Crompton Greaves Consumer Electricals Ltd

NSE:CROMPTON

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Crompton Greaves Consumer Electricals Limited Q2 FY '21 Earnings Conference Call hosted by Prabhudas Lilladher Private Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Amnish Aggarwal from Prabhudas Lilladher Private Limited. Thank you, and over to you, sir.

[Amnish Aggarwal, Head of Research]

Yes, hi. Welcome, everyone. On behalf of Prabhudas Lilladher, I welcome the management of Crompton Greaves to take us through the 2Q '21 conference call. We have with us Mr. Shantanu Khosla, who is the Managing Director of the company; Mr. Mathew Job, Chief Executive Officer; Mr. Sandeep Batra, who is Chief Financial Officer of the company; and Mr. Yeshwant Rege, who is VP Strategy & Financial Planning.So now I hand over the call to Mr. Shantanu Khosla to take the proceedings further.

[Shantanu Khosla, MD & Executive Director]

Thank you so much. Good morning, everyone, and thank you so much for dialing into our quarterly call. Firstly, of course, I hope all of you, your family and friends are safe and healthy during these terrible times.Before I touch upon the quarter gone by, I would like to provide a quick update on the safety and well-being of our employees. The health and safety of our employees and partners continues to be our #1 priority during this period. Nearly all of our employees are safe from COVID-19, and we are extending all support required to the few of our employees who have been affected with the virus. We continue to be well connected with our employees through virtual town halls and the response continues to be encouraging. We've also executed a tech-based contact-tracing platform called MyShield in all our factories to ensure social distancing and back tracing and contact tracing of people in case of any infection. All our factories, Baroda, Baddi, Kundaim, Bethora and Ahmednagar are up and running at normal capacity. Norms of safety laid by the government and social distancing continue to be strictly adhered to in all our premises. Our distribution network has been normalized post sporadic lockdowns that extended up to the early part of the quarter. And currently, all our warehouses and distribution depots are operational. The choices that we made in the past, as we got into this period, which are to drive our go-to-market, consistently launching consumer-centric products, focusing on our vendors and dealer partners as part of one large Crompton family have all aided in delivering a strong performance in these challenging times. We have also extended the support to our vendors to cope with their current challenges and the nimble approach has led to seamless product distribution. Our consistent efforts to convert these challenging times into an opportunity have delivered healthy results for us. Our investment over the years in developing consumer meaningful innovative products and product portfolio across price points has helped us to quickly recoup the lost ground due to COVID. Our long-standing relations, transparency and the support we have provided during these tough times to our channel partners has helped in strengthening loyalty and trust towards Crompton more than ever. Our consistent efforts and continued investments to improve our go-to-market initiatives, along with strong support from existing business partners has led to continuing distribution network expansion. As a result of these go-to-market initiatives, our reach, our distribution at the retail point has been continuously improving. Overall for fans it's up 1.5% and for LED bulbs numeric distribution up 0.5%. Our secondary sales are tracking visibility through the Tally patch that we talked about earlier, has helped a great deal in monitoring data as it moves out of the retail store and that has moved up now to cover about 76% of our business.Our early focus in making further inroads into the rural channel, where we've been investing and building a separate organization and capabilities have helped us tap the faster rural revival and ensured consistent market share gains. Our sales from the rural channels has increased by a whopping 144% in quarter 2 over the corresponding period last year. We have also, as talked before, developed a strong presence in e-com and modern retail, along with the highest level of engagement during these times to ensure availability across products, across price ranges, and this has helped us gain significant market share in these channels. We achieved a 72% growth in these channels in the quarter just passed. Our existing portfolio continues to gain consumer acceptance. And as we talked last quarter, we have begun ramping up our introduction of new initiatives through this quarter and our investments behind them. Super premium fans continue to gain traction with business from the segment growing 300% in quarter 2 over last year.We have recently launched Rapidjet Plus, Aura 5, Arno Neo 5, under our water heater category. Treat and Ritz is adding to our existing range of mixer grinders, Gianna and Modern Leaf in our ceiling fan business, [ Star Lord ] and [ Strike O ] amongst ceiling light portfolio, 1.5 horsepower open well pumps and 12.5 horsepower Janta Series among our pumps. In fact, the previous quarter has been one of the most active quarters in terms of introducing meaningful new innovations across our brands in our history as a company. We've witnessed steady improvement in business momentum as we went through quarter 2, and with sales growing progressively in each of the months, July, August, September over the corresponding period year ago -- versus last year.Growth is visible in all our product lines, across geographies except for B2B Lighting, which excluding the government business was slacked versus a year ago, even some of the regions which are most affected like Western region, which was -- which had the most prolonged lockdowns has gained momentum and has started growing over the last year since August. Our ECD business achieved an 18-plus percent value growth, largely, this value growth was all volume led. Driven by all 3 categories, our lighting B2C LED volumes grew 9% over the previous year.Now all that being said, we are very cognizant of the fact that the future remains extremely uncertain. While COVID is still rampant, but we are all hopeful that it will begin to flatten out sometime soon. The reality is that everyone expects GDP growth to be negative over the coming few quarters as our COVID cases continue to be high. We remain cautious and vigilant in our approach and consider the situation to be still grim and the volatility in the environment here to stay until the overall outlook for the economy improves. Our aggressive