Crompton Greaves Consumer Electricals Ltd

NSE:CROMPTON

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, good day. And welcome to the Crompton Greaves Consumer Electricals Limited Q4 FY '20 Earnings Conference Call hosted by Elara Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Harshit Kapadia from Elara Securities. Thank you, and over to you, Mr. Kapadia.

[Harshit Kapadia, AVP & Analyst]

Thanks, Janice. Good morning, everyone. On behalf of Elara Securities, we welcome you all for the Q4 FY '20 and FY '20 conference call of Crompton Greaves Consumer Electricals Limited. I take this opportunity to welcome the management represented by Mr. Shantanu Khosla, Managing Director; Mr. Mathew Job, Chief Executive Officer; Mr. Sandeep Batra, Chief Financial Officer; and Mr. Yeshwant Rege, Vice President, Strategy and Financial Planning.We will begin the call with a brief overview by the management followed by a Q&A session. I will now hand over the call to Shantanu sir for his opening remarks. Over to you, sir.

[Shantanu Khosla, MD & Executive Director]

Thank you. Thank you very much. Good morning, everyone. And thank you so much for dialing in for our quarterly call. First and most importantly, I hope all of you and your families are safe in these challenging times. Before I touch upon our performance for the quarter gone by, I would like to share some details of how we have fared during the lockdown and the latest update post relaxation. Even before the lockdown was announced, we had begun the practice of work from home, keeping the safety of our employees and partners as our highest priority. I'm happy to share that the entire Crompton family is safe from the virus, except one member from Mumbai. We are constantly in touch with his family and have provided the required support. As I speak, he is doing well, has tested negative and is recovering.We have resumed our operations in our factory since the third week of April with limited capacity after ensuring that all safety training, measures and guidelines were adhered to. We've enhanced safety arrangements in our factories, ensuring social distancing, sanitization of premises, buses, temperature checks for all personnel, regular disinfection and availability of protective gear.We've also upgraded our warehouse operational team with adequate protective training and protective gear for smooth ramp-up of our distribution network. We are slowly ramping up capacity in all our factories without compromising guidelines and safety of our employees and partners.As we speak, all our factories, Vadodara Lighting, Baddi Lighting and fans, Kundaim and Bethora for Fans in Goa and Ahmednagar for Pumps are running and operational since late April. 22 out of our 23 warehouses also started running and are operational. More than 60 out of our 86 key vendor partners have commenced operations and more will commence over the next week or so.At the same time, we've also geared up for sales with detailed sales plans. We have classified districts and towns to identify market opportunities and mapped our channel partners in each zone to focus efforts on driving sales as soon as markets open. We are constantly in touch with our channel partners and supply chain stakeholders to ensure smooth reopening and ramping up of operations.Since April 21, from the time relaxation began to be announced, we have seen things changing progressively on the primary sales side. The last week of April saw some sales activity in various select markets and beginning of customers clearing dues partly. However, as we move to May and relaxations are spread, we have seen good pickup, especially for Fans and Pumps, and numbers have been slightly better than what we had expected, especially from the South and East.As we speak, we are also exceeding our own initial, albeit low, expectations on collections, and we have already collected significantly more than we had collected in the whole of April. And that should help us to release commensurate credit to customers for billing.North is beginning to pick up, though slowly, but West continues to be a challenge, especially due to the situations in Maharashtra and Gujarat. As the lockdown eases, we do expect things to pick up in the West as well. And the continuing improving trend is, we believe, a testimony to the strong strength of the brand and the underlying demand.During these uncertain times, as we mentioned before, our key focus is first to earn cash and to reduce all costs. That is our top priority. We've identified significant cost-saving measures upward of INR 100 crores, over and above the normal ongoing cost-saving projects which we run and have been running for the last 4 years. A team has been constituted to monitor realization of the identified savings, and this will help us as we move through the year.Our balance sheet, as you're aware, is strong, and we closed the year with a strong cash and cash equivalent balance of INR 585 crores. Fundamentally, we are covered from a cash point of view with our strong balance sheet. However, recognizing the uncertainties which may exist and the unknowns which exist with the COVID-19 virus, especially looking out in the future, we felt it is prudent to build our war chest as such and have therefore gained Board approval to raise an additional INR 300 crores via NCDs. This will ensure that even in the worst case, if things get worse, we are fully protected, and can continue to build our business and strengthen our people, operations and capability through this extremely uncertain period.Now moving on, coming to the financial performance of the quarter. I would like to spend a little bit of time talking about the strength of our business pre the lockdown, which happened in the second half of March. If we look at our business over the January, February period, we were on track for one of our strongest quarters. Sales for January, February were up 14% across the company, with an 18% growth in ECD and even the Lighting business, which has been challenged across the category and industry over the last few quarters, was beginning to turn around and the total Lighting business had a value growth of 4%. This robust demand situation was really driven by a very strong and robust volume growths.Overall volume growth for the company, considering all ECD categories and B2C LED lighting was at 33%, with ECD volume up 22% and B2C lighting up 37%. This underlying strong demand, I believe, is what will help us moving forward in terms of a vertical start-up and bringing our business back as the situation normalizes.In value terms, the ECD segment in Jan-Feb clocked 18%, driven by strong performances in Fans and appliance. This was supported by continuing market share gains, where our market share in Fans was up about 1 point. The appliance business continued its exponential value growth growing at 60%, driven by 97% growth in geysers, 54% in mixer grinder and 83% in coolers. Our ECD margins over this period also improved by about 100 basis points over the corresponding period last year for January, February.In this period, volume growth in LED bulbs, battens and panels was 40% and value growth was about 15% over the corresponding period last year. Market share also grew in LED lamps by about 1 point. During this period, we did experience a reversal in the negative growth trend in Lighting, with revenue, excluding EESL business, up 7.5%. The challenges from the slowdown -- economic slowdown prior to COVID continue to impact the institutional and government business in our B2B segment.Our cost reduction programs also remain on track and in spite of the challenges in March in terms of volume, our sequential EBIT margin in the segment in Lighting improved sequentially marginally to 7% in quarter 4 '20.We continue to focus on our innovation pipeline, which has been a key driver for growth, launching a number of initiatives in Fans, Silent Pro, Energion, mount air decorative exhaust fans, which are all yielding positive results. We've also introduced a number of initiatives and continue to do so in expanding our Optimus series on coolers and Rapidjet and Rapidjet Plus series in geysers.In Lighting, we have a series of initiatives, which have also gone into the market. Table lamp, super-lumen, high-voltage bulbs; linear luminaires; downlighters; weather-proof luminaires and high-efficiency LED tubes.We also stay committed on our focus for brand building. Our spends for advertising over the fiscal year had gone up close to 10%, up to almost INR 100 crores. We believe with the economic activity picking up in the months to come, we will be back on track to continue to ramp up our investment in long-term brand development.Our go-to-market focus stays and continues to be strong. And in fact, some of the investments we have made in the past in terms of digitizing our data, tracking secondary sales, enabling better data flowing through from our customers to us, has all helped us significantly in managing the vertical ramp up as we begin our business coming back over the month of May.Taking you briefly through the numbers, though these have obviously been shared. In our Board meeting, we declared the quarterly results. Total income for the quarter was INR 1,018 crores, ECD segment declined, within which the appliance space actually grew for the quarter, even though March was a very challenged month. Our ECD margins continue to be healthy and improved over last year. Gross margin for the company also improved in spite of the lower volume base by 30 basis points. Net, our continued focus on cost efficiencies and effectiveness has helped us maintain profitability in spite of the top line challenges through this quarter.I'd like to just now stop there and address any questions which you may have. Thank you.

