V-Guard will double revenues every five years, says Mithun Chittilappilly

V-Guard has evolved significantly over the last 40 years and is now a significant player in the market positioned as a new-generation, technology-driven organisation. The debt-free company with Rs 100 crore in cash reserves recently unveiled its new identity and roadmap for the future with products that will impact the consumers' lives in an intelligent way with products like intelligent water heaters, smart inverters and smart fans with colour changing LED light. Mithun Chittilappilly, managing director, V-Guard Industries spoke with Ashish K Tiwari about the industry, the company's business, growth plans and brand re-design among others.

Could you briefly tell us about the overall industry in general and your business in particular?

We operate in eight to nine different categories including electrical and electronics, kitchen appliances, etc. In terms of the overall industry size while water heaters is a Rs 2,000 crore category, invertor and batteries is Rs 8,000 crore and fans will be another Rs 8,000 crore. So if you add various categories, excluding the main durables products, the Indian market is estimated to be between Rs 65,000 and Rs 70,000 crore. Competition is very intense in this space with Crompton Greaves (CG) being the market leader followed by Orient, Usha, Havells and Bajaj. Our business has primarily grown over the last 10 years as most of the categories were launched back in 2006-07. For us the largest category is wires (Rs 600 crore) followed by stabilisers (Rs 400 crore), invertors, fans, water heaters, pumps are Rs 250-300 crore each. We should grow at 15% in the coming years and double revenues every five years. Fans will be one of our largest, and on a base of Rs 300 crore we are expecting it becomes a significant category in the coming years. Today it's 10% of our revenues and can go to 14% odd in the next five years and the company will also grow significantly in the same time frame.

What has been the impact of goods and services tax (GST) rollout in your line of business?

Imports have become cheaper post GST as the industry players can now take credit for some parts of the imports, which was not the case earlier. We have not seen any anti-dumping or protectionist policies as India is still very competitive in certain categories like ceiling fans, invertors, stabilisers etc. We are a lower cost producer compared to China but not the lowest in every aspect. We still need to import when it comes to electronics and stuff like that. Our business is more branded hence competition is not really with cheap products. One good thing that is happening is that under-invoicing will stop. For instance, if a product was priced at Rs 100, customs duty will be Rs 30 but the importers will show the pricing as Rs 20. Once cleared, they would repack it with a new MRP. So this practice will now stop and it's good news for players like us.

What's your revenue like from sale of imported products?

Around 8%, or Rs 160-odd crore, of the total revenues come from imported products like pedestal fans, gas water heaters and some kitchen appliances among others. The recent levy 10% in the form of Social Welfare Surcharge on imports is likely increase our cost of imports on certain spares (components going into stabilisers etc) besides, sub-assemblies have also being brought under customs duty. Basically, the government wants companies to do everything in India. So for those specific imports, we could see prices going up on certain products, but we'll have to wait and see what the net impact is. It's not a big thing for us though.

You spent over three years on the new brand identity, what kind of spend did this exercise call for?

Four different agencies were involved in this exercise, including Landor Associates who worked on the redesign. We have also spent money on changing the retail environment for our products in the country. We work with over 30,000 retailers out of which we have already covered over 10,000 multi-brand retailers changing the signages and interiors on a case to case basis. Our real mass media campaign has started now. As a company we spend around 5% of revenues on advertising and promotions. There will be an additional allocation of 1% or 1.5% (one time) for the new brand identity. This year our A&P spend is likely to be Rs 100-120 crore. This year we will also be using some part of the spends on digital marketing.

Is online playing a significant role in increasing sales and reach for your products?

We are working e-commerce partners primarily Amazon. There are certain products (online exclusives) that can be sold online without causing any disruption to physical retail. Online sales are very miniscule at under 1% currently, but I'd think around 6% of our revenues can easily come from e-commerce in the coming years.

Tell us about your penetration in the non-south region and the region's contribution to overall revenues?

We started addressing the non-South regions including markets in North, East and West about eight years ago. Currently, 37% of our business is coming from non-South, and this year we will do about Rs 850 crore from these markets. The plan is to grow this number to over 40% in the coming years. We have been a bit slow to enter Mumbai and Delhi-NCR as these are the most competitive markets in the country. We have tried to stay away from large cities because it's a home market for a lot of our peers, retailers are big and negotiation power is higher, your brand needs to be really strong to be able to gain shelf space and so on.

Rural markets contribute significantly to your business. Could you share more details?

Yes, we have products like pumps and invertors that are primarily addressing the rural markets. Approximately 55% of our revenues are coming from tier III and IV markets and the balance is from places like Tier I and II markets like Bengaluru, Kochi and so on.

Does inorganic expansion strategy also form the part of your roadmap for the future?

We'd acquired a small acquisition worth Rs 40 crore last year. We are open to acquisitions and have cash reserves of Rs 100 crore on our books. That apart we have also taken necessary approvals for additional fund raising etc. If a right opportunity comes at a right price in any of the adjacent categories, then we will definitely look to acquire. That's all I can say for now.

Could you share details about manufacturing capabilities and any plans to expand it?

We have 11 manufacturing facilities across the country. Approximately 45% of production is in-house and balance is outsourced. In-house production was just at 18% earlier in 2005-6 and all the expansion has happened in the last 10 year. A wire and solar water heater plant in South India, wire and electric water heater plant in North India, water heater and stabiliser plant in east. We also have pump manufacturing plant. Current facilities have sufficient land parcels to pursue any expansion that may be required in the future.