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IFB Industries Ltd
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Ladies and gentlemen, good day and welcome to the IFB Industries Limited Q4 FY '19 Earnings Conference Call hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Chirag Muchhala from Nirmal Bang Equities. Thank you and over to you, sir.
Thank you, Raymond. On behalf of Nirmal Bang Equities, we welcome you all to the fourth quarter FY '19 results conference Call of IFB Industries Limited. The management is represented by Mr. Prabir Chatterjee, Director and CFO; Mr. Rajshankar Ray, CEO, Home Appliance Division; and Mr. Arup Das, Head, Marketing, Engineering Division.I now hand over the call to the management for opening remarks, post which we can take questions. Over to you, sir.
Thank you, Chirag. Good afternoon, everyone. On behalf of IFB, I welcome you all to the post-trading con call of IFB Industries Limited FY '19. Joining with me today on the con call are Mr. Rajshankar Ray, CEO, Engineering Division; and Mr. Arup Das, Head of Marketing, Engineering division.Now I will share with you our performance for the fourth quarter ending March 2019 and year ending 2018-'19. During the fourth quarter, company reported a total income of INR 626.25 crore, a growth of 18% over the corresponding period last year. EBDITA margin stood at 3.4% for the fourth quarter compared to 8.5% during the same quarter in the previous year. The dip in EBDITA is mainly because of exchange fluctuation, increase in commodity price and increase in import duty on AC and MW, microwave, which is a traded product. [indiscernible] the price increase, the effects of increase that will happen. For the year-ended March 2019, company reports a total income of INR 2,552.28 crore, a growth of 15.6% over the same period last year. EBDITA margin stood at 5.4% during 2018-'19 as against 7.9% during the corresponding period of the previous year. As explained, the reason is the same, exchange fluctuation, pricing the import duty listing and the commodity price increase. But if you notice, major impact came on the fourth quarter because of [indiscernible] sales which happens during the [indiscernible] fast quarter of [indiscernible]. With that, I will request you, Chirag, to start question-and-answer session.
Sure, sir. Yes.
[Operator Instructions] The first question is from the line of [indiscernible] from Lucky Investment Management.
Sir, just want to understand the fact that the microwave and AC business for us is a fairly smaller component of total wide group sale, still it could impact the margins so much. Or there was some other reasons also for the margins in the consumer durable despite the fact that we have actually taken some price hike in the washing machines?
See, I'll tell you, the -- actually [indiscernible] during the year, our AC sale value was around INR 299 crores, INR 300 crores and microwave around INR 282 crores, okay. So amount is fairly large. This is one listing. But as I explained, there are 3 components to it. First is the ForEx, second is the import duty hike and third is the commodity price hike. For example, now I go one by one. The exchange fluctuation, if you see the last year base which went into the material cost, INR-dollar relation was around INR 65 per dollar, whereas '18-'19 it is around INR 70 plus. So around INR 5 per dollar effect minimum. Then the duty of microwave and AC went up by 10%. And the commodity price. Out of that, supposed the effect of ForEx alone for the whole year was around INR 50 crores. Out of that, the commodity price and ForEx out of that, around INR 25 crore to INR 30 crore, we could realize through increase its price. In case of the increase in import duty, like I stated last time, we have taken a number of steps. For example, in microwave, we negotiated with vendor to bring down the import price, number one. Second, we increased price to some extent, but it had also effect on us because sales went down temporarily, although we could recover the position. Third is that interchanging the mix, we pushed more on higher-end models. As a result, we could recover the amount. But in case of AC, we never had much of a chance because we can't increase the price increase much there. But on AC, what we have decided now, we have already started setting up a plant in Goa. We already acquired the land. The design and listing is finalized, manufacturing facilities like plant installation and other things are in progress. We are expecting by next year first quarter we will be in a position to start producing AC. These are the major effects. Like I said, if you see, this quarter alone, FX is around INR 25 crores, INR 30 crores, because what happened in the fourth quarter and the first quarter, sale of trading items are more compared to the manufacturing items. And when we sell more of AC and others, it definitely impact it. Even in the first quarter, up to April, situation will be more or less same. From May, it will change. The reason being we have increased -- some price increase also with the effect of -- full effect will come from the end of May. So by June -- May, June, we are expecting things to normalize. But the effect of AC will remain with us still with [indiscernible] producing. Is that clear?
Yes. So is it fair to conclude that bulk of the impact is because of microwave and AC?
Microwave and AC.
And you have taken some price hike in loaders and there was in-house or import substitution in...
Those things are done for the front loading and these things. But what happens, although we don't call it seasonal now the way we used to call it earlier, but normally we'll see June onwards, washing machine and other sales happens. But in the last quarter of the year and the first quarter, the AC sales are more. [indiscernible]
Okay. Lastly...
Rajshankar. Hello?
Hello?
Rajshankar Ray, you are on the line.
Yes, I'm there. Hello, I'm there.
You can add to my point, what I'm saying.
Hello?
You can add to what I said.
No, I think, Mr. Chatterjee, you've covered the points. So to the specific question on, is the impact coming out of microwaves and air conditioners? Yes, almost the entire impact is coming out of the issues that we had on profitability on microwaves and air condition.
Lastly, I want to know what is the top loader and front loader sales for FY '19, volume numbers.
[indiscernible] I will tell you separately, if you can call me later on, please.
Okay. Okay. If you could just tell the growth, if it is possible. What was the volume growth?
Anything, but I don't have the paper. I will tell you. You call me separately, I'll tell you.
[Operator Instructions] The next question is from the line of Aditya Bhartia from Investec.
Sir, my first question is on top load washing machines. You were thinking of launching 6 kg top load washing machines. What is the status of that? And also in the past few conference calls, you had indicated that we would be looking to introduce refrigerators as well. If you could let us know about that as well.
Yes. So Rajshankar here. On the first point, the development of the 6.2 kg top loader is continuing and we expect to release it in the Q2. Internally, before the release of the top loader, there are some targets that we have made in terms of extraction from existing network for the things that we already have. So that is an internal commitment made by our sales teams and we are working on that. As soon as we reach those commitments, we expect that around Q2 we will release the 6.2 kg because we want to be absolutely sure that we get pure incremental sales from that category.
And how big could that category be? What could be the revenue contribution going forward?
If you see the -- around 55% to 60% of the industry is in the 6 and 6.2 kg category. That is of semi-automatic top loaders. So we are currently, with our existing range, represented in about, you could say half of the industry. So when the 6.2 kg is ready and in the market, it will address the remaining half of the market. So the revenue potential is quite large. As far as the question on the refrigerator is concerned, we had shared in the previous investor call that as of now we are just doing the product development and our internal thing is to fix the margin issues that we have before we get into refrigerators.
