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Havells India Ltd
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Ladies and gentlemen, good day. And welcome to the Q1 FY '23 Earnings Conference Call of Havells India Limited, hosted by InCred Equities.
[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Agarwal from InCred Equities.
Thank you. And over to you, sir.
Thank you, Risida. And hello, everybody. Good morning. InCred Equities welcomes everyone today on this call to discuss the first quarter of fiscal '23 results of Havells India Limited. We thank the company for giving us this opportunity to host the call.
We have the senior management of the company with us today, represented by Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Gupta, Director of Finance and Group CFO; Mr. Ameet Gupta, whole-time director; and Mr. Rajiv Goel, Executive Director. I now hand over the call to [ Anilji ] for his opening remarks. And then we will get into the Q&A session.
Over to you, [ Anilji ].
Thank you very much, Rahul. Good morning. We hope everyone is staying safe.
You would have reviewed the results by now. There was steady growth in quarterly and 3-year CAGR numbers. Overall contribution margin sequentially maintained, except cables which was adversely impact due to commodity cost fluctuations. We expect benefits from the recent cost moderation to reflect in a couple of quarters. The demand outlook is stable in consumer and residential segments, with slight deferment in industrial and infra segments.
We can now proceed for Q&As.
[Operator Instructions] The first question is from the line of Naval from Emkay Global.
I have 2 questions. First, on channel inventory on cable and wire and other products specifically. And second, on Lloyd margins, as your media interview suggests, that Lloyd margins will normalize in ensuing quarters. So will that get somewhat impacted by a new facility which will be again operational from this year-end or so?
Thank you very much. So in cables and wires, generally the system inventory is lower. And hence, we believe whatever short-term pain of high inventory would be there, would be over in this quarter. So from the third quarter, we expect [ normalized margin ] levels to come back in cables and wires. As far as Lloyd is concerned, the -- because the inventories are larger and then the season is also slow in the second and third quarters, we expect 100% normalized margins in the fourth quarter. We do not see any major impact on margins because of the upcoming -- the plan because, by the time that gets ready, we would be [ venturing ] into the second -- the coming season of air conditioners. So both, I think, in cables and wires and Lloyd, we should be expecting normalized margins in the third and fourth quarters.
[ Sure ]. And sir, a follow-up on this. Inventory level for other B2C products, is there any change there as well?
No. I think they have been stable over the last few quarters.
Next question is from the line of Yajika Chopra (sic) [ Latika Chopra ] from JPMorgan.
This is Latika here. I just have a little more follow-up on the earlier 2 questions that were asked. The first one is on cables and wires. We did see another company also reporting Q1 numbers and it seems then the margins held up pretty well there, so I wanted to understand when you expect margins to improve. Are we going to see sequentially improving margins starting with Q2 itself? Or there is something else which we need to make a note of here. And the second bit was on Lloyd margins. You said normalized margins. If you could help us with what is the definition of normalized margin: Any range that you have in mind? And also if you could clarify what kind of incremental capacity is going to get commissioned and the time line for the same.
So as far as cables and wires is concerned, generally when there is a sudden reduction in the raw material prices, it's very [ evident ] that when you are selling in the market, you would be expected to reduce your prices, especially in cables and wires. Because when we -- when there's a sudden increase also -- or when there is an increase, we pass it on to the consumer in a short period of time, as well as [ in a reduction of ]. And obviously there will be system inventory certain purchases which will continue to happen because there is some imported raw materials also which continue to happen. Hence, there will be certain impact in the second quarter. Hopefully, by the -- in a few days or a few weeks, the system inventory will go down, but there will be certain impact from the past purchases. That's why I said, by the third quarter, we expect normalized margins to come back [indiscernible]. As far as Lloyd is concerned, we've seen that, pre November or October, before the sudden increase in raw materials started happening and -- the industry as well as [ probably ] Lloyd did not pass on the entire cost increase in the market because the season was coming after 2 years. And everybody was wanting to -- that they retain or regain market shares, so there was not full transfer of cost increases in the market. Before that, Lloyd was making double-digit contribution margins. And we believe that we should be back to those margin levels by the fourth quarter.
The next question is from the line of Siddharth Bera from Nomura.