implementation of driving cost-saving initiatives identified during quarter 1 and our ongoing project UNNATI has been enabling us to outperform our peers and deliver consistently and improve profitability during this quarter. Our regular cost-saving program is back on track this quarter, which was obviously affected by lower activity in the previous quarter. We have saved in excess of INR 35 crores under this program in quarter 2, which puts us on track towards achieving our own internal annual target for cost reduction. Our focus to drive overdues, collections and efficient management of working capital has helped us further strengthen our cash position to INR 1,230 crore. Our balance sheet strength, as we have talked earlier, has enabled us to invest where it makes sense to drive the business and for the long-term throughout this quarter. It will also obviously continue to help us weather the future uncertainty, while still enabling us to continue to invest in long-term development of our business.Through this quarter, we continue to step up our investments in hiring and development of our R&D capabilities. The benefits we strongly believe will be realized over the years by the organization. We remain committed to develop innovative consumer meaningful products that offer superior value proposition flowing into top and bottom line. As part of bringing back our investment through this quarter, we also brought back our advertising investment, which we resumed in the back half of the quarter, and we will obviously sustain and grow our investment in brand building initiatives as we've done in the past.Briefly moving on to segmental. The fact -- in this quarter, as volume and value grew 23% across all product categories, the premium segment is on a strong growth track while TPW continues to witness exponential growth. Our super premium fans continue to gain traction with business from this segment growing 300% in the quarter. Our new Silent Pro fans are extremely well received by the market and numbers continue to grow sequentially. In the rolling 12-month period, we've gained 1 point in market share in the overall fans business. The overall pumps business witnessed an 18% volume growth. Residential pumps really drove this growth with a volume growth of 24%. Agro pumps, however, continue to witness challenges largely because this is a business which, for us, it's focused a lot in the east. And also in areas where there was extensive and prolonged rainfall, and we have always seen that when there's a strong monsoon, the demand for pumps during that period tends to come down.Our appliance business, our new rising star has continued, again, quarter-on-quarter to deliver strong growth, and the total business has grown 32%. This was driven by geysers with a value growth of 43%. And the program really seems to be working. 1.5 years ago, we were really nowhere on geysers. Today, based on our data, the way we look at it, though we don't have retail audits. We believe we are #2 now already and not too far from obtaining market leadership, having sold more than 1 lakh geysers in August and September in the quarter.As I mentioned last time, the next key appliance area we're focusing on and have brought renewed focus is in mixer grinders, which clocked a value growth of 26%. The quick rebound to pre-COVID growth even due some -- during such challenging times, for us, reinforces that our choice of investing in product portfolio and continuing to invest in product portfolio is paying dividends and will put us in a healthier place versus the market and competition as we look out in the future.Lighting revenues. Here, I would like to first talk about the different segments. Our B2C LED business has now, after a few years, reversed the trend and has started witnessing value growth in line with volume growth, which has been in the double digits. What has fundamentally happened is that the price destruction, which was present for the last few years has seemed to have stopped for the past few quarters, and that is extremely encouraging because that enables us to now deliver value, decent margins and continue growing the business. The one part of our business, which is still to recover, is really our lighting B2B business. And within this, specifically, the B2G, i.e., the business we do with the government, which is down significantly. The nongovernment B2B business is flat. But it is the government part of the business, EESL and other government entities where the business is declining. And frankly, we do expect that part of the business to stay soft.We've also, as you can see, made significant progress on our lighting margins. If you recall, last quarter, we had already achieved what we call our target gross margin level. But at the bottom line level, it was not where we wanted it to be, largely because the scale of the volume had come down. But we have got our structural economics already in place. And now as the top line has come back, we are seeing that resulting in us delivering target bottom line margins.With this, just quickly, the overall numbers of the company, the Board of Directors in its meeting has yesterday approved the quarterly results for the quarter. Total income for the quarter was INR 1,213 crores, ECD revenue was INR 931 crores. EBIT margin expanded by 180 bps versus corresponding period last year and so that's 21%. There's also been a sequential improvement in EBIT margin by 50 bps in the segment. Lighting revenue stood at INR 282 crores. EBIT margin expanded by 650 bps versus corresponding period last year and stood at 11.7%.We also have structurally improved in terms of our gross margin with our material margins growing by 100 basis points. On this, I would like to mention that we have begun to face commodity headwinds. Commodity prices are beginning to tick up, and we are seeing that playing towards the back half of this quarter. However, as we've talked before, our ongoing strategy of covering commodity price with 3 different types of actions. Number one, driving down costs with our UNNATI program; number two, improving mix. And then finally, selective price increases continues to give us confidence that we will be able to successfully address this potential headwind in terms of commodity costs. PBT was at INR 189 crores, growing at 49%. PBT margins were at a record high at 15.6%. Profit after tax was INR 140 crores. Noting that last year, the profit after tax included the effects of a tax rate reduction of quarter 1.The last point I'd like to mention is the Board also decided yesterday that to issue and decide a dividend of INR 3 a share to all our shareholders as an interim dividend.I would like to stop here and address any questions you may have. Thank you.

