V-Guard Industries Ltd. (VGUARD) Q4 FY22 Earnings Concall Transcript

V-Guard Industries Ltd. (NSE: VGUARD) Q4 FY22 Earnings Concall dated May 20, 2022

Corporate Participants:

Naveen Trivedi — HDFC Securities — Analyst

Mithun Chittilappilly — Managing Director

V Ramachandran — Director & Chief Operating Officer

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

Analysts:

Rahul Agarwal — InCred Capital. — Analyst

Sonali Salgaonkar — Jefferies — Analyst

Achal Lohade — JM Financial Institutional Securities Private Limited — Analyst

Ankur Sharma — HDFC Standard Life Insurance — Analyst

Sanjay Awatramani — Envision Capital Services Private Limited — Analyst

Aniket Mittal — SBI Mutual Fund — Analyst

Dhruvesh Shah — JM Financial — Analyst

Hitesh Taunk — ICICI Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the V-Guard Industries Limited Q4 FY ’22 Earnings Conference Call hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Naveen Trivedi from HDFC Securities. Thank you. And over to you, sir.

Naveen Trivedi — HDFC Securities — Analyst

Yes. Good afternoon, everyone. On behalf of HDFC Securities, I would like to welcome the management of V-Guard Industries to discuss the post Q4 F ’22 results. We have with us today the senior management of V-Guard Industries, represented by Mr. Mithun Chittilappilly, Managing Director; Mr. Ramachandran, Director and Chief Operating Officer; and Mr. Sudarshan Kasturi, Senior VP and CFO.

I will now hand over the call to Mr. Mithun for his initial comments. Thank you. And over to you, sir.

Mithun Chittilappilly — Managing Director

Thank you, Naveen, and HDFC for hosting this call.

A very warm welcome to everyone present, and thank you very much for joining us today to discuss the operating and financial performance of our company for the fourth quarter and the financial year ended 31 March, 2022. We are pleased to report a strong performance in the fourth quarter, with revenues crossing the milestone of INR1,000 crores for the first time, delivering a growth of 23.7% Y-o-Y, despite some challenges related to the third wave in the first few weeks of the quarter.

We were able to end the fiscal year on a very strong note. Electricals and Consumer Durables segments achieved strong growth, while Electronics showed a moderate growth. In Q4, we witnessed broad-based contribution from both south and non-south markets that witnessed Y-o-Y growth of 25.4% and 21.5%, respectively. We continue to grow well in the non-south markets, which is enabling the emergence of V-Guard as a strong nationwide brand characterized by a more diversified revenue profile.

On the product side, in the Electric segment, comprising of wire, pumps, switchgears and modular switches, we registered a growth of 32.6% Y-o-Y. In the Consumer Durables segment, where we market fans, water heaters, kitchen appliances and air coolers, Q4 revenues grew by 32.3% Y-o-Y. Our Electronics segment comprising of stabilizers and inverters, there was moderate growth as the demand for summer products have a slow start to the quarter. Margin pressures due to commodity price inflations continue in select categories.

In a competitive market, we have taken large price hikes over the last few quarters. We are actively working on addressing the remaining pricing gaps. In addition, we have instituted cost optimization measures across our operations to support and restore our margins. EBITDA margins were at 10.6% in Q4 FY ’22 compared to 12.9% in Q4 FY ’21. Going forward, we expect margins to be driven by volume growth, pricing actions and better fixed cost absorption, while advertising and promotional spend increased further to normalize sales.

We have made the choice to migrate to new tax regime, enabling us to benefit from the low rates, which effectively — this is effective prospectively from FY ’21. There is a write-back of tax in the current quarter. As a result, profit after tax improved to INR90.6 crore in Q4, including INR13 crores as write-back tax rate guidance [Phonetic]

In February 2022, we invested a further INR15 crores in VCPL or V-Guard Consumer Products Limited, our wholly owned manufacturing subsidiary. This is towards setting up manufacturing projects through VCPL, the first of which has already commenced operations in Uttarakhand. These new facilities will enable us to be more self-reliant in our operations and also derive long-term cost competitiveness.

During the year, we had taken a conscious call to increase our inventory norms. With the risk of supply chain disruptions diminishing, we are now moving towards normalizing inventory levels. There has been some improvement in our working capital position as compared to the end of the previous quarter. We believe we are well placed to meet consumer demand over the coming months, and this will enable us to get back to normal inventory rates, resulting in stronger cash flows from the business in the coming quarters. As we enter a new fiscal year, V-Guard is well positioned to benefit from the resilient consumer demand given a wider product portfolio, expanded national presence and investments in capacity augmentation.

With that, I conclude my opening comments, I would like to thank once again for your participation and would like to hand over the floor to the moderator 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

Yeah. Hi. Good afternoon. And thank you for the opportunity. Sir, first question essentially was on the demand for stabilizers and inverters. You mentioned on the commentary that Electronics growth has been slower. Could you help us understand what is really happening with that right now?

Mithun Chittilappilly — Managing Director

So currently, we had a slow start for the quarter for that category. Even the current year is fully — the category was under tremendous pressure in terms of demand. That is both stabilizers and inverters. Because even in Q1, we had those lockdowns and — because we couldn’t sell anything and they’re extremely seasonal products. But what we’re seeing in April, almost there has been strong demand. So you would have heard about strong demand for air conditioning. There was also power cuts. So, there was strong demand for inverters. So I think this year, we should have a much better number from the Electronics

Rahul Agarwal — InCred Capital. — Analyst

Right. So April, May has been much better than what we saw in four quarters. Is that understanding correct?

Mithun Chittilappilly — Managing Director

Yes. Although we are currently not talking about April, May, but I can say, generally, the demand has been strong in April. May has been slightly weak in south and east, but north and west continues to remain strong.