[Operator]

[Operator Instructions] We take the first question from the line of Venugopal Garre from Bernstein.

[Venugopal Garre, Senior Analyst]

Two quick questions. One is given that our supply chain, we do source a lot from MSMEs given that we outsource production. I understand that probably demand has just started to recover for you, but is there -- do you see any risk in terms of supply ramps from them given availability of labor challenges, given the ongoing shift and migration? And more importantly, across your supply chain, including the dealers, is there any assistance that they are asking in order to manage the current issues? And does it have any cost implication? That's my first question.

[Shantanu Khosla, MD & Executive Director]

Mathew, you want to take?

[Mathew Job, Chief Executive Officer]

Yes. In any case, as we mentioned in the beginning of the call, 60% of our vendor partners have already started production. And of course, the first thing is we currently have stocks which will last us for at least 1 month and 60% of our vendor partners, apart from our own factories, have started ramping up at a slow pace. So we think that by the time our stocks start to run down, the supply would have adequately picked up to manage any demand that we see at that point of time.Second, in terms of the support, the primary support is in terms of some level of extension of credit, which we have done in the period ensuing so far. While being prudent with our cash, we have supported them with extension of terms. While our focus has primarily been, of course, to drive up collections to the extent possible. That's what I would say.

[Shantanu Khosla, MD & Executive Director]

The only thing I'd add to that is the -- as the stores are opening up, especially in Fans, we are seeing an underlying demand. And our collections are actually coming in, yes, lower than they would have come in, in a non-COVID month because the markets are not yet fully opened, but the collections are currently ahead of our own estimates. So we are not seeing a huge -- we are helping, like Mathew says, where needed, but we are not seeing a huge credit crunch or crisis, especially in terms of purchase of leading brands like ours.

