V-Guard: Consumer Electronics Story

V-Guard Industries Ltd. is into the businesses of Electronics, Electricals & Consumer Durables. Mr. Kochouseph Chittilappilly is the founder of V-Guard. He setup the company in 1977 with a small manufacturing unit for voltage stabilizers with a capital of Rs. 1,00,000 borrowed from his father. Now, the company is a major market holder of voltage stabilizers in South India & also expanding in other regions across its all segments.

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(A) Products of V-Guard

research report of v-guard industries with products classification in detail

(B) Executive Management of V-Guard

(i) Mr Kochouseph Chittilappilly – Chairman Emeritus – Age 70 years

He is also Executive Vice Chairman of Wonderla Amusement Parks & Resort. Also, he is involved in philanthropic activities with K. Chittilappilly Foundation, a non profit organization found by him. Mr Kochouseph did Masters in Physics in 1970. He also setup another business venture ‘Veegaland Developers’, involved in construction of ready to occupy flats & apartments in Cochin.

As part of his philanthropic activities, he is also chairman of the Stray Dog Free movement, which advocates action against the risks allegedly posed by stray dogs in Kerala. Moreover, Mr Chittilapilly is a recipient of Rashtriya Samman from the Government of India for being the highest tax payer in India.

His shareholding in V-Guard is 17.20% as on 31 March 2020 & in Wonderla Holidays Ltd is 26.38%. He received Rs. 1.36 crore remuneration for FY19 from V-Guard as sitting fee & commission.

(ii) Cherian Punnose – Chairman (Non–Executive, Independent Director) – Age 72 years

Mr. Cherian N. Punnose is Chartered Accountant, joined the company as Independent Director in 2012. He holds 40 years of experience in the field of Finance, Audit & Administration. He also served KRL for 25 years in various capacities. In addition, earlier to KRL, he also served Bharat Heavy Electricals Ltd and International Airports Authority of India.

He received Rs. 13.27 lacs remuneration as sitting fee & commission in FY19.

(iii) Mithun K Chittilappilly – Managing Director – Age 39 years

Mr. Kochouseph Chittilappilly has two sons, Mr Mithun K Chittilappilly & Arun Chittilappilly. Mr Mithun is involved in V-Guard’s management since 2006. On the other hand, Mr Arun Chittilappilly is Managing Director at Wonderla Holidays Ltd.

Mr Mithun is post graduate in Management from University of Melbourne, Australia. Prior to joining V-Guard, he worked with Deloitte & Hewlett Packard. He joined V-Guard in May 2006 & appointed as MD in April 2012.

His remuneration for FY19 is Rs. 4.23 crore. His wife Ms. Joshna Johnson Thomas is also on the BOD as Non Executive Director and received remuneration of Rs. 56.71 lacs for FY19.

Other Non-Executive Directors of V-Guard also hold long term experiences in their field of work/roles.

Total Managerial Remuneration for FY19:

For FY19, V-Guard paid total managerial remuneration of Rs. 13.80 crore. Thus, it forms 0.53% of total revenue and 8.21% of the total net profit for FY19.

(C) Shareholding Pattern

research report of v-guard Industries Ltd with details of shareholding pattern

Under Promoters’ shareholding, Mr. Mithun holds 25.14% of the total shares, Mr Kochouseph Chittilappilly holds 17.20%, 9.18% is in the name trusts of the promoter family. Under institutional shareholding Mutual Funds hold 11.07% of the total shares, FPIs hold 13.39% & insurance companies hold 1.48%.

research report of v-guard with details of major shareholders

(D) Revenue Segments

research report of v-guard with details of segment wise revneue

(E) Segment wise Profit Contribution

research report of v-guard with segment wise profit contribution

(F) Product wise Revenue Contribution

research report of v-guard with product wise revenue contribution
  • The largest segment of V-Guard is Housing Wires. Also, it has strong acceptance across all regions.
  • The company adopts unified pricing policy for wires segment.
  • The company also had LT Cables as its product. It was B2B segment. But the company exited from the product in FY18 to focus on B2C Housing wires segment.
  • Thus, overall the company is into B2C business.
  • V-guard’s Pumps segment secures premium pricing in South region.
  • Thus, profitability is largely dependent on few product categories i.e stabilizers, which is seasonal in nature.
  • The company entered into kitchen appliance in FY12 with launch of cook tops. Later launched mixer grinders in FY14. Also in FY12, company launched switchgears.
  • V-Guard also entered in Air Coolers in FY18.
  • The company entered into fans segment in 2006-07.

(G) Distribution Network

  • V-Guard holds major South Indian market & is also expanding in North India gradually.
  • Over next 4-5 years, management expects to bring this ratio to 50:50.
  • Contribution of South India to the revenue was around 70% in FY14.
  • Also, Company’s non south region achieved PBT break even in FY15.
  • Share of Kerala in sales is around 22%, reduced from 60% in 2008. The state got impacted by two years of floods as well as slowdown of Middle East remittances.
  • Non-south markets recorded revenue growth of ~15% in FY19. On the other hand, south markets recorded revenue growth of ~8% in FY19.
  • Currently, retailers count is more than 40,000.
  • Further, the company envisages adding 3,000-5,000 retailers across the country every year over the next five years with higher addition in the non-South region.

