Havells India Ltd
NSE:HAVELLS
US |
Fubotv Inc
NYSE:FUBO
|
Media
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
US |
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
|
CN |
NIO Inc
NYSE:NIO
|
Automobiles
|
|
US |
Fluor Corp
NYSE:FLR
|
Construction
|
|
US |
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
|
US |
TopBuild Corp
NYSE:BLD
|
Consumer products
|
|
US |
Abbott Laboratories
NYSE:ABT
|
Health Care
|
|
US |
Chevron Corp
NYSE:CVX
|
Energy
|
|
US |
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
|
US |
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
|
US |
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
|
US |
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
|
US |
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
1 281.25
2 082.4
|
Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
Fubotv Inc
NYSE:FUBO
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
C
|
C3.ai Inc
NYSE:AI
|
US |
Uber Technologies Inc
NYSE:UBER
|
US | |
NIO Inc
NYSE:NIO
|
CN | |
Fluor Corp
NYSE:FLR
|
US | |
Jacobs Engineering Group Inc
NYSE:J
|
US | |
TopBuild Corp
NYSE:BLD
|
US | |
Abbott Laboratories
NYSE:ABT
|
US | |
Chevron Corp
NYSE:CVX
|
US | |
Occidental Petroleum Corp
NYSE:OXY
|
US | |
Matrix Service Co
NASDAQ:MTRX
|
US | |
Automatic Data Processing Inc
NASDAQ:ADP
|
US | |
Qualcomm Inc
NASDAQ:QCOM
|
US | |
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Ladies and gentlemen, good day, and welcome to the Havells India Limited Q3 FY '20 Earnings Conference Call, hosted by Spark Capital Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ravi Swaminathan from Spark Capital Advisors. Thank you, and over to you.
Good afternoon, everyone, and welcome to the Q3 FY '20 Post Results Conference Call of Havells India.The management is being represented 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 will now hand over to the management. Over to you, sirs.
Thank you, Ravi. Good afternoon, everybody. Thank you for joining the Havells Q3 investor call. I hope you would have already reviewed the financial results for the quarter.Deterioration in economic macros, sectoral liquidity challenges and slowdown in infrastructure segment has impacted the demand for industrial products within Cables, professional Lighting and Switchgears. The general consumer sentiment has also been weak, though we have managed to remain stable in consumer categories. Despite softness in revenues, contribution in EBITDA margins have been maintained, aimed to cost rationalization and increased cost consciousness.On Lloyd. Though the LED TV disruption has continued to impact the performance in Lloyd, but there has been significant improvement sequentially on the back of growth in ACs. Recently, we have arranged AC factory visit with all our retailers and distributors and the feedback we got has been very encouraging. The level of backward integration and level of automation in the AC factories has helped boost the trade confidence for the upcoming season. Overall, there is optimism aimed to lower inventory levels with dealers and a modest recovery in consumer business. We expect retail recovery in the further quarters. Thank you, Ravi. We can start the Q&A now.
[Operator Instructions] The first question is from the line of Sonali Salgaonkar from Jefferies.
Sir, my first question is regarding the demand highlights that you just gave. And what kind of on-the-ground situation are you seeing right now, both in terms of B2B as well as B2C?
So on B2B, I think as the results also show. So we've told you earlier also that around 30% of our business comes from B2B or government infra or industrial-oriented products and customers. So -- though that can also be going through dealer network, most of it still goes through dealer network, but these are -- primarily, the consumers are more on the B2G, B2B side. And that has seen -- so the entire shortfall in revenues as compared to last year has been from the industrial cables, professional luminaires as well as industrial switchgear. So what we can see is that there is delay in payments by the electrical contractors, and hence, there is very limited offtake, both by the industrial dealers as well as the customers' contractor. So that is on the industrial side and that continues to remain as a challenge at this present moment also. And I think more and more the liquidity situation improves, I think this will come back. So I don't think there is a huge issue with the demand itself, but I think liquidity is really impacting the offtake at the present moment.On the consumer side, I think the consumer sentiment was a bit weak and with delayed winters, and overall, again, credit situation in the market, the dealers have reduced their inventory levels and are basically taking the stocks only as and when it moves. So they're not really stocking a whole lot of products. So I would say that the sentiment is a bit low, mainly because of the liquidity situation.
Right. Sir, and do you see that improving sometime soon, probably in Q4?
So we do see intermittent improvements. And just as in last 2 or 3 weeks, we have seen some improvement in offtake by the dealer network. So -- but this is -- right now, it's difficult to say whether the entire thing can come back in the quarter 4. But there is -- there are slight improvements in the offtake.
