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Havells India Ltd
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Ladies and gentlemen, welcome to the Q4 FY '20 Results Call of Havells India Limited, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Naval Seth of Emkay Global. Thank you, and over to you, sir.
Thank you, Margaret. Good morning, everyone. I would like to welcome the management and thank them for giving us this opportunity. We have with us Mr. Anil Rai Gupta, Chairman and Managing Director; Mr. Rajesh Kumar Gupta, Director, Finance and Group CFO; and Mr. Rajiv Goel, Executive Director.I would now hand over the call to the management for their opening remarks. Over to you, sir.
Thank you very much, Naval. This is Anil Rai Gupta. Good morning, everyone. We hope everyone is safe, secure and healthy. During current times, safety of all our employees and stakeholders is paramount. We moved to work from home on the 21st of March, though the activities were disrupted from 15th of March itself. We are gradually and cautiously resuming activities, initiating with our factories. Markets are in slow pace as customers and dealers act with caution. The pickup is relatively better at semiurban and rural areas, while urban areas continue to be challenging owing to the lockdown.We have been in constant communication with our employees and dealers. I led a live streaming with our 5,000 employees and 9,000 dealers to apprise them of our efforts to protect their interest and well-being. Prior to the lockdown, we had sufficient cash balance, and we have been regular in paying dues for employees, vendors and all statutory and government dues.The year-end incentive schemes for our dealers were also settled and paid on 31st March itself, which was widely appreciated by the fraternity. We have further bolstered our cash reserves with further credit lines for any eventuality.Q4 had started on a healthy note with consumer businesses growing in double digits in the first 2 months. Lloyd had a spectacular growth in Jan-Feb and had gained momentum for March closure. However, the loss of the last 15 days had a crippling effect on the Q4 performance.Being a year-end and a quarter end, later part of March has a disproportionate effect on the quarter sales, contributing as much as 25% of the sales. We feel, had disruption not occurred, we could have grown Q4 at 9%.The external environment continues to be challenging, volatile and evolving. We are responding to the emerging scenario with agility and preparedness. We currently wish that the epidemic is controlled and economic activities resume in a very short period.We'll now proceed for Q&A. Naval, we can start the Q&A.
Sure, sir. Margaret?
[Operator Instructions] We have the first question from the line of Venugopal from Bernstein.
Given that you've seen -- you've restarted production partially, and I'm assuming that some retail would have also commenced, you mentioned about semiurban, rural, given the fact that urban lockdowns are continuing, could you also give us some understanding of product category-wise in terms of where you're actually seeing some strength in terms of dealer purchases from you or in terms of the retail side of things? And also, if you could give us a perspective on B2G, is government also coming back and restarting ordering? So that's my first question.
Well, Venugopal, good question. I think what I would say at this present time because it's a very short period of time when economic activities started on the 4th of May. So we've just seen 7 or 8 days of economic activity. So I'll base my replies based on what we've seen just in the last few days. And so what we've seen is that the urban areas are still opening up very -- in a very small way. But there is no demand coming up from rural and semiurban.Now there could be a possibility that during the month of April, some of the stocks would have depleted in these areas where they would have opened some shops and started selling some materials. Generally speaking, March is a month where -- February and March, dealers start picking up material for the year-end closure. Though the major sales happened during the last 10 days, but still, there is a little bit higher pickup. This was also a special year where -- in February, we saw a little bit more pickup for air conditioners because generally, people were expecting that there may be some slowdown in sales -- primary sales from companies during the month of March and shortage of supplies because of China closure.So there were enough stocks built up at the dealers' end. And in reality, we are also a little bit pleasantly surprised with the start of some activity primary sales. However, it is restricted to products like fans, air conditioners, which obviously are seasonal products, which also shows that if the dealers are picking up at this time, they definitely are not picking up for stocking, they have secondary and tertiary sales happening at their counters. Also, we see pickup in domestic wires sales, which also means maybe in very small towns, maybe some construction activities were continuing during the lockdown period as well. And hence, some requirements of wires are also coming in.We also see small product category like personal grooming immediately seen -- witnessing a pickup. So it is sporadic, but because of our efforts in the distribution in semiurban and rural areas, we're also seeing some demand coming from the rural areas for lighting products and fans, especially that are Rio brand. So there is a mix of everything. I would say first 7 or 8 days is a little bit better than what we were expecting.
That's a good color. The second question is more on the channel side of things. In terms of what kind of incremental support is the channel expecting from you? Or do you think it's actually not required because it's just like a 1-month lockdown? And more importantly, is there -- as you open up and start supplying to the channel, is there any expectation of better terms from the dealers at this juncture because they might still not be fully up and running, so is the terms of trade going change? Is there a channel inventory problem in specific areas and more importantly, financing side of dealers? I think this is my last question. So this is the second and last question.