Okay. My second question is on the potential impact of customs duty. Now I think room ACs and washing -- and microwave ovens put together would be contributing around INR 140-odd crore of revenues for the quarter. Given that customs duty was increased by 10%, even if we take a case that none of the -- that we could not pass on even a part of that customs duty impact to end customer, this should have been, let's say, around INR 14-odd crore of impact. Even adjusting for that, margin appears to be at the lower level. So is there something more to that?
And I explained. But the other part is, like I say, that there is an impact on account of the input, because AC and microwave's total input. Now the Forex effect, also you could take into consideration. Because we said that in the manufacturing import -- the manufacturing production reduced substantially. But in the case of the traded products, for example, microwave and AC which is totally imported, majority -- price that -- the effect on the [indiscernible] effect was on the -- why AC and microwave which we could not reduce. We could not realize by increasing the price.
Understood, sir. And sir, your main competitors on the microwave oven side, are they all manufacturing within India? And is there an outsourcing model also available for microwave ovens as it is available for room ACs?
So Rajshankar here. The main competition for IFB in microwave is LG and Samsung. And Samsung is currently importing, and LG has a degree of manufacturing and also some [indiscernible]. When actually customs duty went up, both of the companies actually held the price. Samsung specifically held price and, to some extent, even reduced price. This was when the custom duty impact, so that was a couple of quarters back. And we were not in the position to pass on the impact of the custom duty. Now what we have done is over the last 2 quarters we have taken selective price increases. So we have rejigged the model positions in terms of brought in new models with more features at higher price points, allowing us to negate the impact of the custom duty. And the last price increase that we took was between February and March. So the full impact of that will come by the end of June because there's a 3-month time lag in terms of the full impact. As far as -- so to a large extent, as far as the microwaves are concerned, we will be able to negate the impact that we had in the last quarter, in the last year.As far as air conditioners are concerned, like Mr. Chatterjee said, there are 3 elements here. One is the element of the customs duty, the second is the element of the ForEx and the third is an element of an actual price increase on the product exit China because of the internal capacity-related issues within China. So you combine the effect of all 3 together and the market situation where normally increase price and when we are not in a position to pass it through. The air conditioner has been a bigger challenge than the microwaves. And we have taken some selected price increases on air conditioners as well for which we have passed through from last month onwards. Effect of that will come in May and fully in June, like Mr. Chatterjee said. But it will still not be a full fix. So we will have to -- we will have a status quo on this [indiscernible] manufacturing. And the impact of that, we will have to work on the existing products [indiscernible]. That is the current plan we have.
Understood, sir. And sir, my last question is more from my understanding perspective. Is it fair to assume that whenever costs go up sharply, whether it's on account of commodity or on account of ForEx, given how competitive the space has become, it will take 2 to 3 quarters for companies to be able to properly increase their pricing and to be able to pass on those costs to end customer?
So if you see, for IFB, we have 2 different sets of experiences. On the manufactured areas, we are able to pass through any changes within a quarter. So the policy that we have is we review quarterly in terms of what is the commodity ForEx situation and we make the adjustments. And given the fact that we have a lot of local production and we're able to just manage product-related issues much better, we have no problems at all on manufacturing. As far as the import category is concerned, we have never had problems with microwaves as well because whatever was the impact by value -- by virtue of product-related actions or market pricing, we were able to knock off any impacts. This last year was very unusual because a 10% increase is a very huge increase. It is very difficult to knock it off in one go. The [indiscernible] experiences on air conditioners where by virtue of our present position and having to rely on imports we are not able to pass through price increases the way we want or the way we do with manufactured products. This problem will get resolved when we bring manufacturing into India which will be in the fourth quarter of this financial year.
[Operator Instructions] The next question is from the line of [indiscernible] Capital.
Sir, of the washing machines, how much of our components are in-house manufactured and imported? If you could give a breakup even from top load and front load separately, that would be helpful.
So in front loads, our imports now are at about 15% to 17%. And this has consistently reduced over the last couple of years because of the localization in electronic, et cetera, that we have done. And it will remain at more or less this level now.As far as top loaders are concerned, this value is at about 35-odd percent. And we have initiated a project to bring it down to sub-20% levels. This will happen by let's say third or fourth quarter of the next year.
Okay. And when we are talking about ACs and microwaves, microwaves, were these fully imported mostly?
Yes, microwave is a CBU import, yes.
And on ACs, we would be importing the basically the compressor?
In air conditioners, what we will be doing is that plastic, sheet metals, SME-related costs, electronics, everything will be within India, number one. The compressor and some raw material elements will be imported. As far as the compressor is concerned, over the next 15 to 18 months, there are compressors manufacturing facilities also coming up within India for which we have already begun projects of sourcing from the Indian units with developments already started. So let's say between Jan '20 to December '20, the compressor will be imported. But starting, let's say, Jan '21 onwards, I would expect that maybe 75%, 80% of the sourcing would be from within India.
The ACs, would it be fair to assume right now we do around maybe 40% to 50% of sourcing from imports on ACs?
AC is completely imported as on date.
Completely as on date?
Completely imported. Completely imported. [indiscernible].
[indiscernible]
No, it's a CBU import as on date, which is one of the reasons why we've had such a large impact related to the customs duty in products area. But when we localize from the fourth quarter of this year, it will be completely localized.
Okay. Okay. And this INR 150 crore project, sir, what is the kind of timelines we are looking to break even on this investment?
We are expecting to begin production in January '20 from the entire manufacturing setup.
Okay. Okay. And any internal target on when we can scale up to full capacity? Maybe 3 years? 4 years?
No. By full capacity, still not meaning enough to fulfill our sales requirements for the domestic sale. Is that what you're talking?
No. From what I understand, this INR 150 crores of whatever investment you are putting in into your capacity can give you revenues of up to INR 1,500 crores, INR 1,700 crores. And I'm talking about if we wanted to go to that particular kind of scale, how many years would it take? At least what do you think? What is your perspective on it [indiscernible] somebody else.
Understood. Understood. So as we have mentioned in the investor report as well, the execution strategy that we are taking for the air conditioner project is on 2 levels. One is as far as the IFB brand-related sales are concerned, in terms of IFB being able to address the required channels which would be, let's say, online, off-line, distribution, et cetera, creating a range that gives us a clear unique differentiation and the volumes that we want in the domestic market, that is the first strategy. And the second is that we actually can also be an OEM for the buyers who also want to localize production into India. And the third is exports into geographies like the Middle East. So we are working on all 3. And specifically on the OEM supply, there is already contacts that we have made. And the discussions as of now are positive. So as far as the project payback is concerned, full capacity realization that -- that specific question that you've asked, we believe that within -- as a result of our own sales plus OEM sales, we should be reaching full capacity in maybe 3-odd years.
