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Havells India Ltd
Earnings Call Analysis
Q1-2025 Analysis
Havells India Ltd
Havells India showcased a strong performance in the first quarter of FY '25, driven by favorable summer conditions. The cooling products segment, especially air conditioners, fans, and air coolers, performed exceptionally well, marking a significant market penetration. This surge can be attributed to the company's robust manufacturing capabilities, brand equity, and omnichannel presence, which helped tap into the increasing demand from first-time buyers, particularly in the air conditioner category .
The industrial and infrastructure segments continued to perform well, albeit with some impact from election-related activities. While cables experienced double-digit growth, the wires segment saw a decline due to channel destocking, influenced by a sharp decline in commodity prices in June 2024. This volatility highlights the challenges in managing the supply chain and inventory levels within these segments .
Lloyd, a subsidiary of Havells, reported improved profitability due to various cost efficiency initiatives. The management also indicated an incremental investment in brand building, differentiated product offerings, and talent acquisition to strengthen its market position. A sequential improvement in contribution margin by 70 basis points was noted, despite a 40% sequential revenue growth, exemplifying the operational leverage benefits. However, future gross margin levels were not specifically disclosed by management .
The Electric Consumer Durables (ECD) segment reported a 20% revenue growth, yet margin expansion remained flat. This flat trajectory was attributed to higher advertising expenses, even though premium products performed well. The switches and switchgears segment faced significant competitive pressures from both national and international players, challenging Havells' market share and margins. Management emphasized that these competitive pressures have been consistent over time .
Havells announced a capital expenditure plan of around INR 1,100 crores for FY '25, with Lloyd's share being minimal at INR 100 crores. The management also mentioned taking corrective pricing actions in response to recent increases in raw material prices, likely impacting gross margins over the next few months. Effective management of these costs will be crucial for maintaining profitability in future quarters .
Despite the positive quarterly performance, there is a cautious outlook on the sustainability of consumer demand. The strong summer season and a low base from the previous year contributed significantly to the growth. However, management remains unsure if this trend will continue consistently. Improvements in consumer sentiment and spending power will be vital for sustaining growth in the ECD segment. The company continues to focus on reaching smaller towns and villages, along with enhancing its kitchen appliances segment .
Havells is keen on expanding its global footprint, particularly in the U.S. market. The company has engaged in multiple joint ventures to leverage opportunities in air conditioners and lighting products. Although exports currently constitute around 3% of total revenue, there is an aspiration to increase this to about 10% in the medium term. This strategic focus is expected to provide a significant thrust to the company's growth trajectory .
Looking ahead, Havells is hopeful for a better fiscal year, with growth driven by improved consumer sentiment and housing market conditions. The company is investing heavily in its brand and product development, especially in non-air conditioner categories under the Lloyd brand. Management's commitment to long-term investments in brand building, R&D, and manufacturing highlights their strategy for sustained growth and profitability .
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Ladies and gentlemen, good day, and welcome to Havells India Limited Q1 FY '25 Earnings Conference Call hosted by JM Financial. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Deepak Agarwal. Thank you, and over to you, Mr. Deepak.
Thanks. Good afternoon all. On behalf of JM Financial Information Securities, I welcome you all to Havells India Q1 FY '25 conference call. Today, we have with us management represented by Mr. Anil Rai Gupta, Chairman and Managed Director; Mr. Rajesh Kumar Gupta, Whole-Time Director and Group CFO; Mr. Ameet Kumar Gupta, Whole-Time Director; and Mr. Rajiv Goel, Executive Director. I would like to thank management for giving us opportunity to host this call.
And now I'd like to hand over the floor to management, post which we open the floor for Q&A. Thank you. Over to you, sir.
Thank you, Deepak. Thank you. Good evening, and thank you, everyone, for attending the call today. Hope you would have reviewed the results by now.
Q1 posted good growth as cooling products capitalized on a favorable summer. Categories like air conditioners, fans and air coolers performed well as we leveraged our manufacturing capacity, brand strength and omnichannel presence to tap into the market opportunity. As we witnessed many first-time buyers of air conditioners, we feel that this may trigger an inflection point for the underpenetrated AC industry. Industrial and infrastructure continue to perform well albeit some impact due to elections. Cables registered double-digit growth, but wires revenue was impacted by channel destocking with sharp commodity price decline in June 2024.