Rahul Agarwal — InCred Capital. — Analyst

Got it. And the second question was for VCPL. So could you help me with total investment till date in the subsidiary and what has the factory started to manufacture now? And what should we expect over the next 12 months in terms of in-house manufacturing?

V Ramachandran — Director & Chief Operating Officer

So far investment in VCPL is about INR60 crores. This is towards the first plant. That is the plant, which manufactures stabilizers and inverters. That plant has just about started operations.

Mithun Chittilappilly — Managing Director

So what we have started to manufacture is effectively stabilizers. And I think by August or September, we should start the full range of products.

Rahul Agarwal — InCred Capital. — Analyst

When you say full range, you’re basically talking about wires and fans also here?

Mithun Chittilappilly — Managing Director

No, no, no. The plant is to manufacture only stabilizers and inverters.

Rahul Agarwal — InCred Capital. — Analyst

Okay. Got it. And lastly, why has the employee cost come off quarter-on-quarter? That’s my last question. Thank you.

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

Why the employee costs reduced, come off?

Mithun Chittilappilly — Managing Director

Yes. The employee cost has actually gone down quarter-on-quarter. What is the reason for that?

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

It has gone down because there are some write-backs on incentives and variable pay. So that’s one reason. Also the comparative Q3, there was a one-off — there was a one-off cost but we’ve put together.

Rahul Agarwal — InCred Capital. — Analyst

Could you quantify that, please? Like third quarter one-offs and fourth quarter, what is the write-back?

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

There was a INR4 crores one-off in Q3, and there was a write-back of about INR5.5 crores this quarter.

Rahul Agarwal — InCred Capital. — Analyst

Okay. Thank you, sir. I will come back in the queue. All the best.

Operator

Thank you. Next question is from the line of Sonali Salgaonkar from Jefferies India. Please go ahead.

Sonali Salgaonkar — Jefferies — Analyst

Sir, thank you for the opportunity. Sir, my first question is regarding the price hikes. Could you help us quantify your cumulative price hikes on an average in F ’22, that’s full fiscal, as well as any incremental price hikes, which you have taken from first of April or hope to take in the coming quarters?

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

Okay. FY ’22, cumulatively, price hike has been about 10%. That is excluding wires.

Mithun Chittilappilly — Managing Director

Wire will be something like…

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

It will be like 35% — 35%, 40%.

Mithun Chittilappilly — Managing Director

Wire will be about 30%, 35%. And the ex-wire will be about 10% for FY ’22.

Sonali Salgaonkar — Jefferies — Analyst

And any price hikes, which you have taken in Q1 or look to take?

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

There are price hikes in water heaters. In fans, some pricing action has been taken in April.

Mithun Chittilappilly — Managing Director

Yeah. We had taken some price hikes for water heaters and fans. I don’t have the exact number with me because they will be landing in phases. We will send the price list and it will be affected in phases depending upon geography and market.

Sonali Salgaonkar — Jefferies — Analyst

I understand. Sir, my second question is regarding the current demand levels and inventory. Sir, are you seeing the demand has peaked off in May — by mid-May? Or do you foresee strong demand to continue by — within the first week of June? and what are the current inventory levels in the channel?

Mithun Chittilappilly — Managing Director

So the inventory levels in the channel is fairly healthy. I think we are having almost — we are doing secondary tracking. So, we have data of the secondary inventory, almost 75% of the channel partners. We have real-time visibility. So the inventory levels in the channels are not very high. And we ourselves have decided, starting in January itself that we will tone down our inventory levels because we have not faced that much of supply chain shocks as we expected for a few items like Electronics, where we’ll continue to hold inventory. So, our inventory days has gone up by about 15 days on an average and it will come down progressively. Like starting in June, you will start to see some reduction and in September quarter also, you will see some reduction.

As far as demand is concerned, see, we are in a business where almost 50%, 60% of our revenues are coming from demand for products from summer categories. So ensure — you will be reading in paper. We had very high temperatures in March and April and May onwards, southern part of the country has received rains, eastern part of the country has received rains. So demand is according to that. Like I mentioned, the demand continues to be strong in north and west and little bit weak in south and east.

Sonali Salgaonkar — Jefferies — Analyst

Got it, sir. Sir, currently, what proportion of our manufacturing is in-house and what is the capex guidance?

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

About 60% is in our in-house. The second question was?

Mithun Chittilappilly — Managing Director

Capex guidance.

Sonali Salgaonkar — Jefferies — Analyst

Capex.

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

Capex guidance. No, we will stick to what we said already about INR200 crores over three years.

Mithun Chittilappilly — Managing Director

INR200 crores in the next three years. Over the next three.

Sonali Salgaonkar — Jefferies — Analyst

Sir, my last question. What is the tax rate that we should expect going on from here, F ’23 onwards?

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

You can take it as 25%. 25.2%. That is the ticket rate.

Mithun Chittilappilly — Managing Director

25.2% will be the rate. And — yeah, you can take it because it will take some time for VCPL to start generating profits.

Sonali Salgaonkar — Jefferies — Analyst

Got it, sir. Thank you.

Operator

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

Achal Lohade — JM Financial Institutional Securities Private Limited — Analyst

Yeah. Good afternoon. Thank you for the opportunity, and congratulations for the good performance. What I wanted to check was specifically with respect to the Consumer Durables business, if you could talk a little bit about what drove this growth, any particular category or region? And while you have talked about 9% to 10% kind of a price hike impact, any specific number you can provide for the Consumer Durables category, sir? What is the price hike impact?