Okay. OEM sales plus [indiscernible] sales [indiscernible] 3 year. That is what you are putting [indiscernible].
Yes, I would expect that.
Okay. And on the CapEx, sir, do we have anything -- any particular visibilities around FY '20? How much are we going to invest FY '20, '21? Any -- any kind of visibility you can give on that apart from this particular INR 125 crores CapEx?
Mr. Chatterjee?
Apart from that, we have around -- engineering around INR 50 crores. And the engineering would be around INR 70 crores and in [indiscernible] another INR 25 crores, INR 30 crores.
Okay. Home appliances, another INR 25 crores, INR 30 crores.
Other than AC.
Okay. So would it be fair to assume that there would be around INR 230 crores of CapEx that needs to be factored in over the period of '20, '21? FY '20 and FY '21? Or...
Yes.
The next question is from the line of Mitul Mehta from Lucky Investment Managers.
Mr. Rajshankar, my question is to you. Can you hear me, sir?
Yes, I can hear you clearly.
Yes. Mr. Rajshankar, one is what we have seen, especially in the consumer appliance industry, obviously the whole focus has been more on the margins because there is a bunch of imports and local manufacturing so saying all this plays a very important role. What we've seen, particularly in FY '19, is that we have seen currency weakening significantly. We've seen raw material price increase and ForEx hitting us very badly. So this was a very extraordinary year. Now what my question to you is that we are going to face these issues every now and then. So therefore, we've taken -- of course, we've taken a lot of initiatives, but what we want to understand from you is, sir, some degree of predictability and sustainability on our businesses. We are doing [indiscernible] as far as the growth of the company goes, we seem to be growing higher than the industry and much more faster than the peers. So can you please take us through the definitive journey of IFB over 3 years, as to what sort of material price reduction are we targeting from, let's say, FY '19? Because FY '19, I would understand that we kind of almost hit the peak in terms of material cost now. We should see some hope of improvement and therefore translating into margin. So Mr. Rajshankar, if you can just give us a definitive plan for year 1, year 2, year 3 as to how and where we are going to be over 3 years in terms of the material cost reduction.
Okay. This is a good question, and I will try and answer...
We've gone -- if you see last 8, 10 quarters of IFB history, we've gone through series of up and down as far as predictability goes. What we want to understand from you, we want some definitive roadmap as to where we are headed now because we also saw in Whirlpool, now Whirlpool seems to have hit that particular area where the predictability has become far more better. As far as IFB goes, we are still kind of struggling. So can you please help us to understand as to where we are going to be next 2 years?
Okay. So this is a very good question. I will try and answer this. And if I miss out some parts, you can ask me again.
And sir, one more thing. Sorry if I was a little more -- little harsher. Because Mr. Rajshankar, you've gone on record when you said on the conference call that our ultimate objective is to get to a 10, 12 or 10 double-digit EBITDA, which I believe is not at all difficult to get to that number considering the fact that other companies are delivering. So my question to you is, what is that we are lacking? Where we are struggling? Or are we kind of not yet -- still the systems are not in place? Our sourcing is still very weak? So please help us to understand your business model.
Okay. So I will try and answer this in parts. And like I was just saying a couple of minutes, again if I miss out something, you can ask me again. So if I look at this year, that is FY '19, '20 and '20, '21, the point that you have made about being unpredictable as far as the margin is concerned and going up and going down is completely taken. The point about us having gone on record in the conference calls talking about our desire to be a 10% plus EBDITA in terms of internal target, that is also correct, and we have not delivered on that. So to your specific question of what we are planning in terms of the material costs, et cetera, over the 2-year horizon, I will detail what exactly is the internal execution plan that we have. If you look at the material costs over, let's say, the last 12 months, or if you look at the fourth quarter where the margin [indiscernible], we have 2 separate issues that we have to deal with. As far as the manufacturing is concerned, in terms of a currency impact or managing commodity pricing, we have actually no issues at all. So our gross contributions on manufacturing has slightly grown, in fact, in the last year as compared to the year before that. Because we have, over the last few years, internalized a lot of value addition, we have completely localized electronics. So the impact of our currency swing on manufacturing for us today is limited. In terms of what will happen to the manufacturing material cost over the next year specifically or a 2-year frame, I don't see any major swings in the commodity pricing. I would expect them to remain sort of fluctuating in the ranges that they have been over the last 2 years. So whatever material cost structure we have now will remain stable. There is -- there is a redesign and further localization of electronics that we are planning. So I would expect that over the next 1 to 2 years, we will reduce material costs by about 2% to 3% as a result of the work that is going on. This is as far as the manufacturing side is concerned.As far as the import side is concerned, we -- the gross margins have significantly dipped post the customs duty impact. So the material costs are very high. And there will be significant reduction in the material cost for the air conditioners because of the manufacturing project that will come onstream in January '20. So for the specific plan in terms of what will happen in the next 2 years, our agenda now is that whatever profitability we have on microwaves, we can restore it back to the extent possible which will primarily come by reviewing the model mix. And on the air conditioners, to get a healthy gross margin contribution, we need to have the manufacturing project go live by January '20. If you look at this essential unpredictability on the margin side that we are currently having, this unpredictability will grow if the revenue rises that we get has balanced out in terms of irrespective of which product category rises, the margin price remains the same. Today, what happens is that if the air conditioner sale rises significantly, which it should because we're very small currently, it is not commensurate with the margin rise because of gross contributions on air conditioners currently available. Once we have fixed the air conditioning segment through the manufacturing project, irrespective of whether washing machines rise or air conditioners rise, our margin will rise in a predictable manner. This is what we are targeting. This was on the material cost side, where 2 elements, one in the electronic redesign and additional localization that we are planning is leading to about 2% to 3% reduction; the second is the import side material cost led primarily by the air condition and manufacturing. These are the 2 main elements of the material cost side. The other side that we are working on as a company which we have also shared in previous investor calls is that the network addition that we have made over the last 2 years has been very high in terms of the reach through the new distribution network. We have not been able to derive the sales value from that the way we should. So even though the point that you made about IFB growing faster than the industry and faster than peers, the actual reality that we see internally is that there is a much more growth potential to be realized if we do the network side properly. That is an area that we've been spending a lot of effort on over the last 1 year. We have still to get the results. But the big action that we have to deliver which is specific to this fiscal year is that we are able to realize on the network the sale that we should get for all category, not just air conditioners, but also additional revenue growth from categories like washers. So the ultimate objective of the double-digit EBDITA that we have shared for us to deliver, I would see the action point in terms of our internal goals for the next 1 year or 2 years with material cost on manufacturing by about 2% to 3% on an annual basis, material cost on [ books ], primarily air conditioning project and the sales realization for all the categories from the network that we have in place.
