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Earnings Call Analysis
Q2-2024 Analysis
Bajaj Electricals Ltd
The company is celebrating consistent growth in fans, which has translated into clear market share gains. This growth has reportedly been strong and double-digit. The coolers category also saw the brand leap from the fourth to the second spot, again experiencing very high double-digit growth. This positive performance in fans and coolers is particularly noteworthy, considering the company has become a significant player across fan segments, which was not the case in the past. The launch of the brand Nex is expected to further bolster the company's growth in the fan category, particularly in the upcoming summer season where visibility and sales typically increase.
Despite static gross margins year-over-year, the company has managed to expand its like-for-like margins by 4 to 5 percentage points. This has been attributed to an improved product mix and an increase in average selling prices (ASPs), although some gains are offset by market discounts. The dynamic of scheme-level or volume-level market discounts has been common across the sector, leading to a reduction of these expanded margins. Nevertheless, the company's strategy has resulted in less impact from competition, indicating an underlying strength in margin growth.
There is an expectation of margin expansion, contingent upon a return to normal growth. The executive anticipates that with improved market conditions, the operating leverage effect will kick in, potentially leading to margin growth both in absolute terms and as a percentage that outpaces top-line growth. This implies that the recent period of operating deleverage will reverse, and margin improvements will come from both market recovery and internal efficiency measures.
In the lighting business, there has been a notable 15-20% price reduction due to both demand weakness and advancing technology. This erosion, coupled with competition, has resulted in a challenging environment. Despite this, the company's product portfolio has expanded significantly, with approximately 90% of the product offering that leaders have in lighting and luminaries, though there is still room to grow into high-end segments as brand strength and market acceptance increase.
The EPC segment of the business faced challenges due to a transitional quarter that included a change from Bajaj Electricals to Bajel. This caused delays in billing and invoicing, which is expected to be caught up in the following quarter. It is also clarified that a one-off expense of about INR 2 crores occurred, which is not indicative of operational loss but rather the transition's impact. With a significant order book and doubled annualized revenues expected for FY '23, the future for EPC looks promising.
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Ladies and gentlemen, good day, and welcome to Q2 FY '24 Earnings Conference Call of Bajaj Electricals Limited, hosted by Ambit Capital. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Dhruv Jain from Ambit Capital. Thank you, and over to you, Mr. Dhruv Jain.
Hello, everyone. Welcome to Bajaj Electricals 2Q FY '24 Earnings Call. From the management side today, we have with us Mr. Anuj Poddar, Managing Director and Chief Executive Officer; and Mr. E.C. Prasad, Chief Financial Officer of the company. Thank you, and over to you, sir, for your opening remarks.
Thank you, Dhruv, and good evening, everyone. Thank you for joining this call. It has been a tough quarter. When I say tough quarter it's two reasons: there are more external factors, one is a weak consumer sentiment in the marketplace, particularly for discretionary products; and second, there's a slight delay in the festive season this year, with a little bit of a cusp between Q2 and Q3, unlike last year. That said, I believe we continue to meet gains on our strategic objectives and initiatives. We've not stopped on that, primarily around strengthening of our brand, all the brand initiatives that you see as well as on product launches.
In the quarter gone by, as you've seen in the deck, we've had over 100 products launched in the consumer business and similarly, a large set of products launched in our Lighting Solutions segment.
In terms of category gains, we've seen market share gains in fans, coolers, and mixers, which are all core critical categories for us. At the channel front, while general trade has been soft, lot of that is because of weakness in the rural market and the lower end of the urban markets. In the more modern channels, which is e-commerce, modern trade as well as institutional government business, we've seen very handsome double-digit growth over 20%, as we've seen laid out in the deck, and that bodes well for us.
Finally, our cash flow continues to be positive in this environment. And just a little heads up on Q3. Q3 has started on a positive note. October trended positive. So we are hopeful for a better Q3.
With that, I will hand it back to you and the moderator for questions. Thank you.
[Operator Instructions]
The first question is from the line of Natasha Jain from Nirmal Bang.
Sir, can you first give us the growth or the degrowth in appliances, fans and Morphy Richards separately?
Natasha, thank you. So we've had a degrowth in appliances in very low double digits, but also a double-digit growth in fans and Morphy Richards has been flat.
Okay. All right. Sir, what I want to understand is while we've been consciously building our premium product portfolio, then why have we not seen some kind of maturity impacting the margin -- positive impact rather because I believe these premium portfolio should get some kind of operating leverage benefits, right, in the margins? So why is that not happening?
