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Ladies and gentlemen, good day, and welcome to the Q4 FY '23 Earnings Conference Call of Orient Electric Limited, hosted by PhillipCapital India Private Limited. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Deepak Agarwal from PhillipCapital India Private Limited. Thank you, and over to you, sir.
Thanks. Good morning, everyone. On behalf of PhillipCapital India Private Limited, I welcome you all to Orient Electric Limited Q4 FY '23 Earnings Conference Call. Today, we have with us management represented by Mr. Rajan Gupta, Managing Director and CEO; Mr. Saibal Sengupta, Chief Financial Officer.
Without taking much of time, I would like to hand over the floor to the management for the opening remarks, post which we will open the floor of Q&A. Thanks, and over to you, sir. Thank you.
Thanks, Deepak. Good morning, ladies and gentlemen. My name is Rajan Gupta. I joined as MD and CEO for Orient Electric on 4 April 2023. I'm sure you would have gone through our Q4 result presentation. Before we answer your queries on that, I would like to share some perspective on growth strategy for our company for FY '24.
Over last 40 days or so, I have traveled across most of our locations, meeting trade partners, consumers, our internal teams, visiting all our factory locations. There is one common theme emerging from all these interactions. There is a lot of acceptability and trust for brand Orient and enthusiasm for all new products and other growth initiatives launched in FY '23. I'm really excited to work on converting these initiatives into tangible business results.
I'll be now sharing some specific growth initiatives for FY '24. First of all, we identified hero products across all our business units. These are the products where we have concluded through consumer insights that they have potential of significantly scaling up our growth numbers, supply chain alignment for same has been done. And most of the sales marketing [ GTM ] initiatives for FY '24 will be sharply focused on these hero products.
Secondly, premiumization initiatives across all BUs will drive incremental revenue for FY '24, groundwork on identifying these SKUs has been done and by Q1 end, most of this plan will get rolled out. In the lighting view, we aim to continue last 3 years of trend of industry-leading growth through additional focus on value-added categories, along with ramping up distribution and continued brand investments.
We now have a full range of professional luminaire products to make aggressive inroads in the B2B segment. This along with strengthening our design capabilities for facade lighting and other lighting solutions will help us deliver disproportionate growth in the B2B segment. We have developed products and infrastructure to make sure 5% of the overall company revenue growth in FY '24 come from switchgear and the wire segment.
We have identified some states to go deeper, and we'll use power for our new product range and initiatives around electricians and contractors to make scalable, profitable model, which can be taken to other states in 2025. We are rolling out center of excellence on [ NPD ]. The objective is to increase our focus on getting consumer insights driven profitable products ready for FY '25.
Going forward, this will be a major growth driver for both bottom line and top line. We are targeting approximately 15% revenue from NPD in FY '25. We are institutionalizing cost reduction initiatives through a new cost excellence center to deliver on our goal of cost leadership. FY '24, we have a plan of increasing EBITDA by approximately INR 50 crore based on accruals of work done in FY '23 on cost reduction through [indiscernible] initiatives done along with [ Mckinsey ].
Over and above, our new initiatives will further add to EBITDA in FY '24. We have established a new COE on sales capability development, which will work with all our BUs to help them cover all white spaces in our distribution network. All gaps have been identified, and our work on plugging these gaps has started. We are expanding our e-commerce capability and aim to double the share of e-commerce business in the overall mix in the current financial year. In addition, we launched our own D2C platform this year.
I also would like to update all participants that our company is privileged to be certified as a great place to work for 4 times in a row.
Before we move to the Q&A, I would like to -- I like my colleague, Saibal Sengupta, CFO, Orient Electric to give some brief comments on Q4 performance.
Thank you, Rajan, and good morning to all distinguished participants. Well, in Q4, we had an impressive growth of around 12% in our Lighting and Switchgear segment. Fans performance was akin to market trends. That was impacted by theoretic weather conditions, leading to muted consumer demand and high channel stocking. Air coolers and water heaters witnessed strong growth.
During the quarter, we launched our innovative product in the premium space, the Cloud 3 fan with advanced Cloudchill technology and digital platform. We now have a wide range of BLDC fans across the price segments and supported by a new campaign in 6 languages for Pan India appeal. Considerable effort has been put in reducing inventory and receivables and improving working capital, which has now reduced from 28 days March last year to 24 days this year-end. As a result, we moderately strengthened our year-end net cash position.
Consequently, revenue was around INR 658 crores in Q4 FY '23 with a minus almost 13% year-on-year, with Lighting And Switchgear up by close to 12% to INR 200 crores, while ECD at INR 458 crores was a negative 20% year-on-year. Our gross profit was INR 186 crores, with a minus 11% year-on-year with EBITDA at INR 46 crores, degrowing by 42% year-on-year due to operating deleverage, higher investments in brand and capability building initiatives. PAT was at INR 25 crores with a minus 48% year-on-year.
You would have all seen our investor presentation that we had uploaded along with the results.