Mithun Chittilappilly — Managing Director

Okay. So, I’ll just talk a little bit about Consumer Durables segment and then Sudarshan can talk about the pricing part. See, the Consumer Durables segment has had very strong growth. We don’t like to give out product-wise numbers because it’s been an extremely competitive industry, and we don’t want to — no one gives out anymore product-wise numbers. So, we also don’t want to give out. But I can tell you that the major component is water heaters and fans. So if you remember that two years back, we had lost some share in water heaters because we were not able to supply and all that. So, we have had very strong growth in water heaters. We are back. We have bring back the shares we have lost and we are going to continue strong now onwards.

Fan, also, we have had some great new launches. We had mentioned that we’ve started a factory in Uttarakhand about one and a half years, two years back. So all the products coming from our own factory are unique. They are significantly better than what’s available in the market and coming with attractive proposition. So, these have done well, and they have driven growth. Plus, we had a lot of supply shocks in FY ’21. And then in FY ’22, we decided that we’ll keep more inventory, and we have taken advantage of the market [Phonetic]. So that’s basically what I said. The smaller part is the kitchen appliances segment, that has also grown very well. We’ve had some new launches like water purifiers and kitchen tools only in the e-comm channel and they are also continuing to do well.

Achal Lohade — JM Financial Institutional Securities Private Limited — Analyst

Right. And the price hike impact, I wanted to also check in the Consumer Durables segment specifically?

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

Yeah. The 10% applies to durables also. These price increases have been across the board. So more or less all categories.

Mithun Chittilappilly — Managing Director

Yeah. The cost increase in durables has been much more sharper because the durables gives a lot of aluminum. They use a lot of aluminum. They used a lot of [indecipherable] derivatives and packaging. Everything is sort up [Phonetic]. So, I think that the problem with durables has been that there has been sustained increases in commodity. So by the time, we correct commodity prices and move on the next round of hikes are required. So it’s been a constant challenge. The good news is barring aluminum, the rest of the commodities seems to have plateaued. So, this is good news for the segment in the coming years.

Achal Lohade — JM Financial Institutional Securities Private Limited — Analyst

Right. And just a related item, I don’t know if it was covered, what is the incremental price hike required to restore our gross margins?

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

In select categories — see, there are some pricing gaps to the [indecipherable] in select.

Mithun Chittilappilly — Managing Director

Sudarshan, if I can handle. Yes. So, I think it can range anywhere from 2.5 — I mean, I would say 2% to 5%, depending on the category. At an aggregate level, maybe about 3-odd percent, right. So…

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

Yeah. At the aggregate level, it will be about 3%

Achal Lohade — JM Financial Institutional Securities Private Limited — Analyst

And you mentioned something I couldn’t hear that. In April, you have taken certain price hike. I couldn’t understand the quantum, and you said will land in phases depending on market. What was the…

Mithun Chittilappilly — Managing Director

I didn’t have the number with me about the exact quantum of price hike. I said price lists have been announced, increases have been announced. The effective landing will vary. It would have started, but it may not be, but I don’t have these figures with me.

Achal Lohade — JM Financial Institutional Securities Private Limited — Analyst

Got it. And specifically in the Electronics business segment, you mentioned that it was slow. Can you elaborate a little bit? Is it to do with specific to south region and especially the rains in South [Speech Overlap]?

Mithun Chittilappilly — Managing Director

Yeah. Ram, you can take this.

V Ramachandran — Director & Chief Operating Officer

Yeah. So I think — see, as far as Electronics segment is concerned, see, fundamentally, if you look at our overall growth, right, what you would see is that the growth in non-summer categories have been stronger. The summer categories have been flat to very moderate growth, 4% to 5% when you look at the annualized number. And even for the quarter, the growth in the summer categories have been moderate. This is basically because Jan and Feb was weak and the demand for summer categories started to pick up because with COVID coming in, the trade was not in a mode to upstock.

So categories like stabilizers, inverters, even air coolers, which is within the Consumer Durables category or pumps, which is within the electrical category. So, these categories have been depressed till middle of March, right, because the trade was a bit worried about the revival of COVID from Jan. However, as the summer started to pick up, the business started to pick up and we had a strong March.

And that’s the reason why the quarter number was a moderate growth in the Electronics category because Jan and Feb was pulling it back. However, since then, the current quarter, the last 45 days, 50 days, the summer has been very strong, particularly across north and west and the Electronic categories have now recovered to normal growth rates that you typically see for summer. Okay?

Achal Lohade — JM Financial Institutional Securities Private Limited — Analyst

Got it. So does it also mean — sorry, I’m trying to understand a bit more detail here. Is it more of a south problem than really the non-south in terms of this delayed start of summer?

V Ramachandran — Director & Chief Operating Officer

No, the delayed start of summer — I mean, it was not a delayed start of summer really. It is the sentiment in the market post the COVID.

Mithun Chittilappilly — Managing Director

Ram, I will just iterate. Last three years, every year, we sold inventory into the trade. And in the summer, it was either a lockdown or COVID. For example, FY ’21, April was a lockdown. FY ’22, April also, FY ’22 May was a lockdown. So both these years, the trade picked up inventory but they were not able to sell out. So, they were not willing to upstock this time, and they waited for the real summer to happen. So basically, the channel inventory was almost in a mill as we entered summer this year.

Achal Lohade — JM Financial Institutional Securities Private Limited — Analyst

Understood. Understood. And sorry, just one more question. In terms of the gross margins, earlier, we used to talk about 100 bps improvement year-on-year. I know we have gone through a very volatile RM cost inflation scenario. But if we were to assume the RM prices are here to stay, how do you see the gross margins trending over the next three years, four years, given the in-house manufacturing, the premiumization and so on and so forth?