So I'll answer it the other way, Natasha, and it's important for you to go and track, which is what we've been -- look at from a 2 year trajectory, look at FY '22 margins, '23 margins, ending in the first half that is out this year for us and competition. The reality is there's been a very steep or sharp margin contraction across the sector. And if you look at that versus us, you will see everybody having contracted margins, extremely sharply, except us. So in a reverse way, we've actually gained margins but some of that is lost because of tactical pricing things in a soft and weak market. I think there's very heavy discounting that all players are resorting to.
We are also having to engage in some of that to protect our market shares. But net-net, the result of that, I do believe we balanced out the top line versus discounting versus margins better than all of competition. We are tracking that every quarter. And therefore, going back to my point, if we look at that over the last 2 years, our contraction or impact on our margins has been the least versus others have significantly contracted.
And the reason for that possibly because, in reality our margins have expanded, but then gone back in the form of tactical things. That said, I do believe these are all signs of a weak demand environment. As soon as demand picks up, I think you will see a benefit in top line. Lot of that will flow directly to the bottom line as well as some of this ways to the bottom on discounting will stop, and I do think some of these are short-term quick wins that will happen in the healthy market.
Understood, sir. Sir, if you could just tell us how the BLDC Fans portfolio did for you?
So Natasha, we don't call out BLDC separately. Having said that, we are a later entrant into BLDC. We continue to see an uptick in that. Overall, premium fan segment for us has been about 20% holding out there. And the other end, the subeconomy which used to be a large percentage is at about 55% contribution for us.
Understood. And sir, lastly, what...
Dhruv, I think we have lost Natasha? Hello?
I think Natasha has dropped the call. So we'll move to the next question. The next question is from the line of Manoj Gori from Equirus Securities.
Sir, my question here would be, if we look at you, obviously, the initial opening remarks, you highlighted Q3 has started on an encouraging note. So obviously, lot of demand would have been driven from the festive demand. However, when I look at the base quarter, your fan sales were extremely strong in 3Q of FY '23. So can throw some light, like probably how we are looking at 3Q specific given that the base is extremely high? And how do we see kitechen appliances to ramp up during the quarter led by festive growth.
Sure, Manoj. I'll just share a little more qualitative commentary on this one. But if you look at the last 3 to 4 quarters, what has been a drag in the industrial sectors in kitchen appliances in particular, I think it's been almost 4 quarters that kitchen has been doing weekly. And given our contribution from appliance and kitchen is higher amongst peers, the impact on us has been adverse. So no, more impact on us on, point one.
Point two, therefore, the fact that we're holding out numbers is because of our premiumization, other things that we're doing, including mixers in particular has seen some traction against these headwinds and kitchen appliances overall.
Second, on fans, it's been a little more volatile, more because of star ratings, et cetera. That said, like you called out last year Q3 as well as over the last 2, 3 quarters, we managed to continue to grow fans, including in this Q2 at double digit, more because of our new launches and other endeavors that we've been doing.
To your point, specifically on last year Q3, if I remember correct, we were 64% or so based in fans. But mind you, that was off a very small base. Q3 is not a big base for fans. I wouldn't read too much into that. And therefore, if we look at Y-on-Y Q3, fans is the smallest component of that.
I think appliances, including water heaters, really needs to kick in. In that part, coming back to, so far what we've seen, October trend has been positive, particularly post-shradh, post 15th October, and that is again led by tertiary demand. So I'm not talking about primary, but -- secondly and tertiary demand, we've seen good encouraging signs in October so far, which gives us little comfort on primary, following and continue hold out.
The only watch out for us right now is how does winter pan out, when does winter set in, Assuming winter sets and in time, water heaters is a big driver of sales in Q3, then we should be in a good wicket, winter or the weather being the single biggest factor that we look at in this quarter.
Right. Right. Sir, one more structural question on the demand side. So if you look at specifically, for last 4 quarters, demand has been very muted, but probably, if you look at the like-for-like products growth has been for more than 4 quarters, it has been a long period. And that's why even our performance probably led by external factors, we have been not able to achieve the desired target. How do you see actually demand reviving? What are the key macro parameters that gives you confidence that we are moving in the -- like industry moving in the right direction, we are very close to demand revival? And are you seeing any green shoots -- early green shoots for that?
So Manoj, I'll hold off on commentary on future production market because that's not a controllable for us. You're guess is as good as mine. That said, I will tell you the parameters that I track, the data points, which is not the GDP. I think the GDP is the biggest misnomer on addressing state of economy of consumption. Currently, it's being led, and again, many economists tell you more by banking, NBFC, infra CapEx, other sectors. Consumption is not falling.
So I think what's more important to track consumption story is really household savings, income, employment, jobs, that kind of data. That data has been weak for a while, but that is where I'm starting to see some positive traction.
If you look at jobs, and I've shared this in the past, there used to be 90 million pre-COVID. In COVID, they've gone as low as 60 million. Till the start of this year we will get at 70-odd million till we stuck to 80 million, 90 million. I've just seen the data today for September, that's at 91 million. So that 90 million threshold of jobs is an important threshold to be above for demand to kick in.