With this, I would like to open the floor for Q&A and hand over to the moderator. Can we have the opening of the Q&A session, please?
[Operator Instructions] The first question is from the line of Rahul Agarwal from InCred Capital.
Welcome, Rajan, to Orient and best wishes. So since Rajan is on the call, I'm taking this liberty to ask 3 questions, one for him and 2 on the business to Saibal ji. Firstly, Rajan, obviously, you're taking over at a situation when Orient is not having a very good time. And you said you traveled and you met a lot of partners. During your initial interactions, what do you think are the things that take your top of your mind share and need immediate attention? If you could share a bit more on this, please?
Thanks, Rahul. A very meaningful question. As I already mentioned, in the last 40 days, wherever I traveled, I think a few things are emerging, okay? I spoke about lighting BU, okay? There's a lot of work has happened on B2C segment there in terms of developing value-added products. And now we have full range ready there. So I think there's a lot of growth potential there. There's very high trade and consumer acceptability there. I'm more referring to our decorative range, more referring to value-added products in the lighting segment, okay? Continued lighting in the B2B, okay? We have been growing at exponential rate for last some years now.
And the way growth seems planned in future and the kind of immediate pipeline in order is there, we should have very meaningful increase in further contribution of B2B, okay? So I think there is a nice story going on there with the continuous market share gains. And we'll further strengthen that. That's initial kind of signals I'm getting from all stakeholders there. So that's about lighting.
Switchgear and the whole wires part, we are launching a couple of states the wires, and Switchgear obviously has been there. There look like we can go deeper now in 6 to 8 states. So that's the current plan because idea is to grow profitably. So these are states where we see a lot of traction coming in. And once we scale there, obviously, we can go Pan India, okay?
Coming to the ECD part, which probably you mentioned about the [ subdued ] demand and all that. Look, there's a lot of things are going right there as well. If you see the whole BLDC, for example, in Fans, we were the early pioneer of that many years back. We are one of the few companies where the full range in BLDC is ready. I see a lot of innovation pipeline. Last 40 days itself is a kind of workshops we have done on NPD, and the way you know the whole NPD pipeline is ready, that gives me a lot of confidence.
On Fans, if you remember, we have been sharing in the last few calls, the kind of gains we have made in DTM markets, the 6 states we launched DTM. And more importantly, we've taken learnings with the kind of work, which has happened at retailers and consumer end in terms of DMS, in terms of sales force automation, et cetera. And I remain very excited about taking this work to our markets managed by master distributors because finally markets are same, same [ learnings ] can be applied there, okay?
On appliances, I have seen very acceptability for our water heater and cooler segment, while coolers and fan are a little affected by unseasonal rains in April and delayed start of season in some of the markets, but now we see heat picking up. But essentially in these 2 products, there is very high traction. So in all, while we see some tepid quarters, et cetera, but I think there's a very, very strong foundation, which we are ready for delivering the growth objectives for FY '24.
Got it sir. Just getting into my second question and a bit more specific. So outlook on fans, right? I mean, I just want to know the way ahead. For fiscal '23, I don't know if the fan sales have actually grown or degrown for the company. And should we expect like if the base is like really favorable and given what you're saying, should we expect like 20% revenue growth next year on fan? Is that how we should think about it?
Rahul, look, as you know, it's always difficult to predict a number. But with the kind of foundation which is built up, like, for example, the DTM states, okay? Already, we grew by very high double-digit last year itself. I mean, the foundation which is ready, these are the states which are ready to explore, okay? We are doing extremely well in our e-commerce in fan. April itself has been a great month, okay? Parallelly, the focus is on improving profitability as well. The idea is to gain market share profitably, okay?
There was a lot of work on margin corrections based on product mix change, based on our cost savings through our R&D and [indiscernible] initiative that's happening. So idea is to grow and gain market share profitably. And I think April itself has been very meaningful in that sense. So let's see where we land, but we understand last year hasn't been that great, and we have a responsibility to deliver healthy CAGRs.
Got it sir. And lastly, on lighting. So I understand the fourth quarter numbers obviously include wires and switchgear sales. So I don't think it's entirely reflecting top line growth for lighting and just the margins also have been quite high. Could you help me break down that Saibal ji both on revenue and EBIT level, what is lighting and everything else separately, please?
Rahul, the switchgear share of business is a very, very small one. As I had mentioned earlier as well, that ranges only between 2% to 3% annually, and that is continuing to remain. The wires, as we had mentioned, we had launched just about 5 months back and that too as an extension of the portfolio for completion. We are getting initial positive response, and that is why we are feeling confident to further extend this. So as of today, it continues to remain to that round about 3% range of the total share of revenue to the business.
So all the margin benefits is all because of product mix into lighting, is that what you're saying?
Predominantly, yes, you're right.
[Operator Instructions] We have the next question from the line of Bhavin Vithlani from SBI Mutual Fund.