Mithun Chittilappilly — Managing Director

See, we would like to increase gross margin by 1%. But like you, yourself mentioned, we are in an environment where we are taking about 13% to 15% average price increase. Usually, to put it in perspective in a normal year, even with the reasonable inflation, our average price increase will be 2.5% to 3.5%. So, there’s almost four times price increases we have to take. So, I think the way to look at it is like this. So when the raw material prices are plateaued, when the commodity prices are plateaued, at that time, we can start to, again, hope to achieve this 1% improvement in EBITDA margin. Till that time, I think it may be difficult.

Achal Lohade — JM Financial Institutional Securities Private Limited — Analyst

Got it. Thank you. I will come back in the queue for the further questions. Thank you.

Operator

Thank you. The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance. Please go ahead.

Ankur Sharma — HDFC Standard Life Insurance — Analyst

Yeah. Hi. Good afternoon. Thanks for your time. Couple of questions. [Technical Issues]

Operator

Sir, your voice is breaking. I request you to use the handset.

Ankur Sharma — HDFC Standard Life Insurance — Analyst

I am using the handset. Is it better?

Operator

Yes.

Ankur Sharma — HDFC Standard Life Insurance — Analyst

So, thanks. Yeah. So I was saying that just on the demand again, and as you said, — and not just for you for the sector as a whole, we’ve seen price hikes in the region of 12% to 15%, which is quite abnormal, right? I mean, typically, we take about 2%, 3% annually. So, I understand summer has been good. So cooling products would have done well and continue to do well. But from a full-year perspective, do you believe this inflation/price shock, if I may call it, would lead to more of degrowth and volumes to actually start suffering as we get into Q2? Or do you believe the ticket sizes are small, demand is pretty inelastic and therefore, we see a healthy volume growth? Is there any guidance you want to give on top line growth for next year — sorry, FY ’23?

Mithun Chittilappilly — Managing Director

Ram, you want to take this?

V Ramachandran — Director & Chief Operating Officer

Yeah. I think it’s a bit hard at this stage to give guidance on volumes. I think as — in general, we are not expecting because the ticket sizes are small. We’re not expecting demand to drop off. I think, however, when you look at growth and what we have seen in the last two years, right, it is also a function of how this COVID and supply side is interrupting the market. If you look at our last two years, fundamentally, we’ve been impacted on summer categories. And if you see the categories that we sell throughout the year, we’ve been able to recover and our business has gone on.

I think a bit of that pressure has been there on wires because of the slowdown in the building sector. So, I think we will also need to look at these kind of things. So, I think how the demand for housing is going to go and that will, to some degree, also impact some of the electrical categories. But consumer categories, we’re not expecting because most of the categories that we are into, they are not high tickets and the penetration is still quite low and the replacement cycles are short. So, I think we should be okay there.

Similarly, I think if you look at the Electronics segment for our portfolio, I think that — what has become very clear now it’s like this is the fourth year. I mean, we had three consecutive years where the summers were bad. The first year, of course, was because of COVID. The second year was again, COVID. Third year was again, COVID. And this year, the things have really picked up from April, right?

So, I think if you’re going to be looking at our kind of portfolio, I would say that the consumer part should not get impacted. The Electronics part should fundamentally be also dependent on how weather will go. And as also some related categories which are very strongly summer driven, like air coolers and stuff like that. And I think that’s what you should watch for. And as far as the Electrical is concerned, I think you should keep an eye on how the construction industry is moving and what is the uptick for housing demand.

Ankur Sharma — HDFC Standard Life Insurance — Analyst

So on a related — how’s the uptake, if I may ask you, obviously, you would be very well tuned to the real estate market. So obviously, we see good numbers from the listed guys. But I guess, overall, I’m not too sure whether we’re seeing a huge uptrend across the country or maybe just limited to the metros. So in your view, are you seeing that uptake? Are you expecting that to continue? Or do you think that may also start going down on the housing side?

V Ramachandran — Director & Chief Operating Officer

Mithun, do you want to take this one?

Mithun Chittilappilly — Managing Director

Yeah. So, I think — see, if you look at the Electricals business, even with these kind of price increases, there has been — of course, it’s not a huge volume growth. There has been a decent volume growth. And if you look at the non-wire business where the price increases were not so high, that is switchgears and modular switches, there also we are seeing good growth.

So, I think so far, I would say the housing demand is pretty good. We, for example, we don’t sell to builders or large infrastructure players and stuff like that. Our sale is primarily retail. 95%, 97% is retail. So, I would say that, yes, housing demand has been strong across maybe because people are able to borrow money at low interest costs and all that. I think — so the interest cost is something that if it goes up significantly, it could affect or people could postpone their decision to build houses and stuff like that because in India, most people are anyway — it’s all — people take loans to do all these things. So loan, interest and EMI is going to be a huge driver for this.

Ankur Sharma — HDFC Standard Life Insurance — Analyst

Right. Secondly, on the margins, as you also rightly pointed out, we are starting to see RM prices correct or at least flatten out right now and hopefully, going forward, come off also. So are you hopeful of maintaining a double-digit margin, EBITDA margin that is next year? I mean, anything you can comment on that? And specifically on the durables as well, where margins have been a little weak this year, so the low single-digit margin there at the EBIT level. So any specific commentary on margins?

Mithun Chittilappilly — Managing Director

So I think as a company, yes, we should be able to maintain 10% EBITDA double-digit margins because I think, personally, for V-Guard, I think the worst is over in terms of commodity initiation. I’m hoping. I don’t see any more reasons for it to go up further again. And I think it has reached a level where beyond these people are not willing to pay for it. So, I think what we will see is probably a decline in commodity prices. Copper has already started to decline.

