Crompton Greaves Consumer Electricals Ltd

NSE:CROMPTON

Earnings Call Transcript 2024-Q4

[Renu Baid, analyst]

Yes, hi. Good evening, everyone. Welcome, everybody, to the, Fourth Quarter FY '24 Earnings Conference Call of Crompton Greaves Consumer Electricals Limited. Today, from the management team, we have with us Mr. Promeet Ghosh, Managing Director and CEO; Mr. Rangarajan Sriram, Managing Director, Butterfly Gandhimathi Appliances; Swetha Sagar, Chief Business Officer, Butterfly Gandhimathi; Mr. Kalees Arunachalam, Chief Financial Officer; Mr. Yeshwant Rege, Vice President Strategy and Financial Planning; and Ms. Natasha Kedia, Head, Investor Relations.

With these words, I now hand over the call to Promeet for his opening remarks, after which we start with the Q&A. Thank you, and over to you, Promeet.

[Promeet Ghosh, executive]

Thanks. Good evening, everyone. We are doing this in the evening on the day that we announced the results for the first time, I think, ever. So hopefully, you guys are not too tired out from a hectic day earlier today. You know everyone around the table.

I'll quickly introduce Natasha, who we've just announced as the Chief Business Officer for us -- sorry, my apologies, Swetha Sagar, who's joined us about a month ago now, yes, almost. And she's just been announced as the Chief Business Officer for Butterfly a couple of days ago. She is no stranger to kitchen appliances, has about 20 years experience, much of it at Versuni and also at Hindustan Coca-Cola, at Hutchison Essar and a few other notable companies. So welcome aboard, Swetha. What we'll do is if there are some questions that we need to direct to you, we do that, Swetha.

So I'll get straight to my remarks. Again, what we've done is we've uploaded not only the press release, the results but also a presentation. I trust all of you had a look at it. So after I've made some short remarks, we'll go quickly to a Q&A, either being that we try and take as many questions as possible either from what I say just now or from anything else that you may want to talk about.

Now very -- all of you know, this is about the third quarter of Crompton 2.0, which we launched after I joined sometime in June. So it's helpful, I think, for us to see how Crompton 2.0 is coming along. What I'm delighted to report is on top of what was a very robust quarter for us, Q4 in FY '23, we've had very stellar growth this quarter as well. We reported -- we are reporting about a 14% growth in our ECD business. And all of our businesses, practically speaking, we've hit various records in terms of our sales this quarter.

Having said that, what I'm even more pleased to say is a conversation that I've been having with you over the last few quarters is that as we accelerate growth in our portfolio, we will do it together with also accelerating profitability. And I think you are beginning to see some of that come through, right? So our profit -- EBITDA profit, which was roughly about 10% for the last 3 quarters, is now stepped up to about 12.5%. That is higher than the EBITDA margin that we had in the quarter last year, despite the fact that we have continued to invest across-the-board in longer-term brand building exercise and A&P exercises. As you probably know, our A&P is up by, what, 49%, where we are investing for the future. We are also investing in other areas, but particularly obvious in brand building. And there is a further investment of about INR 14 crores, which has been taken -- expense of INR 14 crores, which has been taken this quarter alone for -- towards EPR. Again, something that I -- as you are familiar with.

So with that opening remark, let me quickly get into some of the high points of what happened this year. Firstly, fans reported the highest quarterly sales this quarter with growth of 13% Y-o-Y. Pumps grew by 9% and appliances at 27%. We witnessed an improvement in premium saliency Y-o-Y of 3 basis -- of 3 percentage points. That's 300 basis points in ceiling fans, 380 basis points in lighting and 410 basis points in domestic appliances and large domestic appliances. To put our premiumization journey in fans in perspective, a year ago, we were selling 1 out of 5 premium fans. Now we are probably selling more than 1 out of every 4 fans.

We've also crossed the milestone by some margin of selling INR 2 crores fans per annum for the first time, right? We've had strong double-digit growth in fans in our portfolio for the first time since the pandemic, consistently -- we've had strong double-digit growth in our fans consistently for the last 3 quarters for the first time since the pandemic. And this has, of course, also enabled us to improve our gross margins in fans, and they have gone up order of magnitude of about 23% to about 25% this quarter, 23% in Q1 to about 25% in this quarter. Remember, by the way, that we talked a lot about how we were focused a lot on cost-saving initiatives. Some of this was taking price increases in the market. So that's what's coming through.

In solar pumps, this is a new area that we entered last year, during the quarter, we secured orders, fresh orders of INR 87 crores, making our total empanelment for the year of about INR 122 crores, right? Needless to say, we have, therefore, a strong pipeline going forward. Air coolers grew at 33%. We launched new models there. Small domestic appliances grew at 35%. Large kitchen appliances garnered a revenue of INR 61 crores. Now this is a business in which we are investing and our profitability factors in, as we've told you before, our EBITDA loss in this business. So our profit, just for context, there's an EBITDA loss which is factored in of INR 25 crores in this business per annum, right? As a part of our investing journey in that business, we have set up a new manufacturing line at our Baroda facility.

Lighting, for a while an area of some anxiety. I'm very glad to say is showing great signs of having stabilized, right? This quarter as well while growth was flat, we can say that the degrowth that we persistently saw in this business has [ staunched ]. In this -- within this, B2B, in particular, has shown robust growth, okay, and you can see the benefits of focusing on enterprise projects in a very, very concerted manner come through. B2C has still degrown. And as you know, that is, to a great extent, because of price erosion in our lamp segments, also to an extent in batten segments. There's also some degrowth there because, unlike last year, we have -- which included conventional lamps, we, this year, have entirely stopped making conventional lamps. So there is 0 conventional lamps in our B2C portfolio anymore. So we've cleaned that up.

