Crompton Greaves Consumer Electricals Ltd

NSE:CROMPTON

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Q1 FY '20 Earnings Call of Crompton Greaves Consumer Electricals Limited, hosted by IIFL Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Renu Baid from IIFL Securities Limited. Thank you, and over to you, ma'am.

[Renu Baid, Vice President]

Thank you, Malika. A very good morning, everyone. On behalf of IIFL Securities, I would like to welcome the management of Crompton Greaves Consumer Electricals. Today, we have with us from the management: Mr. Shantanu Khosla, Managing Director; Mr. Mathew Job, Executive Director and CEO; Mr. Sandeep Batra, CFO; and Mr. Yeshwant Rege, Vice President, Strategy and Financial Planning. Without taking much time, I would now hand over to Shantanu for his opening comments on the 1Q FY '20 performance. Thank you. Over to you, Shantanu.

[Shantanu Maharaj Khosla, MD & Executive Director]

Thank you. Thank you so much. Good morning, everyone, and thank you for dialing in to our call for the quarter ended June. First of all, I hope all of you and your family are safe and healthy during these challenging times. Before I touch upon the quarter gone by, I would like to provide a heads-up on the safety and well-being of our employees. We have focused on ensuring vaccination for our employees and their families. We have conducted vaccination camps across our factories and office locations all over India. And encouragingly, to date, 89% of our employees have taken at least one dose. We are continuing to drive these camps to ensure our employees and families are completely vaccinated over the next few months. We continue our consistent interactive sessions through town halls and other small group meetings to stay in touch and help alleviate any concerns our employees may be having during these tough times. While overall revenue grew a robust 46% over last year's low base, the quarter, of course, was significantly impacted by the second wave of COVID. Lockdowns and restrictions commenced in April, were severe in May and gradually began to ease in June. The impact and pace of opening varied by geography. North and west began to open and recover first in June while the east and particularly the south were slower. Even as we speak, areas of the south are still under significant restrictions. While overall towards the second half of June, the business has largely recovered, our June '21 revenue as a total company actually grew versus pre-COVID June '19 revenue. Recovery in our major market of the south was lower. Historically, the south contributes to about 35% of our business. But in the quarter past, it was down to 30% as the opening in the south was significantly slower than the rest of the market. As you're all aware, commodity costs continue to rise and give headwinds throughout this quarter. In response, we have taken price rises both in April and May across a large part of our business. However, the pickup through June in demand indicates that these prices are being accepted by the market. Despite record high commodity costs over the last 2 quarters, we have taken necessary actions which have largely mitigated the impact by a combination of aggressively reducing our cost, pricing actions, mix improvement. As a result, material margins have improved by 1.5% sequentially and are almost the same as previous year same quarter. Our cost savings program, Unnati, continues to deliver desired results, saving INR 38 crores even in this relatively truncated quarter. Additionally, we have increasingly used advance or pre-booking of select commodities through the quarter to protect against ongoing commodity inflation and to secure raw materials where there is or expect it to be some scarcity. Last year, given the unknowns and uncertainty of COVID 1, we had postposed or delayed several key investment programs, which we then restarted through the fiscal. Given our learnings, this year, we chose to continue these investments during quarter 1 despite the fact that we were well aware that there would be a potential demand impact of COVID 2. This was based on the strong belief that this was the right thing to do for the business and would enable the business to emerge stronger as we emerge from the COVID situation. Hence, in this quarter, unlike the previous year, we continued our investments in advertising, our rural program, e-commerce, new business development, R&D and our long-term sourcing plan. While these expenses were obviously higher than Q1 last year, where we had held back, they are very much in line with the investment levels of Q3 and Q4 of last year. Also, given the learnings of COVID 1 last year and the supply challenges faced as the markets opened up, we consciously took a decision to build inventory over the quarter. This was to ensure that we had uninterrupted supply as market opened up, especially given the global supply shortages of certain materials like chips. We are seeing the benefit of this through end of June and the beginning of July as markets and demand are normalizing. Additionally, given the continued situation on some key commodities and expected inflation, we have locked in supply at lower prices of certain key raw materials via advanced contracts for future quarters. Both these steps, we believe, will prove beneficial as we move ahead. Despite lockdowns announced across India, we didn't face much disruption this year in our manufacturing activities. All our factories, Baroda, Baddi, Kundaim [indiscernible] and others, are up and running. In the month of May, because of strict lockdown imposed in many parts of India, demand and distribution channels were affected. We aligned our manufacturing activities to the market demand and, as mentioned earlier, ramped up production to ensure we were well covered in terms of inventory and supply as the markets are opening up. Obviously, all the safety laid down by government and social distancing continue to be strictly adhered to in all our locations. Our focus in terms of our long-term strategies and investments continues to stay the same as we see it giving sustained positive results. On our go-to-market initiatives, we have continued to focus on improving reach. We have made continuous efforts to improve the number of retail points where our products are available. Our efforts are clearly visible in improved reach with rolling 12 months up until April 2021 of our overall Fans portfolio reach growing by 4.7 points. We have continued to improve our secondary sales tracking by