So when this happens, two things will happen. There will be margin expansion in all categories. But there will be a demand contraction in wires because in wire, copper reduction means price production, which also means retailers will start destocking. And that would have already started. So it is the same scenario what happened after, I think, 2014, ’15, what happened when there was a decline in commodity prices. So, we can expect that kind of a scenario. So it’s probably going to happen.

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

I think even this year, we are not that far off from [Phonetic] double digits. I mean we’ve gone through the worst. [Indecipherable] situation is still at 9.5%.

Ankur Sharma — HDFC Standard Life Insurance — Analyst

Hello. Can’t hear you.

Mithun Chittilappilly — Managing Director

Sudarshan was saying that even this year with the worst of the commodity price inflation, we are only 0.5% [Phonetic] of 10% EBITDA margin, which is a pretty good number.

Ankur Sharma — HDFC Standard Life Insurance — Analyst

Understood. And just one last one, if I may. On the fan segment, right, I think you’ve done very well. The new factory started, the deco fans, I’m assuming, doing very well for us. I’m guessing this is more like a INR400-odd crore category for us. By when do you think you could touch up INR1,000 crores? Any timelines that you want to share?

Mithun Chittilappilly — Managing Director

No, we won’t like to give out any projections. Sorry.

Ankur Sharma — HDFC Standard Life Insurance — Analyst

Got it. Great. All right. Great. Thank you so much. All the best.

Mithun Chittilappilly — Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Sanjay Awatramani from Envision Capital. Please go ahead.

Sanjay Awatramani — Envision Capital Services Private Limited — Analyst

Yeah. Good afternoon, and thank you for giving me this opportunity.

Operator

Sanjay, your audio is very low. Request you to please up a bit.

Sanjay Awatramani — Envision Capital Services Private Limited — Analyst

Yeah. So all my questions have been answered. Just wanted a confirmation that you mentioned that the wire prices, which have been hiked in FY ’22 was in the range of 30% to 35%, right?

Mithun Chittilappilly — Managing Director

Yes, about 35%.

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

About 35%, correct.

Sanjay Awatramani — Envision Capital Services Private Limited — Analyst

Okay. And excluding wire, I mean, all the categories would be increase of 10%?

Mithun Chittilappilly — Managing Director

Correct. 10%.

Sanjay Awatramani — Envision Capital Services Private Limited — Analyst

Okay. Okay. And just wanted to know, I mean, the capex, which you have guided for INR200 crores in the next three years. So will this start in FY ’23, or some of it is already done?

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

The projects are set over multiple years. Some projects will get done in FY ’23, some in ’24 as well.

Mithun Chittilappilly — Managing Director

I think for sake of [indecipherable], you can — probably pencil in a INR70 crore capex per year, more or less. I think that’s…

Sanjay Awatramani — Envision Capital Services Private Limited — Analyst

Okay. Okay. So INR70 crores every year starting FY ’23, right?

Mithun Chittilappilly — Managing Director

What will happens is these projects [Phonetic] will all start at the same time, and they will all be starting in staggered manner. So, they probably will get spread out.

Sanjay Awatramani — Envision Capital Services Private Limited — Analyst

Okay. Okay. Okay. I think that’s all from my end. Thank you.

Operator

Thank you. The next question is from the line of Aniket Mittal from SBI Mutual Fund. Please go ahead.

Aniket Mittal — SBI Mutual Fund — Analyst

Yes, sir. Thank you for the opportunity. Just a few questions on the Consumer Durables front. Sir, firstly, in terms of our manufacturing facilities that we had opened recently in water heaters and fans, if you could give certain thoughts and light on that in terms of how are they shaping up in terms of production utilization from these two factories and that would be helpful.

Mithun Chittilappilly — Managing Director

So starting with water heaters, which is the first factory we set up. So basically, we were completely dependent on China for imports three years back, three years to four years back. And then when we took the call to have our own manufacturing for glass coaters or pyrolytic [indecipherable] coated tank VAT tanks in India. And since we already had a plant running, a small plant running in Sikkim, we decided to expand it and that has been extremely timely because by the time the plant was not even commissioned when COVID hit. In fact, engineers from China were in Sikkim commissioning the plant when COVID started. So, we got a little bit — we were a little bit hit on that side.

But of course, in the current year, we had full — we were able to extract a good amount of capacity from the plant. If I’m not mistaken, the plant is producing something like at maybe 70% of its capacity in the last year. And this year, probably will fetch something like 85% of our capacity. So that’s the — and the plant primarily produces all types of [indecipherable] coated plant.

Apart from this plant, we have also tied up with OEM vendors in India to make the same type of product because we didn’t want to take a risk with Sikkim being a remote location. So, we wanted to do some risk management. So, we also have started some OEMs, which will support for the next few years. So that’s as far as the water heater business is concerned. And that’s really bounced back, and we are definitely — we have taken back all the shares we have lost.

In terms of the fan business, V-Guard is primarily a company that has pretty good presence in the TPW fans, but our presence in ceiling fans is pretty poor. Primary because we were neither playing in the super economic segment, are nor playing in the premium segment. So with the current plant, we have now started to play in the mid segment range, your decorative segment. And we have today launched — we have three platforms that are being manufactured in the plant. One platform is all the three — I mean, two of them are doing extremely well. The third one, which is the BLDC standard has just been launched. So the fan plant in Uttarakhand is also running at close to about 70% capacity, and then probably in the next 24 months, it will hit 100%.

Aniket Mittal — SBI Mutual Fund — Analyst

Okay. That’s very helpful. Sir, just to understand on the margin front, right? I mean, if I look at the EBIT margins for the Consumer Durables segment during this quarter, it’s about 1.7%. Now, obviously, as these plants are ramping up, there has been a certain amount of fixed cost absorption that will also come in. And I’m assuming there are certain price hikes that are still pending. So, sir, if you could just give some color on that 1.7% number, what is the impact because of the lack of price hikes that you’ve taken? And because of the fixed cost absorption that’s not really come through. So what I mean is if these two activities [Phonetic] sort of come into the number, what would be the margins looking like?