Understand. Sir, my second question is on Lloyd. Sir, from a broader strategy perspective, could you please help us understand what are the corrective steps that we are taking in Lloyd? And by when do you expect them to materialize or be accretive to your financials?
I think the biggest corrective step which has taken place is the control on our supply chain, which is in Lloyd, as we have always said that the majority of the products, which is air conditioners, which is 70% of the sales, we were dependent upon imports from China, which were hit by custom duty increases, which were hit by ForEx unfavorable exchange rate. So with that dependence going away with full production coming back -- coming from the month of September, October, in the plant, so I think there is -- the majority of the corrective steps has been taken. The other steps which we have taken in the last 2 years or so has been in the distribution front. So as earlier, we were dependent upon very large distributors for a particular state. Today, the distribution is far more spread and distributed as well as we are pretty much now in that same ratio of sales wins, for example, like regional retailers and one format contributes almost 30% to 40% on the sales in this Consumer Durable category. So we are present in most of these chains. So those are the corrective steps. So I think from here onwards -- the third thing which hit us was the LED disruption, LED panel disruption. And now all these corrective steps have been taken on the inventory side also. So this is more of a portfolio figure. So the -- and lastly, I would say, the enhancement of the product range on the washing machine side, again, changing the supply chain from import from China to depending on sourcing from India in our own design. So lot of corrective steps have already been taken. I think things should definitely start looking very positive from here.
Sir, from Q4, do you expect the traction in air conditioners to be better in Q4?
Absolutely. Because even in third quarter, we had started seeing the benefits of our -- as I said, the new costs which have started coming from our own plants as well as the confidence which has been created in the dealer network. So that should continue in the Q4 as well.
Understand, sir. That is quite helpful. Sir, sorry, last question, if I may. Sir, on the new product launches in Lloyd, last time you had commented that you would launch washing machines in Q1 FY '21. Are we good to go for that deadline?
We already have washing machines, but the range is getting expanded from Q1. I don't know whether you're talking about refrigerators. Yes, we are launching refrigerators in Q1 FY '21 as well.
The next question is from the line of Bhoomika Nair from IDFC Securities.
Sir, just wanted to understand the ECD segment slightly better, which is largely a consumer segment driven -- demand-driven segment. If you can just kind of -- because there's lot of subproduct categories, how -- qualitatively, how the different products have performed? And how has market shares within that moved? Given the muted demand, have you seen any pressure in terms of market share out there?
No. In fact, all the GSK reports suggest that we have gained market shares in the second and third quarter. So on the fan side, which is a sizable part, the -- and that actually affects the overall ECD growth or degrowth. On the fan side, I would say that -- because of the lack of liquidity in the marketplace in the dealer network, generally stocking which starts happening in the month of November, December was a bit delayed. So Fans have remained flat during this quarter. So we do expect that the offtake will start improving in the fourth quarter. But enough push was not -- generally in November, December, a lot of push happens into the trade for the incoming season, which actually happened last year as well, but was not -- because it's again the credit situation. I mean one strategy could be to open credit, which is again not a very good long-term decision for the channels, you want to keep it maintained. So it would not have any way affected the market share because you're just pushing things into the channels.And the other product category, which got a little bit affected by the late onset of winter was water heaters. So again, there, we see a very low-single-digit growth. Appliances, again, I think, generally speaking, dealers and distributors have reduced their stock inventories during this last 1 or 2 quarters. So overall, I would say, though we are not affected in the market share, but the offtakes have been low.
Okay. Sir, in terms of lighting, there has been significant price erosion. So how is that moving? Has it kind of -- is it still continuing to see a deterioration on a month-on-month basis? Or has it settled down?
So on the pricing, which is quite settled down now, it is -- maybe some reduction is happening, but it's also happening on the cost side also. So it's not really affecting our margins. Margins have continued to remain quite stable in lighting. But there is a significant reduction in the offtake of the professional luminaires and basically, more on the infrastructure and the government side. So while we continue to do well on the professional lighting in the commercial segment, but on the infra and government where street lights used to go, there is reduction in offtake. On the consumer luminaire side, we continue to grow even in this particular quarter.
What would have been the growth levels in the consumer segment in lighting?
Again, low single digits -- low...
