V-Guard Industries Limited (VGUARD) Q2 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the VGAR Industries Ltd. Q2 FY27 earnings conference call hosted by Ashika Institutional Equities. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star and then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Arshia Khosla with Ashika Institutional Equities. Thank you and over to you, ma'am.

Yes, thanks, Agat. On behalf of Ashika Institutional Equities, we welcome you all to Q2Webby27 Results Conference Call of Vicar Industries Limited. We have with us today the Senior Management, represented by Mr. Mithun K. Sittalapilli, Managing Director, Mr. Ramachandran V, Director and COO, and Mr. Sudarshan Kasturi, Senior Vice President and CFO. Now, I hand over the call to the Management for Initial Commons on the quarterly performance, and then we will open the floor for Q&A session. Thanks, and over to you, Mithun sir.

Yeah, thank you, Ashia and team at Ashita for hosting today's call. A very warm welcome to everyone joining to discuss our company's operating and financial performance for the second quarter of FY27. I trust that all of you have the opportunity to review the investments we had shared earlier. We are pleased to report another quarter of strong and consistent performance with all business segments achieving strong growth, supported by a company's increasing action and volume expansion across most product categories. The performance reflects the underlying resilience of our business and brand, focused execution, and supportive market conditions. In Q2-FI-27, consolidated net revenue from operations stood at 1,853 crore, higher by 2% YOY for the half year. Consolidated net revenue from operations stood at 3,664 crore, higher by 30.5%. The electronic segment comprising of stabilizers, UPS systems, inverters and batteries, and solar panel systems, reported particularly strong at 60% YOY in Q2, with all major product categories contributing positively. Solar power products led growth with digital inverter and battery also contributing very strongly. The electrical segment, which remains our largest revenue contributor, and includes wires, pumps, switches, and switches, reported a revenue growth of 41.2% YOY in Q2. While the growth in wires was mainly price-driven, there have been healthy volume growth in pumps, switches, and switches. In the consumer durable segments, covering ceiling fans, water heaters, kitchen appliances, and air coolers, we reported a revenue growth of 20% YOY. The momentum in the induction cooker continued into this quarter was accompanied by a healthy demand across broader kitchen appliances portfolio. Fan and water heaters also registered. Sunflame reported a revenue growth of 20.5% YOY in Q2, building upon the positive momentum witnessed in the first quarter. With the functional integration of Sunflame, our initiatives to strengthen the product portfolio and expand market presence are beginning to translate into improved business performance. Continuing actions in CSB entailed longer lead times, which have impacted Sunflame margin. Grossmanage stood at 34% in Q2 compared to 37.6% in the corresponding quarter of the last financial year And 36.9% in Q1 FI27. The moderation was possible to higher input costs, along with some impact coming from changes in product mix. We continue to closely monitor input cost movements and remain focused on supply continuity while taking appropriate measures to protect our margins. EBITDA, excluding other income for Q2, stood at 168 crore, reflecting a YOY of 63.7%. EBITDA margin was at 9.1% in Q2 this year, compared to 8.1% in Q2 last year. Consolidated PAT for the quarter was 119 crore, up 71% YOY, compared to PAT of 65 crores in the previous year. We continue to monitor the geopolitical situation and will take appropriate steps necessary to protect supplies and margins. We are hopeful to deliver a healthy growth in the upcoming quarters as well. With that, I conclude my opening comments. I would like to thank Ashia and the team at Ashika for hosting this call and would like to request the moderator to open the floor for Q&A.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and then 1 on their touch-tone phone. If you wish to remove yourself from the question queue, you may press star and then 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Again, to register for a question, please press star and then one. Our first question coming from the line of Rahul Agarwal with Ikigai Azit. Please go ahead.

Yeah, hi, Mithra and team. Congratulations for the good result. Mithra, I just wanted to understand on this segment one, electronics growth, right? Some comments qualitatively on the solar, non-solar revenue for the third. How is that being? And incrementally, how should we appreciate about, you know, the solar overall growth for fiscal 27 and the balanced UPS growth, you know, for the full year? Some qualitative comments will really help.

So, I think it's not only the solar power system, but also the inverter and battery business. Both of them have grown well. Qualitatively, solar is a new category, so they are growing at a much faster pace. It's a category we are seeing. So, we are in the, you know, right now we are mainly selling this product in southern markets, and we are entering, you You know, northern market and some of the eastern markets soon. So, we are very, you know, bullish on this category. There is a lot of, you know, government subsidies and government push to move a lot of the, you know, residential energy consumption to solar. And it looks like, you know, it is the whole ecosystem is evolving quite well. Apart from that, the inverter and battery business also did well because we had, you know, power cuts in this current year because of, you know, huge increases in power requirement and power outages in various parts of the country.

