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IFB Industries Ltd
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Ladies and gentlemen, good day. Welcome to the IFB Industries Limited's Q3 FY '23 Conference Call hosted by Nrimal Bang Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Prasheel Gandhi from Nrimal Bang Equities. Thank you, and over to you.
Thank you, Mike and good afternoon, everyone. Nrimal Bang Institutional Equities welcomes you all to 3Q FY '23 Earnings Conference Call for IFB Industries.
On the onset of the call, I would like to thank the management for giving us the opportunity to host the call. From the management team today, we have Mr. Prabir Chatterjee, Director and CFO; Mr. Rajshankar Ray, MD and CEO of Home Appliance, Mr. Arup Das, Head of Engineering -- Head of Marketing, Engineering Division, and Mr. Anand Reddy, CEO of Motor Division. I'd now like to hand over the call to management for opening remarks, post which we can take questions from the participants. Thank you and over to you.
Thank you, Prasheel. Good afternoon, everyone. I welcome you all for IFB Industry's investors call for the third quarter FY '23.
Joining me today are Mr. Rajshankar Ray, MD and CEO of Home Appliance Division; Mr. Arup Das, Head of Marketing Engineering Division; and Mr. Anand Reddy, CEO of Motor Division.
Now coming to the results, growth during this quarter was 4.5%. YTD growth for the period ending December was 26.9%. Growth during the quarter 3 was flat mainly due to lower-than-expected revenue in Appliance Division, mainly during November and December 2022. The company has reported a total income of INR 981 crores compared to INR 938 crores during the same quarter last year. During the third quarter, EBITDA was INR 33 crores, which is 6% higher compared to third quarter last year.
As a result of lower commodity price, material price reduced by 2%, material cost -- reduction of material cost and marginal hike in revenue resulted in higher EBITDA during the quarter. YTD revenue up to third quarter December was INR 3,132 crores compared to INR 2,468 crores for the same period last year. YTD growth in revenue compared to last year was 26.9%.
EBITDA margin during the period was significantly higher at INR 145 crores compared to INR 75 crores for the same period last year. YTD growth in EBITDA was 93%. Major reason for higher growth in EBITDA was higher revenue.
With this, I will request you to start the question-answer session, please.
[Operator Instructions] We have the first question from the line of Dhananjai Bagrodia from ASK Investment.
What is the Home Appliances business? What are we seeing? Are we seeing a general slowdown across the board? Or is the company losing maybe market share? What is the situation for home appliances? Did you get my question?
Yes, I got your question. Can you hear me?
Yes, I can hear you.
So if you see the market slowdown in November and December, this was across the board, affecting all companies. So the company has not lost any market share, but November and December unfortunately, we are 2 very bad months as far as the industry is concerned.
So was it bad for the segment or all?
It was bad across the board. The only thing that happened in the month of December, some very high billings of air conditioners by companies to the channels, but this is not customer offering. This was basically building up of stock. But as far as washers, microwaves, dishwashers, et cetera, are concerned, in general, the customer movement in these 2 months was very low.
And was it across? Or was it like rural or -- where are we seeing that impact?
So we've seen the impact across. There wasn't any specific urban or rural bias to this. It was a general slowdown across. Now typically, what happens is that post Diwali in the month of November, there is generally a lull and there is some offtake in the starts from the month of December. But this time, it was an extended lull. As far as we are concerned, our focus remains on expanding our network and getting more out of our network. So IFB per se, even in a market like this, has enough levers to go if we execute on our levers properly. But the fact is it was across the board demand slow down in November. There's no share loss. There's no market share loss.
Any idea what would our approximate share be in this segment, market share?
So can we give you those figures separately, because what we do is that we estimate market share based on data from suppliers, what we understand their sales. So there is 1 index of GSK data that we use and there is an internal estimate to be made, because GSK doesn't cover all areas. So as far as front loads are concerned, our market share estimate is roughly in the range of 34%, 35% considering all the data points that we have. And there has been -- there has been an increase in that from the last year. And there is 1 segment in the front load, which is the 9 and 10 kg segments in which we did not have models present where IFB's share was effectively 0.
So over the last quarter, we have begun the introduction of the 9 and 10 kg into the markets, and we expect the overall market share gain from that introduction.
Okay.
As far as top loaders are concerned, our market share is in the range of around 8 to 9%.
Okay. And sir, just to understand, let's say, in top load and front load, how much it, how much is it, let's say, 3 years ago?
Sorry. Could you just repeat the question?
Market share 30%, how much would it be a year ago?
Our market share over a 3-year period, I think, has reduced by roughly around 4% to 5%. And that reduction primarily came around 2 years back. If we look at the last 2-year period, our market share has been more or less constant. But if you take a 3-year period, then the market share reduction in front load would be a 4% to 5% reduction. And the top loaders would be an increase by about 1.5%.