[Operator]

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

[Venugopal Garre, Senior Analyst]

Actually, the opening remarks were great because you've actually covered a lot of ground so a very few small questions for me. Purely, firstly, on the channel side of things, wanted to understand that the general discussion that we were having is that the channel has been very careful on stocking products, which means they don't want to really build too much inventory. Now that we are primarily in a festive season, wanted to understand that if -- for your products, are you at optimal levels of channel inventory at this juncture so that you actually don't miss out on sales? And any early peek into how things are panning out on the festive side of things.

[Shantanu Khosla, MD & Executive Director]

Okay. First, just to clarify, and I think I've mentioned this before. Our categories tend not to be very festival focused. They are more regular regimen. And the seasonality we tend to have, unlike, for example, white goods is more linked to the weather and season. Secondly, we had seen that channel partners are turning around their inventory faster. They are ordering more frequently and replenishing more frequently and more regularly. So they are increasing their number of turns to help manage, which is actually great because that is far more efficient and plays back to our strengths in the supply chain. We are not seeing any change in retail inventory in terms of retail inventory going up or coming down. It is at about the right levels as it should be. Now what has happened is, however, from our own supply chain point of view, while a lot of the COVID operational disruptions we have managed, there are still areas where manpower challenges remain. These manpower challenges are focused more in areas with large migrant labor. So for us, for example, it means bigger challenges in Baddi and less challenges in Goa. What that has led to is that our own inventories are slightly below optimal levels. And our own placement efficiencies are slightly lower than where we would like them to be. We're obviously working hard on it. And we have managed to -- supply chain and distribution chain has managed to be nimble to address issue by issue, which has resulted in the strong top line performance, but we expect our own internal inventory and our placement efficiencies to be normalized over the next couple of months.

[Operator]

[Operator Instructions] We'll move to the next question from the line of Nitin Arora from Axis Mutual Fund.