As cost efficiency initiatives yielding results in the form of improved profitability of Lloyd, we continue to strengthen our market position with the investments into brand building, differentiated offerings and talent pool. We can now move to Q&A.
[Operator Instructions] The first question is from the line of Natasha Jain from Nirmal Bang Equities.
First question on the ECD segment. Now I see a top line growth of 20...
Sorry to interrupt, ma'am, could you please speak a bit louder? Your voice is coming very low.
Yes. So my [Technical Difficulty] segment, while I see that there is a revenue growth of 20% at flat, now [Technical Difficulty] premium funds have moved. So that means there has been an ASP expansion on that front. So can you just call out what really led to a flattish margin growth here? Was it mainly ad spend? Or is there a significant ASP compression in other segments or other product categories, in ECD? Also if you could call out the growth for fans, particularly.
Sorry. Your voice is broken. Can you repeat quickly the question?
Yes. Sir, my question is on the ECD. In ECD, while the growth has been 20%, the margin expansion has been pretty much flat. Now on the ground level, we understand that fans is a product [Technical Difficulty] that premium fans have done well. So that would ideally need expansion on that front. So I just want to understand why are we at flattish margins? Is it mainly because of higher ad spend? Or is there a significant degrowth in some other categories?
So actually, if you look at the contribution margin, the contribution margins have improved both due to premiumization as well as the cost-saving initiatives over the last 1 or 2 years. Quarter-on-quarter, there could be differentiated segment results because of the -- sometimes the ad spends are higher, sometimes lower. So I think we believe we should track the contribution margin stability or expansion there.
Sir, my next question is on switches and switchgears. Now we've seen domination by local or unlisted players like Gold Medal or probably your exact competitors would be Norisys, Schneider or Legrand. Now all of these brands -- most of these bands are getting credit period days as high as 100 to 150 days with product SKUs probably 2x of -- minimum 2x of what Havells has. So -- and therefore, a strong push by dealers and distributors on the ground. While our revenue contribution is approximately 10%, margin contribution is still close to 1/3. So going forward, do you feel that this increased competitive intensity can further compress our margins in this segment?
Well, I think the increased competitive intensity or similar competitive intensity has been there for quite some time. And when you say local players, I don't know how you calculate, how you're taking national players like even Gold Medal or Norisys or Schneider and Legrand as regional players. They're not regional players. They are national players. And I believe that they are also premium priced there. Despite all that, I think over a period of time, over a longer period time, we have ranged in our switchgear margins in a very close bound range between 38% to 40%, 41%. So that's been there. Quarter-on-quarter, it can vary. But otherwise, generally, we have been range bound and I think we'll continue to strive to be there.
[Operator Instructions] The next question is from the line of Venkatesh Balasubramaniam from Axis Capital.
Mr. Gupta, I just had questions all on the Lloyd's part of the business. Now what we are observing is for 2 quarters now, you have delivered, you're broken even. I think fourth quarter, you did almost 2.8% margins. In this quarter, you did around 3.5% margins. Now what exactly has contributed for this whole business going from a loss to a profit? If you charge that now you hit a scale where you can consistently deliver positive EBIT margin or there has been some price action you have taken? Or is it because there are cost savings, you're manufacturing in-house, if you could throw a little more light on what has caused these numbers to go up to a profitability part.
The second part of the question is this 3.5%, is this a reasonable number, which we can assume for the full year of the current year, that is it possible for Lloyd to deliver 3.5%, 4% kind of EBIT margins for the full year in the current year? And where do you think this number can go according to you, if everything goes according to plan over the next couple of years? This is all related to the Lloyd ones.
My God, you've put 10 questions in one question. So look, I don't want to keep repeating myself again and again over various conference calls. Lloyd is a gem right? And again, I frankly don't even look at 2.8%, 3.5% for the whole year. We're making huge investments in Lloyd for quite some time, and we'll continue to do so, even if you see our brand building efforts, we're spending close to more than 4%, 4.5% in Lloyd, which clearly indicates long-term investment because we see a huge growth opportunity in Lloyd. It's a very large industry. And our market shares are small in many categories. So hence, we see a huge growth opportunity there.
