V-Guard Industries Limited (VGUARD) Q4 FY23 Earnings Concall Transcript

V-Guard Industries Limited (NSE:VGUARD) Q4 FY23 Earnings Concall dated May. 31, 2023

Corporate Participants:

Mithun Chittilappilly — Chairman and Managing Director

Sudarshan Kasturi — Chief Financial Office

Ramachandran Venkataraman — Director and Chief Operating Officer

Analysts:

Deepak Agarwal — Analyst

Rahul Agarwal — InCred Capital — Analyst

Sonali Salgaonkar — Jefferies — Analyst

Achal Lohade — JM Financial Institutional Securities — Analyst

Natasha Jain — Nirmal Bang — Analyst

Aniruddha Joshi — ICICI Securities — Analyst

Swati Jhunjhunwala — BOB Capital Markets Limited — Analyst

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the V-Guard Industries Limited Q4 FY ’23 Results Conference Call, hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Deepak Agarwal from PhillipCapital India Private Limited. Thank you. And over to you sir.

Deepak Agarwal — Analyst

Thank you. Good afternoon, everyone.

On behalf of PhillipCapital India Private Limited, I welcome you all to V-Guard Industries Limited Q4 and Full-Year FY ’23 Earnings Conference Call. Today, we have with us senior management represented by Mr. Mithun Chittilappilly, Managing Director; Mr. Ramachandran V, Director and COO, and Mr. Sudarshan Kasturi, Senior VP and CFO.

Without taking much of time, I would like to hand over the floor to the management for their opening remarks, post which we’ll open the floor for Q&A.

Thank you. And over to you, sir. Thanks.

Mithun Chittilappilly — Chairman and Managing Director

Thank you, Deepak, and PhillipCapital for hosting this call for us.

A very warm welcome to everyone present on today’s call. Thank you for joining us today to discuss the operating and financial performance of our company for the fourth quarter and the full year of FY ’23. I trust all of you have had a chance to refer to our Investor Presentation, which was shared yesterday.

We reported consolidated net revenues of INR4,126 crores in FY ’23, which is higher by 17.9% on a Y-o-Y basis. Excluding revenues from Sunflame, the underlying revenue growth is 16.3% on a Y-o-Y basis, ahead of the CAGR of 11.9% over the period from FY ’19 to FY ’23.

During the year, the South markets grew by 9% y-o-y, while the non-South markets grew by 26.4% Y-o-Y. With continued strong growth from non-South markets, their contribution to overall revenues has crossed 45%, providing the business with a diversified revenue base.

In our Electronics segment, comprising of stabilizers, digital UPS and inverters, we reported revenue growth of 21.9% Y-o-Y. In the Consumer Durables segment, where we market fans, water heaters, kitchen appliances and air coolers, we registered a growth of 20% Y-o-Y. The Consumer Durables segment is achieving meaningful scale in top line, and we are sure that the benefits of operating leverage will soon become visible going ahead.

In the Electricals segment, comprising of wires, pumps, switchgears and modular switches, we registered a growth of about 11% Y-o-Y. FY ’23 has been a difficult year in terms of margins for our industry. After a few challenging quarters caused by significant input cost challenges, Q4 margins have shown an improvement over the previous quarter. The benefit of stable commodity prices and the charge out of high-cost inventory are beginning to flow through. We expect the gross margins to further improve in Q1 FY ’24.

In Q4 FY ’23, we have taken a P&L charge of about INR10 crores towards one-time expenses relating to the acquisition of Sunflame and Simon Electric. The advertisement and promotion spends are also higher as they are steadily returning to the normative levels. PAT in FY ’23 is INR183 crores compared to PAT of INR228 crores in FY ’22. It is pertinent to note that in FY ’22, we had a prior year tax credit of INR8 crores as we switched over to the new tax regime.

In FY ’23, the tax benefit of about INR20 crores arising from the Simon merger has been shown under the other comprehensive income. Adjusting for that one-time expense incurred in FY ’23 and the tax benefit in the base year, the profit after tax is fairly similar level in FY ’22. As we had indicated earlier, we are carrying higher inventories to mitigate risk of supply disruption and would like to revert to normative inventory levels over FY ’23. We have made substantial progress in doing so, and we have released close to INR200 crores worth of working capital with the scope of another INR70 crores to INR80 crores to be released in the following quarters.

During Q4 FY ’23, we completed the acquisition of Sunflame and the merger of Simon. In the case of Sunflame, the initial post-transaction work is complete and the business integration is underway. Hiring for key positions is complete and dealership is now in place for Sunflame. Over the next six months to nine months, we will review the portfolio, strengthen channel presence and undertake interventions in technology and process capabilities.

The Simon merger has been completed with effect from 25th of March 2003. We have started running the business, and have identified areas to focus on the near term. These M&As are all good strategic fit to V-Guard and with multiple levers for synergy benefits. The Board of Directors have recommended a final dividend of INR1.03 per equity share on a face value of INR1.

With that, I conclude my opening remarks and would like to thank Deepak Agarwal and their team at PhillipCapital for hosting this call and would like to request the moderator to open the floor for Q&A. Thank you.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital. Please go ahead.

Rahul Agarwal — InCred Capital — Analyst

Hi. Good evening, good afternoon and thank you so much for the opportunity. Three questions. Firstly on South market. It’s been underperforming for V-Guard for the year for the quarter. What’s your reading, Mithun, on this? Is it more competition? Or is it anything else? Especially wires and durables for fourth quarter looks really low to me.