Sir, my first question is on the volume growth side. So would it be possible to highlight? If I just look at the electrical [ businesses of ] Lloyd, we have been about like a 50% growth in the current quarter. How much will be led by volumes? And going ahead, what do you expect in terms of volume growth? So we did about 11%, 12% in FY '22. Leaving aside Q1 because there is a [ base impact ], what kind of volume growth should we expect for the remaining parts of the year?
So we've seen about a 40% increase in volume, in case of Havells, and about 10% to 12% in terms of value. And so basically -- but again this is not the right comparison because it was a disrupted quarter last year.
Yes. So any outlook, sir, if you can share, how should we expect that type of trend of double digit to continue? Or do you see some risks because of the price hikes which have happened in the past?
Do you expect -- asking me to [ say to ] what growth we are expecting in the coming quarters?
Yes...
Generally we don't give guidance. I think let's see how the market behaves. I think I've also mentioned on the media as well in the morning that in the month of -- second half of May, June, there were some slight slowness in demand, especially more towards the industrial and consumer -- industrial and infrastructure segments, right? I also believe that was due to the fact that there was high prices, and raw materials were at an all-time high. We believe that, with these prices coming down, we should expect that demand should -- also comes back very quickly. So I think, going forward, we are positive about the demand outlook.
Got it. And the second question is [ on the ] Lloyd. So I think the rating changes were supposed to happen in July, so any update on what has happened? And are we looking at any price hikes because of that?
That has happened already. The rating changes have happened, so all new production will happen -- will be on the new ratings. So yes, there is a cost impact from that. And we are evaluating that, so depending upon the raw material scenario as well as depending on the cost increase, we will be taking certain pricing actions in the coming few weeks.
Okay, okay. So basically, with the current commodity fall, will it -- and the price hikes which we will probably be taking -- so will that be sufficient enough to take us to the double-digit contribution margins in the current quarter? Or do you think that might take something -- some time more?
As I said, there is inventory in the system. And this is the second and third quarter is generally low in volumes for products like air conditioners, so we will be having, carrying this inventory for some more time. And we expect, by the end of third quarter and fourth quarter, we should be back to normalized margins.
The next question is from the line of Achal Lohade from JM Financial.
My first question was if you could explain in terms of the ECD margins. We see that, Q-o-Q, the ECD margins at contribution level were fairly steady, while in terms of the EBIT margin there was substantial drop. Is it entirely to do with the A&P? Or is there anything else as well, sir?
Yes, entirely due to A&P because generally A&P is never -- I will say you have to look at the entire year, so yes, most of it is due to A&P.
Understood. The second question I had is if you could give us some sense in terms of, given the first quarter of '21 and '22 were impacted, on a 3-year CAGR basis, what would have been the volume growth across segments. Would that be in mid-single digit, high single digits?
It will be high single digits [ or as ] close to double digits.
Understood. And what I'm trying to also ask is, given the cost reductions what we are looking at, is it fair to say that part of this will be retained, part of this will be passed on. And do you see the way it will behave will differ depending on the categories? Or it will be, by and large, get passed on.
I have not fully understood your question. Can you repeat?
So in terms of the RM cost reduction, now what we are looking at, at this point in time, would this be largely passed on? Will this be retained? And would this -- the extent of reduction in the -- or pass-on will depend on the category.
I think this will give us an opportunity to at least look at the long-term normalized margins of each business in each category. So if there has been any reductions, let's say, in [ stable ] businesses like switchgears, ECDs, lighting. So that will give us an opportunity to at least come back to those margin levels. As I said, cables and wires as well is very acute in terms of the impact. And that should normalize in the next couple of quarters, so this reduction -- and this is very recent, so you can't take really a view on how long they will sustain and how much does it further go down or up. So I think this generally happens over a few weeks rather than [ just in immediate just price hikes or during the price hikes ].
Got it. Just last follow-up with respect to Lloyd. Is it possible to share what is the market share we have in the AC segment for the season, if it -- we have for the season, or for the quarter?
Well, we tend to believe that we've regained market share in Lloyd air conditioners. And we would be among the top 3 players at least in the first half of the year, first half of the calendar year.
The next question is from the line of Atul Tiwari from Citi.
