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    V-Guard Industries bets big on consumer durables, expansion outside south India

    Synopsis

    The company is increasing the share of in-house manufacturing for market differentiation

    manufacturing idnia_reutersReuters
    The company will be opening four new factories over the coming 12 months – two in Hyderabad and one each in Vapi and Uttarakhand
    Electrical appliances maker V-Guard Industries is betting big on its consumer durables and kitchen appliances division as well as increasing its operations outside of southern India at a time when its core market of power stabilisers is stagnating.

    While companies in general are increasingly outsourcing production to be asset-light and achieve better cost efficiencies, V-Guard has chosen to invest in new manufacturing plants and make most of its products in-house, according to V Ramachandran, the chief operating officer of the company.

    The company will be opening four new factories over the coming 12 months – two in Hyderabad and one each in Vapi and Uttarakhand – to increase the share of in-house manufacturing in its product portfolio. It opened three new factories in the past four years and acquired two companies to increase its manufacturing base.

    V-Guard’s three business lines are electronics such as stabilisers and uninterruptible power supply (UPS) devices, electricals like wires and switchgear, and consumer durables such as fans, water heaters and kitchen appliances.

    “Barring small kitchen appliances and air coolers, we are practically making our entire product range,” Ramachandran told ET. “Our ability to differentiate the products through design and better quality will improve if we get deeper into the value chain. That’s the advantage.”

    Once the new factories become operational, the company would earn more than four-fifths of its revenue from products manufactured in-house. For comparison, Bajaj Electricals outsources the manufacturing of about 80% of its consumer products.

    Meanwhile, the company is also expanding its distributor footprint outside of southern India. Presently about 42% of V-Guard’s revenues come from outside of southern India, which the company is looking to increase to 65%.

    It has invested about Rs 200 crore in its manufacturing and distribution expansion and will be investing Rs 180-200 crore more, as per reports.

    However, analysts remain sceptical about the company’s push into consumer durables and outside of southern India. The consumer durables segment offers high growth prospects but generates the lowest margins among V-Guard’s three business lines and the company also makes lower margins outside of southern India, said a recent ICICI Securities report. However, both strategies help the company diversify and de-risk its business, it said.

    The stabilisers market, where V-Guard is a leader, has stagnated with an improvement in electricity supply in India, growing at a compounded rate of just 1% between 2014-15 and 2019-20, said the ICICI Securities report.

    The report was also sceptical of V-Guard’s brand elasticity in the kitchen appliances segment, the brand traditionally being associated with electricals and electronics.

    However, Ramachandran exuded confidence over scaling up V-Guard to a leading consumer brand with good products and marketing. “I will ask you to watch this space after three years,” he said.

    The stock of V-Guard Industries Ltd closed 0.16% higher to Rs 223 on the BSE on Friday. It has declined almost 15% in the past six months, compared to a 1.25% decline in the benchmark Sensex during this period.


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