[Nitin Arora, Equity Research Analyst]

I have 2 questions. I have 2 questions. One, given an abnormal year, we saw an abnormal margins. I didn't mean to say abnormal in the sense that when we were growing at a recurring run rate of a double-digit growth, we were about 12% to 13% EBITDA margin company. And suddenly, we became -- and you have been guiding the market on the cost savings about the channel strategy, which is helping you. My question is more on the directional side. When being very close to the ground, which you always tells us about the category wise growth and the trend of the consumer. But generally, in an abnormal year, when you have shown such kind of a margins revenue growth is back to a double digit. When things becoming normal because we see in channel, no discounting almost of any product. I understand the reasons what channel say is supply chain constraints or no discounting as such, which I'm assuming helps also the companies in gaining margins. But generally, when we go ahead in terms of normalizations, when the channel becomes normal, the supply chain becomes normal. Are you still confident of maintaining these margins and the double-digit revenue growth, as you highlighted also by way of normalizing the inventory? That's my first question. And second so in terms...

[Shantanu Khosla, MD & Executive Director]

Let me address the first, and that's again in fairness for everyone. Firstly at stock margins, right? As we said before, our overall approach is to reinvest our operational and structural efficiency improvements. Now we have been operating and we've reached the margin level in the past of close to 14%. In fact, if you recall, one of the things which we managed to do, which no one else was really able to do. And we worked really hard on this. Was even when the volumes collapsed in the first quarter, we held these margins. Now that structural economics is what is really paying off now by giving us the space to invest in top line. If I think of the difference between that 14% and what we reported, call it, 15.5%. There are a couple of things which were onetime. For example, we had, like we'd communicated, held back salary increases when we got into the uncertainty of COVID. Now as of October 1, we've restored all normal salary increases back across the board to all employees in our company, fixed and variable pay. So that was a onetime saving of about, call it, 0.5 point. Then there were other costs, which we -- if you will, delayed sales, et cetera, which also flew into a large part of quarter 2, which would account for about another 0.5 point. Now these added the extra bit. Advertising was another element because, for example, we did not spend at all in this quarter because we didn't come back on air on July 1. We came back on air kind of second half of August by when the distribution had built up again. So instead of our normal desire, 2 points, we felt less than that this quarter, right? So part of this is onetime, but there are also significant structural savings. One is, obviously, the cost savings, for example, the lighting margin improvement, a lot of that is driven by state programs to save costs while actually improving the products to some extent. These cost savings, we will continue to invest in top line growth. As we've talked about in the future, in our chosen areas of go to market, new channels of e-commerce and rural, product innovation, capability building, advertising, et cetera. As we come to the top line. Here, we have always said that we believe, inherently with our programs, we should be working around a double-digit plus kind of growth. And we do see that as a growth which we need -- which our -- quality of our fans should be able to deliver a double-digit growth. Of course, there is one key headwind in the next couple of quarters, which we do not yet know about. Because even if the COVID situation stays kind of stabilize as it is right now, and we don't go into major lockdowns. The fact of the matter is that all projections indicate that over the next few quarters, GDP growth will be much lower than it would have been forecast pre-COVID. Now that will have some kind of impact, but we have to see how that pans out. I would also like to point out as we think of demand. If you take fans, for example. In fans, if we look at the retail audit data, and I'm talking therefore about consumer consumption data, which we collect from RetailPulse, we have got data from July and August. We don't have September data yet. And actually, the market size is still declining, much less than it was declining in the first quarter, but -- and improving from -- between from July to August, but the market has not gone back to its 8%, 10% or 7% traditional growth levels. Our gains behind -- has come behind our programs are speed and our channel partnerships, which has actually resulted in share gain. Now largely, the share has been lost, not by unorganized players, but the shares have been lost by organized companies who happen to be very small in fans. That's where the share has gone. And that actually reinforces our strategic choice, that where we play we don't want to be a small player. We want to be a leading player in that segment. Sorry for the long-winded answer, but I thought I'd provide this perspective.

[Operator]

[Operator Instructions] The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.

[Prashant Kutty, Research Analyst]

Two things. One is on the lighting part, how much of the lighting margin -- could you break it up in terms of how much came in account of cost savings and how much was because of the pricing element and what gives you the confidence of this sustaining going forward? And second bit is urban versus rural, where are we in terms of recovery?

[Shantanu Khosla, MD & Executive Director]

Okay. Mathew, Sandeep, do you want to take that?