So, you know, like if you have to split out solar and non-solar, is there a base revenue?

We won't be giving any numbers for solar. Okay. We won't be giving any product.

I understand.

I understand. And just secondly, just to follow up from a ROC perspective, on the solar business again, like from a margin and working capital perspective, does it change anything for VGAD or is it similar in line with the company averages? No, I think our solar business is not a B2B business. So, we are selling our solar products are mainly from 3 kilowatt, you know, 75% of our sales is, you know, 3 kilowatt to 10 kilowatt and it is going to residential households. We are primarily selling it to system integrators who go and, you know, set up these things in the, you know, rooftops of houses. So, So, we are not supplying to government or independent power producers or large consumers. So, there is no working capital difference. So, yeah, so in that sense, there is not much difference in terms of working capital and stuff. It is pretty much similar to the, you know, rest of the...

Got it. And just on electrical, you said cable and wire was largely pricing-led. Any numbers on the volume growth side for cables and wire?

I think cable volume is flat. I think it's probably flat. Almost all of it has come from pricing growth, which is close to 40%.

And similarly for ECD, any comments on volume?

See, I think excluding cable and wire, I think the volume growth is about the pricing growth of the one.

Yeah.

Excluding wires, other categories put together, 10% is price growth, 25% is volume growth.

Thank you so much. All the best.

Thank you. Before we take the next question, a reminder to all the participants, you may press star and then 1 to ask a question. Ladies and gentlemen, it is star and 1 to ask a question. Your next question comes from the line of Samir Gupta with IIFL Capital. Please go ahead.

Hi, good evening, sir, and thanks for taking my question. Just wanted to understand, I understand you don't want to divulge any information on the revenue aspect, but when you look at the solar part within the electronics portfolio, we're seeing a lot of players having entered and primarily supplying to the solar rooftop tailwind via system integrators, Now, some of them are branding it with the end product, and some of them are just supplying components to the overall assembly of the solar rooftop. But my broader question here is, what is the right to win of WeGuard and these other players who have entered, let's say, a more power-oriented company like Tata Power or Nadani or Navari, which are the larger players here? And is this tailwind today more driven by there is a very high demand and supplies yet to catch up or, you know, it is here to stay?

Okay. Ram, you want to take this?

Yeah. I think a couple of things. See, one is as far as the electronic segment is concerned, you know, we have broad-based growth across all categories and which is strong. That's the first part of it, right? Coming to the rooftop business, you know, we are still in very nascent stage of the journey in this business, okay? This business is closely associated and, you know, with our inverter battery business, okay? And therefore, it's the reason why, you know, we have looked at this opportunity. The capabilities we have built for that business are relevant for this business, and that's what gives us the right to win. And compared to, you know, a lot of people, you know, who are just buying and trading, you know, we have deeper understanding and expertise, you know, both in electronics and in power storage, okay, which is why, you know, we have entered this place, and our play will be shaped by this outlook, right, in terms of how we will move forward, how we will come, how we will position, yeah. Now, what we are doing in this space is still emerging and developing, and, you know, will play out over some time, yeah, but it's going to be fundamentally rooted And our right to win and our right to compete will be built around the capabilities, the infrastructure and the investments that we have already made, you know, in our electronics vertical and also in the GTM side.

Does the consumer know that it's a V-Guard inverter or a V-Guard battery or a V-Guard solar panel in the rooftop? Of course.

Yeah, yeah, yeah. Of course. This is not just buying from somewhere and taking it into a truck and supplying, right? So this is a complete solution where there is a panel which is, you know, which is branded as Gigaat. There are inverters which are branded as Gigaat. There are distribution boards and boxes which are also branded. We only don't make the brackets and all that because it's, you know, customized. And the SI does the job. And we also, we have the, this model of selling through system integrators for solar water heaters for the last 22 years. So, we have been in this business for a long time, much before it became, you know, fashion.

Got it. And are we doing any manufacturing here, or at this point, we are just outsourcing water?

Not yet, not yet, not yet. But that's where I said, right, see, you know, we are still nascent in this business, and, you know, we are working on various dimensions, you know, in this space, right. So, that will pan out and play out as we move forward, yeah.

Last question here, what are the kind of margins we are making here? Is it similar to the overall category or material lower at this point?

I think it's too premature for us to discuss about margins at this stage in the journey, yeah.

Sure, no worries. I'll come back and look for follow-ups. Thanks and all the best.

Thank you. Participants, to register for a question, you may press star and then 1. Our next question comes from the line of Keshav Lahoti with HDFC Securities. Please go ahead.

Hi, thank you for the opportunity. Congratulations on strong set of numbers. I want to understand one thing. If I see a growth for this quarter, south growth was 51% while north was 23%. And there is a, you know, huge disparity of growth in both the regions. Why is that so? And how will be the trend going forward?

