Voltas Ltd
NSE:VOLTAS
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Voltas Ltd
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Good day, ladies and gentlemen, and a very warm welcome to the Q1 FY '19 results conference call of Voltas Limited, hosted by Emkay Global Financial Services. We have with us today on the call Mr. Anil George, Deputy Managing Director; Mr. Abhijit Gajendragadkar, Chief Financial Officer; Mr. Utsav Shah, Head, Corporate Finance; and Ms. Asawari Sathaye, Corporate Communications and Investor Relations. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. John Perinchery, research analyst of Emkay Global. And over to you, sir.
Good evening, everyone. I would like to welcome the management of Voltas Limited and thank them for giving us this opportunity to host the result earnings call. I will now hand over the call to the management for their opening remarks. Over to you, gentlemen.
Good evening, everybody. Analysis of results quarter ended 30th June 2018, the market picture. The global growth outlook for 2018 remains positive despite some recent softness and is projected to reach 3.9% in the year. Turnover from advanced financial market have increased. Tightening of liquidity conditions in the developed markets, alongside expansion in the U.S. fiscal policy and a strong U.S. dollar have started to adversely impact emerging markets' currency, bonds and capital flows. Fluctuating commodity prices, evolving geopolitical development and rising protectionist sentiments pose even more risks and are adding to uneven growth prospects among emerging economies. Effect of trade wars is already visible on China yuan, as seen in its recent fall. The Middle Eastern economies are is picking up pace, owing to the uptick in oil prices which all bodes well for our international business. On the domestic front, while economic growth is firming up, conditions that supported fiscal consolidation, inflation moderation and a benign current account deficit over the last few years are changing, thereby warranting an increase in interest rates coupled with exchange rate pressures. Amidst this, the IMF has pegged the Indian economy growth at 7.3% in 2018.Voltas' performance. Turnover for the current quarter is higher than 9% over last year mainly due to improvement in the performance of project business. Product business is impacted by unseasonal rains in peak summer months of April and May. Earnings per share not annualized was at INR 5.56 as compared to INR 5.61 in the current corresponding quarter last year with a face value per share of INR 1. Analysis of segments. We present below our detailed comments on the performance of the various business segments in which we operate. The performance of the Products business was muted this quarter mainly due to erratic weather conditions across the stronger northern and southern markets. As is well known, the room AC business is weather reliant and like the rest of the industry, dependent on an appropriately prolonged summer season to maximize sales volume. While sales improved in the month of June, industry de-grew by around 11%. A decline in demand, led to intense competitive intensity in the market with higher inventory seen across channel. Notwithstanding this stiff competition, the Voltas brand has continued to improve upon its #1 market position, increasing its market share to 23.5% in Q1 June 2018 and 24.7% for June 2018, and continues to have the highest market recall.Better product range, extended warranties, attractive consumer offers, sensible pricing, impactful print and digital advertisement campaigns, and increased penetration through more than 15,000 touch points across the country, have all contributed in sustaining this market leadership. As mentioned in our call of last quarter, the sales of Inverter ACs have been picking up momentum. The company has also ramped up its product mix to gain market share in this space with Inverter ACs contributing to approx. 50%of the total split AC sales for Voltas. Our segment revenue stands at INR 1,191 crores compared to INR 1,212 crores last year. Segment result was lower at INR 149 crores as compared to INR 171 crores in the corresponding quarter last year on the back of a poor season and intense competition. As a cost-conscious company, we strive to keep expenditures under check, although increasing competitive intensity, aggressive pricing, and depreciation of the Indian rupee continue to exert pressure on the business. A poor summer season affects the Air Coolers even more as the window for sale is smaller compared to ACs. Despite the unsupportive weather, Voltas continues to be amongst the top 3 air cooler brands owing to our increasing market presence, new product offerings, better features, sleeker designs, and competitive pricing. The Commercial Refrigeration business has seen an uptick in demand, owing to addition of new corporate customers and concentrated efforts on channel expansion, along with addition of new and customized products.Segment B. Electro-Mechanical Projects and Services. Revenue for the year was higher at INR 866 crores as compared to INR 661 crores in the corresponding period last year, a growth of 31%. Segment result improved to INR 88 crores as compared to INR 35 crores last year, underlining the improved trajectory over the past several quarters. The increased margins are on account of better execution of