information gathered from our Tally patch system that has enabled us to make more informed decisions and helped to plan our activities to focus on efficiency and growth of the business. We continue to track 80% of our secondary sales through this quarter. We have also, as talked before, continued to invest and focus o alternate channels. Our strong capability-building and dedicated efforts continue to harness the potential of the rural channel, which is delivering outstanding results. Our rural sales delivered exponential growth of 195% in Q1. We continue to gain share in this market. And rural channel's contribution to overall sales has increased by 1.6 points. Our second key focus is in e-commerce, along with meaningful consumer engagement in this channel. And this has helped us deliver a growth of 149% in the quarter past in e-commerce and modern retail. We are delivering consistent market share growth in this channel. This channel's contribution to overall sales has increased by 1.8 percentage points. Our focus on driving premiumization, which has been a consistent strategy of ours over the last few years, has helped ensure the saliency of the business improves over time. The performance of our top end range of fans has clearly highlighted the importance of this choice. Our premium and deco fan segment grew by 122% in quarter 1 over the same period last year. Super premium fans' volume has increased by 258% in the quarter. Our focus on consumer-centric product innovation, the key to be a leader in the market is to keep developing products that are meaningful to the consumers, futuristic in design and application. Our continued investment in R&D has enabled us to introduce consumer meaningful products, which has contributed to increasing market share. Despite the disruptions due to the second wave of COVID, we continue to innovate and launch new products. For example, in Fans, we introduced Aura, [ Sea Breeze ]; in Appliances, Diva and mixer grinder; in Pumps, rain extension and pressure-boosting series, rain extension of compressor pumps to low yield and high-depth water sources; in lighting, we introduced Laser Ray [ neo colors ], Trim Linea, Trimline in indoor commercial. Brand-building stays our committed focus area. And this quarter, we invested INR 21 crores in advertising versus just INR 1 crore in the same quarter previous year. All this being said, with the easing of restrictions in June as compared to May, the overall demand outlook has improved, which is reflected in the business of all our performances. However, we continue to face commodity headwinds in terms of unprecedented increase in commodity prices in a short span of time. Commodity costs continue to grow throughout the whole of the quarter. We do see some stabilization in prices. However, it's too early to protect as to whether this is likely to continue as a trend or the trend may continue upwards. We are monitoring the situation closely and have taken, as mentioned earlier, strong mitigating actions in terms of pricing, improved mix and accelerated cost-saving initiatives to ensure that we recover our material margins and keep the inherent structural profitability of our business. Of course, like you're all aware, we are experiencing a COVID infection count since early June. However, various institutions and researchers have predicted the possibility of a third wave. While, of course, we hope that the third wave will be mild or in the best case not happen at all, we monitor the situation closely. And given our learnings over the last 2 waves of COVID, we feel confident that we can manage even if we get to the third wave of COVID. Of course, as things stand, assuming there is no significant third wave, we see our business continuing to normalize and demand continuing to pick up as we enter quarter 2. On ECD, our Fans business grew 63% on the back of strong performance across the entire range and product portfolio. As mentioned earlier, the growth was particularly visible on premium and premium decorative and super premium fans. Our range of new offerings over the last couple of months continues to be well received in the market. On a rolling 12-month basis, we have gained 1 point of market share in the overall fans business and continue to expand our leadership position. Overall Pumps witnessed a 17% growth on the back of strong performance by residential pumps, which grew 26%. Our Pumps growth was impacted by a slower opening of the eastern region, which is a key pumps market for us. Appliance continues its outstanding breakthrough performance, backed by its superior product portfolio and range of offerings and delivered a growth of 99%. The growth was driven by geysers, a value growth of an outstanding 205%; air coolers, a growth of 90%; irons, a growth of 55%. Within a very short span of time, the Appliance business has continued exponential growth trajectory, demonstrating our investment in our superior product portfolio, advertising and go-to market is paying off to build this as a strong fourth leg of our business. Lighting revenues were at INR 166 crores and standalone delivered a growth of 39% versus year ago. Importantly, the B2C Lighting business continues its volume growth trajectory, backed by commensurate volume growth. The B2C LED business grew 48%. We remain confident of robust growth in the B2C business and a gradual improvement in activity in the B2B business. Revival, however, in the B2B demand would be key for the overall growth of Lighting moving forward. Importantly, even though it was a COVID-hampered quarter, Lighting EBIT continued to be above double digits. We are now seeing clear signs that the pricing on the B2C business has stabilized, our structural gross margins on Lighting are strong and we see the strong profitability of our business and frankly the entire B2C Lighting business now being extremely attractive and are confident that we will sustain double-digit margins in this category. Finally, the numbers. The Board of Directors at this meeting held on 23rd of July approved the quarterly results of the company for the quarter. Total income for the quarter was INR 1,050 crores. ECD revenue stood at INR 884 crores, EBIT margin at 17.6%; Lighting revenues at INR 166 crores, EBIT margin at 10.7%. Material margins stood at 32.4%. PBT was at INR 127 crores versus INR 101 crores last year. PBT margin stood at 12.1%. After-tax profit was INR 95 crores and grew by 27% year-on-year. I would now stop here, and we'd be happy to address any questions that you may have. Thank you.