Yeah, so there are two reasons. One is that in the current financial year, the South India experienced extremely strong and continuous and extended summer. So we exited Q1 with very low inventory in our channel. Whereas in northern and eastern markets, there were intermittent rainfall. And actually, the summer product sales were not that great. This is the primary reason. The other reason is, like I said, this is a solar power system is in new category. So, we are more, you know, we are present in more markets in South than non-South. So, a little bit of that is also there.

Both these reasons, you know, are playing a part.

That's it. You got it. Can you give, I know you don't want to tell no detail, but can you give some idea how big is the solar power business right now for you?

I think we already answered this question.

Let me put it like this, right? It is yet not, you know, very large for us, right? So, we are in very early stages of it, and yes, I mean, you know, when you do work growth numbers, it does add something to our overall growth. But I think, you know, it would be good for us to talk about it, you know, maybe a year down the line, right? You know, when our capabilities, capacities, you know, fall in phase.

Understood. Got it. One last question from my side. As you highlighted, you have taken 10% price hike, blended, excluding wires. Can you get some sense? Is it the 10% all across product or is it different product-wise? And whether you have any plan to take price hike from October? And lastly, how much of the cost inflation you have passed on?

Okay, so I'll just come back to the first part. So I think we are, as we stand today, we have a 2% to 3% gap in pricing that is yet to be passed through, and our gross margin impact is also somewhere around that range. But this is a continuously evolving scenario, but I think we are in the process of now taking the current round of price size across categories, And we are very clear that we will take pricing because the quantum of price increases that's happened in the last, you know, 9-10 months is too high for any player to, you know, it will be foolish for any player to absorb. So definitely we will be taking and we are focused on, you know, running a healthy business. The first part of the question was on what was

the range of price increases. Yeah, it varies a bit according to the category, but largely between 6% and 12% price increases. That's what we have seen.

Just one more question from my side. How has the stabilizer and inverter market grown in this quarter? What would be the industrial growth and how VEGAD might have done in this category in this

We have had the strong growth in both the categories.

So the inverter and battery business have grown better than stabilizer business. Like I said, we had some tailwinds from power outages in many parts of the country, with, you know, there is a slight mismatch of supply and demand and overall power situation in the country. So, that way, it has helped. But even stabilizer business has grown. Again, stabilizer business is primarily driven by air-conditioned stabilizer sales. Because, like I said, even in Q2, the weather was fairly warm in the southern part of the country.

This is helpful. Thank you so much.

Thank you. Participants, you may press star and then one to ask a question. The next question comes from the line of Naushat Chaudhary with Aditya Birla Sun Life Asset Management Company Limited. Please go ahead.

Thank you, and congrats on a good set of numbers. First, on the gross margin, the dip in this quarter, we think, is temporary and should eventually come back to our expired number of around 35-36, or should it remain like this for next few quarters?

Sorry to interrupt. Naushant, sir, there is a lot of background noise coming from your side, if you can get somewhere quiet.

Yeah, I'm muted.

So, this quarter, you know, we will be landing, you know, price increases in the market, right, to neutralize this impact. It is, you know, depending on the geopolitical environment, there could be, you know, further movements in commodity, and if that happens, favorable or unfavorable, you know, therefore, that will be a continuous action. I think it just so happens that, you know, because the magnitude of, you know, price increases and the frequency of increases are large and, you know, so there is some lag in the transmission.

I understand. So, meaning there is not much pressure on the raw material side, and if it remains at current market price, should we expect improvement in the gross margin?

No, no, no. As we stand today, we have still a gap of 3 to 4%. So, we need to take at least minimum 3 to 4% to cover the gap as on yesterday. And as we speak, some materials are still going up and down. So we'll wait and see what happens. So it's an evolving situation.

And second on the demand side, how is the channel inventory currently for you? And what is the expectation for the coming summer season and for the festive season?

So channel inventory is normal, right? So, as you can see from our numbers, you know, the velocity, you know, underlying growth has been good across all our categories, and so we, so I would say the channel inventory is normalized. We don't see pressure anywhere at this point in time, and I think, you know, see, the summer, upcoming summer, I think sell-in is yet to happen. And typically, it starts towards maybe, you know, last week of December or in the month. Diwali is yet to come in. So I think October, November is going to be, you know, this month and next month is going to be Diwali. And that's what we are preparing for. And as of now, we are seeing, you know, good off-take. And we feel confident to be able to deliver or sustain growth momentum in the upcoming quarters.

All right, sir. Thank you. All the best.

Thank you. Participants, you may press star and then want to ask a question. The next question comes from the line of Vinay Persib with Investec. Please go ahead.

