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IFB Industries Ltd
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Ladies and gentlemen, good day and welcome to IFB Industries Q2 FY '25 Conference Call, hosted by Nirmal Bang Equities Pvt. Ltd. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. Please note that this conference is being recorded.
I now hand the conference over to Ms. Natasha Jain from Nirmal Bang Equities Pvt. Ltd. Thank you and over to you, ma'am.
Thank you and good evening everyone. Nirmal Bang Institutional Equities welcome all of you to the Second Quarter FY '25 Results Conference Call of IFB Industries. I would like to thank the management of IFB for giving us an opportunity to host this call. Management is represented by Mr. Bikramjit Nag, Chairman; Mr. Rajshankar Ray, MD and CEO, Home Appliance Division; Mr. P.H. Narayanan, MD, Engineering Business; Mr. Soumitra Goswami, CFO; and Mr. Jayanta Chanda, CFO of Engineering Division.
I would now like to hand over the call to the management for their opening remarks, post which we shall open the floor for Q&A. Thank you and over to you, sir.
Thank you. Thank you. This is Bikram Nag here. Ritesh, I think there are mistakes.
They have not been corrected.
No, this has been corrected. I think they have copied the earlier one. Natasha, can you just please clarify this?
Hello?
Yes. Natasha, can you please clarify? The names which have been stated is incorrect. Let's start.
Hello. Can I start?
Yes, sir. Yes, sir.
Good afternoon, everybody. I welcome you all for IFB Industries Limited.
You may start. Call your name first.
I am Soumitra Goswami, the Chief Financial Officer of IFB Industries Limited. I have with me Mr. Bikramjit Nag, Chairman of IFB Industries Limited; Mr. P.H. Narayanan, Managing Director and Chief Executive Officer of our Engineering Division; Mr. Jay Chanda, CFO of our Engineering Division; Mr. C. S. Govindaraj, Executive Director Manufacturing of our Appliance Division, Mr. Ranjan Mathur, Head of [Sales] of our Appliance Division; Mr. Ashish Singh, Head Plant Account of our Home Appliance Division; Mr. Kartik Muchandi, Head of Marketing Accounts of our Home Appliance Division; and Mr. Arup Das, Mr. Das is a member of our Merger & Acquisition Team.
Now, I will inform you about the quarter 2 result. Revenue for the quarter was INR1,189.24 crores against last year's INR1,074.12 crores with a growth of 11%. PBT for the period was INR79.02 crores and its percentage to revenue was 6.6% as compared to last year's INR74.83 crores which was 7% on revenue. PBT amount came across a growth of 6% year-on-year. Flat revenue growth in July and August affected the margin for the quarter which later on improved in the month of September.
Fixed expenditures for the quarter were well within budget. PBT for the period was INR44.64 crores against last year's figure of INR38.20 crores. Quarter 2 PAT was INR33.30 crores which is 2.8% on revenue against last year's 2.7%. Now, figures of YTD September '24 period are the following.
Revenue for the YTD period was INR2,433.68 crores against last year's INR2,136.97 crores, which is a growth of 14%. PBT for the period was INR165.57 crores and its percentage to revenue was 6.80% as compared to last year's INR115.51 crores, which was 5.4% on revenue. PBT amount came across a growth of 43% year-on-year. Fixed expenditures for the period were well within budget. PBT for the period was INR97.04 crores against last year's INR41.75 crores, which is a growth of 132% over last year. PAT was INR72.14 crores which is a 3% on revenue against last year's INR31.32 crores, which is 1.5% on revenue.
With this, I will request to start the question-and-answer session.
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Viraj Mehta from Enigma Investors.
Sir, my first question is, if you look at last year's Q2 presentation that you gave and reiterated it multiple times including when we visited you in the AGMs. Now, the savings that you talked about, most of those savings have not panned out the way you said. And it has been over three quarters now, sir. Can you please explain where are we missing?
I think what has happened is, if you see on the material cost side, the required savings have not come and we spoke about two odd quarters back that we were engaging with McKinsey etc. And I think in the last call, someone raised the point that we have closed issues with them. The answer is, yes we have. But then the board last week said that we need a counter quote. So we put Algorithm Marshall into it also. All of this will be done by November 20. And then the contract will be given out. So we believe on material cost, logistics etc. The total savings we should get is a little over INR200 crores. And some amount has come into material cost. But what has happened is, during the changeover of the washing machine introduction, so the old model line-up went out, the new model line-up came in. And in that, there were some delays in introduction etc. So we have not got the full benefit out of it. Which Mr. Kartik Muchandi will explain to you better. But broadly, the work has happened substantially. We have not seen the benefits as yet. I think from Q3, it will start kicking in.
