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Havells India Ltd
Earnings Call Analysis
Q2-2025 Analysis
Havells India Ltd
Havells India Ltd. showcased a robust performance in Q2 FY '25, attributed to a surge in consumer demand, especially with the festive season approaching. The company experienced significant growth in its business segments, particularly in residential switchgear, leading to a healthy overall performance despite facing some headwinds in industrial switchgear.
The earnings report highlighted challenges posed by commodity price volatility which affected cable margins. The company experienced absorption of high-cost inventory during the period of declining raw material prices, impacting profit margins negatively. Therefore, normalization of margins is anticipated in the forthcoming quarters as manufacturers adjust to the new price environment.
As part of its growth strategy, the company has made substantial investments totaling INR 450 crores for expansion at its new cables facility in Tumkur. This facility is expected to enhance production and cater to the growing demand for higher-size cables, ensuring that Havells continues to meet market needs effectively. A total capex commitment of approximately INR 1,900 crores has been announced for the next few years.
Looking ahead, Havells anticipates a shift towards lower double-digit growth in the industrial sector alongside a continuation of robust growth in residential segments. The company expects to return to normalized EBIT margins, with forecasts suggesting margins stabilizing towards their historical averages of 22% to 25% in FY '26, barring further commodity price fluctuations.
During the discussion, management mentioned an increase in advertising and promotion (A&P) spending, which rose by nearly 50% in the quarter. A&P spending is projected to remain at around 2.5% to 3% of revenues in the long term, consistent with historical trends. However, this spike has temporarily pressured overall earnings.
In the B2C segment, Havells reported an impressive growth rate of 20%, with overall growth recorded at 9%. It was noted that the urban markets are performing better compared to rural areas, though rural growth has shown signs of picking up recently. Moreover, the company is witnessing strong interest in its emerging product categories, including water purifiers and solar products, indicating positive trends for diversification.
Despite challenges such as the slowdown noted in the B2B sector and various external market pressures, Havells management expressed confidence in the company's ability to capitalize on its positioning and operational efficiencies. The focus on premiumization in product offerings, especially in the lighting and consumer durables segments, is expected to drive future growth and maintain the company's industry-leading margins.
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Ladies and gentlemen, good day, and welcome to Havells India Limited Q2 FY '25 earnings conference call hosted by DAM Capital Advisors Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Bhoomika Nair. Thank you, and over to you, ma'am.
Yes. Good evening, everyone, and a warm welcome on behalf of DAM Capital to the Q2 FY '25 Earnings Call of Havells India Limited. We have the management today being represented by Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Kumar Gupta, Whole-Time Director and Group CFO; Mr. Ameet Kumar Gupta, Whole-Time Director; and Mr. Rajiv Goel, Executive Director.
At this point, I'll hand over the floor to Mr. Gupta for his initial remarks, post which we'll open up the floor for Q&A. Thank you -- and over to you, sir.
Thank you, Bhoomika. Good evening, and thank you, everyone, for attending the call. Hope you would have reviewed the results by now. We delivered overall healthy performance across categories, driven by improvement in consumer demand, and pick up for ongoing festive season.
Lloyd also delivered a decent growth and continued benefits from cost efficiency initiatives. A steep volatility in commodity prices impacted Cables' margin as we saw absorption of high-cost inventory against the falling raw material and sales prices during May, August -- May to August 2024.
As the festival season is slightly earlier this year, we witnessed advancement of advertising spend, thus moderating margins across categories. We expect normalization over subsequent quarters. Last month, we commissioned our new Cables plant in Tumkur, which will scale up over the next few months. considering the long-term potential demand for higher size cable, we have committed additional CapEx of around INR 450 crores for expansion in the Tumkur facility.
We can now move to Q&A.
[Operator Instructions] The first question is from the line of Rahul Agarwal from IKIGAI Asset Management.
Anil ji, first question was on switchgears. What could be like a sustainable growth rate we should assume for this segment? .
So I think for this particular quarter, there was a degrowth in the industrial switchgear business, which is part of the business. We did experience -- because of the first 6 months of government spend, we did experience decent growth in our residential switchgear and switches and socket segment. So going forward, once the industrial demand also starts coming in, we expect a lower double-digit growth numbers.
