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Ladies and gentlemen, good day, and welcome to the Bajaj Electricals Q1 FY '23 Earnings Conference Call hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Deepak Agarwal from PhillipCapital India Private Limited. Thank you, and over to you, sir.
Thanks. Good evening, all. On behalf of PhillipCapital India Private Limited, I welcome you all to Bajaj Electricals Limited Q1 FY '23 earnings call. Today, we have us management represented by Mr. Anuj Poddar, MD and CEO; Mr. EC Prasad, Chief Financial Officer.
Without taking much of time, I would like to hand over the floor to the management for their opening remarks, post which we will open the floor for Q&A. Thank you so much, and over to you, sir. Thank you.
Thank you, Deepak. Good evening, everyone. Thank you all for joining us on a late Friday evening on the eve of a long weekend. So I know you're all looking forward to the weekend, but thank you for being with us today for this call. I'll just make a few short opening comments. I'm sure you've got a chance to go through our results, as well as the investor deck that we released. I'm pleased to report that we had a healthy and good quarter and it's a strong bounce back from the last 2 Q1 that we've had. Just key headlines from my side, consumer business has continued to demonstrate good traction with good growth of about 58% y-on-y basis. Our EBIT has bounced back in the Consumer business unlike a soft quarter that we had last year in Q1, maintaining our growth rate on and the focus on EBIT, this is on the Consumer business.
Importantly, for the EPC segment, this marks the second quarter in running that we demonstrated profitable breakeven results. We hope to continue to maintain that trend going forward from a balance sheet and cash flow perspective, which we've always been very focused on. And we've continued our track record of demonstrating strong cash conversion and positive cash flow with cash from operations amounting to about INR 166 crores. While we talk about the operational aspects of all the business segments and the product categories, which we continue to do well. I do want to call out our Illumination business, which continues to gain market share as demonstrated growth on the top line and continuously in check on the margins and profits that it earns. And lastly speaking, I just want to point out that this is a quarter under which we have undergone transition of our operating ERP system, we transitioned to the latest version of SAP S/4HANA.
To that extent, the transition happened sometime in May. And as part of any such large transition, there is some disruption in dealing issues, so we face some of that in this process of transitioning in the month of May. And these results are despite the transition, certain amount of sales losses that we had in the month of May as part of this transition.
So with that, I'll hand it back to Deepak, we're happy to take on questions. Thank you.
[Operator Instructions] The first question comes from the line of Chirag Lodaya from Valuequest.
Congratulations on a good set of numbers. Sir, my first question was on the gross margin. Q-o-Q, if I see your gross margins are up by almost around 350 basis points. However, Q-o-Q consumer margins are flat. So just wanted to understand where is this discrepancy coming.
Chirag, the gross margin may be seen on a consolidated basis and therefore, it's a blend of Consumer business, Illumination business and the Consumer business, it's a little misleading. But if you look at segment results where we report our EBIT margins, et cetera. It's kind of flat on a Q-on-Q basis. But also if you look at it from a 3-year perspective, it's similar to -- of course a significant improvement over last Q1, but I would look at last Q1 as an aberration.
If we go back 3 years, we've maintained that margin. And that despite that this year, yet factors in significant commodity inflation and headwinds in this Q1 results. If you compare that also, I think the fact that we maintain those margin on a 3-year basis is demonstrable of the fact that at an underlying level, we actually delivered improvement in our margins on a real basis.
Okay. And in terms of margin trajectory ahead, how we should look at it on a Q-o-Q basis? Do you see significant improvement? Or you still feel there will be some pressure in the initial quarters before we start improving on an overall...
The commodity inflation cycle started in about October, November 2020. That has gone on till about May 2022, which is this year. We started to see a little reversal in the commodity inflation and costs since June of this year and continuing into July. So to that extent, we expect margins to start improving from Q2, but the full benefit of this commodity cost reduction and margin improvement will be seen in Q3. But here on, I think we are at the bottom of the margin, and we expect to deliver higher margins going forward.
Right. And just lastly, sir, if you can also share 3-year CAGR growth for Appliance, Lighting and Morphy Richards that will be helpful. You have shared on Fans in the presentation.
So we don't have that 3-year that we carve out on sub-category level -- 3-year CAGR, but on an overall basis, I think it's about 7.4% on a 3-year CAGR basis for the Consumer business.
Next question comes from the line of Nikhil Kale from Axis Capital.
First part is what was the impact of this system upgradation? You talked about there was some impact on sales. Would you be able to quantify?
It's hard to quantify specifically. We had about 10 days of disruption because of systems, and therefore equivalent of 10 days loss of sales. I would say some of that we were able to recoup or makeup in the ensuing days, but approximately, I would -- if I were to hazard a guess, I would say anywhere between INR 30 crores to INR 50 crores maybe a loss of sales that we've seen in this quarter because of this.