So Mr. Gupta, just one question from my side. So as an outsider, when you see -- when we look at a fan company, Atomberg just coming primarily on the back off e-commerce, do you believe that one of the critical modes of the electrical company, like yours, which is the distribution reach is getting disrupted? And how is it that you're looking to mitigate it? You did speak about e-commerce, but more thoughts on that will be helpful.
Yes. Thanks, Bhavin. So essentially, if you see, we see opportunity, a, in all consumer segments. We see opportunity in all channels, okay? You spoke about BLDC. As I mentioned earlier, we are one of the pioneer in launching BLDC. Today, we have the maximum range of BLDC products, okay? And potential, of course, is there in all segments of fan market at consumer level. There are people at the bottom of pyramid who will still need a one-star fan, okay? Even their aspirations are to get a little better product. They're looking for more color options, they're looking for a little bit more of a decoration, even in the economy and the base segment of the fans.
So I think as a large fan company, which is consistently among the top 3 players in all segments, we have to cater to all consumer segments. Having said that, BLDC will remain engine of growth. I see in the next couple of years BLDC even kind of crossing high teens, okay? That's the kind of growth we're looking at, okay?
In terms of channels, look, again, we had to be omnichannel. So we are not going to get restricted to one channel, okay? Distribution has been our strength and through all the initiatives in DTM market and replicating the learning in [ MD ] markets, we see distribution further increasing with time. But [indiscernible] e-commerce, modern trade, LFR, LFR are the large farm and retail stores, okay, I think we have an excellent product range ready for these channels, okay?
And there's an excellent traction already coming in the last couple of months. So -- and there are separate teams altogether. We developed the whole digital team and the modern tech team and a lot of recruitment was done in the last 2 quarters. There are separate teams handling these channels. So I personally see all the channels growing pretty well with the kind of range we have.
Sure. And would it be possible to share, what's the underlying distribution share between the conventional e-com, modern retail? And what was it maybe 4, 5 years ago? And how do you see it going forward?
Unfortunately, I don't think so I can share exact number. But I can only tell you, we see the way e-commerce and the modern [ trade ] and large-format stores, their contribution doubling up in the next couple of years' time.
The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund.
My first question is that the resignation of Mr. Khanna, obviously, came as a surprise. So just to be sure, is it fair to say that a few of the steps that Mr. Khanna had initiated would still continue as far as the strategy is concerned, for instance, the direct-to-market transition, which happened in 6 states, as you mentioned. Is it fair to say that we will continue with that or we'll again resort back to our old practices of appointing master distributors?
As far as Mr. Khanna's resignation is concerned, the company has already done a press release. And frankly, we have nothing more to add on that, okay? As you all understand, we have been sharing the kind of team capability, which has been developed over the years. We have very strong team of CXOs supported by a very, very strong Board, okay, and guided by them. So I think that all is in place.
Now specifically reacting to your point on continuing of some strategic pillars. If you see my initial speech itself, that's clearly carry -- continuing most of them actually because strategy is obviously not 1 person, okay. Specifically coming to DTM. So 6 states where we launched. I mentioned already, we have seen high teens growth, lot of learnings have come in terms of consumer segmentation because we are much more closer to consumer there and retailer there, okay? Those are the learning, which we're going to take to MD markets as well. And so growing business in retail sales remains critical to our overall fan growth. So no discontinuity there.
Okay. Okay. Understood. And is there any sort of long-term incentives, which have been planned maybe in the last 40 days to ensure there is no further attrition as far as the senior management is concerned.
Frankly, first, I don't even know if there's a concern there, okay? The senior management, if you see, has been quite consistent, okay? We have made some planned changes, okay? We have a kind of fan BU head, who was -- who came on board in the month of January. We want to develop our digital and organized trade -- the modern trade space. We recruited a leader for that, some in the month of February. The CMO and CHRO have come last year, okay? CFO has been very stable. So essentially, there is a team, which is all in place, and all of them are doing meaningful contribution. Whatever we need to engage them, that's happening on a continuous basis.
Bhargav, just to add on top of what Rajan already said. As you are aware, we have our ESOP scheme in place, which is running for the last several years, and some of the leadership team members are already covered in that, for which we had taken approvals as well. So that part of the incentive is still on. So this is just to double up what Rajan just spoke about. Thank you.
And my last question is, you alluded to new product development. So post the Aero series in fans, Orient hasn't come up with sort of new launches, which can be considered as very differentiated. So if you can highlight on that? And also you mentioned about a few hero products that you identified. If you can share some examples, that would be very helpful. And this is my last question.
No, on NPD, I think a lot of focus has been there already for the last few years, okay? Since you want to name [indiscernible] one product, for example, we launched Ecotech Supreme last year. I was in market East. I was at market in South. We have seen, in fact, a lot of shortage of that. We have seen a lot of consumer traction around that. Some of the new colors, which we introduced, they are picking up huge amount of traction, okay?