We saw some benefit of this in October, but not fully. October results however, which are -- which we just finished, was actually very good and targets were achieved. But the question that we are asking ourselves is, is this sustainable in November, December and going forward, especially in January etc., when AC comes in, which is a lower margin product? And the answer is that the work we have done on all this, I think will lead us to the required margins. That's our internet assessment so far.
But sorry to correct sir, but even in Y-o-Y, our gross margins are down. So and -- like if I look at the engineering business, I mean obviously we don't get gross margin for each division, but gross margin at an overall company level is down and engineering EBITDA is up. So then the only takeaway I as an investor have, is that Y-o-Y, your gross margins in your appliances business are substantially down. So which, I mean, then it begs the question that in the best quarter of the year, if our margins are down Y-o-Y, after which we have done so much work, I just don't understand how are the numbers tallying to what you are saying. The commentary and the numbers just seem very different sir. Sorry to be honest and brutal about this.
Understood. You see what happened with our phase, July-August was bad. But for us, September was good and October has been very good because those things are kicking. But Karthik, can you explain it better so that he understands?
Yes sir. So in appliance division, year-on-year, H1 last year versus this year, there is a 2% reduction in the gross margin. But in absolute terms, the gross contribution has expanded. The main reason for this is in washing machines, the market was flat and our revenues also what you have seen, the growth is muted. We have had 3% to 5% growth. The major growth is driven by cooling categories, which is AC and refrigerator. So in this category, the margins are positive but lower than the washer category. Since there is a change in product mix last year versus this year, in percentage terms, you can see a reduction. But in absolute terms, the margins have expanded.
But Karthik, his like, question is, please also convince him on the point of washer margin expansion, what is happening? Where are we on that? And overall of course, on the cost down etc., which will ultimately be reflected in margins, which is what we discussed today.
Yes, sir. In washer, the material cost has reduced by 100 basis points, which is 1% with respect to last year. That can be seen in this quarter. In the current quarter versus last year's same quarter, our material cost has reduced. And apart from this, we are running a [technical difficulty] bill of material cost reduction. And our internal target is to reduce the material cost by INR200 crores in the next 12 months.
Kartik, Kartik, why did the one second -- Karthik, you are not explaining properly. What happened in July and August? Explain that to him so that he understands why this margin thing has happened.
Yes, okay. We had an entire model changeover in quarter 2. The entire old model lineup has been removed and the new model has come in from August. So during this changeover, we have lost substantial sales. If I want to quantify, we have lost INR70 crores of sales in quarter 2 because of this changeover and ramp up of the model. But if you see September and October, we are experiencing a growth of 20%. So in the long term, the new models have performed very well in the market. But the impact of changeover margin is the…
GP better. You explain that to him.
Yes, the GP and EBITDA, both are better than the old models.
You will see this -- Karthik, one second. See, I'm getting Karthik into the call for the first time. So Karthik is getting nervous. Sorry. Karthik, please explain to him again. This point on, are you having margin expansion or not with the new -- with the new model expansion? And introduction, sorry. Explain that to him. And if not, when are you going to have it so that GP is equal to before, if not more?
Yes, as of October -- as of quarter 3, our gross margin in new model is better than the earlier because there are two reasons to this. One is our mix, because in -- in the new model, we have -- our new models have taken well in the market. And the high end is selling much better than earlier. That is why our overall gross margins have improved since September and October. And we see this trend to continue in the quarter 3, quarter 4 as well. And over and about this, we are working on a cost reduction project, which I just explained. Which we have an internal target to reduce the material cost by another…
And the new models have been very well received. In September, we were stock out. We had an issue with supply chain, which is much lower than before issues that we had with supply chain. But we were stock out. Both in top load and in front load. The same situation continued in the month of October. But the stock out situation was like this. But we were still like stock out. Capacity was sold. November has started off strongly for us. The new model has been very, very well received.
But in the introduction, where the old models were taken out and new models were brought in, there was an issue there. Because the lower end models came in first. And there was an issue there on the mix. And on the new model introduction, the cost down was delayed by two months. The effect of that has started coming only in the month of October. So you will see the effect of that in Q3.
If I put all of what you said in terms of gross margin improvement and supply chain, when -- by when do -- and you always keep mentioning that we have to double digit margin. But at least by Q4, can we see high single digit margin? Can we go back to 8%, 9% margin? Or that also seems to be seems a stretch?