quality orders both in domestic and international business. In current quarter, some of these projects have also crossed the internal threshold, thus margins have been reckoned.International projects. Having delivered turnkey electro-mechanical solutions and services for several prestigious and complex projects, in more than 35 countries in a span of over 4 decades, Voltas is today the preferred, Tier 1 MEP service provider in Middle Eastern countries like UAE, Oman, Bahrain, etc. With the uptick in oil prices & improved investor sentiment, the team is well poised to reap the benefits of its long-established standing as a preferred and trusted contractor. The company will continue to focus on labor productivity improvements and skills development which is contributing to better execution. At the same time, we are conscious of the continued embargo in Qatar and are suitably booking orders in the region. The total carry-forward order book of International Projects stands at INR 1914 crores.Domestic projects. While keeping HVAC, Heating, Ventilation and Air Conditioning, at its core, Voltas has strategically focused on government and government-funded projects, given the subdued pace of investment from the private sector. With the Indian government pushing the growth agenda, opportunities are increasing in urban infrastructure including metros, malls, hospitals, hotels, et cetera, electrical distribution and water treatment. Our focus on maintaining internal efficiencies remains. Our expertise in customer care solutions also opens up opportunities for on-going maintenance service revenues. The focus in this Division has always been on applying technology and expertise to engineer smarter, greener, sustainable, better-connected and energy efficient solutions that can make a meaningful difference to lives. Our subsidiary RIEL which turned profitable last FY, continues to execute projects in rural electrification. Under Deen Dayal Upadhyaya Gram Jyoti Yojana – a central government funded scheme, the company has been instrumental in electrifying more than 2000 villages across the country as a last mile connector. The Domestic order book now stands at INR 2,709 crores as of 30th June 2018 with additional orders under advanced stages of negotiation.Segment 3, Engineering Products and Services. Segment revenue and results were INR 77 crores and INR 27 crores as compared to INR 90 crores and INR 26 crores, respectively in the corresponding period last year.Due to subdued yarn prices and a steep increase in raw cotton prices not only is the profitability of the spinning mills under pressure, but this has also impacted the investor sentiment. Despite these headwinds, the Textile Machinery Division’s thrust on both capital equipment sales and value added after sales services has helped us mitigate the risks of slowdown. For Mining and Construction Equipment, while Mozambique operations continue to drive the performance, a gradual recovery appears to be on the horizon on the domestic front. Meanwhile, the focus on road development has led to an increase in orders in the crushing and screening equipment sector.Voltbek joint venture. In 2017, Voltas Limited and Arçelik A.S. agreed to establish Voltbek Home Appliances Private Limited, a joint venture company in India, to enter the consumer durables market. The JVC will launch refrigerators, washing machines, microwaves and other white goods and domestic appliances. Voltbek has during the past few months taken various actions including identification of land for its manufacturing activities in Sanand, Gujarat. The 60 acres facility will manufacture Refrigerators and Washing Machines in the first phase. The product launch plans are under finalization and we propose to launch products within this festive season. We are confident that the complementary strengths of the 2 partners will help build a sustainable consumer durables business in India over time.IMF has predicted a growth of 7.3% for the Indian economy on the back of a strong rural pickup. While it is too early to predict the impact of the errant weather on the entire year’s sales we are looking forward to the festive season and the second summer. Longer-term prospects remain robust given low penetration levels, rising incomes and several other supportive indicators. Additionally, our expansion into the bigger consumer durables category through the Voltbek JV holds promise. In the Projects space, we will focus on building a larger order book, while continuing to pick up risk mitigated projects. Needless to state, the strength of our balance sheet and the availability of cash surplus, remains an advantage as we look at opportunities for growth.We are now open for Q&A.
[Operator Instructions] The first question is from the line of Sandeep Tulsiyan of JM Financial.
My first question is regarding the effective average utilization increase in the AC segment because we've seen 2 rounds of effective price increase first of all because of transition to the new BEE launched in January, which effectively led to some price increase in 3 Star and 5 Star ACs and so on. And second was the price hike that was rolled out somewhere in mid-May or towards the beginning of June. So what would have been the average realization increase per product for the quarter on a year-on-year basis?
Your question is about the effective AC price realization increase, right?
Yes. That's right.
