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Havells India Ltd
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Ladies and gentlemen, good day, and welcome to the Havells India Limited Q2 FY '19 Earnings Conference Call hosted by SBICAP Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhineet Anand from SBICAP Securities. Thank you, and over to you, sir.
Thanks, Edward. Good evening, everyone, and welcome to the Second Quarter FY '19 Post Result Conference Call of Havells India Limited. Today, we are represented in the management by Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Kumar Gupta, Whole-Time Director and Group CFO; and Mr. Rajiv Goel, Executive Director. I'll hand over to the management now. Over to you, sir.
Okay. Thank you, Abhineet. Good evening, everyone. First of all, apologies for shifting this today, but we have -- we came to know that tomorrow is a holiday in Bombay. And also, our board meeting was at a later time today, so I'm sure you must have just received the information memorandum. So again, on the results side, we are quite encouraged with the growth verticals at Havells across all the verticals. There is still a certain base effect in growth yet we believe that we are gaining brand traction and market share. Lloyd had a muted quarter owing to adverse seasons, ForEx headwinds and challenged inventory. We expect a recovery over the next 6 months. Especially, in this -- in the next few months, we should be having our new plant for manufacturing air conditioners also ready. On the margins, the key influence is attributed to Cables as last quarter margins were aided by inventory gains, while this quarter has suffered due to wild volatility in commodity prices. Overall, to summarize, I would say the demand scenario seems to be improving and Havells is in a good position to derive maximum gains from the same. Abhineet, we can now proceed to Q&A.
Okay, sir.
[Operator Instructions] The first question is from the line of Shrinidhi Karlekar from HSBC.
Sir, I have 2 questions on the room AC manufacturing plant. First one, sir, are you on target for the Q4 committing of the plant? And more importantly, sir, can you -- would it be possible to comment on the extent of localization that you're aiming to bring in the first year of operation?
So I think the plant, Shrinidhi, we believe we are on track. The assembly should start in Q4, that's what we have highlighted. As far as operation is concerned, you are also aware that in AC, almost 30% to 40% still needs to be sort of imported. But our endeavor would be that the maximum would be produced either in-house or sourced locally. I think these things will evolve. So maybe another quarter or so, I think we'll be able to better answer this question.
Okay. And the last one again on the plant. Would it be possible in terms of ballpark how quick the ramp-up could be in terms of production, like in terms of how much of the planned FY '20 production could be from your new plant? Just ballpark numbers. Just to understand -- this question is really in the context of this custom duty is getting in place and Havells seems to be disproportionately affected. So in that context, I...
The first season -- you are well aware of this industry, Shrinidhi. The first season I think will still be assemble here and some partly locally sourced, partly maybe imported as well. We believe in the third quarter of the -- or should I say from this October-December quarter onwards, I think our localization will be significantly higher. So I think in -- after '19, '20, I think we should be sourcing 60% to 70% in-house.
The next question is from the line of Abhishek Puri from Deutsche Bank.
Sir, 2 things. First, on this AC, the large part of business, so their capital employed has gone up versus the last quarterly numbers that have been disclosed. So could you tell us if the inventory has gone up in the system now? And how big will be the inventory? And secondly, on the Cables business, if you can give us the underlying volume growth numbers there, sir?
So on the inventory side, you are aware that there has been a bit of a slackness in the season. So the impact of what we also want to see also from the payment of [indiscernible] is not entirely attributed to the inventory. And on the overall level, we believe the inventory is pretty much the same what we planned last year, but it has been largely impacted by the seasonality and a bit of a slackness due to the challenged inventory as well as the low season. And on Cables side, the volume growth is around [ 20 ] in this quarter.
[ 20 ] [indiscernible]
The next question is from the line of Arnab Mitra from Crédit Suisse.
Congrats on a great set of numbers on the top line. first question was on the Switchgear business, you've seen very high growth this quarter. This has been a segment which has been otherwise muted in the last few years. Sir, is there any one-off attributable to this in terms of exports or something? Or do you see this as a trend change in terms of faster growth in the Switchgear business?