[Mathew Job, Chief Executive Officer]

Yes, yes, I'll take it. So if I look at the lighting margin improvement, I think -- and as we mentioned, in the past, we have been having this issue of price destruction, as Shantanu mentioned, in both B2C and B2B. In the last quarter, or maybe starting from the previous quarter, as we mentioned, we have seen the price destruction, especially in the B2C segment, has pretty much reduced or even, I would say, stopped so that is why you see -- earlier when we had double-digit growth, we were hardly having any value growth. But in this quarter, when we have had the 9% the volume growth in LED business in B2C, the value growth has been in line or even marginally better. So that is one element which has helped improve the margins. The second, I would still say 8% of the margin improvements have come from cost reduction. But just keep in mind that kind of cost reduction also used to be there in the previous quarters, maybe it was slightly lower excel but most of it got blocked because of price destruction. Now both these together ensures that the B2C margins have pretty much come back or even hit their all-time high. B2B margins are still recovering. And there, of course, we have this issue of market being down. And every competitor are fighting for a portion of a smaller pie, which is in -- which is managing B2B continue the price wars. So I would say in B2B, we still expect some more pain to be still there. But overall in lighting, I feel with the B2C price destruction having pretty much been under control, we can expect that our continued cost reduction programs will keep our margin sustainable at these levels going forward. Yes.

[Operator]

[Operator Instructions] The next question is from the line of Renu Baid from IIFL.

[Renu Baid, Vice President]

Congratulations for strong results. I would just have 2 questions. One, if you can give some insight in terms of demand outlook. You did mention the headline sector numbers still look weak, but should we see that was there any pent-up impact also in the demand or across regions and markets, demand has improved? And on the market share gains, can you also add some more insights in terms of regions or segments or buckets where we've seen these gains coming through?

[Shantanu Khosla, MD & Executive Director]

Okay. Mathew, do you want to take that?

[Mathew Job, Chief Executive Officer]

Yes. I would say in terms of -- let me address the question of demand. The -- as Shantanu mentioned, especially in France, if I look at market fall deja the market is still in decline. While the decline is significantly slower than in the previous quarter. Our estimation is the biggest part of our gain have come from the fact that many of the organized small competitors have had problems because of both cash issues and the fact that the supply chains are far less reliable. So I would say that segment of the market has lost more than 20%, 25% in terms of business. That has been primarily true to much stronger players like us. If you look at the -- if I look at the segments, I would say we have had significant traction, and the market share gains have been across, both in premium, but also in non-premium and also in TPW so across the segments, we have had high market share gain, I wouldn't say that there has been marked gain only in one segment. Thank you.

[Shantanu Khosla, MD & Executive Director]

Just to add to what Mathew said. If you look at our business, and that is -- it gives me a lot of confidence on our programs and the health of the business. If you look at our business over this quarter by segment and by geography. There are only 2 areas where we're not getting robust growth. Number one is rural pumps, primarily in the east. And number two is B2G lighting. Otherwise, that growth is very broad-based. Like I mentioned, even areas which had the biggest lockdown challenges like the West have been showing robust growth over this quarter. So it's very broad-based.

[Operator]

[Operator Instructions] The next question is from the line of Mayur Patel from IIFL AMC.

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

Congratulations, gentlemen, for excellent set of numbers. Sir, just a same -- similar question as Renu asked. We saw 2 months of lockdown in the June quarter, everyone witnessed most of the sector companies. So after a 40%, 50% decline in top line, in the June quarter. This quarter is like back to the growth. So wouldn't it be fair to say some part of the current growth is kind of slipover or pent-up or whatever way one has to define it, which may not be sustainable. So if the current quarter's top line is a function of organic demand plus the slipover from the previous quarter. Would it be fair to attribute some part of this? Or you think that is past and this is the real organic and which should continue?

