VGUARD - V-Guard Industries Ltd. Share Price

In the earnings call on August 6, 2025, management provided insights on the company's performance and outlook for the upcoming quarters. The consolidated net revenue for Q1 FY26 was reported at INR 1,466 crores, reflecting a marginal decline of 0.7% year-over-year. The Electronics segment saw a 4.5% growth, driven primarily by inverter systems and other products, while the Electrical segment reported a revenue growth of 7.6%. Conversely, the Consumer Durables segment experienced a significant revenue decline of 16.3%, primarily due to the early onset of monsoon which curtailed demand for cooling products.

Management acknowledged the challenges faced in the first quarter due to the weak summer season and a high comparative base from the previous year. They expect revenue growth for the current financial year to fall between 11% and 13%, a revision from an original guidance of 14% to 15%. The EBITDA for the quarter stood at INR 124 crores, declining 20.7% year-over-year with an EBITDA margin of 8.4%, a reduction of 210 basis points compared to the previous year.

Key forward-looking points include:

1. Merging Operations: The company has initiated actions to merge Sunflame operations with V-Guard to fast-track synergy benefits and expand product offerings.

2. Demand Outlook: Management anticipates demand normalization in the upcoming quarters and plans continuous investment in brand building and capacity enhancement.

3. Lighting Segment: V-Guard plans to enter the lighting market, leveraging its existing distribution network, although initial manufacturing will not be undertaken.

4. Margin Recovery: They reported a gross margin of 36.7%, an improvement from the previous year and suggest that margins are stabilizing back to pre-COVID levels.

5. Geographical Diversification: Non-South markets now contribute 52.3% to total revenues, indicating a strategy to reduce reliance on Southern markets.

6. Profitability Expectations: Management is targeting a profit margin between 8.5% to 9.5% for the financial year, reflecting ongoing operational adjustments.

This detailed outlook illustrates V-Guard's strategic moves and anticipated developments in the forthcoming quarters.

1. Question: "Mithun, you are entering into Lighting, just to understand what are you thinking about it, what are the products, which segment are we talking about?"

Answer: We are expanding into Lighting as it is a significant sub-segment within Electricals, where we've been absent. Our feedback from channel partners indicates a need for our presence in this area. Initially, we won't manufacture but will rely on outsourcing. Focus will be on consumer and residential lighting to leverage our existing network of 100,000 retailers, primarily aligned with wires and fans.

2. Question: "When I look at the company history, the first quarter has never seen EBIT loss, right, except during the COVID period... Is it more of a function of--operating deleverage?"

Answer: The EBIT loss is a transient issue. Factors include a very cool summer affecting demand for cooling products like fans and air coolers. Additionally, we had increased advertising expenses in these categories, which contributed to the decline. While this year's weather was unfavorable, we see it as a temporary setback rather than a systemic problem.

3. Question: "We are merging the Kitchen Appliances business. What are the total synergy benefits that we can look at?"

Answer: We're integrating Sunflame to harness V-Guard's strengths in capabilities, systems, and distribution. This merger allows for improved customer service and operational efficiency. We're already experiencing tangible benefits, like enhanced service turnaround times. Our goal isn't just financial"”but to leverage V-Guard's functional strengths for sustainable growth.

4. Question: "In case of Lighting, what will be V-Guard's right to win in this segment?"

Answer: Our entry focuses on leveraging our strong brand and distribution network. Initially, we will concentrate on core markets, primarily in South India. We believe our improved sourcing and development capabilities will help navigate the challenges in Lighting. This segment will benefit from our channels and experience in the electrical space.

5. Question: "Has the primary sale for the fourth quarter been very high, leading to higher channel inventory?"

Answer: The decline is tied more to geographical issues. Our strong presence in Southern markets leads to reliance on seasonal buys like TPW fans, affected this year by unseasonably heavy rains. Channel partners sell on advance payment terms, limiting inventory build-up. Hence, our underperformance is primarily due to these seasonal trends rather than pre-selling issues.

6. Question: "What's the current percentage of in-house manufacturing, and when will new factories come online?"

Answer: We are currently at 65% in-house manufacturing. We plan to operationalize a new fan plant within 18 months and expand our existing battery unit over the next 24 months. These additions will enhance our capacity for ceiling, pedestal, and TPW fans.

7. Question: "Can we expect margins to improve going forward?"

Answer: We anticipate maintaining margins within 8.5% to 9.5% for this financial year. Key influences include operating leverage and advertising expenses, particularly related to cooling product sales. The impact of this summer's weather will be crucial in determining our year-end performance.

8. Question: "What do you think can be the supply chain impact for Inverters and Batteries due to recent announcements on capacity cuts?"

Answer: We'll monitor supply and demand closely. If U.S. duties impact Indian manufacturers, it could mean increased competition and potentially lower prices domestically. Currently, 20% of our inverter products are imported. Our local production capacity is robust enough for other products, mitigating some import reliance.

These responses encapsulate the primary concerns raised during the Q&A, reflecting V-Guard's approach to challenges and future plans.