[Operator]

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

[Bhavin B. Vithlani, Senior Analyst]

And I'd like to compliment the management for showing strong nimble-footedness even in such short span of time. One, just question is, what is, in your view, the new normal? Do you believe there will be down-trading and you focus on the lower end of the market? And most of the other peers are speaking about e-commerce as a channel. So does that actually impact any strong -- have a longer-term impact on the profitability or growth of the company? These are the 2 questions.

[Shantanu Khosla, MD & Executive Director]

Clearly, we are seeing the opportunity or the shift to some extent will happen in the future towards 2 types of channels. One is, obviously, e-commerce, and the other is other forms of direct-to-consumer. Now the reality is that these are still a relatively very small part of our industry. In some segments, like Appliances, they tend to be larger. But -- so it is an area which we are going to focus and put more resources and plans again. But we don't see a dramatic swing. We still see that the traditional channel, even as we look out in the future, will be the largest channel for our industry, though these other channels over time will become more and more important.

[Bhavin B. Vithlani, Senior Analyst]

Yes, sure. And are you seeing any down-trading? And who would you -- would that mean any shift in the longer-term product categories?

[Shantanu Khosla, MD & Executive Director]

It's very early days to see any significant impact. Now that being said, we are actually as a brand and a company in a competitively superior position for any such shift. And the reason we believe we're in a superior position is because unlike most manufacturers, we tend to cover the spectrum of price tiers in our brand with no huge dependence on only one segment. So even if there is some amount of down-trading in the initial period, we believe it would benefit brands like ours. The other thing I'd like to point out is consistently in terms of one of our operating strategies, we work costs and propositions such that we don't -- we kind of equalize margins across different price tiers.

[Operator]

We take the next question from the line of Renu Baid from IIFL.

[Renu Baid, Vice President]

Sir, my question is largely, you did mention there are a lot of data points coming, and you gave a broad picture in terms of how some of the regions have been responding. If you can add some data in terms of how has been the initial demand offtake during the summers from South and East versus a usualized normal environment, especially in red, green, orange zones? And to what extent these are lagging?And also, do you believe that the institutional demand that one would see partially coming in from these makeshift hospitals and other isolation halls as they would require lights -- as in lights and fans, can that partially compensate for the lower trade sales that would have lost due to lockdown?

[Shantanu Khosla, MD & Executive Director]

Mathew, you want to take that?

[Mathew Job, Chief Executive Officer]

Yes. The -- I would say the red markets, unfortunately, most of the big metros and the big markets are still in red. So if you take all the big metros plus -- many of the big cities are in red. So while the number of districts in green are large, they are primarily still a smaller market. So I would say that the demand is not yet back to where it should be, primarily because the big metros and the bigger markets are still opening up to the extent of only 20%, 25%. Having said that, I think in the green and in the amber kind of areas, we start to see the demand at 60% to 70%.In terms of the other question, there is, of course, some demand for the makeshift hospitals and so on and so forth. But obviously, those would not compensate for the demand shortfall that will happen in normal trade, that's what I would say.

[Renu Baid, Vice President]

And what percentage of a market or your end retail touch points would have opened? And at what utilization are they working on an average level?

[Mathew Job, Chief Executive Officer]

I -- see, I would say -- if I take the last 2 weeks, I would say roughly 40% to 50% is what has opened, and they would be operating at -- wherever they have opened, they are operating at about 60%, 70% capacity.

[Operator]

We take the next question from the line of Mayur Patel from IIFL AMC.

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

Just want to understand, you gave some color on the demand side and how things are opening up and things like that. Can you similarly give some comments on the supply chain, right from production to the entire supply chain, how are things in this lockdown period, especially last 2, 3 weeks? That would be helpful.

[Shantanu Khosla, MD & Executive Director]

Mathew?

[Mathew Job, Chief Executive Officer]

Yes. See, the -- as Shantanu mentioned, almost all our units have opened. Somewhere from the 20th or 25th of April, we have started all our factories, except Fans Baddi, and Fans Baddi also has approval to start. So all the units are opened. But obviously, they're running at roughly 25% to 30% of capacity because we are keeping the safe distancing norms in mind, and we are ensuring that there's a slow ramp-up because the factory has been shut for a month or so, it requires implementation of safety protocol. So we have been a little careful in starting operations there, that is one.Second, as I mentioned before, we already have pipeline stock within -- even within the company of close to 1 month. And our channel partners do carry stock as well. So in terms of stocks, we have adequate to cover for 1 month, I believe, already from within the company, our -- 60% of our vendors have started operation. So we don't see any significant challenges in the supply side. In fact, I would say, if I were to look at the challenges in the demand side and on the supply side, till now, the demand side challenges have been bigger because supply started earlier than demand.But having said that, the demand is really opening up, and we hope that in the next few weeks, the demand will ramp up quite quickly as the market in the red slowly get amber and green, yes. And then we should have no problem, well, on the supply side at all.