The other flip side of that is unemployment rate. Unemployment, there's two sets of data out there in the market. One set of data is pointing to yet relatively higher unemployment rates. But I would yet say while percentage of unemployment may be not the most comfortable. I think if jobs are good and at least somewhere there's a purchasing power coming.
The third important data really is the interest rates. And that is really putting a squeeze on discretionary spend. With high interest rates the EMIs have gone up for most households. And therefore, disposable income has gotten squeezed. That's the one parameter that needs to change for real spending power to come in. That's not a controllable for us. So strategically, we have to just keep biding our time for that and keeps strengthening. And as that starts to correct or its baseline itself without increasing more, then people will come back to spending. Right now, I think you're all hurting from that. So to me, these are the more direct parameters linked to consumption that we are tracking and which gives us a little more insight into why the demand is weak.
Lastly, actually to that is rural income, Rural segment. I think that, again, we looked at certain parameters, if that comes back. So these are all the noncontrollables for us. Coming back to your question, as we continue to strengthen our portfolio mix, like I said, when we look at the internal mix data and our secondary market research, syndicated research, we are seeing gains in market share, either at a category level, the ones they called out to fans, mixers and coolers, we will see what happens in water heaters. By Q3, Q4, we should see some positive traction there.
And at least in the channels that are doing well. So general trade is not doing well, but if you look at the alternate channels that I called out, e-commerce, modern trade, et cetera, we are gaining share in that. So to me, those underlying metrics are strong. And therefore, when the headwinds convert tailwind, then we do expect a better go forward on that.
The next question is from the line of Rahul Gajare from Haitong Securities.
I have a couple of questions, maybe first on the financial side. Now you'll have a lean balance sheet with practically no debt and very limited change in the asset base. Still we've seen increase in your interest cost and depreciation. And I think you've touched on this aspect in your presentation. But how do you see, do you think that this expenditure is something which will be stable at these levels? Or you see that these will fluctuate based on how the business moves?
So Rahul, E.C. Prasad here. So if you look at the financing element, there are two components to it. One is under financing where actually we're operating about INR 800 crores worth of line on vendor financing. So you have to also look at the income side where there is a treasury income of about INR 5 crores sitting there. So net-net, we are operating at about net interest of about INR 3 crores for operating and INR 800 crores line, which will continue. But if you actually look at the cost which I'm paying, it's actually very small. It's about 3.5% costs that I pay for the vendor financing, which is very lucrative.
Rahul, I'll just add to that. We've had a payout, obviously, to Bajel with the split to the balance sheet. But obviously, on a quarter-on-quarter basis, our cash balance will continue to increase. We would have this quarter also except for the payout. So over time, as that balance sheet keeps getting stronger, ratio will flip over, yes.
Okay. Yes. So the second question I have is on, could you talk about your A&P spending that you've done in the second quarter and first half, given we are basically facing weak consumer sentiment or demand? And connected with this, also the logistical transition back from Mahindra Logistics to any benefits, cost saving that you have seen due to this transition? That's the second question.
On the A&P spend, Rahul, this quarter is about 3% and Y-on-Y, I think last year was 2.3%. Q1, I don't remember number, but I think it was 2.5% or 6%. So this quarter is slightly higher, so that's built into these numbers. I think at 3%, we kind of balanced out between -- if the demand situation was good, then we would spend more. But beyond this, certain spend is not giving ROI or converting to sales, but it is yet healthy enough for us to maintain our brand push that we're doing, given the strengthening that we are at in terms of brands, okay?
Coming to logistics, and I probably would have shared this in the previous quarter call also. I think there's 2 aspects to the transition, back from outsourced party to ourselves. One is to, we did have service level and pure operational issues and logistics with the service provider, which is the reason to have brought it back. So our first strategic initiative comparator was to make sure that service levels drastically improved before we focus on the financial metrics of that. So in a way, we overengineered and oversold for that at a high cost when we took over, and that has being built into the numbers to make sure service levels and the flow of goods is good. That is extremely good.
We're perfect like we used to be before the transition out. So we've corrected for the issues that we faced in that. That said, now month-on-month, we are starting to optimize the actual financial efficiency metrics on logistics. The first results of that you will start seeing in Q3 because we had as part of the handover, takeover and transition, certain lock-ins on warehouse and other contracts.
The first set of that starts releasing this October. So the first Q3 will start some optimization on logistics cost. But we have a road map from here, right, over the next 18 months on optimization of logistics cost. I think you should see about 1 percentage improvement by this March and about a 2 to 2.5 percentage point improvement by March 25 on logistics. We have a clear action plan and a bottom-up calculation of how that will be derived there.