Low single digit in consumer pricing, what is notable there -- see, as you mentioned, there have been continuous price decline. So despite 15% to 18% price depreciation, we have been able to hold up the entire value. So which, in a way, it sort of implies that the volume growth there would have been around close to 18%, 20%. On the consumer, we continue to hold pretty well. And I think it also underlines the way we continue to elevate our portfolio, so that we can preserve the value of the overall business. So I think consumer, we continue to do well, though people don't track market share so closely in this. But I believe, our distribution network, the way we have gone into rural, there, lighting is doing extremely well in the Havells brand. I think all these things which we have been sort of investing for past couple of years, will start coming to fruition, I think, in further quarters. So I think there's lot of confidence on the lightening side. I think p lum also I think, we believe it's a question of liquidity. Hopefully, in a quarter or so that should improve. And I think it should rebound rather sooner than later.
Okay. And if I may just squeeze in a question on Lloyd. You spoke about that the plant is now operational and production is picking up and inventory correction in LED TV is also kind of done with. Now as we introduce and expand a range in washing machine and also refrigerators, et cetera, what is the kind of more from a medium- to long-term perspective? Can the margins in that segment having now domestic inventory or domestic manufacturing can drive up margin profile to our historical 6% to 8%? Or you think that will be more over a period of 2 to 3 years?
No, I think not over a period of 2, 3 years. Hopefully, it should happen much earlier. And yes, margin improvements will happen. Though our first focus, because last year, we lost some market share in our main sales category of air conditioners, mainly because of very high-cost inventory from China that we had. So first and foremost focus is to regain the market share. And then of course, margins should not be that much of an issue because we -- as I said, we have better control on costs and supply chain.
The next question is from the line of Venugopal Garre from Bernstein.
Just to ask on the core industrial segments, especially segments such as Switchgears and Cables. I wanted to understand that these 2 segments are generally, for a couple of years have been sluggish, sort of low single digit sort of a territory. Last year, for a couple of quarters, it was a big jump in the business, in the revenues...
The line for the current participant is disconnected. We move to the next question from the line of Achal Lohade from JM Financial.
My question was with respect to cost rationalization.
Ladies and gentlemen, the line for the management is disconnected. Request you all to please stay connected by the time we connect them back.[Technical Difficulty]Ladies and gentlemen, the line for the management is reconnected. Thank you, and over to you. Mr. Lohade?
Yes, we are there. Venu, can you repeat your question now because we got disconnected.
Sir, the participant is disconnected. The next question is from the line of Achal Lohade from JM Financial.
Okay. Okay.
My first question was with respect to the A&P spending. We've seen the A&P was about 15% lower Y-o-Y. So how do we look at A&P going forward given the demand scenario from a, let's say, 12 to 18 months perspective?
I think in our industry, A&P is always listed as a long-term investment. So one could see this that we continue to invest and we have been continuing to invest. And anywhere there is a little bit more discretionary spending, I think there has been some reduction depending upon the volume reduction. So that kind of a, I would say, prudence would continue to remain till we start getting more volumes.
Right. And secondly, with respect to the cost rationalization. As you highlighted, could you be able to elaborate as to if the entire benefit is already reflected in the third quarter or some more to come in fourth quarter or first quarter FY '21?
Pretty much it is reflecting in the third quarter. I think again there are not huge amounts of discretionary spends in SG&A. So it is pretty much captured here.
Right. Just one small question. If I look at, let's say, last 6, 7 years, we have seen a substantial improvement in the gross contribution margin for Havells business. And correspondingly, significant increase in the unallocable expense as a percentage of revenue. So I was just curious, if there is some more scope to cut down on the discretionary expense?
No. I think earlier, also we were -- our major spend is going to building the future, so there is enhancement to distribution network, advertisement, R&D. I don't see there is -- we don't see many low-hanging fruits there. I mean we have to run the organization for a very long term. It's not that -- we don't really want to run quarter-on-quarter.
The next question is from the line of Venugopal Garre from Bernstein.
I actually got disconnected, but I don't know what was actually heard -- what all I managed to...
No, I think, Venu, just repeat the question, that will be better. Just repeat the question.
Yes, sure. Okay. To make it simple, I just wanted to ask that see the Cables & Wires and Switchgears business, as 2 segments have generally seen low single-digits growth over the years, but it has been the previous year where there was a significant improvement in numbers and we had at that point of time and attributed that to be a pre-Election phenomenon where a lot of government projects come back in and they do bulk ordering, et cetera. Now the point is not that, the point essentially that at what status or stage are those projects that suddenly now that the economy has weakened over the last couple of quarters, those projects got probably stalled, and hence, the incremental ordering from those probably is not happening and that is a reason for Y-o-Y lower revenue in those businesses? To put in context, the idea is that are these projects still in a stage of execution and can quickly restart? Or is it a situation...[Technical Difficulty]
Hello, can you hear me?