I just want to add to that, this is phase 1 of SAP. There's some further implementation of systems that is going on now that will go on for another 3, 4 months. But in fact, due to that now will be minimal. But just to tell you the full implementation will happen by the O&D quarter, but we've seen the bulk of the impact happen in Q1. We don't expect any significant impact going forward.
Got it. Sir, just looking at the [Indiscernible].
Nikhil, I'm sorry, your voice is breaking up now.
Mr. Nikhil, please go ahead with your question.
Yes. I was saying you mentioned that the CP performance 3-year CAGR at 7.4%. Looking at the kind of inflation that we have had, that would kind of imply that the volume growth would be maybe low single digits, right? So yes, I just wanted to get some idea on how are you looking at the demand; we gather from other companies, and demand has kind of slowed down in the last quarter, but what is the sense that you're getting, especially for some of the key markets for you, which may be different from some of your peers?
So first, let me tell you about the weakness and then let me tell you the good news. Since about 20th May or last week of May, there has been a visible slowdown in demand in the industry. I think that's across the board. And therefore, that factored into our Q1 results also. June has been a weaker demand, April, May was largely better off. We've seen some of that weakness continue into July, but August, September, we expect to see a strong bounce back. One is, actually so far in August, we are seeing some signs of bounce-back, but I also see that getting accelerated because we have an early festive season this year. Diwali is on, I think, 24th October, other festive days also coming earlier. To that extent, I think the primary sales will see a pickup in August, September, and therefore, we are confident that Q2, we'll see a healthy bounce back on an overall basis.
The one part that the jury is out really in terms of -- in the economy, in the later part of the year, what will the demand trend et cetera be. And the inflation continued at the trajectory that it was at 2, 3 months ago, I would have had a slightly softer view. Seeing some of this, at least on our side, cost pressures and inflation come down. I do think I would be slightly more optimistic now than I was 2, 3 months ago. And we may escape demand slowdown in the latter half of the year, which we means net-net, I'm yet optimistic that Q2, you will see a bounce back in these 2 months, but Q3 may end up being a decent quarter, and not a bad demand effective quarter.
And on the margin side, so I think we've done a decent job in maintaining our margins in the Consumer Products business. But now with some of these tailwinds kind of coming around the commodity side, also with the expectation of improving demand. What is the outlook on the margins going forward?
Long-term outlook on margins is good. If you minus these 2 years of COVID, we have given the strategic guidance that we will -- we are very conscious that as a company, we want to expand and widen our EBIT margins on Consumer. We have given a guidance of about 1 percentage point per annum. COVID on this commodity has impacted us, but we expect to get back to that in an absolute basis. So I think we will exit this year at a good healthy run rate and get back to original trajectory by next year. While I don't want to give you a specific number guidance, we are clearly targeting a double-digit margin in the very near future.
[Operator Instructions] Next question comes from the line of Paarth Gala from JM Financials.
Two questions from my end. One is, if you can just talk a bit on the rural side of the business because that was one area which was under some pressure and Bajaj has a bigger presence in these markets compared to the peers?
And secondly, an update on the demerger of the EPC business, what would be the status of that and do we still maintain the target date? Those two from my side.
Paarth, your voice not very clear. First was the rural side and second is demerger. Is that correct?
Okay. I'll go ahead and answer. I think that's what I heard. The rural side of the business, if you recall our commentary from Q3. Rural demand has been weaker than urban because our contribution on weightage of rural has been higher. So therefore, on consol basis, we had a little -- slightly elevated impact of the rural slowdown.
My guess with a good monsoon, good MSP announcements by the government, et cetera, we expect by end of Q2 to Q3 to see a bounce back in the rural demand, and we should be beneficiaries of that. It's a little early to say, but that's our outlook right now. The rural demand side.
On the demerger, the themes have been filed with the stock exchanges. We've had 2 rounds of iteration on terms of queries to the stock exchange. When I say stock exchange that includes SEBI related queries that get routed through via the exchanges. We would expect unless there is any further queries, that we will have full approval from the exchanges within this month, post which we will be filing for NCLT approval. It is very hard to put a very specific timeline to NCLT. I do understand that there is some vacancies in the NCLT because of which that process may be longer than already anticipated.
Our original target for that was to -- our internal target for that was to actually get the approval by the O&D quarter this year, but latest by fiscal end. I think currently, it looks like fiscal end, which is a JFM quarter more like where we should have all approvals, but we will keep updating you as and when we have more visibility on this.
[Operator Instructions] Next question comes from the line of Hitesh Taunk from ICICIdirect.
Congratulations on a good set of numbers. Sir, my first question is on the pricing front. Sir, how much price hikes have you taken during this quarter?
So Hitesh, we had taken approximately a 5% hike on average across various categories in the month of April. We have planned a further hike in May, June, which we did not take given that the visibility of commodities prices starting to cool off. We do not anticipate now any further price hike, at least visibly as of now.
That's okay. Okay. Sir, the second question is on the advertisement expenditure fund. This quarter, we have seen kind of increase in the advertisement expenditure to about 3%, 3.7% on the sales. So is this the kind of expenditure we are going to maintain? Or will it be a slowdown going forward?