Now having said that, whatever things that you mentioned, it's not pricing action but it is premiumization over a long period of time. Ability for trade to accept a certain price level and the consumer to give a certain price level to a brand. That's again a long-term thing. Bringing efficiencies in manufacturing and cost efficiencies, that's also a major contributor towards sustained profitability over the continued period. Having said that, you have also said about the third -- sorry, fourth quarter and the first quarter. This is the period when primarily 65%, 70% of the sales happen for air conditioners.
So we do get operating leverage also during this 2 quarters. Second and third quarter because we are still overweight on air conditioners, second and third quarter will always remain challenging. But over the year, Lloyd is now on a much stronger digit than it was earlier. I would not give any number associated, as you are probably asking me on this call. But I would say that one, there will be improved price realization and reduced costs over a longer period of time as well as growth will be the major driver for Lloyd for us. And also, we'll continue to make investments in brand building, R&D and manufacturing.
The next question is from the line of Bhoomika Nair from DAM Capital.
Sir, just wanted to get a color on the demand perspective. If you look at ECD shown a 20% growth for the quarter, how is the -- if you can give some more color in terms of volume growth, particularly for, say, fans and also some of the other segments within the space and the kitchen appliances as well, which we are kind of looking at. So the first question is around that, please.
So I think over the last couple of years, we have seen some tepid growth in the consumer segment. And in this particular quarter, one, the summer definitely helped. Secondly, a low base over last year also contributed to a higher growth. Whether we are seeing a sustained improvement in consumer demand, I would still say I hope it continues, but we are not very sure whether this is just a one-off. And we -- it is looking better, but I would not say -- again say it's very different than what we have seen in the first -- last 1 or 2 years. But having said that, the actions that we are taking, whether it's for fans, outreaching smaller towns and villages as well as our kitchen appliances gaining better traction in the minds of the consumer, so those things will continue to help us increasing the sales in the ECD segment. So we are hopeful for our growth. Obviously, our tailwind from the consumer side will also help us get in faster growth.
Sir, any color on how fans would have done in this particular quarter?
Fans have done very well in this quarter.
Okay. And secondly, sir, on the Cables & Wires segment. Clearly, the raw material volatility has impacted revenues. But as we move ahead into July, I understand it's a very short time frame, have you seen kind of any pickup or bounce back in terms of inventory filling back by the dealers?
Yes. So June was a particular month where suddenly there was a huge destocking because we had seen stocking in March, April, May. So June, more heavy destocking happened because of the raw material fluctuation. We are seeing July to be coming back to normal levels.
The next question is from the line of Siddhartha from Nomura.
Sir, first question, I can continue on the Cable & Wires side, I mean, we had a new capacity coming up in the quarter. Any update on that? Is it completely onstream? And going ahead also, we plan to add more capacity by the end of next year. If you can share some insight into which segments in the Cable are you expanding. Some color there will be helpful.
We are just awaiting the final approvals for our sales to start happening from the new facility. So it should start within this quarter. And so that first phase of expansion is over. But we are continuing to add capacity, both for exports and for domestic segments and for a larger range of underground cables. For domestic buyers, we have capacity, and that's the continuous process we've been building for, but for power cables, we are expanding capacity in various segments, including for export. So yes, you're right. For the next 1, 1.5 years, we'll see more capacity expansion in Cables & Wires.
Got it. Sir, second question is on the export side. I mean, we have done multiple JVs in the U.S. also for selling ACs and lights. Can you share some medium-term outlook? Like exports is nearly 3% of our revenues now over the next couple of years. Given these initiatives, any numbers, if you can share, you want to sort of get from the export markets, if you can share some colour it would be helpful.
So I think the U.S. JV, we have just sort of [ suited ] them. So I think they will pick up the pace in time to come. So our endeavor is definitely to tap the global opportunity, and that's what we are doing either directly from here also creating sort of these marketing ventures there. So I think let's give it some time. I think it will be difficult to give any outlook right now. But clearly, I think we should continuously improve over a period of time. I think we want to -- maybe, I think over a period time, we maybe around 10% of our business should come from international. But that's the aspiration. I mean we are not holding out any medium-term targets for that. But our opportunity is definitely there, and I think it's something which can be leveraged by us.