One of the things that we have done during the quarter is that we have balanced the need for battling competition, taking on the increase in commodity price increase, ForEx expenses, et cetera, and have followed a judicious price increase mechanism through the country in different parts. So it's not a uniform across-the-board kind of price increase that we have done. But what we have done has not fully compensated the loss that we have got in terms of various commodity price increases, increase in marketing expenditure, ForEx, et cetera, et cetera. And that is why you would see that the margins that we have got on the unitary products business has depleted a little bit. Having said that, I would hasten to add that we have, at this point of time, been in a range that we have always communicated to you, yes? And so we watch the market as it evolves. I don't want to get into specific numbers and say, this is the effective price increase that we have taken, et cetera, because this is a kind of a flexible market where we need to be fairly, shall I say, quick on our legs in terms of what we do at various markets. But the end result is that we have been able to push up our market share. As the note says, we have gotten something like 24.5% and we are also able to give you, at the end of the day, a margin -- a very respectable margin of 12.4% or 12.5%.
Okay. And so just a follow-up to that second question would be, there have been a lot of aggressive promotional activity that we would have seen during the quarter, which may or may not sustain in the future. So how much margin impact did these promotional activities create, which may not be there in the future and hence you could gain that portion of margin back.
Look, this is a daily battle because evolving at various reasons through different competition, different competitors, looking at how to gain market share based on their own holding of inventory, what their working capital investment is, what that promises to bring, and then their own internal management, et cetera, et cetera. So I can't really tell you that this is the margins that we will be able to maintain. But we definitely look at it at a range of 12% to 13% is the kind of margin that we have always talked to you about at being sustainable and being something that we will be able to do. And it is our hope, it is our aspiration that we will be able to match up to that in any quarter where there are suitably higher volumes.
The next question is from the line of Venugopal Garre from Bernstein.
On the -- one of the comments in the management document was about EMP being higher across its [ annual ]. Now having said that you also mentioned that during the month sales improved. So now give the current situation, how do you see inventory for our production channel and is that going to be something that you would want to watch for the next 1 or 2 quarters in terms of impact?
Well, as you are well aware -- this is Abhijit Gajendragadkar. As you are well aware in the month of April and June -- May, the entire industry [ wouldn't spend ] because of somewhat erratic major pipelines, with a track on the large parts of the country. Particularly you can see the onset of summer in the Indian market. It starts in the southern market and sort of proceeds upwards. And in the southern markets we have some unseasonal rains, et cetera in some of the early parts of the peak selling season. So it is true that across the industry there is a little amount of excess inventory in the entire channel, our estimate is that, that it could take around 2 months for this inventory to come back to normalized level. At the same time, we are also entering a period where there is some amount of a [ steep season pace ] as well as second summer, which typically happens in many parts of the country. And we are hopeful that in these 2 -- these 2 occasions to sell, the inventory will also be used.
Okay. And secondly, on the project business, in terms of the margin range, given that it does seem to be volatile given that [indiscernible] mix and then there's project margin recognition. So eventually it is assumed that 7%, 8% range that is our target range or to be achieved [ midyear ].
So we have always said in the project business that, one, that we should not be comparing margins of any one quarter because these tend to get impacted by a number of events which [indiscernible] to that quarter. So the margin in the project business on a quarter-to-quarter does tend to be a little lumpy at times, moving both ways. And if you follow our company, you would have seen that. Over the midterm, we are -- as we have been guiding you, our endeavor is to meet the margin of around 7% to 8%, and I think that is something which remains unchanged.
I just want to comment at this point of time and just mention that over several quarters, we have been informing you about the various measures that we have taken to render a greater sense of robustness to our projects business, and that has been by a series of management moves in terms of execution, in terms of better buying, in terms of better management, labor productivity, et cetera, et cetera. But more importantly, we have been selectively taking orders and have been on a risk-mitigated basis and have passed those orders through a very tight funnel in terms of whether we should take these orders or no. So now what you are seeing is the proof of the pudding of the action that we have taken over these very, very maybe 3 or 4 years that you are really seeing. Having said that, I hasten to add that as you rightly noted and as Abhijit also commented, projects business does tend to be a little lumpy. When, for example, when -- we don't reckon margins on projects still they can be at 20%. So in a quarter where substantial projects crosses 20%, you will certainly see the benefit of the margin, yes. Our right towards that, depending upon any techno-commercial knowledge or depending upon a settlement that we are able to engage in with the main contractor. So the advice that I would say is that 10.2% that you see in this quarter is not the general thing that you would expect in the next coming quarters. It would be still in the range of around 7% to 8%, which we have always told you is the normal for sustainable margin for the projects business and which is something that we are fairly confident that we'll be able to attain, other things being equal.