Sir, the line for Mr. Venugopal Garre is disconnected once again. We move to the next question.
Should I reply on this one or no?
Let's wait for him.
We can wait for him.
Sure. We'll move to the next question from the line of Aditya Bhartia from Investec.
Sir, you mentioned that dealer destocking has also contributed to revenues being weak. Is it possible to give some sense how would retail sales have been this quarter? And also do you think that retailers and dealers are now operating with minimal inventory, and therefore, there is very limited scope for further reduction?
I would say that in general, yes, there is -- the dealers and distributors are operating with lower inventories. So generally, we've not seen this kind of lowering on the inventory because there is high level of optimism. Even if you are sometimes pushing products also they have a high degree of optimism. At this stage, I mean there are ways and means to obviously keep pushing the channels, but those are the kind of practices that Havells has not resorted to in the past like heavy discounting or high credit terms. Because again, as I said, it's a short-term measure, but not really good for the channel also because we're really a channel-oriented organization. So yes, there is -- but the retail sales also have been muted. So for example, as I said, delayed winter, in water heaters caused delayed installations for water heaters as well. So probably some amount of retail sales have gone down as far as the water heaters are concerned. The retail sales for a product like Fans might have remained as it is, but some destocking has happened because, again, as I said, usually, in air conditioners and in a fan, November, December is the month where distributor stocking happens. But this time, it is not to that extent. Again, I'm saying this is not true for all companies, but at least, Havells has not stuffed the channel in these 2 months by extended discounts or credit.
Sure, sir. And that brings me to my next question, which was pretty much relating to how competitors have responded to the slowdown in macro environment. Do you think there's been heavy discounting or extension of dealer incentives or expanded payment terms that your competitors have extended to the dealership network?
Yes, especially more so in seasonal products. Also in some products where -- for example, even in industrial products also. So there is -- some companies have resorted to that as well.
Understood, sir. And sir, my last question is on employee expenses, which have fallen on a sequential basis on a quarter-on-quarter basis. I don't really remember when this had happened last? And to that extent, I want to understand how are we looking at it? Because we had been building up our employee strength over the last couple of years. And similarly, where else do you think there's any scope of cost rationalization?
No. I think -- so I would say that over a period of time when you start building costs and building the organization, some amount of excesses also happen in terms of structure and infrastructure. I think some time back, we did relook at the entire structure. And I think now what you see is the optimum level at this stage, I would say. There's always a possibility of improvement going forward, enhancement also in terms of infrastructure as revenues, volumes or needs grow. But as I said earlier, I would say that we are at a prudent level.
The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
Two questions. One, have you seen down-trading in the recent months or quarters? And maybe if you could highlight that. Standard Fans have grown faster than Havells.
No, generally, it doesn't happen. Of course, we continue to -- this is a long-term phenomenon where some products will be developed for affordable housing and all that. But in these kind of products, generally, there is not enough down-trading.
Understood. Second question is, if you can talk a bit on the innovation and the R&D, so in the R&D spends that we have. And if you can just give us a color on some new products that we are actually developing?
Well, this is a continuous exercise. And I think this call may not be suitable for that, but there is a continuous exercise just because right now, I'm sitting in the -- those factories or products, which comes to mind, which we have seen very recently developed, is this heavy-duty air conditioner. Now this is -- because we have our own factory, we can look at a product, which normally has only a couple of brands import from outside of India, which works at 60 degree ambient temperature and doesn't deviate even at 48 degrees. So these are developments, which can happen if you have your own R&D and your own setup. So this is a product which we are now launching in competition with the imported brands. So I think, again, we will have a huge cost advantage in this kind of product category also because it's developed and manufactured all in India. So I mean there are tens of examples of every product category like this.
I'm sure. And last question is, you mentioned that you have changed the distribution model from large wholesalers to smaller ones in Lloyd. Would it be possible to quantify on numerical basis the dealer distributor and the retail touch points?
Yes, we can come back on this. I don't have the numbers off hand right now, but we can come back on it.
The next question is from the line of Renu Baid from IIFL.
Sir, my first question is on the Fan segment. Overall, against the performance of appliances in winter seems like Fans are more flattish or broadly, a marginal decline. So I know it's an offseason, but still, despite that, anything to read with respect to the change in the energy efficiency norms, which are due from next financial year? Any pre-bio destocking on account of that event? And how is our preparedness on the portfolio with respect to BLDC Fans and the new norms?