Mithun Chittilappilly — Chairman and Managing Director

Okay. Yeah, the South market is fairly mature for us. We don’t have that much avenues of growth in terms of distribution expansion. So, most of the growth is organically coming and some of the growth is coming by way of introduction of new products. So with the kind of challenging environment as we saw in the last year with huge inflation and softening consumer demand, there has been — the growth of 9% is what we have achieved. But having said that, even traditionally pre-COVID South was growing at something like 8% to 9% and non-South was growing at something like 22%, and that’s how the average was coming to around 15%. So, we’re doing okay with the South market growth of 9%. It’s not very high, but it’s probably reflective of the fact that it’s a fairly mature market.

And sorry, the second question is?

Rahul Agarwal — InCred Capital — Analyst

No, second question essentially was a reflection of fourth quarter performance also that whilst durables’ top line look pretty low to me, but the more important question here is that since you said in South, we cannot expand distribution more. So, this performance of 9% Y-o-Y, maybe 15%, 20% non-South, does that continue next year? That’s more important to understand.

Mithun Chittilappilly — Chairman and Managing Director

Yeah. I think this was the — of course, as we grow larger in non-South, the base is getting large, but we still have some white spaces even in non-South. So, we are probably only still present in the larger towns and cities in non-South. We’ve not really explored the upcountry markets much because we are building a new brand. So, we still have lot of levers in non-South to grow. And if you ask me non-South market is actually roughly 60% of the total India market and about 35% to 40% is the Southern part of the country. So in that sense, we still have some more way to go in terms of distribution expansion.

Rahul Agarwal — InCred Capital — Analyst

Perfect. Got it. Secondly, on Sunflame, in your press release, you have given consol P&L as well as the ex-Sunflame P&L. I’m just trying to remove the EBITDA difference, that’s INR10 crores. Obviously, there is a one-off sitting there, which is INR10 crores, which is including other expense. Is that correct, Sudarshan?

Sudarshan Kasturi — Chief Financial Officer

So, you’re trying to work out Sunflame EBITDA? Is it? That was INR8 crores for the quarter. That’s the difference.

Rahul Agarwal — InCred Capital — Analyst

But the EBIT reported is INR14 crores. So, I was bit confused how is that?

Sudarshan Kasturi — Chief Financial Officer

No, the Sunflame — we will check that. But what I remember saying was Sunflame revenue…

Mithun Chittilappilly — Chairman and Managing Director

Sunflame revenue was about INR57 crores something and EBITDA was INR14 crores [Phonetic].

Sudarshan Kasturi — Chief Financial Officer

Yeah.

Mithun Chittilappilly — Chairman and Managing Director

The other INR10 crores what you mentioned is one-off is in the V-Guard costs.

Sudarshan Kasturi — Chief Financial Officer

It’s sitting in other expenses of V-Guard.

Rahul Agarwal — InCred Capital — Analyst

Okay. So maybe I’ll repeat my question. What I meant is Sunflame difference is INR57 crores on revenue. The EBIT reported in Sunflame is INR8 crores. Is that correct?

Sudarshan Kasturi — Chief Financial Officer

Yes. Correct.

Rahul Agarwal — InCred Capital — Analyst

Can I get the EBITDA number for Sunflame?

Sudarshan Kasturi — Chief Financial Officer

Just give me a moment. I will tell you.

Mithun Chittilappilly — Chairman and Managing Director

We will come back on that.

Sudarshan Kasturi — Chief Financial Officer

We will come back on that.

Mithun Chittilappilly — Chairman and Managing Director

We will connect offline on this number.

Rahul Agarwal — InCred Capital — Analyst

Okay. And just last question on the debt side. So, my understanding was we had INR400 crores cash, and we were drawing about INR300 crores for the acquisition. When I see the balance sheet right now, it has INR270 crores long term, which I understand is more for Sunflame. But why do we have INR150 crores short term? I just need to get a clarification on that. That’s all. That’s my last question.

Sudarshan Kasturi — Chief Financial Officer

Yeah. No, we took a funding mix like that. We took a long-term funding of INR275 crores and then the short-term is like vendor financing, which is a working capital facility. So, that was the funding which we used.

Mithun Chittilappilly — Chairman and Managing Director

So V-Guard was not using its working capital facility. And we decided to use a mixture of the working capital facilities to a smaller degree and, of course, long term deck for a larger degree. So it gives us some flexibility to keep the debt down as we go forward.

Rahul Agarwal — InCred Capital — Analyst

Got it. Perfect. Thank you so much. All the best for the year. I will come back in queue.

Operator

Thank you. We have the next question from the line of Sonali Salgaonkar from Jefferies. Please go ahead.

Sonali Salgaonkar — Jefferies — Analyst

Sir, thank you for the opportunity. Sir, my first question is again regarding Sunflame integration. You did speak about that a little bit in your opening remarks. But could you throw some more color as to what are the key steps of integration that you propose to take, both in terms of back-end integration as well as front-end integration? And also, if you could share any milestone revenue or cost synergies that you propose to get out of this integration?

Mithun Chittilappilly — Chairman and Managing Director

Okay. Ram, you want to take this?

Ramachandran Venkataraman — Director and Chief Operating Officer

Yeah, Mithun. I’ll do that. I think Sunflame is going to continue as a standalone entity operationally, and it will run independent of V-Guard, so that the two brands are able to compete. I think they also have the different advantages in terms of cost structure and go-to-market. So, I think at this stage, we are keeping these two separate. So that’s the first part.