Okay. Got it. And second and last question was on emerging category. It looks like that's gaining traction. Within this, which product actually is gaining meaningful scale and could be separated out eventually to track it separately? Any color, sir?
Yes. I think within a year or so, there will be more product categories who are gaining enough sales. We are witnessing good growth in personal grooming segment, air cooler segment, water purifiers. Solar is also delivering decent growth. So I think we'll look at it for some more time. This is still the investment phase in these categories. By around next year, we should be looking at moving 1 or 2 out.
The next question is from the line of Fatema from Mahindra Manulife.
What your read through of how the festive is looking like? Because obviously, we've heard a 2-wheeler [indiscernible] saying that it's not that good. So for durables as a category for our individual segments, like what is our thought process on how the demand is stepping up?
We've seen the quarter start at a very positive note. So I think, let's see some of it could also be because of the fact that Diwali is early this year. So hence, the spend and sales, both have started on a good note. Let's see how it pans out. But I think, generally speaking, we are experiencing better growth this year.
Versus last year like-to-like, Navratri or -- is that a fair assumption? Or just you...
Lot of positivity on the consumer side this time.
Okay. Fair enough. And then secondly, the kind of employee cost that we are running, obviously, we've had a lot of expansion. Is this a new run rate? Or it could be even potentially higher because you've commissioned a new factory because INR 450 crores factory annualized and you' running at nearly a INR 1,700 crores, INR 1,800 crores kind of number. So in a way, the fixed cost structure is moving up and that revenue growth flow through will finally get your margins, right?
You're talking about employment?
Employee cost, yes.
So most of the people costs related to factories is not a part of this. But there is increased investment in fortifying the newer channels, especially the model format retail and rural areas. So we are looking at more expansions in these areas. And hence, I would say these are a little bit investments for the future. Over a period of time, it will come to normalized growth levels as the sales are increasing.
Can I ask 1 more question?
Yes.
Just wanted to understand, like we have been margin leaders, right? Last 10 years, we've always sold industry-leading margins. Do you think that we are very much going to get back to that because, say, last 2, 3 years, you could yet say demand has not been core and Lloyd was having its challenges. Do you see we are going to be back to that industry-leading margin because basically, every successive quarter, we've seen a lot of earnings cuts more led by margin than by revenues?
I think if you look at business to business as against competition, our striving is always to remain margin leading businesses. And I think whether it's consumer durables or lighting or switchgear, we're definitely leading by margins. I think where one could say is Lloyd, we are still in the investment phase. And cables and wires, wires sometimes there is a little bit of fluctuation. But we definitely see that we will be coming back to normalized margin levels very soon.
[Operator Instructions] The next question is from the line of Saumil Mehta from Kotak Mutual Funds.
Yes. So when I look at the lighting at the ECD division now, obviously, we have held up contribution margins quite well. But when I look at the EBIT margins, there has been very short moderation while I believe A&P spend and employee cost are up. But going into FY '26, slightly on the medium term, how should we look at both the divisions? Is the pricing deflation in lighting behind us? And any color on the ECD portfolio given that the summer portfolio, what we also hear from channel checks has been fairly muted in recent times.
I think in both these businesses, lighting and ECD, I believe that the company is doing a very good job of premiumizing the portfolio. And hence, we can see, again, industry-leading contribution margins in the businesses. Here, if you don't look at quarter-on-quarter -- quarter-to-quarter, but generally speaking, lighting, even on EBIT margins, we are leading industry by quite a good margin.
Electrical consumer durables also, as I said earlier, in terms of manpower costs, there is some investment baked in, but we will be seeing efficiencies coming in because of this and higher growth. So FY '26, we'll definitely be back to our margins as you have said.
Sure. And my second and last question, while you alluded to a better year-term festive demand, but is it got to do with more of restocking? Because at least from counter sales perspective, at least, again, what we're hearing is things have been fairly muted. While you believe that festive upcoming is going to be strong. So is it got to do with more that the channel inventory was low and to that extent...
Sorry. Can you -- your voice is not very clear. Can you repeat your question a bit slowly, please?