I would say there were a combination of factors. One, the exports, which is still a small part of the business, but it has shown improvement in this quarter. But the majority comes from -- we also have invested in Switchgear business, where we see increased government demand coming in because of the electrification projects. On the residential side, I will say that there is a slight improvement in the demand offtake and with completion of projects coming in. So overall, there is -- and the fourth aspect also is a little bit of a base effect over last year. Because when we started out to last year's GST, we started out at 28%. And initially, there were some, I will say, inertia in the trade segment for the consumers to pick up material. So I will say a combination of factors. But over a period of time, I will say it is definitely better than what it used to be 1 or 2 years before, the demand scenario.
Okay, that's very helpful. Secondly, on the ECD business, you continue to grow very strongly here. And now in your release, you kind of attributed some of it to water purifiers and personal grooming. But my guess would be that these are still relatively small. So is it still that you're being able to grow the fans business extremely strongly to deliver this kind of a 40% growth?
Yes, I think as you rightly have understood, that verticals -- I think what we have said is water purifier and personal grooming have started gaining a good traction amongst the consumers. So it gives us confidence that -- our entry into new product categories, the aim that we have to be amongst the top players in the industry in a few years. That continues to remain strong with our investment in people, in distribution, in brand and product. So I think that's showing a very positive result. But as you rightly said, these are still very, very small part of the overall consumer durables business, as you said. So Fans, being the largest part of the business, has to grow significantly to give this kind of a growth. So Fans has done very well. Water Heaters has done well. Appliances has come back on track in a big way. And of course, all these things put together has given us a decent growth. And of course, as I said, it's a little bit of a base effect as well.
Right. And if I could just squeeze in one on margins. You've mentioned input cost inflation, and so is this margin pressure in Cables not only in Cables but in general in the business overall in some of the divisions? Does it look more transient that you will -- there's a lag between taking price and input cost? Or should we see this as a year when margin expansion is going to be actually difficult given the input cost headwinds?
Yes, I would say this particular quarter is mainly impacted by Cables & Wires. But generally speaking, when the commodity prices are on a high, it is difficult to expand margins. But at least, we've seen our ability to maintain margins in all the other businesses; Cables & Wires for this particular quarter. But we've been able to maintain margins in all our businesses.
The next question is from the line of Sonali Salgaonkar from Jefferies.
Sir, my first question is would you be able to approximately quantify the inventory loss because of copper that we have had in Cables & Wires this quarter?
Inventory loss, so there is no inventory loss. There is a time lag between the passing of the prices. And suddenly, when there's huge fluctuations, there is -- it can reverse, a correction happens over a period of time. If we look at a longer period, then it's evened out. But this particular quarter, there has been a loss. So generally speaking, our Cable margins, Cable and Wire margins put together have been in the range of 15% to 17%. This particular quarter, it has come down to 14%. So you can do a rough math and see how big the impact could have been.
Sure. Sir, so we -- can we assume the steady state to be 15% to 17% and reverting back to the steady state over the coming quarters?
Yes, in the next couple of quarters, it should come back to those levels.
Sure. Sir, my second question is on the demand scenario currently. I mean, considering that we have started with the festive season, what kind of demand pickup -- are you seeing a demand pickup especially in the Durables and appliances side?
Yes, so the season has started off well. And I think this year, Diwali has been a bit late. It's in the middle of November as compared to October last year. But at least, we are seeing some early trends, and things should be quite better this year.
The next question is from the line of Kartik Mehta from IDFC Mutual Fund.
Sir, I have a couple of questions on Wires and Cables and Switchgears segment. If you can just highlight what is the mix between industrial and residential in the Switchgear?
So as we've always maintained, primarily our business is around 70% residential and 30% industrial. So that is the breakup even now.
Okay, but you said that the industrial is picking up, so I thought it should have gone up. Okay.
So maybe 1% or 2%, but overall... okay, yes.
And how much would be pure B2B business because I understand we have invested into B2B team and we are sort of -- we started sort of chasing this new vertical aggressively. And what is the contribution of the B2B in total Wires and Cables as well as Switchgear?
