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Annual Report Analysis: Hitting the right chords

Our analysis of the FY21 annual reports of Havells, Crompton Greaves Consumer, Polycab, V-Guard and Orient Electric (not rated) points to acceleration of: 1) Digitization efforts across internal and external verticals; 2) Distribution expansion to rural areas, E-Commerce & exports; 3) Product launches tailored for rural customers and premiumization of the portfolio by leveraging R&D; and 4) Supply-chain indigenization, multi-vendor sourcing and finding alternative raw materials. Covid-19 induced cost structure optimization was also a common trend (detailed in Exhibit 4-5).

* Digitization:

Over the last few years, Havells has been leading the charge in terms of digitization, with ~96% orders from the trade currently being generated from its digital portal. Introduction of order booking functionality for indirect channel partners on its Sampark app was a plus. V-Guard stepped up its efforts and rolled out four pillars for digital strategy, focusing on distribution management, secondary sales, mobile app for instore promoters, and finance & marketing transformation.

Crompton extended the dealer portal facility to ~400 channel partners and unified all of its sales-related data. It is working on making this platform a ‘one-stop solution’ for direct channel partners, with plans to develop a Go-to-Mobile approach on the portal. Polycab continued its endeavors, with initiatives to integrate the supply chain, including warehouses and logistics. A dealer portal (P-connect), along with a mobile supply-chain app, was developed and unified with ERP, enabling ‘on-time-in-full’ deliveries up to 95-98%. Orient doubled down on digitization and accelerated the implementation of several initiatives.

* Distribution expansion:

Increased focus on E-Commerce and rural distribution was common across companies, with dedicated product launches, extension of offerings on both channels and exclusive merchandise launches on E-Commerce platforms from VGuard. In order to expand presence, some companies have also set up separate distribution teams for E-Commerce, as the channel saw robust revenue growth in FY21. Crompton, for the first time, stated plans to start exporting Fans to the SAARC region. Havells believes that its international business is at an inflection point.

* Product launches & premiumization:

Keeping rural distribution augmentation in mind, companies launched dedicated products while also expanding the overall portfolio. Premiumization, better features and aesthetics, and product differentiation were of prime importance in newly introduced products. R&D investments were scaled up– Crompton (+27% yoy) led the pack for the second year in a row.

* Supply chain:

Commodity super cycle has been an eye-opener for all the companies. Attempts for finding and evaluating an alternative to copper and de-risking through reducing dependency on imports have become a priority. In addition, digitization and integration of the supply chain to drive efficiencies, build-up of a domestic vendor base, and enhancing in-house manufacturing took center stage.

* Cost optimization:

Across the board, there was a dip in other opex in the range of 10- 23% vs. FY20 and 1-35% vs. FY19, with Orient Electric recording the highest fall (83% of Orient’s other opex declined 25%/36% vs. FY20/FY19). The most common and obvious drop, across companies, was in expenses related to ad & promotion, traveling and rent, while CSR and insurance expenses saw an increase. In terms of employee costs, Orient witnessed the maximum reduction over FY20 and FY19, whereas Crompton and V-Guard saw the highest uptick. Orient had the weakest gross margin with a contraction of 155bps/430bps over FY20/FY19, while Crompton fared the best with a mere 9bps contraction over FY20.

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