So I think NPD pipeline always has been there, okay? But going forward, we understand our responsibility to use NPD as a lever much more, which is where we are taking an ambitious target of 15% of revenue for FY '25 to come from that. So a lot of work on that is already happening.
The next question is from the line of Achal Lohade from JM Financial.
Sir, 2 questions. One is in terms of the direct to market, if you could talk a bit about how much ground have we covered? How much do we plan to cover in FY '24? And in the same context, what has been the fans decline or change in fans revenue in FY '23? And what market share would we have achieved in FY '23?
So in DTM markets, I already mentioned, last year -- full year, we have grown in double digit, high teens, which, of course, has led to market share gain because as you all know, fan market hasn't grown that much, okay? And as I mentioned earlier, a lot of learning, which has come in terms of consumer segmentation that help us in identifying the right products, that help us in doing the right kind of merchandising at a lot of these retail locations, okay, which is gradually resulting in our mix change in these markets. We are becoming much more profitable, okay? That's giving us learning for getting more NPD to address the different consumer segments.
Now that will continue, but these markets are more or less stable now, okay? There was some work, which needed to be done on AP and Telangana, which also has got completed to the large extent. And this is a year when we should see explosive growth from these markets. And more important learnings from these markets are going to other markets being managed by master distributors. And over a period, it will help them also do steady gains.
Sorry, sir, just to clarify, 6 to 8 states, if you were to quantify, how much would they be as a percentage of total revenue for fans? And I presume this is largely for fans product? Or is this for all the product categories?
No. First of all, DTM is only for fans. Other categories already, we have a direct distribution structure, okay? And in the past, we have indicated around 25% of the revenue on the fan is coming from retail sales. The current trend is more or less similar. Obviously, these markets are growing higher. So you will see a gradual increase in contribution of these markets.
And just a related question, did you comment about what the next steps are? Are we going to go for more states or now this is about it and now it's more to do with the organic growth.
No, I think I mentioned that earlier, maybe I can clarify once again. So idea is to take learning from these markets to all other markets being managed by master distributors as well, okay? And we are hopeful our partners will help us improve execution in all markets, and they help us increase numeric distribution, help us improve merchandising standards at all the outlets, push a lot of NPD, which we have in pipeline, okay? And frankly, we're going to review it every quarter. Wherever we see the scope for any change, we're not going to hesitate to make the decision. But as of now, we remain very optimistic that even in all the MD markets, we should see a meaningful shift towards the kind of product range we want to do towards the kind of execution we want to do.
Understood. Sir, in terms of the fans revenue change, whether our growth or a decline in the market share, whatever number you could share, sir?
You're talking about the market? Or are you talking about...
For us. What has been the fact...
Yes, yes. As you have seen, ECD is already at a negative 20% for the quarter, which is indicative because the lion's share of that comes from fans, and appliances has actually grown, has had a healthy growth. So it's quite obvious that the fans has a decline in quarter 4 and quarter 4 being a bigger quarter for obvious reasons that you're aware from the market side in terms of transition, weaker demand, channel inventory going up as a result. So that's the position as on fans. So essentially out of the entire basket, it is fans, which has led to this decline.
Sir, for full year -- if you could clarify on for the full year FY '23?
For the full year FY '23, also, if you would recall, H1 was not a very steady period for fans and those -- that period of time. So if you take an aggregated, it was a very flattish kind of a growth for fans for the full year as well.
So it's a flat Y-o-Y for fans and appliances...
Yes, yes. Flattish...
Full flattish double-digit appliance sales growth?
Appliances will be, yes. Appliances will be a moderate.
Got it. And just 1 more question, if I may, sir. With respect to lighting business, if you could clarify what is the mix of B2B and B2C as we speak for FY '23? And the margins seem to be extremely robust. Do you think the 4Q margins are sustainable for this Lighting and Switchgear segment?
So B2B is currently around 15%. Obviously, it varies quarter-to-quarter based on seasonality, but it's broadly in that range. And as I mentioned, the B2B is going to be 1 lever of growth based on the kind of demand we are getting from the facade lighting, various National Highway projects, et cetera, okay? And so that contribution will gradually increase.
And the margins -- are 4Q margins sustainable? Or is there any write-backs or anything, which has driven this margin improvement to 19.5...
No, no, nothing. There's no exceptional as far as lighting is concerned. These are steady margins that we are giving as well as lighting is concerned.
[Operator Instructions] The next question is from the line of Nikunj Gala from Sundaram AMC.
Just 1 question from my side on fans. So it's been 4.5 months of new rating application. Can you help us with where the consumer demand is settling in, in terms of star-rated fans, like whether consumers are preferring 1 star, 2 star like where the large amount of demand is settling in?
So Nikunj, essentially speaking, most of the non-star rated inventory in a trade is more or less not there, okay? While some counters, I still see carrying the old inventory because obviously, there was a push, which has happened in December at industry level, okay? No company selling non- star rated fans from January, but the trade has been carrying a lot of inventory, okay?