In terms of the opening remarks, you mentioned about the festive -- upcoming festive demand is spanning out quite well. Now this is a bit contrary to when we do our channel checks in the market, where we, from a consumer point of view, things seem to be muted. So for players like us, is it more of a destocking demand, which probably from a near-term perspective bodes well, but the on-ground demand is weak, something on that sort. Any color here will be very helpful. .
Maybe it's a bit early to say. I would not, first of all, say restocking or anything. It's a bit early to say. We've -- maybe there is a little bit of anticipation of the Diwali festival coming in. But I think, as I said, it's early -- we're just in the middle of October. We'll have to see how it really pans out. .
The next question is from the line of Natasha Jain from Nirmal Bang.
Sir, my first question is on Lloyd. Can you just help break the growth in terms of how RAC did versus washing machine and rest? And a little bit more color on RAC in terms of how the channel inventory now stands and what is the pricing scenario? Is it still highly competitive and no price hikes? The first question.
First of all, RAC in this particular quarter is generally a very low quarter. And especially because there was a good demand for air conditioners in the first quarter, the consumer pickup in the second quarter has been low. And hence, the growth in non-AC segment for Lloyd has been better than the growth in air conditioner segment. So which also is a positive thing because our focus on building other product categories like washing machines and refrigerators. That's also panning out well.
And so I would say it's becoming a little bit more balanced. But this particular quarter, there's not much to read on air conditioners because, one, generally, this quarter is a very low quarter; and secondly, it's coming after a very heavy first quarter.
Sir, my question was more on how probably non-RAC did because our channel checks suggest that washing machine as a category has not picked up despite this particular season quarter, the second quarter?
Yes. For us, it's a bit small category. And hence, we are definitely experiencing growth, but it is lower than the other 2 categories like LED panels and refrigerators.
Understood, sir. And sir, my second and last question is on kitchen appliances. So what we've understood is, from October onwards the demand has started picking up on the ground. So can you tell us how kitchen appliances is the category for you is looking like? And in terms of competition, what we've understood is there are a lot of these premium players who started rolling out mid-premium products. So now even a Bosch has a product category, which is equivalent to a Havells' pricing. So what's your sense on that in terms of that competition and cannibalization?
I think we are very positive about our domestic appliances category, and it is, again, as I was saying earlier, it is also one of those products, which has started off on a very positive note in the festival time. So we'll continue to see that. Look, as far as competition is concerned, there is -- there is always a push towards trying to cater to different kinds of consumers. When there is a product -- when there is a company which is catering to, let's say, lower set of consumers, they want to go premium. Some companies who are only catering to premium, they also want to go. So this competition can keep varying.
The whole idea is how we can refresh our product range, make meaningful -- make meaning to the consumer and expand the reach to the consumer. I think we are -- as far as ECD is concerned, we're making decent strides in most of the product categories.
The next question is from the line of Siddhartha Bera from Nomura.
Sir, my question is on the cable and wire segment. We have seen a good pickup there. You mentioned that it has been led by wire. So is it -- are we seeing a good improvement in terms of the wire demand? And how sustainable should we think about the growth in the coming quarters? And second is the cable facility also, you mentioned that...
There was a disconnect. Can you repeat the question again, please?
Sorry, on the wire side, you mentioned that we have seen a good improvement. So just wanted to understand how sustainable is it if you look at the traction in the second half and our cable plant is also -- you mentioned that it has got commissioned.
So if you look at the cable and wire category as such, I mean, a strong double digit or current momentum sustaining is something can we expect? Or do you see any challenges here?
No, I think as far as buyers is concerned, we experienced a bit lower growth in the first quarter because of the fluctuating raw materials. And because of the destocking in the second quarter had a good pickup and restocking of the product as well. Unfortunately, the volatility in the raw materials during the quarter affected the margins. But I think given the fact that we have been adding capacities at Tumkur, now should augur well for a decent growth in both underground cables and the rest of the wires in the coming months.
And sir, on the profitability, you mentioned that this volatility has impacted current quarter margin. So has the commodity price increases being taken and from next quarter onwards, we should come back to that normalized EBIT margin level?
The third quarter pretty much towards normal because, let's say, maybe October is a bit affected, but November, December, we all anticipate unless there's further volatility. Otherwise, we expect very close to normalized margins in the third quarter and fourth quarter should be absolutely normal.