Yes. So on the preparedness, we're quite there. So that's not an issue. But -- because the event is somewhat far away at this point of time, I don't see any destocking in the dealer net channel because of that. And anyway, the season is going to come very soon. So it is not really -- I don't think dealers are looking that far ahead to destock the material. But generally speaking, as I said, third quarter is considered more of a primary push kind of quarter rather than a secondary sale, secondary or tertiary sale. So that is something where some destocking has happened because, ultimately, people are a little bit more careful about how they invest their capital in stocks.
Right. But during the fourth quarter, as in -- just at the edge of summer, so can one expect that there could be some destocking or channel averseness because of the change in norms? Or it should not be much of an issue with respect to the portfolio there?
Yes. So could be possible that in the first quarter in the end, there could be some, but not in Q4.
Okay. Sure. Sir, we did mention our B2B business portfolio approximately is 25%, 30% of mix and that has struggled. Will it be possible to broadly quantify? As in I know segment-wise, it's all merged across. But as a company, as a whole, how has the core -- within the core Havells' portfolio, how has the B2B and B2C sales trend been? Was it like a double-digit decline in B2B or consumers growing flattish or single-digit growth? What were the trends broadly like?
Well, let's say, 70% of the business was flattish and 30% is contributing to this year.
Sure. And lastly, on the Lloyd side, just hopping back now that we have a fully integrated manufacturing facility in place, portfolio also is looking relatively comfortable and better. So in terms of operational performance, can one expect operating performance to be back to the post-acquisition levels of mid-single-digit, 6%, 7% kind of margins? And does this factor in the increased price competition from players like Samsung and others, who are ready to launch this season with aggression?
No, I think we are quite hopeful that we should be coming back to those kind of margin levels. Whether it happens this quarter or next quarter or in a couple of quarters, I think that's something I cannot say at this present moment. But that's what we will be looking at.
[Operator Instructions] The next question is from the line of Atul Tiwari from Citigroup.
Yes. Sir, this AC plant, now that it has been commissioned, what will be the rough capacity? And what was the total CapEx?
So we've invested close to about INR 400 crores for the operation. The capacity on single-shift basis is around 600,000.
Okay. And fair to assume that except for the compressor unit, everything will be manufactured here, right?
This is the most integrated facility in the country. And yes, you're right, we will not be manufacturing a couple of components. It doesn't make sense because of economies of scale. However, I can say that probably one of the most integrated facilities in Asia.
Okay. And sir, compressors you will be sourcing from China or somewhere else? I mean just to...
Compressors, we will source them.
Okay. And that will be what percentage of AC value roughly?
I can't be so specific on this call, but you can ask this question to our IR team.
The next question is from the line of Venugopal Garre from Bernstein.
I hope I don't get disconnected again. I'll -- yes, yes, I'll probably change my questions in case. Yes.
No, I think.
Sir, if you've heard the question, I don't want to repeat it.
Yes, yes, we got the question. So Venu, on the question, I think, if I understand correctly was whether the project got stalled or they will never come back. I think the earnest hope is that as our liquidity situation improves both on the omni side and the system side, I think these projects have to be completed. So I think we will do -- we do believe and fervently hope that in next few quarters, I think the things get pretty smoother on that side, because as we're continually doing in these infrastructure to be put up there.
Got it. Got it. So my second question is ECD, I don't -- I missed a few questions, so I don't know if it's been asked. So is water heater the only driver for weakness in ECD? Because see, this is also a festive season, so I thought you might have benefited in some product categories. So is it primarily a water heater issue because of delayed winters, because of which you've seen a flattening of ECD growth? So by which I mean that -- I mean ideally things should recover.
The majority products, 2 of the major products, apart from appliances, Water Heaters and Fans have seen flattish growth. Fans, primarily because of the primary push sales being low because of the liquidity situation in the dealer network and dealers being more prudent about the pre-season stocking. And on the Water Heater front, I would say, it is more of because of delayed winter as the tertiary sales were slow, especially in the month of November, which is definitely the biggest month for water heaters in the entire year. And because of delayed winter on -- in the northern part of India, the initial sales were low. So I would say, these 2 main categories not performing extremely well because of the different reasons. That is the reason for the ECD flattening of the year.
Okay. Sir, lastly, have you mentioned how much the AC sales growth has been this quarter for you relative to the market? More to see how the things are on the market share front. Already starting to see some market share move? Or you've generally been now started to grow with the market?
So we've -- in the recent GSK report we have seen some positive movement in the AC market share. And in this particular quarter, we have seen low-double-digit growth in for...
Only for ACs.
Only for ACs.
Low-double-digit revenue growth?