I think in terms of how we will try to create benefit and impact on Sunflame, I think some of our central capabilities like maybe trade, procurement like, for example, if you may talk about customer service, so these are areas where we will be bringing our capability and know-how to benefit the Sunflame business. As far as — so I think that was your question, right? So, there is no direct integration between Sunflame and Simon, right — sorry, Sunflame and V-Guard, yes. We are going to operate separately.

Sonali Salgaonkar — Jefferies — Analyst

Right. But in terms of, say, production, so V-Guard outsources, if I’m correct, about 50% of the production.

Ramachandran Venkataraman — Director and Chief Operating Officer

No, no. So as far as kitchen is concerned, again, I think in the short term, they continue to run as separate entities. V-Guard is setting up its own manufacturing facility, which is underway in Vapi. And that’s, fundamentally, we are looking at the gas stove and mixer grinders. At this stage, immediately, we don’t have any plans to shift our sourcing of gas stoves to Sunflame. But these are things that we will see because we are putting our capacity in place independent of Sunflame.

Sonali Salgaonkar — Jefferies — Analyst

I understand. And what is the capex guidance for FY’24?

Ramachandran Venkataraman — Director and Chief Operating Officer

Sudarshan?

Sudarshan Kasturi — Chief Financial Officer

Capex will be around INR100 crores.

Sonali Salgaonkar — Jefferies — Analyst

I understand. And any cost or revenue synergies you would like to quantify that you propose to get from Sunflame, say, in your one-off integration or your two-off integration?

Mithun Chittilappilly — Chairman and Managing Director

I think at this moment, we won’t like to quantify anything. But yes, there are going to be synergies in sourcing, freight, packaging, stuff like that. And there may be even synergies by sourcing through Sunflame vendors for V-Guard as well, especially for gas stove and chimneys. So, these are things. At the moment, we are not going to quantify it. But I think for us, the low-hanging fruits for Sunflame will be — Sunflame today has very little presence in e-commerce, which is usually about 25% to 40% of the kitchen business in India today and Sunflame has very little presence in modern trade. Again, maybe 20% of the business in India today. So barring GT, we will be aggressively driving the other channels for Sunflame. Sunflame is very strong in canteen and GT, but the other two channels is missing from its portfolio. So, our focus will be on driving revenue growth for Sunflame first and then working on cost reduction.

Sonali Salgaonkar — Jefferies — Analyst

I understand. Second part of the question, Mithun, is also about the distribution network. Are there any advantages in terms of cross-selling that you perceive because Sunflame is moving on South? And also, if you could quantify what is the distribution of the retailer footprint of Sunflame versus V-Guard?

Mithun Chittilappilly — Chairman and Managing Director

Yeah. So Sunflame follows a slightly different distribution strategy. Sunflame works with super stockists, super distributors. So in each state, they have one or two or in some cases, three very large distributors, where Sunflame sells its products on a cash-and-carry basis and the distributor then stores and gives credit to the retailers in GT and then they have their own sales people on the ground selling it. So it’s a very different system from vis-a-vis mode, working directly with retailers, and we have a very large sales force and we have lot of smaller sized distributors. So that’s slightly different. So immediately, we are not looking to change much.

But yes, in South India, Sunflame’s presence is very low. They get only 15% to 18% of the revenues from South India. So, we are aggressively going to grow the Sunflame business in South. Now, we are in the process of hiring people for Sunflame in South. They have a very small team, and we will be aggressively driving that. Right now, we are not looking to change the way Sunflame is doing its GTM. There are advantages to the way they’re doing it. And also, there are some disadvantages. But at the moment, we are not looking to change it. But at some point in the future, yes, we will try to see what is the best way to reach customers of Sunflame, whether we should follow their old selling strategy or move more in line with V-Guard’s GT?

Sonali Salgaonkar — Jefferies — Analyst

Sure. And just one last question from my side regarding the core V-Guard business. Is there any pricing action that you have taken in Q4 or Q1 up until now? And how do you see the demand scenario and the channel inventory? That’s it from that side?

Mithun Chittilappilly — Chairman and Managing Director

So, there has been a reduction in commodity prices as we move from Q3 to Q4, and we are also seeing further reduction in commodity prices as we move from Q4 to Q1 of this year. So, this means that this kind of is not required that we need to take any more pricing action. I think if the pricing remains stable and the raw material prices are still where they are, we should, in fact, slowly in the next four months back to the pre-COVID levels of gross margin. So it does mean that we have finished that super cycle inflation of commodities and we are back to where it was probably pre-COVID.

Sonali Salgaonkar — Jefferies — Analyst

And demand and channel inventory?

Mithun Chittilappilly — Chairman and Managing Director

Demand is weak. As you can see from our numbers and probably our peers, the demand has slowed down quite a bit in the country. I think the all-round inflation of food, fuel, everything has taken a toll on consumer sentiment and demand. And of course, the constant increase in interest rates also has put some spook in terms of ability for retailers to borrow and all that. Basically, lot of tightening has gone down. So retailers are also not stocking like they used to before this whole thing started.

But we think that maybe Q2 onwards, we should start to see some revival in demand because now fuel prices have come off. We are seeing prices of a lot of the other items have also come down. So, I think once — we are hoping that with this kind of reduction in inflation, hopefully, we will probably enter the reduction in interest rate cycle, which should fuel demand. And I think that sometime mid of next year that — this year just should happen.

Sonali Salgaonkar — Jefferies — Analyst

Sure. Thank you.

Operator

Thank you. We have the next question from Mr. Achal Lohade from JM Financial. Please go ahead.

Achal Lohade — JM Financial Institutional Securities — Analyst

Yeah. Thank you for the opportunity. Can you hear me, sir?

Mithun Chittilappilly — Chairman and Managing Director

Yes.