And sir, on the ECD side, also, you mentioned that there has been some enhanced investments which have been going into emerging channels. So any color here, how much is that impacting our margins? And how should we expect that to normalize going ahead?
I think the channel investments, Siddhartha, I think will be compensated either increase, we will be sort of expecting on this channel in the ECD side. So I think these investments, to some extent, you should see are for slightly medium term. And I think this is something will continue to reflect. We do not expect them to normalize. But they will be sort of offset by the higher growth we are expecting in this category. .
The next question is from the line of Aniruddha Joshi from ICICI Securities.
Yes. Sir, in terms of Lloyd, we had indicated that we will also get into certain exports to Middle East as well as USA markets. Now that was done almost 7, 8 months ago, the announcements. So any update on that? And when should we see the products rollout happening in both these regions? That is question number one. And secondly, if you can indicate the price hikes during the quarter as well as the growth in 2 verticals, B2B as well as B2C. Yes.
On the international side, we have started on the Middle East, but it's early days. And the U.S., the product is under development. I think this is something most probably the next year, I think you see some more traction. So I think as the things developed, we will keep you updated on the same.
And second on the...
Sir, B2B, B2C growth rates and price hike?
This quarter, growth rate was about 9% and B2C was 20%. And price hikes, look, if we keep away cables and wires, most of the price hikes have already been taken. Cables and wires is very related to the fluctuation in raw material prices.
Sure, sir. Understood. Last question. B2C growth has been really pretty strong. So if you can indicate any region-wise color East-West, North-South where it is doing well or, let's say, urban versus rural, any cuts on -- or color on that? That's last question. Yes.
I think regional-wise, it's pretty much, I would say, fairly distributed. And as far as urban versus rural; rural, we have started seeing some slowdown in the last year, but now started picking up. So urban has been doing well, but rural is also started picking up.
The next question is from the line of Aditya Bhartia from Investec.
Sir, you spoke about advancement of A&P. But if you look at the overall A&P spends, they have ranged around 3% of revenues, which historically has been at the usual run rate. So while I understand that there is an year-on-year increase, but how should we look at A&P since going forward? Are they going to moderate once the season is over and from a slightly longer term perspective?
2.5% is normally what we have. And I think that's something we expect that by the end of the year, you will see pretty much in that range only. But we see 2.5% to 3% -- so I think that's something would remain in that same range.
Understood, sir. And sir, if we look at the contribution margin across segments, on the contribution margins, margins look pretty okay with some moderation in the wires and cables. But when we look at EBIT margins, the difference is a lot higher. So which are those expenses which would have gone up? I understand that there could be that INR 28-odd crore of impairment that we have taken. But besides that, is there any other expense that won't be forming part of contribution margins, but of EBIT margins, which is impacting the margin?
I think primarily it's coming out of advertisement increase, which is almost about 50% in this quarter. But also some -- as I mentioned earlier, some investments on manpower, so some salary expenses also. So these are the 2 major reasons.
The next question is from the line of Ravi Swaminathan from Avendus Spark.
If you can give the breakup of cables and wires within the Cables segment? And the new facility, which has come up, what could be the incremental revenue at peak capacity utilization that can be added to the overall top line of that segment?
So we generally are between 35% to 40% for underground cables and the rest for wires. Second question was, sorry?
The incremental revenue at full capacity utilization that can be coming from the cable facility has just come up.
Until Tumkur facility came up, we were almost operating at 100% or 85%, 90% capacity utilization for cable, which actually now with the new facility will be at better levels. We are also further expanding, as I mentioned, that we have committed another INR 450 crores of expansion in Tumkur facility. So that should bring the capacity utilizations to a normalized level.
Understood. And with respect to the lighting business, the pricing bottoming out, that has been under discussion for the past 3, 4 quarters or even more than that, especially in the lamps business. Any sense on whether it has already bottomed out in the market? Or it's still -- it will get -- is yet to occur?
And hopefully, I think this third, fourth quarter, we'll see the bottoming out. And next year, we should start seeing -- FY '26, we should start seeing real growth in our lighting margin. Yes.