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

And your agri-related or you can say, rural part of the -- some of the products which we have like Pumps and all, are you seeing slightly more resilience in that market as compared to say the others?

[Mathew Job, Chief Executive Officer]

Unfortunately, even before the COVID, the agri area was badly impacted, especially because of the extended monsoon, all that was there last year. So agri demand was actually low even before the COVID impact came in. In fact, if you look at the Pumps business, the residential pumps is doing much better than the agri pump. So to that extent, I would say there is still not -- because the biggest exposure that we have to agri is agri pumps, and we still need to wait for another month to 1.5 months before the pump demand starts to set in fully.

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

Sure, sir. So just one more short last question. We've seen, on the supply side, massive concern about huge inventories in other verticals of consumer durables like air conditioning and things like that. So can you just touch upon, is there any -- the current level of inventory in the market, is it at the reasonable level or it is at alarmingly high level across products?

[Mathew Job, Chief Executive Officer]

I would say, it is at normal level. The inventory is at normal level. I don't think anything is abnormal. It's normal inventory. The only challenge in such a period would be that there are some seasonal items, like air coolers, which we -- obviously we lost a bit of a season. So there could be some challenges at that level for most companies. So that means for us, I would say, overall inventory level either with us or with our channel, there is no major challenge.

[Shantanu Khosla, MD & Executive Director]

As we look at how our primary sales are trending, once a market or a retail store opens up, it indicates to us that there is no large amount of inventory piled up, except in certain very specific businesses. Because what you must recall is the whole of the second half of March, what would have normal, I mean, moved into the trade channel just wasn't. We estimate primary sales of somewhere around INR 300 crores, which just didn't move out. So that inventory was really held by the company more than by the trade channel. And that is what is flowing in now. And is giving, like Mathew said, the breathing space for us to gradually ramp up our supply while being fully covered in terms of meeting the demand for the markets as they open up.

[Operator]

We take the next question from the line of Chirag Shah from CLSA.

[Chirag Shah, Research Analyst]

Can you hear me? Hello?

[Shantanu Khosla, MD & Executive Director]

Yes.

[Mathew Job, Chief Executive Officer]

Yes.

[Chirag Shah, Research Analyst]

Can you hear me?

[Shantanu Khosla, MD & Executive Director]

Yes.

[Mathew Job, Chief Executive Officer]

Yes, we can hear you. Yes.

[Chirag Shah, Research Analyst]

My question is on the Lighting business. We see that there's still some price erosion happening on the LED segment side. And now going ahead, do you expect consolidation to accelerate in the lighting space, given that a lot of smaller players are facing problems in terms of supply chain as well? And if I understand it right, in January and February because of the supply chain issues from China, there was some pricing action that was taken by the industry. Has it flown into the channel and is it sticking? Or we need to -- there would be some further price erosions over there?

[Shantanu Khosla, MD & Executive Director]

Mathew?

[Mathew Job, Chief Executive Officer]

Yes. So the LED, as I have mentioned to the price erosion, especially if I look at the segment of bulbs, we started to see even before the beginning of this calendar year, that the prices have stabilized and there was a move -- slow move up in terms of pricing. So we think that if I look at the B2C lighting area, at least in bulbs and to a large extent in batten, I think the price erosion at the time we had seen is behind us. There could still be some room for price erosion in panels, but I would say the big part of price erosion at least in B2C is behind us.In B2B, I would say, there is still likely to be some price erosion, at least for the next 6 to 9 months. And then it will reach the same phase that B2C is in today.Regarding your other question in terms of the price increase announced, both companies announced price increases end of February, middle of March, but unfortunately, by the time the price increases were supposed to go to market, there was a lockdown and then everything went down under. So -- but at the moment, we think that the companies are trying to implement higher prices, and we do see that the market is responding, so I think at least while the full part of price -- the price increase is announced, it will typically between 5% to 7% by most companies, I would expect that at least a significant part of that will stick. That is our assessment at the moment. But we will need to wait for a couple of weeks to be absolutely sure.

[Chirag Shah, Research Analyst]

Sure. And do you see signs of consolidation in the lighting space given that smaller players are facing supply chain issues?

[Shantanu Khosla, MD & Executive Director]

Well, we're not seeing any active consolidation having happened, but it is logical to anticipate that given the challenges, given the cash shortages, which a number of operators will face, there is likely to be some at the lower end of the market.