Mithun Chittilappilly — Managing Director

Compared to steady-state operation, the on-cost factory, about 2% will be there in the current year. And then there are some pricing gaps.

Aniket Mittal — SBI Mutual Fund — Analyst

Okay. So 2% plus the price hikes would be like a steady-state.

Mithun Chittilappilly — Managing Director

The 3% pricing gap maybe there. Yeah.

Aniket Mittal — SBI Mutual Fund — Analyst

Fair. And just one question actually on the category itself. I understand you do not want to talk about your growth guidance fully. But maybe within both fans and kitchen appliances, if you could talk about what are the type of initiatives that you’re taking in terms of expanding your product portfolio and distribution reach, then that would be helpful.

Mithun Chittilappilly — Managing Director

Okay. So I think broadly, I will ask Ram to talk, breakup our product side and NPV. That will be better as the company would be to [Technical Issues]. Ram, do you want to touch upon this?

V Ramachandran — Director & Chief Operating Officer

Yeah. Yeah. So mainly, I think our focus has been on developing new platforms to fundamentally increase our — increased market addressability as well as improve the competitiveness of our positions in different segments. So mainly, that is our focus and approach. In fans, I think we have fundamentally been focusing on BLDC, as well as the preparation for the energy efficiency norms that are coming in. And that’s fundamentally where we are working on. And I think we have already launched as Mithun had said, two new platforms, Romanza and — Romanza was the recent one, which was about two months back and before that was Glado Prime.

So, I think these are the platforms, which we expect to drive, particularly Glado, Romanza and we’re talking about the BLDC offerings. So, I think this is what will drive our growth for the next 12 months to 18 months as far as fan is concerned. I think as far as the kitchen appliances are concerned, I think, fundamentally, that again, we have fundamentally been focusing on improving our portfolio presence in terms of other things, subcategories and subsegments in the market, right? And there is a bit of work, which has happened in terms of improving our, what I would say, competitiveness. Fundamentally, both the aesthetic side as well as the efficiency side, right, in terms of cost and margins so that we can be more price competitive. So, these are the two areas where we are fundamentally focusing on. So, I think mainly, our focus is going to be to improve our product capability, market addressability and portfolio competitiveness. So, that’s going to be our fundamental drivers more than, I would say, GTM, which is going to be more ongoing in terms of expanding reach and penetration there.

Aniket Mittal — SBI Mutual Fund — Analyst

That’s fair. Thank you for taking my questions. And wish you all the best.

Mithun Chittilappilly — Managing Director

Thank you.

Operator

[Operator Instructions] The next question is from the line of Dhruvesh Shah from JM Financial. Please go ahead.

Dhruvesh Shah — JM Financial — Analyst

Hi, sir. Sir, V-Guard has always opted for growth with conservative approach, maintaining healthy cash flow and balance sheet. But after many years, we observed that we have reported a negative operating cash flow versus an EBITDA reporting of INR338 crores, right? So as explained by you, this is mainly because of the inventory pile up or inventory or raw material that we are trying to stock up because of the inflation expectation, but the same is observing during 2Q FY ’22 with nine months, but we have allowed this metrics to deteriorate for three straight quarters. So, I would just like to know, is there any change in stance in terms of conservatism or are we changing growth at the cost of balance sheet? Thank you.

Mithun Chittilappilly — Managing Director

Okay. So first of all, we are not stocking raw material because we think the price will go up, so we can have an arbitrage. We are stocking up our raw materials because we got very badly hit and screwed in FY ’21. In fact, we would have lost nothing less than INR250 crores, INR300 crores of revenue and maybe INR100 crores of gross margin in FY ’21 because we do not supply, we lost share, we lost sales. Retailers were screaming at us.

So, we said we are not going to be putting ourselves in that place ever again. So that is why we are stocking up raw material, not to make profit because we think raw material will go up. So please, there is a huge distinction in between these two strategies. The second thing is to put it in perspective, V-Guard, in a year consumes like INR35 crores to INR40 crores of electronics. Today, we are stocking almost INR40 crores, INR50 crores of electronics in our warehouse. That means V-Guard is stocking one year worth of electronic components. And V-Guard is one of the few companies where we do not have a single day of — in a single month of — single month of production because of lack of ships. In fact, V-Guard has more stock than some of the automotive companies in the country. We caught this very earlier on. So that is just to put it in perspective.

Now about balance sheet, yes, so we would have probably — our inventories are probably higher by about INR150-odd crores. I think they will definitely come down. They’ve already started to come down. You would have seen that sequentially itself some INR35 crores or INR40 crores of production happened by March. Another INR150 crores production is expected in the next four months to five months. So definitely this year, we will see a definite positive cash flow. So the reason is we took a strategic call that I think losing market share and having a lot of cash in the bank does not give us any joy. So, we decided that instead of focusing on cash flows, we’ll focus on market share. Cash flows will follow.

V Ramachandran — Director & Chief Operating Officer

If I may just add just one point, actually, our typical finished good inventory, which we operate with as a norm is about 45 days, 46 days. And what we have decided is that to increase our overall inventory by about 30 days, which was one month equivalent, which is — which I think RM plus [indecipherable] together meant that we were carrying about INR300 crores, INR350 crores of shipment [Phonetic], which had converted the cash, which was in our book into inventory.

I think in the hindsight, it is possible to understand how COVID will go. But sitting there, we were sitting at the point in time when we have got it, for example, in moderator [Phonetic], we have actually degrown by about 20-odd percent last year for month of supplies. So as an example, as one category. And there were other categories where we had challenges in the peak of COVID as the business started to recover. We couldn’t participate in that growth because our inventory norms were far too tighter compared to our competitors.