[Shantanu Khosla, MD & Executive Director]

See, one is, it is possible that there was some pent-up demand. But we do not judge that to be significant. So maybe 1 point of the growth was pent-up demand, maybe 1.5 right? And the reasons I -- we think that it is not significant is, one, we see -- we saw a continual growth month-on-month. August grew higher -- faster than July, September grew faster than August, and October, early days, but it's looking okay. Second is the actual consumer demand, which we can only measure through consumption data. And that indicates that fans demand, the consumption is -- trend is improving, but it is still underwater, if you will, slightly. By the time we come to August. We're hopeful based on the trend that when we see the September data, that would have picked up, right? But I don't think the consumption demand has yet come back to the historical 7% or 8% kind of growth on fans. So there may be some, but we don't judge Q3 material. I think the bigger impact was the programs we're doing, the go-to-market growth we're doing and in the case of fans, 1 share, 1.5 share players in the category seem to have had the harder time.

[Operator]

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

[Bhavin B. Vithlani, Senior Analyst]

At the outset, I'd like to congratulate the entire team of Crompton for phenomenal performance. Sir, my question is more on a longer-term and to ensure that longevity of your double-digit growth for the next 5, 10 years. I think one of the things you mentioned you are reinvesting back in innovation. So 2 parts of this question. One is when you look at your global competitors, on a large base, they are investing close to 3%, 4% of their revenues in R&D and innovation? And second, if you could also outline what exactly are the areas and -- that you are investing? Because globally, the bulk of focus on the research and innovation is in IoT and connected products? These are my questions.

[Shantanu Khosla, MD & Executive Director]

Okay. I think I had identified, I talked about these areas earlier. Obviously, one area of investment and focus of innovation is connectivity, IoT, whatever you call it, because that has significant implications on all our categories. A second area is health and wellness, which we believe is an important emerging -- well, it is already emerged. But likely to be significantly more important. The third key area for us is cooling technologies, different ways to cool more efficiently and the last area is energy because we believe energy efficiency is a significant important area for long term innovation, not just in terms of giving better desired consumer products, but also in terms of our whole sustainability platform. So those are the 4 broad areas. I don't have a number yet for you in terms of what is our goal in terms of where we want to be on a sustainable level in terms of percentage R&D spend because it's something, which we are working towards. Suffice to say, our goal is definitely to spend significantly more than we've historically spent.

[Operator]

[Operator Instructions] The next question is from the line of Ankur S. from HDFC Life Insurance.

[Ankur Shah]

Congrats for a great set of numbers. So I had just 1 question actually. On the kitchen appliances piece, the mixer grinder, juicer where we've kind of identified that to be the next big opportunity for us. So now what I understand is that how it clearly is the largest market for kitchen appliances close to 40%, 45% there Pan-India. But clearly, the electrical players Crompton -- like ourselves, Havells, et cetera, they're not being able to do much. We've not been able to break too much in the southern markets. And that clearly is an area where Crompton in other product category is very strong. So if you could just highlight what are the steps we've taken to break there? How do we get more customers to buy? I mean, obviously, in fans, we are very, very strong in the southern market. How do we get business to appliances as well is what I'm asking.

[Shantanu Khosla, MD & Executive Director]

I think I had talked about this earlier, but our model is very simple in concept, difficult in delivering. The first and foremost thing is we -- is to develop propositions which are superior or meaningful and that is the work we've been doing. And the -- that's exactly what we did on geysers. And that is what has weighed -- so going into this period, we have significantly revamped our entire mixer grinder range, and that is the one I mentioned is in -- saw a good initial results, though there's still a lot of work to do. The second, once you have that, invest in it, create advertising, marketing to create the awareness. The third is make sure we've got a cost structure which can allow us to price it at a decent good value price as seen by the consumer. And then the fourth, is efficiently supply it and distribute it. So that is, if you will, the secret sauce. We have no intention, like I said, of investing in areas where we will just stay as #7 or number #8 because the value is all created by the 1, 2 or 3 in that segment. We think that we have the initial signs of a good program going in, but the next 1 or 2 years will be key. Our aspiration is to invest in these 4 areas on mixer grinder, just like we've done in the past on geysers, with the objective of over 3 to 4 years, becoming at least the #2 or a close #3.

[Operator]

[Operator Instructions] The next question is from the line of Charanjit Singh from DSP Mutual Fund.