I think, again, I would say that during the last 45 days or so, we've seen -- though we were expecting 0 to nil collection during this period, we saw collections starting from the first week of April. The first 7 or 8 days, the collections were very low from the dealers. And I think in our case, we've seen more responsible activity coming from all sets of dealers rather than just delaying the payments. So there -- I think a mix of many things -- our timely settlement of their credit notes for the entire year. The fact that we also have some long-term funds available for such times where dealers can use that. So a lot of that was also used. So we are not really in a problem where the dealers are expecting very long lines of credit from the company. So when the economic activity has started, I think generally speaking, we are in a much better shape. And there is no great expectation of credit lines.Also, I would say that at this point of time, there's not enough requirement for heavy discounting or anything of that sort. In fact, as I said, the sales are not really pushed-based sales, it's mostly pull-based sales. So it's -- so on both the things, I would say, not really.
The next question is from the line of Sonali Salgaonkar from Jefferies India.
Sir, my first question is very approximately what proportion of our sales is emanating from urban cities? By that, I mean Tier 1, metros, et cetera?
Right now, it would be anywhere between 30% to 40%.
Got it. Sir, and in the first -- after a slight resumption that you have mentioned from 4th of May, again, ballpark, what proportion of our retail touch points or sales points would have opened?
It depends, again, on the areas. So in the red zones, maybe about 35%, 40%. But in the orange and greens zones, most of the shops have opened, but with very limited activity. So we are witnessing maybe 30% to 40% activity in those shops in orange and green zones.
All right. So altogether, about 30% to 40% might have opened as of now?
Yes.
Sir, and any color on the pickup of at least our summer products, the demand for our summer products, given that the lockdown is getting extended and the red zones are the Tier 1 cities and the metros?
Yes. I think as far as summer products are concerned, the best part of the season is already gone. So March and April are -- especially in the northern parts of the country and most of the -- other than south, March and April are the biggest months. So most of that sales is lost. So whatever is happening is, again, need-based. And I think during this time, as I said, the dealers would be initially clearing up their stocks because they also don't want to be left with huge inventory after the season gets over. So whatever sales activity that we are seeing in air conditioners and fans, I'm pretty sure that it's based on replenishment models rather than extra stocking by the dealers.
Got it, sir. Sir, and on the resumption, I mean, how -- probably how many weeks or when -- by when do you foresee a majority of our outlooks opening up?
Your guess is as good as mine. So we are trying to respond to the situation as it pans out. We are -- I think the best part of this crisis that we've seen is that the organization is extremely flexible and resilient, whether it's our production activities or warehousing activities. So we are quite well equipped to serve the needs as and when things open up. So -- but as I said, it's not really known what will happen in the next 30 days, 60 days. But we are quite flexible to operate in any way, even our production systems, yes.
[Operator Instructions] We have the next question from the line of Harish Bihani from ICICI Prudential.
Given the current context, what are the kind of changes initiatives that you would take both on the revenue and cost functions?
Revenue and the cost side?
Yes.
So on the revenue side, I wouldn't say much. As I said, again the...
When I -- sorry, when I mean revenue, I mean that any changes in the way distribution was done or maybe a new channel, et cetera, that you are thinking of or more prominent online sales, et cetera? And then on the cost function?
Yes. I think -- I was about to say that over the last 3 or 4 years, the company has sort of worked upon the fact that we have been very, very strong in the traditional channel. But if you know that we've been working on becoming an omnipresent -- omnichannel presence organization, whether it is for Havells or for Lloyd. In fact, when we acquired Lloyd, it was primarily a distribution-based company. And within the last 2 years, we completely revamped the distribution network and now 35% of the sales are coming from modern format stores, including online.So I think what we are seeing is -- and I don't want to give general [Foreign Language] on this call because everybody knows trends will change over a period of time. How trends will change, whether online sales will happen more, whether it will be for a shorter period of time, maybe next 6 months, 1 year when COVID scare is there or the habit [Technical Difficulty]. So to continue, I would not spend too much time on that. All I can say is that the organization is quite ready with the work, which is there for the last 3 or 4 years. Also spending a lot of money on digitization of the company, which will definitely help us going forward.And we are getting prepared for all kinds of changes which may come in the consumer behavior. Whether they want to buy online, whether they want to buy through a marketplace, whether they want to buy through Havells e-store, whether -- and whether we should be combining our traditional channel along with the online channel? So a lot of activities in the background are happening. Again, the focus is that the customer should be served wherever they are and from wherever they want. That's what the focus of the organization is.
Hello? Can you hear me?
Yes.
In terms of cost initiatives?
So again, COVID is teaching us a lot of things, and I'm sure all organizations would be looking at their cost structures, and again, each and every aspect, wherever there are ways, so that costs are being looked at, whether it's in the factories, offices, sales activity. So again, I would say, automation, digitization, virtualization will help reduce the cost anywhere, which is there, which is in the -- which is already in the works. And overall, it will teach us new ways of thinking. So a lot of focus on the cost structure as well. But as I said, on all aspects, whether it is our service network, whether it is our supply chain, factories, branch offices, commercial spaces, all those activities, we are looking at cost-saving measures. But it is not just to take care of the impact of, let's say, COVID, I think what we are trying to look at is the newer ways of working for the future and how we can make the organization far more flexible and resilient for the future.
The next question is from the line of Nitin Arora from Axis Mutual Fund.