Sir, just one question on the industry. So now that we have seen Lloyd is operating at [ negative ] margins through the season -- and obviously the market share has gone up. And in response to that, some of the larger players have indicated that they are willing to work at lower margins at least temporarily, compared to what they were used [ to impart ], to retain market share. So do you think that there's a risk of entire AC industry margin structurally [ setting down ] at lower levels because of this fight for market share amongst key players?
I doubt very much because, last 2 years, there was disruption in the air conditioner market. Ultimately it is a technology-oriented business than a product, and hence it has to retain certain amount of margin levels to reinvest back into technology and [ in the kinds of relations ] for the consumer. So ultimately I think the entire competition should behave responsibility -- responsibly in this. So we believe that -- long-term prices stabilizing over the medium term. I don't see any major structural changes in the business.
And sir -- and then following up on that to -- so I mean, as per your plan, what will be the [ EBIT-level ] normalized margin for Lloyd that you will be happy [indiscernible]?
I think let's not focus on that as of now, but this has been a period where raw material prices have been up and down quite considerably, so let's come back to normalized margin levels. And we will continue to invest in brand building and distribution enhancements in the coming times. So this is a long-term play for us and we'll take it as it comes along.
The next question is from the line of Rahul Agarwal from InCred Equities.
Sir, one question on Lloyd just to get this right. The base revenue last year was around 2,200 crores, 2,300 crores. My sense is we are utilizing almost 90% capacity, so is the understanding correct that the incremental growth is all going to come from new capacity additions and the existing infrastructure is all fully utilized? Is this correct?
No, that's not true because we have -- [ 2,200 crores ] also includes other product categories with washing machines, refrigerators and LEDs. So we are not -- in the last financial year, we were not at 100% capacity, but going forward, the kind of growth that we'll end up having, we will definitely need to enhance our production facilities in South. And that would also take a sizable part of the entire demand.
So fiscal '23 growth is -- there is still scope to utilize existing capacity to further grow on the last year's number. Is that correct?
That's right. That's right.
Got it. And lastly, on we've been hearing from some [ dealer checks ] that, Reliance, through the BPL and the Kelvinator brand rights, they're trying to cause certain disruption into the similar product categories. Would you think it's going to be a meaningful play there? Or in terms of your own assessment of absorbing capacity for whatever new product launches we plan for Lloyd, that should be comfortable enough.
Generally this industry has seen [ at least ] 10 to 12 brands. And there will be top 4, 5 brands; and then there are a host of other brands as well. So there will be brands, but I think ultimately it depends upon what the consumer goes for, technology, brand, distribution, service. There are a lot of factors in building success for brands. And so it's not really that I will say that price elastic were -- suddenly market shares change a whole lot.
Next question is from the line of Aakash Javeri from Perpetual Investment Advisors.
I have 2 questions. My first question was when would the mandatory BEE ratings for fans kick in. And the second question was that, out of the entire fan market, how do you see it evolving over the next 3 to 5 years, especially in terms of the BLDC penetration?
So the BEE ratings changed from the 1st of January. And going forward, there will be a market for BLDC fans, and the ranges will continue to enhance. And generally industry has seen over a period of time that products transition towards more energy-efficient products. And if the cost difference continues to reduce in this, we will definitely see more of BLDC penetration in the business.
The next question is from the line of Rahul Gajare from Haitong Securities.
Some of my questions are answered, but could you -- on Lloyd's, could you give us a sense on what is the price hike that you will have taken in this particular quarter, if that is something that you've done? Because you've taken about 10% price hike in the last year. So in this particular quarter or till June, if you could give us some sense.
I will say that we would have maintained the prices, what we would have continued in the fourth quarter, in the first quarter as well.
Okay. On the second question is in terms of the shortages of raw material, supply chain issues, is all of it behind? Or are you still seeing shortages of certain raw material or those kind of things?
[indiscernible].
Yes. I think, generally speaking, it is all behind. The noise is more about chips [indiscernible], wherein now we are in the process of having a long-term planning schedule which will be planning for the next year. So -- but supply chain disruption is -- didn't really affect us in the past as well and it's not really affecting us now.
Okay. Sir, my last question is you indicated that you've got about 40% increase in the volumes in this particular quarter. Is there a particular category that has seen significant rise in volume? Because lighting, we've seen about 70%-plus growth. Most of others were in the range of 30% to 40%, so any particular category which really stands out in terms of the volume growth that we've seen in this quarter?
[indiscernible].