[Charanjit Singh]

Congratulations on great set of numbers. My question is pertaining to the institutional demand. So if you can give us some color, one, overall, in percentage of par revenues, what proportion comes from the institutions across different categories? And how do we that -- see that panning out in the second half or ramping up going forward? The other thing is on the GTM. Where we are at right now in GTM in terms of our targeted target and how we want to see our channel further shaping up going forward? Yes.

[Shantanu Khosla, MD & Executive Director]

Yes. Mathew, do you want to take that?

[Mathew Job, Chief Executive Officer]

Yes, yes. Okay. In terms of B2B, as Shantanu has explained, primarily our B2B business is in Lighting. Also we have some B2B business also in pan and to some extent in part, but let's focus on lighting because as well we have been chunk of institutional with us. Now if I divide this into...

[Operator]

Sorry to interrupt you, sir. This is the operator. Sir, the audio is not coming clear from your line.

[Mathew Job, Chief Executive Officer]

Is it okay now?

[Operator]

Now it is better.

[Shantanu Khosla, MD & Executive Director]

Yes.

[Mathew Job, Chief Executive Officer]

On B2B, I said the bulk of the business comes from lighting main focus is on lighting B2B. So B2B in Lighting can be split into 2. One is government business and one is non-government business. The government business has been pretty much -- very much decline in quarter 2, and we expect that trend will continue for some more time. In our quarter 2 results, you will see, if I look at the nongovernment B2B business, it is basically flat last year. However, one needs to keep in mind that the new order or decision a on projects while we have a very strong and robust project pipeline in nongovernment, the issue that we are facing and I think is also true for the market in general, it's a lot of decisions on these projects are being delayed so typically, we have seen versus a normal average quarter there's a 25% to 30% decline in the value of orders being decided. We do think that it will take at least a couple of quarters. For this to recoup and get back to normal. That is one. Second, in terms of the go to market as you have seen, we have particularly been making improvements in reach. Today, we have become -- 5 years ago, we were #2 and #3 in terms of traditional fans. Today, we are being the #1. We continue to gain a reach at an average of 1, 2 percentage points every year. The same trend is true in lighting. However, keep in mind that even with these numbers are standard only available in 65% of stores across our country. And LED will be around 30% to 35%. So that is still a long way ahead of us to continue to improve our reach. And it is going to take time, but it is going to be a steady progress over the next couple of years.

[Operator]

[Operator Instructions] The next question is from the line of Shirish Pardeshi from Centrum Broking.

[Shirish Pardeshi]

Just one question on the urban versus rural mix, and this is I'm extending the G2M question just now. So our priority of distribution is more of rural or urban? Because I guess rural has a very vast opportunity. And if you can break up, what's the growth rate in the quarter which is gone by, we have seen in rural versus urban? And if you can spread some thoughts on demand outlook?

[Shantanu Khosla, MD & Executive Director]

Okay. Mathew?

[Mathew Job, Chief Executive Officer]

In terms of -- of course, as Shantanu mentioned, we are definitely improving ourselves in semi-rural and rural areas. But the fact is that a big part, almost 80% of our -- 80% to 85% of our business has been focused on urban. And the market position which we spoke about for our fans is also about the urban areas. Of course, the rural demand is better. And Shantanu mentioned that our business in rural has grown by 145% over the same period last year, but that is also based on the fact that we only started our rural operations last year and are continuously expanding our rural base or what I call semi-rural base. So a lot of it is also because of the fact that we are getting into new markets. So that is -- if I look at the urban markets, I would say the fan market helped. As I mentioned before, it's still in quarter 2 decline and yet reached increased pre-COVID levels this is the situation we have also in the beginning. Thank you.

[Operator]

The next question is from the line of Akshay Bhor from Premji Invest.

[Akshay Bhor]

Team, congratulations for great set of numbers. Sir, just one question around market share gains wanted to understand this a little better. Are the number 3, 4, 5 guys in the fans, and I know that these are like 1% or 2% market share guys who couldn't cope up with the supply chain issues and those are losing. And in your view what is the sustainability of these gains and what are you doing in the market to regain that? If you can speak about that, both on the fans and the lighting side. That will be helpful.