The next question is from the line of Aniruddha Joshi from ICICI Securities.
So 2 questions. Now considering the commodity inflation, we have seen some instances of price hikes by various durable companies. So how do we see Havells in terms of price hikes? Have we initiated any price hike in Q1? And now what is the current stance on the price hikes? That is picture number one.
And question two, now we can see now Crabtree brand is getting rebranded as Havells Crabtree. So should we read similar things happening with Standard, Reo as well as Lloyd also? And is there any plan to make Havells as a mother brand and in terms of reducing overall spend in terms of ads, et cetera? So how should we read on these lines? These are the 2 questions.
So as far as price increases are concerned, most of that has been done in many product categories, including Consumer Durables in the first quarter. So as long as this raw materials remain at this level, we've taken all the pricing actions as of now. As far as the branding is concerned, Havells Switches used to operate in 2 different brands in Crabtree and Havells other than Reo and Standard, but what we realized was that there was overlapping with customer segments and the influences in Havells and Crabtree and hence -- even in the channel. And hence, we decided to merge these 2 brands. So all switching solutions from the Havells brand are now termed as Havells Crabtree. And Crabtree because of the legacy brand of the switches, so we'll continue with that plan for all switching solutions from us. But whether it is Standard, Reo and Lloyd, they will continue to remain as an independent brand even in the foreseeable future because we see a clear differentiation of the consumer segments in all these 3 brands. So we don't see Havells to act as a mother brand for the other 3 brands.
Okay. Sure, sir. Very helpful. Understood. Just in terms of quantum of the price hikes, if you can elaborate a bit. And anything...
It's different for different product category. So it's -- and many times, it happens over months. So it is different for different product categories.
The next question is from the line of Rahul Agarwal from Ikigai Asset Management. .
Sir, 2 questions. Firstly, could you talk a bit on the non-AC portfolio of Lloyd, please? Largely, my sense is it's 25% of overall Lloyd business. Incremental growth and capacity has been coming up in your investments, and how do you see the Indian market for that?
And secondly, on the international side, just a small question there. Whatever we're doing right now, the efforts are all focused on the U.S. market specifically, or is it like U.S., Europe across? That's the first question.
The first question was on the...
So non-AC categories, you see in this quarter, obviously AC is dominating almost 85%, 87%. And as you always maintained, and I think we mentioned earlier in the call also, that we see Lloyd -- I think that Germany will cover the other product categories as well. So normally, as we expect the refrigerator business summer products there has been good growth in that for our business, even though it's something still sort of as an emerging category in our portfolio. But I think on the overall non-AC category, we have also done well. I think that growth has been not so pretty good. And I think the investments will continue to go behind that. We have maintained the refrigerators, and the washing machines will be the key focus for us in the non-AC categories. So that's your first.
The second one on the international, look, U.S. is a market you are approaching differently. That's why I think you see a lot of visibility around U.S. But yes, our focus is will be the SAARC, the [indiscernible] and the developed nations. We are -- I think maybe the opportunity is there in both U.S., Australia and Europe. Europe at times, have been -- have not been that open as the U.S. has been. So that is only difference, but we are not sort of priding one over the other. It's just the sheer size and the openness of the market.
Right, sir. And secondly, I noticed inventory at 63 days of sales. If I look at last 5 years, I think there is significant and meaningful improvement in the cycle. Could you comment a bit on this, that is it sustainable here? There are meaningful steps being taken consciously reducing this inventory, or is this like very ideal right now?
Look, we believe we're going to improve that, but you have to balance the growth and the inventory. Also, a lot of this has been overly increased because of Lloyd as a business we've got added, and it has a lot of seasonality sort of ratio in this. Seasonality always demands you need to be prepared. Furniture, this time, there was stockholding the industry for AC. Nobody could have prepared this kind of a scenario, but it does bring the importance of having some inventory. You can't really get too efficient in DC as well. Particularly in markets like India, we pretty unpredictable in terms of the demand planning. But is having our own manufacturing facilities and all sort of make us believe that there is something which can still be improved upon. So I would say there are various scope for improvement in the same. And I think we should see some better sort of ratios in that going forward.