Our general guidance has been that expense -- ad expense will be between 4% to 4.5% on an annualized basis. It has been slightly lower in the last 1 or 2 years. As the COVID or margin pressure goes away, we actually expect to normalize at set 4% to 4.5% on an annualized basis. On a quarterly basis, there will be some swings based on seasonality of campaigns, but annual basis, that's the number we expect.
And sir, my next question is on the Morphy Richards front, we have seen a kind of decline on that segment. So is there any specific reason you want to -- or is it a kind of a normal phenomenon in this quarter?
No, I don't think it's a quarter phenomenon. So 2 answers to that. #1, in the last 12 months or 15 months of significant price increase, there has been -- conflict between online and off-line channel has been very acute because pricing strategies by both channels have been very different. And I'm not just talking about us, but the players in the market. To that extent, Morphy has borne a much greater brunt of this channel conflict, given its unique positioning and scale in the segmentation.
Going forward, with this pricing hike kind of stabilizing, et cetera, we think the price conflict that has been there between the channels will normalize and therefore, to that extent, the brunt that Morphy was bearing will now no ease out. But the larger strategic view on that is, so far, as you know, we've had short-term relations and deals with Morphy, now we have signed a 15-year relationship. On the back of that, we are now putting together a completely revamped strategic roadmap for growing Morphy business, including a complete relook at this product portfolio and go-to-market and brand strategy. That will play out over the next 18 to 24 months, and we have a very clear visibility on how we'll drive that growth, but some of that is something we start seeing from next year onwards in terms of the results of that plan that we rolled out.
Okay. And sir, my next question is on the market share front. I mean -- we have gained substantial markets share over the last 2 years in our different product categories. Was it continued currently in this quarter also? And if you can share some market share for the leading products, that will be great.
Yes. So while we don't publish market share, in numbers, we have gained market share, particularly in Fans, where you see our growth has consistently been higher than industry in the last, I think, 4 to 5 quarters. Lighting, we are starting to see greater trajectory versus before. So I'm sorry, I'm seeing -- is that -- I'm audible, right?
Lighting, Consumer lighting, we've been gaining share. We gained share in this quarter too, we expect that to continue. Appliances where we had a dominant share, we are looking to defend that, and we have other segmented approach where certain segments in the appliance business, we expect to gain share.
Next question comes from the line of Akhilesh Bhandari from ICICI Prudential AMC.
So you mentioned that demand is improving and also the now that the commodity prices have also softened a bit, can you just give your qualitative comments regarding how much, given the higher -- relatively higher competitive intensity in almost all the categories, how much of the price -- commodity price decline benefit perhaps would have to be passed on to the consumer or would be passed on to the consumer by the industry, and how much can be kept?
So to be honest, Akhilesh, some of that is more tactical, and different players have a very different approach to how they balance between margin protection versus price [platform]. From what I know, couple of our competitors have done that in June-July. But I would not react to every tactical move because we have our trajectory and what we are planning to do. So I don't see any fundamental shift happen on that. Those are more short-term tactical things in a particular month. Directionally, structurally, I think we will see margin increase for all of us, including Bajaj Electricals.
And at an overall level, we are confident that we will see margin increase while yet continue to drive market share growth. So that -- not just long term, but even on an annualized basis, we will deliver on both of these aspects.
And sir, looking at whatever price increase and what you have taken over the last year, and also comparing that to the what is in the commodity price increase, till the end of the first quarter, what was the gap between the price increase versus your blended cost increase? Just a broad number, if you can give.
So at a very broad level, I think for the last 4 to 5 quarters, we've been running at a lag of 2 to 3 percentage points because of this calibration between when we take the price increase to the cost increase that we've been facing. That would have been the case in Q1 also had the commodity costs not started softening up. So I think from the second half of this quarter, when you've see that, and therefore, that has started to reverse out. I think by August 15 onwards, that should have neutralized. So without taking a price hike, I think August 15 to about September end, we should be back to having fully covered for or negated impact on the cost side pressure that we had.
Understood. And sir, last question from my side. So a couple of players who had hosted the call, declared the results earlier had called out some amount of channel destocking because of the expectation of price cuts by the brands. According to you, has that effect now ended? Or some of that is still continuing?
Akhilesh, to be honest because our model is different. We do not have channels carrying significant stocks because of our TOC model, et cetera. So in general, channel stocking set for certain product categories where they may have had a scheme for which they've done that.
We do not have that problem. So I frankly don't have any data to share with you. We do not have that either on the high stocking or on the need to clear that out and upward or downward level, either which way. So our primary and secondary sales are typically more closer to each other, most of the time.
[Operator Instructions] Next question comes from the line of Srini Singh from DSP.
So on the prices side, if you can give more color on the mixers, water heaters, while it was not a very simple quarter for water heater, but how these categories are performing for us? And how is the outlook; because now kitchen is one of the segment where we are seeing increasing focus from a lot of other players also? So how you are trying to position in terms of economy versus premium within these categories? That's my first question, sir, on the kitchen appliances side.