[Operator]

[Operator Instructions] The first question is from the line of Venugopal Garre from Bernstein.

[Venugopal Garre, Senior Analyst]

So my first question is more to get a sense on the demand recovery. You've been mentioning that things started to improve quite a bit from June. How different is the pace of recovery that you're seeing at this juncture compared to what it was post-COVID wave 1, more importantly, in terms of difference in terms of nature of recovery across categories and price points maybe?And the other thing within that is that from a working capital standpoint as well, while you have clearly indicated that our operating cash impact we have seen is because of the commodity-related actions you have taken, is there anything else in the market in terms of the terms of trade changing that we should be aware of? More importantly, [indiscernible] to figure out when you get back to a positive OCF. That's my first question. And my second one, probably I'll just ask that as well is why has Lighting segment seen a disproportionate impact of margins compared to ECD [indiscernible]? So that's it from my side.

[Shantanu Maharaj Khosla, MD & Executive Director]

Okay. Let me try and take that, and I hope I remember all the parked questions to answer the question. First is how do we see the recovery as contrasted to last year? We see the recovery having happened this year a little faster than last year, maybe 2, 3 weeks, maximum a month, if you compare. Because largely, apart from some pockets in the south, by the end of June, it was kind of normal, like I indicated. We also see the recovery a bit smoother. Last year was a huge sharp collapse and then a sharper lift-up in recovery, which some people may have attributed to pent-up demand and things like this. This year, we see that it's smoother because -- maybe because of the fact that all shops were not closed all the time post May. So a little quicker and a little smoother both on the down and also on the up, right? That was one question. The second was on working capital. The real difference -- and Sandeep, correct me if there's anything to add. The primary difference in working capital was because of the two factors, which I mentioned, as building up inventory specifically to meet the demand as it opened up and also in recognition of the fact that some key materials are still in short supply, like chips, et cetera. And the second is locking-in of advanced contracts for commodity purchases in the current quarter that we're in. There was no other significant change or adjustment in the other areas of working capital, be that payables, receivables and credit and all that. That was pretty much exactly the same. It's really these two factors. The third question -- what...

[Mathew Job, CEO & Additional Executive Director]

Why Lighting margins have compressed?

[Shantanu Maharaj Khosla, MD & Executive Director]

Okay. Now if you look at Lighting in terms of the margins, if you look at the margin on the gross margin level, material margin, which really represents the structural profitability, then you will see that we have recovered that. There is no real significant decline in -- at the gross margin level. The difference is simply because of the scale. And the top line obviously for everything came down from what it would have been normally in a normal quarter because we lost the month of May. So it's more impact of costs, which like I mentioned earlier, we choose not to free because it was right for the business, but the structural profitability is absolutely fine and recovered in spite of the commodity cost increase. What that implies, and this is not just for Lighting but our overall business, as we move forward and as the quarters ahead the top line normalizes, like we are seeing in the back half of June, these costs will, in absolute, remain the same but in terms of percent, will obviously come back to what they were in Q3, Q4 levels of last year.

[Operator]

Next question is from the line of Mayur Patel from IIFL Asset Management Company.

[Mayur Patel, Principal & Fund Manager of Listed Equity]

You partly answered it. But the commodity, you said you have tied up contracts in advance has benefited the company in this quarter itself, which has shown very impressive 150 bps gross margin expansion Q-o-Q as compared to the year of converting and hitting margins, gross margins in this quarter. So is there anything else in terms of mix or any other factor which has, in this quarter, to expand gross margin 150 bps Q-o-Q?

[Mathew Job, CEO & Additional Executive Director]

Yes. So actually, if you look at Q1 this year versus quarter 4, the commodity on average has increased by almost 10%. But if you see that, on ECD, where obviously the impact of this commodity push is a maximum, sequentially, we have almost held our gross margins compared to last quarter and particularly the gross margin level. I think that has happened definitely because of a host of actions. Definitely, pricing, as Shantanu explained, we have passed on 2 rounds of pricing in the quarter. We have -- the mix performance has been very strong. Just to give you a perspective, for example, in our -- in the same quarter last year, our mix of premium fans, for example, was down at 11%. But this quarter, we managed to keep it at 16% to 17%, which is what it was even pre pandemic. So I think mix definitely. Third, commodity, a little action, what we mentioned in terms of advanced booking of contracts, locking in rates have also had some impact during the quarter. While some of the impact will also be available in the next quarter. But we did get a significant impact of that also during the quarter, which is why we managed it through a combination of pricing, mix action and commodity-related actions. That's how we have managed to pretty much keep our margins during this quarter in spite of a 10% commodity inflation.