If I may just add to what you described, the situation and the actions that we will take. When you say network addition, which means that cost has grown much more than the increase in sales, be it air conditioning, be it microwave or be it washing machine. So which are the costs which has grown very rapidly for you in your P&L debit? If you can just -- if you can just give us a very broad sense also, that will be fine. So one is [indiscernible]
Yes, so this is the correct point. So when I talk about the need to get more extraction from the network over the last year or 1.5 years, the additional investment that we made were in 2 areas.One was in terms of the people that you meet at the counter when you walk in as a customer, which we call as the counter sales representatives. So we have made investment in terms of numbers, remuneration, et cetera, for those people so that we are covered by sales representative in any -- in as many counters as possible. So that investment is there for the company, but we should get much more return from that. That's the first point. The second, because we expanded the network significantly and we went from about 4,000 to 5,000 counters to now about 10-odd thousand counters, we increased the sales executives [indiscernible] in terms of coverage of territory. So the investment made in the sales team, the investments made in terms of people that you meet at customers at counters who explain the IFB products to you and investments that we have made in product development, in the R&D area, in terms of the product pipelines, delivery, et cetera. So these are the 3 big areas where there have been significant investments by the company.
Right. So over the last, maybe 1.5 years, these 3 heads which -- where the investments have been very high. Now going forward, do you feel that the intensity will fall as far as the OpEx for all the 3 elements go? And also, if you can just quantify us approximately as to how much of OpEx-related cost we would have expensed on account of these 3 line items?
So this last part, I will let Mr. Chatterjee handle. Before that, what the point is that this OpEx in the form of the investments in representatives in the sales force or people in R&D for the product development work, this will not rise now the way it has risen earlier because that investment is made. For us now, we need to get the return from the market in terms of the sales. So this will have an incremental increase in a normal manner, which is not going to increase the way it has increased earlier. That is the first one. The second point in terms of what is the impact of the increase, Mr. Chatterjee, you could answer that, please.
Yes. There is a -- the increase mainly in CSR because when we want to increase the number of counters, the dealer reach, you have to increase the number of CSR institutes. That is one, which will give us a large, definitely, as a result. You can see that 18%, 20% CAGR in terms of revenue we'll get.Number two is the IFB Points. We are focused to franchise the own, franchise the operators as well company-owned company operators. They are the -- the realty is increasing because these are our working converts. The margin that you generate from those 2 sales liquidity, so you're not having any issue there. But these 2 -- from these 2, you can generate much more sales. Now we are trying. Instead of concentrating more on increasing many more number of stores, we're trying to manage them well so that we get the desired revenue from stores and our margin increases.
And Mr. Rajshankar, if you allow me to ask you one more question.
Yes. Please.
Yes. So Mr. Rajshankar, now if I were just to look at your numbers a little more granularly, if you look at the employee cost. Now obviously, you gave us the obvious reasons of why we saw such a steep increase in the people costs from last year, let's say we were at about INR 52 crores, INR 53 crores. Same quarter, we are now at about INR 65 crores here, which is like 30%, 35% increase, okay? Can you hear me, sir?
Yes. I can hear you clearly, yes.
Yes. So that is like a good 30%, 35% increase. Now going forward, is it fair to assume that the increase in employee costs will not be to this extent?
Can I explain?
Yes. Mr. Chatterjee, please.
See, if you see the YTD increase compared to last year's in employee expenses, it's around 21%, okay? And you'll see the number of people, the one that we had last year, it has gone up by around from -- just a minute, I'll tell you the exact number. Just one minute. Because there are 10%, 12% increase, the number has gone up from 1,690 last year to 1,970, okay? This is, of course, I'm talking about company as a whole, including engineering, 1690 estimated, right up by around 16%. And overall, if you see the reported employee cost increase is around 21%. So there will be some increase on account of normal salary increment every year, [indiscernible], number one. Number two, additional people whenever we are getting in the market from the market, obviously, they will come in at a higher cost, number two. Number three, if you see the quarterly results, from the last quarter to this quarter, there is hardly any difference. But if you compare with last year same quarter, obviously, the full effect of additional people increase, everything will come. That is why it is looking so high. But the YTDs you'll see, it is 21% increase out of that 16% is because of the manpower increase, okay. Of course, if our number increase, there are some accretion also. So overall increase is 21%. Out of that around 12%, 13% would be the effect of average increment that we give to our employees.
But Mr. Chatterjee, going into FY '20 and '21, are we going to see similar increase of 21% or it will be much lower?
That is something we will take into consideration. For example, the increment part will be there. But second, since we are going into starting the AC manufacturing operations, we only need a few people. Am I right, Rajshankar?
Yes.
Because the technology is different. The quality aspect is different, then we have to recruit some people. But the -- those recruitment will give us a large in terms of much, much more higher revenue.
Mitul, to the specific question, the increases on a -- the apples-to-apples basis are not going to be to the levels that you are seeing now because that investment is already done, and the revenue increases will be at a much higher rate as compared to this increase. That's fine. The increases, as a result of the air-conditioning project, et cetera, coming, that will be net-offs by the savings on the material cost side. So as a percentage to the sales, you will see a correction.
So my last question, final question to you. So then Mr. Rajshankar, when do we hit the double digit? I mean is it going to take 3 years, 4 years, 2 years? In your understanding, I mean by now you would have a fair degree of sense by when we should get to a 10% EBITDA margin.
Yes. So we don't give a forward forecast. But if you look at the actions that we need to complete to specifically address this problem of unpredictable profitability, these actions are -- and the heads on this, they have to happen, which is on the manufacturing and material cost, the air-conditioning material cost and sales. I would expect that we would [indiscernible] when the air conditioning project [indiscernible]. Or a full fix the way we have been wanting it.
So, let's say, what we are getting is to a 10% number?
See, our attempt is to do it as soon as possible because you made a specific point that look, you guys have committed this in an investor call. It's not delivered. So it is something that fits on our head as well to be able to conclude and deliver this. I think what we can do is to get these actions completed as fast as possible. And if that happens, this is an automatic output from that.