So Wires and Cables is -- we have 2 businesses, one is purely industrial in nature, the other is completely domestic. So I think B2B, we have to see it cutting across all product categories and not business by business. And there is -- so we have 2 aspects to B2B, one which goes into industrial kind of customers and one which goes into residential customers. And all -- because there is more focus on these separate teams now, so we are seeing faster-than-market increase in these segments because these are still very small products. So definitely, their share is increasing in the overall business. But it is still, I would say, a very small part of the overall business.
Okay. So I was probably wondering that if the B2B pie is growing faster than otherwise, and hence...
In general, yes, it is growing faster. It doesn't really affect the overall growth in a big way.
No -- so it would have some impact on the margin given the product mix?
No, no. That -- you see, the B2B doesn't change the product mix. You see, for instance, even the residential segment would get -- come through the B2B.
Margin mix would be slightly lower in B2B versus your...
No, not necessarily. No, no. B2B doesn't mean you sell at a lower price. And then costs are also much lower. You see, when you're doing a distribution business, you also have to pay for the distribution costs. And in B2B, those costs do not exist. So net-net, they have -- they do not have a very drastically different profile.
Okay. And sir, lastly, on the margin front, I could understand that you mentioned that there was a time lag in terms of passing on the prices in the Wires and Cables this year, in this quarter particularly. So eventually, you'll do the readjustment of the pricing as per the input cost. So outlook on the margins, if you can mention, the 12% OPM this quarter, where do we look at from the 1-year perspective?
We have said the current OPM in Switchgear, Cables & Wires is 14%. I think we have highlighted that it generally hovers around between 15% to 17%, and that's what we believe we should get back to in the next few quarters.
So the blended margin should be about 13% for the rest of the year?
That, I think you'll have to calculate depending on the [ growth aspect ], growth for the rest of the businesses. So it all depends upon the product mix, the growth in each segment. So we can't really commit to a certain number, 13% or 14%.
The next question is from the line of Achal Lohade from JM Financial.
I just wanted to check, if I look at the A&P spending, it seems to have gone up quite meaningfully in the quarter, especially with respect to Havells' A&P, which is up 66%, almost 60 basis points Y-o-Y. Is that also a reason for the margin -- slight margin compression so to say? And how do you see the A&P from a year-long perspective? Will it be similar percentage off last year? Or you think there could be increase? Specifically for Havells...
I will say that A&P in Havells is about 3% if you look at this quarter, and this will continue to remain like this. Last year, it was 2.3%, which was a special quarter because last year, we had purposely cut down A&P during the GST transition period. Because we were also not very sure of the demand side. So otherwise, generally, our levels have been around 3%.
Right. And the second question I had was, if I look at the capital employed for the ECD business, it has increased Q-o-Q from INR 170 crores to INR 275 crores. If you could help us understand the reasoning. Is it largely to do with the seasonality? Because we don't see that happening in the last year.
Well, it is because of the -- as we said, this is the buildup of the Diwali season. Diwali was earlier last year, so a lot of sales for the season had happened in the second quarter as well. So it's a buildup of inventory for the Diwali season as well as the upcoming winter season for the Water Heaters and some heating products or the appliances. So it's a buildup of that. I think in number of days, it's not really a major increase.
The next question is from the line of Pulkit Patni from Goldman Sachs.
So my first question is on Lloyd. It would be good if you could just discuss the strategy because what we were expecting was while there is inventory in the channel, we're not expecting the margins to actually get impacted. So if you could just talk about how should one look at Lloyd for the second half of the year in terms of both our margin trajectory and in terms of our expectation of growth for that business. That's my question number one.
Yes, so if you see the margin, we said there are ForEx -- and definitely, I think in this mute environment, we have been conscious of what we pass on, given [best fit] out there has [not] responded on the same. So the costs have gone up because of the ForEx headwinds, while the pricing is not reflecting that. I think as we have put it in the commentary as well, in the next 6 months, we believe the situation should improve and we should be able to pass it on. And the growth, I think we'll continue to be I think fairly sanguine about the growth. There could be 1 quarter here and there where the challenges could be there. But overall, I think this industry looks very robust in terms of the demand pattern. And I think in terms of the brand, we are gaining traction. We are opening new channels. There is a wider acceptance of Lloyd as part of Havells. So overall, I think trajectory looks good but probably we can be commenting on a quarter basis.