Achal Lohade — JM Financial Institutional Securities — Analyst

Okay. Sir, the first question is with respect to Sunflame. Is it right understanding that earlier we were talking about acquiring this business and being part of the standalone and now we are talking about running the other independent business, is that understanding right?

Mithun Chittilappilly — Chairman and Managing Director

Yes. So, yes, Ram can go over that.

Ramachandran Venkataraman — Director and Chief Operating Officer

Yeah. Sorry, if I understood your question correctly, you were wondering whether earlier our intent was to merge it and now we are running it separately. Is that what you’re saying?

Achal Lohade — JM Financial Institutional Securities — Analyst

Yes. Yes.

Ramachandran Venkataraman — Director and Chief Operating Officer

No, no, that’s not correct. I think that — the reason that we are running this independently is, fundamentally, each business system has its advantages, right? And therefore, we are keeping them apart, right? The cost structure and the GTM of the two businesses are very different, okay? And that’s the reason why, at least in the near to midterm, right, they don’t run as separate entities because there is a risk that there will be dilution in focus for Sunflame, right? So, we would like to focus and grow the Sunflame business.

As Mithun said, we believe there is a fantastic opportunity to grow the Sunflame business. I mean, it’s an extremely reputed and well-known brand with very, very high top-of-mind awareness and recall in the kitchen category. And there are very strong growth levers like South, like modern trade, like e-commerce. And our focus is — I mean, we think that the value that we can create, right, by focusing on Sunflame is far more than integrating it because integrating it will certainly bring efficiencies, but I think the focus and the ability to grow the business will get impacted. That’s the reason why we’re going to run these two separately initially, right? So, we also have our own kitchen business, and we need to figure how we are going play the two brand architecture to grow more aggressively in the kitchen business.

So, I think it’s fair enough to say that it was never our intent that we will immediately merge that business into V-Guard. It was always our intent that we would like to run these two businesses separately, so that we can focus parallelly. Because what has also been happening is lot of work has happened within V-Guard on the V-Guard kitchen business. As you can see that, we have set up our own manufacturing facility, and we have our own growth plans for, as you know, with all inorganic, right, until it is done, there is always uncertainty, right? So, we had our own plans for the growth of the V-Guard business, and we’ve made investments for the growth of V-Guard business, right? And bringing them together is not — is detrimental to the growth of both these, right?

Achal Lohade — JM Financial Institutional Securities — Analyst

Understood. The second question I had, sir, is it possible for FY ’23 as a whole, if you could give some strategy in terms of the growth in stabilizers, inverters, cables and wires, switches, etc? You may not give the mix, but at least the growth, if it is [Technical Issues] of Q4?

Mithun Chittilappilly — Chairman and Managing Director

So, we don’t give out the product wise numbers, but I can tell you the stabilizer business has recorded a pretty strong growth, and that’s been primarily responsible for driving the growth in Electronics. And the inverters are okay. I mean, like the wire business has done a decent job. It was pretty good in the first 6 months, but last six months, the growth has slowed down because of reduction in copper prices and destocking by retailers. So that’s the broad color I can give on the various segments.

And of course, Consumer Durables, as you know, is the segment with most number of new product categories. So it’s on a low base, growing fast, but of course, margins are a concern. And I think we are able to see some significant improvement in margins in CD even in this quarter and going forward because the margins in both water heaters and fans was impacted in this commodity cycle. And fans, at least we are able to see good improvement in margins going forward. And I think once the water heater season starts, I think there also we’ll start to see improvement in margins as we consume the new lower costs RMs.

Achal Lohade — JM Financial Institutional Securities — Analyst

Understood. Any broad number you would talk about in terms of the growth for FY ’24? Would that be in double digit, high single digit? Any color given the [Technical Issues]?

Mithun Chittilappilly — Chairman and Managing Director

So, we are hoping that we can grow by 14% to 16% in the coming year, that is FY ’24.

Achal Lohade — JM Financial Institutional Securities — Analyst

This is including Sunflame you’re talking, right, which has a….

Mithun Chittilappilly — Chairman and Managing Director

No, no. This is without Sunflame. Sunflame will be an additional number.

Achal Lohade — JM Financial Institutional Securities — Analyst

Right. And within this 14% to 16%, what will drive, if you could give some more clarity on that, sir?

Mithun Chittilappilly — Chairman and Managing Director

So what we can see is the Electronics segment will continue to grow well. I mean, we have had a good start to the year. Last year, we did not have a very good Q1 for electronics, and that impacted at least 6 months growth for Electronics. So electronics segment, it’s rebounding back to its pre-COVID kind of growth. And yes, I think it will have like the CD will grow at a high level and followed by Electronics and then Electricals. So that’s obviously the growth there.

Operator

Sir, the current participant seems to have dropped from the queue. We will proceed with the next question, which will be from the line of Natasha Jain from Nirmal Bang. Please go ahead.

Natasha Jain — Nirmal Bang — Analyst

Yeah. Hi. Can you hear me?

Mithun Chittilappilly — Chairman and Managing Director

Yes. Go ahead.

Natasha Jain — Nirmal Bang — Analyst

Yeah. Hi, sir. Sir, in the Electronics segment, your revenue growth, I am seeing it on a Q-on-Q basis, it has increased sharply. But vis-a-vis, if you see the margins there, that has not really improved. So can you just throw some color on that as to what is not really driving the margins there? Is it battery?