Okay. That will be great. Now my last question is on the market share. In your opening comments, you did talk about market share gain. Possible to quantify some of them in some categories that you've had seen market share gains?
So Rahul to be honest, we've never put out market shares. This is secondary syndicated data. So we look at that for our internal purposes, but not data that we put out there. And we're saying that -- we say to the level of assurance or accuracy that we've gained share in these categories here.
Okay. So if not quantitatively, qualitatively, that you've seen of significant ramp-up in a particular category. Is that a quality to angle that you can talk about.
So, let's say, fans -- let me call out fans and coolers because that's more visible. If you look at our growth over 2 years, et cetera, it's clear, consistent growth in fans of that we've had. And that's obviously translating to market share. In every quarter, we've been clearly calling out, our own numbers also looking strong double-digit growth in fans. So that's obviously leading to market share gain. I don't think that's representative of all players. At least not quarter-on-quarter where everybody's had greater volatility, we've seen that. And we're also seeing that if you do your own channel checks, et cetera, that Bajaj is becoming a player across fan segments, which we were not in the past year.
You will also see some push from us on the new brand Nex, that we launched coming summer. So that, like we said, is a soft launch, but you will see some traction coming summer on fans. The other category that we've had very visible market share gains is coolers. We used to be a #4 player. We had the #2 player. Even, in this quarter, we had extremely, extremely high double-digit growth in coolers, and I hope we'll continue to maintain that trend.
Mixers is less evident because we were already leaders in mixer category that has been overall seeing pressure or contraction. So in that, while we have gains, if you'll again look at some of the new mixers we've launched, the 750, 800 watts, Ninja series, in particular, you go and do your channel checks, you'll see very good feedback on that. Again, we've launched something called Military Grade Jars et cetera. These are giving us slip and reason to buy and reason to gain share, but that will be more visible as the category grows, then that days will be more visible.
The fourth one that I called out, but we have to wait to see that season kick in, in water heaters. So I'm hopeful that as the season kicks in, you will see that in Q3 and Q4.
And just to confirm, next is going to be restricted only to fans category, that you're not -- it's extending Nex to other product categories?
No. It's a fan-exclusive brand. Test for that will be in the coming summer. But by the way, if I may plug, I must plug flag, each of you on the call, please go by our Nex fan. Tell us, we'll help you do that. Give us genuine product feedback. We're extremely proud of that and confident of that product. The product is good. That's your best test, not what we are saying. See the products for yourself. It is superior, technologically and design-wise there. If that's right, you can bet your life that -- the market will pay us for this.
The next question is from the line of Anirudh Agarwal from ValueQuest.
First question was on the gross margin. So obviously, while overall gross margins continue to be flattish, on a Y-o-Y basis, if you can give us some sense of how this would have moved at a category brand [ under ] specific level. So just trying to use -- [ DR ] is the gross margin number further and where are the gains and losses that we would have gained, the gross margin line in the last second quarter?
So Anirudh, if I were to try and give a generic answer to this one, I think for like-for-like basis, our gross margin actually have expanded 4 to 5 percentage points. And I think that more from, if I were to take a similar ASP for that product category that it should prevail in the marketplace earlier or our cost structures for that or product mix here. That said, some of that gain is lost back in the market because of the discounts and the why we're able to call that out sometimes with discounts not at a ASP level, but at the scheme level to actually get the sales and market share back in, which is really common across the sector.
So if you look at our product SKU level, our gross margin, that expanded by 4 to 5 percentage points. But at scheme level or volume level, some of these are given back to the market. And the reason we are able to overall -- therefore, to my earlier comment, if you look at a 2-year trajectory on margins, had the least impact versus competition is because we've actually fundamentally gained on our first level margin.
Right. And any impact of the channel mix changing from GT to alternate -- alternate growth continues to be strong, these are on a reasonably large base now, right? So any impact that has on the gross margin?
No. I think channels really have a bearing on the margins. I do think the product mix does vary a little bit on channels. Obviously, general trade has because of the rural contribution may not be as high indexed as modern trade but that's really a function of the market or channel penetration, not so much of our pricing strategy. So I'm assuming your question was more linked to pricing strategy, so we don't have a bias on that perspective. So you've got basis on different channels.
Understood. Sir, eventually, how should we look at margin, right? So we had an expectation earlier of gaining about 100 bps sort of margins every year has been prepared in the next 3 years. So does that still hold in your view? And what will drive this? Isn't just the missing growth, which you expect will come back and that will drive margin expansion? Or is there something else also that you're looking?
So I will come back to my same comment, Anirudh, if you look at what's happened in the sector, the sector margins have collapsed significantly. We've held out. So had that not happened, our margins have actually expanded because there's no way for us to have held out margins, otherwise, except because we inherently they've expanded because we have to participate in the same pricing tactics in the marketplace. That's point one.