So, I think — that was some of our competitors. So that was the background and context in which we made that call. And I think somewhere in the month of November or December, I think it was about October, I think November last year, we took the call to get back to normal inventory. However, what happens is that as we enter the summer months, right? In general, we stock up because many of our factories are seasonal. And therefore, we need to start producing earlier so that we have adequate inventory for the season. So, I think that we could not transmit the decision that we made to cut inventory to be visible on our — in our inventory numbers. But I think what you will see is between April to July or maybe August, right, we will progressively start seeing our inventory coming back, right? So it’s the kind of time it takes to correct because many of our categories are seasonal. So, I think the correction will happen or reflect only after the season is through.

Dhruvesh Shah — JM Financial — Analyst

Okay. Fair. So can we expect that apart from the coming year’s cash flow, we will also recoup the INR300 crores, INR350 crores EBITDA of this year as well completely, without impacting the growth and the margin for FY ’23? Can we expect that? Or how would you look at it? Or the cash flow impact shall continue for the year or two?

Mithun Chittilappilly — Managing Director

So, I think the INR300 crores of EBITDA will — I mean, EBITDA minus depreciation will convert into cash flow, plus this year’s EBITDA, is that what you are asking?

Dhruvesh Shah — JM Financial — Analyst

Correct. Yeah.

Mithun Chittilappilly — Managing Director

So, we also understand that there is capex also going on. So Sudarshan, do you want to?

Sudarshan Kasturi — Senior Vice President and Chief Financial Officer

Yes. So one is the working capital impact, I think, which we have explained. There is a reason why stocks are high. At some point, we will bring it back to normalcy. Then there is capex. These investments are being made to get long-term cost competitiveness. And these investments help us to either stock exports or bring in-house what we are sourcing from OEMs. And this in turn will give us better gross margin. So, they will be productive. So that’s the reason the investments are being made.

Mithun Chittilappilly — Managing Director

So in terms of that, yes, I think you will see some part of the cash coming back to the earlier level, but some of it will go into capex as well. But if you add back the capex, yes, ideally we should be back to that earlier level.

Dhruvesh Shah — JM Financial — Analyst

Okay. And just the continuation and the last point. So this inventory while selling it, we won’t have to face any major margin or market share or problem out there, right?

Mithun Chittilappilly — Managing Director

Yeah. There is one more point. In FY ’21, you would also see that our debtors were at some 30 days. Now V-Guard has never had debtors at 30 days. It’s always been about 45 days to 50 days. So maybe FY ’21 is not the right cash position to judge. Maybe you can look at the FY ’20 cash and then work on that.

Dhruvesh Shah — JM Financial — Analyst

Okay. Yeah. But the inventories that we are planning to put across on table in coming next six months, that won’t be faced by margin pressure, right? Because we are taking price hikes as well, and we are seeing that competitors are also facing pressure in terms of demand pressure when the prices are hiked and they are losing market share, right? So, they have to sell at lower price because of which the margins are [Speech Overlap].

Mithun Chittilappilly — Managing Director

I’m sorry. I didn’t understand the question.

Dhruvesh Shah — JM Financial — Analyst

The inventories that we are planning to sell in next six months, would there be any margin pressure on the same given we would want that inventory to be out of our books? Or do we don’t expect any push and that will [Technical Issues]?

V Ramachandran — Director & Chief Operating Officer

Let me just answer that, Mithun. Mithun, let me just answer that. I think our — see, our inventory will regularize in normal course as we — our planning cycle is based on normative data based on sales forecast plus safety stock, right? So the inventory will progressively come down because we have only been taking production and we are ordering materials based on the sales forecast. So it will even out.

We — we have not kept — I think Mithun already explained, we have not kept the inventory to take advantage of input costs. And we will not be managing the inventory with that kind of perspective. So, I think as far as input cost increase is concerned, I think that will be transmitted in normal course of business. And that has no bearing on how we are going to set our inventory norm or how slow or how fast we will move it down. So, they are disconnected. I hope I’m clear, right? So…

Dhruvesh Shah — JM Financial — Analyst

This is good. Thank you for the time.

V Ramachandran — Director & Chief Operating Officer

Basically, as a policy, right, as a company, as a policy, I think inventory holding is a function of what service level — what SLA we want to meet for our trade partners and for our internal partners, which is our sales force, right? So based on the fill rate and the service levels that we want to meet to them and there is some safety stock and there is some stock, which is produced for meeting the forecast. So that’s the basically thing. So, we don’t do strategic buying. I think the only exception, I think, was what Mithun had talked about in a couple of instances where, for reasons, that we fear supply security, we are keeping inventory, not for reasons of fluctuation in prices.

Dhruvesh Shah — JM Financial — Analyst

Understood. Thank you very much. Thank you, everyone.

Operator

[Operator Instructions] The next question is from the line of Hitesh Taunk from ICICI Direct. Please go ahead.

Hitesh Taunk — ICICI Securities — Analyst

Thanks for the opportunity, sir. Sir, most of my questions have been answered. I just wanted to know a few things on the product development front. Sir, we had purchased — I mean we had a stake in Gegadyne Energy. And we were planning to launch innovative products in the fast charging through the fast-charging battery technology. Throughout the product categories, be it stabilizer, UPS, also in the Consumer Durable categories. So where are we in that product launches? And as per your definition, what is the current premium product contribution in our top line? And what is the contribution is going to be in the next one or two years through the individual product launches or say, premium product ranges through this kind of technology?

Mithun Chittilappilly — Managing Director

Ram, you want to take this?