Okay. Okay. Okay, sure. And so what about the other segments?
Sorry.
What about the other segments?
So if you look at microwaves, the IFB share has been constant and it is about 22% to 23%. And the position sort of rotates between LG, Samsung and IFB in terms of who comes in as #1. If you look at dishwashers, our market share is about 5%, 6%. In air conditioners, our market share has been very low. It is in the range of around 2%, 2.5% only.
In air conditioners with more and more competition coming, what would be our strategy now to grow the segment? Would we look to -- how would we look to compete with others?
What we have done is that we -- if you look at the introduction of the manufactured range that we had in 2020 and the 2 years of the pandemic and the associated problems with that, we are actually quite unhappy with the way the overall air conditioning business is on data. And we've also reported that we've made significant PBT-level losses after the investment on this segment.
Now there were 2 major agendas to profitability and also to revenues on this segment. One was the material cost. And that exercise, we had started about a year back. And starting this January, the material cost reduction program is almost complete. So the effects of that will start showing from this quarter onwards. So this was reason #1.
The second was that in terms of placement of our products and all the channels where IFB is present in the areas where we need to penetrate more through our distribution network, et cetera. So all the learnings that we've acquired over the last 2, 3 quarters where we didn't make much headway, from this quarter onwards in terms of the placement strategy and the strategy around how to handle the channel mix or basic SKU structure or the commercial structure in the channel, all that has been sorted out, and we are quite hopeful of good volumes on that segment from this quarter onwards.
So currently, these are the 2 important elements for IFB on this segment. Does that answer your question?
Yes. A follow-up on the part like -- how are you tuning to that because every place we get you same thing. Would we look at more movement in terms of going online or share at also at our stores. So how we break that?
Yes. So the fight for the shelf space is a real fight. But what we have done is that we have stayed at a, let's say, premium to a slightly higher and position consistently, and we haven't lowered that position for the last 2 years. And in the areas where we have made sales taken counter share, the product feedback has been very good. The channel retentions have been healthy.
Now based on that experience is where the expansion of the placement and the shelf space enlargement is taking place from this quarter onwards. So are we going to be present everywhere? Definitely not. That will take more time, because our price position is also more towards the higher end of the price range. And we believe that it is right because of the performance and the features that we have.
But in terms of getting what we want to ensure that our factory is fully utilized, that volume, we are quite hopeful that we will start delivering from this quarter onwards based on all the work that has been done on the placement side.
Sure. So would we have been target -- would we look like we focus on the mass segment pipelines there, any change in our strategy?
Sorry, could you just repeat that question?
You mentioned that our price for on the relatively higher side, would we look to like maybe focus mass segment now?
No, right now, we are not looking at any reduction in prices or a change in the model range per se. The pricing that we have versus the features and the value, there is a settled approach in the market that is now building. So at least for this quarter and the next quarter, we will stay focused on what we have. And at the end of maybe the first quarter of the next fiscal year, then we will look at the future developments that we need to do.
[Operator Instructions] We have the next question line of Aviral Jain from SG India.
Sir, I have a couple of questions on the appliances business. One is if you could just help us understand the gross across product categories. So you have front-loaded, top load, you have dishwashers, hand you have ACs as a separate category. What sort of gross margin are you -- is the company realizing across and a broad understanding would be helpful. And how much the fixed cost expense has increased because of AC plant coming in? It is now a full division versus earlier it was purely a trading strategy in terms of fully built units being imported from China and being sold.
Mr. Chatterjee, would you like to answer that?
The first 1 is that do we normally do not talk about the product price margin, number one. And the AC, because of some fixed cost has gone up, but that is more towards AC plant and AC is being able to absorb.
Yes. Sure. So okay, what I wanted to understand was, say, for example, if Appliance Division as a whole was operating at say, a 45% gross margin before. Is AC sustain what we understand is gross margin is substantially lesser. So is that right? I think we do not want to know the exact numbers, but just...
Yes, the margins are lower than the other products.
And by what quantum sir? Is it 10%, 5%, 15%?
Do not please ask me about the quantum, but I'm saying it is lower compared to other products that we manufacture, it is lower, but it has improved over the past, because we have done a lot of localization and other things. So gradually, margins are going up. But even then it is lower than the front loading and other products.
But -- and say, before the plant came up, there was a substantial INR 300 crores of the AC revenues that the company used to do or had gotten to a scale. Was the margin comparable back at that time and margin actually is lower now when you have your own plant?
Yes. I will say it is lower now, because in that point of time, we are losing even more, number one, and the models were limited, because the -- when you were buying it from OEM source, we never had so much of flexibility, number one. And the fluctuations in the -- while we are reporting the price increase, we Honda no control on those things.
Yes. No, I understand that. All I'm asking is, say, on the 4-year rolling average basis, your AC gross margins pre-2020 was -- is it true that it was higher than what you have been able to deliver, say, in FY '21?