Point two, therefore, I think some of this is tactical short term. When the market comes back, by default, these will come back. These are the signs of week's consumption sentiment. Point three is, we are not going to rest on that, like I called out on list. We have a couple of other levers that will continue to drive margins for us. So we will stay on path, and we are confident about that path.
Understood. Final question is on the LED side. So LED, how are we looking at the scenario? Now obviously, industry growth as a whole has been deep since some time. But how do you look at the pricing side now, how are we doing particularly on the product and distribution front both of which we were trying to realize?
So if I talk about lighting and I split that up on the consumer and B2B lighting, form the consumer lighting, there is a headwind in form of LED price erosion about 15%, 20% based on DOB expected technology. The technology is probably, again, if I have to average it out 8% to 10% cost saving but about 15% to 20% price cut in the marketplace, okay? So I think that's the headwind you're seeing in the B2C segment across the industry.
I do think some of that will stabilize. For us, what is important in B2C is the product portfolio expansion. We shared some of those products in this quarterly deck. And again, if you go do a channel check, we'll see our whole product range. We're happy to share that with you internal product catalogs, et cetera. How our product range in consumer lighting is significantly expanded. And I think as we said that, that expansion only happened over the last 2, 3 quarters, I think next 2, 3 years, we should see consistent growth in the Consumer Lighting business on the back of the product range and the distribution that is being put in place or GTM being put in place for that.
Coming to professional lighting side, I think that's more an order book based thing. In Q2, some of our revenue booking got booked -- or has got deferred from Q2 to Q3 in terms of this timing of invoicing and dispatch or installation of projects, et cetera. I do expect Q3 and professional lighting to actually pick up from where we are right now.
Right. And this order book number that has mentioned, what would be the execution time period?
About 6 months, but this is October 1 number that we've shared, there is more orders since then. But you assume on lighting in general at a project level it's about a 6-month order book, but that's not static. That's constantly getting executed and more are getting added to it, so...
Got it. So just final thing to wrap up, essentially, the point was that, if we have a more normalized growth in H2 of this year, [ assuming ] kind of stabilized.
Yes. So margin expansion to put it the other way, will -- if you have normal growth in margin growth, so absolutes will be much and percentage terms will be higher than the top line because you'll see a reversal of -- right now you're seeing operating deleverage, you will see operating leverage kick in with top line growth. That's separate from our internal improvements that we're working towards.
The next question is from the line of Aniruddha Joshi from ICICI Securities.
Sir, means, we have seen that almost all players are doing excessive discounting. So do you see that probably -- just having any additional growth rates? So is so much discounting really required? Or what should be the way forward in a way to gain market share or to grow at a really faster rate because the discounting is going on for quite some period of time, but almost no player has achieved any material benefit as such.
Secondly, in terms of what are the possible ways to differentiate than the competition instead of just doing discounting in line with the competition that we are doing? And what has been the effort of that or the benefit of that. That's it from my side.
Actually very good question, Aniruddh. Let me answer this. Number one, discounting is the easiest tactical response to a weak marketplace. And I think that's not a strong player response. Typically it's a weak players response, so a weak industry response where the industry is not able to defend itself. I do think it is -- our philosophy has always been that we don't lead the discounting. We don't initiate or trigger the discounting because we are not in favor of because -- and I'll tell you why, because discounting, at least in our sector is not -- we're not a sector that has elasticity of demand. If I discount a fan, if you need a fan, you're not going to buy 2 fans. Unlike if I'm a government player, if I discount a shirt, you may buy 2 shirts. So I just think by discounting industry is only getting its bottom line. It's not growing a stop line. It is only trying to shift from each other.
But also while we're not leaders in that, we're not going to see the market share if somebody does that. So we will defend our position, but we'll never be leaders in that. But that's a more tactical short-term view. I think a long-term view, which is the good part of your question is, you have to be able to move out of this game. And for us, coming from where we are, which just goes back to what I always share. Share that as a branded product? No. We are strengthening our brand and strengthening our product innovation. Everything that we're doing last 1 year, it's a journey to actually build greater brand actually.
Everything I've spoken about are shared on the deck, why we are following this multi-brand strategy, why we have a very core positioning defined for the brands, why the innovation that we talk about durability for Bajaj or performance for Nex or lifestyle positioning for Morphy Richards and we'll also see what we come up with [indiscernible]. I think is to take the FMCG playbook where brands will have to build brand savings, back from differentiated product strategy.