The next question is from the line of Jay Kakkad from Haitong Securities.
Just wanted to understand this accounting change which you have made. So this is impacting the network by INR 131 crore which is what you mentioned. So this change, does it impact anything during the quarters, in future? Or can we bifurcate this in to see the impact on each segment? Is there any impact on this?
As I think we have mentioned in the north, we have been -- we have taken an adjustment of about INR 113 crore -- INR 130 crore in the retained earnings. And also for this quarter, the impact is negligible, and that is well set out in our note. This primarily has horizon, as you know because under Ind-AS, many of the assets are now reclassified as financial assets and that has required us to apply the unexpected loss credit model on many of these. So these are in a sense the regions in which are -- or also catch up sort of adjustment that we have done. And on a going forward basis it would be -- we would reduce it every quarter. And depending on -- and of course with the good pace of collections and I think as Mr. George has mentioned, the choice of projects and the pace of work, et cetera, every quarter, we would assess the impact.
Okay. Okay. So if the collection is stronger, then this could actually reverse in future?
Yes.
Second question is on sourcing. If we look at the annual report, you're buying from your subsidiary which is the unitary product from where you buy ACs. That buying has declined by 20%. So is there a change in that sourcing strategy? And I also wanted to know the ForEx that we use which is -- we used around INR 900 crores ForEx last year. Is it mainly to do with UCP segment?
Yes. The ForEx is primarily to do with the Unitary Cooling Products segment. As we have said in our earlier calls, there are certain raw materials and components that we source from abroad on particularly high value components such as compressors and some of the other indoor units for certain models and these are sourced from China. And that is what you see as imports in the profit and loss account. As regards to your question of UCPL, I don't know what gave you the impression that it has dropped. I think you must have looked at the turnover of UCPL as compared to the previous year.
[indiscernible] limited party transactions between stand alone and UCPL.
So it has dropped in the period but that's also dependent on 1 or 2 things. It's dependent on the mix of products that we source. It depends on, some of the products we will buy on a completely bought-out level. Some products we will probably source from UCPL. So it will vary from year to year. And I think that is the nature of the business and the nature of how we run this business. One of our endeavors is to also run a very efficient supply chain.
The next question is from the line of Rahul G from Antique Stockbroking.
My first question is on the UCP division, you've had a revenue decline of...
You're barely audible, can you please turn that off.
Sir in the UCP division, there is a revenue decline of 1.5%. Now is it possible you can break this up into -- the decline that was there in the room AC business and the coolers? That is the first question. And the second question is, what is order intake breakup between the Mexican, internationals?
I think as regards the breakup between the various products, I don't think that is something that we give out every quarter. And you can assume that a decline of 1.5% that is an indicative of the latest products in this category.
I'd just like to comment here and mention that overall on a basis of all the air conditioning industry as a whole during the quarter, there has been a decline of something like about 10% to 11%.
11%.
Is our estimate, okay? Some of our competitors have quoted even higher numbers, but we think that it would be around 11%. In that, we have actually grown strongly in terms of the air conditioning business, but the air cooler, given the time window that the industry had, because once the rain starts, they don't buy air cooler anymore. And naturally, the air cooler industry has suffered this quarter because we have not been able to get [indiscernible] also which you've been privy to, you would see that there has been a decline in the air cooler segment.
Okay. Fair enough. Sir, regarding the second question, the intake and the breakup between international and domestic.
That is stated in the write up that we have given. The order book -- I think order book is about INR 1,914 crores international and about INR 2,700 crores in the domestic project business.
So what I was looking for was the order intake in this quarter, I think the order intake should be closer to 400 but I was actually looking at the breakup.
The order intake is about 250 in international and about 150 domestic. You are right about the 400, roughly in that order.
The next question is from the line Shrinidhi Karlekar for HSBC.
I just wanted to know your view on this [ inventory ] market competition intensity. Sir, do you think structurally, this category will be much higher or competitive compared to fixed [indiscernible] windows because some of their inventory due to their global presence have a relatively higher level cost economic.