[Shantanu Maharaj Khosla, MD & Executive Director]

Yes. And just one more thing specifically, we have taken out advanced contracts where we've locked the price commodities for this future quarter to the tune of about INR 50 crores. So that is locked in now. The extent of the benefit, of course, will depend on how much commodities really go up. But we lock them in for the future.

[Mayur Patel, Principal & Fund Manager of Listed Equity]

Just one more question, if I can squeeze in. Like Venugopal asked, if we compare the previous year post COVID, we have seen -- we didn't see very stark improvements sequentially in the subsequent 2, 3 quarters. This time around, like you mentioned, you're well prepared. You have also invested -- you didn't shy away from spending on advertisement and trainings and expenses in this quarter despite a much lower top line in this quarter and a much larger inventory for an overall preparation. So is it fair to say directionally, not asking for any numbers, directionally next sequential 2, 3 quarters, the trend would be better than what the sequential improvement we saw in the previous year post COVID?

[Shantanu Maharaj Khosla, MD & Executive Director]

That's obviously very difficult for us to forecast because we have to see how it improves. But clearly, we have seen, like I said, May, the markets are almost closed. Through June, we saw a gradual picking up. June has come slightly higher than June '19, which is before COVID 1, right, so -- and this improvement trend continues. And we do expect an improving trend over the quarters to come. Now exactly how it will look versus last year, we will have to -- trend-wise, we will have to see because of these things like when will opening happen, how much is pent-up demand, very difficult to quantify. But clearly, improved trends, we are seeing improving trends.

[Mathew Job, CEO & Additional Executive Director]

I think the one difference, I think you will need to keep in mind is this year, definitely, as Shantanu mentioned, the pace of the pickup through June has been faster than last year. But if you go back and if you look back at last year, the pickup was gradual, but it was sustained for a longer period of time. Because like you saw quarter 3 last year, most of the companies, including Crompton, had really fantastic growth. So while the pickup is sharper this year, whether it will last as long will actually depend on things like the -- how the COVID thing pans out, do we have another wave, the whole impact of how long the commodity cost will keep rising. So this is something which we need to keep in mind. So it makes the task of predicting any -- the kind of pickup we'll have even more difficult than last year actually.

[Operator]

The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

[Prashant Kutty, Research Analyst]

Just two things from my end. One is can you talk about that the Fans growth has been higher than our actual ECD growth? What would the other constitutes which would have pulled it down?

[Mathew Job, CEO & Additional Executive Director]

Within ECD, of course, the growth in Pumps has been slower. And that also got to do it with why residential pumps has grown to almost 25% to 27%. The fact that the eastern region actually opened up slower -- in fact, our biggest market for pumps is actually east. And the fact that east was the second worst impacted region after the south. And the lockdown started lifting only towards the later part of June. So there, actually the Pumps growth has been lower than the growth in Fans and Appliances. And that has actually pulled down our ECD growth to that extent. Because in our case, the Pumps also form a significant portion of our overall ECD business.

[Prashant Kutty, Research Analyst]

And just one more point, sorry to change back on the gross margin part of it. So like you said that obviously the benefits of commodity, which probably might play through in the coming quarters if they kind of remain benign. But if I look at it, let's say, the last quarter, we could see the gross margin of about 30.7%. Is it fair to assume that, that probably was the worst point? Because we've actually seen a sequential improvement being so sharp. There isn't any one-off in this gross margin which you're getting?

[Mathew Job, CEO & Additional Executive Director]

No, there is no one-off in this gross margin. Of course, the last quarter was -- in fact, it's the quarter we have seen so far. The last quarter was the one where we had the most adverse impact of gross margin. So there is no one-off in this quarter on gross margin at all.

[Prashant Kutty, Research Analyst]

And so around the pricing increase that you say, what is the quantum of the pricing increase when you've taken the 2 rounds which you're talking?

[Mathew Job, CEO & Additional Executive Director]

In the quarter, it is different per category. But on average, you would say 5% to 6% on an average during the quarter. Because as I mentioned, commodity costs went up 10%. And we still managed to hold our margins pretty much at the gross margin level. So half of the recovery has been from pricing alone and the rest is from the combination of everything else.

[Operator]

The next question is from the line of Nitin Arora from Axis Mutual Funds.