Yes, yes, right. Low teen.
The next question is from the line of Vishal Biraia from Aviva Insurance.
So in Water Heaters, because of the delayed winters, we lost sales in November. Have we caught up? Have -- are the trends encouraging in December, January, anything on that, sir?
Yes. So December, generally, it was much better December than normal December, but it didn't catch up to the extent of the loss of sales in November. So yes, Water Heaters continues to grow, but as I said, in the -- just at the right of the season time, there was delayed winter affects. But Water Heater continues to do well for the company.
Okay. And sir, coming to refrigerators, this would be a completely imported unit from China? And -- or would we be assembling a portion over here in the factory?
So this will be entirely manufactured in India, it's not manufactured by us. But...
It will be like an ODN approach, so our design will be hard, subject to hard specification, you developed -- most of it will be developed domestically.
The next question is from the line of Rahul Gajare from Haitong Securities.
Sir, I've got a couple of questions. In Lloyd, given your AC factory is up and running right now, is there any CapEx that you would incur for launching reps and expanding the range of washers? And connected question over here, continuing from the previous question of Vishal, given that in Fans also you have basically been focusing only on the premium side of the Fans. In refrigerator, would you focus only on frost free or you would do direct cooling also?
No. So in refrigerators, 70% of the market is still direct sales. So we will be having a complete clinch of graph. Even in Fans, I would say that we are focusing on the premium side of the business. But the only place we are -- where we are not there is the economy front. But otherwise, we are into great model category and on the premium category. So we are pretty much there in the entire portfolio of Fans other than, which is 25%, 30% of the market which is the low-cost, low-quality fan.But on your question on CapEx, very limited CapEx will be done on washing machines and refrigerators. As I said, we are not putting our plant specificity right now, but as Rajiv mentioned, that we -- we will be developing the storage on ODN business. So the investments in those are more towards the end.
Okay. Sir, my second question is, basically, we've seen macro headwinds across all the product categories. Is there any specific region where you faced more headwinds or any specific region where you've actually seen encouraging trends?
Geographically, there is not much distinction. On the customer segment-wise, as we've already explained, industrial versus consumer, there is a different -- differentiation, but not really geographically.
The next question is from the line of Naveen Trivedi from HDFC Securities.
Sir, considering many categories, you have seen that in channel inventory at low level. Sir, do you expect that there can be an opportunity to channel filling in the near term? And if that is so which categories you prefer -- you think that there is chances of filling the inventory in the long time?
See, it depends upon 2 things. One, obviously, the secondary and tertiary sales, also on the liquidity situation. So hopefully, things should start getting better and obviously, the government is definitely taking steps to make sure that the consumer sentiment improves, the liquidity improves. So hopefully, things should start getting better, but it depends upon a couple of such factors.
But sir, nothing you're expecting at least in the near term?
It's difficult to say. I don't know that it will happen immediately or it will take some more time. But as I said, last couple of weeks, we have seen some positive movement. So it's still to say whether this continues to sustain.
The next question is from the line of Shrinidhi Karlekar from HSBC.
Sir, my first question is on Lloyd ramp-up at the capacity. Sir, I just want to know of the expected sales in summer season, what percentage of products would be manufactured in your own factory if you can give? And how is it likely to ramp-up, say, coming into FY '22 and onwards?
Approximately about 70%. In, let's say, next 3 quarters, because, Shrinidhi, you must be aware that we are carrying inventory from the past as well. So I think by the time it fully ramped-up, by the time it starts reflecting in our inventory and the sales, I will claim that we -- I think you should assume 3 rolling quarters before we start accepting 60% to 70% and eventually, it will be 80-odd percent also but that could take a year plus.
Okay. And sir, another question again on Lloyd. So we intend to launch refri category. So initial cost related in terms of team building and investment in R&D, has that already reflected into your cost in SG&A and employee cost? Or it's likely to come on both in coming quarters?
Most of it is reflected. I don't think we need too many salespeople. The whole idea of portfolio proliferation is also the leverage, your overheads and the cost. So if you -- so I don't think there'll be significant cost increase because of the launch of the refrigerator. R&D, in any case, has been done for the last 1 year on the same.
Right. And sir, last one. Sir, it seems like channel destocking have had impact on our consumer part of the business. Would you say, sir, the underlying retail offtake, has that, like, retail customer sales have kind of worsened in Q3 versus Q2? Like, removing the destocking impact? I just want to understand how -- has the retail offtake worsened in Q3 versus Q2? If you could add any color on that.
