V-Guard Inds reduces debt by 30% in Q1, expect tepid Q2

Riken Mehta
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V-Guard Industries  , a consumer electrical and electronics company, reported 17 percent decline in net profit for the quarter ended June 30 at Rs 17.64 crore against Rs 20.65 crore in the same period last fiscal. The operating profit margins dropped by 316 basis points (bps) from 10.74 percent to 7.58 percent.

However, the Kerala-based firm's revenue in the quarter was up 28 percent at Rs 408 crore from Rs 319 crore posted in the year-ago period.

Quarterly review

"The operating margins were impacted by two components. Higher advertising spends in IPL impacted margins by two percent. Additional one percent was dented by lower than expected growth in products like stabilizer and air-conditioners on advent of early monsoons in June," said Mithun Chittilappilly, managing director at V-Guard Industries in an exclusive interview to moneycontrol.com.

Product-wise performance

Operating margins product-wise: Stabilizer - 20 percent, Pumps - 11 percent, Wires - 4.2 percent, Inverters - 3.2 percent and Electrical - 13 percent.

Guidance

"We are hopeful that revenues will grow by 25 percent in FY14 despite tepid second quarter. April and May registered good growth in sales but early monsoon in June led to average growth. The second quarter will remain under pressure on account of lower sales in stabilizers, inverters and air-conditioners. However, the demand will pick up in the third and fourth quarter of FY14," he added.

Advertisement spends

"We are happy with the response from the advertisements spend in IPL. The company spent nearly Rs 20 crore for advertisements in IPL. The acceptance of brands was good and we will continue our tie-up with IPL in the next season as well," added Mithun.

Lower copper prices

The operating margins in the wires segment were impacted by one percent due to inventory write-downs on lower copper prices. Inventories worth Rs 32 crore were liquidated in this quarter.

Rupee depreciation

"Around five percent of the company's total products are imported. We will pass on some of the cost to consumers. We are not able to benefit from lower international copper prices since rupee depreciation negated the fall in metal prices," clarified Mithun.

Induction cook-tops and Mixer Grinder

"The induction cook-tops segment will face some pressure in the next six to seven months since the import cost has gone up by another 10 percent. The demand will stabilize and pick up only after December. We are launching induction cook-tops mainly in South India. We will launch mixer grinders in Kerala next month. We expect revenues of Rs 5 to 6 crore from mixer grinders in FY14. Prices of stabilizer and inverters in this quarter have also been raised. The company has stopped giving discounts post liquidation of inventory," he added.

Non-southern states performance

"The contribution of revenues from non-southern states to total revenues grew to 31 percent in this quarter. We expect non-southern states to contribute 28 percent to total revenues in FY14 and 40 to 50 percent in the next five years," said Mithun.

Cables and wires

"This segment generated Rs 380 crore revenues in FY13 and expect Rs 500 crore topline from cables and wires in FY14. We expect this vertical to grow at 25 to 30 percent in the next two to three years. We intend to become one of the top three brands in the coming years," he added.

Debt

The total debt of the company reduced by Rs 50 crore due to positive cash flow generated of Rs 57 crore in this quarter. "We used this cash to reduce our debt by Rs 50 crore," said Mithun. The debt of the company was Rs 165 crore by end of March quarter.

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