Hi, good afternoon, sir. Just continuing the previous participant's question on demand. Now, this quarter, we saw 20% plus sort of volume growth, fix of wires. Now, when you mentioned that you're fairly confident of demand momentum sustaining, Would it be safe to assume we will still be in and around that volume growth number even for the second half of the year? Or would it be a case given such sharp price increases, there could be some hit on demand and volume growth should be much lower than what we've seen in Q2?

There are different segments, and different segments can behave differently, okay? So, broadly, you can classify this into three parts. There is, you know, the wire business, right? And, you know, the off-take there will also be influenced by commodity movement, because there can be up-stocking or down-stocking that can happen, vis-a-vis how commodity, you know, copper is behaving, right? Then the other segment is consumer durable. Here we are watchful. Presently, as Mithun was already saying, because of a good summer, we are seeing extended demand in the summer categories, which has benefited us this last quarter, and looks like it will benefit us also this quarter. As far as the remainder part of the portfolio is concerned, I think that will continue to grow.

So I think as far as volume growth is concerned, last year H1, we had a very low base. H2, we grew better. So in that sense, there will be some, you know, moderation and volume growth.

H2 growth will be lower, but we still expect good growth.

Yeah, H2 growth will be lower than H1, but revenue-wise, you know, sorry, volume-wise, maybe it will be like mid-teens or something like that.

So, my second question is on consumer durable ECD segment margins. Now, it's been two consecutive quarters where we have seen a reasonable improvement in terms of our consumer durable margins. For the first half, it's up 400 BIPs. For this quarter itself, it's up 300 BIPs. So, should we assume that worst in terms of ECD margins is behind us and we should be building in from here on as far as margin is concerned and better utilization at our plans, all the CAPEX investments we've done, operating leverage benefits will flow in, continue to flow in.

The reason last year, consumitable margins had a hit was we had a new launch in water heater segment, so there was additional ANP spend for Q2. So, it looked low, but otherwise, that's a base effect issue. So, I think, yes, current margins we should be able to maintain, is what I think.

Fair enough. And so my last question is on Sunflame. Again, we are seeing some bit of demand revival along with benefits of integration playing out. Is it safe to assume that bulk of the work on the integration, Sunflame integration is done, and we should be seeing fairly healthy growth coming in from Sunflame as we expect synergies with WeGuard?

So, I think, yeah, I think there is the work on product, right? You know, that is underway. I think some of the, I think the basic challenge for Sunflame has been that, you know, the product pipeline and the product refresh was not in place, right? And this has, you know, impacted us. But I think the NPD refresh is landing, and it is partly landed, and, you know, there is more to come over the next, you know, 6 to 12 months. And that should help the business to sustain a stronger growth momentum compared to historical past.

So, last, one more question, if I may. We were to launch blighting early this quarter. So, has it happened? Which are the areas, which are the geographies where we have launched? What will be our GTM strategy there? Any comments on that would be helpful.

Yeah, I think the lighting launch in the market is not more than three to four months old. And, you know, so we have still been able to land only maybe 40, 50 percent of the SKUs that we want to bring to market. Thank you.

Thank you so much, sir. Thank you.

Thank you. A reminder to all the participants, you may press star and then one to ask a question. The next question comes from the line of Mr. Archal Lohari with Nuwama Institutional Equities. Please go ahead.

Yeah, good afternoon, sir. Thank you for the opportunity. My questions were, one, you know, in terms of the demand, you did talk about, you know, the extended summer, particularly in South. But in general, how the demand scenario is, particularly in year 3, 4, 5 counts, and, you know, given the drought kind of situation this year, how do you see that playing out? You know, is that a concern or given the products, given the offerings, et cetera, you are fairly clear that, you know, you're looking at a methane kind of a volume growth.

See, typically, VGA tends to do well when there is very little rain. So that has been our experience because we have products like pumps and motors where the demand actually kicks in a lot when the water table goes down. Lack of rains and higher temperatures means more power cuts, so inverter and battery sales goes up, more sale of air conditioners, so stabilizer sales. So generally we are, you know, our demand drivers are like, you know, lack of rain or less rain and, you know, hotter climate.

Got it. Secondly, you know, if you could give us some sense in terms of the ANP spend, you know, for the quarter, you mentioned that 2QFY26 had a little higher spend on the water heater launch, so the spending was higher. Yes, you could help us and be able to support us last month.

No, see, I think overall ANP spends may remain, overall ANP spends may have not gone up or come down. But what I am saying is, last year, the ANP spend in Q2, I think, had happened for water heaters. So the consumer durable margins have looked quite low, and we are seeing a huge improvement. This year, the ANP spend has gone to some other category, maybe in some other buckets. So, I hope you understand.

Yeah, so it's affected with the allocation, depending on...