And of course, the whole premium segment or the BLDC segment, which is either 4-star or 5-star rated, that has seen a little higher growth. But we are yet to see the -- a lot of consumer traction around the whole star rating thing, like the way it is there in many other categories, okay? But these are very early days, and we should have more clear trend by next quarter end.
Sure. And then if I can ask from your production perspective, like how big will be 1 star and 2 star at this point of time?
So while I may not be able to give you exact numbers, but I mentioned earlier the hero products, which are going to drive our growth, okay? A lot of those hero products are obviously 4 star and 5 star rated. These are products, which are gaining traction in consumers, these are premium products and which are taking care of consumer aspirations in different pricing segments. So you will see some of these products driving growth and gradually contribution will increase.
The next question is from the line of [indiscernible] from Birla Mutual Fund.
So my first question is on the margin profile. If you look at currently, Orient margin profile has been significantly lower than competitors by 300, 400 basis points. So coming in, in the last 40, 45 days, what have you noticed at the slowest of our margin [indiscernible]?
So if you see last few quarters or the last full year itself, we have been sharing the kind of investment, which is happening in terms of [ A&M ] cost, in terms of people costs, idea is to take business to a very different level. And the management felt that all this investment is needed to take it to the next level. So that is one of the reason when margins have been a little lower, okay?
Even going forward, essentially, there's a clear plan to grow gross margins, okay, which will come out of the mix change, pricing wherever possible. I mentioned about premiumization, et cetera. And we'll continue invest on A&M and people because we believe these are the 2 levers, which will help us take to the next orbit.
So when we speak about margin improvement in the current year, is it mostly a return to pre-COVID level of margin? Or should we expect our margins to converge through the market leader [indiscernible] 14%, 15%?
Look, as I mentioned, there will be a steady increase. So nothing can be increased only 1 quarter. But it will be led by increase in gross margins and the fixed costs, which will be people and A&M and some of the consistency costs that will continue. But first improvements, you will see is in margin percentage.
[indiscernible] I would also like to add to what Rajan mentioned, if you recall in the previous quarters also we had mentioned, that this margin improvement will be gradual during -- in the next few quarters, which we have told earlier also. If you would recall in the previous year, we had implications both in terms of inflation as well as in terms of realizations coming down because of intense competitive pressures prior to the transition. Those things are getting addressed now. We -- they are all behind us. And as Rajan already mentioned, almost like a 10-point program that he had mentioned that we had -- we have all these things in place to improve realizations to improve mix.
So there will be 2 ways of improving the margins, and that will go up gradually, number 1 is the gross margin, and number 2 is the operating deleverage, which we had suffered last year. Moment the operating leverage comes off with accelerated growth, that also will be taken care of and the EBITDA margins, you will see that improvement gradually growing. But it will be gradual. It will not be on a specific quarter because we will have to cover up this stage as well. And this is something in line of our action plan, which we already had. And with further actions that is being planned now with Rajan coming in, this will definitely help in further accelerating it. I just wanted to clarify that point.
Yes, certainly. That's very helpful. So just finally, 1 bookkeeping question. Our [ unallocated ] corporate expenses in the segmental P&L have increased quite dramatically this year. I think we closed to 7% [indiscernible]. We used [indiscernible] to be around 4%. So is there some policy change? Or what is actually in this increase [indiscernible] expenses?
You were talking about increase in unallocated expenses for the -- in the segment. That's what you're talking about, right?
Yes. Yes.
Okay. Increase in unallocated expenses see mainly happens in terms of the shared cost, which is the central cost, mainly the corporate costs, et cetera. If you are seeing year-on-year, this has obviously happened with -- over the last 12, 13 months, a lot of new CXOs have joined, leadership team has got strengthened. So those kind of costs will definitely add to it. On top of that, there are certain central costs also which we had been discussing from time to time, which has gone up and some of the investments that we have made, most of these are on a central basis. And that's why you see the unallocated costs going up.
The next question is from the line of Rahul Gajare from Haitong Securities India Private Limited.
Congratulations and best wishes to Rajan for assuming the role of MD [indiscernible]. Sir, my first question is coming back to the hero product that you read upon earlier. Now I want to understand, if the hero products are restricted to fans or you have hero products across all categories? And you could talk about the industry potential and why is it that you think that there is a very strong growth potential in these industries -- these particular hero product?
Thanks, Rahul. So essentially, Hero products are across all BUs, okay? These products are -- I can divide them probably into 2 categories. One, products which were already launched in the last 2 years, and we felt that there is scope to improve demand planning. The scope to have additional focus on them, okay? And that's what our consumer insights told us and that also got supplemented by various market visits, which we have done, or meeting with consumers, et cetera. Finally, these are products where we have realigned our supply chain, so that we can actually meet all the demand from the market, okay? So that's one category.