I wish you all the best, and I hope you deliver on what you have said on the call.
Thank you. You were very specific with your point. Thank you.
Sir, it has been quite a tiring journey. So I am hoping that you will be extremely mindful about the deliveries.
Yes. We will do that.
The next question is from the line of Romil Jain from Systematix Group.
So I just wanted to understand when we are saying that we are increasing the network in the last 1, 2 years, I think you mentioned that the counters have been increased. But can you specifically give some number on what kind of marketing strength we have added when we have increased the total employees? And what kind of IFB Points we have added in the last maybe 1 year or so?
So as far as the IFB Points question is concerned, we are now at about 520 IFB Points. And we would've added about 75 to 90 odd in the last 1-year.
75 to 90?
Yes. 75 to 90, approximately last year. And our aim is to reach a number of about 600 by the end of this year. The focus of this year will be not so much the numbers or numbers in the natural incremental increase. Our focus is going to be on the profitability of the IFB Points, both for the company as well as for the franchisees, so that's the main agenda for this year. The deal for the IFB Points [indiscernible] is already in place. As far as the salespeople increase, the larger increase has been on the -- on what we call as the counter sales representatives on the sale side, which is the people that you meet when you're actually going to a counter as a customer. I think the last 1 year, we would have increased about 450-odd people, business people at so many more stores.As far as the sales team itself is concerned, the number increase would be maybe about 50, 60 people, which is not very high. The larger increase is on the customer sales representatives.
Okay. Okay. And secondly, sir, in terms of competition. So in the entire Home Appliance Division plus the AC division, so what kind of pricing pressure, if at all, the competition is high, we are seeing over there? Because you have a lot of competitors out there now.
So if you segment this by product category, then as far as washers is concerned, to my mind, the pricing pressure is similar as what was there before. So you have some import options to companies like media, et cetera, which have been placed at a very lower price point. Some of our competition undercuts in an attempt to gain shares. But I would largely say that it is similar to what was there before. There will always be pressure as far as pricing is concerned in a category like this. In a category like microwave, there was a degree of pressure post the custom duty price increase, but that has eased off, and we have said this as well. In that category, like air conditioners, there is very similar pricing pressures particularly. Since our share is very small as on this, we are affected more because input side costs, we are unable to participate. As the volume increases, I think our ability to pass through pricing will increase.If you see summary as an industry as a whole for these categories that IFB operates in, between now and let's say 12 months back, I would say that the pricing pressure is similar. And there is no new element of pricing pressure that has entered as of now.
Okay. And in washing machines also, no major pricing pressure as compared to last year and going...
It's still similar. There are players who are selling at a very low cost, but they were there now and they were there year-on-year as well. So it's not that there is any increase in the intensity of the pressure. It is similar.
Okay. And last question on the AC side. So even when we start our own manufacturing and you know the volumes kind of increase, do we still see that there can be a lot of competition even in spite of that, and hence, we can sustain in a slightly premium-ish category? Or there can be some pricing war again and it may get down the pricing to some extent in your view.
So okay. So the pricing pressure within the air conditioning are the highest in all the categories. So I don't see anywhere how it can get worse because it is already very bad. For IFB, the difference is going to be some going to imports to own manufacturing. So even with the pricing pressure remaining the same, our gross margins are going to get better because currently, the impact of the custom duty, et cetera, is very high on the overall value chain for the company. Getting volumes is going to be a function of how well you do the sales side of the study. That is not so much related to the manufacture income, how the manufacturing will help you that it will give a much better range. It will be a future which are better than today, so it will help sale, but the larger part of the volume work has to come from the sales, and it works a little in there, which I shared a little while ago.
The next question is from the line of Rahul Agrawal from WestBridge.
A question for Mr. Rajshankar. So one question I had was given that over the last 2, 3 years, the growth has been driven a lot by e-commerce. Has that been margin dilutive in any way for the company?
No. Actually, the margin structure in online is similar to off-line for us. And online commerce is not diluted. It is actually a little bit helpful impact. Because the gross margin structures are similar, but the overhead on e-commerce are actually almost nil in terms of sales force requirements, et cetera. So if you really look at it, it is similar or a little better. So it has not affected margin year-over-year. And we are quite positive -- sorry.
Okay. So if gross margins are similar, and you are not seeing any pressure on them incrementally also?
No. No, no, no. In fact, we are quite positive about the whole e-commerce opportunity. And we think it can be very helpful to [ diverse ].
I understand. That's helpful. I think the other question is around the expansion distribution network which you have talked about several times in the past as well, and we had added a lot that of the [indiscernible], but given the odd products is a lot more premium. But if you talk about premium front load products, adding numeric distribution, does it clearly increase our retail distribution in practical ways? Would it be easy to take out more sales from these channels? Or do you think that the sales are more for the building of the [indiscernible] for top load eventually. The [indiscernible], the [indiscernible] there?
Yes. So -- sorry. It's a very interesting question you've asked, and that is one of the reasons why it is taking us more time. So the numeric reach which has happened are typically not counters which can set up front loader very easily or which can sell an IFB, the kind of top loaders that we have which are more on the premium side. Many of the distribution networks don't sell microwaves. They've never sold a dishwasher. So to explain to the network or for the network to learn how to place and sell an IFB product is taking us time in terms of the training. But if you talk about the opportunity, the fact that they know availability drives sales that we have started disclaiming, we have started -- if you look at the percentage of the distribution channels contribution in our business, that has gone from practically nothing to a level of 11%, 12% in a 1 year time frame. The opportunity is very large, so you may get smaller exception for the coming term. But the number of counters is huge, so there's some sort of impact of that can be very large for the company.
I understand. And sir, if you can talk about how many counters are you covering now and how many of them would have a front load machine of IFB place? How many would have a top load placement and how many would have a microwave place, so that we have a sense of what are we [ dealing ] with and where does it stand today?
Okay. So I will not answer it in terms of placement because the real measure is how much a regular business that we do with the counters, so I think that will give you an idea of the one that we have to do and also the opportunity. So currently, we are at about 10,000 odd counter, which is directly and indirectly serviced. And if you look at front loaders, then we would be doing business regularly on a monthly basis with about 2,500-odd accounts. If you look at top loaders, we had about 2,100-odd accounts. If you see top load return, the reason, over the last 1 year, from about 1,400, 1,500-odd accounts to about 2,100-odd accounts, that's both the front load and top load. The gap is some, let's say, 2,500-odd accounts to a potential of about 5,000-odd accounts even if I consider half of the network billings regularly every month. If you look at the air conditioner, air conditioner used to typically be only 800, 900 accounts within the regular business in a month. And that has risen to roughly about 1,800, 1,900-odd accounts in the last 2 months as well. So that is the sort of headwind in which we have to work. Have I been able to answer your question?