Yeah, so, for example, when we do an ad for water heaters, it will get, you know, booked in the consumer durable segment. If you do an ad for inverters, it will get booked in the, you know, electronic segment. So, the percentage of spend, nothing much has gone up. I think we are at almost the same level of 2.1 or 2.2%. 2.3. 2.3% of revenue, which is broadly in line with what you're talking about.

I think also, depending on which category we spend, sometimes the timing of that will fall on in one category or the other category. So, you know, that's, I mean, one quarter or the other quarter also, right? So, I mean, these are the two.

Got it. And just last question, you know, in terms of the, you know, the product introduction, is there anything more in pipeline or what we are currently talking about? Are those the ones we will probably look at over the next one, two years?

No, I think there is no, you know, completely new category or something, but, like, if you look at kitchen, there are some extensions happening, like, in terms of air fryers and those kind of things, but they are part of the larger kitchen, you know, portfolio. They may not be very large categories, but, you know, significantly large category would be, you know, definitely lighting, and we are hoping to start with a decent, you know, revenue numbers starting from Q1 of next year. And the other one we have discussed in depth, which is solar power system.

Fair point. Thank you. I'll follow up. Thank you so much.

Thank you. The next question comes from the line of Lakshmi Narayanan with Tunga Investments. Please go ahead.

Yeah, no, thank you. I just want to touch upon.

Sorry to interrupt. Sir, you are sounding quite muffled.

Yeah, is it better now?

Slightly better, sir.

Yeah, so my question is that on the consumer durables, what kind of NPD you actually target and where are we now, and what kind of innovations you have done, And second, on the consumer durables, I also see that we have launched a water plume fair, et cetera. I just want to understand what has been the traction in that particular business. And the third is that as an industry, how things are moving towards e-commerce, and what is your take on the industry sales via, I mean, consumer durables sales via e-commerce,

So, let me start with NPD. Typically, you know, we target to deliver about 21-22% of, you know, let's say, non-wire revenue through NPD. When we say that we take first 12 months sale as the NPD contribution for that year sale, this number may vary between 18 to 23, 24 percent from year to year, depending on the product roadmap, you know, that's NPD is concerned. Some years may be, you know, on the higher side of 24, some years may be on the lower side of 18. Depends on which category and what products, you know, we are refreshing. Question on water purifier. Yeah, I think we have been in water purifier for a couple of years now, going to sell online, and we have perfected now, we plan to, you know, now focus on. The focus has been on e-commerce because it is something that is easy to manage, and it gives us a good opportunity to understand the category and to build the capabilities. The third question was regarding what's our outlook on e-commerce. I think e-commerce, yes, we are under-indexed compared to e-commerce contribution for the industry. We are under index. It's a conscious choice because, you know, going for it is conflicting. E-commerce demand is, you know, environment has not been observed to be great. I think, you know, at an aggregate level, you know, e-commerce has been, you know, probably flat to single-digit growth is what we understand for the portfolio of products that we are in. And probably also, I think, you know, with the buildup in quick commerce, I'm sure the investments from the big platforms will also be getting, you know, refocused, right, and which may also probably be impacting their ability to aggressively grow that channel, right.

And can you give a broad mix of your channel in terms of modern retail or B2B or, you know, general trade?

I think general trade will be about 70% of our revenue and maybe modern trade, e-commerce and, you know, canteen stores, maybe about 30% of our revenue.

Now, on the Sunflame product portfolio, what are the things that are actually, you talked about new products, which sub-segments actually grow growth for us, and then which sub-segments you actually launch new products?

So, I think right now, the big challenge for Sunflame, there are two challenges for Sunflame. I think one is, you know, the last five months, right, because of the issue in Middle East, right, the demand in the short term has shifted from gas tow to induction. The induction portfolio is inside regard, whereas, you know, Sunflame is, you know, strongly dependent on gas tow. So, gas tow sales have been flat. So, obviously, you know, eggs and gas categories are growing, and that's how, you know, strongly, and that's how you are seeing that the 20-plus percent growth in Sunflame. So, that gives you a sense of, you know, where the growth is coming from, yeah.

And which new products, you talked about product refresh in Sunflame, which products you have launched, and what are these? Yeah, yeah.

So, just to give you an idea, right, so the big challenge, you see, Sunflame was a firm which was, you know, dependent on a few people, right, in terms of how the business was driven. I think, you know, the transaction concluded a year after COVID, and I think the couple of years of COVID, and they don't have bandwidth also, the year of the transaction also, I think these three, four years, you know, and the one year post-transaction, This period of four years, right? See, kitchen business sees a high rate of product refresh. Every two, three years, product portfolio is refreshed, right? So, this gap in product refresh which has happened due to COVID and probably due to the enterprise being busy with the transaction readiness and the transaction execution and securing control bias, right? So, that period was the period that was impacted, and then subsequently, we have set up our PRN. The refresh is touching practically the entire portfolio of Sunflame, which is not specific to one or the other category, because the entire range had got dated.