I think in the month of September, we did far better than before. I'm just answering sequentially. In the month of October, I think we were close to the target.
So the target is double digit?
Correct. Month of October, we were close to target if not on target. I'm not going to say more than that now. And we believe in the month of November, depending on how the volumes span out. See, November-December, as you know, AC volume picks up because the dealer build-up takes place. November not like so much. November production will go up. The dealer uptake starts from the month of December. You know, the dealer stock like build-up starts. And the new washing machine thing is very good. So I think we'll be very close to that in Q3. We should be good in that in Q3. And by Q4, we are rather sure we should hit it. If we don't hit it, between 9% to 10%, we should be there.
Sir, my last request would be that we have a very large gap between our results and our concall. It means a lot to be done for a company of our stature. Because that means room for insider trading.
I agree with you. I agree with you. Soumitra?
Yes, sir.
You will recall what I have said to you on this and Kartik on this. You'll have not done it. And we have to hear all this.
But can you please on next quarter make sure it happens next day or the same day, please?
Next day may not be possible because you know, what is happening? Others are doing it that I am aware of. But the thing is, after the board declares the results, it goes to a person who formalize -- who organizes the report. And that form takes about a day and a half, two days. This time it took longer. But I think in two days it should be done.
Sir, even two days will be great.
Yes, we will try and do it. Done.
The next question is from the line of Manoj Gori from Equirus Capital.
Sir, my first question would be, if we talk about supply chain issues that we face from July onwards. So I was just concerned in the month of August on 6th of August to be more specific, when we had our con call, probably I think even this should have been highlighted because obviously we were not aware of the thing and we were expecting that due to the margin improvement probably we are very much on track and in the presentation it definitely came as a surprise that we had some supply chain issues during Q2 and September obviously things have improved materially. Because if you look at washing machine being one of our major category and the most profitable category, if we mess up with the supply chain over here, our entire yearly profitability goes for a toss.
I'll explain what happened. I'll explain what happened. The new models -- the new models being introduced together all of them at the same time with different capacities and the old models being tapered out with changeover we actually sort of even mistook the pull of the new models. From the market we actually, we did not expect the demand to be as overwhelming as it has been and we were caught unawares. The sales team was caught unawares, and we lost out as a result of this. And therefore in supply chain, some things are imported which has a 90 day cycle. You see so there so there we got caught up and also some things that come in from China, customs is taking longer. So all these things just added up and we did not manage it well enough. So internally we took stock of that but it's happened.
Then in the month of October, the festive season did come in October this year, so did we see -- we saw some impact in October but still what we understand from our channel check that washing machine market or category would have grown by roughly around 20%. Are we in line with that because obviously we would have lost sales during Q2 so ideally we should have done better in Q3?
I think our October sales have been very good we could not supply as I am saying. The supply loss was slightly less in October compared to September but we were stock out. Company capacity was sold. So we had that issue. But the good thing is, we think there's possibly been a reset in the demand for the products that have been designed and introduced in the market and we don't expect especially for top loader etc., the demand to fall much which means September, October [if we take the average] I think that will be the demand which is a substantial increase to before and it's more than 20% increase.
Secondly, if you look at we have been talking about achieving better efficiencies from the existing retail touch points and we have been talking this for a while. In fact, this is in fact, for the last three years, four years we have been hearing. So what has been the progress? How we look at the extraction? In the -- in the presentation, we have also talked about market share gains in the coming times, so probably it's not visible even on that front.
I think the market share gains have happened in September, October and what has happened is the market share actually companies look at the data, the data comes from an independent third party firm called GfK. And GfK is the most widely used data service for the appliance industry. Now GfK and Nielsen have merged but GfK is the best company for this. GfK data is directionally correct, it is directionally correct because it takes care of a significant portion of dealers but it does not take care of the brand stores etc., doesn't take care of ecom etc. But directionally correct. GfK shows there has been significant brand pull and market share gain by IFB in the last few months as far as the washer category goes. And we are feeling that because we are having capacity issues for the first time. We have not had this.
So secondly, if you look at the air conditioners, even that's one category where we have taken…
Sorry, sorry, I'll just take a second, whilst I'm saying this, whilst we are saying this, I think we must also point out that had our planning been better had we foreseen this? We would have built up stocks starting -- starting July for example. We did not do that. So there was a small error in planning as well but honestly we did not see the market pull for our products as good as it has been.
So secondly on the air conditioners, even there we have taken number of initiatives, so obviously, if you look at…
On the what? On the what, sorry?
On the air conditioners.
Air conditioners, yes.