Sure, sir. Sir, and on Lighting & Fixtures, if I take out the EESL business, the growth has been reasonably good. As I look at the second half, how does the EESL business look there? Or should we expect that there's not going to be any meaningful contribution in the second half from that business as well?
Yes. Yes, I think you should assume that there isn't going to be any meaningful contribution on the EESL front. But on the Lighting side, the effects are positive, not only just in our value and volume growth, but also the fact that our recognition as a top technology player in lighting, that's increasing day by day. There's a lot of focus on newer technologies, like the RGB lighting, the monument lighting and facade lighting. So our professional Luminaire, with our focus on B2B, we have segregated teams which contribute -- not only look at various different product segments but also different kinds of customer segments. So that's given a lot of focus. So we -- our entire customer profile of Lighting is on the professional side. But of course, on the consumer side, we are going deeper and deeper into distribution. So I think we're quite positive about Lighting in there. We have a huge scope to improve our perception in the minds of the consumers.
And the pricing is holding up in the Lighting segment generally?
Generally, there is a big price erosion which is happening -- been happening in the Lighting over the last few years and that's continuing to happen. In fact, if you really see our volume growth is more than 30% in Lighting, whereas, the value growth is around 18%. And despite having that like that, we are still holding up the margins. So overall, we're quite satisfied with the strategy that we've been able to deploy in the Lighting business.
[Operator Instructions] The next question is from the line of Naveen Trivedi from HDFC Securities.
Sir, my first question is on the Lighting side. Just want to know, the margin profile, which has improved despite the weak revenue growth, can we expect that ex EESL, the margin? That it will continue to show expansion?
I would say that it's ranging between 27% to 30%. It's the similar range that you can expect.
And like you said, the EESL thing will not be there in FY '19. So can we expect that going ahead also, that kind of business will not be -- no more there for us?
We've always look at this business opportunistically. We've always maintained that we want to look at a decent margin business where technology is understood by the consumer. So I don't see that we can really comment upon that unless some new tenders come up, which -- where our products as well as pricing is respected. So we'll have to look at it separately: Lighting business, which is for the general consumer; as well as have [indiscernible] business.
And my last question is on the -- any one-off in the other expenses side? Like considering the growth which we have reported in the top line, other expenses have been quite muted. So any one-off in the last year that prove the case?
No, not really.
The next question is from the line of Ashish Jain from Morgan Stanley.
Sir, my question is again on the Cables & Wires margin. Now if you have not taken any inventory write-down, what has really driven this margin contraction? Because copper prices, if my numbers are right, were down sequentially this quarter. So which [intermodal] on our -- on the pricing front so -- which I believe should have taken some inventory write-downs. So I just want to understand what drove this copper margin -- the Cables & Wire margin contraction?
No, for margin, I just said had this not happened, it should have been in line with our average, which is around 15% to 17%. So I think we should have been maybe a couple of percentage points better.
Yes, I understand that. But I'm just trying to think what actually happened this quarter for the Cables & Wire margins because [indiscernible] there was no inventory write-down.
So let's say that -- if you look at -- the Cable margins are not that impacted by the pricing of copper with the domestic Wires business. Domestic Wires business, you're rightly saying that it not only came down but it has suddenly moved up at the end of this quarter as well. So there has been so much fluctuation that generally there is a time lag in passing it on to the consumer. And when it comes down, you have to immediately pass it on and some inventory write-downs will also happen. That all goes into the COGS of the business. That's why the domestic Wires business, which is the most stable business in terms of margins, have actually been impacted in this quarter. That's why we are very confident that it can come back.
Okay. but have we now taken any price hikes to offset the spurt in price which will happen towards the end of the quarter or not yet?
That is a continuous process...
That is a continuous...
So within the next 10 to 15 days of any major commodity price increase or decrease, it gets passed on.
The next question is from the line of Harshit Kapadia from Elara Capital.
Just wanted to dwell a bit on this Cables & Wires segment. So can you split in terms of revenue how it has been in this quarter for Cables & Wires? And since you have said that the residential segment is where you're seeing a pickup in terms of real estate, can we expect the Wires segment to grow much higher than what we have seen in the first 2 quarters?
