Butterfly Gandhimathi Appliances Ltd Management Discussions

Indian macroeconomic overview

The Indian economy has shown strong growth in the F.Y. 2023-24 given the improved consumer demand, proactive government policies, and momentum in key sectors like construction and manufacturing. The GDP growth in the third quarter was aided by a strong uptick in private investments. The index of industrial production of consumer durables and improved automobile sales indicated a revival in private consumption. The improvement in GST revenues and ease in retail inflation indicate GDP growth trajectory.

Outlook

While Indias economy remains steady, the governments response to global economic shifts and focus on strengthening domestic production and enhancing infrastructure shall be key drivers for 2024-25 economic growth. A synchronous global recovery next year will likely help improve exports while improved capital flows will drive higher investment and consumption. The rapid growth of the middle-income class has led to rising purchasing power and even created demand for premium luxury products and services.

Indian household appliances market

The market for household appliances in India has grown substantially in recent years because of increasing households, change in lifestyle, increasing importance for quality products. While the overall household appliances segment saw improved demand, but it was a challenging year for kitchen appliances. However, the kitchen segment witnessed popularity of premium, energy efficient and connected kitchen products. Online channel has been one of the biggest growth drivers for the industry wherein new categories are seeing significant traction.

Strengths

Expanding national market with a substantial customer base High-tech innovations steering product modernisation Widespread distribution networks and retail presence Established brands with proven loyalty

Opportunities

Expanding demand for energy-efficient and environmentally friendly appliances Rising urbanisation and lifestyle shifts Growing middle-class population and disposable earnings Penetration of untapped rural markets

Weaknesses

Purchasing power issues in specific market divisions Limited penetration in rural areas and lower-income households Mounting rivalry among recognised players and emerging brands

Threats

Volatile economic conditions and variations in consumer spending patterns Rapid technological advancements making certain products outdated Changing government regulations and policies affecting the industry Competition from other players

Company overview

Since its inception in 1986, Butterfly Gandhimathi Appliances Limited ("BGMAL/ Butterfly") has been a leader in the domestic kitchen appliances industry, known for its focus on quality and innovation. The Company has achieved several industry-first milestones and is recognised as a pioneer in the field. BGMAL has a strong presence in both domestic and international markets. In March 2022, Crompton Greaves Consumer Electricals Limited ("Crompton") acquired a majority stake in BGMAL. This strategic investment by Crompton will likely enhance the Companys market position and broaden its product range. Additionally, it will create synergies, simplify the corporate governance structure, and align the interests of both the companies stakeholders.

Products

Butterfly offers a wide range of domestic kitchen appliances, including LPG stoves, mixer grinders, wet grinders, pressure cookers, flasks, water bottles, kettles, and chimney hobs, made from stainless steel and aluminium.

Technology

The Company always works towards improving its processes and stay ahead of the competition. It invests in the latest technologies, including cutting-edge machinery, innovative materials, and automation, to ensure efficiency and excellent quality. Additionally, the Company understands the importance of digital acceleration and invests in technology and data analytics to make operations smoother, improve supply chain management, and enhance customer experiences. These strategic investments show the Companys commitment to staying ahead in a technology-driven market.

Presence

The Company sells high-quality products both in India and internationally across numerous countries. It holds a dominant position in the southern Indian market across core categories. The Company aims to maintain competitiveness through a focus on innovation, improving customer satisfaction, and delivering excellence. It takes pride in meeting varied consumer needs by providing exceptional value and quality.

Safety

The Company prioritises the safety and well-being of its employees. The Company formed a safety committee to ensure workforce safety and nominated safety champions across all departments. Monthly safety reviews and reminders of safety protocols are conducted, along with providing high-quality personal protective equipment and continuous employee training. These efforts have resulted in a significant decrease in safety incidents. The Company also emphasises compliance with all relevant laws and regulations, establishing a framework to ensure timely adherence.

Manufacturing

The Company has modern manufacturing plants that make a variety of high-quality domestic kitchen appliances. The Company has been working towards improving efficiency, product quality, and productivity in all its plants to become a leading player in the Indian market. These efforts show the Companys commitment to offering its customers top-quality products with great care and attention to detail.