Yes. It's across that -- lighting has seen better growth in this quarter, also because of the fact that it also has an industrial and professional component which was majorly disrupted last year because of the second wave of COVID, but generally speaking, it is across.
The next question is from the line of Vishal Biraia from Max Life Insurance.
What will be the key driver for this improvement in margin that we're targeting to double-digit contribution by fourth quarter? So will it be the lower discounts that we were offering to the dealers? Or will it be just the correction in commodity prices? Because that will impact everybody as well. So could you elaborate a bit more on this?
Well, I think, as I mentioned before, that the raw materials went up and the entire cost increase was not passed down. So when the raw materials go down, there will be an expansion in margins going forward; and that's what we are expecting by the fourth quarter, right? I don't know whether I've answered your question. I'm not -- maybe I not fully understood...
So I was coming from the perspective that we've been more aggressive than the industry maybe in increasing our market share...
[indiscernible] I didn't say that we were more aggressive in our industry. I mentioned that the industry didn't take entire price hike as commensurate to the cost increase. So I mentioned that we've also not done it, and we believe that the industry has also not passed-on the entire cost increase.
And now -- you mean that, now that the commodities have corrected, so the [ incremental ] prices are not required. And so the margin for the industry as a whole should bounce back. Will that be fair?
Yes, yes...
Okay. And in terms of market share, further incremental market share growth that we are targeting in the air conditioning business, what will be the key drivers? I mean one is the brand building that we are already focused on, but incremental, will it be more incentives for the distributors; more, I mean, working maybe better terms?
[indiscernible] long-term market share development requires product development, technology, manufacturing, [ lead, distribution ], brand building and quality perception of the consumer, so I think incentives to the dealers and all play a very -- I will say, a very, very short-term role. And many times, it is counterproductive also. So Havells has done that, practiced this in the past. [ And we don't -- and besides this ] happening, I think there's a -- I keep saying that Lloyd is a long-term play, something what Havells has done over the last 20 years that we will continue to build, reiterating, brand distribution, manufacturing and technology.
Okay. And lastly, what -- to what extent do we outsource air conditioning...
10%, 15%...
So pretty much it's now manufactured in house. Maybe to the extent of certain models, if we don't produce, but then -- maybe maximum 10% to 15%.
Okay, okay. And what is the contribution of refrigerators and washing machines in this quarter?
We don't give a breakup on this, yes. Just look at the overall...
Approximate percentage, maybe 5%, [ single digits, sir ].
I'll refrain from answering this...
The next question is from the line of Abhijit Akella from Kotak Securities.
First one, just on the cable raw material procurement, I was just hoping to understand the sourcing model a little bit better, if you could just help us understand. How much of it is imported versus procured domestically? And also whether there is any kind of embedded derivative or any such time lag between the time you book the order for the metal versus the time that you actually make the payment.
So we have various businesses. And are you specifically talking about any particular business?
Cables in particular.
Okay. So cables, generally speaking, we buy most of the raw materials from the country, but there are certain raw materials for wires, like copper. We import part of it, and it depends upon availability as well as pricing at that particular period of time. It could vary between 20% to 40%, the extent of imports. And there are no derivatives that we believe in because we believe in the fact that there is not high levels of inventory in the entire system. And generally the cost increase or reduction is passed on to the market.
Okay. So if I understood you correctly, sir: You are saying that the price is set on the date that we signed the contract itself. It's not set at a later date in time.
I would not like to get into these details on this...
[ There are no derivatives ]...
And there is -- but there are no derivatives.
Understood. And second part I just had was on some of the cost items. On the advertising and promotion line, is there a ballpark number for the full year that you could help us with in terms of guidance and also the rough seasonal pattern that you expect in that?
We usually tend -- close to about 2.5%, 3% in a normal year, other than the disrupted COVID years, but generally about 2.5% to 3%. And it -- yes, it does vary seasonally, but over the entire year it's about 2.5% to 3% of the revenues of the entire company.
Understood, sir. And one last thing: The employee cost has ticked up a little bit. I'm just wondering if there are any one-off items within that or whether we should use this as a good number for modeling [ purposes themselves ].
Actually there is -- if you see sequentially, there is no significant growth. I think there were certain maybe adjustments in the last year. So I think -- that's why on the base it's looking higher. Otherwise, this is normative in nature.