Now in terms of investments that we are making, you already know that we've been quite focused on A&P spends. During the year, A&P spends were INR 217 crores, which was about 3.14% of our revenue versus about 2.5% of revenue last year. That's about 1.1% higher. And that's a structural change that we've done. And like I said before, our A&P spends are up about 49% over the last year.

Similarly, we've continued to focus on innovation. Now you may have, over the last quarter, also see some of this translate into a steady flow of patents being granted to us. During the year, 85 designed registrations are filed, 17 patent applications made and 10 patents were granted. INR 71 crores, again a part of the costs already, was incurred towards R&D expenditure.

We are working on our -- on further building on our people capabilities. And as your -- of course, well, the first things we did about Crompton 2.0 was to roll out a new organization structure, but we built on that further. And now we have, as you know, probably unveiled a corporate purpose and corporate values, which are firmly embedded in the way that we do our business, okay?

Even with these higher investments, our Q4 EBITDA -- EBIT margin, excluding EPR, which, as I said, was about INR 14.1 crores, was robust at 12.3%, which is 1% higher than last year. ECD EBIT margins have consistently increased during the year from 12.7% in Q1 FY '24 to 17.2% in Q4. Again, the Q4 number excludes that EPR impact because obviously, we -- that's -- the entire impact of EPR has been taken in one quarter. So it's not otherwise comparable.

Lighting EBIT, even as we are coming back to a stable lighting business in the face of declining prices in the market, has remained very strong. So lighting EBIT margin is at 11.1%, again, excluding the EPR impact.

During the year, cash flow from operations was 130% of PBT, which compares -- so 130%, by the way, compares with about 72% cash conversion last year.

We are -- we remain focused on expanding our go-to-market, and we are further expanding into our alternate channels. We reported last year -- last quarter that they account now for about 20% of overall sales. Make no mistake, it's very, very important for an organization like us to have a great mix of channels because that's the secret to profitability. So while we are investing in alternate channels, which are areas like Ecoms, MOR, rural, we are very clear. We also are continuing to invest apace in our general trade channel. And that's growing as well. That's also our most profitable channel, right?

Some records there. E-commerce channel recorded for the second time running, materially higher sales than INR 100 crores. Again, our rural channel grew at 23%. And our export chain for this year, for the first time, again, has hit a record and has crossed INR 100 crores export. Still small in context of overall sales, but it's a channel that we are building on and you can see the benefits of that come through. So we've crossed INR 100 crores in our exports as well.

Now very quick word about the future outlook. This quarter, we're continuing -- actually seeing fairly strong demand, helped by the summer that we're having this year. So we have a positive outlook. We continue to watch the commodity space carefully. And we are continuing, as we've done before, to take measured price increases across our product range as we've said we would.

We've capitalized the power of the Crompton brand for requisite investments to help the company maintain its competitiveness and gain market share. while Crompton 2.0 was launched in Jan 23 and we called out this new approach, I'm glad to say that our focus on revenue growth, translating also into profit growth, seems to be working, right?

Insofar as Butterfly is concerned, again, that -- those results, we announced a couple of days ago. As you can see, no we -- we were planning, as you recall, to [ march ] Butterfly. That didn't work out. So we're moving on. A transition is well underway in Butterfly. And we're strengthening the management there. Swetha Sagar joining is one of the key elements of that. You'll continue to see some of this going forward.

We are also in the process of making various interventions, aligning of policies at Butterfly or in that -- so the revenue recognition policies, et cetera, are identical to some of those that Crompton follows. That doesn't mean it lead to loss in sales, but what it does do is it defers sometimes, for instance, in this case, for Butterfly, sales from one quarter to another. There are also settlements that we've closed out. There are onetime -- one-offs that we've taken in that company. And clearly, the way forward is to grow from here forward.

This year -- this quarter, the revenue of Butterfly came in at INR 166 crores. The EBITDA was minus INR 20 crores. And you can tell that the transition is having an impact in -- and one-offs are having an impact on the EBITDA there. You can see some of this in much greater detail when -- if you look at the Butterfly results.

Also, apart from everything else, this also includes the -- a INR 1.2 crores of EPR that we've done. We've also reorganized our manufacturing facilities, moved them out of one of the facilities that we had at Butterfly. We surrendered that facility, so we don't incur the cost. But that does mean that there are some one-off costs from reorganization of business at that factory, right?

Sustainability. Sustainability. There isn't a company, frankly, which is more in the midst of sustainability of global warming and -- than life as us. We are the largest fans company, arguably in the world, in ceiling fans. We are -- we have a huge position in pumps. We're the largest residential pumps company in the country. We have a large position in geysers. We have a large position in [indiscernible]. So a lot of global warming has to do with us. But we are also -- and that, of course, translates into what it will in terms of business, but more importantly, we are very focused on sustainability and what we do to contribute to global warming. And as a measure of some of those efforts very, very initial measure of some of those efforts, there's a DJSI ranking that we participated in. And that DJSI Index, we came in the seventh ranked company globally in our segment. But that's something that we're just getting started in and, I think, you will see more of.

With that, I will open the floor for questions, right?

[Operator]

[Operator Instructions]

[Promeet Ghosh, executive]

I have been strictly instructed by the team not to take more than 50 minutes, but it's highly difficult to follow orders all the time.

[Operator]

We have the first question from the line of Yesha Nandu.

[Aditya Bhartia, analyst]

So this is Aditya Bhartia from Investec. Sir, my first question is on the pumps business, wherein you highlighted some of the solar pumps orders that you've got. Are we considering agri pumps as a big opportunity? And within that, is custom scheme something that's exciting us?

[Promeet Ghosh, executive]

We are absolutely considering agri pumps as an exciting opportunity. As you will recall, that's an area that we went into quite conservative manner some quarters ago, and that's bearing results. So in fact, we have now garnered about 7% to 8% market share in the agri pumps business. So it's a very interesting area for us. Whether we participate in custom or not, that's something that, of course, depends on what -- whether the profitability metrics of that -- of the bids makes sense to us or not. But certainly, we see momentum in our agri business, and we are being able to build on the strength of our residential business and translate that into a very much better market position in agri.