Sir, my first question is, when you said, just going back to your 9% adjusted growth, which you said if COVID would have not been there. I'm asking this question more to understand from a category perspective, you're talking about a INR 3,000 crores sales in Q4 if COVID would have not been there. That's INR 800 crore incremental and INR 350 crore on a Y-on-Y increase. Is it largely Lloyd, which has declined the contribution would be INR 100 crore, INR 150 crore only from there because Cable itself, which is a large proportion of our overall revenue, you yourself was saying in the presentation that's declining because of the commodity pressure as well in terms of pricing. So where does that growth in the category was coming where you actually expected a 9% growth? That is my first question.The second, with respect to costing, I think that's based on that topic, has there been a very high pay cut in the employee part? Or it's more of provision write-back which has happened in the staff cost, where you have -- we have seen sequentially INR 40 crore, INR 50 crore reduction? If you can touch base on that, what's the recurring number we should look at for the staff costs part? Those are the 2 questions.
Yes. So on the first part, there is -- I'll ask Rajiv to reply on the first question. On the second question, there are no pay cuts. And if any, in the last few, some add backs of provisions could have happened because of the variable pay plans and the stock options. Otherwise, there is no pay cut for last year as well as we've not announced any pay cut as of now. Rajiv, would you take the first question?
Yes. So Nitin, in the Jan and Feb, I just want to give you a glimpse. As Anil said in his opening remarks, we had a very good growth in the Havells consumer. And the Lloyd was on spectacular growth. So Lloyd growth in the first 2 months was to the extent of 45%. And even though March was a slightly higher month, we were expecting at least a 33% growth there. That alone could have added another INR 250 crores you see in the -- what we lost in the last 15 days because it's not just 10 days, it's almost 17 days we lost. And these things just gather momentum at the fag end of the year and then March happens to be peculiar month with both the quarter as well as the annual closing.Similarly, in the first 2 months, we had a good growth in Switchgears. Switchgears, we had almost to 15%. And even on ECD -- Havells ECD, I'm talking, is almost 24% growth. If we take that -- and Cable definitely, there was a decline in the first month, and we were expecting that decline could have continued in the quarter as well. And so there could -- there are significant addition accruing both from the ECD and Switchgears. And Cable, even a decline would have added numbers. So yes, we were looking at -- we believe that we have lost almost close to INR 800 crores sales, you see this in regional dealers, which is, I think, largely contributed by Lloyd and then followed by ECD and Switchgears in terms of the loss.
And in terms of provision write-back, what could be that number in staff costs?
Hello? Your voice is not clear.
Yes. So in terms of provision write-back, what would be that number?
The provision write-back, there is no significant number. I think I'm talking sales. You're talking of the cost, right now, then?
Yes. Yes, cost. The staff cost.
But I think it is in line with the reduced sales because most of the provision write-back would have been because the sales didn't occur at the desired level. And a lot of these incentives and provisions are built upon the particular level of the sales. So even though we have been slightly liberal with our dealers, but definitely with the INR 800 crores loss in the sales, there would be impact on the relevant provisions.
So that means we would be back to INR 230 crore, INR 240 crore kind of a run rate in staff costs. Is that the right way to assume?
I don't have number as of now, but we can separately discuss that.
Your next question is from the line of Keyur Pandya from ICICI Prudential Life.
Sir, my question is -- hello?
Yes.
Sir, as you mentioned that March being a very heavy month being quarter end and year-end, so you could have lost out some sales, so does it mean that the inventory in the system is not so high and primary sales should happen as and when the secondary demand comes up, so there shouldn't be a huge gap between primary and secondary sales as the demand picks up gradually?
Yes. Generally, because of March ending closing scheme, there is a major pickup of sales in the last 10, 15 days of March. And the March ending inventories for dealers are higher, but that gets adjusted over the next 1 or 2 months. So I would say the inventories would be actually high, especially for seasonal products like fans and air conditioners. The rest of the products would be not that high.
Okay. Okay. And categories like Switchgears -- second question is categories like Switchgears, Cables and Wires and Lighting, where either B2B exposure is higher? Or B2B to B2G kind of exposure is higher? Or it is more linked to real estate. So do you think the growth rate would be lower [indiscernible] what is your view among the core Havells category on the relative growth going ahead?
So I believe it's a question of timing. But I think in fact, the first question asked by Venugopal also maybe I skipped that part of the B2B and B2G part. But going back to that question as well as yours, I believe that the initial pickup may happen more in the consumer categories rather than the industrial and construction-related to only B2 -- kind of -- and this is only a time lag. I don't know whether that time lag would be 1 month or 2 months. But the initial pickup will be higher for the consumer categories.
Okay. I mean the context was that even before this COVID phenomena, we were witnessing slower growth for Wires and Cables and Switchgears already. So this would have even further deteriorated the situation. So...
