- the quarter gone by 60% of what it should have been. So it's very difficult to say that. So the gross margin will get converted in the EBITDA margin the moment sales at 80% to 90% of the usual business, and which I think it has happened in the month of June, and we are hoping that it can happen going forward. That's as far as the EBITDA margin is concerned. What was the second one? -------------------------------------------------------------------------------- Akshay Bhor;Premji Invest;Analyst, [93] -------------------------------------------------------------------------------- I am trying to understand the pricing differential that you used to talk about in the non-South... -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [94] -------------------------------------------------------------------------------- Okay. We now don't have much of a price positioning difference between South and non-South. We have kind of normalized. I would say it's very negligible. Sudarshan, you want to add anything to this? -------------------------------------------------------------------------------- Sudarshan Kasturi, V-Guard Industries Limited - Senior VP & CFO [95] -------------------------------------------------------------------------------- Yes. The prices of South and non-South more or less are the same. There could be some tactical schemes here and there that we run, but otherwise, there's not much difference that we speak about. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [96] -------------------------------------------------------------------------------- Yes. For example, there are some markets in non-South which mirror our margins in South or probably better in terms gross and EBITDA, yes. -------------------------------------------------------------------------------- Operator [97] -------------------------------------------------------------------------------- The next question is from the line of Charanjit Singh from DSP Mutual Fund. -------------------------------------------------------------------------------- Charanjit Singh;DSP Mutual Fund;Analyst, [98] -------------------------------------------------------------------------------- Yes. So sir, in terms of -- now you talked about market share changes, which you would have seen over the last couple of months and now also in this recent quarter. So can you highlight any major segments where we would have lost or gained share or region wise, we would have seen the intensity much more significant in any particular product segment? If you can give color on that aspect? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [99] -------------------------------------------------------------------------------- Ram, you want to take this? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [100] -------------------------------------------------------------------------------- No. You mean last couple of quarters? I think nothing particular. I think from time to time, we see aggression in different categories, yes? So we have -- we've seen more intense activity in stabilizer sometime, sometime we are seeing it in water heaters there. But before that, sometime we saw in wires, sometimes it's geographic, yes? But usually, what happens is then, of course, we, of course, try to protect our interest, yes? But in the reply that comes with a lag. So I think these are some major categories that -- which have impact on us and where we have witnessed these kind of issues. And usually it is geographies. I mean in one of his strong pockets, we see this coming up. But it takes -- once we sense that it's getting strong, I think we react and -- but then will lose some time in the process here. But nothing sustainable... -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [101] -------------------------------------------------------------------------------- So I think let me answer it in this way. We decided that we will not buy market share by giving discount. So let me put it that way. -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [102] -------------------------------------------------------------------------------- So we block -- so what happens is we block. So we will block -- if we find that the action of someone is hurting us, so we will block that in that place, yes? But then in that place, yes, yes. -------------------------------------------------------------------------------- Charanjit Singh;DSP Mutual Fund;Analyst, [103] -------------------------------------------------------------------------------- Okay. And sir, in the last couple of quarters, we have been working on our product portfolio, upgrading it, more feature-rich products and now with the COVID scenario and a lot of fears in terms of down-trading and the kind of sales which are happening, so how do you see the reaction to our product portfolio, which could be more feature-rich and more towards the profitable segments, which we had moved earlier? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [104] -------------------------------------------------------------------------------- So we have completely revamped our NPD process, and we have a very, very clear strategy in place. It follows from the automotive strategy of standardization, simplification and platformization. So the chassis will be the same. The bells and whistles we can add. So if someone doesn't want the bells and whistles, we can remove and sell it at a lower price. So this gives us the flexibility to create a platform and then make it into a super-premium product or a super-economy product as the case maybe. -------------------------------------------------------------------------------- Charanjit Singh;DSP Mutual Fund;Analyst, [105] -------------------------------------------------------------------------------- Okay. And sir, lastly, on the channel mix front, how is our channel mix, e-commerce versus a wholesaler driven or direct distribution, how is the mix? And how do you see now with a lot of technology investments which you have done, do you think that channel mix can change in the favor of e-commerce significantly? And which product segments are you seeing more traction on the e-commerce platforms? And how is the pricing differential in that, yes? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [106] -------------------------------------------------------------------------------- So Ram, you want to take this? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [107] -------------------------------------------------------------------------------- Yes. So I think you can look at it at company level or related category level. I say related category because if you eliminate some categories like wires, switches, switchgears, pumps, right? These are not e-commerce friendly category. But otherwise, at a company level, we would be at maybe 2% to 3%, closer to 3%. And at a related by category level, we'll be about 5% to 6% today, yes? But this is growing fast because the fundamentals are in place, and we have tested that over the last 2 years, yes? And as we are able to bring more offerings in, we expect to see traction. Obviously, the traction will be more in categories where we have historical strength. So typically, you will see a stabilizer or water heater getting a pan or kitchen getting good traction, yes? So I think, obviously, in order of our strength in the different categories, yes? -------------------------------------------------------------------------------- Charanjit Singh;DSP Mutual Fund;Analyst, [108] -------------------------------------------------------------------------------- Okay. And sir, in terms of wholesaler versus retailer? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [109] -------------------------------------------------------------------------------- So we are not generally a wholesale focused. So mainly -- see, mainly, we have been focused on inform category that is distribution, yes? And what we are doing now is -- and we have been able to build the foundation for e-com. And we will be focusing on growing our business in e-com in organized trades. So that's going to be our focus going forward, yes, and we are working towards that, yes? So that's a huge opportunity that's available to us, yes, which we could not participate when the business shift happened about 3 to 4 years back as we took time to build our internal capabilities, yes? -------------------------------------------------------------------------------- Operator [110] -------------------------------------------------------------------------------- (Operator Instructions) The next question is from the line of Manish Agarwall from Edelweiss. -------------------------------------------------------------------------------- Manish Agarwall, Edelweiss Securities Ltd., Research Division - Analyst [111] -------------------------------------------------------------------------------- Just one -- a couple of questions from my end. Firstly, is there some fatigue at the dealer channel level basically where they are not willing to keep high inventories like maybe if they are carrying a 30 to 40 days of inventory, now they were kind of not willing to take more than 15, 20 days of inventory. Are you seeing something like that happening? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [112] -------------------------------------------------------------------------------- Ram, do you want to take this? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [113] -------------------------------------------------------------------------------- Yes. The channel is operating on lower-than-normal inventory because, there is still uncertainty that is visible. So in general, the inventory has come down over a period of time, yes? And the regular stocking that one would typically see is not visible today, right? That's also visible in the -- with which even cash has come back from the market, yes? -------------------------------------------------------------------------------- Manish Agarwall, Edelweiss Securities Ltd., Research Division - Analyst [114] -------------------------------------------------------------------------------- Okay. Okay. Sir, is it something to do with any pricing arrangement that channels would have of themselves with... -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [115] -------------------------------------------------------------------------------- No, no. I think that they have thinned their inventory, yes, and they have thinned their inventory, probably because the situation is uncertain, right? And so people are, what I would say, not stocking too much. And I think mostly, not just us, but all companies are at this stage, they are more busy feeding demand because I think that if everybody were to push sales, I'm not sure supply will keep pace, okay? If you're looking at -- because the suppliers, all those factories are open, many of them are operating at 50% to 60% manpower is what we are observing. I'm talking about raw material, packaging material and stuff like that. And some of these are periodically going into containment and coming back after a week or a fortnight and stuff like that also. So all these things we are observing. And therefore, what we feel is it will take some more time, before things will normalize. And I think maybe couple of months down the line, we would be in a better position to develop a point of view on this. I think right now, I think people are not -- people are just buying hand to mouth. So what we are observing is, we get more even sale through the month, right? So -- and practically, we are getting flat sales [everything] through the month. This is something we've seen before because in the past, it would be more sale towards the month end. But now it's more even right through the month right. And it's a replenishment. There is no urgency to buy on a first or a second or a third or a fourth, right? But typically, what we see is, we see almost the same number running right through the month. -------------------------------------------------------------------------------- Manish Agarwall, Edelweiss Securities Ltd., Research Division - Analyst [116] -------------------------------------------------------------------------------- Okay. So the demand pattern has changed -- standard demand pattern has also changed you can say? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [117] -------------------------------------------------------------------------------- No. I think that they are just buying to requirement, right? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [118] -------------------------------------------------------------------------------- Yes. So I think, see, earlier, what was happening was they were having 45 days of inventory and during the month end, they will negotiate and then they will buy more as a bulk volume. But now they're buying 25% each week or 20% each week like that. -------------------------------------------------------------------------------- Operator [119] -------------------------------------------------------------------------------- The next question is from the line of Prashant Kutty from Sundaram Mutual Fund. -------------------------------------------------------------------------------- Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [120] -------------------------------------------------------------------------------- Sir, firstly -- the first question is in terms of -- you just spoke about even before COVID, there was a lot of competition, which kind of entered the market and probably will not want to respond to it. But just want to ask, is the overall landscape itself changing? So because you're also hearing a lot of strong players also entering into a lot of these markets be it appliances market or be it the kitchen appliance offer a matter of switchgears, lighting and so on and so forth. So is the competitive landscape even more severe as compared to what it was thought by you earlier and any changes in strategy which would like to make on account of that? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [121] -------------------------------------------------------------------------------- See, what will happen is when -- like I said, after demon and GST, when there was a crash in the GDP growth rates in the country, every company was not -- the core categories were growing at 4%, 5%. So obviously, it doesn't look nice to show 4%, 5% growth. So everyone decided to get into every category. I -- usually companies give it 5 to 7 years. After making losses for 5 to 7 years, they usually shut it down. So that will start now. -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [122] -------------------------------------------------------------------------------- I think also right, I think we could see this -- so from our point of view, right? So we could see this phenomena coming up. So immediately after GST, a couple of things became very clear to us. One is the hyper competition became very clear to us. And the second thing that became clear to us that companies which had sourcing-based model, we are losing advantage, okay? And there are 2 kind of issues that happened for us because invariably we are going to a category, you rely on the capability of a supplier. So we are able to differentiate locking this is weak, okay? And second thing is, of course, as I said, there is -- for us, at least, we could see a clear 3.5% to 4% gross margin erosion -- relative gross margin erosion happening because of GST coming in. Because the larger companies, which were manufacturing, they could have some advantages. And so based on that, we -- about 2 years back, we have reset our strategy, and we are working that path. And I think some part of the dividends you would have seen this year in terms of margin growth, yes? And our priority initially is to be fit for growth. Being fit for growth means making sure that your business has the right margin structure, yes? And is churning sufficient amount of cash so that we can invest back into our business, yes? So that's our focus. And we are running business with that mind. I think that's what Mithun was trying to say earlier, yes? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [123] -------------------------------------------------------------------------------- I was -- one more point to make is, when -- like if you say, if the period of growth, if there is a strong growth happening in the country, it is much more easier to get into a new category and grow than in like in a reflationary kind of an environment, like what it's today. So in a very -- when market is growing at 15%, market leaders may not even notice that their share is getting lost. But whereas when market growth is 5% for you to grow literally someone has to degrow. So that's when the hyper competition starts. So I think now the Indian companies would have realized that it's not easy to enter new categories. It's a long-term haul. So probably the only serious players will remain. Of course, someone will launch and then they will drop price by 20%, 30% and get some share and all that. But then how long you will do this? You'll do it for 3 years, 4 years after that, eventually, you'll have to somehow think about making money out of it, right? -------------------------------------------------------------------------------- Prashant Kutty, Sundaram Asset Management Company Ltd. - Research Analyst [124] -------------------------------------------------------------------------------- Okay. My second question is, given the current environment, you spoke about, driven channel is probably not really liquid -- well it could be a short term phenomenon, but you said the channel is also being a very more agile in terms of stocking inventory as well. In this period, are we also looking at probably cutting off some of those low-churn products for us or probably any of those-churn categories for us. Anything on the product front, which you're trying to do that probably focus on certain categories and which would they be, if I may ask? So anything on that front, if you could tell us on that? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [125] -------------------------------------------------------------------------------- So see, we did not wait for COVID attack to start doing this. Like I said, we stopped LT cable in 2018. We stopped agriculture from last year. I am -- so we are not afraid to admit mistakes and shut it down because if ROCE for a product is not happening, the strategic value of the product is not there to the company, we will shut it down. We have no problems in disclosing it. We have no problems in taking the hit. We have written off an entire plant of some INR 20 crores, which is LT cable that was done about 3 years back. So as a company, we are not afraid to do these things, and we'll continue to do it, whether there is COVID or no COVID. -------------------------------------------------------------------------------- Operator [126] -------------------------------------------------------------------------------- The next question is from the line of [Santosh Yellapu from Ashika Stock Broking]. -------------------------------------------------------------------------------- Unidentified Analyst, [127] -------------------------------------------------------------------------------- I had a couple of questions. First, sir, what are the challenges we see going forward to roll out the new products and also addition of the dealers or distributors across the non-South markets in FY '21 and '22? And the second question is, sir, on the Consumer Durables segment, with just INR 80 crores kind of a top line, we did a segment level loss of almost INR 8 crores, INR 9 crores. This is somewhat a repetition of a mix we have seen in Q1 FY '18, could you throw some colors that despite new breakfast appliance launches, why we saw this kind of a loss? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [128] -------------------------------------------------------------------------------- So first of all, the challenge is, of course, India is whatever said and done, we have video conferencing and all that, but in India, business is still done the old way. They prefer meeting face to face, especially our retailers. They are a specific stereotype that they really believe in meeting face to face. So this as long as this face-to-face meeting and product launch functions and tours and all those don't happen, it is always going to be slightly challenging to go to a new dealer. I mean you can't just call up a new dealer on the phone and say, can you be my dealer, I mean, so that's going to be one task. But however, we hope that there is some vaccine that is coming in our way. And then probably, our sales team can restart travel. We have to also keep in mind that right now, retailers are also scared. They don't want any company representatives coming into their store because if one of the retailers catches this, then he has to also shut down the store and all kinds of stuff happens. So retailers are also very scared to allow company people to come into their stores. So most of the business gets done on salesforce.com and video conferencing and phone calls and all that. So that is definitely one of the challenge. What was the second question? -------------------------------------------------------------------------------- Unidentified Analyst, [129] -------------------------------------------------------------------------------- Sir, consumer durable segment. -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [130] -------------------------------------------------------------------------------- Can I take that question. Yes, can I take that question. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [131] -------------------------------------------------------------------------------- Sorry, consumer durables. Ram, do you want to take it? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [132] -------------------------------------------------------------------------------- Yes, yes. See, just -- see, this last quarter, as I said, it's more like 45, 50 days of sales, okay? A mature category where we have higher market share and significant volume to market scale, obviously, the profitability will be better, and you will see a better health even on lower volume, okay? But the -- many of the consumer durable categories, right, either you have a AC -- sorry, you have a water heater, which is not -- which is off-season, okay? Or you had air cooler which was just getting out of season, okay? So that's on one side. And on the other side, you have kitchen and other products, right? These are products that we have entered in the last 3 to 4 years, okay? Obviously, they're going to have fixed up costs associated with the entry into these categories, yes? And therefore, the breakeven point, in this case, will be much, much higher as opposed to breakeven point in a mature company. So as you can see, we've done about 58%, and we've been able to be profitable, yes? But probably, when you will break the number by segment, you will find that maybe the breakeven point in the mature categories is at about 40%, 42%. And the breakeven point in the emerging categories will be about 60%, 70% because they have still not achieved the scale commensurate with the investment that gone in, both at the back end and the front end, in terms of manpower and other resources, by R&D resources. So I think you have to see it in that light, yes? I hope that's clear? -------------------------------------------------------------------------------- Unidentified Analyst, [133] -------------------------------------------------------------------------------- Yes, sir. -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [134] -------------------------------------------------------------------------------- Yes. Fine. -------------------------------------------------------------------------------- Operator [135] -------------------------------------------------------------------------------- The next question is from the line of Achal Lohade from JM Financial. -------------------------------------------------------------------------------- Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [136] -------------------------------------------------------------------------------- What I wanted to check was, a, in terms of the festival season now given our product portfolio, so how important is the festival season for us in general, especially for the South market? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [137] -------------------------------------------------------------------------------- See, so this year, Onam will be the first festival. So once Onam is over, we can tell you how it was. See, please understand that these are not normal times. It's kind of like World War is happening or something like that. So people are not really in a mood to go celebrate festivals. I mean people are not in able to get out of their own house, forget festivals. So I don't think they are in a mental frame to really do it, go and splurge money and all that. What people are doing is something is breaking down in the house, they're repairing -- replacing it. We see a lot of demand for TV stabilizers because a lot of TVs getting sold because now TV is the only source of entertainment for every person. We also see that a lot of demand for UPS systems because everyone is working from home, all the schools are studying -- school children are studying from home. So at any cost router should not go up. That's a key -- asked by all households. So if you look at Kerala Onam, I mean the TV sales is one of the biggest ones. And I think Onam TV sales should be decent because -- not because people want to go and buy TV because of Onam, but because TV is the only source of entertainment. So maybe any number of TV is not enough because we are sitting at home all the time, right? So I think though -- I think the behavior will change like that. I think the need -- so what behavior we saw last year in terms of people going and buying stuff on auspicious day and all that will change into a need-based buying. I mean if I need a TV, I'll buy it; if I need a UPS or an inverter, I