Yes. Now this is some useful perspective. Out of -- so these 10,000 counters working, new business once in a year, that's it. [indiscernible] the month back, 2,500 are doing business on any given month.
Yes. Correct.
Got it. So these 10,000 would have some of the other products of IFB today in their shop, but only 2,500 will sort of buy regularly. Am I correct?
So if you actually look at placement of a front loader, you could be maybe in the 7-odd thousand of those accounts. But month per month billing, 2,500, which is the [ job ] that we have. Remember, remaining accounts, if we learn to sell it, and if they sell it every month, then we also bill every month, and that is where it's going for the rest of the [indiscernible].
I understand. I understand, that's helpful. And so given that we covered a lot on margin but we didn't spend too much time on growth in the [indiscernible]. On the top load side, it's been about 2 years back, the growth was spectacular. We were a little out of capacity. And last 2 years of growth has been in the 18%, 20% range, which is sort of much lower than our activity has been in that category. And you were thinking of us exchanging or [indiscernible] the launch in that segment. Has that happened? How was the initial response to that? What do you think will be the growth in top load going forward?
So we have not launched the 6.2 kg yet. What we had wanted was that given the impact we had, which is expand 5 kg and above. We wanted to meet some internal targets in terms of the placement of the product. And consequent to that, the idea was that we introduce the 6.2 kg so that it gives us incremental sales on a P&L basis. Now if you look at the size of the opportunity, today the 6, 6.2 kg segment is about 50%, 55% of total sales, so which is about half the industry. We are currently covering only half the industry. We expect that around Q2, the work internally planned on the existing range completed. We would in a position to deliver and expand total margin. And that will allow us to address double the segment that we are addressing today.
I understand. So you think that will happen in the second half of the current year.
Yes. Correct.
I understand. And just given that you mentioned that incrementally outlet addition and distribution expansion will also slow down, and your e-commerce business is also now becoming fairly high. What rate in terms of the washing machine category if you see front load and top load continue to grow at?
Actually, the opportunity is very large because in terms of growth potential, we -- even without a growth in the active dealer base, our need to increase the number of dealers doing regular business with us is actually the largest dealers already. So the dealers are already there. The placements are already there, but somebody is selling months in 2 months. Can that person have somebody properly trained to sell every month? So the largest growth opportunity is from there. As far as the online segment is concerned, as their reach increases, they will continue to grow [indiscernible]. So I don't see any reason why the growth rates on a category like washers should slow down.
And do you think that the 17%, 19% growth that you have consistently done in washers can be done with your existing distribution?
Yes.
I understand. I understand. Okay. As you have greater distribution toward the front load and top load in a year, what percentage would be the number of accounts that you have?
It will be 86% to 88% rate of distribution.
For the both of them?
Yes.
Wow. Okay. And sir, one last question, if I may, on air conditioners. On air conditioners, a lot of these companies basically, [indiscernible] Voltas, and all of them have relied on outsourcing rather than own manufacturing. And that has also resulted in fairly good margins in bad categories despite that category being far more competitive. So what's the rationale for us to do own manufacturing? And what will our [indiscernible] proposition in that category? Because at the top, it seems Hitachi, Daikin have taken the place of [indiscernible], [indiscernible] the absolute top at the bottom of the slide, and in the middle, there is Voltas. There is an IFB [indiscernible] and what will be our long-term consumer proposition there? And what do you think -- how do you think will that own manufacturing give to margins and overall business profile there?
Yes. So we had a lot internal evaluation before we took the decision to invest into the air conditioning manufacturing. And the primary reason why we are doing it ourselves and not doing it through third-party resources were in terms of the quality and product proposition that we want to deliver, it will not possible to outsourcing [indiscernible] so it's in our current company like LG, Daikin, Hitachi, they are all producing themselves. And we wanted a high degree of control on the quality and the value addition. So the aim of the project that we are doing is to deliver a product equal to the best brands that you have. Of course, there is a customer differentiation and value proposition that we need to deliver, and we're working on that. And I'm very hopeful that when you see the air conditioner in quarter 4, as a customer, you will see that they're different, and our work is [indiscernible] before you buy an air condition.
I understand. And that positioning will be closer to Hitachi, Daikin and not closer to LG, Voltas?
Yes. Our positioning will be closer to the higher end.
I understand.
I would not -- I would put LG, Daikin and Hitachi into 1 bucket. And Voltas I would put into a separate bucket. And so we'll be closer to the first bucket, or in the third bucket, basically, as a product.
I understand, I understand. Sir, I did not catch the earlier comment on margin. You mentioned that all the initiatives that you are doing should pan out by the start of the air conditioner unit and better when margins should begin to show up. Can you elaborate on this a little bit? But -- so should we expect that next year? Or you think it's 2 years away in terms of how you think about when will the margin improvement start showing up?
So what we said is that we don't want to put a time line forecast on this, but there are 3 key things to be completed to get to that level of predictability on the margin, which was the question that you had. One is on the material cost in manufacturing, which is a reduction of about 2% to 3% on an annual basis. The second is specifically the air conditioner project because the large chunk of margin at gross level is in there. So on the cost side, you said that will be a conditional project line, both of these things have [indiscernible]. And in terms of revenue growth to median to better contribution, that the mean growth is the point that we just discussed in terms of what the opportunity is, and that is the job that we have to do. So all these 3 are the key things for us in terms of this year's [indiscernible].
The next question is from the line of [ Harish Biyani ] from [ICICI Prudential].
In terms of what's happening in the industry, a very large capacity addition. And there are a lot of players with fairly deep pockets getting a lot of capital, whether it's Voltas, Beko, Haier, et cetera. So do you think that in the next say, 1, 1.5, 2 years you see things getting much worse before it gets better in terms of pricing actions? Competitor getting more aggressive on dealer distributors, et cetera?
So to the 2 specific examples that you raised, Haier has always had manufacturing capabilities, even investing to strengthen the manufacturing and in terms of the price points, et cetera, it has occupied in the market. I don't think those will change. They will probably strengthen themselves by investing in media in terms of what they can offer to customers. Haier, per se, in the categories in which IFB operates is not a direct competitor. So I do not think that we will be impacted so much. They will probably have a greater impact from category like merchant deliveries.In air conditioners, in any case, we are small. So for us, there's headroom to grow. As far as Voltas network is concerned and their investments into manufacturing, I think that project is still some time away. So we will have to wait and see. I don't expect any additional pricing pressure as far as the market is concerned as a result of that investment. So these are the 2 specific answers. Would you like me to elaborate on any other point on it?