So in fact, I would say it's around 50-50 at the present moment. The growth has been higher in the industrial side in this particular quarter. But also, it is more because of the base effect. Because last year on the underground cables, suddenly there was, I would say, a big inertia in terms of contractors and buyers buying. Because underground cables also came out at 28% GST. So second quarter was quite a muted quarter. But otherwise, overall, it's about 50-50.
Okay, okay. And sir, which other sectors within Cable that you're seeing growth if you can highlight?
Largely, we are seeing in infra, infrastructure related, where a lot of projects are getting onstream. And the government focus also is helping in there. So largely, it's infrastructure driven. And yes, some real estate project, we have people, the developers are focusing on completion. So there, also, we're seeing the traction.
The next question is from the line of Niket Shah for Motilal Oswal.
Two questions. First is, sir, just wanted to know, given the fact that Voltas Beko also recently launched -- and it's going to be a fairly aggressive launch that they're going to do, so how do you get more shelf space within the Tier 1 markets within the AC as well as the non-AC category as far as Lloyd is concerned? Does it mean that we also have to give higher margins within these distribution channels?
I think one of the biggest benefits of Lloyd -- or Havells coming into Lloyd has been the expansion of Lloyd into many new channels which previously not there. So Lloyd, as we have explained earlier as well, was more of a distribution brand going into our retail outlets. But now it's present all across categories of modern-format retail, regional retail. So I feel that our shelf space has increased quite a bit in the last 1 year, and it's growing every day. So I don't see that as a major challenge. Especially with Lloyd coming in as a part of Havells, there's a big confidence booster to the trade as well. And hence, I think we have to look at it from that point of view. Definitely, new competition has continued to be there, and it has been there in the past and will continue to be there.
But on the margin side, as far as distributor is concerned, we're broadly line with the other peers what they give to them?
Of course, yes.
And the second question was on the Lloyd brand itself within the AC category, you're very strong in Tier [ 2 or 3 ] markets. Obviously, your endeavor was to get into Tier 1 markets in a big way. How do you change the brand perception of Lloyd? You're not supposed to be known as a premium brand as such. So that was one question. And like -- I mean, similar question to that was what is now the pricing gap between you, between a Lloyd AC versus, say, a Voltas or any competitor AC on a like-to-like basis?
I think it may be better for us not to say this. It might be better if you guys sort it out by doing balance checks. May be better off if you do a balance check on that. There has been huge perception improvement. In the case of Lloyd, we spent heavily on brand building, our improvement of perception in the trade as well in the minds of the consumers as well. And that's reflecting in the pricing as well. So it's not that our profit margins are increasing, but we are constantly giving more and more product features so that the consumer perception is -- as well as the service, so the consumer perception keeps improving. So if we have gained a lot in the last 1, 1.5 years, which constantly is being proven by the research that we keep doing, it is the improvement in the perception in the minds of the consumers of Lloyd.
The next question is from the line of Abhineet Anand from SBICAP Securities.
Sir, just wanted to know, in Lloyd, did we have any ForEx impact during the quarter? And if yes, what was that number, sir?
So Abhineet, this was largely in our COGS. Because whatever we received, this has been -- become part of the inventory cost. So I think it has been around, let's say, 5% to 6%, the cost of the inventory has gone up because of that. And I think this, ultimately, as we said, will get adjusted over the next 6 months.
Okay. So 5% to 6% of the sales, right?
No, I think the inventory cost has gone up because the dollar has appreciated by that much in the quarter.
Okay, okay. So the COGS, if I adjust by 5% to 6%, that will be the number?
No, no, no, I don't think you actually can do it. But largely, it is fair to say there has been a substantial ForEx fluctuation on the cost part. But I don't think you can just compute it by that. And maybe we can then take it offline if you require.
The next question is from the line of Nayan Parakh from IIFL.
Yes. Could you share your outlook on the fans market, specifically given the high growth that we have seen in the quarter. Has the market also grown in line? Or we have significantly gained market share during the current quarter? And what is the outlook going forward?