And how would be the breakup between lamps and fixtures for us as of now? And what would have been the growth in the lamps business in volume terms this quarter or this year, first half?
So pretty much what has happened is with the advent of LED is now even consumer luminaries, how we differentiate it is pretty much a fixture. So actually, we now don't differentiate between lamps and fixtures. So it's basically consumer luminaries versus professional luminaries, which were consumer is about 60% of our business, about 40% is professional luminaries. And volume growth in lighting has been 15% this quarter.
The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance Limited.
Sir, first question on switchgears, switches and switchgears, I think I couldn't hear it properly. But if I look at switch, switchgear segment's revenue growth 2-year, 3-year or 5-year, whichever period we take, it is probably a mid-single-digit kind of growth. So have we lost share? Or if you can just throw some light what has happened in the past? And in near future, what kind of growth do you expect? Are you seeing any pickup led by real estate or even otherwise? That is first question.
I think last few years, if you recall, we, the construction activity also has been slow. I think which gradually started picking up. And which is where -- since there are 3 categories within this. I think there's a bit of an offset. I think there have been quarters where we have grown double digit. In the potential, clearly, the switchgear, we're all aware that this is a consolidated industry.
So I think the potential there is sort of high-single digit and low-double digit. And I think if you combine the 3, we believe the potential is pretty much high-single digit and low-double digit. So we see reason why, frankly, we should be sort of moving away from that. And that's what sort of we are holding out as well.
Okay. Sir, second, switchgears and ECD, most of these segments probably -- if I look at longer periods of switchgears, we have seen contribution margin and you're in the range of 38% to 40% and ECD 23% to 25%. And we are either at the lower range or below that number. So where do we see contribution margin and in turn EBIT margin for both of these categories? Or is it a new normal?
No, I think generally speaking, we -- our averaging has been between 38% to 40% for switchgear. And again, as you have said, between 22% to 25% EBIT margin, sometimes we do take a call to invest for the long term, which comes in a particular quarter for advertising because this is not a product category where you advertise continuously. This is when you make a [ burst ] and then you come back again. So sometimes it can vary, but generally speaking, between 22% to 25% is the EBIT.
The next question is from the line of Sonali from Jefferies.
Firstly, may we have the guidance of CapEx for FY '25, please?
So right now, the committed CapEx from the company in these 2 in the next coming years is about -- already about INR 1,900 crores. Out of which, we believe that about INR 1,000 crores will happen in this year, about INR 350 crores has already been done in the first half.
Understood, sir. Sir, my second question is, how is the B2B demand doing in terms of the CapEx cycle and the housing cycle? And also, I missed the number that you would have given for the breakup of volume versus value of your cables and wires division?
The B2B business on the industrial side is slow right now, which generally has been good in the last year. First 6 months has been low. Hopefully -- with the government spending now coming back, hopefully, we should start reflecting some growth as well.
Residential demand from a builder's point of view, is regular, is not very good, not very low also. So that's why we see some decent growth coming in residential switchgear and switches and sockets. And -- so 15% is our volume growth in cables and wires and value growth is about overall 22%.
The next question is from the line of Dhaval Somaiya from Axis Mutual Fund.
Sir, in the previous quarter, you had highlighted that in switches and switchgear segment, the domestic growth was pretty healthy, which was -- if I recollect correctly, it was 12% on a Y-o-Y basis, but there was some export orders that you had highlighted in the previous quarter, which was supposed to be shifted in this quarter.
So sir, if I were to take that into account, the growth in this quarter in switches and switchgears seems to have actually degrown on a Y-o-Y basis. If you can just clarify that.
Secondly, I would also understand that if these orders were shifted to Q2, I would believe that the expense for those orders would have been booked in Q1. And hence, the margins would have -- should have ideally improved because the cost for those orders were booked in the previous quarter. So if you can just help me understand this better. And secondly, on Lloyd, how should one structurally look at the margins going forward?
So as far as switchgears is concerned, on the domestic side, if you look at the residential and consumer switchgear segment, we have seen decent double-digit growth. And as I said earlier, that industrial switchgear, there was a significant degrowth which actually was a much lesser overall growth for the entire switchgear segment. This was not really impacted a whole lot by exports. I have not understood your second part of the question. I don't even know whether accounting-wise -- no, I think that the cost will be matched with the revenue, so it's not that the cost has been booked in the first quarter and will come in the second quarter. So this is not very good, yes. So -- but there is nothing like that a matching concept for the cost is always accompany the revenues.