So if you look at from December onwards, there will be inventory built up on air conditioners as well from -- especially, the larger format players. So in this scenario, our cost obviously would be lower as compared to a year ago as a percentage of sales, so overall on net-net basis from year on, we are just moving northwards on the margin side, is that understanding correct?
Yes. And I think Kartik can answer this in a more eloquent manner but we are confident of margins in this. Kartik, can you answer?
Yes, sir. On margin terms last year, we were negative EBITDA of INR31 crores, this year we are at positive EBITDA YTD.
Going back forward Kartik, going back forward what's happened for now to March? He is asking that.
Now to March, we have further projects for bill of material COGS expense, as well as our sales volume is going to go up in quarter 3 and quarter 4.
And sir, lastly, if we look at so currently what are the plans for the CEO position that currently is vacant for home appliances, any progress over there?
Yes. So we have interviewed a number of people and we have still not zeroed in on someone. The reason is, we are not -- I am not able to find someone who has complete 360 degree knowledge on all aspects including balance sheet control. And we are wanting that. It's not only someone who will lead for sales and marketing for example but he should have good control over factory and other balance sheet matters. So we have interviewed a lot of people, shortlisted some and the process is on.
The next question is from the line of Pritesh Chheda from Lucky Investments.
So can you give some color on in the categories -- industry categories performance in the festivals? So basically, whatever post-Shraddh or half of September major of October so in that period the main category is washers, ACs, REFs, what in your opinion should have done in the market? And for us, where will be there any market share changes?
I think washing machine we have answered both top load, front load we had capacity sold out and we couldn't supply to the market as per the demand of the market because we had supply chain issues and the planning in July was not to the extent that it could have been. But we underestimated the demand for the product launch.
So the demand would have grown what -- so the market would have grown at what rate in your opinion, it will be like 15%, 20%, more than that?
I am not sure, how much market has grown by per se, but we have grown substantially. if you see …
Any differences within the washer that you have seen in the top load and the front load?
See for us, the top load has -- the top load has grown -- the top load demand we see with the new model we have is actually tremendous and we may have to take up capacity. As far as the front load goes, I think with the further with the work we started quite some time back on numerical reach and extraction etc. I think it started paying dividends. And I think, we will be close to capacity selling, which is a substantial growth from last year's average. And the growth is more than 20% to answer your question.
Is there any loss of market share?
No, I just answered some time back -- two minutes back, that we have gained market share as per GfK data.
Could you give the same comments for other categories?
Other categories, we feel with the work we are doing on AC etc. we should be able to achieve our or at least close to our budgeted target and -- and in refrigerator, we have an internal target of around I think over 40,000 a month and we are now at about 28,000 to 30,000 a month but refrigerator is a EBITDA positive business.
But how about that category, sir? Would it have grown just like has it grown in the festivals? The REF and the microwave?
I am not sure of the category growth in REF and microwave but we have grown. But then in REF, our base is small. So the growth is not something that we really look at. You see, because if we were doing, let's say, 20,000 REP and if we go to 28,000, that is not a correct representation of the category.
I'm going to sum up here. Let's say, as a festive, was it a really good festive versus what last couple of years, like that only what I just said.
Our festive was good and we could have done much, much better. Especially refrigerator etc. And washing machine, as I said, and I'm like repeating, we had issues of capacity.
Okay. Thank you very much sir.
And as far as margin goes, we were towards our target.
Okay, sir. Thank you very much.
Thank you.
The next question is from the line of Shreyan J. from Swan Investment. Please go ahead. Mr. Shreyan, your line has been unmuted. Please proceed with your question. Mr. Shreyan, please proceed with your question. Your line has been unmuted.
Sir, my first question is on the AC front. AC, our base also is comparatively low versus last year. And I see in CPT, you have mentioned, we could have done better sales in ACs. And I look at other players who've done 20%-20% odd growth rates at their base. So I'm just trying to understand what went wrong for us in ACs in this quarter, sir?
We've still not got distribution and all right. The team is still not right as far as AC is concerned. We fixed it substantially for the washer. But what we realized was that in every branch, we need further depth as far as AC and rep goes. Which means within a branch, we need more number of individuals to focus on these categories. And that team is being built up.
Okay. Okay. Sir, my second question is, we've hired Mr. Govindraj. So can you just help us understand?
Govindraj has been in the system for a long time. He was managing the industrial business. And his background is manufacturing. So all manufacturing units of IFB have been put under him. And the industrial business is anyway with him. He used to head LG factories before.
Okay. So he's been with us since 2018?