Got it. Sir, a lastly, on CapEx, if you clarify fiscal '25, what is the budget and where are you going to spend the number.
I think we have already announced. It's around INR 800-odd crores. So I think we continue to maintain that.
But wouldn't that change because you announced the Cable CapEx after that, right? .
Yes, there is always this what is announced and then how much it will be spent because there is spillover in that. Further, there is a spillover from what we announced last year as well, basically. So I would say on a cash basis, it could be INR 800 crores or it could be INR 900 crores, depends upon how we ultimately end up sort of spending on the same.
The next question is from the line of Deepak Gupta from SBI Pension Funds.
My first question is on the Switchgear segment. We've seen a sharp decline in the contribution margin for the Switchgear segment in the last -- post-COVID, and it's consistently been declining. Just wanted to thoughts around it? And do you think at what levels could these contribution margins stabilize?
So Deepak on the contribution margin for Switchgear, I think as we said, I think post-COVID may not be the right way if you see long-term Switches and Switchgear together. We have been in the range of between 40%, 41% to around 37%, 38%. So I think sometime in the quarter, this thing will happen. And look, we have investing in the business, there will always be -- see, some dilution in that, which is possible. We believe that the long-term range, which one should assume for this business is between 38% to sort of 41%. And I think that's something we believe is something we'll continue to maintain.
So right now, just want to understand the right now, the margins are 24.6% contribution margin for the quarter. You think that can potentially go back to...
That is not contribution Deepak. That is a segment result. That is more like a more -- something again close to an EBIT basically.
Okay. But so what kind of EBIT margins can one look for Switchgears?
I would say these are decent margins. And just looking at the nature of the industry investments, we made like somebody said, Havells Crabtree as a brand. I think we also need to invest behind the brand. So overall, I think, again, this has been between 24% to 28%, 30%. So I think there's some ratio depending -- band we expect to maintain.
Understand. And my second question is on the advertisement expenses. How should we look at it? Like I understand the quarters where Lloyd contributes meaningfully, the A&P expenses move up. But on an overall company perspective and on -- from Lloyd's perspective, if you could give us an outlook, what should be the A&P expenses typically should be for the company?
Yes. But overall, I think generally, Lloyd is between 4% and 4.5% and Havells is about 2.5%. So overall, it's about 3% to 3.5%.
The next question is from the line of Umang Mehta from Kotak Securities.
My question was again on exports. So while you did share some details, could you share some more in terms of approval time lines? Particularly looking at it from Lloyd's perspective, what can help us improve capacity utilization from where they are currently?
Lloyd, we have already started some degree of supplies. But the real, I think, traction will take around 12 months. So I think, as you rightly asked, we are in the different phases of the approval and particularly the [ UL ] approval. Typically for the entire range, like we have already got one of the range approved, but I think the full range, which is required to tap the opportunity. I think we should set our target around 12 months from now. So that's what we are looking at. So that's way in the Germany for the HVAC. Also for Cable there's a large opportunity. I think now we are getting more of -- more and more approvals there. And I would say another sort of 9 to 12 months, we should have a full bouquet of approval for Cables in place. These are 2 critical categories you see in terms of the growth, particularly in the U.S.
Understood. This is helpful. And just on cable front. So given that we've seen a very large CapEx announcements by almost all players, particularly on cable side buyers. Do you see demand keep pace with that? Or do you expect any volatility from supply coming up, maybe not immediately this year but next year?
No. I think it's not -- nobody can talk long term with a lot of certainty. I think medium term, we believe that not only India but globally, there is a requirement for these. And I think the way the power consumptions are going up, again, not in India but globally. And we need to invest in that structure, which has been neglected for years. We believe this is actually a 3- to 5-year opportunity and not just 1-year opportunity.
The next question is from the line of Girish from Morgan Stanley.
Just had a question on your CapEx for FY '26 and '27. Should one assume that number of INR 800 crores to INR 900 crores continue? And if you could say, probably 35% to 40% could be Cable & Wire.