Mithun Chittilappilly — Chairman and Managing Director

No. So in the Electronics segment, there is two large categories, that is the stabilizer business and the inverter business. What happens is in every quarter, the product mix is different. So in Q1 and Q4, we sold lot of air conditioners, stabilizers and inverters and batteries, whereas in Q2 and Q3, it’s mainly the refrigerator and television stabilizer and to a lower extent inverters because it’s off-season for inverters. So the margins for the non-air conditioner stabilizers are fairly high, and that’s why the margins are looking good for Q2 and Q1 — Q2 and Q3 for Electronics. So that’s — so the better way to comparison will be — because product mixes are different in different quarters. So maybe it’s better to compare them Y-o-Y basis in terms of margins.

Natasha Jain — Nirmal Bang — Analyst

Understood, sir. And second question I had was particularly in the battery segment. So sir, in quarter three, the lead prices have increased sharply and we weren’t able to pass on the price. But now in quarter four, we’ve seen that the prices for lead has kind of softened. So sir, can you just throw some color on that as well as to how the inventory is? Do we have high-priced inventory? Or how are we moving there?

Mithun Chittilappilly — Chairman and Managing Director

So battery is a perishable product. So, we don’t carry much inventory in batteries because it’s got a finite shelf life. So typically, in the case of batteries, we try to work with us low inventory as possible. Having said that, if you ask me whether the margins are — so batteries are out of the woods? Not yet. But maybe we’re getting there. But in Q4, definitely, the battery margins were still less.

Natasha Jain — Nirmal Bang — Analyst

All right. And sir, last question. So where are we in terms of manufacturing our own chimney versus importing? So have we ramped up the manufacturing facility in quarter four?

Mithun Chittilappilly — Chairman and Managing Director

So in the case of V-Guard, particularly V-Guard is moving its chimney procurement from China to domestic vendors. V-Guard is not planning to set up a manufacturing for chimney. However, Sunflame is manufacturing chimneys in India. So Sunflame — in case of Sunflame, yes, we are seeing some improvement in margins because they have moved from importing to making chimneys in their new manufacturing facility in Faridabad. So in the case of Sunflame, that is happening. At some point in the future, when the manufacturing systems in Sunflame has stabilized, we will see the possibility of supplying chimneys to V-Guard as well. But at the moment, they are concentrating on only supplying for Sunflame brand.

Natasha Jain — Nirmal Bang — Analyst

Understood, sir. Sir, that is all from my side. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.

Aniruddha Joshi — ICICI Securities — Analyst

Yeah. Thanks for the opportunity. Sir, one question regarding the demand outlook has considerably slowed down. So what is our internal thought process? When do we see the demand recovering back? Any number that you can see maybe two quarters, three quarters? And again, what are the three key important things that V-Guard is doing to, in a way, increase the demand? Also, can you indicate any market share gains or losses in past one year in the major categories of V-Guard as well as Sunflame? Yes. That’s it from my side. Thank you.

Mithun Chittilappilly — Chairman and Managing Director

Okay. So yeah, the demand continues to be certainly weak. But having said that, there was decent sales for stabilizers in March and April. However, after that, we have had some unseasonal rains and it slightly impacted. But I think, overall, we are still hoping to do a decent Q1 for summer products. The demand for fans is still little bit subdued because of the changeovers in new star rating regime, and the fact that the channel is still sitting with inventory of older models, which was pushed out by all the brands in Q2 and Q3. So, that’s continuing to be slightly a drag on the overall fan demand. In terms of what we are doing is, we are constantly working on launching new products. So, we are having some launches for fans in the upcoming quarters, which we think will have some good, positive impact on demand. We are also going to have some launches on water heaters in the upcoming season.

So, I think the — some of the product launches that is going to happen will have some positive impact on product demand. And I think the good news is the inflation has peaked. It has started to come down, at least for the last four months, and it is continuing to. As there is going to be reduction in prices of all commodities, including food and non-food and fuel and everything, we hope that the confidence will come back for consumers to start again to spend money. So, I think that’s probably going to happen in mid of the current financial year. And that’s somewhere in the festive season we are expecting to see some revival in demand, and that’s what we see.

Aniruddha Joshi — ICICI Securities — Analyst

Sure. Sir, and the key market share?

Mithun Chittilappilly — Chairman and Managing Director

Okay. So, we don’t give out any market share numbers. But I can say that in the last two years to three years, V-Guard has gained some market share in fans probably and we have also gained some market share in water heaters. We also had a very low presence in e-commerce business, and we have also probably started to add some market share in the e-commerce side, where traditionally V-Guard was probably a late entrant and a slow mover.

Aniruddha Joshi — ICICI Securities — Analyst

Okay. Sure, sir. Thank you. Very helpful.

Operator

Thank you. [Operator Instructions] The next question is from the line of Mr. Achal Lohade from JM Financial. Please go ahead.

Achal Lohade — JM Financial Institutional Securities — Analyst

Yes. Thank you for the follow-up. I got disconnected earlier. [Technical Issues]

Operator

Sir, sorry to interrupt, but the volume for you on your line is very low. We request you to please use the handset and speak closer to the mic.

Achal Lohade — JM Financial Institutional Securities — Analyst

Is it better now?

Operator

Yes. This is much better.

Achal Lohade — JM Financial Institutional Securities — Analyst

Yeah. Thanks. What I wanted to understand is in terms of the distribution, where are we, what kind of growth are we looking at in terms of number of dealers and retailers? If you could also quantify, as of March, what is the retail and the dealer count?

Mithun Chittilappilly — Chairman and Managing Director

Okay. Ram, you want to take this?