No. The current position is better.
Okay. And fixed cost expenses because of the plant, the whole manufacturing overhead, how much will that be on a yearly basis? Because I see a number being called out of PBT loss in the year because of the AC business in your investor report. So just wanted to understand what is the fixed cost annual addition that has come because of AC plant?.
The fixed cost, you see there is some increase in the manning and other related expenditure, which is related to this thing and recovery of which has to come from AC only. But otherwise, if you see the result, manning cost probably quarter to quarter even last year if you compare, it is 9% increase, which is mainly because of addition of manpower and increment given to the employees, number one.
And in operating expense, there is not much impact quarter-to-quarter, if you compare, there is a reduction and operating expense, like I said, around 80% to 85% is variable in nature. And the fixed cost is very minimum there. I don't think we have impacted much and we have reduced some fixed cost. There are further scope for reducing. But of course, AC-related fixed cost if it is there, it has to be recovered by revenue.
Broadly, I keep asking this question every quarter is, what does -- and given material cost reduction program is mostly completely. You have worked on the and pricing is something that you would like to keep at the premium side. So what sort of steady-state Appliances Division margin that you would want to which is achievable in the short term, both at the gross margin level or maybe at an EBITDA level, because we've seen quite a lot of fluctuation around gross margin and EBITDA margin in the appliance business, which work for raw materials, supply shortage and high commodity price inflation. But I'm assuming -- a big assumption is that things are settling down now, and so what is achievable in the near term in the next 2, 3 quarters? And what is the steady state that you would be gunning for?
Rajshankar?
Yes, Rajshankar here. If you look at what we have also stated in many investor calls, our internal target is to be able to deliver a double-digit EBITDA margin. Now the areas where we have not been able to deliver, as far our own internal targets, 1 has been the material cost side, which in a lot of trouble since the commodity prices moved up from Jan '21 onwards. And that exercise we have now stabilized and it will -- a lot of the pressure will come up from this quarter.
And the second has been there is a certain network that we have. There's an extraction which we should get out of it. The progress on that is not in line with our own expectations. So if you see up to the period of the second quarter or even up to October end, we did have a healthy growth rate, but even we believe, I mean, internally even that what growth we should have can be much more than what we are delivering.
So if you are able to do on the revenue side, what we are supposed to be doing, which is to be able to get extraction out for which a lot of work is being done internally to be able to ensure sales extraction. And the combined effect of the material cost work, which is 99% complete. Both put together, we wouldn't want to give a specific forecast on this, but we very close to a double-digit margin is what we have also said in previous investor calls. Does that answer your question?
Yes, it does. One clarification I need. And all this pertains to AC per se, rest of the division or product categories, there is no margin or volume challenges, I'm fair in saying that?
Yes. So if you see our financial results, the fact that we are losing money on the AC segment has definitely affected the overall P&L and what we internally have a targeted is that in quarter 4 and in quarter 1, we need specific improvement on the AC segment. When the AC improves, it has an automatic positive effect or significantly on the overall stickiness. So you're right in this.
And there would be a very, very high salience of Q4 and Q1, given it's summer product, any which way?
Yes, Q4 and Q1 for the AC segment are the 2 main quarters, you are right.
And so what we also -- you had said earlier was the OEM part will also help you increase the utilization of the AC plant. By now, you would have significant visibility on the OEM volume. So is it per expectation of what you've guided?
Yes, yes. Whatever we have been given in terms of orders for Q4 and Q1, what we need to ensure that the plant runs to capacity, it is in line with that. You're right.
And obviously, a part of the BOM reduction, the pricing improve -- sorry, the improvement in terms of lower cost must have been passed to the OEM customers as well?
So will the OEM customers, there is an index pricing mechanism, which is based on commodity fluctuations every quarter, the pricing also adjusts every quarter. So we have a quarterly understanding with them.
Okay. Because all I'm assuming is I understand the indexation part for speakers, for key components. But I don't engaging at least broadly in terms of pricing with the OEM customers. And given you've been able to achieve the material cost reduction program. So does that sort of improve your envisaged margins from the OEM segment at all or it stays the same? Whereas in your pricing to them was always keeping in mind that you'll be able to achieve the targeted material cost reduction.
So yes, you are right to the extent that the material cost reduction program versus the price expectation from OEMs will help the profitability on the OEM segment. But the larger part of the profitability on the AC segment, is the brand sales and the cost structure on the brand sales side. So yes, there will be an improvement on the OEM side, but the AC P&L per se improves if we sell to our target and the material cost exercise from this month -- from this quarter onwards will start showing a benefit.
We have the next question in the line Manoj Gori from Equirus Securities.