Yes. And I think that we have announced here INR 1,000 crores to INR 1,100 crores will be the overall CapEx if you include that. And yes, 30% of that, I think -- or 30%, 35% of that will be cable, maybe almost 40%.
Okay. So that would continue into next couple of years also. Okay.
Yes.
And just, sir, on the quarter, if you can just quantify the volume growth for AC segment? And any comment on channel inventory for the industry?
Channel inventory is not there. Actually, you are aware there are a lot of -- both manufacturer and the channels we're running all of the inventory. So there's not much inventory at the channel. And you are aware that we do not share volume growth. So I think that is [indiscernible].
Would it be fair to say that 90% contribution would be AC roughly like because it's a seasonal quarter and the growth has been very strong?
Yes. Around 85% growth is AC.
The next question is from the line of Latika Chopra from JPMorgan.
This is Latika from JPMorgan. I have 2 questions. First, sounds that contribution margin across all your divisions to be in a healthy zone...
Ma'am, I'm sorry to interrupt. Your voice was cracking a little. Could you please repeat your question?
Sorry. It appears that contribution margins across all your divisions seem to be in a healthy zone. I was just wondering, beyond contribution margins, is it right to assume that level of brand investments, staff investments, capability enhancements will remain firm? So incremental opportunity to expand operating margins will be modest, or do you see scope for improvement in operating margin at a [Technical Difficulty] Kind of product mix shift is divisions at a broad base?
Yes. Latika, I think you were breaking, but we just got the gist of what you are asking. So look, investments will continue. Maybe I think right now, the base is already set. But I think we expect that these will moderate over a period of time. So we are not suggesting that it will change next quarter or in 2 quarters. But gradually, there will be a moderation. And to some extent, I think these investments are being made because we expect better growth trajectory as well. So I think as the growth picks up, I think you will see a better flow through to the EBIT. I think what your question is.
Both ways, the growth will also moderating costs, whether it's staff or, let's say, A&P. And also, I think we expected better growth you see in the core categories as well. And like somebody has a lot of the consumer sentiments and not, we continue to believe that the consumer turnaround is hopefully near. And in a few quarters, we should see that, which should help the core also to grow much better, which ultimately will transmit to the EBIT margins.
Now this is very clear. The second bit is just a follow-through of what you just said. So I understand this was a seasonal quarter, and I completely appreciate the fact that there is still some skepticism on the firmness of consumer revival on demand side. But I was just wondering from the data that you get from your dealers, from a month-on-month consumer purchase behavior, is there something to suggest that you are seeing a more positive behavior in smaller cities and rural? And is there any cause of concern in some of the bigger cities? Just trying to sense what are you picking up from the ground?
I think nothing substantive which we could extrapolate. So I would -- I know it may not answer your question, but the fact is there's no real sort of clear answer to this. So let's wait for some more time. We really don't want to jump on to something which is very sketchy.
The next question is from the line of Keyur Pandya from ICICI Prudential.
Congratulations to the team for good results. Just first question, probably partially you answered, I mean, the question was on overall consumer category growth. You talked about some destocking in house wires, but that is about primary sales. So overall, are you seeing any either pickup in demand or any signs of pickup in demand on say non-summer or nonseasonal kind of product or products which are linked to [ GLS ]. So that is my first question.
So some pickup is definitely there. And that's why I think this growth -- like for the fans, yes summers are high, but fans are also penetrated category. So there, we believe some -- we have been changing the construction which has happened around, let's say, 24 to 30 months before normally they start kicking in. But it has also happened that it has been said a serious summer that the construction activity actually has been impacted. Is it because there is a lack of construction labor and also because of election. So if you miss all of that, that's what I said, there is a pickup. But what we are really afraid of commenting right now, saying this pickup is something which is not sustainable, the things are back and everything is hunky dory. So I think we want to avoid that kind of impression. That's why we are hesitant to put these things out. But clearly, there is a sentiment improvement. The demand pickup is definitely better if you look at for a preceding quarter than this quarter.