A couple of quarters, yes, the retail offtake has been slow. And when we say retail offtake, it also includes the -- in our kind of product there are a lot of electrical contractors. So yes, because of the various liquidity situation, things have slowed down there as well.
The next question is from the line of Harish Poddar (sic) [ Ashish Poddar ] from Anand Rathi.
This is Ashish Poddar. My question is, again, on the Lloyd side. Sir, we are still saying that we have some old inventories and now we have also started our in-house production. So I think that our own products which can yet to be tested in the market, but do you see the perception or the dealer feedback changing because of -- they will be able to differentiate between what they were selling earlier and now what will be they selling in future? Sir, what kind of communication is there with the dealer distributor, if you can highlight some of the points there?
I think if you're referring to change in perception on the quality, first of all, the product with Lloyd always gave even from -- by getting was of a good quality, so reality is that the quality perception was good. It was -- the brand perception was not so high, it has been changing over last couple of years. And in terms of our own factory production, I think the way we've looked at it is not just the product, but seeing is believing, the way we are manufacturing the product is the best way to communicate to the dealer regarding the quality of the product. So that's what we'll be focusing upon.
And in terms of pricing, I think you have also done lot of pricing corrections. Now your pricing are very much competitive with the larger players. How do you see the acceptability of that in markets considering the brand perception of Lloyd, which was there earlier? So what kind of confidence you are getting from the channel that these kind of price revisions are very well expected in the market?
I think the price increases, which happened last year, was a bit forced upon us because of the cost of the product. But now, as again, we've mentioned many times that we are -- we have a much better hang on quality, cost and supply chain. So costs remaining competitive. We have corrected our pricing to that extent and which has created a very positive sentiment amongst the channel.
So if you can give some color on the larger players vis-Ă -vis your pricing, what kind of price gap is there on a like-to-like basis? Just to give a flavor about our positioning in the category.
Yes. So this last 1 year or so I -- there is no distinction between larger, better multinational brands or anything. Everybody is working to selling ACs at competitive rates. So I think what we have done over the last couple of years regarding brand perception, channel expansion, the consumer-end channel is expecting us among the top brands. So that is the reflection of -- and the fact that whatever corrections that we've now made, which are very close to all the other leading brands, is being accepted well by the channel.
Okay. My last question is on your core category. As you mentioned that in last 2, 3 weeks, you have seen traction in -- so which are the product categories where you have seen better traction? And where do you see there is scope for traction in this quarter? Any green shoots there, sir?
Yes. Green shoots are positive generally, I can't really go product by product at this stage, but generally, there is a little bit of positivity, but I don't want really to be sounding extremely positive because a lot of corrections still have to be taken place. And I think, let's try and remain a very strong organization for the next 2 or 3 quarters. That's the time when others definitely will be making mistakes. Our focus should be on winning market share during this quarter, these quarters.
The next question is from the line of Ankit Babel from Subhkam Ventures.
Sir, just 2 questions. One is, what was the volume growth or degrowth in Q3 in your Cable business?
Yes. So on the power cable side, I think as we talked even around the degrowth of close to 20%. And I think the -- there had been value growth also because the cost of aluminum has come down since last year. So I think 5% will be attributed to that. So maybe, let's say, 18%, 20% volume, and I think 23-odd is value.
Okay. And sir, what's your outlook here? I mean what kind of growth you are anticipating in this business going forward?
See, Cable, sometimes it's very difficult to value it on a quarterly basis. And I think the -- each headwind business is facing, particularly in domestic, domestic market is, I think, even as we talked about the liquidity issues, the government not releasing the payments, electrical contractors having challenges. So I think, to our mind, it is also ready to macro-wheel to whatever it takes to grow the business, but I think as of now, it's difficult to give sort of any guidance on the same.
Okay. And my second question is on your CapEx, what are your CapEx plans for FY '20 and '21?
FY '20, we'll end around INR 500 crores. '21, we'll announce sometime in March.
March.
Okay. And sir, just one small question on your Switchgears business. Now that business is very volatile. 1 year, it grows at 0%, second year grows at double digit. So what is the outlook on that business, sir?
The outlook is very strong still, because we are growing not only in brands and products, on Switchgears, this domestic survey protection as well as seclusion process. Where it has not performed very well is on the industrial survey protection this year because our industrial survey protection also goes in infra and government a lot. So there, we've seen degrowth in this year. But domestic survey protection, which is still the larger part of the business, it continues to do well. I mean there is -- overall, there is sluggishness in the real estate demand generally over last 3 or 4 years and that's contributed to this muted growth in this category. But we can't really be seeing 1 -- quarter-on-quarter this. Some year it grows maybe, yes, with the liquidity and the demand in the industrial sector was better.