will buy it; if I need a router, I will buy; if I'm doing some renovation, I will complete it, et cetera, et cetera. It won't be that of because it's Onam, I will go buy some clothes and then I will buy some gifts and all that. I don't know whether that will happen this year, but we will have to wait and see. But definitely, we can see that there is increased demand for televisions. There is increased demand for dish washing appliances, vacuum cleaners, et cetera. So we have stabilizers, dishwashers and microwave ovens. So we expect all these to do well. So that's my primary expectation. Ram, you want to add anything to this? -------------------------------------------------------------------------------- Ramachandran Venkataraman, V-Guard Industries Limited - COO, Business Responsibility Head & Whole Time Director [138] -------------------------------------------------------------------------------- Yes. I think pretty much what you said. I think my -- I think my sense would be that I think we should not analyze this situation too much because whatever numbers are coming, right, they are a consequence of, what I would say, demand-supply challenges of various companies, yes? They are a consequence of, what I would say, essential purchases being made by people, right? So I think unless the COVID scenario changes, this picture is not going to change. I think our industry is in that way, it looks like we are more fortunate than some other industries that demand has not hit us so hard because we're still able to post lockdown able to do 80%, 85% as you saw in the last 2 months, yes? And we think that we should be able to do that in the coming 2, 3 months for sure, yes? So I think we should not analyze this too much. And I think we should wait and watch, yes? I don't see any companies taking an aggressive posture and making investments because we don't know. Because see, the number of people who are taking calls, right, on how future will be that has increased, right? So see, every district authority is an independent authority and is authorized and empowered to take steps and measures as may be required to safeguard people in that area. So a lot of local decisions are getting made. And so we have -- there is no certainty to say how things will go. Therefore, I would say, I think that we should wait and watch, and I think this is a passing phase, and we should not spend too much time analyzing this because anybody who is making a prediction is speculating, right? And that's what we are observing. Because if you take Kerala, we were in a good shape in Kerala and now look at what's happening, right? The cases are much, much more. And this is in spite and despite best efforts, right? So I think there's a lot of uncertainty still associated with this. And that would be good to watch, yes? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [139] -------------------------------------------------------------------------------- So one more point is, I think the key thing to watch is number of cases per district because definitely, when the cases do drop in a particular district or an area, people do feel confident and they go and spend. So I think the best way to judge how things will go is keep analyzing that, and that is one lens. I don't think festive demand is going to be a key consideration this year. Because see, the festive demand is a hype created by all companies by advertisements. I mean the kind of money, all the durable companies spend during Onam and Diwali, it's huge. I don't know whether this year, they are in a financial position to do that. And even if they do that and after 1 week, they realize the entire country goes to lockdown, what do you do with the money you spent? So these are the questions that are staring us in the face. And then that's why we can't really make an answer now. -------------------------------------------------------------------------------- Achal Lohade, JM Financial Institutional Securities Limited, Research Division - VP [140] -------------------------------------------------------------------------------- Got it. And just the second question, in terms of the inorganic, I know these times are trying times, we've been looking at or considering inorganic opportunity. So given the current context, are you keen on doing or you think this is now kind of pushed by at least couple of years in terms of any acquisition, et cetera? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [141] -------------------------------------------------------------------------------- I wouldn't say a couple of years, but definitely a couple of quarters. I think we have been fortunate to have targets that have been engaging with us. And we have been fortunate to mutually agree to keep it on a deep freezer or a backbone as you call it. I don't think we require 2 years. I think by January, we'll be in a position to better perform. -------------------------------------------------------------------------------- Operator [142] -------------------------------------------------------------------------------- (Operator Instructions) As there are no further questions, I would now like to hand the conference over to Mr. Hitesh Taunk. -------------------------------------------------------------------------------- Hitesh Taunk, ICICIdirect.com, Research Division - Analyst [143] -------------------------------------------------------------------------------- Thank you, Aisha. Thank you, sir, for your comments and insights, sir. Is there any closing remarks, sir? Mithun, sir? -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [144] -------------------------------------------------------------------------------- No closing remarks. Thank you, ICICI, for hosting this call. And let's hope that we can overcome this pandemic, and everyone, please stay safe and listen to your local authorities. Thank you. -------------------------------------------------------------------------------- Hitesh Taunk, ICICIdirect.com, Research Division - Analyst [145] -------------------------------------------------------------------------------- Thank you, sir. -------------------------------------------------------------------------------- Mithun K. Chittilappilly, V-Guard Industries Limited - MD & Executive Director [146] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [147] -------------------------------------------------------------------------------- Thank you. On behalf of ICICI Securities, that concludes today's conference call. Thank you for joining us, and you may now disconnect your lines.