July 2016

Interview: Mithun Chittilappily

By DEEPAK AGARWAL

In the past eight years, since its listing, V-Guard Industries has transformed from a south-Indian electrical-appliances powerhouse to a sizeable pan-India player. In conversation with Ground View, Mr Mithun Chittilappilly, Managing Director and the key reason for the company’s stellar performance, talks about the journey so far and the road ahead.

Q : It has been a challenging couple of years for the economy. How has V-Guard’s experience been in this period, and what strategy did it adopt to mitigate the negative effects?

We have seen a challenging macro-economic environment over the last two years – with discretionary spending impacted by spiralling inflation and interest rates, which have only recently started to taper off. In this period, we have focused on building internal capability and cost efficiencies. We have significantly improved our capability in product development and supply chain management. We implemented a focused project on cost efficiencies and supply chain management code named Udaan, the results of which we are seeing in the last one or two quarters. While growth in the last two years has been limited compared to previous years’ trends, we have been able to expand margins, improve our working capital cycle, and generate strong cash flows. In fact, in Q1 FY17 alone, we generated cash flows from operations of nearly Rs 1bn – this is phenomenal when you consider that FY16 (full year) cash flows were Rs 1.35bn.

Q : The company ended FY16 and started FY17 on a high note with profits and cash flows in excellent shape. What facilitated this performance?

The project Udaan was a key factor in improving cash flow by creating a more scientific inventory-management system – it reduced inventory without affecting availability. We have also shored up our commercial practices, whether it is in terms of filtering existing dealers or in new dealer appointments. We are also improving credit control and incentivising dealers to pay faster and are ensuring better use of schemes and discounts.

Q : Operations outside your bastion of southern India have achieved critical mass and seem to be on a firm footing. Could you share any interesting insights about some of the best and most challenging geographies for you?

We are a 30-year old brand in the south markets, but only a six-year old one in others. We are investing in a strong pan-India distribution network, spread over 29 branches nationwide through a network of over 638 distributors, 5,760 channel partners, and ~25,000+ retailers, majority of which are not based in the south. Our plan is to increase more retailers working under existing distributors, thereby increasing revenue contribution per distributor, which will provide significant scope for expansion of returns on existing investments. East is the best performing geography at present. We are also doing well in UP, which has reached critical scale and is profitable. Most challenging has been west, which we hope to address in the next 4 to 5 years.

Q : There was a lot of buzz some time back about channel partners in the electrical industry encountering competition from e-tailing operators. Is this a credible threat or has this abated?

The disturbance of MOP distortion in e-tailing has come down significantly. Now price differences are less and it is not impacting us much. We do not expect this channel to contribute significantly to revenues as our products need final installation/customization depending on user requirement.

Q : After-sales service is something that V-Guard has always been focusing on. Could you talk about some of the initiatives that separate us from our competition? Also, if you could tell us about costs associated with this and how product quality helps to reduce these costs.

We have seen that across categories, the consumer is more receptive to branded products that embody high quality and offer after-sales support. In 2012, we initiated a transformation program called Parivarthan for improving customer service. Before Parivarthan, the entire service operation was managed by a mix of distributors and franchises and was run on a home-grown rudimentary software package. We have moved to Oracle CRM for managing this and we moved our entire service operation to more professionally-run authorised service providers. We close almost all of our service requests within 48 hours, including changing spare parts. We have an army of 2,500 people attending to service and we have benchmarked ourselves with the best in the consumer durable industry, not only in electrical appliances. We run data analytics to see trends and improve on quality for newer generation of products.

Q : The company is extremely well capitalized at the moment with a strong brand recall and distribution channel. What is the next milestone for V-Guard Industries?

Our business outlook going forward is positive. We will increase our thrust on advertising and brand building to gain market share. We will continue to invest carefully in expanding our distribution network and furthering our channel relationships. Through our sustained investments in people, products, and processes, we are putting in place a solid foundation for sustainable long-term growth. Our cash positive balance sheet offers the flexibility to add new product categories as well as pursue inorganic opportunities. We expect to see an improvement in consumer sentiment in the second half of the year with the 7th Pay Commission hike and better rural incomes on a good monsoon. We have an internal five-year strategic plan and we are on course to achieve it. Our ambition is to be top 1-2 in all the categories that we play in.