Ramachandran Venkataraman — Director and Chief Operating Officer

Yeah. I think we have traditionally been growing our retail base annually by between 5,000 to 10,000 — sorry, 5% to 10%. So typically adding between 3,000 to 5,000 retailers every year, right? And we are very much on course with that kind of a growth [Phonetic].

Achal Lohade — JM Financial Institutional Securities — Analyst

If you could help us with the current statistics?

Ramachandran Venkataraman — Director and Chief Operating Officer

I will give you a precise number. Maybe we’ll share offline. But it should be in the region of 50,000 to 60,000, right, which should be our current base, right? That’s why I said 5% to 10% and 3,000 to 5,000.

Achal Lohade — JM Financial Institutional Securities — Analyst

Right. I’m sorry. I missed out in the earlier question. Did you also give some clarity on — in terms of the Sunflame, how — what kind of revenues can one look at, given this is the first full year of operation?

Mithun Chittilappilly — Chairman and Managing Director

You are asking about Sunflame?

Achal Lohade — JM Financial Institutional Securities — Analyst

Yeah. Now, I’m asking for Sunflame.

Mithun Chittilappilly — Chairman and Managing Director

So Sunflame, we are expecting to do close to INR400 crores to INR425 crores, somewhere in between that in the current year, hopefully.

Achal Lohade — JM Financial Institutional Securities — Analyst

And the margin what we had in fourth quarter, sir — Sudarshan sir, have you given the EBITDA number like for Sunflame for — or the EBIT number?

Sudarshan Kasturi — Chief Financial Officer

The EBITDA number for Sunflame is INR9 crores. The details are given in the presentation we circulated last night.

Achal Lohade — JM Financial Institutional Securities — Analyst

Okay.

Mithun Chittilappilly — Chairman and Managing Director

So Sunflame will do between 12% to 13% EBITDA, because we are also going to invest a lot of the moneys backed into A&P and strengthen the brand, and a lot of the other investments will go in. So maybe the Q4 EBITDA is looking a little high because there is not much activity in terms of A&P and all that in Q4. But in this year, we will be starting to spend again.

Achal Lohade — JM Financial Institutional Securities — Analyst

Understood. And just one more question with respect to the competitive intensity. I remember in the earlier calls, you have talked about the competitive intensity being way too high in Southern market for some of these categories like wires and water heaters and all given our presence. So if you could talk about how the current scenario is? Are you seeing the intensity is broad-based across the pockets, same intensity? Or is it kind of moderating?

Mithun Chittilappilly — Chairman and Managing Director

So Ram, you want to take this?

Ramachandran Venkataraman — Director and Chief Operating Officer

Yeah. Sure. I think see, in general, I think the growth outlook has been weaker for quite some time now, I mean, over the last few years. And that’s kind of triggered hypercompetition [Phonetic] as every company has got into adjacencies. Yes. So, I think these forces are very much there. We are seeing some broad contours of consolidation because I think continuous years of, what I would say, attempting to break in and not having a healthy outcome is showing in some instances. And I think companies are looking at how to organize towards that objective. But I think, for now, I think the competitive environment stays, what I would say, it continues to stay aggressive. Yes.

But I think we should see some elements of sense maybe in a year or two, maybe 12 months to 18 months off the line. I think — see, all incumbents are trying to hold ground, right? So there is not much scope for — in an environment like today where growth has been significantly lower, right, for the market in the industry compared to historical growth rates with equivalent growth rates. So, I think companies will — companies are holding on to that position, right? And that’s kind of making it difficult to move forward through strategies, which are hypercompetitive in nature. So, I think we should see things getting better, but right now, thing will continue to seem okay.

Achal Lohade — JM Financial Institutional Securities — Analyst

Understood. And impact on the margins? Like earlier, you had put a 100 bps margin improvement, gross margin improvement every year. So just wanted to understand if that stays.

Sudarshan Kasturi — Chief Financial Officer

I think, I mean our primary task this year is to get back to the range what the gross margins were originally. So while in Q4, there is some improvement, some more has to come. We have to first get to where we were and then improve from there.

Achal Lohade — JM Financial Institutional Securities — Analyst

Okay. Great, sir. Thank you so much.

Operator

Thank you. The next question is from the line of Swati Jhunjhunwala from BOB Capital. Please go ahead.

Swati Jhunjhunwala — BOB Capital Markets Limited — Analyst

Yes. Thank you for taking my question. Just one question on the ad spend. So, you ended this year with ad spend of around 2.1% and normalized ad spends are around 4.5%, if you see pre-COVID level. So do we expect this 2.1% to go to 4.5% [Technical Issues]? Or do we expect it to go to around 3%, 3.5%?

Sudarshan Kasturi — Chief Financial Officer

So historically, our ad spend is — hovers between 2.5% to 3.5%. When the times are tough and we are not able to spend, it has come down to 2.5%. And in a normal year, it’s gone to 3.5%. So, obviously, if our gross margins recovers to a pre-COVID level and the environment remains like I’m saying this kind of hypercompetitive activities are not too much there and the environment is conducive, yes, we will — we will probably move to 3% of revenue in the A&P and then progressively it will increase from there.

Swati Jhunjhunwala — BOB Capital Markets Limited — Analyst

Got it. And when you say pre-COVID gross margins, that’s around 33%, if I’m not wrong?

Mithun Chittilappilly — Chairman and Managing Director

Yes. Yes. Around 32% to 33% we used to do, yes.

Swati Jhunjhunwala — BOB Capital Markets Limited — Analyst

All right. Thanks.

Operator

Thank you. The next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.