[Kaleeswaran Arunachalam, executive]

And just to add too, for me, Aditya, I think the strong pipeline that had been built for solar also have been already -- have about INR 85-plus crores of orders in the pipeline that is executed, apart from the INR 35 crores of order that we already executed in Q4. And we will see how this momentum carries forward as we [indiscernible] FY '25 onwards.

[Aditya Bhartia, analyst]

Perfect. Perfect. My second question is on the -- on some of the investments that we've been making. Like for R&D, you mentioned that this year, we spent INR 31 crores. If my memory serves me right, we spent almost a similar number last year as well. And A&P also, we have kind of stepped up quite a bit. So do you think that now we have hit a sustainable run rate and, from here on, these expenses could possibly be increasing at the same rate as revenues? And that onetime step-up that we required has already -- is already in the base.

[Promeet Ghosh, executive]

Yes. I think it's fair to say that the step-up has happened and that we'll probably see these kind of -- these levels being maintained. That's a fair expectation, especially as a percentage of revenue. I think you would see these kinds of level [ statement ].

[Aditya Bhartia, analyst]

Perfect, sir. And the last one on Butterfly performance. How should we see that business going forward? All the one-offs that you kind of highlighted, are they all being taken into account? Is there something else as well, some other convergence that we may have to work on in the next few quarters or, from here on, things are looking a lot better?

[Kaleeswaran Arunachalam, executive]

Yes. So Aditya, from a Butterfly perspective, if you look at it, there are 2, 3 aspects that we wanted to work up on during the course of the year. One is how do we ensure that the channel mix is optimized and we make it as a pure-play plan, which is where we derisk the [indiscernible], institution and the corporate channels. That deal scheme is largely completed.

The second is in terms of how do we align the policies between Crompton and Butterfly at similar levels and also ensure that the one-off bits that we have to be taken has been taken and get that sorted. By and large, that has also been completed.

As we look forward for the next quarters, we did commit to new folks when we met last time. We expect the business to start picking up momentum from Q2 onwards. That's when you will see both revenue and profitability moving up in the right direction. There have been interventions that we have to make in terms of pricing actions that we have to take for the business also. Those have already started, both in trade and in e-commerce. Investments behind the brand continues. You would've seen that even in Q4. We have stepped up our advertisement spend by almost 2.4x compared to the previous year.

So overall, in a nutshell, by and large, the revenue corrections are done. We now need to focus how do we get the revenue brought back. The investments towards the revenue growth, whether it be people or it be the A&P spends, has been incurred, and we will continue to incur. The policy alignment's lastly done, 1 or 2 year and they would be there. Q2 onwards, we should start seeing a lot of these things reflecting back in the results.

[Promeet Ghosh, executive]

So there, I think, I'd say substantially done. Perhaps some more.

[Operator]

[Operator Instructions]. The next question is from the line of Aniruddha Joshi from ICICI.

[Aniruddha Joshi, analyst]

Yes. So sir, 2 questions. One, we have spent considerably in ad spend and R&D. So in this case, means the best way to measure any ROI is increasing market share on a higher ad spend and R&D. So if you can indicate what are the market share gains we would have got or observed across those segments, be it in premium products or the, let's say, overall categories itself? That is question number one.

And in terms of question two, at the time of Strategy 2.0 presentation, we had seen possibility of entry in multiple categories. That is cable, wires, switches, switch gears, even white goods also. So any further progress on that front?

And sorry, one more last question is in terms of -- Butterfly was expected to be earning accretive in year 1, but now almost year 2 is over. So when do we see the earning accretion from this acquisition? Yes, that's it from my side.

[Kaleeswaran Arunachalam, executive]

So from a market share perspective, that's the right perspective to look at it, Aniruddha. Glad to state that our market share has gone up in ceiling fans. Our market share has gone up in premium fans within ceiling also. So we are moving in the right trajectory from that perspective, even more important, to look at that in a category like geysers. Based on the investments that we have made behind the brand, we have today become a #1 player in e-commerce. Looking forward, in categories like lighting, where we haven't advertised in the past ever, we have just started investing behind the brand. We are seeing early signs of results in categories like ceiling, et cetera, moving in the positive direction.

Having said that, market share is an outcome of various things that we do. It is not right to link it that it's only the A&P spend that is [indiscernible]. As we talked about earlier, one is -- first off, we have organization that is driving consumer innovation, where we invest behind this and get new products that are more relevant for the consumers, which goes beyond the functionality. Second is although we leverage our go-to-market strength -- now go-to-market, we are not only talking about the traditional trade, which continues to be a great strength for us, but also the alternate channels and hopefully increase the share of business from that perspective. And third is ongoing execution. An outcome of this is what you see in market share. But a component of that, we are seeing positive actions and positive trends in market share already.

The second question was in terms of new categories. I think as we said last time, that's an indicative reference of what is the lay of the land available for us and how do we want to go about it. Yes, obviously, we will look at new categories, and appropriate time, we'll come back and communicate what categories we are entering. This is something sensitive, and we wouldn't be able to put it upfront. But the vectors that we will look at is one is either our go-to-market strength, all the solutions that we want to look at, like large kitchen. That's what will drive our entry into new categories. Things like white goods are not in the -- not even in the thought process to see whether we will look at it.

Butterfly, I think we made some clarification about the path that we want to take on Butterfly the last 2 earnings call. The idea for Butterfly is there was a clear opportunity to see whether you make it as a commoditized business, which is a mass brand that can be price, play it as a price warrior and play or the alternate choice was it's a young brand, a market leader in south. Consumers resonate with them in a very, very good manner.

