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Hello, everyone. Welcome to Bajaj Electricals 1Q FY '21 Earnings Call. For the management side today, we have with us Mr. Anuj Kota, Managing Director and CEO; and Mr. C. Prasad, the Chief Financial Officer of the company. Thank you, and over to you, sir.
Thank you. Thank you, Drew. Good evening, everyone. Thank you for joining our investor call today. Let me put my opening comments in. We have had a soft quarter performance. I think this is largely due to a soft in used discretionary consumption environment in the -- sorry, discretionary consumption demand environment in the economy, coupled with a weak summer and due to unseasonal rains. If I speak up our results a little more for you, particularly when we talk about consumer products, appliances as well as multi-insurance business actually has seen a growth, but partly offset by degrowth in the fans business because of the unseasonal rain in the summer period. As always, we've continued and tried to balance out and optimize between our top line and margins. We have strived to protect our margins, despite the lowest pricing and discounting actions prevalent in the marketplace. And while maintaining a slightly flattish revenue trend. We are closely tracking all of the sector performance and competition in the market. We believe that our performance is well in line with that. We've maintained the market share and try to balance our interest in that context there. At the same time, despite there being a soft environment, we've not shied away from strategic focus on product launches as well as brand spending and evolution of each of our brands that we now operate. Finally, I want to highlight that our margins are a reflection not of inherent weakness that we have, but operating deleverage. If I may share, we continue to build for growth. We are upping and have increased our costs in aspects such as our R&D, as well as the setup of a new consumer lighting vertical since the last 3 quarters. And you're also seeing some impact of the demerger costs getting built in at a corporate overall level, that will stay for the 2, 3 quarters before the growth kicks in. All of these costs are designed to deliver growth. In the short term, a weak demand environment. These costs do come to bite us, but we are consciously not choosing to descale or roll back any of these because we think this is important for us from a medium to long term. From an internal perspective, had we -- we've done the math on this very clearly. From our internal budget perspective and had we had, let's say, about another INR 100 crores of revenue, a lot of that gross margin on that revenue to flow stayed down to the bottom line. And therefore, you would have seen a very different margin profile. The point I'm really highlighting there is that what you're seeing is really a trend of external environment. The internal metrics as we track them are fairly healthy with very visible and conscious offset. Last one point I'll bring out is my logistics since that is something we've spoken last time, too. The transition continues to happen. We have a road map on bringing down the loss cost. We will see visible results of that in the P&L from Q3 onwards, and you will see improved benefits of the logistic cost optimization. So with that, I'll hand it back to the moderator. Thank you very much.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] First question is from the line of Anirudh Agarwal from Value Investment Advisors. Please go ahead.
A few questions from my side. So first was on the lighting business, if you could share the split between professional and consumer lighting and how both of those businesses are done. So consumer we know that there was some softness expected, but how is the professional side of the business done. Second question related to that on the consumer front, is what are some of the lead metrics that you're tracking, right? So obviously, the top line numbers continue to remain muted. But in terms of the GTM DRAM, the number of dealer distributors appointed, if you could share some outlook on that? Or what are some of the other metrics that you track that all that in the next couple of quarters, things will turn around in 1 item as well?
Anirud, thank you very much question of professional and consumer lighting. Consumer lighting is seeing a soft demand environment. So there is degrowth in consumer lighting. On the professional lighting, we had a high base effect due to ESL orders last year in Q1. If you take out the ESL, professionalizing the flat trade, therefore cumulatively, you're seeing a negative growth on the -- or degrowth on lighting, but led to a high base and professional ESL. Otherwise, it is flat, and it is negative on consumer. Having said that, when I'm seeing highways for Q1, we are confident that Q2 will see a growth in the lighting business. Coming to your consumer product side, the various metrics that we track, a couple of them that can fall out for you from a market perspective. Our market share we're looking at various categories, we do continue to grow that. We are growing that in the appliances business. Market returns which has been soft has come back. In fans also, we are growing our market share, though we've had a degrowth in this quarter in particular. Just one additional point I will make in fans that actually look at fans with a slightly larger app because you had the star rating regime ticking on 1st January. So there is a lot of upheave in that category from January to now. So if we look at a 6-month basis for that category, that's a slightly more correct way to look at it, and we are seeing those strengths and those spares are positive. One last metric is that because we've been asked in the past we've been sharing. Our premiumization journey and portfolio mix continues to be healthy across product charities. In fans, I'll call out the data, I think last time we had shared that at a sareconomic stand, subeconomy tends it used to be 80-plus percent a couple of years ago. In Q4, it was about 67% of our total product mix. In Q1 now that is down to about 58%, which is showing the healthier mix on the economy and premium segment picking up for us.
Right. And on the consumer lighting business, if you could share how we are placed in terms of the entire revamp now? And are some of the lead indicators at least turning green -- or are we still a couple of quarters away from -- I think it comes on quarters away.