Okay. And sir, second question is on the Lloyd. So I mean the -- probably I would say that we have used AC as an instrument to build brand Lloyd over years. Now should we assume that, that journey would be relatively easier for the non-AC categories? Or to put it in different way, whatever the unit economics are there for the AC, are they better for, say, ref and washing machine right now? Or we should assume that we'll have to see a similar journey in those as well? So that is like lower or negative margins and then it takes some more time to be profitable, or they are better margin right from the beginning.
See, brand investment definitely will be lower because you're creating the brand for the full category. And there's a whole idea of creating a brand and then expanding into the category. So that, I think, the heavy lifting has been done by the air conditioner. And the margins are sort of better, but let's agree that this is fiercely competitive categories as well. So I think those investments, whether in people, in the manufacturing will have to be done. So what may something being done before which is the way you have built up the brand. And also the channel affiliation, I believe it's far more sort of favorable than maybe what AC has gone through. So yes, some part of the journey has been covered, but some part of the journey will have to be covered by the individual categories as well.
The next question is from the line of Nirransh Jain from BNP Paribas.
Sir, just wanted to understand on the Cables & Wires, I mean, we have been looking at a very strong demand, announced another 25% capacity increase right after commissioning the new facility. So do we also expect any impact on the margins considering that we have a higher mix moving towards Cables in our portfolio? That's my first question.
And secondly, I just wanted to check on the overall inventory levels across channels, especially for the summer-related products after a strong demand. Because we saw a very strong primary growth for Lloyd this quarter. But how is the inventory channel after the summer? And any price action taken by Lloyd, particularly in the last quarter? So if you can share any -- if you can quantify that price hike, that was second. That's all from my side.
So, on the line we did see that whatever price hikes were [indiscernible] not just Lloyd, but all the product categories because of the commodity have been taken. So we won't go into individual sort of categories on the same. What was the other thing?
Cables.
So I think -- yes, I think the cable opportunities there, which we are sort of investing behind. But we are expecting other categories also to grow. So I can't...
Already have built capacity. So it's not that the other businesses will not grow at the same cost. Cables, we had underinvested over the last few years. So right now, we are catching up the business.
So with the growth, we believe that the -- we do not expect any significant sort of margin dilution because of increase in the cable sales. I think we are expecting all other categories to be aligned. And I think that's something we are not expecting. I think your question is whether margins will be diluted because of the product mix. And that's something we do not foresee.
The next question is from the line of [indiscernible] from AM Securities.
So out of the INR 800-odd-so crore CapEx we are talking, so would you be able to give some color towards Lloyd, how much will it be spending?
As Mr. Rajiv mentioned, the INR 800 plus the announcement that...
Around INR 1,100 crores.
INR 1100 crores, out of which Lloyd is lower because most of the capacity, I think we've got INR 100 crores for that, not much.
All right, sir. And just any update you would like to share on the raw material pricing currently and its impact on, say, gross margins up to 3 to 6 months.
We've already said that there have been some increases in raw material prices over the last few months and corrective pricing actions have already been taken.
The next question is from the line of Shrinidhi Karlekar from HSBC.
Congratulations on good set of numbers. Sir, a couple of questions on Lloyd business. Sir, in Lloyd business, we have seen about 70 basis points of sequential improvement in contribution margin. And that looks smaller given that sequentially, our revenue growth is about 40%. Just wondering, in that basis, is the operating leverage benefit, to an extent, offset by lower gross margin sequentially?
Look, normally Q4 also has a lot of annual impact. So Q4, I don't think you should really compare on that basis. I think these Q1 results have an amalgamation of cost benefits which have accrued over the period, also the operating leverage. Operating leverage has really played out. And I think nobody can discount the power of this high growth. I think that helps the business overall. So we are -- I think we are very satisfied with how the margins have panned out, and yes, as is always scope for doing better, which is something we are striving for as well.
In terms of related question, would you say your gross margin in Lloyd business are already getting 20% plus levels?
That we can't comment. I think we have already shared metrics we have to share. So I think that's something we will refrain from commenting.
The next question is from the line of Amit Mahawar from UBS.
First of all, congratulations for a great show in Lloyd. My first question is on Lloyd. We are broadly at the highest scale in terms of what capacity we have with the second plant coming. And barring compressors and maybe motors, everything else is internalized in Lloyd. So how has your experience been on the manufacturing ramp up? And do you think in maybe '25, '26, we will reach the profitability that the top 2, 3 incumbents have?