Second thing, which we're already in the process of launching, okay? It could be different colors, it could be certain add-ons, and it could be entire new product altogether, okay? The mix of these 2 things is what makes hero products. And in fans, we spoke about it. In lighting, we spoke about decorative lighting, for example, okay? Switchgear, we have a new range, which is in place. So hero products are essentially all across BUs.
Sure. So my second question is given that we've seen a fairly sharp drop in revenue, can you comment if there is any pricing action that was taken in the fourth quarter. And I think Saibal also indicated even that fans was flattish in FY '24. With BLDC, I'm sure there's a pricing action. So I just want to understand bring this flattish into volume number.
No. So there was a pricing action, which happened in the month of January, okay, to the tune of, what, 4% Saibal? Yes, okay approximately in that range based on the SKUs and based on the different categories, which was essentially because of increase in cost because of whole rating change, okay? We have taken 1 more action in the month of April, okay? Around 2.5% weighted average price increase has already happened. Many of our competitors haven't done that, okay? So market MOPs, so operating prices have still not gone up, okay? We are hoping, as summer is picking up, the entire industry will follow and the MOP's for -- because fans obviously now have much better quality because of star rating and they deserve to have better MOPs. So we are hopeful that MOP will increase in the next few weeks.
So my last question is on the profitability. We understand that there's a negative operating leverage, which has played out in this particular quarter. But you also indicated that there has been a significant increase in the [ A&P ] spending for brand building, et cetera. Is it possible you could highlight those numbers and comparable numbers for the last year?
So A&M numbers are in the range of 4% to 5%. And even going forward, as I mentioned, we are not going to reduce some of this investment, okay, especially the people and A&M. So this investment will continue. So this is a broad range we are talking about.
Saibal, you want to add?
Yes. Rahul, this is the trend that we had followed earlier also. There, you will see some base effect because of the carryforward of the COVID effect. But other than that, we are maintaining that 4%, 4.5% of ratio to revenue and that will continue. As and when the revenues grow up, obviously, the absolute amount will keep growing to that extent. But in terms of investments, that level will still -- we will still maintain. Does that answer your question.
[Operator Instructions] We have the next question from the line of Aniruddha Joshi from ICICI Securities.
Yes. Sir...
Mr. Joshi, there is a static from your line. I would request to use your handset to ask a question.
Yes. Is it okay now?
Yes, sir, please proceed.
Sir, 2 questions. One, what is the difference in trade margin between the direct states that we are doing and the other states where we are having a relatively longer trade channel. So what is the difference in between the trade margins? That is point number one. And second is, what is the inventory in number of days or weeks right now of the non star-rated fans in the trade as per your best estimates for Orient as well as for the industry? And I mean, do you see any impact of that inventory again on Q1 results? Yes, that's it for my side.
Sorry, I'm a little confused, the lengthy question towards the second part. Okay, first part, the whole DTM -- the trade margins, okay. Look, we have clarified in earlier calls as well, the DTM was not done to increase profitability. Our profitability for DTM and non-DTM state is approximately same. Our channel schemes, our channel margins are same all across India, okay? DTM was done primarily to come closer to retailer and consumer, which I mentioned earlier, the benefits coming from that. So there's no major difference in either trade margins or our own profitability for DTM versus non-DTM markets, okay?
On channel inventory, look, it's very difficult to give a figure because it varies from state to state, based on how season has picked up. Some states, it has been quite hot. Other states, season is delayed, of course. The last weekend were very, very good. So we remain quite optimistic. But if I had to hazard a guess, average inventory would be in the range of 30 to 45 days for all fans in many of the states.
Sir, [indiscernible] Q1 numbers?
For Q1, all the growth initiatives have been already shared. So I don't think the channel inventory will be a bigger factor influencing that. Of course, we had a delayed start of April, as all of us are aware about it. We are seeing unseasonal rains in many parts of the country that had some impact on April, okay. But I think we had a very meaningful April, specifically, it's coming on a high base of last year April. And so we remain very, very optimistic.
The next question is from the line of Deepak Lalwani from Unifi Capital.
I had 2 questions. So since you've answered the recent phenomena that April was better than last year. If you can mention on the profitability side, since most of your margin improvement will be driven by gross margin, this still at the lower end of the margin band at 28%. So can you indicate if this is a short-term scenario and we should see improvement starting Q1 itself?
So I think I mentioned this earlier as well. We understand there is scope for margins, and gross margin is the one, which will drive overall profitability increase. I mentioned about price increase, which were taken in the month of April itself, okay? We didn't wait for any of the leaders in any market to do that. We're one of the first one to do that. And if you notice all the initiatives around premiumization or focused SKUs, I spoke about BLDC driving growth in fan. I spoke about premium range of water heaters and coolers, the whole decorative lighting. All those initiatives are obviously centered around putting in place higher profitable products, which will change the whole mix. So essentially, that's the plan.
Right. So we should assume that Orient comes back to the 30%, 32%, which was there pre-Covid sooner by at least the start of Q2?