Next question is from the line of Yajika Chopra (sic) [ Latika Chopra ] from JPMorgan.
This is Latika again here. I wanted to check with you to get some flavor on the demand outlook. I understand you said you expect steady trends on the residential side, but due to the high inflation, did you sense any moderation in consumer sentiment as you progressed through the quarter? And do you anticipate -- and when do you anticipate these commodity deflation benefits to start getting passed on to consumers, particularly for the ECD category? And any color on consumer behavior towards upgrading? Has that got affected? Any stance on rural versus semiurban, versus urban trends? Any thoughts there?
So I think, when we started with the last question on the rural, urban or the upgrading -- I think we have explained this in the past. We have never -- we have not seen much consumer behavior changing in terms of the high inflation. Also I think not all the costs have been passed on also to the consumer, so it's not that he has borne the entire brunt of the inflationary pressure. Yes, I think, as Anil just mentioned, that towards the later half of the last quarter, we did see some more [ inflation ]. I think it was -- maybe it was largely also due to the trade being cautious because, when the commodity falls, we believe that there will be some price benefits being passed on to the whole. So there have been some maybe destocking at dealer level. I mean cable, wires may be higher [ than other ] product categories. We do believe there's a destocking, and that's why the channel inventory is extremely low in our view.
So I think the consumer, we believe, continues to -- you've seen the sort of purchase and the -- on the consumer side, we are more [ self ] confident. Infra and all also, we believe there is a moderation, but hopefully, as the deflationary or the commodity benefits are passed on in the -- let's say, this quarter and going forward, we will -- that demand also should revert back. Therefore, I think we'll continue to be sort of cautiously but positive about the demand scenario going forward.
And the last question that I had is we discussed a lot of -- a lot about air conditioners [ in ] Lloyd, but any milestones to talk about in the refrigerator or washing machine side even in terms of innovation, consumer acceptance, distributions, outlet expansion, et cetera?
I think washing machines business has -- we started development much ahead. It's really taking up a good [ shape with ] consumer acceptance, and the trade acceptance is strong. And we now believe that we have a complete portfolio in terms of washing machines. Refrigerators, which were started last year, we believe that, by the end of this calendar year, we should have a complete portfolio, but the initial reactions from the trade and the consumer are strong. But to have a complete play of refrigerators, we need a larger range which, hopefully, should be fully operational by the end of this year.
The next question is from the line of Keyur from ICICI Prudential Life Insurance.
Sir, I just want to understand on the Lloyd side. If we look at the calendar year 2022 and if I do the "back of the envelope" calculation, probably our facilities were utilized fully. In that context, the incremental margin improvement will -- should be driven by pricing, negative price hike or lower commodity prices. Or are there any other levers? So here the assumption is that, since the facilities are fully utilized, the operating leverage part has already been there, yes, in these numbers.
I think we -- as we explained earlier also, right now we are anticipating the lower commodity cost benefit to reflect in the margin. And that's where we believe we should be in the later half or whether Q4 because the season also starts late [indiscernible] early Q4. So [ that said ], we expect the benefits to flow in, and largely it is predicated on the falling commodity cost.
Okay, understood. The second question: I mean historically we have seen this cycle of destocking and restocking in -- at the time of, say, sharp commodity moves in wires and cables. Similar trend is visible in -- do you think similar trend is happening in ECD as well? Or it is less prone to this kind of cyclicity. Or any other segments which are prone to this kind of cyclicity?
So less prone, some degree of -- you see the destocking will be there, but yes, it will be more pronounced in cable and wires.
Okay. And sir, just last question. That is on the -- I think we have -- at least the commentary says from many of the players or OEMs that there is some slowdown in the lighting, so what is your view on that? Because I would just consider lighting as more of, say, utility product. So what is driving slowdown in lighting, if there is any?
We have not seen any slowdown. Actually our business is more consumer and professional. We are not doing [ government orders ] and all, so our business continues to hold pretty well. Even margins continues to hold steady because a lot of our business is now innovation-driven and also very deep distribution levels. So we have not perceived demand slowdown because we aren't dependent upon any single order or [ 2 ] large orders and then [indiscernible] and the orders go away...
[indiscernible] lighting is not seeing any impact as such as of now.
No, no.
The next question is from the line of Ashish Jain from Macquarie.