Yes, sir. So essentially what you had seen in specifically the categories that you were there, say about 2 years back or say 4 years back. Is there a few players and every player had certain niche? You had a certain niche, and you're operating in that particular niche and you're growing. Suddenly, looking at the long-term growth in this particular market, a lot of new players have come in, whether it's Voltas, Haier, or a Bosch. Siemens have come, Bosch is trying to create another niche in this particular category. So from a 4- to 5-player category, this particular category itself is becoming a 10-player category, and this is happening in a very short time frame. So one particular hypothesis is that the dealer, distributor, et cetera, but actually only the dealer side remains only so much. So people who are investing more money at this point in time looking in the next 5 to 10 years, especially the newer players, will have to kind of get more aggressive at least for the next couple of years to gain market share. So that is the hypothesis which I'm trying to test.
Okay. So if you look at the washer category, and I'll answer it specifically in this category. If you look at the last, let's say, 2 years' time frame and see what has been happening. So the fact that the Bosch has been trying to buy shares by being aggressive on discounts and pricing, or that the Samsung has been non-extremely aggressive in trying to buy shares by giving mobile phones combined with the washing machine, et cetera, that has already been there. So for IFB per se, it's not going to be something new because they have been doing that for quite some time. And our growth has come in spite of that. So I don't see any problem specific to this year. The other thing, if you look at the last 1-year horizon has been, for example, media on the online space, put in washing machines at about half the normal price which they did in the Siemens period and also before and after the Siemens period. We have not seen any impact as of yet. They sold volumes. We are aware of the volumes, but it has not impacted us. I would expect that they will continue to do the same thing in the next year or 2 years or like the same in the next 5 year horizon. There is a segment of customers who are price sensitives and now who will go on and buy those products. Some of those customers also buy IFB. But can we sustain growth rate by doing what we have to do with our own network, increase replacements ensuring that our extraction is better? I think we can more than make up for those numbers that we would lose in the type of these kinds of engines. To an entrant like Voltas, which will place washers into its network, et cetera, I personally don't see any impact for IFB. We have to experience it. And if there is any cannibalization happening, then we will have to think of simple ways to reach revenues for that. Right now, specific to this fiscal year or the next fiscal years, I think the potential for growth that we have found, the agenda that we have with our own network, which far outweighs any potential issue that may come out, out of any of these 2 [indiscernible]. So am I able to explain this?
Yes, yes. This is very helpful. Sir, my last question is on the CapEx that you will be doing for the air-conditioning business. What would that be? Capital outlook?
Mr. Chatterjee, would you like to answer this?
It's around INR 150 crores.
INR 150 crores?
[indiscernible].
This is for fiscal '20?
Yes, '20. Mainly in '20 there could be some spillover in '21.
And essentially what all parts are you going to manufacture in-house and how much is this -- of this, if you can share, would be outlay online? And what would be the rest of the thing that you do in-house?
So we would be doing complete assembly. Heat exchangers, the basic coil making, in-house. We can make a team that will be completely in-house. Pocket plastic and sheet metal, limited parts will be supplied by suppliers out of Goa. Electronics will be manufactured in Goa to our supplier. And the imports will be the [indiscernible] to start up with initially. So our value addition internally will be quite high in the beginning. It will be equivalent to whatever the best brand we have.
Okay, okay. I have further question. Maybe I'll take it off-line.
The next question is from the line of Mitul Mehta from Lucky Investment Managers.
Yes, Mr. Rajshankar, just wanted to know how much do we spend typically in a year in R&D for product development.
I do spend -- we spend around INR 36 crores this year.
INR 36 crores? Okay.
INR 36 crores is the revenue, another INR 13 crores on CapEx.
So both that in the previous year?
Previous year was around I think total was around INR 36 crores.
Next question is from the line of Ashish Kacholia from Lucky Investments.
Just wanted to understand the quantum of subvention that we give to financial payers like Bajaj Finance, et cetera, in a year? And how has this number trended in FY '19 versus FY '18?
Now in Bajaj Finance, for example, this year average billing, the normal period is around INR 46 crores, INR 47 crores compared to INR 41 cores, INR 42 crores last year. And which is around 24% to 25% of the total sale. But during the festival season it goes up to 30%, 35%.
Okay. And so it's moving more or less in line with the sales? Am I correct?
Yes.
Okay. Are we seeing any trend further in the coming financial year that -- to put -- I mean my question is basically have we had to do more of subvention to continue our 17%, 18% kind of growth?
No, no. We don't do anything, actually. It is more on the market and the customers because now it is to put all big stores, have those again sitting there. And depending upon what customers, how they approach imports. We have no control of that. Only what we do, the counter drive, will keep what material Bajaj Finance and other things that we try to control EBIT.
Okay. My question was basically to do with the fact that lot of times you get a 0 fund -- 0 interest product from the finance company. So I thought that the funding of that would be done by the manufacturer, but it is us.
So that is what I'm saying. Like for example, the need is always there. There is the manufacturer buy down, there is a dealer buy down there, and there is a processing fee. Okay. To share between, for example, manufacturers and the dealers and the processing fee, depending upon the season from time to time we keep on changing. Depending upon the market and customers acceptability. And it values storewide and geography-wise.
The next question is from the line of [ Kalpesh Koli ] from [indiscernible] Advisors.
So my other questions have been answered, but there's one question. What is your budgeted ad spend?
Can you repeat, please?
Budgeted ad spend.
Yes.
Budgeted ad spend is around -- we spend around 1.5% to 1.6% [indiscernible].
We'll take the last question from the line of [ Bubble Kovar ] from [indiscernible] Capital.
Sir, from my understanding, there is a significant portion of semiautomatic machines also in the market which could maybe -- so what is your view on them getting converted into go fully automatic? Because I guess they are also maybe around 30-odd, 30% of the market right now?
See, this hypothesis has been there for quite some time but there is a huge chunk of semiautomatic machines and they will graduate to fully-automatic machines. But if you look at the last 3, 4 years, people who have semi-automatic machines also go back, and again, buy semiautomatic machine. They buy maybe bigger and better semiautomatic machine. So even though the hypothesis has been there that fully-automatic segments will significantly accelerate because people will move up, it has not happened on a very large scale, at least until now. So the fully automatic is growing definitely much faster than the semiautomatic. But is the semiautomatic segment disappearing? The answer is no, not right now.