So yes, part of that was mainly contributed by the industrial sales. Industrial, which means industrial and CapEx-related, government-related sales. So whether it is in the professional lighting part of lighting, so consumer lighting was going well. In the Cables and Wires, domestic wires were doing well, but the underground cables was slow. And again, in the Switchgear part, the industrial switchgear was slow. So up till 9 months, that's the trend that we have seen. There's overall macroeconomic weakness anyway, but this was the part which was showing much lesser growth or degrowth as compared to the other categories. And that is why I'm saying that, that trend may continue till, of course, newer investments are announced and construction activity come back in a major way.
The next question is from the line of [ Eugene ] from Tokio Marine.
Yes. Congratulations on your results. Can I just clarify, you mentioned in your opening remarks that the back end of March is 25% of the quarter sales. I just want to make sure I understood that right. And also which products are more back-end loaded, if you could share?
So back end of March is -- yes, your understanding is right, approximately because a lot of contractor sales happen during that time. So it's also for -- not just for the seasonal products, but for all kinds of products, which -- and there are dealer incentives which we are closing on the end of March as well. But there is definitely a higher percentage of sales, which happened for air conditioners and fans as well in the end of March. But that cannot contribute to the entire loss of sales. So it is prevalent across all categories, so the higher share would be for the seasonal products like fans and air conditioners.
Okay. Got it. And you mentioned also in the first question that the -- there was a pickup in January and February because of the supply chain disruptions in China. I just want to get a sense of how much those sales were front-loaded in January and February because of the concern that maybe the supply chain would be disrupted? And if you normalize for that, if there's a way to do that, what would have been the normalized Jan and Feb sales? Would it still be 9%? Or would it be another figure?
Right. So I think Rajiv mentioned in his remarks also that while Lloyd -- so this is primarily for air conditioners because that was the general feeling that...
Hello?
Hello? Can you hear me? Hello? Can you hear me?
Yes, sir, we can hear you.
Hello?
So...
Yes, sir, please go ahead.
So for the products like air conditioners, there was a general feeling amongst the trade that because of disruption in supplies from China and not necessarily finished products, but also the components which go into the product making with the product, there could be a shortage of supplies in the months of March and April. And hence the trade started picking up more material and not just for us but for other competitors as well. That's why while -- and we had transformed a lot of activities, including in our distribution, and our manufacturing has started sometime in September, October, which is giving a lot of confidence to the trade. So we were anyway seeing a pickup for Lloyd sales. So that's why while we have front-loaded part of that, and that's why we were taking a growth expectation of March -- in March, only of 20% as against 45% in January and February. And that's how this number was arrived at, that we lost almost about INR 225 crores, INR 250 crores of sales in Lloyd.
The next question is from the line of Padma Mitra (sic) [ Arnab Mitra ] from Crédit Suisse.
My first question was on Fans and Lloyd, which is the 2 seasonal -- where we are in the middle of the season. So even if you assume that the red zone retail actually opens up sometime in May, is it too late to salvage any of the lost sales in April and March? Or do you think there is still some time if the -- if it opens up sometime in May to salvage some of the lost sales in the last 2 months?
Well, I would say, it is too late, first of all, to salvage the main part of the sales. Two, there will be some pent-up demand, and that will be cater to in the months of May and June. However, as I said in my initial remarks also that even if there is a pickup of sales, the first possibility by the trade would be to clear off their costs, which may also have been higher because of whatever things that you have discussed now -- until now. So the initial thing would be and there will be more demand based pickup, primary pickup rather than push-based pick up.
Sure. My second question was that there is a view that there could be a fundamental pickup in small appliances, kitchen appliances, personal grooming and things like that as a result of the lockdown. And -- but I know these are not very big segments for you, but you do have a presence here. Is your supply chain good enough right now in this category to take care of, let's say, pickup in demand or to take care of the opportunity that may be created here?
Yes, other than personal grooming, most of the products we manufacture in India in our own factories. So it is -- the supply chain is well equipped to take care of the pickup in demand. You're right, there is -- initially, first of all, in personal grooming, there is a pent-up demand anyway, which is being catered to. Even in appliances, though, not right now, but over a longer period of time, we will see pickup as you rightly -- for many reasons, I think I don't need to go over that. But we are well equipped to take care of that.
Next question is from the line of Chirag Shah from CLSA.
So if I understand it right, a large part of your dealer margins are also made in terms of the annual incentives, which is part of the earnings. Now is that also one of the reasons why there was a higher sales loss in the noncooling products for the end March sales? And what have we done in terms of adjustment for dealers for their annual incentives because that is the key part of their earnings?And my second question, if I may ask, is on the Switchgears margins. Now I understand that the correction in margins is largely because of operating leverage. But is there also a mix issue here where there was more export orders versus domestic orders for the quarter?
So yes. So first part of the question, I would say that frankly speaking, as you may be aware that Havells is the most dealer-friendly company. And the way we've settled the dealers and the kind of reports that we are getting, the dealers are extremely satisfied. First of all, timely payment of credit notes, which takes care of their outstandings and the interest which they have to pay to the banks for the channel financing. So rather than keeping their money for another 1 or 2 months with the excuse of the lockdown, we paid their credit notes on the 1st of April itself, so which is a very big positive. Two, settlement of their credit notes, according to their satisfaction, I would say, I can't go into the details of how we settled each and every credit note, but I would say that it is entirely to the dealer satisfactions, which -- and they are not complaining anything about their annual margins at all. So that's taken care of.Sorry, second part of the question?