How do we play to the strength of the brand? That means that the business that could take top cost, which means it has to bite the bullet and correct sales in channels like institution and corporate, which are not sustainable. Because the moment we find it, they're getting a Butterfly gas stove in an oil marketing company when you buy a cylinder or when you go to the [indiscernible] retail and find out, along with the garment, you buy a mixer [indiscernible]. The brand equity goes down. So that's a conscious call to ensure that we correct these channel mixes, ensure that we go to the right channel mix and also take the other things that we need from a one-off bits that we talked about earlier.

So from our perspective, this is not a business that we're looking at in a one-quarter perspective. We're committed to this brand. We are continuing to invest in the brand. We're confident that it will have robust performance as we move forward.

[Promeet Ghosh, executive]

Yes. All I'd say is that your point about investing in the brand and investing in the R&D and innovation translating into market share stride. But fundamentally, what this is doing for us is not only strengthening our position today, but getting us future-ready, right? And the future is changing faster than you might imagine and any of us might imagine. Consumer preferences are changing rapidly, and regulations are changing rapidly. What all of this does is that it not only translates into market share gains, which you're seeing, but, hopefully, makes us -- makes our position much more robust for the future.

[Operator]

The next question is from the line of Rahul Gajare from Haitong Securities.

[Rahul Gajare, analyst]

I would actually like to congratulate the team for the improved disclosures, giving vital color on the performance. So that is something which I wanted to say upfront.

My question is on the pumps business. Now can you talk about the margins then that you typically have for these pump orders that you would be having and the execution cycle, including the cash collection timelines in such orders? So that's the first question.

[Promeet Ghosh, executive]

Okay. So the answer is the profit profile of...

[Rahul Gajare, analyst]

Can't hear you, sorry.

[Promeet Ghosh, executive]

You can't hear me. Guys, can you hear me?

[Operator]

Yes. You're audible, sir.

[Promeet Ghosh, executive]

Okay. The profit profile in solar pumps is very good and as is the cash flow cycle. So for a large part of the orders that we executed last year, the money is in the bank.

[Rahul Gajare, analyst]

Okay. And margin, I was not able to hear the margin.

[Kaleeswaran Arunachalam, executive]

Sorry, we don't disclose segment-wise margins.

[Promeet Ghosh, executive]

The point we are making is that while we don't disclose segment-wise margins, that the margins in this business are very good.

[Kaleeswaran Arunachalam, executive]

Yes.

[Rahul Gajare, analyst]

Sir, my second question is just one data point. The EPR number for this particular quarter, if that is something you can -- maybe I missed that number when you're giving your...

[Promeet Ghosh, executive]

INR 14.1 crores. Stand-alone, INR 14.1 crores and INR 15.2 crores consol. It's also there in the press release that we've made.

[Kaleeswaran Arunachalam, executive]

And that's a full year liability accrued in Q4.

[Operator]

The next question is from the line of Renu.

[Renu Baid, analyst]

Yes, and congratulations team for the strong performance. One question from my side as committed. Can you share some more insights in terms of what exactly we're doing in Butterfly to turn the business around and drive growth and volumes? And from a medium-term perspective, how should one look at profitability? And around this, Swetha just joined the team, if she can also add her perspective of her readings in terms of shortcomings in the portfolio and where she would like to work upon to strengthen the business positioning and drive the goals.

[Promeet Ghosh, executive]

Swetha, you want to take on [indiscernible].

[Swetha Sagar, executive]

Yes. So thank you for your wishes in the first place. So it's been about 1.5 months in this organization. Being associated with Butterfly is very, very exciting because it's a brand which has very strong brand equity as well as leadership in the segments in which it operates.

So while we have own strength, the way we are looking at this business to move forward is that it's equally essential for all of us to look at the way how we evolve in the dynamic kitchen appliances industry that we operate and to keep up with the consumer engagement, which is also ever-changing, like just Promeet mentioned sometime back.

For my initial thoughts, what we are trying to lay out in this journey is that while revenue and profitability become the end results, we are planning to have 5 key area in which we will focus, and we will try to drive the business through those 5 focus areas.

The first one is going to be in terms of meaningful innovation, both from a portfolio point of view and from looking at new need status that the consumer can attribute to. The second is about striking the balance in the channels in which we operate and continue to be competitive in that. The third one is that we will continue our efforts in terms of building productivity and efficiencies in all the functions and all the metrics that we are trying to focus on. Of course, the fourth piece is about building customer and consumer engagement. But to get to all that, we are also focusing on building people capability.

So overall, in this new phase of growth, we are aiming to build a very high and nurturing team that can embody and live our create values. So that's how we are looking at taking Butterfly forward.

[Renu Baid, analyst]

Any inputs in terms of the margin outlook? Can we expect the margins 2 to 3 years to be double digit or they'll be in high single digit -- at high single-digit levels?

[Kaleeswaran Arunachalam, executive]

I think in the long run, we should look at a double-digit margin for this business, Renu. But in the near term, we want to get this back on growth, get into category EBIT margin that the business used to operate, say, 1, 2 years back and then expand from there onwards.

[Promeet Ghosh, executive]

Also on margins, one of the things you should be cognizant about Butterfly, which is, for instance, a little bit distinct from Crompton, is that Butterfly is a much more operate -- higher operating leverage business. So as some of the building blocks that we put in place and revenue comes back, you would see a disproportionate impact on margin.

[Operator]

The next question is from the line of Akshen Thakkar from Fidelity.

[Akshen Thakkar, analyst]

Yes. All right. So a couple of my questions got answered. My question was around the ECD business. Promeet, when you came in, you highlighted the fact that this is a category which you did investments, that there was a little more focus on profitability rather than profitable growth and last 3, 4 quarters has been a good journey. Given where you are in the cycle today, do you feel comfortable with where margins are in ECD business alone?

And slightly shorter-term question on -- you commented on summer having a positive impact on demand. How are you seeing demand on the ground the last sort of 8, 12 weeks? Just qualitative comments around that would be very useful.