Natasha Jain — Nirmal Bang — Analyst

Yeah. Hi, sir. Thank you for the follow-up question. Sir, could you just throw some light on the pumps business? The last time you had mentioned that the water level was good and therefore, the demand was subdued. So what’s happening in this quarter?

Mithun Chittilappilly — Chairman and Managing Director

So the pump business had a very rough FY ’23. And we have noticed that most companies have had a similar tough time in terms of lack of growth and of course, which also means hypercompetition and lower-priced model launches, onslaught and all that. We are seeing some improvement in sales in May, which means that after a long time, it’s starting to grow. So, we’ll wait and see what happens. Even we have [Technical Issues] come off from their highs. We had very, very good rain. So water table remain very high throughout the year. Although I’m hoping that this year will be a little better. Having said that, we’ll wait and see. It’s still early days. But there are some indications that this year the pump business should do much better than what we did last year.

Natasha Jain — Nirmal Bang — Analyst

All right. And sir, my next question is more on the broader macro side rather than very company-specific number. So sir, you’ve been continuously telling in your con calls that you want to protect your margins and you do not want to go to a price-cut strategy just to gain market share because that is not sustainable. And you say that everyone else can do it. So after a point, you stop to gain market share really. Sir, I want to know if you are protecting your margins at the cost of your top line, how quickly can you gain back the lost share? Because in this hypercompetitive market, I believe losing market share is more costly than protecting margins. So sir, what’s your take on that?

Mithun Chittilappilly — Chairman and Managing Director

No. I think what I — as a strategy, we try not to initiate price wars. But if some competitors wants to do it, we will match it and we will defend ourselves. For example, we have lost huge amounts of margins in our water heater business by simply trying to defend our market share. And then only defended — in fact, we have gained by some of the lost share over the last three years.

So it’s not that we are sitting idle and waiting for others to take our share. So that’s what Ram said that all the instruments [Phonetic] are holding on to their share and we are doing the same. So it’s not like we are letting anyone take any market share. What I meant to say that we will not initiate price wars or those kind of things to take. Probably, we will not start it. But if someone starts it, we will respond equally back.

Natasha Jain — Nirmal Bang — Analyst

Got it, sir. Got it. Thank you. That’s all.

Operator

Thank you. [Operator Instructions] The next question is from the line of Rahul Agarwal from InCred Capital. Please go ahead.

Rahul Agarwal — InCred Capital — Analyst

Yeah. Hi. Thanks for the follow-up. Just two questions. Firstly, April, May, I’m getting feedback from the company that the weather has been funning [Phonetic] and rain has been there in North and West. We obviously saw the IPL final also disrupted. What’s your view in terms of non-South outperformance? How it has been?

Mithun Chittilappilly — Chairman and Managing Director

Yes. So our numbers in South and East have been pretty good, and North and West has been subdued for summer products. And that’s whatever you have heard and whatever we’ve been reading is correct. North and West practically did not have much of a summer where every fourth day or fifth day, there was rains and so it has been funning. But having said that, Eastern markets and Southern markets have done well, where there was pretty warm weather. Again, this is not across. It’s state specific. So, we have had some mix of good summer and not so warm summer across.

Rahul Agarwal — InCred Capital — Analyst

So does that impact our Electronics because I think AC is quite a large business for us? My sense is AC secondary sales are pretty weak versus primary. You would have seen any issues there or maybe fans, how that’s been?

Mithun Chittilappilly — Chairman and Managing Director

So fan is continuing to be slow for a bunch of other reasons apart from weather, like the higher level of inventory of old models sitting in the channel because of people, other brands flushing out all the old inventory in Q3. That’s continuing to take some impact because the working capital of all the retailers are blocked with the old inventory. So, I think that sell-out [Phonetic], that’s going to be a challenge.

In the case of air conditioner stabilizers, we’ve had a good start to the year in the month of April, but May has been very weak. So we’ll wait and see. It’s not yet over. We still have one more. At least June 15th in North, there is — there used to be summer. So we’ll wait and see. But it’s not been — we have not had — we have had a decent performance by the stabilizers division in April, May.

Rahul Agarwal — InCred Capital — Analyst

Got it. And lastly on Sunflame. So, I got the fourth quarter EBITDA. What I wanted to ask is for full-year fiscal ’23, could you share revenue, EBITDA and PAT for the company for Sunflame?

Sudarshan Kasturi — Chief Financial Officer

The previous periods don’t belong to us. So no [Speech Overlap]

Rahul Agarwal — InCred Capital — Analyst

Yeah. I understand. I understand that. I just need the base.

Sudarshan Kasturi — Chief Financial Officer

We won’t be able to give you the previous — the full-year number. The two and a half months is what we consolidate.

Rahul Agarwal — InCred Capital — Analyst

Okay, sir. No problem. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of Keyur from ICICI Prudential Life Insurance. Please go ahead.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Thanks for the opportunity. Sir, just want to understand, if I’m not wrong, you mentioned about 15%, kind of 15%, 16% kind of growth for the next full year. So looking at these demand challenges, what will drive this growth, particular products or particular geography? And basically, will it be back-ended since near-term demand challenges are there? So if you can just dissect this 15%, 16% kind of growth number.

Mithun Chittilappilly — Chairman and Managing Director

Yes. So that’s the kind of target we set ourselves when we had our Annual Planning Meeting, Annual AOP in the month of March. But we have also assumed that we will have a pretty normal summer. So some part of the growth could get impacted. Yes, the demand environment is a bit weak. Summer has not been very robust. It’s been okay in some places. It’s not been okay in some places. So yes, there is a chance that some of this growth will also come in the last four months, five months as we prepare for the next year summer.