So, Sunflame is primarily, you know, the last category for Sunflame is, you know, gas stove, chimney, and built-in. This is the three last things.

Then on this one last question on the ceiling fans, we had new products in the BLDC and remote control fans, etc. Can you just help me understand in ceiling fans, what is the mix of premium and BLDC and how this segment has actually outgrown in general for us in the first half?

So, I think, you know, BLDC is, of course, driving the growth in FAN, just as for the industry and, you know, similarly for us, yeah. And, you know, BLDC share is also decent, maybe, you know, upwards of maybe 35-40%. So, you know, that's in terms of that. And most of our product work is fundamentally happening on BLDC, right?

Ladies and gentlemen, in order to ensure that the management is able to address questions from all the participants in the conference, we request you to limit questions to two each per participant and rejoin the queue for any further questions. Our next question comes from the line of Deepak Galwani with Unify Capital. Please go ahead.

Hi, sir. Thank you for the opportunity. For the solar rooftop business, can you just highlight, you know, our supply chain and the procurement that we do? Where is it from currently across the, you know, the bill of materials like cells, modules, etc. and the inverter battery as well? Also, in the state that we are present in, I'm sure that there is competition from the likes of the big players like Tata Power and Fujayama. So, how do we really compete with them? That's the next question. And so, this business is predicated on the government policy which gets over this year. So, how should we view the growth of solar rooftops in, say, 28, 29?

So, let me start with the last part of it first. So, you know, as we understand, you know, the, I think the government has set targets and maybe, you know, the nature of the offerings will change plus, you know, generation as opposed to generation today. So, maybe probably the portfolio will change, where, you know, you will probably have a hybrid inverter and maybe a battery storage system also going along with the panel, which will actually become more favorable for people who are having capability and expertise in these domains. So, this is how we see. The second part is, you know, see, WeGuard as a brand has strong brand equity, yeah, in the energy storage and the electrical space, right? So, we have very strong recognition. I mean, across our portfolio, we reach more households than any of an offering standpoint. Right. It's just that, yes, you know, we have come in later in the business, and we should be able to, and, you know, it will obviously take us some time. But I think the familiarity for the trade and the channel with Vigard as a brand is very, very strong. And internally, you know, we have the required capabilities to drive and grow these businesses. Right. Now, coming to the supply chain, right, our supply chain is, as I said, right, you know, our business is fairly nascent, and our supply chain is still forming. And it is also evolving, yeah. It may be good to talk about these things, maybe a few quarters down the line, right, you know, ponds which is more sustainable, yeah.

Okay, sure, got it. And, sir, you mentioned about, you know, mid-team volume growth that you are witnessing. Probably that is because of the near-term summer, but, you know, structurally, it looks like we got gaining market share and that's been a long-term trend. And so, if you can explain the drivers that you have exercised over the last three, four years or a few quarters in the near term, that would be useful. And that is one. And as you do so, sir, your EBITDA margins are still hovering in the 9% to 10% bracket. So, you know, which is a function of commodity, product mix, ANP and OPEX. So, you know, as you grow much larger in size, you know, how confident are you to, you know, get benefits of operating leverage and, you know, go to a 12-13% sort of EBITDA range for your company?

Yeah, yeah. So, look, I think, you know, we as a company are still in, so I think we need to understand, right, you should not be looking at us as a company driving efficiency, right? We are, you know, continuously investing on building our capability and expanding our portfolio. So, building capability means that, you know, we are working at, you know, what is required by us three to four years or five years from now. And we are working on those areas, right? That's building capability, right? Investing, you know, we are also, you know, diversifying across categories, right? So, some of the money that we make has to go into these new areas, right? Putting up teams, setting up internal capabilities, all of this is also going to dilute. So I think finally when you are seeing an aggregate number, you are seeing an aggregate number which is a balance of our investment for tomorrow and what we are doing to drive our today's categories. So if you strip these two apart, then you will probably see the improvement and the operating leverage. Right. But, you know, we are in this business and not just for, you know, this year. Right. So we are in the business for long term. And, you know, we have got to where we have got to. If you go back 10 years back and where we are today, we have got here because we have made these investments, you know, to build that future. And similarly, you know, we will make a balance investments to build our future for the next 5 to 10 years. Right. But all of these new categories, I mean, we are getting into SPS, we are getting into lighting, you know, batteries, you know, all of this is going to require, you know, future investments, right? So, and, you know, and presently, you know, it will get charged into the P&L, yeah? And the other part of it is that, you know, you need to recognize, as we already acknowledge, right, our pricing transmission is, you know, is also lagging. So, I think if the markets were stable, right, then probably, you know, you would see a more healthier margin than, you know, what you are seeing today. I think the way I would ask you to look at us is, you know, look at us and look at us and what has happened to margins over a period of time. So, we have held our margins and we have sustained investment in future growth of the business.