Sir, I had one question on the switchgears segment. So can we just talk about what the growth [indiscernible]? Because this quarter the growth was exceptionally strong. So does it have like any one-off nature here? Or by and large, we are seeing very strong demand on the ground as well.
[indiscernible].
Yes. So switchgears, there were actually -- if you see last 3 years, [indiscernible]. And sometime, on the lower base, it may not reflect, but I think we are very actually, to some extent, excited that we have got almost 16%, 15%, I mean, CAGR in 3 years, which has been -- if you'll see the trend before that, that has been almost single digit. So we believe -- this property of cycle, the construction cycle, which has now kicked in and which we believe is sustainable, that I think should further support the switchgear business. So we continue to be confident about the switchgear and the switches segment.
Sir, does switchgear have -- like what is the mix of retail versus institution on the switchgear [indiscernible]?
See, our business is largely retail. It does not mean [ there won't be much ] institution, but largely we are distribution-based brands. And that's why we believe there's a lot of construction happening in smaller towns as well as urban. And we are not much builder-driven business. You are aware of that.
Sir, second, on Lloyd's. I know a lot have been asked about it, but I had -- just had one question. Sir, historically in Lloyd's when we were seeing double-digit contribution margins, we were also, [ I mean ], seeing 6%, 7% EBIT margins as well, so shall we think on similar lines? Or when [ Anilji ] spoke about higher advertising spend and higher focus on distribution and all, there could be a variance between contribution versus segmental margins in Lloyd for the next, say, few quarters and all.
That's right. As you rightly said, our first priority is to get to the contribution margins. And you see, [ rest of the things ] are strategy dependent; and our strategy, we will continue to invest behind. We see a very large opportunity in this segment. And I think we see a fairly long-term play with Lloyd into the consumer appliances segment, so I think we'll continue to take long-term costs for the health of this business.
The next question is from the line of Pulkit Patni from Goldman Sachs.
Sir, my first question is bookkeeping. We spent INR 56 crores in CapEx in the first quarter. What is the ballpark number for the year that we should be taking?
I think we have -- because of some -- I think [indiscernible] things do take time. So I think we are -- expect now [indiscernible] this year.
Okay, so that number stays intact, yes. I was surprised with the first quarter number. Sir, my second question is when we look at our portfolio. We've got premium products. Say, for example, switches in Crabtree. And then you've got economy products under different brands. Have we seen a difference in terms of demand trends where the premium products have sold a lot more relative to the economy products? Any trends that you have seen based on different income levels because we've got a portfolio which spreads across different pocket lines? So anything on that?
I would say Lloyd -- sorry. [ You called ] the products which are affordable in nature. Our recent entry in Havells will be just about 5 or 6 years old, so hence there is a lot of distribution and reach enhancement which is in progress right now. So we've actually not seen any variation in terms of demand, but if you see a little bit of higher growth in affordable segment, that's primarily because of distribution, reach enhancement which is happening, whereas our premium products have already been [indiscernible] in the market for many years. But otherwise, generally taking, the demand is equal throughout.
Understood, understood. And if I may take the liberty of asking: I'm assuming margins will be similar in both categories.
No. Premium products, the margins are definitely higher, but we definitely do get advantage of operating leverage with increased numbers.
The next question is from the line of Gopal Nawandhar from SBI Life Insurance.
Sir, my question is, in the last 2 years, despite COVID, we have seen a very healthy growth, 15% CAGR for this quarter. And I think even organized industries have also seen a very healthy growth, and the last few years have been challenging for unorganized players. And now the things are reversing in terms of commodity prices, supply chain issues and all. Are you see unorganized player coming back into the system and disturbing the businesses?
No, we don't see that trend.
Sure, sir. And the second question is on the how are the inventory in the AC for us and for the system and how long it will take to liquidate these old-price inventories.
Generally, in the system the inventories are not very high, but obviously because of the manufacturing facilities, we do keep in inventory levels. And we continue to build inventory even in the low season. So as we've already mentioned, that there are high-cost inventories in the system, so it will take a couple of quarters because it's a low-selling season, anyway. So to come back to normalized margin levels.
Next question is from the line of Vishal Biraia from Max Life...
[Foreign Language].
As the participant have placed the call on hold, we'll move to the next question. It's from the line of Prasheel Shah from CapGrow Capital.