He's been with us – he was with us before, then he left for a few years and then he came back when we all bought this company in Bangalore, which is the industrial laundry company, because we had wanted to relocate to Bangalore from like Goa which is until not happened.
Okay. Sir, my other question is, you know, we do services --
Sorry. Sorry. So now the structure is, now the structure is, in Mr. Ray's absence, yes, we don't have a CEO, but Mr. Govindraj manages manufacturing fully, along with industrial business. Ranjan Mathur, who's on this call, manufactures end-to-end sales and marketing, and finance is managed separately, which is Soumitra manages finance.
Okay. So what exactly is the responsibility of Mr. Govindraj, sir?
Sorry?
What is exactly the responsibility for Mr. Govindraj in the appliances business?
All the factors.
So he's been tasked with the gross margin improvement that we're looking at, about INR200 odd crores --
Correct. So material cost reduction, quality issues, warranty reduction, etc., etc. that is all within, apart from industrial business which is also with him.
Okay. Sir the other question is, I was seeing your presentation. So we ha about --
May we request you to come back in the queue, because there are other participants waiting in the queue.
Let him ask the last question, please. Let him just ask the last question.
Okay, sir.
Go on. Go on, please. Yes.
Thank you, sir. Sir, I was looking at your presentation. We do about 150-odd crores of services, and out of that INR50 odd crores is some IFB products that we sell. So I'm just trying to understand, what is the balance INR100 crores of service revenues that we do, sir? Do you have the answer?
Kartik answer.
Yes. These are out-of-warranty spare sales and AMC.
So INR100 crores of --
Pencils. Yes, and these are essentials, which are liquid detergent and other accessories, like trolley for the washing machine, et cetera.
Okay. Okay. All right. Thank you so much.
AMC income is there. AMC income is a big part. In the service revenue, AMC income is there, sale of spare, sale of accessory, and sale of essentials. So AMC bill would be the larger portion out of this INR150 crores. It is around INR34 crores to 38 crores, INR35 crores to INR38 crores. And essential is INR50 crores. Essential is there, accessory is there, and also sale of spare.
The next question is from the line of Navid Virani from Bastion Research.
Yes, sir. So I just have one question. So I understand that we can capture a lot of growth that the industry is expected to reclaim, but all the previous answers were right. I just think that there are some internal methods of getting things right. So keeping those two things in mind, like industry is, there is a growth, but there are some internal phases of things that have to wait. I just want to understand what kind of initiatives are we taking on the ground which can help us avoid situations like the stop-out situations which we are already having. Also, having the right kind of pay-to-be-catered basis at all the counters which are relevant.
Your voice is getting like cut off. Can you just repeat the question, please?
Is it better now?
Yes, somewhat.
Yes. So I was just asking that I understand that there's a lot of growth in the industry which could be captured, but at the same time, there are some internal methods that we have to get right first, right? So keeping both these things in mind, can you share some examples of the initiatives that we have taken to avoid situations like stop-outs or avoid situations where we don't have the right kind of sales representative present at counters? If you can give a couple of examples, that would give us a better clarity on how strategically the company is moving in terms of addressing this issue.
So I think on the supply chain matter, we need better visibility on projected sales or market so that we can plan supply chains. Because in supply chain, you have to tell a vendor to produce some things for you and sometimes parts are imported, which is a 90-day cycle, for example. I think this thing between front-end and back-end integration, I think we need better visibility which is a factor of how we look at the market, and also some IT integration that we need in supply chain and we are working on that.
On the point of what else we need to do on the ground, this point we've discussed many, many times and we've not done a good job on this, which is to have each area manned well by a competent person who's able to manage that area. Now, have we completed this? I think on the senior management side, this is done. All the regions are manned. All the branches are now manned. On that front, there is no gap. That gap has existed before, but that gap is by and large closed. Are all the people up to a certain standard? Answer is no. Answer is no, we still have to work on that. Now, is every territory manned competently? Answer is no. Is it better than before? Answer is yes.
Now, this is a constant thing that we have to work on and that work is going on. I can only say it's going on with a lot more rigor. And I think the branches and the regions are very well sensitized to this now. This work was started by Mr. Ray. He only started it. It's taken a very long time. I am aware of this and I've been the most impatient on this as well, but this work was started. It's really taking enormous time, but I think we are coming to a situation where the rank and file have understood that there is – that we are not going to relent on this and I think it's working now. I think we'll see the upside fast, at least hopefully from my side.
The next question is from the line of Jhalak Rathi from Agility Advisors.