The challenges on overall, we've given appliance a growth. It's a healthy growth that we had. Our focus in appliances, while fans we have significant premiumization that we're chasing. Appliances, we are not that far out, but there is sub-segments that I mentioned initially where we think there are certain white space or weaknesses at sub-segmented level, let's say, mixer, grinder of 750 watts and above et cetera, that we have pockets that we need to spend in. Similarly, on water heater certain types of water heater et cetera is where we are looking at actually, and so on and so forth for different appliances.
The other approach to that really is at geographic level, while overall, we are strong, there are geographical pockets where we need to strengthen market share. And the third piece is really between urban and rural.
So for us, the appliance spending is coming from these tactical things, either at the subsegment level, we've been seeing that. And because we know we have some of these gaps, which we are actively working on. Therefore, we are confident that while we you may have more competitive intensity and new players coming to appliances, we do have growth avenue, as we fix each of these things, and we will gain market share on an overall basis.
Sir, category kitchens appliances, what will be the market growth which you would be expecting? And from our growth perspective, can it be higher or in line with the market there?
So if you look at the overall industry level, which is not top 3 or 4 players, we have been and we will continue to have higher growth. So which means gaining market share. There will be the long-tail unorganized players that are losing share, we will continue gaining share. But our gain is not just against them, so even amongst the 3 or 4 players, earlier points that I mentioned, we know that we are under more intensity of competition in these appliance category, but we do have a clear vision and road map. You will see more launches in the next few quarters, which will demonstrate our plans for these categories.
Okay. And sir, on the Lighting side, in terms of the B2B market, how is that shaping up? And when do we start seeing these new launches on patterns, panels, and downlighters starting to contribute to the lighting revenue? And how large is the potential for these new products, which we have launched in the Lighting segment.
You said B2C, right?
B2B, how that is going to scale up. Because that is what we are hearing from the other...
I got confused with panel and downlights, that's on the consumer side. So let me first talk B2B on professional lighting. That's the part that we've done very well last 2 years. We've turned that business around. Even if you look at last year, which is full year FY '22 in a market that degrew, we actually had growth, and seeing a significant increase in market share. We are almost close to #1 in the professional lighting B2B Lighting space.
This quarter too, we've had a growth -- small growth, but growth in the market that has degrewn in this Q1. Bottom line of profitability in that turnaround, we had a breakeven last year. In this quarter, we had a certain slight further expansion of margins. We will continue maintaining both the trajectory that is not driving top line growth. [indiscernible] Sorry for that. We will continue driving growth on topline in B2B, though that may be single digits because the overall market industry is weak, and we'll demonstrate growth and expanding margin in the bottom line. That's on the back of many launches that small sector vertical-focus stadium, metros, indoor, street lights, et cetera, it's a very segment sector-driven product strategy that we have for us.
On the B2C side, which is a consumer side, that's been the big delta for us. So that's where we have been lagging significantly. We do not have the right product range with us. We were not the LED focused. Our share of LED is now between 85% to 90%, that is the continuous improvement that we had. Within that from conventional lamps, our share of downlighters, battens, recessed panel, et cetera is increasing. We will see a lot more launches on that on the B2C side over the coming quarters.
And lastly, structurally, we have from 1st July carved out and created a unified lighting segment, which is the consolidation of the B2C and the professional lighting. And in the B2C, which is consumer side, we are now creating a separate go-to-market or sales team, which is not what we had earlier. That will be fully in place by end of September. So you will see the benefit of our revamped go-to-market also on the consumer lighting side.
Just last question from my side. In terms of mix of in-house manufacturing and outsource in Appliances, in Lighting, and Fans, can you just share that number?
So our in-house has been in 15% to 20% range. Our guidance has been that, that will continue to grow marginally. 3 years out, that should be closer to 25%, 30%. But what's changed and has continued to change even within this right now, the mix of what we're making it out versus what we are doing outside. So for example, the mixer, grinder that we never used to do in house, now we are assembling those in-house. The capacity or range of water heater that we are doing in-house has gone up. In Fans, which we used to do in-house, we have moved up -- we set up a new paint workshop, et cetera. So for making this lower end, subeconomy ceiling fans, you will see us start to move that upwards to making more premium Fans in house. And lastly on lighting, which is, I think, more commoditized. That is where we're reducing our mix of in-house manufacturing.
So overall company level, it will increase. But the mix in that across these product categories is changing significantly. That's even more by a strategic agenda in terms of what we want to focus on internally.
Next question comes from the line of Rakesh Roy from Indsec Securities and Finance Limited.
My first question is regarding, sir, can you highlight to -- for next 1 year, sir, any new launches or new addition in our CP business?
Sorry, I didn't get it. Do we have new launches is the question? Or what are the new launches.
New launches and product addition in CP business.