Thank you. The next follow-up question comes from the line of Naushat Chaudhary with Aditya Billasan Life Asset Management Company Limited. Please go ahead.

We have two follow-ups. First, coming back on the margin, so I was just making a strategic decision to increase our insourcing, have invested on the manufacturing, and with scale we were expecting to enter double-digit YFI 28 at EBITDA level. So, with all these investment and initiation of new categories, should we still expect a double-digit kind of EBITDA margin from the company FY28 onwards?

So, if you look at our X1 numbers, we are very close to 9.5% EBITDA, right? So, we are on course, even in this year.

And on the R&D innovation, on our new innovation center, can you, you know, share your thought process in terms of what all activities we do there and what kind of, you know, expectations you have from that infra and how should it strengthen your business today versus two, three years down the line if it achieves what you aspire to?

So, see, the Innovation Center right now is primarily focused on strengthening and building our electronic capability, right, which is a big part of, you know, what is happening in that Innovation Center, although some other categories have also moved. Not all categories have moved there. The Innovation Center is also helping us to strengthen, you know, product reliability because we are also, you know, doing work in terms of, you know, strengthening, assessing and strengthening, you know, portfolio reliability across the company. Mainly, you know, the purpose of setting up the Innovation Center, right, is to expand the capabilities, right, and provide space for, you know, our R&D teams to engage with consumers and bring consumer insight into the product development process, right. As you will see, you know, you know, we are further expanding into a number of categories, right, And the role of electronics is significantly going to expand with the newer categories that we just discussed, including lighting. So it is fundamentally taking into account the needs of these areas. And this is what I was saying. We put up the R&D center probably about three years back or four years back. It is an investment for what is going to come now in the next three, four years. So, some of the earlier questions that were being asked, as a business, we have to invest in today and we have to also invest in tomorrow. And our portfolio creation is still underway. So, I think that's fundamentally the objective there. I think we also have, you know, we also have what I would say a group working out of, you know, Kochi, right, which is working on a long-range innovation, right, where they are working on products, you know, which will have a development cycle of five years, right. So this is also something which is being fulfilled, although maybe, you know, these two capabilities are spread across multiple campuses, yeah.

And in terms of absolute percentage of revenue, which we spend on R&D, how has that moved for you in the last one or two years, and what is the rate currently, and how many people you have in all these activities?

I may not be able to readily give you a number on this because, you know, it is spread across many pockets. We are not presently today, you know, tracking that as a number. I mean, we are doing what needs to be done to move forward because...

So, what is classified as R&D expenditure is there are certain specific things under DSIR and all that, but the actual number of engineers working is far higher. Yes, but we don't really have the data, but like what is classified as R&D is, you know, according to the accounting standard and stuff like that. So there's only certain type of things that is classified, but actually people who are working on R&D, product development, innovation may be higher.

Yeah, significant part of the organization is dedicated towards product capability, right? So, but I think, you know, we have not been tracking the number like that, you know, we're just doing what is required to be done. To deliver our product roadmap and to deliver product capability.

Thank you.

Thank you. Your next question comes from the line of Nikhat Koo with Dollop Capital. Please go ahead.

Hi. Thank you for the opportunity. So, my question is on the electronic segment. So, what has led to this sharp 380-bit decline in electronics margin sequentially in quarter 2?

That is the mix, right? So there are two things. I think there is pricing transmission, because just as there are price increases on other categories, there are price increases in electronic components also. In that, then there are some categories which are in season, and there are some categories which are out of season, right? And when a category is out of season, it takes a bit more time to transmit the price increase. There is a lag on the portfolio. There is also a lag in the electronics category, and there may be some mix, because, you know, compared to last year to this year, we have sold, you know, rooftops, and, you know, the margin structure of a rooftop versus, you know, the other products in the electronic segmentation is slightly different. The combination of these two is the impact that you see.

Okay, and what would be the sustainable margins in electronics, around 18 to 18.5 percent?

About 16-17% is okay. 18% can be in a good year.

18% in a good year, 16% to 17% in a normal year.

Okay, perfect. Thank you.

Thank you. Your next follow-up question comes from the line of Mr. Archul Dohade with Nuwama Institutional Equities. Please go ahead.

Yeah, thank you for the follow-up opportunity, sir. Two quick questions. First, on wires. Given we have the new entrant actually, you know, launched last month, how do you see, you know, in terms of the buyers' growth stroke margins for us, you know, in terms of the, you know, the pockets where we could be at risk? Any color on that would be of great help.