The next question is from the line of Ansuman Deb from ICICI Securities.
My question was that in a lower-demand scenario, when typically dealers are stocking less of inventory, are we with the higher amount of premium portfolio being impacted more? That is one question. And the second is, if you could elaborate some of the rural distribution initiatives that we were discussing in the last 2 quarters? These are the 2 -- my 2 questions.
Yes, I don't see that there is the down-trading of the consumer or anything there and hence, the premium products help less as compared to the low-cost product. So there is general discounting, which starts happening by some of the companies during this time. For example, in some -- one of the AC companies would increase the credit terms in the month of December, if they have not completed their annual targets or something. But that is, again, depends upon company to company. So it's not really down-trading by the consumer. So what was the other question?
The rural distribution initiatives.
Yes. So on rural, we are expanding fast. We have appointed super distributors, we have appointed a full team. And we have appointed close to about 1,800 distributors in the rural areas. The target is to take it up to 3,000 towns in another 1 year, which means 3,000 distributors. So that's running well for us. It's almost a new business, so all contributing maybe close to about INR 120 crores, INR 130 crores by rural business this year.
The next question is from the line of Amandeep Singh from Ambit Capital.
So sir, as you earlier mentioned that Fans stocking got delayed, which also impacted the ECD segment. Can you guide us on how was the region-wise demand? And if the momentum has picked up in January this month?
Yes. Too short a period to say momentum has picked up or, but yes, generally things are a bit positive now. And hopefully, this should be a good season for Fans as well.
And sir, demand was impacted. Any specific region wise or it was across geographies?
No, across geographies.
Across geographies.
The next question is from the line of Amnish Agarwal from Prabhudas Lilladher.
Yes. Sir, I have one question on the employee expenses. If we look at the employee expenses during the quarter, so this is considerably lower in comparison to what we had in 1Q and 2Q. So is there some employee or the sales for rationalization which has happened at the company's end?
Yes. Yes, a little bit of, as I said in my earlier question that there is reworking on the structures and some rationalization has already happened. And -- but I think we are now at a very prudent level of organization structure.
So this kind of the run rate is likely to sustain from here on?
That's right. Correct.
Okay. And secondly, sir, you just talked about the -- your expansion in rural distribution, so can you share with us as of now, how much would be the sales contribution coming from rural areas and small towns?
As I said, we've -- in the entire year, we'll be doing close to about INR 100 crores, INR 120 crores.
The next question is from line of Pawan Parakh from Renaissance Investment.
This is [ Shreyans ]. Just a question on the consumer side of the business. So what I wanted to understand is when the revival happen -- as and when it happens, do you think we're in a place where we can grow faster than the industry?
Of course, I think that's the work that has been going on. Our investment in brand, distribution, R&D, production, supply chain, I think that is a continuous process where we are not stopping any activity on that. So these are the times I believe that the company should strengthen its core strength and take advantage of when the markets turn around. So definitely, we should be helped when the markets turn around.
Okay. And second was on the Lloyd side of the business. So we've done -- we have put up a plant and everything has worked in our favor. Now second thing was, what are we doing on the consumer side of the business because what happens is when we talk to dealer distributors, their sense is the customers aren't ready to pay a premium for the product because they don't resonate with higher price for Lloyd. So what is our sense on that side? Are we doing anything to educate them? Or how do we plan to take action in such case?
I think the first and foremost challenge is to change the mindsets of the dealers and distributors itself, which we are already doing by showing them the product, showing them the factory. And this might be a little bit outdated information because over the last 2 years or so our products have been selling at a premium to even the market leaders. So I don't think that is a big challenge anymore. We might have had -- we might be forced to take a little bit of a more premium because of the high cost last year for us. But now, considering today, I don't think that is a big challenge for us and that's why growth has started coming back. So it might be a little bit dated information. In fact, in this industry, I've seen that the volume leader is not really the price leader also. So that's a little bit of a typicality of this industry, otherwise, generally speaking, volume leaders are the premium players and the price leaders as well.
Ladies and gentlemen, due to time constraint, that was the last question. I now hand the conference over to Mr. Ravi Swaminathan for the closing comments.
Yes, I would like to thank the management for giving us the opportunity to hold the call. And I would like to thank all the participants who attended the call. Any closing comments from the management side, sir?
No, thank you very much for being on the call. Thank you.
Yes, thanks.
Ladies and gentlemen, on behalf of Spark Capital Advisors, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.