I'll split that into 3 things: our products, our distribution and then the revenue. Our product portfolio is almost fully in place. So we have made huge progress in all -- and even this quarter, we've shown slides on the products that we roll out. So there, I think we are power with the leaders, which is not the case that used to be in the past. On the distribution of go-to-market side, one is internally, our team is fully in place. On the distributor front, we put that in place. But there is a weakness because of the market weakness. So the distributors that we put in place have quite frankly, not fully employed the best efforts in the marketplace, including feet on street. So they need to see a momentum uptick in the demand, for them to start investing in that more fully to get ROI on the investment. So we believe as the demand cycle kicks in, in consumer lighting with a product portfolio ready, our team in place and the distributors appointed, the last leg, which is of them starting to do the push in the market, we'll see an uptick once you have a bit of a tailwind. I think you should see that. You will see some growth for us in Q2. That's more internal base, but you will see overall market growth I think from Q3.
Got it. Final question from my side on the margin front. So if you have any estimate in terms of the GM hit that we had because of not being able to take the price cycle in France?
No. So we don't put out a GM exact at a category level. I will share that in the overall level, you're seeing GM expansion for about, I think, about sub-1%. But at a contribution level, it's about 2.4% overall gross margin expansion that we've had in our business in Q1. And that goes back to my earlier comment, had the operating deleverage not being there, that would have also been visible in the EBIT margin here.
Thanks a lot and all the best.
Thank you. Next question is from the line of Renu Baid from IIFL Securities.
Hi good evening. The first question is the consumer business, how do we look at the overall margins particularly improving once demand stabilizes or recovers from third quarter? And in your view, how far are we now from our targeted levels of 10% plus double-digit margin, EBIT margins.
So Reno, thank you very much. I know that's the concern. And that's why I brought out that in my opening comments. The internal metrics are healthy. To my mind, this is purely a question of operating leverage or deleverage. As that fixing demand kicks in, we are very confirmed that we'll see a sharp uptick in margin there. So that's my answer to you both of these aspects that you must.
Sure. Secondly, in terms of the new B-rated fans compared to the current pricing and the costing, what kind of under recoveries still continue in this segment? And how are you looking at the overall -- the entire revamp of the positioning that we had done in the last 2 to 3 quarters. How is that resulting in terms of growth for product segments and categories.
So on the fans, I think there is yet between 3% to 5% under recovery. I think a lot of that is led by competitive forces. We've always maintained that we are happy not to be drivers or leaders in price erosion. Unfortunately, some of competition is doing that. I think it would be healthier if we were all able to pass on these cost increases to the consumer. Maybe as the tailwind kicks in, you will see that happen. We will not be laggards as we the market force is allowed to. On the overall, with the brand repositioning sector, while that's not visible in numbers right now. We are doing brand-tied -- these are category. So today have seen another set of rent studies, and that is showing very clear metrics in the bank track studies for us. So we have visibility on that margin.
Any updates on [indiscernible] that you can share in terms of, how are we going ahead with respect to the distribution reach and growth in the portfolio?
Yes. So on your [indiscernible], we will let you see by first half of September, relaunch on your [indiscernible], everything is ready. We've done a trade announcement 2 weeks ago. The first half of September, you will see a consumer communication on your [indiscernible] with the new positioning and product range also.
And on the distribution side, you think you'll have to invest materially or we are recently covered on the distribution on your [indiscernible].
So actually, distribution has been in place for a while now. So that has been waiting for the launch from our end. We time that so that the festive, we are ready to launch to -- met in the festive period. We get the benefit of upside on your [indiscernible] also.
And lastly, related to the APC business portfolio. Quickly in terms of what kind of time line can we look in terms of the lifting of the portfolio? And on the merger, how do we look at the balance sheet of the APC business and the onset of the company that in listed and starting a fresh?
So firstly, in terms of time line of the merger renew, I would just say we are the cusp of that, like we've shared all the statutory authority approvals are in place. This last leg of documentation process, transition compliance, including with the clients and contractual transitions in place right now. While I will not announce a public time line, I think it should happen fairly soon from now, okay? Plus in order the merger. Then obviously listing will follow, of course. Whatever the statutory time lines on that between 30 to 60 days, I think it's 30 days. On the balance sheet, I'll bring in our CFO [indiscernible]
Yes. So Renu, whenever this happens, this won't happen a bit cost because our appointed date is of past April 22, as on which date the capital employed for the business was INR 550 crores. So what will happen is the difference between the capital employed as on that date and the date on which we make it effective, will go to them as cash. So the capital employed will remain at INR 550 crores, which moved to them.
Okay. Got it. sir, Thank and all the best let and good luck [[indiscernible].
Thank you, Renu.
Thank you. Next question is from the line of Achalkumar Lohade from JM Financial.
Just a couple of questions. One, you said discounting by competition. Can you help us understand, is it farmer pronounced in a particular category or a particular geography or a combination of that?
So one is a combination of everything. It is happening across in the soft demand environment, everybody is doing that differently. But there is a fair amount of discounting schemes or various forms of not taking price hikes, et cetera, that most competition is doing. And slightly more pronounced in science, because even if it's not discounting, the costs have gone up, so price hikes not coming in. And therefore, on a net basis, that tend amounts to a greater level of discounting but that's across the board otherwise.