And as far as Lloyd is concerned, I think structurally, we've been saying since last year, there is improvement on the cost efficiencies. And overall, the brand acceptance is getting better and better. So we should see stronger margins coming in the next 1 or 2 years.
The next question is from the line of Deepak Gupta from SBI Pension Funds.
My first question is on Lloyd. We've been talking about derisking the portfolio from a long-term perspective and increasing the share of non-air conditioner products in that portfolio? Where are you standing in that journey? And how do you see refrigerator and washing machine going forward over the next 2 to 3 years?
Look, I think as far as Lloyd is concerned, while our strive is to keep changing the product mix, but the fact is that we are not slowing down on our growth aspirations for air conditioner as well. Having said that, we are quite comforted by the fact that our acceptance of other products, which is washing machines, refrigerators and including LED panels is now at a good level. Most of the top A-class counters are keeping these products.
And hence, the growth expectation in the coming years will be quite decent in these product categories also. So while we have maintained that we need a certain threshold level, we believe that our investments over the last 2 or 3 years in these non-AC product categories is now really coming to fruit -- getting fruit.
Understand, sir. And sir, my second question is on Consumer Durables segment. For the last 2.5 years, we have seen flattish numbers from the company. How do you see that segment shaping up over the next couple of years? And do you think that there is a need of launching newer products and reducing dependence on fans, which still contribute, I believe, 60% to 65% of that segment for Havells?
So what did you say about 2.5 years, what?
The numbers have been quite flattish on -- whichever way you cut it, it's like in terms of top line growth -- in terms of top line, the numbers have not really seen much growth.
I think I mentioned earlier that we are now seeing good growth coming both in fans because our acceptance is getting better in regions where we're able to -- even appliances, water heaters, the refrigerants, we are experiencing good growth. So I think we are quite bullish about ECD segment as a whole. And I don't think that we really need to add more product categories because we are quite strong in terms of appliances, which is a growth category, water heaters, coolers. These are all categories which can -- could give decent growth to ECD segment.
The next question is from the line of Achal Lohade from Nuvama Institutional Equities.
Yes. Sir, my first question is within ECD, is it possible to get some color in terms of fans' growth? Would it be similar to what the segment growth or higher or lower?
So it's not very different than the other product categories.
Understood. The second question I had, if I look at the employee cost, it's up about 20%, 25% for the first half. And it has been seeing that kind of growth increase actually for the last couple of years. Is it fair to say that, that is a new normal, like in terms of penetrating deeper the investment in terms of number of employees, the seniority, et cetera, will keep these costs going up at the same pace? Or you think it can quickly get normalized?
No, I think it will get normalized over the -- over next year. But when I say normalized means the growth will be slower. But having said that, we have been investing not only in terms of just reach of people, but also we're investing heavily in expanding our base in R&D.
So there are investments that we are making for the future. So we will take a prudent view on balance between present and the future. So I think we'll look at land power in a very long-term way, not just for short-term results.
The next question is from the line of Yash from Stallion Asset. .
Just wanted to know the volume growth between your AC segment and the non-AC segment in the Lloyd's Consumer division?
Sorry, can you -- what is the question?
My question is, I just want to know the volume growth between your AC segment and non-AC segment within Lloyd's...
Your voice is breaking. Can you again repeat, please?
Am I audible now?
Yes. .
Just wanted to know the volume growth in your Lloyd's Consumer division, if you can split between AC and non-AC?
The non-AC higher than the overall Lloyd growth. I think this is that much what we disclosed in this.
Okay, sure. And within the AC division, how are we seeing the channel inventory in the industry? Do you think now it's sort of a more normalized because the demand is more stable? Or you think still there's enough inventory already?
No, inventory has been low at the end of the first quarter as well. And so I would say it's not high at all.
The next question is from the line of Nirransh Jain from BNP Paribas. .