So but definitely the price point between a semiautomatic and automatic seems to be gradually coming down, right? In difference, semiautomatic will be the top load automatic, the price difference between seems to have come down a lot.
Yes. And so if we take the high end of a semiautomatic machine at INR 11,000 or INR 12,000 and the lowest end of the fully automatic top loader at INR 14,000, then yes, the difference is very low. But in this specific case it will also be different. At INR 11,000 there is a very large semiautomatic machine. The top load fully automatic would be very basic. So there is still a price difference even for maybe a little bit lesser than before, but there is still a price difference.
Okay. And on the AC capacity, you said sir, since we are adding certain AC capacity for our own manufacturing, would you have any data what other players who are actually adding such kind of plant capacity over minimization are going forward in India? And what's that...
So I'm not -- so the news on what you heard hasn't been third-party manufacturer, like, a number of a new addition. They are adding to their capacities. A front line player like Viking is also upgrading capacity. They have new projects which have been announced, which is [indiscernible] and Voltas. They have said that they [indiscernible] capacity. So there are lots of projects. I would assume that all of them would [indiscernible] between now and the next 2 years.
Okay. But any idea of quantum for capacity getting added?
In terms of numbers?
Yes.
No, I will not be able to give you a figure on that.
For the investment in terms of...
No, I will not be able to give you that. Because these figures are not shared by companies in the public domain. I mean we share them, but not everybody shares them. So it is difficult to put it together.
But overall, if I had 2 questions, say for what might be the level of indigenization of green ACs today versus what might it be maybe 2 or 3 years later in terms of industry, what would the answer be?
See, I may not be able to give you a very specific answer on this. But if you look at what's happening in the industry today, is that a lot of the players are inputting what is called as an indoor unit from China, and the outdoor unit is being made in India.Now the indoor unit is probably 30% by value of the total AC. In 2 years' time, I think that will significantly drop because of the impact of the customs due. So you will see maybe the entire production on indoor units manufactured in India itself. This is the first change. The second is that the raw material inputs, like contractors today, which will be, let's say, 30% of the material cost or let's say, 30%, today 100% is imported into India. And in 2-year time frame, 2 large players are setting up capacity, expanding capacity. So I would expect maybe 80%, 85% of the requirement of the production from within India. So that is localized. Other than that, we have the raw materials like copper, aluminum, zinc, et cetera, that remains imported. And I think that the material time frame will also be imported because the suppliers are going to add a very large scale in India, and the industry still not that fixed. So you will see a substantial localization on this category driven by the government import duty. And of course ForEx related [indiscernible]. Have I been able to answer your question, please?
Yes, sir. Yes, sir. And lastly, on the [indiscernible] network strategy side. So what is the mix going to be in -- on account of maybe a third-party retailer versus the IFB Points going forward? At least in terms of strategy, what we want it to be?
So IFB Points today are about 15% of company sales. And over a 2-year horizon, we would like it to rise to roughly about 20% of company sales. So as far as the IFB Points sales over 2-year horizon, so I would expect a range of 15% to 20% of [indiscernible].
Okay. And you said the custom touchpoint's point of view, we had at around 570 now and we are adding how many, sir, this year?
Now. We are at 520 now.
No. We are at more than [ 8 ]. We will reach around [ 600 ] by the end [indiscernible] as well. Next year on March.
By December 2020?
'19. 2019. 2019.
We will be at 600?
Yes. And what we said is that the main focus of this year is the profitability of these stores. The numbers going from 508 end of fiscal year to 520 now to 600 by December. This will naturally happen.
Okay. But from my understanding, this new touch points would be added mostly on Tier 2 and Tier 3?
Yes, mostly Tier 2 and Tier 3. Yes.
And how many of these can be our own IFB franchises sir? IFB touch points and how many would be in third-party retailers, any idea?
Yes. I think most of it will be franchisee-owned stores.
Franchisee-owned stores?
Yes. Most of the single [indiscernible].
And any idea you can give us on what would be the proportion of the profitable stores in the network right now?
So if you look at it, I will answer profitability from the franchisee's point of view. Okay? Today, there are about 30% of stores where the franchisee is not making money. So that's the problem that we have to fix. The remaining, let's say, 70-odd percent of franchisees, out of that, there will be another 30%, 35% who are making money but the money is still low. And 30%, 35%, 1/3 of them making decent money.
Okay, okay, okay. And any particular strategy on turning these stores further around? Or we wait after 1 or 2 years, we let them go?
So no, no, no. We don't want anyone to go. In fact, over the last 2 years, our attrition on stores was significantly reduced. The primary strategy is to get [indiscernible] and that is marketing-led at the local level and digital-led. So our conversion rates are very high. They range from 40% to 50%, which in the retail industry is extremely high. So when a customer enters an IFB Point, and there are a very high conversion rate on the customer actually buying something. What we need to do is to send more footfall into stores, for which our effort is through local level marketing attachment to their marketing. And that's what we'll do.
And generally, payback would be for 1 to 2 years? 2 to 3 years or how does it work?
For the franchisee?
Yes.
Yes. The franchisee payback is between 2 to 3 years.
Thank you very much. That was the last question. I would now like to hand the conference back to Mr. Chirag Muchhala for closing comments.
Yes, sir, actually I have 2 quick questions. So firstly, is it possible to quantify the price hikes that we'll take on in past, let's say 6 months or so? And secondly, on the Ramsons acquisition. Now that it has been integrated, so what kind of sales potential and margin are we expecting in next year FY '20?
So as far as the Ramsons acquisition is concerned, our budget for -- I mean our internal target for the sale is roughly about INR 80 crores, INR 85 crores. And the margin that it will give is roughly about 20-odd percent.
Well, actually budgeted is around INR 14.5 crores, around 17-plus percentage.
And what was the first question that you said?
Sir, on the price hikes. You had mentioned that...
On the price hikes, the increases has been to the extent of 2% to 4%.
Okay. Before that, [indiscernible] running the front load washing machine, sir?
Yes, we have also reduced pricing on front loads.
Okay. So basically all 4, 5 key product categories, 2% to 4%.
Yes. So on the microwaves, we already shared. If you -- we have done. And even on front loads and top loads which are priced [indiscernible].
Okay, sir. So that -- so thanks, I would like to thank the management for giving us the opportunity to host this call and to all the participants for your presence. Sir, would you like to make any closing comments?
Thank you, Chirag.
Thank you, everybody.
Yes. Yes, thank you. Raymond, we can close the call.
Sure. Thank you very much. On behalf of Nirmal Bang Equities, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.