I believe we -- we believe that we've gained market share. Right now, we don't have any research results; that it more from the channel discussions that we've had. So we seem to have gained market share. And I think as we've been saying in the past also, there's a lot of focus on expanding models which keep [ improving ] the customer perception for the Havells brand. So I guess our focus on product, brand and distribution has definitely helped us. And despite having -- us having the largest market share for premium fans, I think we gained market share there as well.
Okay. And regarding -- coming back to the Lighting segment, you had indicated the focus has been more on increasing the professional segment. But we are also seeing significant price dilution. Do you feel that there are margin headwinds in the current quarter because of that? Or because of our strategy of a change in product mix, we can offset that?
So as I said earlier, our strategy on Lighting has been quite -- has really been improving the perception based on product and technology. So in fact, we have been improving margin, so I don't see any reason why we should be worried about the price erosion in this half. It's grown 18% in this business. Our volumes -- value growth -- volume growth has been more than [ 30% ]. And the margins have improved. So we are quite hopeful about this business.
Okay. And just a data point question, sir. What would be the EESL sales for FY '18 for the full year?
Around INR 130 crore.
The next question is from the line of Akshen Thakkar from Fidelity.
My question was not to do with the quarter, it was just on a slightly longer horizon, if we look at employee cost to sales, it's gone from roughly 4% to 8% over 7, 8 years. And we understand where this is coming from, you're building teams, you're getting into newer products, Lloyd would've added to that. But just when you're looking at how employee costs are or your manpower strength is, is there scope for this to go up more? Or are you satisfied with where they are because over a period of time, that could add to margins, right?
Yes, so I think as you rightly said, that over the last few years we've been investing heavily on building capabilities [indiscernible]. This is again to build a long-term sustainable business for our product categories. And of course, new product categories are constantly being added, so that comes more as an investment. So I feel that this is a healthy level that we can continue that in the future. So over a period of time, we'll see this being in the normal levels.
Okay. Okay, great. One other question. Just when you're talking about getting a lot of sourcing for Lloyd, et cetera, in-house, what does that imply in terms of CapEx for the company over the next 2 or 3 years?
So this year overall, we've grown our overall CapEx to be about INR 500 crores, out of this INR 300 crores [that impact for] or so on the Lloyd plant. But once this plant comes onstream, I think, overall, we will be in the range of INR 200 crores, INR 250 crores every year.
The next question is from the line of Ankit Jain from Mirae Asset.
Sir, just wanted to understand [indiscernible] on liquidity with -- I mean by NBFCs and all. I mean, are you seeing any sort of impact on the channel financing which you do avail to the distribution partner?
Not really. We haven't seen any, any significant impact I would say. We have not used NBFC. We have largely -- we have gone with large banks who are supporting this. We have no exposure to NBFCs in our funding sources.
So even more so for your distribution partners to avail channel financing from banks or?
Yes, yes. So our channel financing plan is driven by the banks. And you see, if you're asking the consumer channel financing or consumer financing is largely...
No channel partner?
No. No channel partner. Whatever we do is with the banks only.
The next question is from the line of Charanjit Singh from DSP Mutual Fund.
Sir, you have highlighted about this professional Lighting space, if you can give us some more color in terms of who -- like who are the kind of customers are? Or is it tender-based market? And who are we competing with in this market? And how is the margin profile in professional Lighting?
There is a lot of color in professional lighting. Professional Lighting is almost, I would say, 40% of our business. And we've been in this business for the last 15 years. So when you are in Lighting, you want to be both in professional as well as consumer. Some companies choose to be more in consumer. But right from the beginning, when we entered lighting, we've been very focused on professional Lighting as a business. Initially, because of the strength of the company, we started more on the government side and the infrastructure side. But over the last 2 or 3 years, we've built capabilities to focus on all customer segments, that is, government; retailers; large offices, office complex; hotels, façade lighting. So you build capabilities. And we've built capabilities in the last few years. And we compete against the likes of Philips and Wipro and Bajaj and contend in this space. But we have dedicated teams specifically for professional Lighting. You asked about margin profile and generally speaking, it's very similar to the consumer side of the business. So when we see a blended margin, we don't see much difference between consumer and as well as professional.