V Ramachandran — Director & Chief Operating Officer

Yeah. So, I think we had clarified earlier also, Gegadyne is a technology company at this stage in that journey. It’s a technology start-up. And mainly, they are engaged in the, what I would say, process of technology development and validation. Now this — they will be developing the technology to be ready for commercialization and give pilot products to us. Now where we are at this stage? I think they are in the course of setting a pilot plant and the machinery for this is supposed to come from China. And I think all of their machinery is produced. It is stuck, waiting to be shipped out from there. So, I think that’s where we are now.

I think in the meanwhile, they continue with their development activity so that they are able to move their know-how and the capability in terms of developing their battery technology further. I think the — current, this could again change. It depends on how things in China shape up. I think by August or September, they hope to commence by the — what I would say is the pilot plant. They will be in a position to supply a sample battery pack to us, which we will be able to test, evaluate and then decide how we go forward once we are confident that the technology is ready for large-scale commercialization.

Now the second question, which is related to what is our expectation of contribution of revenue from innovative products? I think, yeah, we have not internally set a target or a goal for how much of the revenue should come from innovative products. I think where the real technology development is involved, it is difficult to define timelines because they are in, what I would say, pre-commercialization stage, right? So, I think it’s a bit difficult to put a number out for what would be the contribution of such products because there is uncertainty also associated with the technology development products, right, sir — projects, yeah.

Hitesh Taunk — ICICI Securities — Analyst

If not the future, sir, what is the current contribution, whatever definition you have of the premium product?

V Ramachandran — Director & Chief Operating Officer

No, so we are not — okay, we are not presently having a definition where we are defining what constitutes premium. See, we are a multi-category business, right? Some are more consumers involving like the Consumer Durable category. And then there are other categories, which are less consumer involving like a wire or a switchgear or maybe a inverter, battery, these are less consumer engaging. So, I think it’s difficult to apply a uniform definition and stretch it across. So we haven’t attempted to do that thus far here.

Hitesh Taunk — ICICI Securities — Analyst

Okay. Sir, my next question pertains to our market share. You have guided that there is a — we have gained a market share. We have regained our market share in the water heater category. Sir, is there any other category, top two, three, four products where we have gained the market share during this quarter also here?

V Ramachandran — Director & Chief Operating Officer

So, I think we have had a strong growth this year across Consumer Durable categories, right? And obviously and naturally, we would have gained market share in those categories because if you exclude the air cooler, I think the growth across all these categories should be close to 44%, 45%. So obviously, we would have gained shares in all these categories. For sure, we have gained share in fans. For sure, we have gained share in water heater this year over last year.

But then in water heater, you may bear in mind, I think Mithun already talked about, the year before, for reasons of supply chain challenges, we had lost ground. And what we have done is we have regained that lost ground and probably traveled a bit more, right? So that’s as far as water heater is concerned. So fan and water heater would be two categories. Kitchen also, I think we are steadily improving our presence and market position in that category here. But we still remain a very small player at this stage.

Hitesh Taunk — ICICI Securities — Analyst

Got it, sir. Thank you for the answers, sir. Thank you very much.

V Ramachandran — Director & Chief Operating Officer

Thank you.

Operator

Thank you. I now hand the conference over to Mr. Naveen Trivedi from HDFC Securities. Please go ahead.

Naveen Trivedi — HDFC Securities — Analyst

Yeah. Just two questions before we end the call. The Consumer Durables business has already reached more than INR1,000 crores sort of a revenue mark, almost doubled in the last four years to five years sort of a timeframe. Just wanted to check what is sustainable growth rate for the business, especially when the — many subcategories of segments have reached to [Technical Issues].

And second question is, at the fiscal, what sort of a EBIT margin is sustainable considering you have seen EBIT margin ranging from 1.5% to 6% in the last four years, five years. So once we reach the stable sort of a demand environment and the RM environment, what is sustainable number we can look for? That’s all from my side.

V Ramachandran — Director & Chief Operating Officer

So Consumer Durable is a — it’s a combination of various categories at various maturity stage. For example, water heater is probably the most important category for us in Consumer Durables. It is a 25 year old category for V-Guard. We are one of the largest players in the country. Our EBITDA margins are very high. But we also have a lot of new categories where we are losing money. So, I think it’s always going to be difficult because we are always going to launch new products. And some of them may come in Consumer Durable. So when you talk about Consumer Durable as a whole segment, it’s going to be discussed because we are going to be talking about products with varying maturity and varying EBITDA margin.

We believe that in the fans side of business, we are still in investment phase. So at least over the next three years to four years, we don’t foresee us making huge EBITDA margins because we want to get to a reasonable size before we start thinking about EBITDA margins in fans. It doesn’t mean that we are losing money. In fact, it’s just that our focus today is on ensuring that we are serving all the segments of the market. We are establishing V-Guard as a great fan option to consumers and then we take away share.

And there are some new categories like air coolers, kitchen appliances, water purifiers and where we are very, very tiny in their market share and there probably — we’re going to be losing money. Water purifiers, we are not losing money because we are selling only on e-commerce and the cost is zero. So, I hope I have answered your questions. So it’s going to be very difficult for us to give you a range. But definitely 1.5% EBITDA margin is not a sustainable EBITDA margin. It’s probably one of the worst. We’ll only see it going up from here.

Operator

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Naveen Trivedi for closing comments. Thank you. And over to you, sir.

Naveen Trivedi — HDFC Securities — Analyst

Yeah. Thank you. Thank you, everyone, for participating on this call. We also thank the management of V-Guard Industries for giving us the opportunity. Any last comments, Mithun?

Mithun Chittilappilly — Managing Director

No. Thank you, Naveen, and HDFC for hosting this call. Thank you also for listening in.

Operator

[Operator Closing Remarks]