We will keep continuing to have that, like you've seen in the current investor deck also, we have highlighted some of these launches. You will have that across categories. My guess is what you will see in the next Q3 and Q4 will be more than what you've seen in Q1 or Q2 that you will see. In terms of specific launches, of course, for competitive reasons, we'll rather share that as and when we make those launches.
Sir, any plans to add any new product in your CP business in the next 1 or 2 years to increase your basket, sir?
So in terms of -- if you mean as sub-category or category by itself, yes, we're evaluating various things. But as and when we are ready to have firm that up on our side, we will do that.
Yes, for example, you try to enter a switch or wire business...
That, I can confirm to you. We're not going to do switches. We are not looking at doing wires and cable, and we're not looking at large white goods, refrigerators, air conditioners or for that matter, water purifiers, at least these are clearly something not on the table for us.
All right, sir. Sir, can you share your sort of volume growth in Q1 business? How much volume is there?
Volume growth in Q1, you mean?
Yes, sir.
So Q1 has been significant volume growth. If you look at the fact that we had about a 5% price increase of 57% or 58% revenue increase, rest is all contributed by volume growth.
Our next question comes from the line of Harshit Golecha from [Stellar Capital].
Sir, are we planning for any inorganic growth in future, sir -- near future or something, say after 2 or 3 quarters or something like that?
Well, Harshit, that's very speculative. Of course, this is opportunistic. As and when we get an opportunity that we sense, we will -- we will say that every opportunity that comes, we do look at it now, which is a different -- change from 2 years ago when we were not even looking at those. We do actively evaluate every opportunity that comes. But finally, this has to meet our strategic and financial parameters. And as and when that happens, then we'll be happy to share that. We are very open to inorganic also, whether or not something happens, time will tell.
Okay. Like our interest will be without white goods, right? Not ACs or washing machines or like that.
We do not look at white goods or ACs in an organic way.
Yes. Our plan will be only for kitchen, et cetera Correct?
Hard to say what we may do. It may be closer adjacencies, et cetera, but I can rule out AC, refrigerator, et cetera.
[Operator Instructions] The next question comes from the line of Akhilesh Bhandari from ICICI Prudential AMC.
So can you give an update on the Nirlep, how is it scaling up, looking to improve the distribution and product launches in that area? So how are things shaping up there?
To be honest, Nirlep is yet right now relatively weaker than many of our other product categories. I think it has a long way to go. Some of the scaling up of distribution, et cetera, while we've done that, benefits of that are yet to play out. I think there would be another 3, 4 quarters before we see real improvements in the Nirlep. So right now, that is a soft performance for us.
One other announcement related to Nirlep, which our Board has approved today, it's an enabling provision to review or evaluate ways and means of consolidating Nirlep into Bajaj Electricals. That's in line with the overall intent to simplify our corporate structure and have minimal entities as required so that we can do that. So that's an in-principle approval. We will now work on specific modalities options to drive the consolidation and then come up with a scheme at the right time.
And sir, given that you are implementing a lot of things and looking to gain market share across segments. So how does that -- can you just call out how -- what is the order of priority for all the things because you are looking to do things in Morphy Richards, Nirlep, getting market share in Fans, Lighting. So how -- what is the order of priority if you can call that out?
Good question, Akhilesh. We have a lot on our table, Fans, Lighting, normal appliances, Nirlep, Morphy et cetera that you said, besides all the other organization things. So we have to keep balancing these things. As a principle, we are aggressive, which means internally also aggressive and pushing a lot of these things, but we are conscious that we don't push to a breakpoint.
If I just put it in a more obvious sense, the larger things that we have to solve for, or which has greater delta with priorities, of course, Fans and Lighting, et cetera, is now much larger for us today. And therefore, you are seeing more movement from us right now on that piece. As we start to see some of that to -- it is already starting to fructify. But as that starts coming to autopilot mode, therefore, for example Morphy I told you another 18, 24 months out then you will start seeing more movement on that, and also for Nirlep. So we have sequenced some of these priorities out, and you're seeing that in terms of what we are reporting also.
Next question comes from the line of Chirag Muchhala from Centrum Broking.
2 questions. So first is on the -- I mean, just as a continuation of previous question. So for the 2 other subsidiaries and associated with the Starlite Lighting and Nirlep, I think -- I mean, any plans to keep them as a separate subsidiary or integrate them also with Bajaj, and specifically for Q1 and near term, how do you see that impacting our overall financials in terms of -- I mean the subsidiaries making losses or needing further capital infusion from Bajaj standalone entity.
Chirag, I'll just ask our CFO, EC to update on the status on the Starlite, and then maybe I'll try and answer your on question on impact.
The status on Starlite merger is that -- it's in the final phase of the NCLT approval, and we expect the approval from the NCLT be received by the end of Q2 or latest by the beginning of Q3. That's the update on as far as the merger of Starlite is concerned.
In terms of impact, the benefits of that, mathematically, it's the same thing because all the results of that fold into consolidated results at Bajaj Electricals. That said, reality on the ground having 2 separate entities does create more work for us, ends up requiring more resources in terms of people. And there's a constant funding exercise required for Starlite, as you know, as a legacy has had funding losses or funding gap.