And sir, on the ECD space, we have been showing pretty strong growth over the last couple of quarters. And from Q3, Q4 onwards, that INR 400 crores run rate will start hitting. And do you see that the growth can be sustained in this segment? And which categories will drive the growth going forward?
I think you can't really extrapolate the first quarter, second quarter into the third quarter, fourth quarter because there was a big impact on GST in the Consumer Durable segment. If you see the major impact in the first quarter came from the ECD segment last year. And even in this particular quarter, there was a base effect. So I think, overall, we are quite hopeful because of our -- whatever we are doing in the ECD segment, in our new product categories, our expansion into channel and more and more models coming into each product category. It's not that it will have a very different growth profile as compared to other businesses.
The next question is from the line of Shrinidhi Karlekar from HSBC. [Operator Instructions]
Sir, my question is on the e-commerce strategy of Havells. Sir, correct me if I'm wrong, but the general perception that we have is that the Havells is not so strong in the e-commerce channel compared to the way you are in the traditional channel. And with Lloyd now having a significant appliances exposure, these are categories where something -- where e-commerce channel can have a significant impact. Sir, in that context, I wanted to understand how do you see this channel and how do you plan to improve your presence in that channel, sir?
Yes, as far as channel strategy is concerned, we believe in omnipresence, and this is something which has started coming in the last 2 or 3 years for Havells. Yet traditionally, we were more focused on the traditional offline channel. But in the last 3 years, we've invested heavily into building teams which focus on all kinds of channels, whether it is modern format, new retail, online. Our strategy has also been that we are a very channel-friendly organization in terms of the fact that we look at their long-term sustainable business with the company rather than very short-term measures. And we have always refrained from any channel -- whether it is online or any other channel -- which focuses on a very fast growth and undercutting the other channel as well. So I think our online strategy has been very prudent. Today, we are present in all online platforms, but we do not give any preference to any channel. And hence, I will say this will be more of an organic growth rather than a very [ acquisitive ] kind of growth in any channel. So that's why you could say that -- but we are growing every year very fast in the online channels, but still maintaining our overall channel philosophy in online channel as well.
The next question is from the line of Latika Chopra from JPMorgan.
My first question was just on Switchgear. Just coming back to the growth factors that you talked about, you mentioned that residential segment has seen slight improvement in demand. Is it in any way pointing out towards improvement in the housing cycle? And should that imply that though the growth rate in second half will normalize, on a full year basis, the growth rate for this segment could move more favorably towards mid-teens, low to mid-teens kind of a profile now?
Well, first of all, the first part of your question, yes, it is moving favorably. When we see 1 year or 2 years before, practically there was no newbuild coming up. Today, we can see some newbuilds coming up as well as project closures that are also happening. So there is definitely uptake in the demand in the residential sector. I think I would not give any numbers at this present moment. Let's see 1 or 2 more quarters how we fare and how this thing continues because, as I said, there are a lot of projects. Hopefully, the demand should continue to remain. Today, in the residential sector, we don't see an investor community coming in into investing into buying houses, so it's basically pure demand. So that, hopefully, should -- given the demographic, this should sustain, but let's see over the next few quarters.
All right. My second question was on Lloyd. You mentioned that next 6 months, one should see improving trend, and there was mention of expecting that the market will also take up prices. Is your price increase decision dependent on -- a lot on how the others take price increases considering the push, the cost push where you will be higher on a relative basis? How are you thinking about it?
Yes, I think pricing is a lot dependent upon brand perception, how the channel perceives you, how the competition is behaving as well as the cost of the products. So all put together, it's very -- I would say it's a formula which cannot really be explained on a phone call right away.
All right. And lastly, your cash is also building out. Any thoughts on inorganic strategy for you?
Well, I will say that the company always remain open on any inorganic opportunities. Today, we have quite our hands full both on Lloyd as well as in Havells' organic growth. But we always remain positive to look at any new opportunities.
The next question is from the line of Nishit Jalan from Kotak Securities.