Anything specific in kitchen appliances as well?
Kitchen also, but I would say, to ask me, relatively fans is a greater impact, which is less so, but it is there in kitchen also.
Understood. Secondly, with respect to how the demand environment has been in June, the exit month of the quarter as well as July. Are you seeing any signs of pickup or things remain because as we are getting into the festive period now?
So if we look at Q1, April, May, June, clearly, April and May were particularly extremely weak. June is definitely much better than April, May. So there was a growth still in that quarter, okay? Again in June, what we've seen -- and let's say, fans in particular also, techy demand has really picked up. For coolers, also we saw a pickup in cluster demand in May and June. So that's a positive sign. Some of that did not translate to primary or secondary demand because at that point, people are not stocking up. But even tertiary demand will happen, I would be more happy for that to have happened because it sets us well for the following season. And there's a positive sign for that to catch up there. I'll hold off my comments right now in July for Q2, let that comment, but we are far more positive on Q2 than Q1.
Understood. And sorry, I'm hopping on the margin front. Let's assume like you said, in second half, things are normalizing in terms of demand environment. How do we look at the margin trajectory? How soon can we expect double-digit margins, given the various measures you are undertaking? And also, at the same time, the investments?
So Achal, I'll never put a time line, but let me tell you a second half, like you said, I think if demand picks up, we've done our math. The operating leverage will kick in. It would have happened even in these months, and we had slightly higher numbers. We got on that. Like I said, our cost structure are now built in or built in for higher growth in the future and that we're not pulling in. So therefore, it has to come in through a greater demand in revenue. Lastly, the one big lever that we see kicking in Q3 is non-stick. I think we yet hampered with some of the transitionary costs that are there and that will -- we map that out months or month. So you will see that kicking in from October. So given that you will see margin expansion on Q3 on double digit, while we'll not give a projection, it will not happen this year. But assume some point next year onwards, we should start getting closer to that destination.
Understood. Would you be able to quantify what is the fixed cost here? Which we are talking about the operating leverage, what is the extent of fixed cost to maintain our cost, excluding raw material? How much is [indiscernible] fixed?
Yes. So more than quantify and tell you the components of that, like I said. If you look at overall R&D costs, if you look at the overall cost of the consumer lighting division that we set up for which we not got the upside now. And then overall establishment costs, including my CFO selling at INR 450 crores, I quite I don't have the math, so I'll have to reverse to the math on what we're seeing here. But these are drive -- the production when you say promotional costs, et cetera, we create trading 4 brands. All of those are coming in at a cost here. So these, we don't want to step back on right now. And last paces with digital and transformation technology costs. Those are investments that are going in. We have a digital transmission road map that will end by October 24, O&D24. So those are also costs that are getting built in right now.
Understood. And just one more question, if I may, with respect to the refreshed range across categories. Is it possible to get a number as to how much is that contribution? What SKUs you have launched in the last, say, 2 years? What is the contribution now? And how do we see that trajectory moving going forward, given the step-up in terms of R&D and the A&P you're talking about?
So number of SKUs for this quarter, we put in this quarterly debt. We've done that every quarter. I don't remember the full number for FY '23. If I remember correct, CPU was about 160 SPU -- and I think I don't have more right now, but it would be INR 500 or so in that range of A 2-year number, I'll have to see, but I think the year prior also similar, slightly higher for CPU, if I remember correct, is up to your number. In terms of contribution, if your question is the NPD contribution to total revenues, while we don't publish that. Internally, we do track that 3, 4 years ago, that used to be in single digits. It is well above 20% right now in BD contribution.
Understood. I'll come back in the queue. I have no more questions.
Next question is from the line of Pravin Shah from Praveen Sahay from Prabhudas Lilladher. Pleas goi ahead.
So it's related to the fan and where you had mentioned that -- and also in the EBIT, it's around 8.5% of a degrowth in the value terms. And similarly, also, you had mentioned that your premium fan contribution has also increased. So it's fair to assume that the volume degrowth is in the double-digit, kind of?
I haven't done the math, but yes, I think it should be in a very early double digits.
Okay. So -- and also if you can talk on -- because you are one of the largest players in the fans segment, and that too in the economic side of the business. So is there any change in the market share on that front as well?
For us you mean, obviously?
So as the volume degrowth is in that double-digit range. So is that completion?
So that's why I did mention, I think, in the opening comments, one of the other answers. We are growing market share. It may not be on Q1 in particular, because everybody has -- since the January star rating regime, there's a lot of -- what should I say, disruption in the fans market overall between the primary players, the distribution and the retail network sector and how stocking is happening of anybody's portfolios. So if you look at 6 months, we've looked at a 6-month trend from Jan to now, we only gained share. That is 2 of last year and before that also. So what I'm trying to say is post the transition to start aging regime also we look at our share has continued to grow.
Okay. And the next question is, sir, if you can give the contribution or in the consumer products segment for appliances, fans and more furniture.
So we don't break up contribution by these categories, we don't share that.