On the Switchgear side, was there a mix-related issue?
On the Switchgear side, definitely, domestic sales are a bit lopsided towards the month end and the quarter end, whereas export sales continue to happen over the quarter. So yes, there is a little bit of mix of that, but primarily, a lot of that is operating leverage.
Next question is from the line of Ravi Swaminathan from Spark Capital.
A couple of questions. One is from a cost perspective, are there any cuts in ad spends semi-variable costs and CapEx during this year? You had mentioned that the employee cost would largely remain same or there are no salary cuts there in terms of employees.And my second question is slightly long term. So basically, do you see weaker players exiting over a 2- to 3-year period because of this COVID disruption?
Sorry, Ravi, I didn't understand the second question.
I mean I just asked, so basically, do you expect weaker players in the trade -- competitors, weaker competitors to exit the space due to the COVID disruption that is happening this year?
So on the first part, definitely, Ravi, depending upon the situation, we will be adjusting the spends that we do as an organization, both on the marcom side as well as the CapEx side. So we are, first of all, understanding the trends, which will be changing in the consumer insight. And then only we'll be putting in our money rather than just putting the money. So buildup of sales has to happen, understanding the consumer trend and where we want to put our money, so marcom will be dependent upon that.The CapEx, I would say, the first and foremost thing for any organization during a crisis is actually to protect the funds and making sure that the company is liquid during any crisis. This is one of the biggest crisis that we have ever seen and probably ever see. So I would say that, yes, we have taken a view on CapEx as well. And again, as I said, we are a very flexible organization. And as and when situation changes, we'll immediately put in all things for the CapEx.Thankfully, our CapEx over the last couple of years was enough to take care of the requirements as of now. Most of the CapEx, which was happening was not something which was immediately needed, something which was built for the employees which was getting built for the future. So I don't see any major issues in terms of -- even if there's some deferment of CapEx for a few months or a couple of quarters, so that's not a big deal. Again, we can't really give a time line to it, but it all depends upon the situation.And thirdly, I really can't say. This is not really an economic event like GST or like financial crisis. So at this point of time, we are not looking at the competitive space. It's, again, the fact is how the consumer will change and how, as an organization, we are getting equipped to cater to that. Because of this change, some people are not able to cater to that. I really can't say at this present moment. Ravi, is that okay?
Yes, it's fine.
Yes.
The next question is from the line of Ashish Poddar from Anand Rathi Research.
Yes. So I think in some way, you mentioned that there were some front-loading of purchases from the dealer/distributor on the concerns of unavailability, and this is what I also gathered from the discussion with lots of distributors across India. So thanks for that. My question is on the gross margin side. So this time, we saw a significant dip in the gross margin, which normally I see in every year, there will be some contraction. So it is largely due to business product mix? Or is this time there was something else which had a higher impact on gross margins?
In any particular category or Havells overall...
No, in general, overall, I'm talking about.
Sure. No, this is -- this primarily is when you lose quite a large part of your sales, operating leverage takes care because production keeps happening. So there is a big issue of operating leverage. So I would just attribute it to that.
Okay. So you're saying it is largely due to product mix and some kind of operating leverage?
Right.
Right. On your depreciation, this time, we saw some uptick on the depreciation, maybe due to the resumption of -- or commercial production of your AC plant, so this kind of run rate will continue? Or we may see a higher number going forward?
No, this will -- the depreciation is largely on account of, as you rightly said, commercialization of Lloyd as well as Ind AS 116, which has also come into effect. So I think these will continue to be similar, right? We don't think it's going to be increasing. Now the bump has come in because of the Lloyd capitalization.
So we have capitalized the whole impact in Q4 number. This is what I'm just trying to clarify.
Yes.
Next question is from the line of Renu Baid from IIFL.
Just 2 small clarifications required. You did mention that we'll review our strategies for marcom, et cetera. But how should one look at the pipeline of new product launches that we had planned, including ramp-up of the portfolio in Lloyd along with the launch [indiscernible]? So how does the strategy pan out there? So 2 quarters assuming by Diwali, we are near normal or however the environment plays out, what would be the outlook in terms of new product launches and portfolio expansion for the year?
Yes. None of those things are delayed either from a financial perspective or from the perspective of the fact that lockdown stopped any work for anyone. In fact, I would say that primarily the entire organization, like other than production and sales, so maybe background work was continuing to happen. So R&D has not stopped, any of our projects, new launches have not stopped. And barring a little bit of maybe some delay due to not having to do -- not having been able to do, let's say, the prototyping in time because of lockdowns or anything. Otherwise, everything is going to happen. And there is no cut down on any expenditure there.
So the launch of [indiscernible] and other segments should be expected broadly by Diwali or it should be prior to that?
Maybe as I said, a little bit of a delay, but just by a few days or a month or so.