[Promeet Ghosh, executive]

See, look, as I told you, we continue to work on multiple levers at the same time, right? So at one end, we are obviously focused on executing well, and another end, we are working on investing in our people, investing in consumer and customer engagements, so our channel partner engagement. We are also simultaneously investing in our innovation and our A&P.

Having said that, as you all know, there's also a huge focus on Unnati, which is our cost vectors, right? And while you can see it earlier, some of the benefits of that are now coming through, right? I know I remember people telling me earlier that your margins have come down because you are [indiscernible] and I say, guys, read our -- we, not only us, everybody in the fans business as well as in the other businesses, particularly in the fans business, the BEE transition made a difference to our margins.

What we've done is even as we invested for the future, we have also focused on cost. And that's why you see the changes in the margins that we're getting today. And needless to say, that is -- that continues apace, right? So we are continuing to take both measured price increases, sometimes -- or even frequently not at the same -- not the approach that the rest of the industry is taking, but we are taking them and working on costs.

So yes, I remain quite positive about the way margins will evolve going forward, right? Because at the end of the day, that's what we've been saying. We want revenue growth and profit growth, right? So yes. So that's what you'll see.

Insofar as the outlook for the summer is concerned, actually, the demand outlook has been reasonably good. There have been some rains in the last few days. But other than that, the demand outlook has been quite robust.

[Akshen Thakkar, analyst]

Okay. I'm just going to slip in one more question on the lighting business. It's been notoriously volatile. As investors, as analysts, this has been the business both on top line and on margins of -- not just for you, I would say for every other company as well, really difficult to call. Pricing is not really in your hand. So given that, how do you really handicap growth in this business? Like I really don't know next 3 years or the sales would be flat, down 10%, up 20% and similarly for margins. I don't know if you have...

[Promeet Ghosh, executive]

I'll give you a sense. I'll give you a sense of how you could potentially think about it. First of all, lighting is 2 businesses.

[Akshen Thakkar, analyst]

We just have to -- like build a normative assumption and number or...

[Promeet Ghosh, executive]

So I understand -- so let me just help you on that journey without giving too much away about it, but I hope that it should be indicative.

Lighting is 2 businesses. Lighting is B2B and B2C. They're different businesses, right? There is a steady price erosion in B2C, particularly in lamps. That -- the price erosion element does not -- is not particularly throughout B2B, okay? There -- that business has a considerable degree of, what shall I say, impact coming out of the investments that, for instance, the government of India is making an infrastructure, right? So whether there's a cost of road which we need or a new Jewar Airport, which we are doing, or a bunch of metro projects that we are a part of, all of these impact the B2B business, okay?

In particular, as I said, specific to Crompton, we have built up over the last 3 quarters, a very robust enterprise business, right? But it also -- B2B also has a small business segment, which kind of grows in line with the economy. But we have, in a targeted fashion, built up an enterprise business. So you now know what the demand drivers for the B2B business are.

Margins, by the way, between these 2 business are not dramatically different, right? They are roughly similar. In one, you have to have a large sales force. In the other, you don't. It's much more individual. It's kind of -- the cost of servicing is much lower.

Now in the B2C business, there are 3 parts. There's lamps, there's batten and there's -- there is ceiling lights, right? Now the last couple of years, you've seen a price erosion. Now that price erosion, very tough to tell where it's going to go, but it's there, right? You have to kind of track what's happening in the market, and then you'll kind of -- you'll have a certain volume growth and then the prices will fall. And therefore, the overall revenue will actually often be a degrowth because the pricing erosion has been so strong.

Will the price erosion continue forever? Obviously not. The price erosion is happening because the Chinese, for their part, are trying to grow their -- the kits that they sell into India because they have problem selling in the rest of the country -- rest of the world. Now that work can't go on forever. So at some point in time, this cost-driven price erosion will stop. I can't tell you when exactly it'll stop, but it can't go on forever. Certainly, to our mind, that's not we expect this to go. So you will see then the volume growth in lighting translate into revenue growth, right?

Having done all of this, it's very important when there is price erosion happening that you don't fritter away your margins, right? It's very, very easy to fritter. So you have to watch margins of each one of these players very, very carefully in lighting. That's the trick, right? So you can be from...

[Akshen Thakkar, analyst]

Yes. What's that -- what's the mix...sorry, what is the mix...

[Promeet Ghosh, executive]

Guys,let's get to the other, but roughly equal.

[Operator]

We'll move to the next question, which is from the line of Ravi Swaminathan from Avendus.

[Ravi Swaminathan, analyst]

And once again, trying to harp on the growth potential for the fans category, both from a short-term perspective and from a slightly long-term perspective, short term in the sense thinking about last year's low -- high inventory level due to changes and this year's summer being quite strong. At least, for the industry, what kind of growth that one can...

[Promeet Ghosh, executive]

One sec, one sec, one sec. So you said high -- low base level. I think there's a fundamental misunderstanding of how our business is done. But let's come back to that.

[Ravi Swaminathan, analyst]

No. Last year, there was a bit of non-BEE-related fans were...

[Promeet Ghosh, executive]

That's what I said. That's what I said. That's a fundamental misunderstanding of our business, but I'll come back to that. We'll come back to it, yes.

[Ravi Swaminathan, analyst]

Sure. And also from, say, slightly long-term perspective, with respect to, say, the real estate market is likely to do well and some of the competition. Is there any change in terms of dynamics where they are slowing down or something of that sort? So what kind of growth that we can think of, say, FY '25 and then over 2-, 3-year period?

[Promeet Ghosh, executive]

So let me just -- sorry, Ravi, but if I may -- if you will allow me. Just to explain, I think one size doesn't fit all, right? So you need to understand this. The approach that different companies took to different businesses -- to the BEE transition was quite different. The way that Crompton took the BEE transition, which, as you recall, happened in the first of Jan of 2023, is that Crompton stopped production of non-BEE fan sometime during the quarter preceding first of Jan 2023, right? What we did in states -- so we did not stuff the channel with huge amount of inventory of non-BEE fans in the month of -- in the quarter ended December 2022. You should -- you can just go back and have a look at the numbers, right?