Next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yes. Two things. One, can you share the update about next brand? And what are the products that we have introduced the categories that we have introduced. How premium is the price point compared to our existing range of budgets? And second thing, is now that Merlot we are launching. So post Merlot, what will be the positioning? Will it be a premium end of the market or low end of the market. Also at some point of time, it used to be a pretty strong brand in Western India. So I'm assuming it might have lost some brand appeal. Is there were no almost more sales. So how do we plan to rejuvenate the brand. And now since we will be investing in 2 categories, [indiscernible] and Merlot, so do you see that paying additional ad spend and initial launch expenses and impacting the margins also. Yes, that's it for me.
Yes. So let me answer all your questions. One is [indiscernible] is a soft launch right now. It's time to actually grow and we have more push launch by next summer. Which is largely an saithe we've launched or like not largely the entirely focus on the fans category. We launched about, I think, 8 to 10 SKUs in that category. The price range for that is it starts at about 2,500 it goes up to about 7,500 at an moping level. And therefore, if you see versus Bajaj. Bajaj sweet spot mostly was a 1,300 [indiscernible]. Bajaj it have and now does have a broader range and that also goes up. That goes up to 3,500, 4,000 one. So [indiscernible] clearly starts at the top end of Bajaj and goes much higher. In terms of [indiscernible] positioning, the tagline is "Everyday Health". So the positioning is going to be around health and nutrition. All our brands, we believe the positioning is never at a price point. So premium economy is not the positioning. That can be a price offering of different products. The positioning of our brand is in a proposition led. So Bajaj is built for life, led is on field the future. Sorry, [indiscernible] is on fields of future, and therefore, [indiscernible] health and nutrition tagline of "Everyday Health". The products in terms of which segments they feel based on the different product categories where the cookware pressure cooker as expected. We'll have a different range of products that will cover. But again, in the case of [indiscernible], it will be a wider range of coverage than historically had -- to your question on the brand's length historically, you're correct. It was historically a Western region brand and there's been a brand that has been acquired in out of consumer mine for quite a few years now to some. So therefore, now as we relaunch, I think it will take 2, 3 years for that brand to get fully resurrected. And when we do that, we will not keep it as a Western medium-centric brand, but it will become a pan-India plant. But that will require investment in consistently over the next 2, 3 years, we will give it that growth. Again, in that brand, it's not just a brand, but product category expansion is something we are doing. We are starting with pressure cookers see us launch in September at the consumer level. So we will keep expanding that portfolio may also. Sorry, remind me your last question. You had one more question pricing or... Yes. So the answer on I think you had one more question to us.
Yes, so pricing in of the Merlot range compared to the existing brands.
You're seeing more around health and nutrition, Pricing will straddle based on all the pressure cookers will be different cookware will be defense -- it is standard various price points based on where we see the different portfolio play out there. But it will be broader or wider than it used to be in the past.
Okay. Sir, understood. Lastly, initially, you indicated that we have gained market share. So if you can indicate as far as in detail possible, the key market share gains in the key categories for us.
Yes. So, unfortunately, we don't share or publish that. The only reason being there's no official accurate data available for that. So while we do subscribe to all the data, market funds, GFK sector shows us that -- but until it is not accurate data, we don't publish the data.
Next question is from the line of Rahul Gajare from Haitong Securities in Diet Limited. Please go ahead.
Hi Anuj. Good evening, all. My first question is on the margin. Now the road to double-digit margin will necessarily come through pit leverage. Given your A&P is higher than peers, obviously, when the revenue picks up in an operating leverage will kick in. But you are spending on 4 brands, and some of those brands are at a very recent stage, like [indiscernible]. How do you intend to really see the benefit of operating a bit talk about R&D spend. But what are the other levers you have in your hand, to see the double-digit margin journey that we have been waiting for.
So now a little bit repeat of what I've already said. One is operating leverage clearly. We are spending on brand and R&D, but also if you look at low sticks to my mind is one it remains where over 2 years, I should have met have about 2% to 3% optimization. Some of that will start kicking in from Q3, like I mentioned. Also, lighting, if you see a look at as consolidated now as an FMEG company, lighting only seen a healthy uptick in the margin. That will continue to grow also based on product portfolio mix starting to become better. So let me put in 3 buckets. Operating leverage for that portfolio mix becoming better and attacking some of these inefficiencies such as loan state.
Okay. Now coming -- my second question is on [indiscernible]. Do you see [indiscernible] as only a fans brand? Or do you see that as the premium brand or extension of Bajaj product? What is early the product position as far as [indiscernible] is concerned.
So for now, it remains focused on fans, will see in the future what to do. We think fans are large enough category for us to focus on and with 2 brands.
Before we move to the next question, a reminder to the participant. Anyone who wishes to ask a question may press star and 1. Next question is from the line of Anirudh Agarwal from Value Quest Investment Advisors. Please go ahead.
A few more questions from my side. First is on the generate channel. So GDP obviously has seen significant degrowth in this quarter. Is there anything to read into the urban versus rural GDP performance? And I'm asking this question because the quantity channel as an early well in a quarter where GDP has grown significantly.