Sales Performance

Following the COVID-19 pandemic, there has been considerable change in how Indian kitchens operate and in consumers purchasing journeys. BGMAL has renewed its approach of connecting with consumers at various touch points. During the year under review, the Company focused on strengthening its presence in traditional trade in the South market and expanded its reach in the Non-South market, which has shown positive results. Butterfly has also streamlined product offerings, reducing non-core segments while strengthening the core category.

As a result, the growth momentum in the retail channel continues, and the market share in core categories remains robust. The share of premium products, led by new product launches, continues to improve. One key milestone of this year was the launch of the Shakti series, Indias first star-rated gas stove, and new mixer grinders. Acknowledging the space for improvement and the strength of the Butterfly brand, the Company aims to speed up the launch of new products and extend product life cycles. Strategic dealer engagements and pre-season meets have been vital in building market confidence and will continue to be pivotal to our strategy.

Operations

The Company focuses on thorough understanding of the latest concepts, tools, and techniques to ensure that its project-focused approach is sustainable and consistently delivers high quality. This approach helps the Company to reach its goals and establish new industry standards. The Company aims to improve its operations by increasing productivity, and reducing losses. To achieve this, the Company has established clear performance goals and is actively working on various projects at different stages of completion.

Financial Performance

The Companys revenue stood at H93,128.25 Lakhs compared to H1,05,655.24 Lakhs in F.Y. 2022-23. The EBITDA stood at H3,223.11 Lakhs in F.Y. 2023-24 compared to H10,311.18 Lakhs in F.Y. 2022-23. The Company reported a PAT stood at H738.98 Lakhs in F.Y. 2023-24 compared to H5,166.58 Lakhs in F.Y. 2022-23. Certain factors, including the standardisation of operating procedures between Butterfly and Crompton and certain one-time settlements with channel partners, impacted the Companys performance last year. Furthermore, the full-year liability of extended producer responsibility (EPR) of H120.00 Lakhs crystallised in Q4 of F.Y._2023-24. The re-organisation of bottles and flask sourcing resulted in an impact of H 211.54 Lakhs in Q4 of F.Y. 2023-24. The Boards Report for ready reckoning includes a summary of operating results. The Company has made suitable decisions to improve cash flow and ensure enough working capital availability. This method will help the Company stay financially resilient and thrive in the long run.

Sustainability

The Company seeks to create high-quality products that are energy-efficient and sustainable. This dedication demonstrates its long-term goal of reducing environmental impact. The Company is committed to building a cleaner, more sustainable future by prioritising sustainability and energy efficiency. Its focus on innovative, high-quality products aligns with its promise to minimise its environmental footprint.

Risk Management

The Company intends to achieve its essential and lasting goals through established a robust risk management policy, framework, and process. These steps help find, handle, and lessen potential risks effectively, protecting the Companys interests and ensuring its long-term success.

The Company manages risks by making well-informed decisions at all levels. It uses bottom-up and top-down approaches to cover all business areas. The risk management team systematically identifies critical risks and regularly reviews mitigation actions. The Risk Management Committee oversees the effectiveness of the Risk Management Policy, Process, Structure, and Mitigation Mechanism. In addition, the Audit Committee oversees financial risks and controls, and the Internal Management Audit team assures the Board of Directors that the process is effective.

Internal Control Systems

The Company has implemented internal control systems and management to protect and use assets properly. It uses an Enterprise Resource Planning (ERP) system to provide the senior management team for data-driven insights. This approach helps monitor every aspect of the business in real time and make more informed and faster decisions. The Company follows all accounting standards and guidelines for keeping financial records and reporting. The Companys internal control systems are in place to ensure that business operations run smoothly and comply with laws, regulations, and policies while providing the reliability of financial reporting. The Internal Auditors monitor and report on the effectiveness of the internal control systems in different areas of operations.

Human Resources

Our employees play a crucial role in todays ever-changing business world by developing new skills, creating plans, building robust systems, and nurturing a growth-oriented organisational culture. The Company had 1,217 employees as of March 31, 2024.

Key initiatives

Cautionary statement

In accordance with the relevant laws and regulations, certain statements in the management discussion and analysis report relating to the Companys goals, forecasts, outlook, expectations, and estimates may be considered ‘forward-looking statements. Actual outcomes could differ from these predictions, expectations, and other statements, whether explicit or implicit. The operations of the Company could significantly change depending on several variables. These include environmental factors, macroeconomic factors that affect supply and demand, governmental policies and taxation, natural disasters, and other factors that the Company has no direct control over.