What that enabled us to do is that in the quarter from Jan 2023 to March 2023, that was actually a very strong quarter for us because we had not gone and done -- put a lot of fan into the markets. So the quarter Q4 of FY '23 was a very strong quarter for us, okay? What we are doing this quarter is breaking many of the records and all of the reports that, that quarter did in getting the growth that we are doing, okay? So that's a very different approach that we took. November 2024, we actually stopped making fans -- 2022. Did I say 2022? Yes. So that's point number one.

Point number two, insofar as the short run and the long run of fans is concerned, short run, you can see, right? There is a reasonable amount of demand momentum. Certainly, we are seeing it. Whether others are seeing it or not is another question. We do see some of our peers being quite aggressive in the market in order to get growth, and I can see that some of the aggression is translating into margins going the other way than the way that they're going for us. But that's their choice. We are continuing to increase prices and seeing the growth that we have, okay? And the short run is, of course, hit by the summer. And it's also -- look, even consumer demand as a uptick that we are seeing in the market.

Now insofar the future is concerned, the future, we are particularly optimistic about. Remember that the world is getting warmer, right, when the world gets warmer, you need more cooling devices and you use cooling devices for longer periods of time, right? So where you had one fan, you would probably have one fan, one personal cooling device, maybe 2 cooling devices, 2 personal TPW fans in the same room. Even if you have an AC, you would have this, right? By the way, that -- and you may, therefore, even have more fans.

For a vast, vast majority of the country, going all the way to air conditioners is not an option and will never be an option, right? In fact, across the world, you find people -- even where people can afford air conditioners, you will find people asking for fans of various types in order for them to supplement their cooling solutions. And guess what? Where it heats, it also cools, right? So you have geysers which plays well for -- to us.

Lastly, for a bulk -- huge majority of our people, as the world gets warmer, as the temperature outside gets warmer, another cooling device is the air cooler. Because the refrigerant -- the cooling there is at room temperature and easily available. Of course, you have to get that water, which is where our pumps business comes in. And at some other point in time, I tell you, I hope that places us squarely, squarely in the middle of how the -- of people who global warming is impacting, in our case, beneficially. So this -- it's a very interesting space is our new fans.

[Ravi Swaminathan, analyst]

Okay. So say, next year, kind of 15% kind of growth for the industry...

[Kaleeswaran Arunachalam, executive]

Pause. Pause. Pause. [indiscernible] allow us to skip that.

[Ravi Swaminathan, analyst]

Sure. And in terms of the EPR costs, sir, what would be the kind of...

[Promeet Ghosh, executive]

We've run out of questions. Can we -- let's keep it to 1 or 2 questions, please, yes.

[Operator]

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

[Charanjit Singh, analyst]

So sir, my question is basically on the kitchen as a segment. So we have seen that COVID-related boom in the overall risk category. Then it kind of slowed down. So how do you see kitchen appliances and kitchen as a category going forward in next 2 to 3 years' perspective? Is it going to come back or it could take much more longer?

And also real estate-related demand from the real estate cycle perspective. Most of our products have that -- connect with that particular category. How is that showing the traction there? Those are the 2 questions, yes.

[Promeet Ghosh, executive]

I'll answer the second question first. Actually, in our business, insofar as -- I assume you're talking about fans. If you're talking about fans, a fairly large share of our fans business, the demand is generated from replacement and not just necessarily from newbuilds. So in terms of newbuilds are concerned, that it has an impact, but obviously, replacements have a much higher impact. Now insofar as how that's going -- I mean, we are actually seeing -- and we've kind of put it out in the presentation as well, that newbuilds are going up. And there's across 8 cities in India, newbuilds are going up. So that will impact us positively.

In any event, at least for us, the business consistently over the last 3 quarters -- I said earlier that for the last 3 quarters, we have consistently shown strong double-digit growth, which I think we're -- I don't think there's anybody else in this business other than maybe start-ups who don't have the same scale [indiscernible].

Insofar as kitchen appliance is concerned -- but maybe if I take a shot, and why don't you supplement, Swetha? My understanding is that currently, kitchen appliances, yes, the growth remains moderate. I should tell you, having said this, that even though kitchen appliances has come away from a spike from COVID, the growth is moderated across companies, including in Butterfly.

In Crompton -- by the way, Crompton has an SDA business, right? And that SDA business, we've built up -- what we call small domestic appliances, which is really kitchens appliances, right? Now that business has consistently grown at close to 30% quarter after quarter after quarter, right? It's actually a fairly reasonable-sized business, though we don't exactly disclose the size of the business currently. So when we talk about the kitchen appliances business, we're talking about the broader picture and not specifically about a part of the business which is certainly firing quite well for us currently.

But overall, you want to comment anything else on how you see the -- so the thing is that, yes, there is -- I think that the spike after COVID is probably towards the end of playing out. Kitchens is such a fundamental requirement that tough to see the demand remain depressed for too long. So it will come back, and it will come back well. And that's what I think we are all watching for.

[Operator]

We'll take the next question from Saumil Mehta from Kotak Life.

[Saumil Mehta, analyst]

Sir, 2 questions on my side. One is when I look at the fans' growth, what you have given -- you mentioned a comment that is largely volume-led growth. [indiscernible] 11% growth, what we have had for FY '24. Now I believe this will also have a traction of BLDC fan, which should be higher priced. You also talked about the overall premiumization strategy going well. So what I want to understand in the economic segment, is there quite a bit of deceleration which is actually pulling down the overall realization?

And my second question is with respect to the channel. While the e-comm channel for us is growing very strongly, at the EBIT level -- but I'm not looking at a specific number. But at the EBIT level, how different the margins directionally in Ecom versus a generated or monitored. Those are the 2 questions.