[Operator]

We take the next question from the line of Keyur Pandya from ICICI Prudential Life Insurance.

[Keyur Pandya, Equity Research Analyst]

My question is on the cost front. So we have significant cost reduction in Q4 as well and you have surprised on the margin. So was this is a call for this quarter of the sales loss or this is a permanent feature? How do you see this cost going ahead and areas where the cost reduction have been done? Any -- I mean, any broad idea on cost reduction and profitability going ahead?

[Shantanu Khosla, MD & Executive Director]

Sandeep, do you want to take that?

[Sandeep Batra, Chief Financial Officer]

Yes. Sure, sir. So in the fourth quarter, there was hardly any time for us to do any cost reduction to mitigate the impact of the lockdown and the sales disruption, so what you saw in the fourth quarter was a part of the ongoing cost reduction, margin improvement initiatives that we have. Those obviously will continue into the current year. But in addition to all the normal ongoing initiatives, we have embarked on initiatives to kind of offset the impact of this extended lockdown. And as I think as was mentioned by the MD, over INR 100 crores of additional initiatives that have been identified. And quite honestly, for us, this has now become like a way of working, continuously trying to find ways to eliminate waste and improve efficiencies. I hope that answers your question.

[Shantanu Khosla, MD & Executive Director]

The only other thing I would add is, we stay focused on making sure that we continue to make the right long-term investments even during this tough period for the key strategic areas, which is going to drive our business moving forward in the medium and long term. For example, like we've talked before, we are ramping up our investments in central R&D, building our capability there, beginning projects which will drive ongoing business growth in the out years. We are continuing to drive that investment. We've recruited, for example, during this period, quite a few key senior R&D professionals across our business units who will drive that.So part of the strength of our balance sheet and our operational efficiencies is what is going to enable us to make sure that the right long-term investments in capability, in innovation, in building our go-to-market, continue through this period, while we are managing the short-term challenges.

[Keyur Pandya, Equity Research Analyst]

Okay. Perfect. This was quite elaborative. Just last question. So on the inorganic opportunity, does that still continue? Or it will be put on back-burner looking at the situation? Or any progress?

[Shantanu Khosla, MD & Executive Director]

Now, like I mentioned in the previous point, all long-term growth opportunities which are strategic, the strength of our balance sheet allows us to continue. So our position on inorganic opportunities remain the same. Where we see something, which is an important strategic fit for long-term growth and where it is at a price which adds value to the company, of course, we will continue to pursue.

[Operator]

We take the next question from the line of Bhavin Vithlani from SBI Mutual Fund.

[Bhavin B. Vithlani, Senior Analyst]

Just one quick follow-up. Do you see that on the cost side and especially on the innovation side, we need to accelerate more given that some of the competition would have got weaker? And maybe if you could elaborate, like you spoke about in the opening remarks about a few of the initiatives on the product development, and we would now see the energy rating changes. If you can just briefly speak about some of the pipeline on the innovation side, without divulging much of your competitive information. That would be very helpful.

[Shantanu Khosla, MD & Executive Director]

Our pipeline on the innovation side for the rest of the year remains largely unchanged. So we will continue to work, invest and commercialize. Obviously, during these couple of months, there has been, if you will, a bit of a delay because, obviously, it doesn't make sense to take a lot of big new initiatives into market when the markets are closed. That -- in addition to this, projecting for the future, just like we talked about future trends which may change in terms of the channel, we also believe that there are some long-term impacts of the current situation which are going to impact consumer trends. So we have begun working certain key areas with greater impetus and focus, which we believe will play to these new trends. For example, one of the areas, which is clearly, we believe, is going to be a growing trend is health and wellness. Like you're aware, we were working on this, in any case, with the launch of our antibacterial LED bulb innovation. And we will continue to drive more and more in that area. So new trends, we will -- will get added on. But the existing innovation program, all our key initiatives, we're not cutting back on anything, except maybe over these few months.

[Bhavin B. Vithlani, Senior Analyst]

Okay. And so actually, maybe what we were looking for is, so we got a good success on the geysers, reasonably good success on the air cooler front. So on the Appliances side or any new categories that we could see that actually that can pep-up the long-term growth by a few percentage points, is something that we were looking for?

[Shantanu Khosla, MD & Executive Director]

Like we've talked before, on the Appliances side, our focus was first geysers, second coolers, where we've got nice, good initial results. Unfortunately, we missed one season of coolers because of the current situation. Our third area, which we've also talked about, which we're now going to focus on and, in fact, have begun to focus on, which is why we saw good growth in January-February, is mixer grinder, which is our third next key segment. Beyond that, I wouldn't like to talk too much about which are the areas. Let me just leave it at, yes, there are other areas which we are working sequentially.