I have 2 questions. Both of them are regarding the competition. So this is one of the most competitive industries, right, so what -- how do we differentiate ourselves when it comes to lighting, fans and these consumer durables? How do we differentiate ourselves from the competition? And the second question is regarding the distributors. Now how do we approach a distributor? What is our strategy when we are going and trying to win new distributors? And how do we sort of keep them and maintain them?
I will say that this is not a quarterly [indiscernible] call, questioning on the call, so I will suggest -- if you can spend some time with our team in the IR team. And maybe that will be a better way to understand the strategy of the company.
The next question is from the line of Shrinidhi from HSBC.
Congratulations on the strong top line performance. [ Anilji ], I have just one question here. Sir, we have seen some senior management exits from Havells and joining competition, so in that topic, I just want to know. [ These are just few exits ] which gets reported from competition. Or are you structurally seeing a lot higher attrition rate in senior management?
In fact, we've seen a very low attrition rate in senior management over last few years. There are a lot of reasons for people to switch to Havells. In fact, our attrition levels beyond the VP levels are low single digits, I will say, so I would not say that there are high attrition levels. Yes, there were some challenges last year wherein we saw some sort of attrition in the technology side, IT side and the R&D side, for which company has taken various other steps also, for example, employee ownership plans, [ ESOP ] plans, to give long-term wealth creation opportunities for the employees. But at senior levels, our attrition levels are extremely low, low single digits.
[Operator Instructions] The next question is from the line of Rakesh from Indsec Securities & Finance Ltd.
So how much price hike we have taken in Q1, sir? And...
I'm sorry, Mr. Rakesh, but can you please speak a little louder? You're not...
Yes. Sir, my first question is regarding, sir, how much price hike we have taken in Q1, sir. And any price hiking [ misses as well ]?
Any particular business you're asking?
No, overall, sir.
It depends from business to business. Maybe in switchgears we have seen certain price hikes in the first half of the quarter, but otherwise, generally there were no price hikes.
Okay, sir. Sir, my next question is regarding -- sir, any impact on demand, especially for [ window AC ], after some new energy norm implemented [ from July ]? Because this will increase the costs of, [ say, AC for -- window ACs ].
Yes, we will see this in the coming quarters because it is a very recent phenomena.
Okay, sir. Sir, my next one, last question, is, sir, any plan to add new product portfolio in your [ larger ] businesses?
This is an ongoing process in various businesses, whether it's appliances and consumer durables. It's there are constant product innovations and additions happening, so it's -- I will say it's a continuous process.
Okay, sir. And sir, how much is rural contribution to overall revenue, sir, [indiscernible], sir?
I will say it's about 5% of the overall consumer business.
[Operator Instructions] The next question is from the line of Keyur from ICICI Prudential Life Insurance.
Question is on if you can just give breakup of this CapEx either by product or by, say, growth CapEx and maintenance CapEx. And second, on the Lloyd side, we have earlier highlighted that -- basically I just want to understand. What is the -- what are we doing under the PLI or the scope of insourcing that we'll be doing under PLI? And earlier, we have highlighted about export of ACs as well. So if you can throw some light, any tentative time lines, whether it will be white label or under the brand Lloyd, if you can touch upon this aspect.
See, the breakup, we normally not provide, but we can tell you the large amount of CapEx will be accounted for by the new AC facility which is coming in the -- Southern India. And as far as the export of ACs are concerned, I think we are getting good response. And this will be both on our own brand as well as a white label opportunity on a global basis. First question [indiscernible]. What was your last -- other question?
So basically scope. I mean, under the PLI, what will be the scope of our manufacturing...
PLI [indiscernible] this is largely component-based. So we have also participated on a few of the components, which we have -- currently will be done both in the existing facility as well as the new facility in Southern India.
I mean, any specific key components that you would like to highlight...
No, [ no. I think ] -- we are not doing compressors, if that is the question. So we are not doing...
No, no, no. I'm saying generally -- so you need some -- generally we have seen many of the brands doing subassembly, but there are too many components. So specific [ few ] components which you would like to do internally versus used to outsource it 2, 3 years back...
We don't believe in subassembly [ concepts. Our ] -- if anybody has seen our manufacturing facilities, they're very integrated manufacturing facilities.