No. So we understand, I appreciate your expectations. At this stage, I can share that there will be a meaningful increase, which will happen based on all the initiatives and work which is being done.
Okay. And sir, lastly, your presentation mentioned a great point on the diversification that you've done over the last 2 years. So if you can indicate how this journey will go on starting FY '24? And if you can highlight which areas will the revenues streams go on from here on?
Sir, which kind of diversification are you referring to? See from the diversification perspective, basically, we have launched a few products. But if you're talking about last 2 years, honestly, there has been not too many product launches because given the situation of transition and other factors, we have done something in lighting, of course. We have done this cloud fan, which we have done very, very recently in the month of March, which we have already talked about.
But given the action plan, which Rajan just talked about a couple of times, we do have plans to roll out a lot of other products. Wires is this something which we got into house wires. It was initially because of the extension of the switchgear product line and the completion of that product portfolio. But now we are getting very enthused, and we feel that we should be able to scale that up. And therefore, we are -- we will be moderately attempting in some specific states with dedicated sales teams, et cetera, which also Rajan had also mentioned about.
Apart from this, any other things, Rajan, you would...
I just want to add, more than diversification, I won't -- I don't know if I say it's a diversification, but essentially, the plan is across our portfolio, there's a range which is higher gross margin, okay, wherein we see scope for market share increase, where we see scope for volume increase, okay? So that's the range we are going to focus, whether it's a switchgear, it's a fan or water heater or a cooler or other products, okay? So essentially, that's a plan we have.
The next question is from the line of Nirav Vasa from Anand Rathi.
So I have a strategic question. Sir, now how do you intend to take this company, whether this -- whether Orient Electric would be an asset-heavy company, wherein you will be investing heavily in increasing your capacities as there is size and scale? Or you prefer to have an outsourced model? Yes, this would be my first question. And what can be the CapEx for '24 and '25?
Excuse me, sir, on the management's line, we are not able to hear you, sir. Kindly unmute yourself and speak please.
So essentially coming to this whole buy versus make decision, it's a very dynamic decision, okay, which will -- which depends on a lot of factors. But you are aware about our Hyderabad factory rollout plan, it was shared earlier. By end of September, by end of Q2, the factory should be fully in place. And that will obviously help us make a lot of high-quality all over hero product in fans, in-house, okay? And we'll continuously keep on evaluating this buy versus make decision, okay?
Saibal, can share the exact number on CapEx.
Yes. Thanks, Rajan. Well, Nirav, as far as just to build a little bit more on this buy -- make versus buy, as you know, we have always maintained this, that it's a very, very close commercial call and, of course, the product quality, et cetera. So that we keep on studying frequently to keep the moderations. Our capacity plans and CapEx plans are not really guided by those in-source versus outsource. Obviously, it is subject to availability of capacity. It makes a strong commercial sense, then we will not hesitate to make moderate investments.
That brings me to the point that you mentioned, whether we will be asset light or asset heavy. Of course, we will continue to remain asset light. This Hyderabad CapEx that we are making, honestly, it is a fresh greenfield investment in this company after a span of 40 years that we are making. We had been continuously earning on the productivity to be increasing our capacities. But now from the pre-Covid levels when we decided to go ahead with Hyderabad, the growth opportunities were very exciting to go ahead with these enhanced capacity in Hyderabad and that's what we are doing.
Coming to numbers, we have already spent about close to INR 78 crores as far as Hyderabad is concerned. We still have to spend a good amount of money because INR 200 crores -- close to INR 200 crores, not exactly INR 200 crores, about INR 185 crores, INR 190 crores is the estimate as of today. So the balance we will be spending shortly. It is going on in full skin. As far as normal CapEx is concerned, which also I had mentioned earlier, it is in the range of INR 40 crores to INR 50 crores. That will continue to happen year-on-year because these are the normal either replacement CapEx is or their efficiency CapEx or product -- product improvement CapEx is. So this is the line of CapEx, which will continue to remain. As of today, as we speak, we do not really have any plan of another greenfield or a big project like Hyderabad as of today lined up. As in case if it comes up, we will get back to you, but no plans as of today.
I hope that answers your question.
Broadly, it does. So would it be possible for you to share a bit more on the Hyderabad factory with regards to what can be the capacity there, how do we intend to increase the capacity in phase-wise manner? And what can be the maximum output that it can generate?
On a capacity basis, we are adding about additional 1/3 capacity over there. Let me put it. It's a combination of both sealing and TPW that we are adding, which is the combined capacity of Faridabad and Calcutta combined. Another 1/3 we are adding. But having said that, I must say that it will not happen in one go. So we will be adding lines almost on an every-year basis depending how the volumes and the capacity requirements go up. And we are having very flexible automated lines to be doing that ramp-up on an incremental basis on that too on a need basis. So we are very conscious and mindful about CapEx investments and not to make it asset heavy company. But yes, this is what is required for future sustainable growth.
Sir, final question. What was the payment that was done to BCG in FY '23? And what can be that number for next year?