[Operator]

We take the next question from the line of Latika Chopra from JPMorgan.

[Latika Chopra, Senior Analyst]

My question was regarding of your FY '20 revenues, what proportion would be coming from the B2B or the B2G business? And how do you see the visibility for this part of the portfolio for the rest of the year?

[Shantanu Khosla, MD & Executive Director]

Mathew?

[Mathew Job, Chief Executive Officer]

Yes. I would say B2B is close to 50%. B2B, including B2G is 50% of the Lighting revenue. And yes, we expect that, of course, the B -- the institutional demand might take a little longer to come back, maybe at least not as quickly as the consumer part, it could take a little longer to start coming back. Typically the government EESL kind of demand.

[Latika Chopra, Senior Analyst]

All right.

[Shantanu Khosla, MD & Executive Director]

But the only thing to add to that is, while Mathew is right, B2G is likely to take a little longer than B2C to come back in from a demand point of view, B2G remains a key strategic area for us in Lighting, with the extent of long-term government investments in infrastructure, et cetera. We see that as a clear potential where we can win for the long term. So that strategic choice does not change.

[Latika Chopra, Senior Analyst]

Okay. All right. So it gets pushed back a little, but it will come back maybe after a few months?

[Shantanu Khosla, MD & Executive Director]

Absolutely.

[Operator]

Next question is from the line of Bhalchandra Shinde from Max Life.

[Bhalchandra Shinde;Max Life;Investment Analyst]

Sir, have we analyzed, like, what kind of a consumption trend change might happen after lockdown because of recent issue? And have we prioritized that which product lines can see a great -- good growth prospects and may see a decline over next 1 year?

[Shantanu Khosla, MD & Executive Director]

Sorry, your question was not too clear. Let me see if I got it and if I missed something, just let me know. First, in terms of what is the consumption impact? The reality is that we actually have not yet got consumption data in terms of consumer uptake. That will take about another month to start getting that data because, obviously, for 8 weeks, there was no primary and there was no secondary. What we are looking closely at beyond the primary is, like we have been talking before, we have this new system by which we track secondary sales, that is our products moving out of retail stores. And currently, we have about a 60% coverage, so 60% of our dealers are providing us data.We are tracking that also, obviously, closely in terms of are the secondaries coming up in line with the primaries. It's a little too early, but there is nothing alarming coming from the early data. I think over the next month, we will have a very good read on secondary versus primary and a month after that on consumer consumption.Now that being said, I think it's important to note that unlike a lot of white goods, a lot of our products are not really completely discretionary. When you need a fan, you need a fan; when you need a light, you need a light; when you need a pump, you need a pump. So they're not completely discretionary. So we think that the demand scenario should recover. There may be some extent of down-trading, but like I mentioned earlier, I think we are probably competitively in the best position to capture the benefits of that. But we think that as the markets open, given the appropriate amount of time as consumers adjust to living with COVID, the demand should begin to pick back up. But obviously, it's something we will track carefully. Our investments in data systems, retail audit panels, which we've done in the past, will all stand us in good stead to actually capitalize in the right way on that.

[Bhalchandra Shinde;Max Life;Investment Analyst]

And sir, how much of our sales will be dependent on seasonal trend? I mean, like, this season actually has gone out so probably we'll not be able to cope up with the demand. So how much of our sales is due to seasonal trends?

[Shantanu Khosla, MD & Executive Director]

Sorry, I didn't pick that up. Mathew, did you get the question?

[Mathew Job, Chief Executive Officer]

I thought you asked in terms of what percentage of sales happened in this quarter? So I would say that the bigger...

[Bhalchandra Shinde;Max Life;Investment Analyst]

Seasonality is my question.

[Mathew Job, Chief Executive Officer]

Sorry. So there, of course, there is likely to be significant dent because the season is pretty much gone but if I say fans, for example, it's 30% of the annual demand. So while we say fans in seasonal a little bit, but if I divide by 4 quarters, it will be 25% and fans typically it will be 30% to 31% in this quarter. So it is not as if half the year sales happens in this quarter for fans, not really. It's only air coolers, which I would say is disproportionately impacted, and to some extent, pumps.

[Bhalchandra Shinde;Max Life;Investment Analyst]

Okay. And there, we don't see a demand reviving? I mean, like that will only happen next year or probably in...

[Mathew Job, Chief Executive Officer]

So as Shantanu said, the consumer demand, we will still need to wait another 1 month to 1.5 months to see how it pans up. Because now what is still happening is stores opening up and stores are asking for stock that they don't have. And then repeat demand will depend on how the consumer is going to come and buy it. So that -- it will take 1 month to 1.5 months to really have subsequent consumer demand.