My question here is if you look at the employee cost on a sequential basis has increased by roughly around INR 9 crores to INR 10 crores. So Mr. Chatterjee just highlighted like there were increases, but normally, what I assume is or probably what I understand is that normally the increments happen during Q1. So why is this time during Q3, any reason specifically?
No, the appraisal and other processes took a little time and that is why it was given a delay, it was effective April only. There is no other reason actually. Normally, if you see that will implement the effect over comes late first quarter or in second quarter, but this year it is late.
3Q. Yes. Okay. And sir, when we say about incremental employee or headcount that we have added during the quarter, so those headcount probably if you look the factory has been running for AC. So probably, those new employee count would be for which category? Can you throw some light over that?
This is not so much in factory, mainly in marketing and other areas to increase the network and other areas.
So, Rajshankar, this question is for you. So probably when we say like you just highlighted, like we have not been able to get the desired level of extraction from the channel. And still, we have been deploying new headcounts. And obviously -- and in fact, 1 compliment that I would like to give is if we look at the product quality and the product expectation, IFB definitely has an edge over competitors. So whether we talk about the industry giants as well, I do believe these products are relatively better.
So what -- so what are the major challenges that we are finding on the extraction side? Because this thing is something we have been expiring for long now on the expectation part.
Yes. So you're 100% right. And we are also internally quite unhappy with progress per se on this. And if you ask me, there are -- a primary channel is that there is a large part of the network in India, which is a fed through distribution, which is the indirect retail network. And this was a network that we sort of were not present in at all. And over the last 2, 3 years, there has been a lot of focus in getting the network right.
But in terms of having the right set of distributors, ensuring that the KPIs in the system probably settle down well and everyone knows what they have to do, which is either the distributor or the IFB employees, that we have the product placements to done, et cetera. It is taking us some time to really do this way. And we are also not very happy with the pace. But in terms of the extraction increase from the network that we have, the largest area of improving yields through the distribution.
Now to some extent, the distribution network is dependent on product that that are more mass nature. So the top loader or air conditioners. Now the air conditioner story is still taking us some time. I believe that from this quarter onwards, the distribution network will really see the way that we should have that years back. The top loaders, et cetera, range is still positioned high. So even though large parts of the distribution network are able to sell it, but 100% of the network is unable to sell it, because our price points are higher.
To some extent, it is the product market that we have, but more it is to do with how we are running the distribution channel effectively. And that is the work that we have to complete, Manoj. So if our progress is slow, it is slow because on that area, we are behind our own internal targets. Does it answer your question?
Yes, absolutely. Sir, 1 more observation has been, even in the washer when we look at. So even in the West or in the North, when you visit the stores or any of the large format stores like Croma or Vijay Sales or Reliance Digital, we are able to see your front load washing machines. What is missing is your top load fully automatic washing machines are not even in display. So if you look at revenue when it comes to pricing, we are very near to the largest players in the industry. But still, we are not able to see washing machine and the 1 feedback that we are receiving, especially in the west market is, IFB should normally should be preferred as a front load washing machine, not for the top load one.
So what's actually like this negative perception upon the channel or probably what's happening over there? Because now if you look, we have done our in-house manufacturing since many years now. It's more than 4, 5 years if I'm not wrong for top load washing machine, but still we are not able to see even in the large format stores.
Yes. Your feedback is right that the placement of the top loaders in the larger stores is below par. And in fact, from this quarter onwards, in terms of the expansion of the placement of the top loaders in Reliance or Croma, we have taken that as a primary target in terms of the large key accounts, how to increase placements of the products that we have. So that is the agenda to be completed in this quarter and the next quarter, but your feedback is absolutely right.
The top loader needs more placement from our side, because it's a good product and the expansion in the placement itself will give us a significant rise in volume.
Right. Because see, I personally use it, and I am very comfortable with the product -- product quality. So probably I think it is a low hanging fruit for us, because it definitely goes well with our front load washing machine.
Yes. Yes. Yes. You are absolutely right. It is a very low hanging fruit and we can get much more our revenues quickly on this. And the increase in the placement is something that we have taken as a specific task for this quarter, especially with channels like Reliance Croma, et cetera.
Right. Sir, 1 more question on the gross margins. You have answered a lot. But when I look at the gross margins in last quarter, if I'm not wrong, you highlighted like we have taken some pricing actions and also then if you look at the commodity prices have hold off significantly. But when I look at the sequential gross margin improvement, probably if you look at the gross margins, probably those have declined on a sequential basis.
I think the effect of the reduction in the commodity prices or the material cost action that we've completed comes into full effect once the pipeline inventory clears off. So this impact of the material cost on the gross margin, you will start seeing from this quarter onwards.
from Q4 onwards?
Yes, so in Q3 for example...
In Q3, we have got in appliance around 2% reduction in material cost.