Well, Nirav, it was not BCG. We had engaged [ McKinsey ], if you are referring to that. We do not share exactly numbers. So excuse me on that. But yes, that's the engagement that we are having for 2 years, 1 year is already gone, and the second year is in progress. They are adding good amount of value in the 3 tracks that we are doing that we had mentioned earlier in terms of cost reduction, in terms of GTM support, the GTM scale up, including the DTM as well as the digital building up and helping us in building up the capability for the digital, which we have a very ambitious plan to grow that business. So that -- those results are already coming up. This is the second and the last year of engagement is going on right now as we speak.
The next question is from the line of Aakash Samir Javeri from Perpetual Investment Advisors.
My question is with respect to fans. So what is the current percentage of BLDC sales out of our overall fan sales? And how do we expect this to move in the next 2 to 3 years?
So Aakash, in a way, I answered it already. So BLDC range is now going to high single digit as a percentage to overall volume contribution. And as I mentioned earlier, the entire BLDC range is part of our hero products and a lot of new products are coming in that. So we see over a period -- now it could be 2 to 3 years, BLDC will become high teens kind of contribution to the overall fans portfolio.
Any further questions, Mr. Javeri?
No, that's it. Thank you.
[Operator Instructions] The next question is from the line of Drashti from Thinqwise Wealth Managers.
So you've very well put down the strength of Orient and your measures that you're doing to increase our distribution and further deepen our distribution. But I wanted to know that in the last 30 days that you've been -- that you've joined the company, what are the risks that you've seen in the company? And how do you plan to overcome those, if you could highlight more on that?
So Drashti, thanks for a very nice question. Risk for any company essentially more than any other environmental risk, other things, the risk is on growth, risk is on profitable growth. And if you see my initial 10 pointers on growth strategy way forward, profitable growth strategy way forward, attempt has been there to kind of minimize that risk. Okay? That is where this whole entire portfolio change entire hero products, entire premiumization, okay, and focus on that, say, across the BUs, okay? The whole plan on DTM, which is closing -- coming closer to our retailers or consumers, okay? The plan to grow channels wherein we haven't done well historically, for example, the whole e-commerce and modern trade and large format retail stores, that's entirely to derisk the whole thing.
The next question is from the line of Manoj Gori from Equirus Securities.
Yes, and best wishes to Rajan. Sir, we have talked a lot on future plans along with robust outlook. However, if you look at the Q3 performance in the ECD segment, given that we were having a favorable base of 4Q FY '22, are we disappointed with our 4Q performance? Also, when we look at the 3Q, like one of the listed brands, obviously reported very strong numbers in the fans portfolio. So has it hurt you or industry at large? So any color here would be very helpful.
So Manoj, I'm not very clear on your question. So if the idea is to ask how is the Q4 at industry level, okay? From other numbers we have seen from the listed companies results, which have come, Q4 has been a muted quarter for almost all the fan companies. There was a kind of delayed start of season. And all the non-star-rated inventory, which has pushed at industry level in the month of December, that, of course, had an impact. And -- but if the question is, is there scope for improvement? That's where all the initiatives we shared with you. So we appreciate that we can do much better, and that's the whole intent which is in place.
Right. So sir, in this case, can we assume like obviously -- yes. Sir, can we assume that probably apart from the direct state that we would be looking to cater during current year probably in the rest of the markets also, we can outperform the industry growth rates and probably we might see significant growth in fans with respect to the industry.
I think I mentioned earlier, obviously, we are taking learning from these direct markets to all our other markets being managed by master distributors. Many of those markets, we have built a huge strength over the years. That's where the company has grown over the last many years in these markets. And we remain quite constructive about much better results coming from these initiatives over a period of time, okay? Having said that, some of those industry issues are, for example, the late start of season, et cetera, it's going to affect almost all markets.
Sir, lastly, on wires. Can you throw some light on the mid- to long-term strategy with regards to investments, any plans of capacity additions? And probably, if there is any drag on the EBITDA margin level, that would be helpful, sir.
I think wires we already mentioned, the idea was it started with completing portfolio, but we are seeing very high acceptability in some markets, in a couple of states with electrician, with contractors and the retail channel, which is where, as we mentioned earlier, ideas to go deeper into 6 markets. These are the markets where we feel we have a case for building a kind of scalable business. And these markets will give a lot of learnings. So at this moment, frankly, difficult to comment upon that. As we pass through next few quarters, and we believe by the end of the year FY '24, we should have a more kind of informed plan, which should be there in place, but market potential is, of course, huge as all of you are aware about it.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
I would like to thank all participants for their continuous and active interest and engagement with Orient Electric. As mentioned in my initial remarks, growth initiatives for FY '24 have been rolled out, and we are committed for steady, but consistent and meaningful improvement in both top line and bottom line in coming quarters.
Thank you so much, and have a good day.
Thank you very much, sir. On behalf of PhillipCapital India Private Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.