[Kaleeswaran Arunachalam, executive]

I'll take the later one first and come back to the other one. Well, we don't disclose channel-wise profitability. Fundamentally, we're a company that is led by unit economics. That is extremely critical for us when we decided to play in any channel. So all our channels are profitable. And the difference is not significantly different between one to another. There's a reasonable difference between channels, but otherwise, the unit economics is pretty strong across all channels.

On the first question in terms of the market and how the market is going in terms of fans as a category, we see this in those segments. I think there's one, that's premium, and then there is mass. Now BLDC, the subsegment of the premium fans that we play in, and we do see from a category perspective, premium fans are growing at almost at 2x of the overall category growth for fans has been growing in, in terms of mass premium or the value segment is concerned, if I look at our overall fans performance and the market share also, it's reflecting that we are moving in the right direction.

Equally important to look at nonceiling as a category. So today, we see there's a significant opportunity in TPW exhaust and Domex fans. Quarter after quarter, we have seen strong double-digit growth in this category also. And as we look at the future, this is another area where we think the growth can be sustained. This will happen both in traditional trade and in e-commerce for some of these products.

[Operator]

We'll move to the next question from [ Aditya ] from JPMorgan.

[Unknown Analyst]

I just wanted to understand volume growth in the ECD segment. So you have mentioned that you've taken 3 price hikes in the second half in fans. And so it'll be great if you could help us understand the kind of pace and volume growth for fans, appliances and pumps.

[Kaleeswaran Arunachalam, executive]

Again, we don't give you very specific details of what is the mix between price, volume and the [indiscernible]. The thing that I would like to say is it's pretty strong. I think when talking about market share being gained in categories, it doesn't happen without your volume growing.

Fundamentally, we need to act like a market leader. If we are a market leader, we need to ensure that the price actions are taken across all the categories. So it's not only to do with fan. We've taken price increase in pumps also and, in some cases, even in LDA and SDA. That has ensured that -- it does not ensure these are the volumes that grown. We have seen strong double-digit volume growth both in the quarter for fans and for the full year as overall fans as a business.

[Operator]

The next question is from the line of Natasha Jain from Nirmal Bang.

[Natasha Jain, analyst]

Yes. Sir, in terms of volume, you said that you grew by strong double digit in fans. Is that correct?

[Kaleeswaran Arunachalam, executive]

That's right.

[Natasha Jain, analyst]

All right. So now when I see, sequentially, your premium selling fee, that has actually reduced from 26.5% to 24.3%. So I just want to understand was the volume growth in premium fans lesser the mass. First is that.

And second, you said that -- sorry, sir, I'll just complete my second question. You said that you [indiscernible] price hikes in fans. But at an EBIT level, despite all your categories growing strongly, be it appliances or pumps, even fans, we've not seen that translate. So where -- I mean, operating leverage benefits should have kicked in at such strong numbers. So is it that the price hike were not absorbed by the channel or the consumer? So those are my 2 questions.

[Kaleeswaran Arunachalam, executive]

Sure. Sure. I think let me first start with the -- with second question. Just to remind you, if you go back to Q1, the EBIT margin for our ECD segment was 12.7%. As we speak today, our EBIT margin for ECD is at 16.7%. So there has been a significant 400 bps [indiscernible] in terms of the ECD margin going up. This is backed by 2 or 3 actions.

[Promeet Ghosh, executive]

Yes. So are we speaking the same numbers here. There is a big change in EBIT margin.

[Kaleeswaran Arunachalam, executive]

Absolutely.

[Natasha Jain, analyst]

Sir, I meant more on a year-on-year basis, not from first quarter to fourth quarter.

[Kaleeswaran Arunachalam, executive]

Yes. So year-on-year basis -- now when you look at year-on-year basis, as we top the quarter, we entered the year on the back of a BEE [ W ] transition. The cost of -- the increase that has been made on the fans business was never absorbed. Our price increases started kicking in from September, and this has been sequential. We took one in September, one in November, one in February. We're looking at one more as we speak. So these are catch-up price increases that has happened over a period of time and not something that happened in the [indiscernible] of the year.

So which is why if you look at an exit margin to exit margin, you are seeing 400 bps improvement in ECD margin, led by some of these price increases in the fan segment. So that shows that the direction is right. And even on a full year basis, if I take the combined margin of where we were in the beginning of the year to now, we had at about 14.5% ECD EBIT margin compared to about [ 2.5% ] in the first quarter. So significant needle has moved in terms of ECD margin. That's one.

[Promeet Ghosh, executive]

And by the way, that is happening despite the stepped up investment.

[Kaleeswaran Arunachalam, executive]

That's right. That's the other thing.

[Promeet Ghosh, executive]

And -- but despite the fact that there is a INR 14 crore hit on the company, which you can get the details of how it's split to the ECD, that was not there last year.

[Kaleeswaran Arunachalam, executive]

Correct. So...

[Promeet Ghosh, executive]

So you maybe just need to make those connections as well.

[Kaleeswaran Arunachalam, executive]

Maybe you can speak to Natasha, she can help you to bridge this and how to read it.

Now insofar as your first question is concerned, your quarterly premium mix are not comparable because fans is a seasonal business. Q4 and Q1 are our largest quarters where we will see the maximum number of sales happening. And we, being the market leader, it's always led by a large part of business coming through ceiling and then you have the premium fans following it up.

And overall, if you also see the mixes between ceiling and TPW, in quarters, you will also see TPW and ceiling going up and ensuring that the premium fans, as a percentage, will be down, but in actually, it'll be this [indiscernible]. And that's reflected in terms of the market share gain also.