That said, that's not an overnight strategy. That's a 3- to 5-year strategy. That's how it play out in the marketplace. And when that plays out, brand savings in turn translates to us not having to actually do these catch-up discounts with others, we will try and hold our price points into the future and not just hold our price points. I think pricing power is something that we earn for ourselves over the next 2 to 3 to 4 years by these measures. So I do think there have a very clear strategic vision on that. To some extent, that is different from the commentary I hear from competition.
Everybody is free to take their own approach to do things. But we are very clear that we don't want to be trapped in this discounting game. And we will work ourselves out of that by these measures, which are not short-term measures. They have to be done the right way over the right period of time. So hopefully, that answers your question.
Yes. Just one thing, anything about the new brand, the new premium brand that we have introduced, the take is a bit silent on that. So any update that you would like to share on that? Any progress.
So that brand is Nex. We've done a soft launch, which we announced it earlier, but the real test of that and push from us will come in summer because it's the Fan's category. So that's when we really communicate with the consumer. And that's when we'll have more to talk about that product. But like I said, a couple of questions earlier, the best test for that right now is not the brand side because that communication will kick in later for the product side. And you're welcome to test out our Nex product, fan, looks better, performs better, you can't ask for better.
The next question is from the line of Mr. Achal Lohade from JM Financial.
Yes. The first question I had was with respect to the competition. Now is this discounting very evident in particular category or it's across categories? And also, it is in particular region or it's across pan-India?
So Achal, it is across categories, across regions not being unfortunately led by the weaker players. But a couple of the stronger players are the ones who are leading it, which is why we are matching up to that there. But again, I think sometimes this is a sign -- I'm repeating myself, sign of market. I don't think anybody wants to indulge in that. I do think that the first opportunity of discontinuing -- and these are tactical schemes. These are not pricing. If you look at most discount announcements, the competition also, they're typically at a scheme level. So the moment these market picks up, it's very easy to withdraw schemes such as these.
Understood. And you said 400 to 500 basis points gross margin improvement, was that a Y-o-Y comment, sir?
So it's been a trend across the last 2, 3 quarters that we've seen. It doesn't follow through, like I said, because they get lost in the scheme. But otherwise, it's a mix -- it is Y-o-Y, but it's a mix between really product mix improving and some of our moving into segments where we are not operating in it.
Right. Where I was -- I mean my follow-up question was this margin improvement, is it part of the -- part of the reason is the raw material cost reduction? Or is purely they have premiums...
No. No. This is not to do with RM reduction. This is portfolio mix and our VA we expected, not the RM part.
Okay. And coming back to the discounting part, I mean, the kind of cost reduction, what we have seen in general, given the raw material prices kind of cooled off a bit. Is that already been passed out fully or -- by the industry or you think some of that is actually retained and being reinvested?
I mean it's no -- still to try and correlate how much of RM is passed on versus not. It comes back to, if we look at it holistically, clearly, the industry is taking money from it's own pockets and passing it back to the market at the cost of its margins. Now, you can notionally say from which bucket or which pocket it's come. But net-net, if you look at either the -- is the discounting more than the RM reduction? Yes. Is the price increase adequate to where you had cost increases, let's say, fans or other categories? No. So whichever we've cut the cloth, the fact is you've passed on more to the market, then what you earn back by RM or what you should earning rightfully increase prices by.
Got it. And just one clarification, with respect to fans, has there been any change in the pricing in September, October or November? Or is there any plan?
I'm not sure I understood the question, by change in pricing -- in terms of...
In terms of is there a price...
No, we've not taken any increments or any of that sort.
Not taken any prices...
No, no.
Okay. Understood. And just one more question with respect to lighting business. In terms of this price reduction 15%, 20%, while the cost reduction is 8%, 10%, again, it's purely the weakness in the demand? Or is there more to do with anything else in terms of competition or anything -- new competition?
I think in this case, it's both. It's weakness in demand you've seen the last 4 quarters in B2C lighting, but this price erosion has happened only in the last 2 quarters.
Yes.
Partly to do with technology and partly to do with competition.
Got it. And just one clarification. With respect to portfolio, where are we compared to the leaders? Are we at par now in terms of product offering in lighting.
Are you talking lighting?
Yes, yes, lighting and Luminaries.
We have got 90%. So there is yet some upper end of value-added lighting, decorative lighting, not naming those products, but you probably understand which we are not in. But I think there's a journey to -- we can't leapfrog to that. From where we are coming, we need to -- from the lamps, we need to just build in the recessed panel DOBs, et cetera, before we can move to the upper end of that because it will not be accepted in that right now.
The next question is from the line of [ Lakshya Jain from Plan Investment ].
Hello?
Yes, Lakshya..
Am I audible sir?
Yes, Lakshya.
Yes, yes. Sir, my question is related to the EPC part of our business, sir. We have made net profit of -- no loss, in fact INR 4.4 crores instead of INR 3.6 crores of profit year-on-year. And we were very vocal on being -- becoming breakeven from EBITDA point of view. And again, we are incurring losses. So when can we expect this sustainable positive EBITDA and some reasonable profits? This is my first question.