So the fact that once it is merged, I think some of these irritants, things that drain energy or time of funding optimization, I think to that extent, you will see an improvement and make things far more seamless and smoother for us. And therefore, I wouldn't say that a significant, huge -- any profit bump up because of that, but at least some smaller to a smaller extent that the efficiency should improve with this consolidation. And the same will hold true for Nirlep, as and when we execute that, which I've given a guidance on the earlier question.
Sure. And on Hind Lamps, sir?
Nirlep, right?
No, no, Hind Lamps. Hind Lamps.
Hind Lamps. That is all done. There's nothing now. Hind Lamps, the operations that were there, they were demerged from Hind Lamps and had folded into Bajaj Electricals, I think 2021, yes? Sorry, 2020. So there's nothing further to be done really on Hind Lamps now.
Okay, sure. And sir, just for the sake of accuracy, the 4 subcategories that we have Fans, Appliance, Lighting and Morphy Richards. Is it possible to give the revenue in absolute terms? I know in equity, you have given percentage growth. But since Q1 -- last was a very -- I mean, abnormal base, if it's possible, please give revenue in value terms?
So Chirag, to be honest, we did gave that out in an annual debt at the end of Q4. But on a quarterly basis, we will not be able to do that for competitive reasons because none of our competition does that yet.
Yes, sir. And last question, especially on Fans and Water Heaters. So while you mentioned earlier that a couple of your peers have taken price cuts recently in June, July as commodity prices started softening, but we have not taken any price cut in this category in June, July month. Is that assumption correct, sir?
That's correct. So we've not taken any price cut. And when I refer to competition that is particularly for Fans that I understand 2 players have done that yet.
Okay. And we do not even see any need for price cut. Considering that Fans unfortunately, as you mentioned that post 20th May, there was softness, so part of the summer season was lost in terms of secondary sales and [Indiscernible] inventory. So I mean, there is no -- I mean, likelihood of us taking any price cuts in Fans. Is that assumption correct?
Yes. So as of today, I don't expect. Time will tell in future if something else changes. The other aspect in Fans, remember is that compulsory star rating is kicking in. This July to December the transition period, and from 1st January, it will be 100% implemented. To that extent, in a normal case, one would have seen a price increase, cost increase to comply with the star rating and energy efficiency.
But given that the commodity pressures up, maybe one will be able to drive that conversion and offer energy efficiency without a price increase. But therefore, to that extent, on an overall basis, price reduction may just neutralize versus this transition to energy efficient Fans.
Next question comes from the line of Aakash Fadia from Yes Securities.
Where are we in our logistics cost sharing initiatives currently? So at full benefits being realized, or we are seeing undergoing cost?
No, Aakash, my short candid answer, we have not get realized the full benefits of that yet.
So how long it will take to, sir [indiscernible] realize the complete benefits of this initiative?
I'll again be candid, we should have had it by now. We've not had it, but we are on the job there.
[Operator Instructions] The next question comes from the line of Achal Lohade from JM Financials.
When you did talk about the volume growth, implied volume growth on a Y-o-Y, is it possible to have some color in terms of how the volume growth, the CAGR given last 2 years were impacted because of COVID, past 3-year for Fans, Lighting, Water Heater small appliances?
Achal, will have to look at that at a 3-year category level, maybe we'll come back to you on that business. Again, the short answer is, if you look at FY '22, in most cases, are the volume degrowth. So the growth in revenues was driven by price increase. I expect that to start reversing out also. This year, we will not have that much of a price increase. Any growth that we will have now will be driven more by volume. But in a 3-year category wise, we'll have to look at that and come back to you.
Understood. The second question I had, specifically with respect to the lighting business. Now like you mentioned, you have gained significant market share in the professional lighting. Can you help us understand what's the market size for consumer and professional lighting? And the -- what are the key changes which you have done to see this market share improvement in both consumer and professional side?
The very broad numbers in the professional lighting industry size should be about INR 4,500 crores. And on the consumer lighting, about INR 10,500 crore, okay? That's a very fragmented market, particularly in consumer lighting with lot of players, et cetera. Sorry, your second part of the question is what have we done to guide market share?
You mentioned professional lighting has seen a decline in terms of the industry growth. And I don't think you commented specifically on the consumer lighting, how that industry growth has been? Has that also seen a decline or it's kind of stagnated or assuming...
Consumer lighting has not seeing so much a decline on an overall basis, but there I think we're seeing -- it's a very, very fragmented long tail industry. There, we are seeing a much sharper shift from the fragmented long tail unorganized or smaller players to larger players. I think trajectory will continue over the next 2, 3 years because it was a long tail because it's operating at the very bottom end of the market, a very commoditized, cost driven. And so if you look at from a 3-, 5-year length, LED prices have been continuously coming down. And therefore, it has become a very price driven market.