So manufacturing definitely helped us, not only in terms of improved margins, but also in the fact that we are able to start giving differentiated products in the market and resort our own R&D. I mean as we have always said, Lloyd is a journey towards not only gaining market share but also to improve profit. How much, whether it is in the top 2, 3 or not, we don't want to comment right now because we do believe that we are in this for the long term, and we will continue to make investments higher than the competition. Our growth aspirations are higher. And so we will continue to make investments.
Somebody asked this question about brand building for the rest of the non-AC products. That will also require some amount of investments, may not be at the same levels of what we were required to build for air conditioners, but it will be there. So it's a long-term journey. But there will be a continued improvement in both volumes as well as profitability.
Fair, fair, sir. And second and last question is on ECD. Of course, we've actually had a very strong growth in the last 10, 15 years, but the last 1, 2 to 3 years, the industry itself is going through doldrums and nothing particularly negative about Havells here. We are broadly around industry. Do you think FY '25 is a year where, based on today, how we see the market maybe second half we will start seeing this industry triggering 20% kind of growth for Havells? Or do you think it's still early and maybe '26 and '27?
Well, I mean, I can't give a number, 20% growth. But you see, ECD comprises many product categories fans, switches, a bit more penetrated category. Then we have domestic appliances where our market shares still have room to grow. Then we have air coolers, we have products like water heaters. So I think there are various components, and we do believe as the consumer sentiment as well as the housing and everything improves in India, definitely, ECD will be a beneficiary and we will continue to strive for increased market shares in these categories also. So I think we are definitely hoping for a better year this year, but also next year.
Sure. Can I squeeze third, a very small question, a the third question?.
Yes, please. Go ahead.
Yes. I think is this the best time for Havells to leverage on the balance sheet and pan-India brand image to add a few categories like say kitchen portfolio inorganically? Because some categories doesn't make too much sense going organic. And we've been doing that, but we have to gain regional presence and product presence. So do you think this is the best time for Havells to look at 1 or 2 categories where we can look at regional players to consolidate? That's it.
I think, look, there is no best or worst time for these kind of opportunities. I think we will have to evaluate on as they come. And it's not that we have not evaluated in the past. But frankly, they have to make sense on the pricing, on the capital deployment that returns thereon. So we'll always be open to this. This is something has been our stance in the past as well. So -- but just because a few things are happening, I think we will not rush into anything. So that's the way we'll maintain now as well.
Thank you. Ladies and gentlemen, in the interest of time, this will be the last question for today's conference call. It is from the line of Ashish Jain from Macquarie. Please go ahead.
Sir, my first question is the price hikes you spoke about in 1Q. Is it safe to assume that all of it will reflect in the second quarter or it's already there in 1Q?
I think partially, it has been captured and partially, it will follow through. But you have to also understand that the cost will also follow through the similar way.
Right, right. Sir, secondly, it's more -- I just want to understand like where we were, let's say, 12 months back in terms of our recovery expectations, especially for the broader ECD portfolio. When you reflect that, what has really disappointed? If you can give some color. Is it like one particular region? Is it replacement demand? Or is it new homebuyer? Because this has been really prolonged now for the last 3, 3.5 years. We haven't really seen a recovery. So any color you can give on that, like where you really think the disappointment has come on the ECD side?
As you say, ECD is a portfolio. So there are multiple levers. You see fan had gone through their own journey of transition to be EEE and things like that. And -- but I think the underlying trend also has been the weak consumer demand. And I think this is not just playing out in ECD. Its also playing out if you look at related categories across industries as well. So we will believe that the consumer sentiment and the spending power has to improve. Hopefully, that's something which will bring the much needed tailwinds to this product sector.
Can you give any sense like what part of our ECD would be replacement-led demand? Is it possible to have a sense of that?
Most largely it is new. There is not much replacement.
Thank you. Ladies and gentlemen, that was the last question for today's conference call. I now hand the conference over to the management for closing comments.
Thank you everybody for joining the call and look forward.
On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.