Sure. Second, sir, you did mention that it's not that we have taken permanent cost cuts or cost-out actions, but there has been a meaningful and visible reduction in the unallocables also, which is a factor of some of the variables getting reversed as well as ad spend coming down. So how should one look at? Because we had also initiated certain cost-out actions in the third quarter itself, rationalizing across elements. So how should we look at the cost structure? Should the part of the cost savings seen be retained for the rest of the year? Or you think it's just temporary adjustment, the cost will bounce back once the revenues also bounce back?
No. As you rightly said, second half saw some cost-out measures anyway by the company. I think we can take that as an ongoing thing. Obviously, marcom coming down in the fourth quarter because of, let's say, the seasonal products, advertising has not happened. When things come back to real normal, not -- I'm not saying in the next 1 or 2 months, but when those things will definitely have to go back, will go back.
Right. And there's just last clarification, which I was wanting was on channel inventory. So from what I get, it's only channel inventory built up in your view has been in the seasonal products of fans and air conditioners. Otherwise, channel inventory across all other segments have been pretty lean.
Channel inventory, I would say, is normal considering the fact that January, February, March, normal sales would have happened. If March, last 10, 15 days, sales would have happened and then the lockdown would have happened after 31st of March, I would have said channel inventory is high because -- but otherwise, I would say that other than the seasonal products, channel inventory would be at normalized levels.
Next question is from the line of Bhavin Vithlani from SBI.
Really remarkable job on taking the cost out. So just one question. Do you actually see that there could be down-trading in the consumption patterns? And are you actually looking to tweak your product launch strategy, maybe pushing the Rio more than that you were looking earlier?
Yes, I don't see a major change in strategy from a point of view of lower-cost products and all that. I've always maintained that our various brands cater to different needs of customers. Rio is definitely a different need for a consumer, not a lower-priced product. And MCB, for example, for an urban house, maybe a certain product of a Rio may not cater to because they see a lower backing capacity. Whereas in a certain low affordable housing, it can cater to. So I don't see major change in product strategy because of COVID that people will down trade or anything on that. So it's -- Havells is not a luxury player. We are more of a mass premium player. And mass premium is basically because of the product specifications, and I don't think that will -- people will be down-trading to because of COVID.
Yes. The second question is, what should be the normalized ad spends that one should be looking at for the year versus '21, versus '22? And are you actually looking to change any of the strategy given the current situation?
Definitely, a lot of strategy will change, which means the media would change, and we'll have to -- again, as I said earlier, we'll have to keep evaluating that. See, this is a time where we really can't be in a position to give you a guidance of what will be these levels which -- of everything. As I said, as an organization, the first and foremost thing is to come out of this crisis with flying colors, which I believe, as an organization, we have done a very decent job of that, while maintaining the value systems for all the stakeholders.So -- and the second thing is to constantly keep evaluating the trends. And let's say, if I say, we've traditionally been spending 3.5% of marcom, would we continue to do so when normalized sales levels happen? It will, again, all depend upon what is needed at that point of time to keep the brand alive and keep the consumers' expectations in mind. So whether that will be 3%, 3.5%, 4%, we don't know at this present moment. I think the first and foremost thing is that the normalized working should come at the earliest. That's what we are all striving for.
One last question, if I may? Some of your B2B products, do you actually see an opportunity to work on the export side like Switchgears, Wires, Cables, et cetera?
Hello, Margaret, can you hear me?
Yes, sir, I can hear you. Sir, I can hear you. Anil, sir, can you hear me? [Operator Instructions] [Technical Difficulty]Ladies and gentlemen, we now have Mr. Gupta connected. Sir, can you please repeat your question?
Sure. Sir, do you see an opportunity for exports in some of your B2B products like Switchgears and Wires and Cables? And are you building on that?
I think there is a general sentiment going towards, let's say, anti-China, non-India all over the world. And we have to be agile in terms of taking advantage of the situation. And I think our -- we are constantly evaluating all the opportunities. And yes, definitely, there will be more focus on the international side as well from the company.
Next question is from the line of Rahul Gajare from Haitong.
Sir, I have got only one question remaining. Given that we've seen decent growth in the first 9 months in the consumer durable business and even in the -- on a full year basis, we've seen some growth over there. Could you tell us which segment within ECDs have actually done well? How much would fans, water heater would contribute? And also given that you move Pump from Switchgear to ECD, how much does Pump make up in the ECD revenue?
Rajiv, would you take that question?
Yes. Fan, water heaters, we won't have individually. I think we have already talked about the ECD. The ECD growth was almost 23% in the first 2 months. And -- but we don't have the separate breakup within the ECD. But you can assume the other part will be fans only because it's a fan season, which was sort of forthcoming in March, April.
No. Actually, I was looking for the full year numbers, not Q4.
For fans and all, no, the breakup will not be there. You see, fans -- we have only ECD breakup. Rahul, we won't have much breakup on that.
And even -- given that you moved Pumps, so it makes sense to understand how much does Pump now contribute in ECD.
Pump is actually small. Pump is not a significant number.
Okay. And incrementally, over the next few years, within ECD, which are the main drivers you think will aid revenue growth?