Sir, my first question is again on the switchgear. I just wanted to better understand what led to the decline in the contribution margin around 130 bps decline that we saw in the switchgears on a Y-on-Y basis. Is this primarily -- is this because of the Industrial Switchgear segment has a higher margin? Or is there anything else to it?
I think, again, as I said, for us, it's not really a decline because 38% to 40% is something that we strive for. It depends upon the product mix as well. Sometimes switches' sales may go faster or slower as compared to the residential switchgear, where there could be differing contribution margins. So generally speaking, we are between 38% to 40%.
Right. And sir, I remember that in the previous calls, you have mentioned that the -- especially in the telecom OEMs, we can continue to expect to see some degrowth in this financial year. So has anything changed there? Because like as you said previously that we might expect double-digit growth in the second half for this segment.
Yes, I think same, it's the same. So we are not seeing -- we are seeing actually degrowth in that segment, which is affecting the growth of residential switchgear, though it has increased double digits. But still we are seeing degrowth in this particular segment.
The next follow-up question is from the line of Fatema from Mahindra Manulife .
Cable and wires, the new factory -- so last year, we did around, the cable and wires, which is around INR 1,600 crores of revenue. Is there any way one can say that the capacity that we are currently adding is potentially double our revenue? Or like what is the kind of asset-to-sales ratio that one can say?
I think this is what we said 25% on cable. So I don't think that it will double from this. And that's why, you would have noticed that we also announced other expansion in Tumkur after this. So I think in 2 to 3 years, you will see at least 50%, 60% capacity addition for the medium-voltage underground cables.
Sir, what is the kind of demand, if I could also ask?
As of now, the demand environment remains robust on the cable side. .
The next follow-up question is from the line of Keyur Pandya from ICICI Prudential Life Insurance Limited.
I just want to understand in the Lloyd is washing machine, refrigerators contribution margin, why would they be higher than AC or contribution or EBIT just as a starting point. Earlier, as you mentioned that the work that you have done to establish brand Lloyd, the efforts would be relatively lower versus AC. So in that backdrop, I mean just you can just talk about the hierarchy of contribution margin.
So the contribution of margin in non-AC actually right now will be slightly lower than the AC because there's a lot of out-shore items as well. As you bring them in-house, I think those margins will improve. But I think, let's agree that most of the margins are driven by the AC because still the 78% of the business is air conditioner. But it's not something which is really dragging too much. So I think there will be expectation of improvement in non-AC as well. But while they are not sort of at the same level because there is good improvement in the AC margins. You see they're not at the same level as the ACs.
The next question is from the line of Hardik Rawat from IIFL Securities.
Sir, could you please explain how brand's transmission -- price transmission actually takes place in cables and wires segment? Is it with a month lag? How are the increase or decrease in the metal prices passed on under both our cables businesses and wire businesses?
Yes, generally speaking, it takes a little bit of time because we see the short to medium-term fluctuation. And hence, first -- 15, 20 days to actually decide whether this fluctuation is the normal. And then if it is prevalent, then prices are passed on to the market.
Usually speaking, if the commodity prices start going down, is passed on to the market very quickly because that's the expectation and the trade starts holding back. But if the prices go up, then there is a general lag in terms of being able to pass on the entire thing because the competition also starts delaying the price increase. So when there is a high level of fluctuation, it generally affects the margins in that particular month or quarter.
Okay. And this will be the same in case of both cables and wires, so no difference between the 2 categories?
That is true. Higher fluctuation in copper, which is mostly used in domestic wires and it impacts us more because 65% of our business is...
And with the wire sales picking up, do you foresee the margin should going forward be better as...
Should be better because this was, again, as I said, in a particular quarter where fluctuation happens. Otherwise, margins will be better. .
And lastly, if you can, if you could provide a breakup of your ECD sales within fans and other categories, what...
We don't do that. We don't do that.
Ladies and gentlemen, we'll take this as a last question. I would now like to hand over the conference to Ms. Bhoomika Nair for closing comments.
Yes. I would just like to thank the -- all the participants for being on the call and especially the management for giving us an opportunity to host and answering all the queries quite a bit. Thank you very much, sir, and wish you all the very best.
Well, thank you very much, everyone, for joining the call. Happy Diwali to everyone. Thank you. Thank you. .
Thank you. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.