V-Guard Industri

V-Guard Industries reported consolidated net revenues of ₹1,269 crores in Q3 FY25, marking an 8.9% Y-o-Y growth. Gross margin improved significantly to 36.2% from 33.7% in Q3 last year, an increase of 250 bps, driven by higher in-house manufacturing and cost-saving initiatives. However, EBITDA (excluding other income) grew by a modest 2.5% Y-o-Y to ₹104 crores, with the EBITDA margin at 8.2%, 50 bps lower than the previous year's 8.7%, primarily due to higher A&P spends and employee costs.

The Electronics segment demonstrated strong performance with a revenue growth of almost 28% Y-o-Y. The Electricals segment grew by 1.2%, impacted by commodity price fluctuations affecting wires, a major contributor. Consumer Durables grew by 8.1% Y-o-Y, though kitchen appliances demand remained muted and water heaters were affected by a late winter. Regionally, the Non-South market showed robust growth of 15.8% Y-o-Y, now contributing 48.4% of total revenues, while the South market grew by 3.7% Y-o-Y, primarily due to the impact on the wires segment.

The company has seen continuous improvement in gross margins, attributing it to increased in-house manufacturing, cost-saving initiatives, and a shift to premium portfolios. Currently, 65% of V-Guard's sales come from products manufactured in its own plants, with a target to reach 70-75% in the next 3-4 years. Management aims for an overall EBITDA margin of around 10%, acknowledging the competitive industry environment. They also endeavor to expand margins by approximately 0.5% annually.

V-Guard's Board approved an investment of ₹100 crores for a new VCPL facility in Hyderabad, which will produce TPW fans and ceiling fans. This investment will be phased over three financial years, with approximately ₹50 crores allocated for the next financial year. The first phase of the plant is expected to commence commercial production within the next 18 months, aiming to enhance supply security, product innovation, and quality, especially for fans, which were previously largely imported.

Sunflame reported a 4% Y-o-Y top-line growth in Q3 FY25, with healthy growth in general trade but lower orders from CSD. The company acknowledges that Sunflame's margins have been impacted by increased staffing for professionalization, consulting expenses for integration, and the CSD decline. Management views these costs as largely transient^📎 and expects improvements as integration progresses and the kitchen appliance category recovers, with an endeavor to grow the business in the mid-teens to high teens.

Consumer demand remained moderate, particularly impacting kitchen appliances, which have seen a continuous slowdown for the third consecutive year, attributed to post-COVID moderation and stress in lower-income segments. Water heater sales were also affected by a delayed winter. While the Electronics segment, including solar rooftop solutions, showed strong growth, the overall demand environment for durables remains sensitive to external factors like commodity price volatility and seasonal patterns.

Employee costs rose significantly Y-o-Y, partly due to reversals of variable pay provisions in Q3 FY24, which artificially lowered last year's base. Additionally, Q3 FY25 included an ESOP grant expenditure of ₹7 crores for the quarter (₹21 crores for the nine months), which is a new and elevated cost expected to taper down. A&P spends also increased by 10-15% for the V-Guard brand, with specific activities undertaken for Sunflame during Diwali.