Sir, my question is, what is the traction that we are seeing from IFB Point? Is it giving revenue visibility? Revenue visibility increase, any incremental revenue like in the last --
In September, IFB Point in September, October has done much, much better. We are doing some management reinforcements there and that work is on. But October sales of IFB Point was actually good. It was good and hopefully that will be carried forward and IFB Point is going back into expansion mode.
So, if we are expanding this from 215 stores to 465 stores.
We have 465.
So, what's the revenue growth that you are expecting from these stores?
I think I will not give a revenue target now, but I'd like to say we want IFB point to be maintained at least 15% of our sales. We don't give guidance on sales, but we would like it to be at about 15% of sales. It had slipped earlier, but now it's coming back up.
The next question is from the line of Vignesh Iyer from Sequent Investments.
So, basically, interacting with a few other players in the industry, there is a general understanding that quarter two of last year is not really a straightforward comparison because of the festive days shifting from quarter two to quarter three in few occasions. So, just to get more understanding on the sales part, can you help us understand how the festive season has panned out this year versus the festive season that was there in last year to get an increase in the sales volume and such?
Last year, festive happened in November. Diwali was in November.
But because of what I understand, there was one this Pitru Paksha exact 14 days came in quarter two. So, there was less sales. That is what is told about the industry. That's why I'm asking, did it impact us in any way?
I think our understanding is -- Sorry. Sorry. I got put on hold. I think our understanding is that from September onwards, we've seen an uptick because of the products launched. And I would like to stick to that point. I think the product launched has been very well received. And the work done on the ground on putting the right product in the right counter, et cetera., et cetera., which is the model mix, et cetera that work has been done relatively better. We've seen impact of that in September and October and we are confident that this will do better November, December also. As far as the other product categories go, our share is very, very small in terms of number and we expect to see uptick in that as well.
So, as far as we are concerned as a company, we think we'll do much better. And to answer your specific question on the season, I think we are better off compared to last year. But I don't know how we've done vis-a-vis others because we've not seen, we have not reviewed the results of others even though Blue Star has come out today. I'm aware of that, but we don't know the others' results.
Also, on the refrigerator part of the business, so we've done around 70,000 units production in this quarter and we have a target of monthly sales of 50,000 units. So, what is the strategy behind it? What is the timeline that we are seeing or trying to achieve the sales?
Our target is that by February-March, we should achieve it.
February-March, 50,000 units per month?
We should be close to that, yes. Yes, our internal target is that. But if you see now, we are hovering between 25,000 to 28,000-30,000. And I think we will get there. That is what my sales reps prediction is all other assurances to me. Thank you.
The next question is from the line of Natasha Jain from Nirmalbang.
Yes, thank you for the opportunity. So, just a follow-up on the last participant's question, in terms of refrigeration, are we on track to achieve the 6 lakh guidance that we said earlier, or should we land somewhere else?
No, because the first six months has passed. So, we are not going to be there. But going forward, we hope that by February, we should be averaging close to what we need to be averaging. And then going forward, we will achieve that. But I don't think we'll achieve guidance of 50,000 for the year. I mean, monthly for the year.
Got it. So, we should be landing somewhere around 4 lakh, 4.5 lakh units for FY ‘25.
Yes, somewhere like that, I think.
And, sir, we have broken even at EBITDA level, right, for refrigeration?
Yes, yes. We have broken even at EBITDA levels.
And, sir, on RAC, I may have missed out. So, have you called out the volume number poll in second quarter?
Volume in second quarter has not been good for us, for AC you're talking, right?
Okay.
Are you talking about air conditioners?
Sir, only AC said I wanted to know the volume growth for second quarter.
What's the exact volume growth, Kartik? No, in terms of growth, how much have we cut off?
Growth will be 80%.
But, again, because our base is small, this is irrelevant. It is absolutely irrelevant. And we have to get into starting now, the build-up to the season, whether we can supply or not, and all of that work is going on now. And if we can do what we are supposed to do between now and 31st of March, then we will be achieving a budgeted number.
Which would be ideally 5 lakh units for FY ‘25?
Close to that, yes.
And, sir, we are already at EBITDA positive level, right, for room air conditioner categories?
Yes, by and large. Karthik?
Yes, YTD September EBITDA positive.
Yes, EBITDA positive I think.
The next question sits from the line of Keshav Garg from Counter-Cyclical PMS.
Sir, firstly, I wanted to know that the rupee is depreciating and we are importing roughly one-third of our raw materials and cost of goods sold. Sir so, whatever you are talking about, INR200 crores cost savings, sir, it is adjusted for the rupee depreciation? Or, sir, we will realize this in the subsequent quarter that why we haven't been able to achieve 10% basic margin because the rupee is depreciating?