Sorry, I didn't fully hear. So you spoke about GDP growth in what is the question on Anirudh.
Yes. So is there a difference between how organ GDP and rural GDP has done?
There is a difference, and I've seen that now, you are a little -- so I will say this, but take this with a little bit of -- don't take it very literally. We are seeing a little strengthening of rural, but not being fully reflected because urban is actually starting to be weaker than it was in the past. So if you look at most of the commentary last 3, 4, 5 quarters launches from us from FMCG, et cetera, belows holding on to rural has been weak. Some of the commentary has been about rural green shoots, et cetera. We are seeing some of that, but we are seeing the bottom half of the urban market exhibits a little sign of weakness on this discretionary consumption. That said, the reason I'm saying is don't take that very literally because some of these data is to shallower. Literally last 2 months that we've cut back to actually deep dive into this thing. I want to always see a trend a little longer term and a little broader before we take that as [indiscernible].
Got it. That could be year. And then in that context, we had embarked on this SLG journey on the GT channel specifically. So I mean, will that still continue to hold it is a function of macro revival according to you? Or are there other things that we need to really get that SSG engine going on the GT side?
So that SSG holds, we are focusing on WD, which weighted distribution more than we have historically done. And I think that's also a reflection of our product portfolio is becoming more -- I don't want to use the word premium, but filling in the product portfolio at the upper end of your [indiscernible] because of that in WD journey. It's a gap that we had in our context was we were under indexed in urban markets. So that is also an area of focus for us. So both the WD focus and urban focus are pretty much corroborating to each other. That said, it is not the cost of rural or other markets so that we will continue to defend. But I do think we will see over the next 2, 3 years, disproportionate growth for us coming in higher value accounts.
Got it. One more question on the one in front. So this quarter, we've seen significant growth on the ordinary channel. So I mean, are we seeing very significant market share gains, especially on the FT side?
It has been a good traction for the last couple of years, if you look at our earlier decks also. And again, that's a reflection of our acceptance in urban markets of the new product range of these MTs that historically were not warm to our brands actually taking well to our brand. And the most recent example of that is the personal grooming range that we've launched from offers online for now has got very good traction right now. So when that's a Q2 launch, it is publicly visible, therefore, I'm talking about that. And I think some of that is where we'll continue to see expansion going forward also.
Understood. And there is still a large pipeline of MP tools that you would have, which we've not had in trade retail, et cetera. Would that be a fair assessment? Or would it be more FSG-led going ahead?
So firstly, MT, it's not that we've not tasked the stores, but our presence in those stores or billing in those nodes or less. I think the billing and presence in those stores we expanded while we have a decent reach across MT also so far. But like I said, we're not going to go away from the Son GT because I think that will remain the core of -- from a scale perspective. And therefore, as demand kicks in back from a broader environment perspective, we do think GT will also grow growth not come only from alternate channels.
Right. Understood. And my final question on the margin. So I mean, you broke down the margin expansion into 3 components. What part of that would --you know if we want to keep time margin by 4% over the next couple of years, what part of that would be driven by GM expansion broadly in your assessment?
Very hard to get a pinpoint to that. But if I was to take a broad brush, I think about 2% more should come from GM.
Got it. And that is premiumization largely, right?
Mix of premiumization, I do think there should be some optimization on the cost and sourcing front also.
Next question is from the line of [indiscernible] from HSBC.
Just one question from mine. On the appliances business, you seem to have done very well, about 10% growth. Wondering, would it be possible to share some color on how individual subcategories have done within the appliances?
Unfortunately not, we don't make that up, but the state is broad-based growth across the appliance category.
Okay, sir just some color on how kitchen has done.
So I tell you a leading categories are kitchen, coolers and what are you done? Yes.
But a lot of peers have reported like weak numbers in kitchen. So just can you just put some order in which how they have grown, at least.
So, so I can't break that up product, but we have had growth in kitchen also, and that's the positive note on the share here.
Fair enough. And just on the gross margin.
It also call out mixer and grinder expect, which had been subdued for a few quarters now, we started to see growth in mixer and grinder.
And I just want to understand on the margin level. And I know on the gross margin improvement levers, the premiumization is one important lever. Just on the pricing itself, I want to understand, is there a scope to reduce the discount at least the like-for-like products are sold under Bajaj brand versus the market leader?
I'll put it differently. I think none of the discounting that you're seeing now is desperate reaction to a weak demand situation. And therefore, I think getting that tailwind and demand up is very important because it's not this operating leverage in terms of P&L. But a lot of this desperate on LD discounting will go away from the market that kicks in. So which is why I believe that these are not normal, but these are -- will have a more significant impact on -- for all of us in the positive.
Ladies and gentlemen, to ask a question, you may star and 1. Next question is from the line of Achal Lohade from JM Financial.
Is it possible to get some idea, say, from FY '23 data in terms of the sales mix, how much would be e-com, modern retail and GP. And what we gather is that there is a slight rethink about the TOC or RREP. So any color in terms of how the mix is going to change.