So, I think the new launch is very recent. From what we can gather, you know, not a very significant or substantial portion of materials have reached to a significant number of outlets. So, this is still very early days. I think we'll have to give it maybe a couple of quarters before we can comment. As of now, we can say that there is absolutely no impact, because it's still like, you know, there is no, we are not seeing much activity on the retail. I mean, there is no product in the market yet. Or it's there, but it's very far and few in between. Yeah. So I think, you know, although there was some big bang launch, the actual, you know, getting the product manufactured and getting into the trade part will take more time is what we had.

Got it. Secondly, any update on the Gigadine in terms of the, you know, any benefit out of the investment? How do you see that playing out, especially when there is a scale-up in the battery and the energy?

So, Gigadine is focusing on commercializing the technology into product, and, you know, they have now picked up, I think, maybe three.

Purchases we have from Gigadine?

Not yet. We might have made some small purchases, or we may be in the course of making some small purchases. As we speak, I don't know the exact situation right now.

It may not be material as of now, but I think maybe a few months down the line, there could be some volumes coming.

Meaning they are in the course of a meeting, or they would have just met our first meeting?

Got it. Got it. Thank you so much, sir.

Thank you. The next follow-up question comes from the line of Lakshmi Narayanan with Tunga Investors. Please go ahead.

Thank you. I just want to understand how your distribution or channel expansion has been the first half compared to the last half across the years.

I think, see, typically, you know, we target to add 3,000 to 5,000 customers every year, and I think we are on course with that process, right? There are two types of things we do. One is, of course, to add these new customers, and the other is to add, you know, more categories, you know, with some of the existing customers.

So, these are the two types of things. And in this kind of scenario, I mean, how are you making your products stand out? Because, you know, the quality of products are always at the stakes here. It's always there and everyone claims that. So what is that that you have done or anything you have done that you'd like to highlight?

See, there's always going to be, yeah, so India is an extremely large market. And if you look at the universe of, you know, number of shops or trade channels we have to serve, it's close to 200,000, and we are at about 100,000, a little more than 100,000. So we have a lot of room to grow. And it doesn't matter, some people will come, some people will go. How we look at it, how have we grown vis-à-vis our peers, and we are definitely growing faster, so that should give you some indication. Thank you. I think the solar power and inverter battery business has grown quite well. The stabilizer growth is slightly lower in that mix.

Okay. If I understand correctly, the stabilizer is pan India and the inverter is confined to the south market as of now, right?

No, no, no. I think only solar power systems we are selling mostly in south. The other two, or other two electronic categories are pretty much pan and pan.

Okay, okay. And, sir, you mentioned that the price, around 2 to 3 percent price rise is expected. So, if the demand is good, then electronics, you must have, you know, pass on majority of the price rise. And electrical, as I said, you know, already the volume has increased by flat and also the prices, we have taken a price hike so that 41% negatively compared price hike. So, probably the consumer durable is actually lacking in the, you know, some sort of price hike, right? Is it the right understanding?

To an extent, yeah, there is the quantum of price increase we have to take in consummative rubles is slightly higher than in the other two segments, which is right. But even that has to be passed on. It is not that, because that category also took a lot of price increases in Q1. But Q2 is being an off-season and all that.

If you look at fans, it's an off-season So, Q1, you know, we landed the pricing very aggressively, and, you know, probably, you know, ahead of, you know, the market, and I think Q2, maybe, you know, we have been a bit slower because, you know, in some ways, it did slightly impact our growth in some categories, right? So, Q2, we were slower. So, there is a lag in transmission, and, you know, we will be looking to address it in quarter three.

Okay. Okay. Then, if in the second half, if you take the price increase, because a lot of people have actually taken the price increase. So, can we reach around the double digit margin in the second half?

I think, as Mithun already said, we are almost there, even in the first half. I mean, H1, we should be between, I think, 9.6%, 9.7% to 10%. We are already there, yeah.

Okay, okay. So then we can run up.

Just one point, right? See, please don't only look at quarter to quarter margin. Typically, quarter two will have a lower margin than quarter one because quarter two mix is different from quarter one. Stabilizer sales are lower, right? And some of the high margin category sales are lower in quarter two compared to quarter one. So, for us, right, it is normal margin. It's normal for quarter two to be lower than quarter one. Quarter three and quarter four, progressively, it will get better. And that's the normal mix of margin for the company.

Okay, thanks. Lastly, sir, what is the CapEx plan for this year and a two-term CapEx for this year, full year?

This year, CapEx will be in the region of about 150. 150, Bruce.

Okay, sir. Thank you, and all the best, sir.

Thank you. Ladies and gentlemen, we will take that as our last question for today. I now hand the conference over to the management for closing comments.

Thank you, Ashika and team, for hosting this call, and thank you all for your patience.

Thank you. On behalf of Ashika Institutional Equities, that concludes this conference. Thank you everyone for joining us and you may now disconnect your lines. Thank you.