So yes — so, I think we will try to grow 14% to 15%. But yes, there are some challenges through what we see in terms of bad weather and demand, both constricting our ability to grow in the first five months, five months. But I think, going forward, like I said, we are expecting the effect of inflation is kind of wearing down and as people have more money in their hands because the fuel, food and other inflations are coming down. We are hopeful that consumers will be coming back again.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Okay. Our second question on the fan side. You mentioned about the higher inventory because of stocking, because of the rating change. So now, I mean, we have always considered fan as more of, say, necessary than discretionary. So this issue is because of the higher stocking because there are challenges at the secondary sales also. If you can just throw some light on that.

Mithun Chittilappilly — Chairman and Managing Director

I think, see, what happened is we had abnormal sale in Q3. I think most companies have had reported very good sales growth in Q3. Even we — we actually ran out of inventory by October end or something like that. We actually did not have inventory to sell for the old models. So, I think whichever company had a lot of stock of the old model, they just gave whatever kind of discount they wanted and then sold them in the market. Also, there is a price increase from the old model to the new model. So the retailers were very enthused with the delta of buying something at potentially a 20%, 25% discount from what the new model will look like in January. So, that has enthused a lot of these guys to stock up on these products, and that’s what’s creating the slowness in the market.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Consumer sales is happening or there is lull at that?

Mithun Chittilappilly — Chairman and Managing Director

Even there, I think the summer was not as strong, right? So even there, I think, at least in Northern West, the summer has been quite weak. Eastern markets and Southern — parts of South markets, summer has been good and we are seeing secondary liquidation. So the secondary liquidation has not happened, also to the extent that it could have happened in Northern West. So that also is going to play a — delay the demand for fans, yes, humans.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Okay. Understood, sir. Just last one question. So on the Sunflame side, so as you mentioned that V-Guard has kitchen appliances portfolio so has Sunflame. So any timeline on how — any broad thought we would have definitely given before acquiring the company that how we’ll navigate through this? So I mean, what is the medium-term plan for both of these brands and it will be geography-specific? Or do you layer it one over the other? So what is the thought over medium term?

Mithun Chittilappilly — Chairman and Managing Director

Yes. Ram, you want to take this?

Ramachandran Venkataraman — Director and Chief Operating Officer

Yes. I think, at this point in time, we would not like to outline in more detail. I think we are also doing some work because we need to get into the company and the brand and understand the business and the brand and its customer base better, right? So, we are in that stage of the journey. It has been — we will be playing a two brand strategy. So it’s not like it’s one or the other, right? It will be V-Guard and Sunflame. The contours of how we are going to play this, I think that’s something that we are in the course of exploring and discovering, right?

So, I think that is work in progress. I think whenever that we would be in a shape to share, I’m sure we will share. But at this stage, I think we are still in the discovery phase, right? I think mostly, we’ve been focused on taking control of the operation. It was a promoter-driven business side. And taking control has been the primary focus for us in the first six months. And then we will move forward towards, what I would say, how do we compete and how do we grow the combined franchise, right? But yes, I think what we are clear about is what brands are going to coexist and that we will have a strategy and approach that will allow both brands to, what I would say, play in the marketplace, focusing on different consumer segments, right? So that’s going to be our approach. Yes.

Keyur Pandya — ICICI Prudential Life Insurance Company Limited — Analyst

Sir, thanks a lot and all the best to the team. Thank you.

Mithun Chittilappilly — Chairman and Managing Director

Yeah. Thanks a lot.

Operator

Thank you. The next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead.

Natasha Jain — Nirmal Bang — Analyst

Yeah. Sir, my question is more of a follow-up on what the last participant had asked. So sir, in fans, what I understand is the market is very saturated and the demand is mostly a replacement demand, which is usually slower than the first-time demand. Now having that background in mind, just two days ago, Atomberg kind of raised good amount of money. Now understanding that their moat was BLDC, which is now replicated across players, so that moat goes away. So sir, then is it true to assume that there is still a very big market, which remains for fans? How do you see it in the long term?

Mithun Chittilappilly — Chairman and Managing Director

No, fan is a very, very old product. It’s not a new category as such. So, you’re right in thinking and discovering that most of the demand is replacement. Of course, there is some new demand when our people build new houses, people build new apartments, buy new apartments and furnish it, fans will get sold. But a large part is replacement demand. What has been happening in the fan space and across broadly with Indian consumers is, as the value of the houses go up, as the amount of money people are spending into interiors is going up, we’ll be spending on interiors like decorative fans, premium interiors and all that. The average price of the fan is going up. So although the number of fans sold may not go up significantly, we believe the average price per fan will continue to go up and even BLDC is going to increase the prices by 20% to 30% per fan.

So what will probably happen is the market growth for fans, lot of it will come from the value growth of fans. And today, some segment of people are spending money in terms of fans, but there’s still large part of the fans business is still [Phonetic] economy. So whilst what we believe in the next 10 years will happen, surely, the economy segment will reduce to probably, mainly institutions and those kind of customers buying in and then the retail customers are starting to spend more and surely [Phonetic] started to happen. So in the case of fan that is the case. We don’t comment on competitors and all these. But yes, Atomberg is a startup and they are running the business like a start-up. So once they — I mean, we would like to see every company in the business to run a profitable business.

Natasha Jain — Nirmal Bang — Analyst

Understood, sir. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.

Mithun Chittilappilly — Chairman and Managing Director

I would like to thank Deepak Agarwal and PhillipCapital for hosting this call, and thank you all for your patient listening. That’s all from my side. Thank you.

Operator

[Operator Closing Remarks]