[Nitin Arora, Equity Research Analyst]

You said -- you touched base that this is the right time to invest in the businesses, ad spend, no compromise being done -- taken on that. Can we expect some new categories? You have touched base on this topic earlier as well. But just to get a sense like where we stand in terms of newer addition in categories, newer segments for Crompton. Are we almost -- can we expect like in the second half, there will be some new categories which will get launched? That's my first question.

[Shantanu Maharaj Khosla, MD & Executive Director]

Answer to your first question is yes.

[Nitin Arora, Equity Research Analyst]

And I don't know, Shantanu, you will answer this or not. But there's a lot of news surrounding that Crompton has acquired Syska. I mean, this is news that keeps flashing on the channel. I know you would not like to comment on it that being in circulation [indiscernible] press release on the exchanges by the company. But generally, is that what the categories you are looking at to grow or there's something else also?

[Shantanu Maharaj Khosla, MD & Executive Director]

We, as mentioned earlier, have consistently been looking at inorganic opportunities which meet our strategic goals. We continue to do that. The opportunity has to be a strategic fit for us. And we have to judge that there's a value-creating opportunity for us. Those have been our benchmarks, which we've always applied and we will continue to apply in the future.

[Operator]

The next question is from the line of Bharat Shah from ASK Investment Managers.

[Bharat Shah, Executive Director]

My question is about acquisition of Syska. So two points there. One, will it not be just a horizontal acquisition rather than adding verticality and new opportunity or a new line? And to that extent, it's less, so to say, opportunity than what it otherwise could be. And secondly, when the focus is on premiumization, my perception is that Syska is a bit of a discount brand. I could be wrong, but that's my perception. So how does it fit well with the strategy?

[Shantanu Maharaj Khosla, MD & Executive Director]

I'm afraid I don't know enough about Syska. And I can't really answer for competition in this call.

[Operator]

The next question is from the line of Aadesh Mehta from Motilal Oswal.

[Aadesh Mehta, Investment Analyst]

Sir, any thoughts about solar pumps business? Would you like to get into it? Can it be a scalable opportunity for you?

[Mathew Job, CEO & Additional Executive Director]

Obviously, solar pumps, in terms of market size, is pretty big. I think -- but the biggest thing is the biggest part of solar or, I would say, more exclusively, solar plays a big part in agricultural pumps, okay? And growing agricultural pumps and gaining share there is one of our key strategy areas, key strategic areas. So that is something we are working on in terms of improving our market share in agri. But solar pumps per se has got a lot of components of government subsidies and so on and so forth, which actually makes this solar offering feasible. What we are working on is to try to make pumps that will make the solar offering much more cost-efficient. Because a more energy-efficient pump would mean that the cost of the solar system would come down significantly. So that is where we stand in terms of we want to try to make our pumps more energy-efficient. And that will make Crompton as a brand a much bigger player in partnering, along with other players who are in the solar space, I would say. That's all I would like to give at this moment.

[Aadesh Mehta, Investment Analyst]

Right, sir. And sir, would we be open to participating in government tenders if need to be?

[Shantanu Maharaj Khosla, MD & Executive Director]

If the government tender is something which we see as a good business opportunity, of course, we would, like we do, for example, today participate in government tenders in Lighting. We had in the past participated in government tenders in various states on Pumps also. So it's kind of almost another channel in which we operate, depending on the conditions of the particular tender.

[Operator]

The next question is from the line of Charanjit Singh from DSP Mutual Fund.

[Charanjit Singh]

Sir, firstly, in each of the product categories which we operate in, if you can just highlight in terms of what's the proportion of economy in each of those categories. We had certain good successes in the economy segment. And based on that traction in the rural market, how do we see rural markets, firstly, going forward for Crompton's consumers? That's my first question. And second question is on e-commerce as a channel, where we are and how we are seeing the pricing and traction from the e-commerce channel going forward.

[Mathew Job, CEO & Additional Executive Director]

Yes. What we categorize as economy, which is obviously the lower end of the segment, in both, I would say Fans and in Pumps, it contributes roughly about 20% to 25% of our total business both in Pumps and in Fans. In the other categories, we really don't have a classification of economy or similar classification, so I wouldn't be able to put a number, for example, in Lighting or in Appliances. Of course, e-commerce is one of our key growth areas that we have identified. Apart from e-com, we also have rural as another big area. And let me answer the question on rural first. When I say rural, we are actually talking about towns between population of 10,000 to 100,000. I'm not talking about the villages with population of less than 10,000, so the -- our objective in the rural program is to make products available in those markets through more of a controlled distribution approach rather than merely depend on wholesale like we have done before. This initiative, we have now been running for about 12 to 18 months. We see good traction. We don't think at this moment that we need any significantly different portfolio assortments to be made available there. We find good traction for our existing ranges. I think the fact that Crompton is a brand that straddles a big -- straddles across price segments, something [indiscernible] to economy actually means that we are able to get good traction at the moment we are able to make a product available in the rural areas. E-com has been seeing good traction. We have been seeing good growth last year. And we continue to see strong progress currently. We are working on various levels to ensure that we have at least similar market share on e-com like we have for the offline trade. Of course, if you ask me, are we as strong in e-com today as we are in [indiscernible] trade? Not yet. But that is why we see that as a big opportunity area going forward. Yes.