Whatever rupee depreciation takes place now, et cetera, let's say, we will have it compensated either by price increase or whatever. But the thing is, internally, when we did the budget for the year, we never thought rupee will be at, 84 or whatever now, so soon. So, that has been an issue. But we will overcome this. I don't think this will affect what are targeted EBITDA numbers, EBITDA percentage numbers.
Sir, also, sir, now if you see that there are so many global giants in every single category that we are in, like, for example, in ACs, there are so many people like Daikon, even Blue Star from India, O General and Carrier. So, sir they do only air conditioning and they focus on that and, sir, they are globally they are giants. So, but somehow, we think that we can compete with all of these global giants in each of the categories. I mean, sir, if you look at some of our verticals, they are totally minuscule.
Like, I think in Modular Kitchen, we did INR1.4 crore revenue in one quarter. So, I'm sure that this vertical must be loss-making. Our inventory would have been stuck the upfront bandwidth is going over all these small, small segments. Sir, now, similarly, if we see the built-in oven, chimney hob, sir, it is less than INR6 crore revenue per quarter. So, sir, again, this would also be, I'm assuming, loss-making. Sir so why don't we just focus on few major categories so that we can really scale up our number?
I think the fact of the matter is we compete with LG, Samsung, Bosch in every product category. So, I would not single out air conditioning from that angle. So, let's say with washer, you will always compete with LG, Samsung, Bosch, for example, and plus now Haier, et cetera. In AC, you will compete with whoever you are talking about refrigerator everyone. I think this is part and parcel of the game.
And I think there's no company that can really, over time, I think we'll do well with a single-minded focus on one product. The reason why in AC, the companies you're talking about are doing relatively okay is because of the industrial segment helping them. So Blue Star has a large industrial segment, Voltage has a large industrial segment, and so does Daikin. We are not in that. We just prefer to be in the home theme, in the room theme. And our internal strategy document formulated long, long back basically said we should make all products for the house, electronics for the house in terms of white goods, et cetera, and brown goods.
So, we are just progressing on that. In certain things, we have not done well. It's a fact. In certain things, whether we should close it down or not, we keep evaluating it. And as and when we take a decision, you will get to know but as a company our aim is to grow faster and to achieve the required margin. We are very focused on that. And I think in Q3 and Q4, hopefully, you will see substantial difference.
So, sir, since this is such a hyper-competitive market, this home appliances market, and sir also now there are free trade agreements and duty-free imports are coming from Thailand. Sir, please correct me if I am wrong. So, I mean, our competitors are global in scale and manufacturing. And sir, they are the global leaders in technology. Sir, so, basically, I'm trying to understand that what is our USP? What is our right to win over here?
Yes. So, I think to answer your question, we must be doing something right for people to buy IFB. And for you having invested in IFB, something you must have seen in it. But you must have done your homework. So, I think I don't dwell much on this. As far as I'm concerned, I talk to my team on one single matter. Please make a very good product and sell it in every corner of India. Now on that, on the selling part, we have failed. We have not done as well as we should have done.
And for that, whatever management changes are being made, are being made, reinforcements are being introduced, et cetera, and the project was started by Mr. A. It just took too long. But I think we are on the right track. And I think you will see it in the results soon.
The next question is from the line of Shubham Jain from NV Alpha Fund.
I just wanted to re-ask this question. I know the first participant asked this. And you mentioned that, what is the reason for the gross margin decline of 200, 230 bps? I understand that there was a transition period that was happening in washers. But could you just help quantify how this impacted us from an RM procurement point of view?
Kartik, you can answer this very well. Kartik and Mr. Govind Raj.
Yes. The first part, you already know, washer category, we lost INR70 crore sales, which would have definitely --
So they are asking why? How? How has it happened?
My focus is more on the gross margin. So if you've lost INR70 crore sales, so that procurement has happened and is that sitting on the RM? Is that the reason?
No, no, the INR70 crore sales, what we lost is washer, where the gross margins are very high. So that is the first point. And the second point is that in quarter one, our washer sale is flat, but we got 80% growth in AC. So what happens is that the gross margin in AC is relatively lesser compared to washer. That is why in absolute terms, you will see our gross margin has expanded, but as a percentage to sales, it is reduced.
Sir, so if I compare 2Q ‘24 to 2Q ‘25, our washer sales are flat. We have done INR378 crores in frontload, INR133 crores in top load, which is more or less flat in 2Q ‘25 and AC sales have gone up only by INR12 crores that to our own brand sales have increased. So I would assume the gross margins are higher. So this still doesn't explain why our gross margins have fallen from a buy-on-buy perspective.