Yes. So Achal, if I got your question right, first asked FY '23 overall channel-wise mix, right? To FY '22 on a full year basis, trade, which is GT was about 65% and therefore, as being alternate in that, I can call out e-commerce is about 12% and then modern trade and the government. Right now in the June quarter, trade is down to about 61%, and therefore, alternate is up to 38% to 39%, yes. In that, again, e-commerce is about 11%, call modern trade and other grow well. I'm sorry, your second part of the question was.
So with respect to the RREP or...
Yes. RREP no. So there is no rethink on RREP. But I think the way we were applying RREP is something we made a little more evolved a sophisticated, what we call RREP 2.2. We had applied the principles of TOC as a one size, it's also across all categories, across all geographies, urban, rural, et cetera, and across states. I think we made some modifications to that to where it benefits us in the categories of markets, we've kept it. I think there are some nuances that were required. For example, lighting business has different nuances, times has certain nuances, [indiscernible] market has some nuances. And as we try to go deeper down on rural or absolute top WD counter. I think you need to cater to some of their unique requirements. So all we're doing is getting a more sophisticated RREP2.2 is a full grade internally that we have. And where what fits and is a little bit of what I would call a hybrid or evolved RREP that we are rolling out, right? And I'll give you one example of that. In the RREP, we collapsed all BUs in all product categories into one CP therefore all distributors also one distributor of all product categories. Quite honestly, it was not doing justice to us, all the distributors because they do not have either the bandwidth or the inclination of focus in all categories. So there, again, when I say hybrid, we started doing a hybrid, depending on each market and each distributor. Where a distributor has inclination and capacity to service all the product categories we maintain that, where distributors or markets require different distributors for different product categories, we're differentiated on that. So that's what I mean by 2.2%. It's just we looked at the model, it RREP, slightly more sophisticated model around there.
And in that case, do you see; a, the conflict and b any impact on the sales in the transition? And how long will this transition or changes which will take place.
No. So I wouldn't call it as conflict, but I think we will see upside on that, for example, consumer lighting. Now you have, in some cases, common distributor for consumer and lighting in some cases different. Again, we're talking about Merlot or the new next band. We are going to, again, have a similar hybrid thing where some places common sum it is not. But the upside is not fully visible for the reasons that I explained earlier. In this market, distributors not nearly investing in the lighting go-to-market fully, particularly in the new people getting into this business to establish its finely getting into that. You wait for a little tailwind for that to come. So in Merlot at, when the launch at then we'll start seeing that in next, by next summer, you will start seeing that, et cetera. So I'd put it not as conflict, but this model take off will start happening as each of these segments or markets or categories start taking off there.
Got it. And just last question with respect to the in-house, what is the mix as of now, and how do you see it evolving over the next 3 to 5 years, given now we are as good as a pure appliances company? How do you see that mix evolving given the cash flows and the focus on the business?
So our mix on consumer stays between 15% to 20% in-house. On lighting mix has gone up. That's about 30-plus percent that is in-house. But more important is the mix within the in-house, what we are making in house and what we're making outside, that is constantly evolving. So lighting, for example, we pushed out some of the consumer lighting and brought in more of the professional IT, higher value-add products, similar consumer IT, focused on the higher value-add production stopping. On the consumer side, for example, I think I've shared this in the past, while our mixer and pan is changing at the product level. So -- to is the manufacturing mix of higher-value premium fans, whether it's mix or Bajaj sense, it something being more and more in-house, including putting up a very advanced paint workshop, et cetera, in-house. Similarly, on the mixers or water heaters, et cetera, we are upgrading the quality of profile of products that we're making now versus some of the more routine products is what we're moving out there. That churn will continue because every time as the NPD comes in, we typically try and balance out NPD production, put a higher traction of the NPD production in-house for various reasons there. Going forward, I don't have a number. I think lighting that 30%, 35% may go up, I don't know, 40%, 45% at more than that. Consumer will be much below lighting. It will be sub-30% in my is there about around 30%. That said, to us a driver of a lot of this decision-making also ROCE metrics. So we don't want to look at margins in absolute, but overall ROC what is healthier from an ROCE perspective.
A reminder to the participant anyone who wishes to participate may press star and 1. Next question is from the line of Rahul Agarwal from InCred Capital.
First question was on lifecycle of a kitchen business. Merlot, I'm not very sure, but when it starts, you it. But when it actually takes shape going into the rest of the festival season, how does it look like? Like it will be a 3-year journey, 2-year journey in terms of getting top line right and the business profit or in like 18, 24 months of breakeven at EBITDA level and then it turns profitable. So I'm a bit under knowledge on Kitchen Appliances P&L. So that's one. The third question to that was also that with an appliance is largely a very regional local play in India. And we have seen consolidation. We've seen other peers buying out larger kitchen appliances brand. Most business strategy we are talking about is taking them outside of their home market. right? So it's more pan-India network, more wider ranges of kitchen appliances coming up in the similar brand nets. So largely, this is going to be an organized shift to organized from an industry perspective? And then when we do this pan-India, when we increase our distribution channel, how do the margins actually be is, again, tying up with the life cycle of the kitchen up plan. That's my first question.