[Operator]

[Operator Instructions] The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

[Bhavin B. Vithlani, Senior Analyst]

Congratulations for a good set of numbers. My question is on Pumps. Last quarter, same year, you had mentioned in your presentation that the Pumps scaled back to 100% of activity. So the lower growth, is it because of the higher base that we saw last year vis-à-vis the other categories like Fans in the ECD?

[Shantanu Maharaj Khosla, MD & Executive Director]

Like as mentioned and Mathew had also mentioned, a key reason for the lower growth of Pumps versus the rest of ECD is more because of the regional SKU. The markets which were the slowest to open up in June were the east and south. Our Pumps business has a relatively higher salience in the east. East is our most important pumps market. So because of the slower opening of the east this time around, the Pumps business in June was relatively impacted.

[Operator]

The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance.

[Ankur Sharma, Research Analyst]

Just trying to understand the recovery this year versus last year, a little more detail on the B2C versus the B2G side of the business. So if I remember correctly, last year again, the B2C kind of came back fairly strongly post the lockdowns opened and then the B2C kind of lagged. How are the trends now? Because what we also hear is that the B2G was relatively less affected in the second wave.

[Shantanu Maharaj Khosla, MD & Executive Director]

The B2C, first. That trend is similar. And the B2C recovery trend is frankly similar to what it has been in other categories also. The real difference is in what we broadly call the B2B. However, if you take the B2B and you split it up as B2G, i.e., business-to-government, specifically EESL, and B2B, i.e., business-to-private industry, from COVID 1, the B2G part has got significantly impacted and continues to be impacted. The B2B, i.e., business-to-private, if you will, that see a gradual recovery. But the EESL business and other government businesses are where the biggest impact is and continues to be. Anything to add, Mathew?

[Mathew Job, CEO & Additional Executive Director]

No.

[Operator]

The next question is from the line of Keyur Haresh Pandya from ICICI Prudential Life Insurance.

[Keyur Pandya, Equity Research Analyst]

First question is on channel inventory. So how is the channel inventory for most of the B2C products that is one and done? And the ancillary question is because of just the fear of wave 3 of COVID, are we seeing destocking, also very thin stocking by the channel?

[Shantanu Maharaj Khosla, MD & Executive Director]

On the first one, like I mentioned earlier, one of the technology investments that we have made over the last couple of years is our Tally data system, which gives us secondary sales, sales from our distributors to the retailers. Now therefore, now we have hard data to answer your question. And the answer is there has been no significant change in the channel inventory over this period because we see primary sales and secondary sales month-to-month following the same trend. So of course, primary sales came down in May. But secondary sales came down in almost a parallel line. So there is no significant change in channel inventory over this period. And the second question, your second question was -- I'm sorry, I've forgotten.

[Keyur Pandya, Equity Research Analyst]

So because of fear of third wave, are we seeing destocking or very less stocking by the channel?

[Shantanu Maharaj Khosla, MD & Executive Director]

We're not seeing any trend like that because again, like I mentioned earlier, our data clearly indicates that now over June, as primary sales are going up, secondary sales are also going up in exactly the same rate. The lines on the graph match.

[Operator]

The next question is from the line of Naval from Emkay Global Financial Services.

[Naval Seth, Research Analyst]

Two questions. First, if I look at a 2-year basis, both ECD and Lighting has seen a decline. Would you still attribute this to region-specific issues, what you elaborated earlier or there was category -- specific category which has impacted this in a big way?

[Mathew Job, CEO & Additional Executive Director]

So if you compare the 2 years, you're obviously with the fact that even in this quarter, you had almost 45 days of market shutdown of some extent. That has created obviously the fact that we are still lower than what we were 2 years ago. But as Shantanu mentioned, if you look at June standalone, June 2021, the sales was higher than June 2019. Yes, of course, which categories and what are the kind of differential growth has obviously got to do with two things: one, which markets opened first and which the markets opened later. For example, this time, south was the worst impacted, followed by east. That makes a difference in terms of -- and depending on where we are strong with which product. The factories, for example, in the east opened late, actually meant that we lost more sales in Pumps than, say, in Appliances, where we are not as strong in the east. And for example, in south, the fact that market remains shut actually would have compromised our growth in Fans quite a bit, although we have done well in Fans in spite of that. So obviously, depending on which markets we are closed and for how long, they have an impact on the category-wide growth.

[Operator]

The next question is from the line of Rakesh Roy from Indsec Securities and Finance.