Lakshya, thank you for asking that question, it allows me to clarify. Firstly, this is 2 months data July and August. Secondly, this is because it's a transition quarter. In the quarter, as we move from Bajaj Electricals to Bajel, lot of the client contract sector needed to be innovated in transition. That's a process across, whether it's the transmission side, power grid, et cetera and also the distribution side. Till that process of innovation, conversion, system changes was not done at both ends, the client also has to do that. There's a fair amount of billing or invoicing of product supply that was held up. We're not able to build that in Q2 till -- because we have to dispatch in our new name. We have do the GRN on the new entity name and that whole loop has to be closed. So we have lost certain out of revenues and sales in this period. Lot of that will be caught up in Q3.
Our order book, in fact, has significantly grown. We've made various announcements of new orders that we've got in that business. So as that billing kicks in, the transition gets over, you will see a sharp uptick in the coming quarters on that revenue and that's flowing directly to a smarter, better bottom line.
Second, there have also been one-off transition costs in this. There's a lot of duplication that's happened initially set up on IT people, offices, certain amount of, I wouldn't call consulting fees, but this professional fees in this transition. So that's built into this. So it is not a matter of concern. It's not really an operating loss in that sense. It is a one-off because of this transition and hold up on certain billing and activities in this quarter.
And how much was this a onetime expense, sir, approximately if you could help us with that number?
Onetime expense in this quarter?
Yes, for EPC business.
Yes. Yes, it must be about INR 2-odd crores, but that's a onetime expense. What I'm really calling out is -- I don't -- we don't have a number, but let's say you had another INR 100 crores of billing that you could have done that was all held out in this quarter, right?
Are not closed to the bottom line. of that INR 100 crore also is much lower than -- we're not putting on a projected number or we put that out in the original batching deck. We're Looking at almost 2x of revenues on an annualized basis this year, FY '23. So in that kicks in, your fixed cost, data say on your overhead, that starts flowing into the operating margin.
Yes, yes. And that's it, sir. And one more last question. We generated INR 135 crores of cash from EPC business this year. So this brings to our -- what will be our current cash in the EPC business, sir, total as of today?
So current cash position as of today, check back, but I think it was about INR 10 crores, INR 20 crores, which was left.
Okay. So INR 150 crores approximately? Hello?
Sure. We need to be read...
Hello?
Hello, please continue.
Yes. Yes. So it's approximately INR 150 crores, right?
No, no. So INR 135 crores was transferred from BEL to Bajel which was invested into the business, and I think they are now sitting on about INR 20 crores of cash.
[Operator Instructions] The next question is from the line of Natasha Jain from Nirmal Bang.
Sir, firstly, I would like to know what is our lighting mix in terms of B2B and B2C? I'm sorry if you said that data, I got disconnected in the call.
We'll just do the quick numbers. Any other question?
The other question, sir, is what is their alternate channel mix? And what was it in the second quarter last year?
So firstly, on the lighting, B2C is about 40%. B2B is 60%. You got that?
Yes. Yes, sir. And the alternate channel mix?
Yes. Alternate channel, trade is about 57%. So rest is all non-trading, all trade channels.
Understood. Sir, my final question is more of a medium-term question. Now while we did our channel checks, we definitely appreciate that the quality of the products has been quite good. A lot of our channel checks did tell us that. However, the challenge that we saw is that, obviously, the perception of the brand is still not a premium brand, probably still an economy brand, I just want to know what's the strategy in terms of changing that perception and how are we spending our ads to bill that part of our portfolio?
So firstly, thank you for the feedback. And I think part of the answer lies in your feedback. I think brand can talk itself and say, whatever, but the product is a real test of whether that has changed. As that changes in the marketplace, that always has a greater weightage on impact with perception changing. The brand communication only amplifies that but cannot deliver that perception change in the absence of real production on the ground. If we look at product change on the ground, while we've rolled out a lot of these products, it's a process of evolution, surely. It takes 3 to 5 years for the entire portfolio to refresh.
So every year, it's a refreshing about 15%, 20% of the portfolio, it's a 3-tier period, by which time, 60% to 100% of the product portfolio in the marketplace changes. So you start hitting a tipping point on perception changes after the 3-year mark, okay?
And the best example that you'll see to how perception of a company or a brand or product has dramatically changed, it's two of your leading Indian automakers. I'm not naming them, but you can guess who these guys are. They were not known for -- they were known as cheaper, ordinary automakers, but now look at 5 to 7 years later into a journey, that perception of both of these auto companies have dramatically changed, both had the product and brand level. So in a way, that's the best proxy for you what we are aiming for in 3 to 5 years, you'll see us hit that inflection point or tipping point where suddenly consumers will have forgotten the old Bajaj and think of Bajaj or Bajaj Electricals and all these brands together, a completely different way.