Okay. Okay. Understood. Understood. And sir, last question on the room AC side. So obviously, when you look at the current scenario, so it's intensified competition like most of the brands have been going very aggressively in pricing. So I would just like to understand your strategy. Obviously, you gave a brief description about the product portfolio, but on the channel side, when we look at probably there would be something which even channel would be positive on, because of the higher schemes or margins that we would be able to generate on the MOPs.
So what sort of margins we would be offering to channel as compared to other players in the business?
This tremendously across India. And you might find that this channel operates ACs in many places on a margin of, let's say, INR 500 to INR 1,500. Because of the excessive presence of some of the mass brands, there is a lot of discounting that happens. Now what we have understood based on our previous season's experience, because we sort of pursued this idea of proper pricing based on where our conviction was about the product, then the additional retention because of the lesser discounting that people made was a figure anywhere between INR 1,000 to INR 2,000.
Hence, I was saying that as far as the IFB retentions are concerned, the experience in the channel has been good. And that is also helping us to increase the channel size from this quarter onwards.
Right. And we have our service network in place as compared to the other players in the industry.
Yes. We have a very wide and a very well-present service equal to the best in the industry I would say.
And it is also expanding.
Yes, yes. And sir, lastly, if you look at temperatures have definitely been picking up over the last few days. And what we hear is South has been witnessing some demand uptick. Are we seeing any greenshoots of probably any revival in demand, whether in rural or in urban markets or anything that's a...
So January was better than November and December, definitely. February seems to be similar to January, but we have to wait a little bit. But the excessive downward hit of November and December has definitely reversed in January.
But we are witnessing on Y-o-Y basis, at least we are seeing some growth in home appliances.
Yes, Y-o-Y growth in October was much higher.
YTD growth is around 26%.
But again, so probably if you look at majority of the growth has come from the Q1, because obviously it was a COVID impacted period. But when we look at the Q2, it was 10% growth and Q3 was roughly around flattish on Y-o-Y basis. So I'm just asking like whether in Q4, at least so far, we have been seeing that growth momentum.
So if you see, we haven't seen it as yet, but based on what is happening in the market in January and February and the end of the quarter, yes, we should see it.
We have the next question from the line of Bhargav B from Kotak Mutual Fund.
Sir, in the press release, we read that we are sort of upgrading our IFB points at a very aggressive pace. 30 stores in '23, 150 stores in FY '24. So what is the rationale for doing this? Is it branch strengthening excise that we are sort of trying to emulate LG, Samsung, who also sort of spend a lot on their EBOs and that's sort of a brand building strategy to push premium products?
So our investments on our IFB points has been consistent over many years now, because we believe that good for the brand and also it is good for revenue. What we have put in the news letters is that there is a new design that we piloted, which has enhanced the customer experience. So now the earlier design of the IFB store that we have, we are going to change them to the new design, and that is the road map.
So we will be doing 30-odd stores in this fiscal year. And then our bulk of the stores in the next fiscal year. So I say, per se our spending on the IFB point has remained consistent to what has been. Not just in terms of the investments we're doing in the store but also in the marketing and the activations around the parts. It's a very important channel.
And how profitable is this as a channel?
This is a profitable. This is a profitable and the -- from IFB point on a yearly basis, we have at least INR 410 crores INR 415 crores of revenue and margins are profitable.
What is the revenue for IFB points?
Yes.
I missed the revenue number, sir.
INR 400 crore plus.
INR 400 crore. And on profitability, is it similar to the company average or lower than the company average?
It is good. I will not say -- when it is good. On the stores we are making money.
Okay. Okay. And my last question is that given that our positioning in AC is on the premium side, but if you look at the Indian mindset, typically for Indian brand, they would sort of compare on pricing. If it is at a premium, they would go for an MNC bank. So essentially, channel incentives will play a significant role in order to push the product.
So is it fair to say that our that our channel incentives would be 1 of the highest in the industry if we have to succeed in premium ACs?
Actually, no, because 1 is a point on the incentive and the other is the point that I made earlier on retentions. So you can give a lot of incentives, but if it gets discounted in the market, then we ended the channel is still left with something very small.
So if you look at the incentives per se then we are in line with industry, but if you look at the retention, ours would be healthier than others. So it's not that our strategy is to offer any additional money to be able to grow this business.
Okay. So will we be spending on branch? Meaning how do we plan to attract the customer?
Yes. So for, let's say, the period March onwards, in terms of the campaign required to create customer demand, yes, we will be testing this. Those details are being worked out. But in the period, let's say, March to June this year, we will be investing in creating demand.
We have the next from the line of Chirag Muchhala from Centrum Broking.
Sir, the question is actually on IFB refrigeration. So I wanted to understand which our products are we planning under this company? And what is the rationale behind not having this business in IFB Industries rather than having another group company?
Mr. Chatterjee, would you like to answer that?