You see, it will be everybody. ECD, I think, is a fairly promising category, especially led by France and then SDA, small -- I think somebody even commented before you that after the lockdown, people were getting more conscious of how they need to stock up their kitchens and the homes better in terms of the appliances. So we see a significant growth driver. I think we have discussed this earlier also. ECD will be the flag bearer of growth in Havells, I think, apart from Lloyd. So we see significant growth from all corners, including water heater, fans, small domestic appliances, even PG, personal grooming is doing very well, maybe there is a pent-up demand because people need to groom themselves better now in terms of being home. But we believe these trends will change -- at least a few of the trends will stay for some time now. These are not just going to go away after the lockdown is lifted. So we are fairly optimistic about the entire ECD category.
Next question is from the line of Achal Lohade from JM Financial.
I don't know if it is asked before, would it be possible to give us some sense about Lloyd in terms of a broader mix? Like what you had earlier mentioned, AC was about 70-odd percent of the revenues. And with respect to the mix in terms of modern retail and retail? And what has been the volume growth for FY '20, broadly?
Overall, you see, the mix is pretty much the same. It -- maybe it has grown in favor of AC further. LED has been sort of very disruptive year, particularly in Q3. In Q4, it is largely led by the air conditioner. So AC, in our view, would have further gained sort of internal proportionality within the product mix. And overall, also, I think there's a good growth in the AC. As we said in the first 2 months, the growth was almost 46%. And these are normally volume growth only because there is no growth in the value much except for some product mix.As far as the retail, definitely, I think our entire endeavor, you would recall, when we acquired Lloyd was also to get into the big retail chains. I think that has paid very well. And I think that is reflected in the whole year. But in Q4, it really gained momentum. So I think we have gained a significant share in the -- what we call, the modern retentions, the likes of Reliance, Croma in regional retail. So I think their strategy is now paying the dividend, while we continue to strengthen our distribution channel as well.
Would it be possible to give us some sense in terms of the mix, Rajivji?
Mix, when you say, what? The product mix or the channel mix?
Channel mix.
Channel mix, I think the -- look, the industry is almost 30%, 32% in terms of the modern retail or the big retail chains. I think we are almost holding in there, which, in my view, is fairly impressive because we never expected that in a few months -- I think this entire facility which has gone onstream -- the manufacturing facility for Lloyd, I think this will play very rich dividends in time to come. I think the way our product dealers will dedicate our large partners, which they did, I think it has created a very strong positive vibe about Lloyd. And I think after this anti-China sentiment, which you guys also alluding to, and I think Modi also yesterday, I think, he was [indiscernible] about that. I think this will play in favor of Havells. Even in any case, we were 93% always Make in India, and I think with this state-of-the-art factory capacity of almost in million ACs, I think this augurs fairly well for Lloyd in time to come.
And just last question, if I may? In terms of the overall company for core Havells business, what would be the mix in terms of the industrial and consumer?
Industrial, we have -- I think we mentioned around 20%, 22%. So I think that would be there. Hopefully, with this industrialization, which I think Modi's promising yesterday the land bank and Make in India and all, the industrial would also get a lag up. But industrial has been struggling for quite a couple of years, and consumer has been the real sort of bellwether for the businesses, including Havells. So we continue to remain confident, but ultimately, we are as good as the industry in terms of the -- how it pans out. So it is around 20%, 22%, just to answer the question.
The next question is from the line of Garima Mishra from Kotak Securities.
Just a continuation on the Lloyd question. Could you just comment on what is the proportion of online sales for Lloyd? And have you seen an increase, say, in the last 2, 3 months?
So online is fairly minimal for Lloyd. In fact, I would say it's not even a couple of percentage points because we decided that we will stay away for some time. There has been a lot of price disruptions on the online. So as of now, let's assume [Foreign Language] there is no online presence for Lloyd. However, it is now we are doing the O-to-O model, where there will be online channels through our website and it will be consummated offline. So that's something we started on a pilot basis because of the lockdown. And we have -- I will say, these are very initial days, but this is something I think we'll have to develop further. But if you ask me the crude numbers, then there's nothing much to talk about because we decide it to as it present as we speak.
Next question is from the line of [ Aadesh Mehta ] from Motilal Oswal Asset Management.
Sir, my questions have been answered. I wish you all the best.
Thank you.
The next question is from the line of Bhoomika Nair from IDFC.
[Technical Difficulty]
I'm sorry, Bhoomika, your line is breaking.
Hello? Am I audible now?
Yes.
Yes. Sir, I actually just missed the number on the level of inventory that channel would have for Lloyd as also our other product lines given that Jan-Feb was quite strong, and there was a good pickup in terms of channel inventory in those months. So how is the level of inventory now?
I think our view is that there will be inventory, but we see the biggest month always is March. So I think the fact that March didn't materialize, in my view, I think that's something have -- we don't have too much of disproportionate inventory in the channel. So I think channel inventory will be something pretty much managed now. And I think if we see the initial trend, which we are getting, though, I think they are fairly sort of a trickle right now, but whatever we gather from there, there is a demand which is there and the dealer is now sort of asking a replenishment. So we don't think there's an alarming situation. And if at all, I think in a few days, we will see that inventory level dipping further. So I think March, in that sense, since we could not do much in the heavy lifting in March, so the inventory is pretty much controllable, should not be a concern.