[Shantanu Khosla, MD & Executive Director]

Well, on the fans, I think we are the leaders, and we've been gaining share consistently, right? In this last period, we gained about this 1 share point. But we have been gaining about a share point a year plus/minus for the last 3, 4 years. So it's an ongoing trend. And so that kind of share growth, I think, is something which we would at least aspire to on a long-term basis. The other thing is really what is driving the share growth is our programs, we believe, go-to-market and product. So obviously, we've had the tailwind of the smaller guys maybe struggling a bit, right? And this is actually what I mentioned last quarter, which is this is the opportunity of tough times where, if a leading brand invests in consumer, in go to market, in its propositions, then it can actually come out of the tough time in a better market share position. So I do believe that these positions, which we've established are not onetime blips because if you think about it, these customers, these consumers have now experienced the Crompton fan and would have had a wonderful experience. They have moved to our brand. It's a brand switch, which is the difficult one to make. And as long as we sustain the quality of our programs, the quality of our go-to-market and the cost and value. These share gains, I believe, should be sustainable over time.

[Operator]

[Operator Instructions] The next question is from the line of Ashutosh Garud from Ocean Dial.

[Ashutosh Garud]

Congratulations on a great set of numbers. So just wanted to understand a little bit more on this market share. You mentioned that the growth has predominantly come in a scenario where the overall market has not grown, but some of the smaller organized players have lost the market share gains because of the supply chain issue. So once, let's say, if the supply chain issues are in place, I mean, those are resolved at their end. Would you believe that although on an overall basis, you will continue to gain 1% or 2% market share gains in next 6 to 8 months. But the short term gain, which we would have experienced may not be sustainable over the next 2 to 3 quarters because those guys would have solved the issues that their supply chain. Would that be a fair thought?

[Shantanu Khosla, MD & Executive Director]

I guess that's almost the identical question I just answered. The supply gaps or other such issues, which we really don't know for a fact because we're assuming those companies will know their position better, creates the opportunity. But once the opportunity is created, the brand switch happens. Now it is the experience of the consumer and ongoing propositions, which is our job to make sure that these consumers become loyal consumers.

[Operator]

[Operator Instructions] We'll take the next question from the line of Vishal Biraia from Aviva Insurance.

[Vishal Biraia]

Sir, what is the outlook for the second half? Do you expect the momentum to continue? And I mean, mainly, specifically for the geysers business that you mentioned that you've gained massive market share. So could you elaborate a bit more on this aspect of it?

[Shantanu Khosla, MD & Executive Director]

Well, we think on geysers, obviously, first, this coming quarter is critical for geysers because of the seasonality. And after that, we go into summer, which is not a geysers season in any case. Right? But for geysers, we believe we have a very strong program. Like I mentioned, we've got quite a few new meaningful initiatives, which have just gone in. We are going to be supporting and investing in advertising for geysers. We found that our investments in e-commerce in Amazon and Flipkart are paying great dividends in geysers. In fact, the data we got from the customers on their performance during big day, but very positive for us. So we do think we have the right program and momentum. So we would aspire to continue to grow share in geysers.

[Vishal Biraia]

On the outlook for second half and the capacity utilization that you guys are currently working on?

[Shantanu Khosla, MD & Executive Director]

Well, we don't give -- as you're aware, we don't talk too much about outlooks in terms of numbers, right? So I would leave it at that.Mathew, you can just talk about capacity utilization where we're at?

[Mathew Job, Chief Executive Officer]

Yes, for your information if I look at fans, in quarter 2, our -- the volume production versus the same period last year were about 120%. Lighting has been at the same level as last year. So I would say the capacity utilization is now we are running at good capacity already.

[Operator]

Thank you. Ladies and gentlemen, due to time constraint, we will take this as a last question. I now hand the conference over to Mr. Shantanu Khosla for closing comments.

[Shantanu Khosla, MD & Executive Director]

Thank you, folks. Appreciate you taking the time. As always, our intention of these calls is to provide you as much information as we can. So you better help understand our business, both in the near, but importantly, also in the long term. I'm sorry, we did not have enough time maybe to cover all the questions. But as always, please feel free if you have any other questions, anything we're more than happy to engage, just contact us. We are very much available. And most importantly, please stay safe, please stay healthy. COVID is still with us. So personally and for all your families continue to be cautious and take care. So thank you all very, very much.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.