No, this is for the cost of growth. For buy-on-buy, if you see, our growth in AC is more than 100%. I'll just give you the numbers. Just one second. Yes, it is exactly 100% growth in AC, but the washer sale is less than 10%. So that is the reason why percentage gross margin –
Yes, but Karthik, please tell him, what that's because of July, August in washer, because of the changeover plan, et cetera. What happened in washer in September, October.
Yes, in September, October, the trend has reversed completely. We have got more than 20% growth in top line. And whatever we produce, everything is sold in washer. We could have further sold, but we did not have stock or neither we had capacity. So had we sold the washer enough, then the gross margin would have been better than last year same quarter, even in terms of percentage.
Sorry, I'm going to repeat this question. AC sales, again, INR51 crores have gone to INR63 crores and on an overall basis, it's not a very high number that it can impact the gross margins. So it doesn't seem to be an AC thing. And if you could just help me understand this washer thing, what happened in July, August for our gross margins to get hit?
Yes, in July, August, there was a changeover. So in changeover, the new models were coming in. So initially, we introduced the low-end model –
The old models had to be taken out. So the new model coming in and the old model taken out, we could not do a one-to-one replacement.
So in the new models, we made a lower gross margin?
No, the new model did not go into the extent required first and foremost. So sales got hit. And new model, the cost down was two months delayed. The BOM cost was not achieved in new in the models when it was launched that came two months later. Tha affected the duty.
Out of the INR375 crores plus INR130 crores, almost INR500 crores of washers here that we've done in this quarter, how much is new models and how much is old models? Like a broad sense?
Kartik?
Yes, exact number we don't know, but maybe 60% old model and 40% new model. But we could give you the exact here.
So if I could just request if I could take this offline and clarify some of these numbers with you, if I can just have -- I'll just reach out and we can have this clarified.
Yes, you can reach out to Kartik and Ritesh.
The next question is from the line of Aditya from Sowilo Investment Managers.
My question was more on the washers. So like where -- is it like a particular region we were seeing growth or is it panning there? I mean, I'm just trying to understand what is the driver for such a good uptake when you say that, you've been, I mean, you're out of capacity to produce. So I'm just trying to understand what is the exact reason. What was the exact reason? Is it like -- did you like find a new geography where you expanded because of this sales whichever exceeded or?
I think the new models, if you go into the market and see, has been very well received the looks are very good the pricing is right. I think we just got the whole thing right, including dealer by dealer planogram has been right. What should go in where, how it should, I think that all 360 work has been done very well.
So basically, if you look at it that way, then it's, it's –
It's like saying that in Mahindra, let's say the XUV700 has been received very early. Why? Because it's a very good car. It looks good. It feels good. Customers have liked it. I think what has been launched by this team, by the R&D team and the manufacturing team together, this was overseen by [Indiscernible] has been very, very well received by the market. That's my point.
I mean, you get the example of Mahindra. Over there, we've always, I mean, we've been speaking about it for the last three, four years, right? The preference of customers to the XUVs overall has gone up. So, it's not just a Mahindra thing. Everybody, all brands, the SUV sales have been picking up. And added to that, yes, you had a good line of cars from Mahindra and, you know, their XUV sales have really picked up. So, there you had this whole theme of, you know, the premiumization, the buyer wanting the SUV lower rate.
In front load washer, it happened. Premiumization, higher-end models are selling more. And our models are now really, really contemporary and people have liked it more than competition.
And the growth is across.
Yes, growth is across India.
As there are no further questions, I would now like to hand the conference over to Ms. Natasha Jain for closing comments.
Thank you. I would request the management to give closing comments, if any.
Thank you, everybody for participating in this call. We'll meet again in quarter three earnings call. Thank you, everybody, again.
Yes, one more point from my side, Vikram Nag here again. We as a company are acutely aware of the fact that we should be doing better across product categories. Namely, washing machine, front load, top load, air conditioner, refrigerator, apart from the smaller ones. But these are the four major categories, microwave also I think. And we are acutely aware that we've not hit the required margins neither have we done as well as we should do in terms of revenue. And it's not something that we are happy about or proud about. And every day, we are looking at this seriously and making the necessary changes to achieve required results. More than satisfying shareholders, it is something we need to do for ourselves internally. So I can only say that a lot of focus is going into it. Thank you.
Thank you, sir.
Thank you.
Yes, that concludes the conference. Participants can disconnect their lines. Thank you.