LED prices, the rate of reduction or price erosion has really bottomed out. So it's no longer a price-driven market, and therefore, it's moving to a proposition of product-driven market, even on the consumer side. And as that happens, that helps to act as a tailwind for the larger, better quality players with better R&D.
And therefore, we see a market share increase happening for us and/or other leading players where we will deliver on that growth and increase in market share on the back of better production. For us, Bajaj in particular, I do things we have been behind the curve on consumer lighting, not just on a shift to LED, but introducing value-added products, battens, panels, downlighters, et cetera. And that's the catch-up that we are now playing, and we will play that aggressively over the next couple of years. And therefore, we are confident, and we will gain in the consumer lighting [indiscernible].
Understood. And just last question, if I may. Just talk a little bit about how you've strengthened the leadership team [Indiscernible] understanding the thought process?
Sorry Achal, I couldn't hear you, how have we spend in what?
Leadership team in terms of various product segments.
So we made some public announcements. The most recent key announcement is, we restructured. So the lighting business, which was split with consumer lighting, being part of the overall consumer business and professional EPC, we have brought it together one unified lighting business segment. That is added by Rajesh Naik. He had joined us in December 2019. He was heading the professional lighting. He's been instrumental in turning that around and growing, and now will drive the overall Lighting business.
Under him, like I mentioned earlier, we're setting up -- so we have now got a dedicated lighting sourcing supply chain team for this. We've got a dedicated lighting quality, lighting market, they are beefing up all of this functions under that. And most importantly, a go-to-market, a separate sales team for consumer lighting, which is not what we had earlier.
On the leadership side, on the other hand, on the consumer business, which is rest of the consumer that is Fans, Appliances, Morphy Richards, Nirlep, et cetera, we've got a new Chief Operating Officer, Ravindra Singh Negi, he joined us. He was the head of the consumer production business at Havells, he has joined us in July. Therefore, they -- again, we have an integrated strong leadership in place for that. Under each of these, of course, we have the second line of leadership that we have stemmed in and are continuous [Indiscernible].
At the corporate side, similarly, we have stemmed in the team, and we'll continue to do. What is not visible is more of the middle and junior management or junior levels also. There's a lot of churn that is happening in terms of salarying the talent pool that we have. So overall, as an organization, we are a very different organization and that investment and talent is something we're very committed to because will be key to a professionalizing and performance going forward here.
The most recent one, if I may talk about it myself is an announcement that we made today of also splitting the Chairman and MD role. So Mr. Shekhar Bajaj will now continue as Chairman, and he's relinquished the MD role and passed that on to me.
Great. That's very helpful. And congratulations on your promotion, sir. Just -- is there anything left to be done, which is still kind of significant or meaningful which is yet to be done?
Absolutely. There's lots and lots and lots left to be done. So if you also see one of the other decks, we have put, there's only Horizon 1 in our strategy. To deliver Horizon 2, which is really about growth in operational excellence. We have our hands very, very full. So we have a very clear road map, we have many initiatives to do, and we are very committed to delivering on those.
Next question comes from the line of Amit Mahawar from Edelweiss.
Congratulations on your new role that you got. I just have one question, sir. basically, as you consolidate the entire business structure, what is the specific allocation to each businesses, you talk about Nirlep or you talk about Starlite. I just want to understand maybe in the next 1 to 2 years, how much is going to be the investment in each businesses, specifically. That's my final question.
Amit, hard to quantify that because that's not the way we are looking it. Each business, whatever requires, we will make that happen. Our view is these are not really financial investments. They all look at consumer business, all lighting business than now the rest of EPC. Financially, they're all profitable. So they will have internal accruals to do that. So except the 1 piece has put out is some CapEx for manufacturing, which I have been guiding at 15% going up to 25%, 30%. We had that in the back of our minds, but maybe that's 2024 thing, we'll come back at that point to look at that. But again, that will not be some INR 300 crores, INR 500 crores, it will be maybe a smaller number than that debt.
In terms, to me the investment is not so much of money, but people. And therefore, this focus on stemming management leadership talent across the board. Like I answered to one of the questions earlier, we have a lot to do. We have a lot to do. We cannot do all of it sequentially. If we are hungry and aspiration, we have to do a lot of that in parallel. And therefore, that allocation of energy or resources in terms of people, talent so that we have all of this happening parallel, that is what we're focused on as an organization.
So to that extent, our commitment to invest in talent or R&D. So all of these things move in parallel. So 2, 3 years out, you should start to see pay off on multiple fronts rather than have it all sequential.
And maybe second question, Anuj, is generally, we've seen a lot of leadership rejig in Bajaj. And I think in the last 1 to 1.5 year, 2 years, you've actually set a very strong and robust process in the organization. So I just want to understand how will your appraisal policies be structuring? Is it in line with the best, how will you attract more talent and avoid drain of talent, now that you set process and systems in place.
First, the policy of principal statement, our vision is to be the best-in-class organization in our industry. And when I say that for our industry, it's beyond the benchmark of our industry. We're looking at other companies and other sectors that have a more superior approach to all of these things, institutionalizing how they run the organization, work culture, the talent pool, the performance, appraisal, management systems, et cetera.