So it's a separate company. We have only participated equity in that company. As of now, we have planned INR 97 crores of beta, which should take our share to 44.4%. As of now, we have done 69%. Sorry, as of now, we have done around 37%. We have paid INR 69 crores.
Okay. So the 37% will grow to 44%, you are saying?
44.44%, when we pay the entire amount of bank assurance.
And what all products are planned under this? So I mean, residential refrigerator or commercial refrigeration, if you can please elaborate?
So it's an independent company making its own product plans, but it will cover the entire spectrum of refrigerators in the mass segment, mass and mid-premium segment when it launches. So I think by the end of this quarter, the details will be publicly available. Right now, they are in the final stages of putting together the product plans, pricing plans, et cetera.
Particularly, the direct cool and fast refrigerators, which are basically residential refrigerator that is what your into, right?
Yes. Yes.
Just you can elaborate IFB Industries has been a company dealing with home appliances right from washing machine, AC, microwaves, ovens, dishwashers, then why not refrigerator in the same company, because future growth or profitability prospects will not go flow through 100% in IFB Industries. So from that point of view I was asking?
Mr. Chatterjee, would you like to answer that?
You answer this.
So if I were to answer you, it would be answering on behalf of IFB Refrigeration Limited per se, and it might not be the right answer. So the advantages of having a focused independent company on a segment that is very large in India are the principles behind which the company has been created. So maybe you can take this question off-line, and then we could discuss it more about this.
Sure. Okay, sir. Moving to the second question -- moving to AC. So sir, for this upcoming summer season, on OEM basis, how many units have we contracted thus far client? Is it possible to share?
So the OEMs don't contract per se, but they give indications or signouts on an overall season volume. And then there are lifting plans that come month-wise or week wise, et cetera. But in terms of the capacity utilization of the factory, which is roughly at about 450 or 1000 per month, we have enough to cover the factory utilization. So from that point of view, the factory will be fully utilized.
Okay. So essentially, what we believe is the FY '24, we will see roughly around 5 lakh volumes in ACs. 3 lakh like as you have mentioned in the presentation from brand IFB and 2 lakh possible through OEMs. Is that right understanding?
Yes. So that has been our intention right from 2 years ago, and we couldn't deliver it. But the combination of the actions that we are taking on our own branches and indications from OEM based on the value, price equation, whatever, which is now much more settled than it was, let's say, a year back. And the fact that our material cost reduction program in now over. So now we believe that figure that we had wanted to deliver, we are now in a position to deliver going forward.
Okay. And assuming you deliver that the volume as per your target plan, will the AC division gain double-digit operating margin in FY '24, assuming that volume comes?
I don't want to comment specifically on the results of the AC division, but at those sort of revenue levels and the common fixed costs, sales, et cetera, the company becomes a very healthy margin situation. So because the overhead distribution across the volumes will be much, much better than what it is today.
[Operator Instructions] We have the next question from the line of Dhananjai Bagrodia from ASK Investment.
How is the demand shaping up now on our segment considering done for most of them, as which you mentioned, how will the many segments be in terms of industry demand?
So the industry demand or the customer demand for air conditioners actually starts moving from March onwards. So right now, it is mostly being from companies to the channel and stocking up. The customer movement per se has not started as yet for the season. As far as the other products are concerned, like let's say, washing machines, microwaves, et cetera, the period now is better than what it was in November and December, definitely.
But we still have to wait and see. It is definitely not at the level of October, which was the season, but that is normally the trend, but it is better than the November December situation.
And how would it be at the same time, let's say, pre COVID this month, like January, February incrementally higher or we're still a similar level?
Right now, it is similar. Right now, it is similar.
So we're not seeing much growth as such.
We have the next question from the line of Veenit Pasad from Investec Capital.
Sir, I wanted to get a sense on how competition is saying particularly the top 2 or 3 guys? Does aggression still continue from some guys?
The aggression is similar to what it was. So it's not that somebody has become more aggressive. If you look at players like LG, Samsung, they have always been aggressive. Samsung specifically over the last 3 years has been more aggressive than before what we have also shares in the previous investor conference. But it is seasonal. I mean there is nothing special that is happening from the top tier.
Sir, why I was asking this is what you understand the Samsung has increased prices after delaying it for so long. And has that held companies like us and others who take also up price increases along?
It's a good question that you are asking. We haven't seen any impact of so-called price increase as yet. So we'll have to wait and see. And as of now, the price positions in Samsung are similar to what it was before.
Yes. Okay. Sir, the second question is on the refrigerator business. So why this tie-up or taking the business in other subsidiary? Why not do it in a stand-alone entity, given that you've already done trials and testing in the past? If I'm not wrong, sometime in 2016, '17, '18, we had done a trial launch as well at that time. So what is the rationale for this? And who -- if I may ask who holds the remaining 44 -- 55-56% in the IFB Refrigeration business?
