Detailed Rationale

CRISIL Ratings has reaffirmed its ‘CRISIL A1+’ rating on the commercial paper of V-Guard Industries Ltd (V-Guard).

 

The rating continues to reflect the healthy business risk profile of V-Guard supported by its established market position in the organised market for voltage stabilisers and gradual strengthening of market position in other electrical and consumer durables segments. The rating also factors in the company’s strong brand equity, established distribution network, diversified product profile and healthy financial risk profile. These strengths are partially offset by the vulnerability of its operating margin to volatility in input prices, limited pricing power in a few segments and exposure to intense competition in key product segments.

 

V-Guard registered healthy revenue growth of 18% in fiscal 2024 driven by 17% growth in the electronics segment and 13% growth in the consumer durables segment (together contribute ~55% to revenue) due to steady end-user demand, improving penetration in non-south markets and increasing acceptance of new products. Price hikes of 1-3% to pass on rise in input cost also aided the revenue growth. Growth momentum continued in fiscal 2025 with revenue rising ~17% on-year during the first half of the fiscal. The revenue is expected to grow 9-11% over the medium term supported by increasing urbanisation, diversified exposure, new product launches, strong brand recall and steady market share in key segments. 

 

Operating profitability improved by 130 basis points to 8.9% in fiscal 2024 from 7.6% in fiscal 2023, mainly on account of moderation in input costs, operating leverage benefits aided by healthy revenue growth, change in product mix riding on the premiumisation trend, and continued cost reduction initiatives. The operating profitability improved further to 9.6% during the first six months of fiscal 2025 and is expected at 9.5-10.5% over the medium term, with better operating leverage and continued cost rationalisation measures ensuring strong cash generation.

 

The financial risk profile was healthy, supported by comfortable debt protection metrics. Gearing was comfortable at 0.22 time as on March 31, 2024, with reduction in debt to Rs 291 crore from Rs 420 crore as on March 31, 2023, aided by progressive repayment of loans and steady cash accrual. The networth was sizeable at Rs 1,313 crore as on March 31, 2024, and is expected over Rs 1,530 crore as on March 31, 2025. Steady annual cash accrual of Rs 330-350 crore, moderate annual capital expenditure (capex) plan of Rs 110-130 crore and prudent working capital management will gradually lower the reliance on external debt over the medium term, strengthening the financial risk profile.

Analytical Approach

CRISIL Ratings has combined the business and financial risk profiles of V-Guard, its wholly owned subsidiaries V-Guard Consumer Products Ltd (VCPL) & Guts Electromech Ltd (GEL) and Sunflame Enterprises Private Limited (w.e.f January 12, 2023) as the entities share a common management and operate with significant operational and financial linkages. CRISIL Ratings has also amortized the goodwill of Rs.249.14 crore on acquisition of Sunflame from fiscal 2024 onwards over 5 years.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation

Key Rating Drivers & Detailed Description

Strengths:

Diversified product profile and growing geographic expansion, providing revenue stability

VGIL has regularly launched new products and variants to grow revenue and reduce dependence on a particular product. The share of established products, such as cables and wires, stabilisers and pumps, has reduced over time, while the share of in-house manufacturing has increased, driven by expansion in new product lines such as fans, uninterruptible power supply (UPS) systems, and the recently launched kitchen products, air coolers, modular switches and switch gears. The increasing share of online sales will support revenue stability.

 

To diversify geographic presence, the company is consolidating its position outside south India. The revenue contribution of non-south regions increased to 46% in fiscal 2024 from 15% in fiscal 2010 and is expected to hold steady over the medium term. The acquisition of Sunflame will increase the share of revenue from kitchen appliances and enhance product diversification.

 

Strong brand equity and established marketing network

The V-Guard brand has a strong recall among customers, given its vintage of 45+ years in south India. VGIL is expanding its footprint, and the proportion of revenue from outside south India more than doubled in the five fiscals through 2024. The company’s strong brand equity is complemented by an established marketing network of over 1,00,000 channel partners. The company focuses on aftersales service and has a team of authorised service providers catering to markets across India.

 

The acquisition of Sunflame has provided access to the distribution network and client base of Sunflame, which enjoys strong market position across north Indian markets.