And to that extent, there's a lot of work that is going on internally with contrary with others. We've revamped PMS, our variable components are much higher than they historically used to be. Our approach to driving performance at an operational level is rejiged. Our ESOP will probably undergo a review next year. We're waiting for the demerger to be completed and then for both companies separately, we will also review the ESOP scheme.
But this is a continuous dynamic process. So we are very clear what is required, and we'll keep making those changes. The larger vision to that is to be far more institutionalized which is not meant to be driven by 1 or 2 people. But can we create an organization that is institutionalized that can therefore chase multiple initiatives or goals and work at a far more greater speed.
Again, things like the SAP transition that I spoke about, these are long overdue. And unless we have these robust systems processes, to my mind, the building blocks on which we will then mount aggressive growth going forward. If I can point back to that investor debt that we put out in early July and that horizon 1, horizon 2 is really about that. So really putting in place all the building blocks, we've another 6, 9, 12 months to put that in place.
So that next 3 years, we're really going to look at building off these building blocks to have faster growth there.
Next question comes from the line of Chirag Lodaya from Valuequest.
Sir, can you share the update on NPD as a percentage of sale and premiumization share, how it has moved smooth for us?
So we don't normally publish that. We made an exception in that July Investor Day. We share the contribution of new product launches to give you a sense that we made significant improvements. Even this quarter, our contribution from new product launches higher than the previous quarter on a Y-on-Y business et cetera. So that's the key metrics that our R&D is driven by. If you just look at the number of launches that we're doing, therefore, that in a way, pointing to a giving you indication that our share of new product launches going up.
Again, I'm sorry, I'm not giving absolute numbers. But again, if you look at, let's say, Fan of the category. Fan used to be sub economy, if you look at the 3 examples that we've given in today's quarter deck, one is an ABS, and we never had a play in the ABS segment. Second is a decorated premium fans. Again, that was a large white space for us. And the third is 4-star energy efficient with inverter technology fan. All of these were segments that we are not operating in.
As we start entering these subsegments or product categories, our share and contribution coming from these new product launches is increasing. So we have a clear target in the next 2, 3 years, you will see that on par with the best of the players in the industry.
Right. And is it fair to assume that in the coming quarters, we'll see positive volume growth. In the last few quarters because of sharp price increase, et cetera, volumes were under pressure. Is it fair to assume that remainder 9 months, we can see positive volume growth overall?
That's correct. So Q2, like I said there will be a blend of some of the legacy inventory, higher cost inventory, but we'll start seeing an improvement in Q2. But I think more benefit of that should come through in Q3. You will -- should see or we should see margin improvement with the commodity costs having cooled off.
Next question comes from the line of Rakesh Roy from Indsec Securities & Finance Limited.
I have one more. Sir, can you highlight on Fan business, how much the economic segment contributing or mid segment or premium segment in Fan business?
Sorry, Rakesh, I couldn't hear you clearly.
Premium in Fans would be about 20%. Yes. Okay.
And economy and mid, sir?
Economy and mid will be another 20% and rest would then be the lower segment here.
Okay. This is for Q1. And Q4 FY '22, the ratio share?
It's slightly lower, which means premium, I think, was about 14% to 15%. And I don't remember offhand economy and the mid segment here.
Okay. So same process, sir. For any target to increase the premium from next 1 year, how much you target for?
So I don't have a numerical target for that. But the fact is like I give a 3 examples, we've typically been weak because we didn't have products at all in the premium fan segment. If your question is particular fan. As we are starting to introduce this in both the Esperanza and Astor models that are there [Indiscernible], both have got good traction and feedback from the market, but we're also conscious that 1 or 2 models will not do it. So as we expand that range, we expect to see an expansion in the share contribution in those subsegment there.
So do we see more new launches in premium fan in near future?
Yes, absolutely. So again, we're bracing up for next year, next season. So you'll see that actually happen right from now to next summer season.
Okay, sir. So overall, we are #3 and #4 players, sir, in fan category.
Fans we're #4, #5, between 4 and 5, both are similar. We were #7 player 2 years ago.
Can you give stand in premiums or economy, sir? Can you give a highlight on this one, sir?
Sorry, your question any highlights on premium and economy?
No, sir. In premium, how much market share we have currently, sir?
That's what I said earlier, so Q1 has been about -- market share you mean.
Market share?
No, we don't publish that, but we will be very small, -- while we're #4, #5 overall, rank in premium will be worse than that. So that's the catch-up that we're looking to play at.
As there are no further questions, we have reached the end of question-and-answer session. I would now like to hand the conference over to the management for closing comments.
Thank you very much once again for joining us today. And I know it's a Friday evening, long weekend coming up. Once again, I would like to say that we are happy with our Q1 results. I would like to acknowledge our team that is delivering this. We remain confident about what the future holds for us and we're committed to add value to all of you. Thank you very much.
On behalf of PhillipCapital India Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.