So Mr. Chatterjee, would you like to answer the second part, please?
Can you just repeat, I just missed it.
Sir, I was asking is, the second part of the question was in the IFB Refrigeration business, who would be holding the remaining 55-56% stake.
There are a lot of companies there. There are some -- the group -- employees of company different companies. The IFB Appliances is there. IFB employees are there. is there. IFB Global is there. All of them are involved.
Okay. So why haven't we taken this project up in the stand-alone entity itself given we've had some experience in the past where you have done trial runs, this launch, pilot launch maybe sometime in 2017, '18?
So Rajshankar here. As I said a few minutes back, it wouldn't be right per se for us to talk on IFB Refrigeration Limited, because it is standalone company. Now what I was saying a few minutes back also was that the focus that a stand-alone company brings to a very large segment with high investments and high revenues and the advantages around that, would have probably been the evaluation criteria. But we could take this subject offline. Per for us to represent the -- the reason why IFB Refrigeration limited poses an independent company would not be directly right. And they are still in the process of the final product development, succession to roll out. Maybe we could take this offline or in the next quarter when things are more final. We could actually put across a note north for everyone on this.
Sir, lastly, can you give some time lines on the Refrigeration business, how IFB Refrigeration or for that matter IFB Appliances or IFB Industries is looking at this business, let's say, in the next year and 2 years or maybe 5-year perspective? What are we trying to do? What type of products will be launched? Will we be targeting a particular segment? Any thoughts there.
So IFB Industries Limited is the equity industry in IFB Refrigeration Limited. And this is a long-term investment for IFB Industries Limited as a company. As far as the product plan, et cetera, of IFB Refrigeration Limited are concerned, they are still in the final stages. So I think we can wait a quarter, and you will know. My understanding is that they are planning a presence across the mass and the premium segments. And a product that is competitive in the market.
[Operator Instructions] We have the next question from line of Aviral Jain from SG India. Mr. Jain, can you hear us?
Yes, yes, I can. It's just a question about the demand and the strategy going forward for the other division, the Engineering division. How is the scenario looking like there in terms of -- obviously, from a demand perspective, how is the automotive industry here is doing well, but is IFB Engineering division winning more market share in the current existing products and how Motor division is doing? Some broad comment on the next -- how -- from today's vantage point, how does the next few years or few quarters look like.
I would request Arup Das to answer on Engineering and then Motor, Anand would explain.
This is Arup Das. Answering your first part of the question. As far as the Engineering Division is concerned, the last quarter was reasonably -- the performance was quite reasonable. And of course, the month of December was a bit lull. Generally, all the OEMs shut down their plants for a week or more. Going forward, this quarter, I think the two-wheeler segment will have a muted requirement because of the regulation of OBD1, OBD2, which is On Board Diagnostics.
So that regulation, the OEMs are trying to control the stock so that noncompliant vehicles are not left with the dealers. So February and March is expected to be a bit lull as far as 2-wheeler is concerned. As far as 4-wheeler is concerned, the demand is reasonably strong and expected to grow and is in the same fashion. Commercial vehicle also is expected to grow. So barring the 2-wheeler, this quarter, the Automotive sector must do reasonably well.
And from IFB's positioning perspective, are you able to increase your share for vehicles within your existing customers?
Yes, we try to be there where we were not there. So in many product categories of different OEMs where we were not there, we have ensured we got our business there. So the ditch which happened in the market fully does not affect us because where we were not there, we were 0, now with our presence in that segment, we are able to increase our growth higher than the market growth.
And 1 question related with the shift in powertrain from an ICE engine to an electric powertrain. Does that impact on average basis in your portfolio. Does that impact your sales because are there a lot of transmission components which are connected to an internal commercial engine in your portfolio or it does not impact you much? Say, for example, if 100% we move to EV today as an industry for 4-wheelers, what percentage of IFB revenues would get impacted because you have a transmission ICE powertrain related transmission components in your product portfolio?
It's a good question. If you see the market segment or market movement in EV category. It's mainly scooters, which has taken -- picker up numbers. It is around 1 lakh volume per month, whereas total ICE engine 2-wheeler is about 18 million per year. So that comes to around 1.2 million going by the current volumes, which the EV has taken up. So it is about 3% to 4% of the market.
Now that too in the scooter segment. Our main part is in the motorcycle segment. And that too in the higher CC, more than 125 and above. So this -- we have also parallelly moved into the EV segment. The OEMs, who have already started going for localization, the big players, even the smaller players, we are already we are developing components. So localization is happening.
Once it happens, we will be ready. As far as 4-wheeler is concerned, other than Tata Motors, the main player, the numbers other than them are pretty low. It's around 6,000, 6,500, 7,000 a month compared to 3.5 lakh volume of which happens every month. So going by these numbers, I think the disruption which you are talking is very logical way. We feel we don't envisage any risk at least at this juncture as far as dropping our sales, because we are getting into businesses in the nonautomotive sector also, which is. So ICE neutral. So it will not impact much as far as ICE is concerned.