The next question is from the line of Chirag Lodaya from Valuequest.
I just have one question. So given the current situation, where we are seeing increased competitive intensity, slowdown is persisting more than we would have envisaged. And there is some change in technology on LED front, et cetera, which is leading to price erosion. So given in this context, now how you would like to revise your margin guidance? Earlier, we were pretty confident of reaching 9% to 10% kind of EBITDA margins in near term -- near to medium term. So given this situation, how you're looking at the margin trajectory now going ahead?
So Chirag, I always prefer to look outside in future back. So I think for the medium term, there's no change in our guidance. And I would say the reason why is because markets you can't control. So therefore, our strategy doesn't change for that, unless my fundamental medium- to long-term view of the market change. So that is all changed. I do think any economy goes through cycles. The cycle has got to change at some point of time, unless we believe the India story or consumption story has gone away. If anything, some of these longer cycles got paid in a way also weeds out the weaker players or cuts back the nuisance value.
So if anything, if you look at from a 3-, 5-year perspective, it's actually better for stronger established players, that cuts out the nuisance value of weaker player. So it comes back -- actually comes back much stronger than had you not gone through this weaker phase. And that's why I remain confident not just of margins over the medium to longer term, but actually, with a greater upside on top line on that, you will see greater consolidation happening because of such a favor.
Right. But if I have to just extrapolate, how FY '25, '26, even situation improves, say, from second half, we'll still be near to 9%, 10% or it will take more time than what you would have initially thought? Any -- because see, a lot of things have changed versus the 6 months back. So trying to understand, are you changing the time period for reaching that double-digit margin aspiration? Or you are still confident that whenever economy picks up, we'll see this double-digit margin coming soon?
So very easy answer. As soon as the economy picks up, you will see that. If the economy is in good shape by '26, we should beat that number.
[Operator Instructions] The next question is from the line of Manoj Gori from Equirus Securities.
Sir, one question, if you look at, we have been emphasizing a lot on the new product launches and more towards the premium and -- can you give some data points with regards to what would be the contribution -- products that have been launched a year back and probably how this would have been in the same quarter last year from the products which were launched in the preceding of the year?
So Manoj, we don't put out actual NPD contribution or MU contribution of that, but the best metric for that is things like, for example, when we call out category mix, when you look at fans, our category mix how that is improving, that's because of the back of new products. If you look at the new mixer that we put out, lot of that 750 is even what's on the back of new products. If you look at coolers, our growth, which has been very high, it's on the back of new products. If you look at -- I'll tell you two smaller categories, these don't mentioned, but these all add up to long tail. If we look at things such as personal grooming that we've launched right now online in Morphy Richards has taken off extremely well.
If you go do channel checks of something like kettles, we've really grown kettles at almost 300% in the last 1 year, et cetera. So these are all new products that are adding up and giving us some buoyancy. The big categories, such as kitchen appliances, et cetera, that will kick in as the market really kicks in. In the meantime, all of these segmental launches, new products, all these launching products are what's driving growth for us, yes.
Sir, one last question. So probably, we we're seeing price erosion into B2C business category in the Lighting segment. Do you see this as a risk even to your B2B business probably in some time -- or probably a few quarters ahead?
Not really. So the B2C erosion is happening particularly because of this DOB thing, which is particularly the safe side of sector and also because there's -- that's an easier entry leisure business slowing for new players to come in, some of whom lead that at unsustainable business points. I think B2B does have more serious established players, got a higher entry barrier. It requires more solution orientation, et cetera. It requires execution, project skills, et cetera. So I think that is slightly more insulated from this.
[Operator Instructions] As there are no further questions from the participants, I now hand the conference over to the management for the closing comments. Go ahead, sir.
So thank you. I'll keep my closing comments very brief. It's just a wrap up of my opening comments. We know it's a tough environment. The results are mirroring the tough environment externally. I think internally, we continue to maintain our focus on our strategic initiatives. I think the internal metrics continue to look strong.
The one thing we'll not shy away from is focusing on the medium to long term. Hopefully, we'll not make short-term myopic decisions in the interest of sacrificing the medium to long term. If you do look back at both our 2-year access and performance, you'll see the merits of what they're saying. Also qualitatively, like one of you also mentioned on the call, our product profile is changing the marketplace. We do have brand scores that are reflecting that. To me those are two biggest most important parameters of any consumer-centric businesses. Like getting our product and brand strategy right, numbers will follow based on market regulations.
So with that, I'll wrap it up. Thank you very much, and good evening to you.
Thank you. On behalf of Ambit Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.