[Rakesh Roy, Senior Research Analyst]

First question regarding [ super ], say, any further plans to increase the [ super ] prices?

[Mathew Job, CEO & Additional Executive Director]

Prices? Of course, we've got -- like Shantanu mentioned, we have taken 3 rounds of price increases so far, 3 to 4 rounds, depending on the category of products. And in spite of the fact that these increases were much more than it has ever happened in the past, there has been reasonably good acceptance of the prices in the market, which is what resulted in June sales being pretty reasonably good. Whether we will need to take prices and price increases in the future will actually depend a lot on how the commodities play up. While there has been some stability to the commodity prices in the last 1 month or so, very difficult to predict because, for example, if you look at chips, the chip prices are shooting to the roof because also the availability issue of chips, while some other commodities, like copper, you see that there is some reasonable stability in prices over the last 1 month or so. So very difficult going forward which commodities will move in what direction, and whether we will need to take a price increase will actually depend on how commodities move.

[Operator]

The next question is from the line of Achal Lohade from JM Financial Services.

[Achalkumar Lohade, Vice President]

My question was with respect to the Appliances business within the ECD. Can you [ share ] in terms of the mix from Appliances in FY '21? And how do you see over the next 3 years what kind of mix it could reach in terms of Appliances within ECD?

[Shantanu Maharaj Khosla, MD & Executive Director]

Obviously, I can't comment in terms of numbers, et cetera, on what we expect in the future. But suffice to say, as we've mentioned in terms of our overall business and strategic approach, we believe that any category which we participate in, we want to play to win. And for us, winning, we have defined as we need to become at least #2 player in that subcategory, The reason we have defined it as we need to be a #2 player as opposed to #6 or #7 or #8 player is because in each subcategory, the value is captured by the leading market share players, not by the also-rans. So obviously, the very fact that we focused on Appliances is because we see an opportunity. And we are on a journey to make sure that we do become #2 in each of these subsegments. A good example is the first subsegment, which we started working on the [indiscernible] first, which is the geysers subsegment, where we've had significant success and are not very far from becoming a #2 in the category, where most of the value is captured. And that would be our aspiration and our goal through a combination of branding, innovation and go-to-market across all the Appliances segments.

[Operator]

The next question is from the line of Latika Chopra from JPMorgan.

[Latika Chopra, Senior Analyst]

You talked a lot about innovation and distribution. And I just wanted to check if you could share, first of all, what is the rural and e-commerce revenue share in your mix today? Also for the new launches that you've done, is there any kind of quantifiable metric in terms of the revenue contribution over the past 1 year or 2 year, how the new FTEs have moved in revenue mix and also in terms of their reach compared to Fans or maybe versus where they were about a year or 2 years ago?

[Mathew Job, CEO & Additional Executive Director]

Yes. I mean, as I mentioned sometimes, in fact, the rural and e-commerce, they're two very important areas of business for us to drive. Because obviously, as I mentioned before, our current share in both these areas is definitely lower than overall national share. So if I look at rural plus e-com, in the quarter that was just -- quarter 1, I would say nearly 9% of our total revenue is coming from e-com plus rural, and that is up from 3% to 4% for the same period last year. So I think the contribution of these channels to our overall business has almost doubled. In terms of innovation, we measure two things. One is what is the contribution of sales of products launched in the last 1 year and the products launched in the last 3 years. So just to give you some idea, the products launched in the last 1 year today contribute nearly 10% of our revenue. And products launched in the last 3 years contribute more than 50% of our revenue. So those are two very important numbers, 10% of revenue per product launched in the last 1 year and 50% from products launched in the last 3 years. Yes.

[Operator]

The next question is from the line of Sonali Salgaonkar from Jefferies India.

[Sonali Salgaonkar, Equity Analyst]

Sir, I have just one question. What could be our market shares across the categories that we are present in right now versus, say, about how it has evolved over the past 2, 3 years? And just also our CapEx outlay, sir. That's it from my side.

[Mathew Job, CEO & Additional Executive Director]

Yes. On the market share, I will answer, then hand it over to Sandeep. On Fans, we -- our market share is around 26%, 27%. This market share has been growing consistently. If I take the last 2-year period, we were -- 2 years ago, this market share would have been 20%, 24%. So we have gained significant market share on Fans. On Pumps, I would say, residential pumps, we are again market leader, market share around 27% to 28%, again similar kind of market share expansion in Pumps like we have seen for Fans. On Appliances, obviously very different category-wise. We now have, I think, even through our best estimate, market share is roughly 13%. We have moved there from being #6, #7 to #3 and close to getting to #2. Air coolers, while they have been growing significantly, are still in single-digit market share. In Lighting, our market share is roughly around 10%. Again, there, while near term, we have had some struggles at Lighting, I would say that our market share on Fans -- on Lighting for 3, 4 years back was roughly only 5%. So there has been significant market share improvement in all categories. Obviously, in Fans and the residential pumps, we are already market leaders. So that's how the market shares have moved in the last 3 to 4 years. On CapEx, I will ask Sandeep to...