Sir, my question is on the Lighting part, especially the EESL business. If I look at last year, the contribution margin in EESL was about 7%. Now this year, we have not seen any business in EESL. Do you think the pricing has come up so significantly that it's not making any sense to get into the EESL business? Or do you think the EESL business itself has kind of come down so significantly that there's no business in the market?
So one, we were in a very small part of the EESL business. So we were not in the commoditized business; we were more in the streetlights business. And yes, the number of tenders which are coming out for streetlight has reduced over a period of time. Initially, there was a huge push. And then in government tenders business, there, sometimes it's really dependent upon the price that unless and until the product features are fully understood, we try and refrain away from that. So yes, at this point of time, it's a combination of both the demand being a bit less as compared to what it was a year ago as well as pricing.
Okay. Sir, my second question is on Lloyd. Now since we are starting our own manufacturing facility, so apart from getting a better control over your product quality and all, it should give you some cost benefit as well. So what kind of margin benefit or what kind of reduction in cost you see because of start of the in-house manufacturing facility? Because your EBITDA margins right now in the Lloyd business are below the other peers in this industry.
Yes, I think definitely the whole idea of putting up a plant was to -- that we will see improvement in the margins. But this is something we will actually develop over a period of time. We've always maintained that we need to look at Lloyd as a long-term play. We continue to hope that we will continue to improve margins every year at Lloyd, partly because of the brand perception and also because of our focus on manufacturing in-house. But this is -- again, as I said, has to be looked at over a longer period of time.
The next question is from the line of [ Aksh Vora ] from Praj Financials. [Operator Instructions] .As there's no response, we take the next question from the line of [ Kunal Singh ] from BNK Securities.
Sir, in Lighting segment, you had mentioned that we continue to see price erosion. So is this a natural price erosion we are seeing because of increasing volumes? Or is there some pricing action that we are seeing in the market from any of the competitors?
No, it's a cost-based decision. The LED costs going down.
Okay. So we are not seeing any pricing action from any of the competitors, right?
There is pricing action by everybody because of the costs coming down.
That is what -- not otherwise.
Not otherwise means?
Means no significant -- as in any price war that you're seeing in Lighting from any of the competitors?
No, at least -- again, there is -- Lighting is in an industry where there are so many players, segmented industry. At least where we compete...
No, no, what I meant was, sir, from the larger players.
Yes, where we compete in, there doesn't seem like a price war.
Okay, okay. Sir, then my second question is in a presentation made by you last year, sir, increasing the contribution of B2B was one of the strategies that we look at to scale up in terms of growth. So on your commentary in the call, you said that B2B contribution remains similar to what it was last year. So when can we see B2B contribution going up significantly in the business? Or will it be in the same range because the overall growth is also robust?
So I think overall growth, which has been robust, is also contributed by higher share of B2B. But B2B is still a newer play for Havells in terms -- in the sense that it is a focused activity now, so hence, it is contributing a bit more. But all these factors put together, new channels, B2B are giving the kind of growth that we are [ interested in ]. Otherwise, it would have been like the industry. So we are definitely growing faster than the industry, which clearly indicates that our initiatives on deeper penetration into semi-urban and rural, B2B focus, [ NFR ] focus, online focus, all these things are contributing overall.
[Operator Instructions] The next question is from the line of Pulkit Singhal from Motilal Oswal Asset Management.
Sir, I just wanted to check with you on the distribution initiatives. if you can please elaborate, I mean, where are we currently, I mean, in terms of some numbers? And what is the kind of potential you see over the next 3 to 5 years in terms of distribution?
So I can't give you any numbers at this stage. But I will say that in a market like India, there always remains a huge potential to grow the distribution. And our entire focus is there, how we go deeper through more and more retailers down the chain, through distribution, through expansion to our [ some product ] scheme. So there is a huge focus going on. And I believe that it'll continue to remain for many years.
Any way of figuring out, excluding the distribution expansion, what could have been the growth on a like-to-like basis?
Why go into all these things? Let's be happy with the growth.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Abhineet Anand from SBICAP Securities for closing comments.
Yes. I would like to thank the management of Havells which gave an opportunity to SBICAP, for this opportunity to host 2Q call. Thank you.
Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of SBICAP Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.