Okay. And you said that in terms of the secondary sales, broadly in orange zone, it's come back to some 30%, 40%, whereas red zones, it would be barely anything. Would that understanding be correct, sir?
Yes.
And how would it be in the primary sales in the initial 1 week? I know it's very early, but what would be the level of normalized sales that typically happen?
It's very early to comment on that. I think it's just 7 or 8 days.
Right, right. And sir, just one thing on the ad spend. There was a sharp drop in Q4. And as you mentioned, it was largely the last fortnight which was impacted and Jan-Feb was fairly strong. So was it that the ad spend was very lumpy and planned closer to the end of the quarter or largely March with very limited spend was done in Jan-Feb despite a very healthy momentum that we saw?
It could have been lower as compared to last year anyway because of some planned reduction, not because of anything else, but maybe because the -- it also dependent upon the IPL and season and the delayed season coming up in the northern part of the country. So it was -- everything was a bit lopsided towards the March end and maybe bulk of that could have happened in April and May. So it's not just that the entire money would have been spent in the last 15 days.
Ladies and gentlemen, we will be taking the last question from the line of Vinod Bansal from Franklin Templeton.
I have a very broad question, sorry if you answered the part before. But in times like these, how do you sort of plan the business for next 6 months, 1 year? Is it a framework that you think consumer demand will ramp-up in a certain way? Also the production planning process, typically, do you see labor issue given the migration we are seeing, that could be a constraint with demand fix? And therefore, what is the time that is needed from starting production to reaching to the consumer, both production process and distribution? And third part, what are you hearing from the government channels in terms of the government part of business, government infra spending if it's -- they do this kind of this, it's a complete wash out this year given their other priorities? On the 3, 4 things, how are you thinking about, say, 3 -- 10, 12 months from now?
So on the first part of your question, I would say that frankly, we're working on a lot of models, and it all depends upon how things behave, demand behaves in the coming months. But I reflected on this a little bit earlier as well that the organization is very flexible. So obviously, you can't expect that today you have a factory which starts today and tomorrow, you'll have 2,000 workers producing at 100% capacity. That takes some time. But all kinds of models are in place depending upon how the situation comes up in terms of demand side. So supply side, internally, the company is flexible and agile to take care of the entire needs. On the other part, I believe that it is too early to say how things from a government point of view -- let's see what for delivery -- I mean it will benefit the entire thing. Yesterday's speech was very positive. And I feel that if the government does what Mr. Modi has announced yesterday, I think sudden increase of enthusiasm in the entrepreneurship will come in. And that will definitely spur up demand. And that's what the country needs is confidence right now. I guess people are getting used to the fact that we will have to look at this. And whereas the economies will also have to be revived. So I think the government is also giving similar signal. So we are quite positive about the coming times. And I think India -- I would not say too much about Havells, but India is the resilient country. Indians are resilient. We can come back from any crisis in a much better way. And I'm pretty hopeful and confident about the future.
Right. If I may just slip in one more? Beyond the small ticket consumer items like personal grooming and small kitchen appliances, do you think everything else, whether it's industrial or even small-scale residential, that will remain now weak for longer? Our thinking has been that the government part of the business will perhaps be squeezed, but the other construction which was small houses, et cetera, that will perhaps remain fairly okay. Now that we're seeing salary cuts across a lot of organizations and SME business is also suffering quite a great deal, do you think the ECD portfolio, there even fans I would include, would remain very weak for longer given -- primary demand for fans weak, given the update demand interior et cetera, causes -- will not happen, let's say, for the full year, the salaries are lower. So ex of personal grooming, ex of waterheater, can you -- is there a scenario where maybe sharp declines for next 12 months?
Let's -- I would say that let's not even think about it. Yes, the organization is ready for everything. And that's why in my opening remarks, we've also mentioned about bolstering our cash reserves by having credit lines, making sure that the organization survives during this time without unscaled. But I think let's remain positive. In the coming times, things should definitely improve. If they don't, then obviously, we have to be flexible enough in everything that we are doing. But if things remain -- if things come out much better, and we -- as an organization, we are far better prepared, somebody talked about exports, I would say, if you look at Havells, how well we are positioned to even cater to the export demands as compared to so many other sort of Make in India brands who don't have their own manufacturing as well. So today, we have the capability whether it's Switchgears, whether it's air conditioners, whether it's fans, we have our own manufacturing where we can take operating leverage advantage and start looking at export businesses also. So I would say, I think as we invest and remain positive not only for the company but also for the country. And we'll adjust to any kind of situations. We've been used to driving roads -- driving on roads with speed breakers. So as a country, we are much better than the rest of the world, where they don't have any speed breakers. So we are used to it.
I would now like to hand the conference over to the management for their closing comments.
Thank you, everyone, for attending this call. I think we again wish that everybody stays safe and secure. And we hope the next time we meet there are sort of happier times and things are much better than they are today. Thank you, and wish you all the good luck.
Thank you very much, members of the management. Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.