So Rahul, actually, it's a very multifaceted, integrated question. I'll try and break up them into different parts, take that up to a different line. One with [indiscernible] to us is a 3- to 5-year journey. It's not an 18 to 24 months journey. I'm not necessarily meaning from a breakeven perspective, but I think from the potential in the target addressable market for that product categories, et cetera, I think there's a lot of expansion and diversification possible in Merlot and without losing focus across all of what called [indiscernible] nonelectrical kitchen appliances, but there will be a step ladder to doing that. We cannot do all of it in one, so will do it in a staggered manner. But we'll keep seeing us drive growth on Merlot the for the next 3 to 5 years and actually well beyond that. That said, we will remain P&L conscious. So while there will be some investments in Merlot, we don't expect it to be a huge drag on the payment. There will be moderate investments that we'll make the way we look at it also from one of the larger areas of investments will be brand building, I think like one of the earlier person asked on the call, in order to rebrand that has got a good legacy, but not necessarily a good immediate past therefore, is something that we have to revitalize the less. We will do that only as we invest in that, well because we think the payoffs on that will continue to the future. In terms of your question on consolidation, et cetera, yes, there is some amount of that happening in the industry. I think you'll see a greater trend of that maybe 2 years from now by 25 or so, I do think you will see greater consolidation. I think consolidation will happen in 2 ways. One is maybe M&A kind of inorganic actions, but also purely players shutting off. Even today, you're seeing a lot of the reported numbers. Look at the bottom line and the margins, you cannot operate businesses at 0%, 5%, 2%, minus 2% et cetera. So some where people will have to make a call on capital allocation and what kind of returns for these businesses. So that, I think, will trigger various forms of consolidation 2 years from now [indiscernible]. The other lever of former consolidation is unorganized to organized, which was another part of the question. I think that trend is very clear and secular that you're seeing in cross product categories, different categories at different levels of unorganized and organized. I think the nonelectrical kitchen appliances, that is cookware, et cetera, has amongst the highest levels of unorganized market share. So I think that, therefore, that goes in line with my earlier answer on actually let not 3, but I think it was for the 10-year runway as this shift from unorganized to organized continues to happen, and we will continue to write that shift there. To your question on global, globalization, I think that we have to understand globalization in these categories will not play out like in many other categories. While pans has got a certain level of export market. The moment it comes to kitchen. Kitchen nuances of references are very triggered by social cultural factors. In fact, not just from a global noted, but within India, every region of India is very different cultural cooking, eating lifestyle habits and therefore, that is reflected in the kind of appliances and the venture that we have across these. And that dramatically changes as we go outside India. So I do think there are very different challenges in product profiles that work outside India, that worked in India for the kitchen. So that is not easily replicable or scalable. The other factor I'll put in are when people are talking about globalization of exports. A lot of this is today happening when it comes to footwear, et cetera, in the form of OEM business or contract manufacturing. That is something clearly we are not interested in. We don't see it as a strategic focus or priority for us. We think there are many challenges with contract manufacturing models for have not put it out in the financial aspects. You all understand that well. But clearly, we don't think that's the way that we want to go into the future. So we export a global model that we look at in the near or long term will be based on brand led our own business, not on contract manufacturing. Hopefully, I answered your various parts of the question.
Yes. Just to conclude this question. So basically, should we build in like INR 3 crores to INR 5 crores of EBITDA Cap losses over the next 3 to 5 years? Is that fair enough?
I will not give you a number, Raul, but you can build in small numbers, let's state of any negative brand.
Okay. Got it. On the mix or in terms of in-house and outsourcing, you obviously in the previous question, explained a bit. But could you highlight in terms of incrementally, you said the shares are going to go up for a no-overall for the company. What would be like a CapEx plan? And which are the products where you're investing going into the next 3 years?
So CapEx in, I'll tell you for the visible 12 months ago INR 150 crores. Any large CapEx in terms of now as the factory production, we put it off for 2025 discussion or review, okay? So we'll evaluate that at that point. We will share any details on that point. At least for the next 18 months, we don't expect significant CapEx -- and this again comes from 2 factors. One is we just think we have a handful of doing many things and growth without resorting to any CapEx, operational product launches, Peter and rather focus on that in the manufacturing end right now. But also in terms of ROCE consciousness, as we build up our balance sheet cash capital on the balance sheet, the capital allocation decision of high CapEx, changing our performance metrics on this or approach on this. We put it off for 2035 we'll review it at that point of time.
Get it. So we should build about INR 150 crores next 18 months. Is that correct?
INR 150 crores annualized.
Annualized. Okay. Got it. And lastly, on lighting. Consumer lighting mainly. We've seen some price declines on LED pricing. I hear that it's global, it's not only India problem. And there is no import dumping happening either on LED into India. Any thoughts on what is the exact trend here? Just a bit more detail on this. As -- do you expect it to stabilize now? Or if that continues, the channel will still be vary in terms of stocking up more LEDs and hence, consumer lighting will continue to see a lower year fiscal '24?