 

Leading position in the voltage stabiliser segment, and improving market position in other electrical and consumer durables segments

V-Guard is the domestic leader in the voltage stabilizer segment with 40-45% market share and has steadily increased its market share in most product categories, including water heaters, fans, cables and pumps. Most of the business segments are highly fragmented and intensely competitive. Hence, while revenue has been increasing, it is difficult to significantly increase market share in these product segments, especially polyvinyl chloride (PVC) insulated cables, and motor pumps. That said, V-Guard’s strong brand equity will help strengthen its market position in the electrical and consumer durables segments over the medium term.

 

V-Guard incorporated a wholly owned subsidiary (VCPL) in fiscal 2022 to manufacture some products in the electronics and consumer durable segments in-house (previously outsourced).

 

Acquisition of Sunflame provided V-Guard access to the former’s manufacturing facility in Faridabad, Haryana, and helped scale up in the kitchen appliances segment, catapulting V-Guard into the league of big kitchen appliance players, thereby driving growth and profitability. Amalgamation/Merger of Simon India operations and GEL gave access to their existing manufacturing facilities, enabling V-Guard to leverage their existing client network and achieve meaningful scale in a short span of time in the newly entered switch and switchgear division and to strengthen market position.

 

Healthy financial risk profile and prudent working capital management:

V-Guard’s financial risk profile is supported by modest debt, sizeable networth of Rs 1,313 crore as on March 31, 2024, and healthy cash generating ability, translating into healthy return on capital employed (RoCE, 18.4% in fiscal 2024), and debt protection metrics. The financial risk profile is expected to remain healthy with commencement of repayment of the debt contracted to fund the acquisition of Sunflame, and strong networth. The debt protection metrics should remain comfortable driven by the management’s demonstrated track record of maintaining comfortable leverage (gearing estimated ~0.1 time by March 31, 2025).

 

Weaknesses

Limited pricing power in segments such as pumps, fans, and cables

The cable and wire, geyser, fan, and pump segments are highly fragmented and have several unorganised players, limiting the pricing power of organised players. Furthermore, players face intense competition from cheaper imports from China. This is reflected in relatively low gross margins in these product categories, despite healthy revenue growth.

 

Susceptibility to volatility in commodity prices and increasing competition

The prices of key inputs such as copper and aluminium are highly volatile. Because of intense competition, part of the increase in input prices has to be absorbed or passed on with a lag, thus limiting the increase in profitability. However, to partly counter this, V-Guard has been continuously rationalising its cost structure by setting up manufacturing units and achieving higher economies of scale to maintain the cost structure.

Liquidity: Strong

Liquidity will remain strong, driven by expected cash accrual of Rs 330-350 crore in fiscal 2025 and Rs 400-420 crore in fiscal 2026 which can comfortably meet capex of Rs 110-130 crore per annum, debt obligations and incremental working capital requirement. Moreover, the company had liquid surplus of Rs 70 crore as on September 30, 2024. V-Guard also has access to fund-based limit of Rs 780 crore.

Rating Sensitivity Factors

Downward factors

• Steep decline in revenues or sustained deterioration in margin impacting cash generation
• Higher than expected debt funded capex or acquisition leading to deterioration in credit metrics; for instance, gearing exceeding 1.2 times, on a sustained basis.

About the Company

V-Guard belongs to a Kochi-based industrial house, promoted by Mr Kochouseph Chittilappilly. The promoter has business interests in the entertainment, hosiery and construction sectors through group companies Wonderla Holidays Pvt Ltd, V Star Creations Pvt Ltd, and Veegaland Developers Pvt Ltd, respectively.

 

V-Guard commenced operations with stabilisers and pumps, and gradually diversified into related products. In fiscal 2024, the company derived 24% of its revenue from the electronics segment, 41% from electricals and 35% from consumer durables and kitchen appliances/Sunflame.

Key Financial Indicators

As on/for the period ended March 31	Unit	2024	2023
Operating income	Rs crore	4862	4130
Reported profit after tax (PAT)	Rs crore	207	189
PAT margin	%	4.2	4.6
Adjusted debt/adjusted networth	Times	0.22	0.36
Interest coverage	Times	11.24	20.45

For the first six months of fiscal 2025, VGIL reported PAT of Rs 137 crore on operating income of Rs 2,771 crore compared with PAT of Rs 98 crore on operating income of Rs 2,348 crore during the corresponding period of the previous fiscal.

Any other information: Not Applicable