[Operator]

We take the next question from the line of Pulkit Patni from Goldman Sachs.

[Pulkit Patni, Equity Analyst]

Sir, you spoke about that we've started our factories but because of social distancing norms, the capacity utilization or they're operating at much lower capacity. Now just thinking about it from a longer-term perspective, if the social distancing norms were to be incorporated for a longer time period, how should one look at the profitability of running some of these factories? Plus, how should one structurally look at pricing in that environment given that profitability could be much lower? Just some thoughts on how manufacturing under this new environment is going to impact pricing and profitability in the industry.

[Mathew Job, Chief Executive Officer]

Sure. Sure. I would say the slow ramp-up is not just because of social distancing. Of course, social distancing and of course, initially, the authorities only gave approvals to start at 25% to 30%, and the most important part is we could have ramped up much higher as of now by today. But because, as I mentioned, we have demand -- we actually don't have demand back to where it should be. So even now demand is only from the green area, which are small part of the potential. And we have adequate stock. So we actually do not have the need today to ramp up production beyond the 40%, 50% at which it is running. Meanwhile, we have rejigged our lines in the factory. So the production we are doing today is only in, say, one shift. So we have the opportunity as demand picks up to multiply the shift, while keeping social distancing norms intact. So we have rejigged the lines, arranged the lines differently and all this. The time we have got in the middle, even today, as we speak, is being used to rejig the lines so that when demand picks up, we are able to operate at full capacity while implementing the social distancing norms. And we feel social distancing norms are here to stay, they aren't going away. So we are preparing with that -- keeping that in mind.

[Shantanu Khosla, MD & Executive Director]

So there are 2 key -- like Mathew mentioned, there are 2 key things we're looking at in all our factories. Number one is how do we adjust the layout of the lines and the space on the subfloors to create more space for safer working. And the second is what is our strategy on shifts. We believe that these 2 should give us the right solutions, while there may be some on cost, we don't see a huge material impact of implementing these on our overall company margins, but we will have to, obviously, wait and see in terms of how it all pans out. The social distancing, some of the norms we are not looking at as temporary norms, we are seeing that these will be permanent.

[Operator]

We'll take the next question from the line of Shrinidhi Karlekar from HSBC.

[Shrinidhi Karlekar, Analyst]

Sir, in the past we have seen that fans demand has seen the highest correlation with the housing starts and all. But sir, I just want to clearly understand according to you how much of demand really, as in percentage terms, comes from the replacement and the touch point penetration of the existing houses? And how much would be from the new housing construction? If you give me some number that would be really helpful. And a related question is as a part of that replacement demand, how much according to you really comes product delivery and the fans that have run out of their used base? And how much really is from the refurbishment of house channel? So basically trying to understand demand from a premium housing and refurbishment of housing.

[Shantanu Khosla, MD & Executive Director]

One thing there is a data indicator, there is a correlation, of course, between new housing starts and fans market. But one thing which we have to keep in mind is the real estate sector has actually been in a bad way for the last 3, 4 years. And it's not only COVID which is coming and impacting a booming real estate sector. So to a reasonable extent, we believe that, that impact has already been baked in into the base trend. Right? So it's not that it was a booming real estate market which is suddenly going to collapse. Mathew, you want to talk about the old fans versus upgrading fans?

[Mathew Job, Chief Executive Officer]

See, our general -- yes, our general estimate is that roughly 70% is what I would say new points, that includes some level of renovation but it's very difficult to separate out actually the replacement because people are not going to replace one fan with exactly the same type. But I would say 70% is new points and 30% is replacement of some kind. That's the general data that we have for fans.

[Shrinidhi Karlekar, Analyst]

You mean 70% new point and -- new touch points and construction is it? And 30% is...

[Mathew Job, Chief Executive Officer]

70% is new points plus the full renovation and 30% is upgrade on the same point without fundamental renovation of the house.

[Shrinidhi Karlekar, Analyst]

Okay. Okay, fair enough. Now sir, similarly I have a question on LED, if I can. Sir, if we split the consumer LED part of the business, some of the part of the -- like, last quarter the growth really comes from the LED penetration as in with existing lightings, like traditional lightings with LED. And that had to do with new builds really. So I just want to understand, is there a significant steam up in terms of that penetration-led growth? And according, how much of that has already scheduled? And after some percentage of that penetration, do you think that replacement demand kind of picks up sharply and the volumes may eventually start declining as against growing in 3/4 [businesses]?