So my view is around these are 2 separate issues. There is price erosion in LED -- that's always been the case for many years, and it continues right now. But I would say the magnitude of price erosion is single digits right now, it is to be double digits in the past, okay? So I think the scale or magnitude of the sharp time lines on price erosion is definitely reduced. That said, it continues to be a headwind against growth. So I think the issue of lower total sales or consumer demand on consumption in more led to demand factors in the economy factors than the price erosion. So as that consumption, consumer demand, discretion demand, housing et cetera come, I think that will pick up in respect to price erosion. You've seen that in, let's say, minus the last 3 quarters or 4 quarters before that consumer lighting business was growing in India, and I think that will come back. So with respect of price erosion, I think I don't know whatever time frame we take of overall consumption demand coming late, you will see that trend also in consumer lighting. And therefore, our task really is to make sure our growth in this business is more than the deflation effect of price erosion. And we've done that in the past. If you minus the last one we've done it, we will do it again. It's not a problem Sorry, one last point to add to that. We have a counter to this price erosion is like price erosion is usually more accentuated at the lower end of the market in the product, commoditized products, the basic lams, et cetera. And the other solution to that is actually to keep adding more value-added production, which is what we're doing in consumer lighting in the past, we did not have that. So if you look at our product range on consumer lighting that we've been showcasing the last 3 to 4 quarters, that value-added products are continued to grow, and therefore, the margins in those products also are healthier. You are seeing uptick in our lighting margins over the last many quarters, even this quarter, while it's a margin uptick despite revenue degrowth, you've seen the margin uptick. So as the revenue grows in consumer lighting loans, that margin uptick will be much sharper in lighting.
Perfect. And last, a small one on BLDC fans. I see the share going up pretty substantially. Obviously, more of that has happened since January, February. Your experience on after sales as in the quality of the product and acceptability in the market. Obviously, the sales have gone up. But from an aftersales perspective, are you receiving any more complaints? Is the traction very high? Or is it very low, it's like pretty smooth?
So no complaints right now, Rajul. But typically complaints in BLDC because of PCB other cycles, which start coming in 2 years hence, okay? And that is something we are very conscious of that while there's a positive side of [indiscernible] energy efficiency, there is a positive to induction technology. That is not an outdated technology. It's not a weaker technology. Maybe it's as good or better. If you look at a longer 5-year perspective on the product, et cetera. So the life of a BLDC sign induction sign is different. And you will see across it's not any particular manufacturer brand. You will see some impact on service in claims and PCB failures between a 2- to 5-year time frame BLDC sense. I think a lot of that will start becoming visible again 2 years from now across the industry, okay. Coming back to my view on the market with the new regime. Today, you're seeing the market segment itself between 1 star in and 5-star in and a perception that 5 stars a go-to for energy efficiency. In reality, I think, ultimately, market will converge towards the 3-star fans of 4-star also, which today are very -- seeing very less traction. If you look at every other product category, whether it's AC, et cetera, actually 3 star, 4-star product offerings account for greater share than 5 star. And I think that will happen in due course as this category also matures. Remind you all of that will be induction motors, not the NBC.
Got it. So are we provisioning more for [indiscernible] for facing those kind of expenses to year end?
No. So we don't need to really provision higher, and I will not share some of our internal -- how we approach that, but we try to address that in different ways and at a product level et cetera.
Next question is from the line of Harshit Golecha an Individual Investor.
I just have 2 quick questions. Can we see any takeovers in the near future or say something like inorganic growth?
As I was going to take over to what I would not announce it on the call line. I'm sorry, I was just saying that in lighter way, I understand your question. Sorry go ahead Harshit Golecha.
Yes. Like are we interested or something like for any M&A or any growth or takeover of it brand or something like that?
Harshit, my answer to that is this is something that we have to be opportunistic about. It is not for -- we are open to it as a change from 2 years ago, we were not open to it for various reasons, including balance sheet pesos. I think going forward, we are open to it. But it has to take many boxes for us. So we're not desperate or dependent or will not do it for any reason. And just to emphasize that, therefore, our growth will happen irrespective of all the -- that's how we're looking at it.
Okay. And when can we expect this EPC to get much to maximum like time line?
Again, like I please soon enough not very long, not too many months from now. Well before the end of this calendar year, well before the end.
Ladies and gentlemen, we will take this as a last question for the day. I now hand the conference over to the management for the closing comments.
Thank you very much. So I'll just reiterate what I said at the start, we know it's been a soft quarter, but it is a soft quarter is a reflection of the market environment, not anything else. Quite honestly, if we compare that with our own level through primary data, if you look at all the results and you compare us with ECD and SMEG results. I think you're seeing that as a common trend and theme across all this segment. Internally, we are very clear that, that is not stopping us from doing all the right actions. We will continue to drive the right actions. And as we see markets improve or tailwinds coming, you will see margin expansion kick in, which is as I pick up the primary concern you all have, but we are as confident as we've always been on that. front, that's all. Thank you very much.