We are placing our product category in such a way, we don't get it much impacted.
This is Anand here. On the Motor side, right now, the appliances motor, we are investing around INR 40 crores to build up a capacity of 2 million washing machine motors and air conditioner motors 1 million each. For this, there is a huge demand outside of our captive requirements. We plan to sell 50% of our capacity outside of the captive needs.
And on the automotive motors, we have augmented our product lines by introducing wiper motors and other new products like BLDC engine and motors which we should start production within the next 2, 3 quarters. And we hope to have an increase in top line by around 40% for the next financial year in our automotive motors.
And the 2 million that talked about does not include automotive and BLDC diesel motors?
No, no. 1 million of washing machine BLDC motor and 1 million of air conditioner BLDC motor.
And again, more short question a 3- to 5-year horizon question is what would be the total revenue potential both captive and outside for the motor division?
It would be roughly around INR 350 crores.
We have the next question Sudarshan Mall from Dhunseri Investments.
Sir, my questions are more pertained to that refrigeration business. While Raj sir has said that it would be inappropriate for him to comment. I do, however, if I just can know the financials of the business currently?
Financials of which business, please?
Refrigeration business.
So it has not started yet, actually. It will start from April beginning.
And Rajshankar here. I have a suggestion, because there were 2 questions before this also. And now you've also asked this. What we can do is that in the next quarter, there can be a formal note on the refrigeration company per se and their product range, product plans, pricing, et cetera, would have been mature by then. Would that help?
Certainly, that would help because they are paying pretty good amount of funds from our balance sheet. So it would be interesting to know what is the opportunity size there?
So for the opportunity in IFB Refrigeration Limited that IFB Industries sees as a result of its investment, and what the plans are for that company, et cetera, I think what we can do is that, because there is -- there are 2, 3 questions on this. Mr. Chatterjee can actually share a formal note on this in the next quarter, and the plans the IFB Refrigeration Limited will also be much more mature by then. So I think it will be the right time to share with you them. If that is okay with you, then we will do this thing.
Certainly, sir. That will be very helpful. Just 1 question regarding this, is who owns the brand IFB, IFB Industries or Refrigeration Company?
IFB brand is with IFB Industries Limited.
We have the next question from the line of Manoj Gori from Equirus Securities.
Sir, my question is more to do with the slowdown in demand. So Rajshankar, if you can highlight, because normally, when we look at over the last 3, 4 months, even the inflationary pressures are definitely seem to be behind us. And things have cooled off significantly when we look at the RM prices, also the freight cost or even the food inflation. So what's actually weighing on the consumer sentiment? Like based on your internal assessment or probably the feedback that you would be receiving from your partners and from our employees. It would be great if you can share some light over there?
So Manoj, and you will remember that on this point, we also had several rounds of discussions before. I can tell you how we look at it. So if you speak to the large partners across India, if you look at what's happening with the competition, et cetera, then the voice that you will get is that there is definitely a tempering of the demand. And you will hear that November, December was bad for the year. So if we were to look at the voice from the market, the voice would be that demand is tempered from, let's say, the peak of the post lockdown period for what you would generally expect from the counters where the flow of customers.
But the way we internally we see this is that given the network size that we have, and this agenda of extraction that we still need to do much better. And the opportunities that we have by doing the distribution piece very well, which I was explaining to a little while back...
Sorry to interrupt you. The question was more from a macro point of view, because I know, obviously, you have been and you are not the one only to get impacted in the current slowdown. So it was more to do with the consumer mindset. What's actually stopping them to buy consumer durable products for the home appliances products? Because I personally believe the inflationary pressures, especially in the last 3, 4 months have definitely.
So if I were to tell you honestly, Manoj, we don't really know. If you were to ask me, why the demand go down in November and December, the honest answer is that we don't know. There is, yes, impact of, let's say, higher prices across the board. But there is also a reality that the financing available to consumers currently, mitigating a lot of that inflationary pressure. Now what I mean by that is that assuming that the product is costing INR 3,000, and now it costs, let's say, INR 3,500.
If you really look at it in terms of the financing options available to customers, then the actual impact is very little. So it is not that everything can be answered by inflationary pressures. There is much more than we can do at IFB to get more demand. And if you really look at what happens to the demand per se, that you may see 2, 3 months of subdued demand, but then there will be another month or 2 comes where the demand is much to the north.
Say, look at the macro picture, the way you're wanting, given the low penetration in India, medium term, the demand problem should not be there at all. That is my personal belief.
That was the last question. I would now like to hand it over to the management for closing comments.
Thank you, everybody, for joining the call.
Thank you very much. On behalf of Nrimal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.