[Mathew Job, Chief Executive Officer]

Yes, I would say it's 70%, and our estimate is 70% of a point, 75% of the point have already been converted to LED. And when you observe, pretty much all of CFL has already been converted. Likely what will remains is some level of bulbs, because bulbs are still selling at INR 10, so those areas where bulbs are being used there is still some leeway left for conversion. So 70% to 75% of the bulb -- of the lighting points are already converted to LED of some form. And the second question was in terms of how do you see the demand, replacement demand? Of course, the life cycles are much longer of LED versus the other conventional light forms. I think what's also happening is if I looked at the technology, LED technology, those have been improving over time. So when the LED was initially launched and LED used to only give 60 lumens per watt or 50 lumens per watt, today it's 100, 120 lumens per watt. So there is -- and hence, the -- an economic rationale or an economic reason why the consumer would still want to upgrade some from LED generation 1 to generation 2 to generation 3, so that is also driving some level of upgrade. Even from people who have already converted to LED. And third, of course, some small percentage of unique technologies coming in like the Anti-Bac we launched or some of the what I would say, controllable lighting. So these are also options that are coming in which will drive further upgrade around people who are already converted to LED.

[Shantanu Khosla, MD & Executive Director]

The only frosting I would add which we need to keep in mind in lighting is the number of new points per se which are getting added, not just in terms of new construction but new uses, a typical house which had only 1 light point in the room now has -- starts putting more than 1 light point in the room. So the way the development, the number of light points keep increasing even in homes, not to mention retail markets, roads and everything else. So there -- we don't really see for a while that there will be a saturation if you will of lighting. And part of that is reflected with even as EESL and bulbs have slowed down, while the value of the market has been challenged the volume growths have always continued to be double digit and robust. Even for us in this period the volume growth were robust.

[Operator]

We take the next question from the line of Arnab Mitra from Crédit Suisse.

[Arnab Mitra, Research Analyst]

My question was regarding the small appliances. Now do you see a possibility of a strong pick up in small kitchen appliances that seems to be one of the areas where COVID may actually give a bit of an impetus to growth in those categories? And given that you're not a very big player right now, I think your mixer grinder business is probably still ramping up, how -- what level of preparedness is there in terms of your supply chain, your product portfolio, distribution to actually take advantage of it even if it was to happen in the next 3 to 6 months? So that was the first question.

[Shantanu Khosla, MD & Executive Director]

So first our focus, like I said, our first focus was in any case mixer grinder. So obviously in mixer grinder, which by far the largest segment in small appliances, we are obviously prepared from a supply chain, product innovation, et cetera, point of view. So we do see consumer behavior, if it moves in the direction which you are suggesting, being an upside for us in that business. Of course, like I mentioned earlier, new channel trends, for example, greater focus on e-commerce, greater focus on other relatively smaller segment, currently of small appliances, is very much an opportunity area for us. And we are doubling down on our efforts in that area to make sure we are ahead of these trends as opposed to behind them.

[Operator]

We take the next question from the line of Achal Lohade from JM Financial.

[Achal Lohade, Vice President]

Could you please help us with volume growth in our ECD and Lighting for the year and for the quarter, please?

[Shantanu Khosla, MD & Executive Director]

Mathew, you have those numbers with you?

[Mathew Job, Chief Executive Officer]

See, I think we have -- you're asking LED lighting, right?

[Achal Lohade, Vice President]

Like fans, pumps, geysers...

[Mathew Job, Chief Executive Officer]

I have the quarter numbers. In terms of fans, we had volume growth in excess of 20%. LED for the quarter was around 5%. But if I see LED lighting excluding EESL, for January, February, we were having almost 35% growth, for January, February. But for the quarter, I would say about 4% to 5% LED growth, while conventional has declined 20%-plus. Fans has grown 20% again Jan-Feb, but Jan-March is not the right reflection. We should take Jan-Feb because that was the fundamental growth we were delivering.

[Operator]

Well, ladies and gentlemen, that was the last question for the day. I would now like to hand the conference back to the management for closing comments.

[Shantanu Khosla, MD & Executive Director]

Thank you. Thank you so much for taking the time. I hope we were able to transparently communicate the state of the business and how we're looking at it. As always, if you have further questions, which we were not able to address due to limitation of the time, please feel free to contact us directly after this, and we'll do our best to address every question you may have. Finally, please stay safe, please stay well. Looking after your own health and your family's health is the most important thing. We are optimistic. We feel confident that the economy in the country will recover, hopefully sooner rather than later from this health challenge.There will be some short-term impact, which we are seeing. But as a company, we believe we are competitively better positioned, a, to manage that impact; and then b, to come out of that impact in a stronger, competitively better position by continuing to invest in key, critical long-term areas. So thank you very much and all the best.

[Operator]

Thank you. Ladies and gentlemen, on behalf of Elara Securities Limited, we conclude today's conference. Thank you all for joining us. You may now disconnect your lines.