[Promeet Ghosh, executive]

So I mean it also stands to reason, right, when you -- when the demand is somewhat driven, then functionality is the primary driver of fans, right, which [indiscernible]. And later on in the year, where the demand is much more gradation-driven, then obviously, the more premium fans sell more. So that's kind of -- you can see that the premiumization changes as we go along. It's not the same across.

So [indiscernible] actually, we're really happy to help you through this, because there is an improvement at the gross margin level, there's an improvement at the EBIT margin.

[Operator]

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

[Siddhartha Bera, analyst]

Sir, again, just continuing on this margins on the ECD side. If you look at going ahead, these prices which you said have been taken and will be absorbed going ahead and we will sort of see more sort of benefits probably on the synergy side, which you had said that we do more of -- there will be a lot of synergy benefits from Butterfly as well in the appliances side. So should we expect -- I mean, just to understand the push and pull factors on margins from the current levels going ahead.

[Kaleeswaran Arunachalam, executive]

So again, Siddhartha, we don't want to give a forward guidance. We are here for the Q4 earnings. Happy to discuss that as to how we be progressing on that. But directionally, as you could see, when we start talking about the Crompton 2.0 strategy and how we want to move ahead of it, you are seeing significant improvement in the margin journey has already happened.

What are some of the fundamentals that we will be guided by in terms of the margin for future? We are an organization that stands for growth. That's what we want to focus upon, and that's what the [indiscernible] of Crompton 2.0 is all about it. But at the same point of time, unit economics is also going to be guarded against. And if it means that there is a price increase that needs to take in to protect the margins consistently, that would happen. That is exactly the reason why we're investing behind the brand, to ensure that there is an organic demand that gets generated. And we don't want to be in a situation where you become a price warrior or a price-led business. So I don't think so we are looking at from that perspective on the way forward. You will see consistent actions as we move forward, too.

[Promeet Ghosh, executive]

One way of looking at margins also is that I think you can look around and see how margins are looking for some of our peers. And that, in the context to see the kind of step-up in margin that we're seeing, will put things in perspective. There is a material downward movement, right? It's -- some of our -- particularly where the ECD mixes are comparable, material change.

[Siddhartha Bera, analyst]

Got it. Sir, lastly, on this, what will be your CapEx plan for the next 2 years comes...

[Kaleeswaran Arunachalam, executive]

Yes. Roughly, we will be about INR 80 crores to INR 100 crores. This will be largely towards manufacturing capability improvement, also behind product development and product innovation.

[Operator]

We'll take the last question from line of Achal Lohade from JM Financial.

[Achal Lohade, analyst]

One quick question. If you look at the other expense, I'm talking about 3Q to 4Q, it's increased by about 10%. And of that, almost 80%, INR 14 crores is EPR cost. If I look at the top line growth, the top line growth Q-o-Q is 23%. So can you help us understand, is there any reversal of provisions? Or if you also could help us with the A&P cost for the third quarter than fourth quarter of FY '24?

[Kaleeswaran Arunachalam, executive]

The other expenditure, as you rightly said, includes EPR. If I look at the absolute increase in other expenditure on a quarter-on-quarter -- just year-on-year basis, there is about roughly INR 45 crores increase. And a large part of this is the marketing expense increase that we have got, followed by the increase in EPR of INR 14 crores.

[Achal Lohade, analyst]

Sorry, I was talking about...

[Kaleeswaran Arunachalam, executive]

You're talking sequentially? Sequentially, you'll see the increases largely on account of EPR only. I think that's your marketing expenses in line with Q3. The Q3 expenditures was on a higher base.

[Promeet Ghosh, executive]

So just -- so because you're looking at it 31st December '23, that is INR 202 crores. That's the number, right, INR 202 crores.

[Achal Lohade, analyst]

Yes. And 4Q is...

[Promeet Ghosh, executive]

So you're looking consol -- you're looking at consol or stand-alone? It's easier to explain stand-alone.

[Achal Lohade, analyst]

No, I'm talking about -- no, no, no. I'm sorry, sorry. I should have clarified, stand-alone. I'm talking about stand-alone. Where I'm coming from is that the margin's improvement is actually there in the stand-alone, from 3Q 4Q, a substantial margin improvement. And if I see the gross margin, they are stable Q-on-Q while the EBITDA margin is entirely driven by the other expenses. The percentage came down. And if I look at the absolute, adjusting for INR 14 crores of EPR impact, then the increase is hardly towards 3% while the top line growth is 25%, 23% to be precise. So I was just curious if there is a [indiscernible] reduction or any reversal?

[Kaleeswaran Arunachalam, executive]

There is no reversal first. Let me split this for you to understand this better.

The way you need to look at this, sequentially, first, the growth that you are referring is on a sequential basis, typically. The quarterly basis are not comparable. INR 190 crores is what we spent in previous year Q4. That has moved to INR 223 crores. Now within this, there is about INR 14 crores increase on account of EPR and INR 14 crores increase on account of marketing spends when you compare it on year-on-year basis. On a sequential basis, the absolute marketing expense has remained the same between Q3 and Q4, and we have incremental investments on EPR of INR 14 crores that we talk about. That's got in reconciliation.

[Promeet Ghosh, executive]

There's no reversal [indiscernible].

[Kaleeswaran Arunachalam, executive]

Yes.

[Operator]

For any follow-up questions, you may reach out to Natasha Kedia. I now hand over to Renu for closing comments. Renu?

[Renu Baid, analyst]

Thank you management team and the audience for being pretty patient. Thank you for giving us the opportunity to host this call. Promeet, any closing remarks from your end before we sign off for the day.

[Promeet Ghosh, executive]

Thank you. Thank you for joining the call. I appreciate your doing it quite late in the day, and I trust we've answered your questions. And if you have any many questions, needless to say, please contact Natasha. And if needed, we can set up further discussions for you to get a better understanding of where the company is going. And well, have a great evening.

[Kaleeswaran Arunachalam, executive]

Thank you, everyone.

[Renu Baid, analyst]

Thank you.