[Operator Instructions] The next question is from the line of Devang Patel from NAFA Asset Management.
Sir, I have some queries around why we do not hedge our copper requirements using derivatives. Is it because we do not find the cost-benefit favorable? Have you hedged in the past? And if we expect high volatility, would we change our mind in future?
Hedging is -- you see, our policy is not to do the hedging. So this is part of the policy. And we see these things keep coming up, but we have seen in the past that ultimately they do not provide any tangible benefits. [ I mean one even ] cannot define the long-term strategy. We believe that the real hedging is that we pass it on to the market maybe with a lag effect, and this has been working well almost for a few decades now.
So consistently we've not been hedging [ in the past ].
No.
The next question is from the line of Hitesh Taunk from ICICIdirect.
Sir, my question pertains to the distribution network. Can you please quantify what is the distribution network of Havells and Lloyd separately? Because earlier we had a target to increase the town penetration almost double. I just wanted to understand on the distribution point of view for the Havells and Lloyd separately.
So on the Havells side, we have indicated we have almost 14,000 dealers. And on Lloyd's side...
More than 1,000...
More than 1,000 direct distributors.
Yes, direct distributors.
Sorry, sir. 14,000 for Havells. Then for Lloyd...
Yes. Dealers and -- for Lloyd, more than 1,000 distributors.
Okay. And what kind of growth are we seeing in the distribution network in the Lloyd front, sir?
Lloyd, you see, is multiple channels, like regional retail, like MFRs, like online. So all the channels, we would argue that we have been well penetrated.
The next question is from the line of Vishal Biraia from Max Life Insurance.
My question pertains to fans, as to how was the performance in 1Q; if we have gained, lost some market share. And this is overall for fans and also within the premium fans.
Can you repeat the question, please?
Yes. My question pertains to premium fans and fans overall, as to how was the performance for us in the first quarter, in the June quarter. Or could you comment also on the market share and the outlook for demand? Would we have seen some amount of down-trading there as well?
So I think, first quarter, the fans performance was quite positive. You see again growth over a [ disruptive ] quarter, but in the second half of the quarter, we did see some slowdown [indiscernible]. This has to be seen whether it's [indiscernible] whether it was structural in nature. Or is it just because of high raw material prices and high costs? And hence, we were destocking with the season going away. If you look at market shares, I think our growth -- if we compare with the last 5 years, CAGR has been the highest in industry. And hence, we have been continuously gaining market share in fans category over the last 5 years. Quarter-on-quarter, there can be [ various comments ], but otherwise, whether it is lighting, fans or -- our CAGR over the last 5 years has been the highest in industry. So I would say that we have gained market share [ in the end ].
Okay, okay. And the other question is on the small appliances. Do you see a scenario of increasing competitive intensity in the space?
[indiscernible]...
No. It's already -- it's a highly competitive business, so we don't see any increase in competitive intensity.
Okay. And -- so this is the -- also a place where the price hikes would have benefited us, so -- but we have not seen enough price hikes, so would that also be just largely because of competitive intensity, that others have also not taken price hikes? Would that be the only factor...
I think this is -- again, similar to Lloyd, it is very, very consumer-oriented products. I will say that the industry has taken a view of not entirely passing-on the entire cost increase. So yes, over a period of time, these raw material [ adjustments ] or increase [ adjustments ] would actually help the margins come back.
[Operator Instructions] The next question is from the line of Ashish Jain from Macquarie.
I just have one housekeeping question [ about ] can you quantify your markets [ for win AC ] on [ 1x ] basis or [ 1Q ] basis.
No.
Okay but like safe to assume we have 15%-plus kind of number...
When I said I don't want to give a number -- I believe we are amongst the top 3 players in the first 6 months of the calendar year.
[Operator Instructions]
I just want to make one comment on market shares. It's like investment bankers giving [indiscernible]. Everybody tries to give numbers which are suiting them and come from very different sources. There is no one particular sources we can use for market share. And I will say normally the way we look at market shares is CAGR growth over a longer period of time. And doing quarter-on-quarter or half yearly market shares don't mean much. We have to look at the actual performance which is happening in the market and long-term [ performance ].
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you very much for joining on the call. Thank you.
Thank you. On behalf of InCred Equities: That concludes this conference. Thank you for joining us, and you may now disconnect your lines.