(H) Manufacturing Facilities

V-guard works on asset light model with 42% in-house manufacturing. The company envisages on increasing this ratio to 60% over next few years. But since FY14, company’s in-house manufacturing ratio is 40-43% with addition of product categories. Company outsources around 58% of the products.

Earlier, V-Guard imported 30% of water heaters but now manufactures totally in-house. V-Guard manufactures solar water heaters as well as electric water heaters.

Wires segment’s production is also completely in-house.

Also, V-Guard does not make kitchen appliances, switches & air-coolers in-house as these categories do not have enough scale yet. V-Guard also does not make inverter batteries
in-house.

manufacturing plants of v-guard under detailed research report

(I) Recent Expansion done by V-Guard

  1. FY14 – Company expanded Kashipur plant capacity to 6.6 million coils p.a. from 3.3 million coils p.a. with an estimated capex of Rs. 16.20 crore.
  2. FY17 – Further wires capacity increased to 8.7 lakh coils p.m. Also, Rs. 25 crore investment done for electric water heater segment.

Further, planned capex is Rs 130-140 crore for next two years. This capex is for the capacity expansion in the wire, fan & water heater segment.

(J) Financial Performance of V-Guard

(i) Key Ratios

significant ratio analysis of V-Guard Industries Ltd under its

(ii) Cash Flows

(iii) Recent Quarter Performance

research report of v-guard industries ltd with details of recent financial performance

(K) Market Share

V-Guard holds major market share in Voltage Stabilizers segment. The company holds around 36-38% market share in stabilizers. Also, for other product segments, the company focuses on expanding market holding by geographical expansion & bringing pricing parity across all segments.

(L) Peers of V-Guard

V-Guard witnesses intense pricing competition across most product categories by virtue of presence of several organized and unorganized players. So, other leading players in each product segment:

(M) Strengths & Concerns

Strengths & Opportunities of V-Guard

(i) Strong Financials

V-Guard’s strong financial profile features conservative debt metrics, strong profitability as well as liquidity position. Also, its healthy improvement in profit margins over 9 months in FY20. The company did not have long-term debt as on December 31, 2019 and is net debt negative since FY16.

V-Guard’s operating margins improved by 300 bps YoY to 10.8% in 9M FY20. This is due to beneficial commodity prices. Also, V-Guard adopted effective pricing strategy, favourable product mix as well as fixed cost saving initiatives. Further, it continues to have healthy ROCE (27.0% in FY2019), supported by its asset-light business model and healthy profits.

(ii) Benefiting with gradual diversification & geographical expansion

‘VGuard’ is a well-known brand in the electrical and electronics space, especially in South India, with presence for over four decades. Although the company continues to derive majority of its revenues from the five southern states, VGIL’s presence in non-south markets has increased over the years. The company derived about ~40% of its revenues from non-south markets in 9M FY2020, as against ~25% in FY2013.

In addition to its strong market position in stabilizers, the company diversified in other consumer durables & wires segment from year 1999-2000. And also now a strong player in other products such as electric water heater, solar water heater & house wiring cables.

(iii) Economic Opportunities

V-Guard is committed to expand from a South player to pan India player. The rate of increase of its retails points in Non-South regions is higher than that in South India.

Moreover, management plans to add 3000-5000 more retail points and majorly in Non-south regions over next 4-5 years. Thus, it has vast opportunity of growth. But, on the other hand has to increase pricing uniformity across product segments.

Further, the government’s push for housing for all, increasing availability of electricity and GST
rate reduction augur well for long term growth prospects of the sector.

Risks/Concerns

(i) Covid-19 related lockdown

The Covid-19 outbreak and consequent lockdown significantly impacted demand for consumer durables with closure of retail outlets in Mar 2020. Further, it will impact the consumer durables demand in H1 FY2021. This is because of continued closure of retail outlets till the lockdown ends, adverse economic impact & pull down in consumer confidenceHowever, the company is not materially impacted by any supply disruptions from China as its imported SKUs form only 7% of total turnover.

Moreover, the demand for electronic & electrical products is dependent on consumption of other consumer durables.

(ii) Unfavorable forex movements & raw material price fluctuations

V-Guard witnesses intense pricing competition across most product categories by virtue of presence of several organized and unorganized players. Also, VGIL’s margins are susceptible to unfavorable forex movements & commodity/crude price fluctuations. Forex risk is by virtue of the company being a net importer (Rs.258.3 crore of net imports in FY2019).

Moreover, the electricals segment is substantially impacted by fluctuation in copper price.

(iii) Intense competition

V-Guard’s all products witness intense pricing competition from other industry players that already secure good market share in various product segments. Also, being in the B2C space, constant focus on advertising/branding, discounts/schemes & competitive trade margins become critical for maintenance of sales & brand recall.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry’s Publications. 

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Author: PA Wealth Advisors

Financial Advisors, Investment Advisory Services, Portfolio Management, Mutual Funds Official Website : www.pawealthadvisors.com

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