[Sandeep Batra, Chief Financial Officer]

So our CapEx outflow this year is likely to be anywhere between INR 30 crores to INR 50 crores, yes.

[Operator]

The next question is from the line of Siddhartha Bera from Nomura.

[Siddhartha Bera, Associate]

My question is again on the Appliance side. Basically, first is what will be the mix from this business for us in Q4 last year? And second is, I mean, you have highlighted you want to become #2 on some of these areas, like mixer grinder, we have been now doing it. So by when can we expect that we can become #2 or #3 probably in the next time going ahead?

[Mathew Job, CEO & Additional Executive Director]

Yes. Well, the mix changes dramatically quarter-on-quarter because our two leading categories in Appliances, which is today water heater, air coolers, they basically operate in two different seasons, so very difficult to actually -- doesn't really make too much of sense looking at the mix between categories. Because every quarter, it will change depending on whether it's the winter, summer and so on and so forth. On water heaters, like I mentioned, we have moved from being #6 or #7 to being #3, very close to getting to #2. Because the first actual [indiscernible] Appliances was on water heaters. The second one was [indiscernible] the air coolers. So air coolers, also we have more than doubled our market share in the last 2 years while the market share [indiscernible] in single digits. [indiscernible] journey has only started in right earnest only about 6 to 9 months ago. And we are still in very low single-digit market share. There's a long, long way ahead of us before we can say that we are going to get into top 3. So that's going to be taking some more time. Just for perspective, in water heaters, it has taken us about 3 to 4 years to get from 3% to 4% share to get to 13%, 14%. So you can estimate that similar kind of time frame it would take also in the other categories to get to top 2, top 3.

[Operator]

The next question is from the line of Shrinidhi Karlekar from HSBC.

[Shrinidhi Karlekar, Analyst]

Congratulations on decent set of numbers. Sir, based on your assessment, how are the pricing action the company has taken to offset commodity headwinds compared to company's key competitors, both in terms of quantum as well as timing of the price increases? And sir, second question is, sir, company has a relatively higher dependence on outsourced manufacturing versus some of its peers. So in that regard, I just want to understand, does that factor help in any way to contain the gross margins? Because I would imagine price adjustment that we would take for a vendor would pass on with a lag. So just your perspective on these two?

[Shantanu Maharaj Khosla, MD & Executive Director]

Okay. On the first one, in terms of the pricing, quantum and timing, largely speaking, most of the industry move roughly the same quantum at roughly the same time because the commodity pressure was pretty much identical on everyone. So there was no significant differences. Second, in terms of outsourced versus insourced, not really much of a difference, okay? Because what we do, and that's one of the ways we got -- we are helping manage is we centrally negotiate prices for commodities, the major commodities, which is then at that prices, it is also bought by the vendors, our main vendors at least. And that enables them also to get it at better prices based on our negotiated costs. So there's not a significant difference in gross margins or bill of materials, if you will, between outsourced and made in our own factories.

[Mathew Job, CEO & Additional Executive Director]

Even the time lag, its max difference is only maximum of 1 month because we adjust every month, the commodity costs in the cost sheet. So there's not a significant difference.

[Shrinidhi Karlekar, Analyst]

Great, sir. And just one factual question, if I may. Sir, would it be possible to share our Lighting business mix on a rolling 4-quarter basis between B2C, B2B and B2G?

[Mathew Job, CEO & Additional Executive Director]

I would say B2C -- B2B from B2G and B2C would be in only half of. But again, in every quarter, it would shift because we have a large government order. And that quarter, it could swing. But on a going basis, roughly 50-50 between B2C and B2B. Although in the last couple of quarters, it leaned slightly more towards B2C because of the fact that B2C recovered faster. But otherwise, on a long-term basis, 50-50.

[Operator]

Thank you, Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Ms. Renu Baid from IIFL Securities Limited for closing comments.

[Renu Baid, Vice President]

So on behalf of IIFL Securities, I would like to thank the management for giving us the opportunity to host the call and all the participants [indiscernible] . And any closing comments from Shantanu and the team would be welcome. Thank you, and over to you, sir.

[Shantanu Maharaj Khosla, MD & Executive Director]

Yes. Thank you, Renu. Thank you, everyone, for dialing in. As always, our objective is to tell you everything we know, so you can have the best knowledge of our company and our thinking. If there are any questions as always which we were not able to get to during this call due to limitation of time, please feel free to contact us. We'll be more than happy to address any questions you may have. Finally, of course, please, COVID is not over. Get vaccinated, get your second round of vaccinations, and stay safe and healthy to you and your families and all the best. Thank you so much.

[Operator]

Thank you. On behalf of IIFL Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.