I think I would say that in Voltas AC product category is as competitive as the entire air-conditioning industry because some of -- whether someone is more competitive or someone is selling more depends on the kind of product strategy that each company has chosen. So we are -- in the Voltas AC segment as you will have seen, as we have mentioned in the call that the pace of [ inverterization ] has picked up substantially. And our -- and the inverter ACs today are around 50% of our total split AC sales in the quarter. In terms of our product range, I don't think we have the entire product range. And in fact, we have the widest number of SKUs in the inverter AC range, and plus we have been able to source technologies both internationally and locally for the purpose of the inverter AC segment. So I wouldn't agree that the competitive intensity is any higher or lower as compared to the other markets for the other types of air conditioners.
Fair enough, sir. And sir, secondly, like now that you have a full range of inverter ACs, does that open up some of the institutional AC markets such as restaurants, smaller kitchens in hospital? And I'm presuming that the Voltas market share in this segment is relatively low. And would it be possible to give some color on this, how big is this market?
Well, we have been catering to this market, in any case, I think through both our fixed-speed AC as well as through our inverter AC products. And we have, in fact, within our sales setup, we have teams which are focused on this category. And we also participate in the larger tonnage that you just mentioned, restaurants. But in our Domestic Projects business, we also participate in some of the larger tonnage air conditioning projects because at this level, these projects tend to be a mix of both a sale of a product as well as the installation. And in many cases also an offer of a customer care continuing for a certain number of years. So we are able to straddle the entire segment, whether it is a larger tonnage AC or a room air conditioning.
[Operator Instructions] The next question is from the line of Nitin Arora from Axis Mutual Fund.
I'm sorry, I joined the call a little late, so I don't know whether this got discussed or not. So when we look at your UCP segment, the AC which showed a decline of about 1.5%, is it possible to share how much the commercial refrigeration, a growth or decline year-on-year, was? And what was the AC volume decline or growth on that number versus the industry which your competitors have stated this recently in the call? That's my first question.
I think -- I don't know if you were there, in response to our earlier question we had mentioned that in the -- that the AC industry in general faced a number of headwinds during the quarter just because of the errant weather and other impact of the season. In this environment, we have grown our market share. Our market share is much better as compared to the same period last year. And for the quarter, our market share stands at 23.5%. We have also said that the cooler summer season affected the sale of air coolers even more since the window for sale for air coolers is much smaller as compared to AC. In the case of Commercial Refrigeration we have seen an uptick in demand. But this business is a B2B business, which is also -- there are times when it tends to be lumpy because if you get a very large order from a very, very big institutional customer, when in that quarter, their volume of sales goes up. So I would say that we have improved market share in ACs. Our air coolers have been affected and Commercial Refrigeration tends to be lumpy. That would be the answer to your question.
Okay. Second and just lastly, because of this Ind-AS change, you saw your competitor lowering the segment results on the revenue of the last year which came on the higher side end of Q1 FY '19 numbers because of the change in the form of deliveries and the shipment, what he explained us. Did you request any of that change because you don't see the change in your segment numbers?
You are saying, is there a change in the segment numbers for last year?
Yes.
So I think in the India's accounting standard, under the accounting standard, there are like 2 approaches that one can adopt. So we have adopted the -- what is called technically as a modified retrospective approach. So that is what we have adopted, and I think that does not require us to change the financials of the previous year.
The next question is from the line of Ashish Shah of Goldman Sachs.
Sir, considering that there is some inventory in the system [ what are you going to limit to support ] -- could you give any support or incentive to the dealers and they would be -- and they would have to keep inventory for a few more months?
No, we -- listen, this kind of inventory going up and down in the trade is part and parcel of business. The dealers also understand it. The company also understands it. There are good days. There are bad days. And I don't think that we will want to -- just because there is some extra inventory we go out of the way and start compensating that for. It becomes a difficult thing and it also sets a precedent. So we would not go that route. And at anyway, it is not that it is something that inventory in the pipeline is so very exceptional, no, not at all. Yes. It is reasonable. And within the parameters that anyone would expect a dealer or a distributor to take. So we are not looking at any separate compensation for that.
Fair enough, sir. Sir, my second question is on the Beko JV. Sir, have we expensed anything on the P&L because of JV? Or is it in the associate income? And what would have been the negative impact if there are any expenses related to that JV?
I think if you see that in the JV, this JV is a joint venture so in a sense we do what is called a joint venture accounting which means we do a single line consolidation of 50% of the profit or loss of this JV. And for this quarter, the number is very, very small. I don't think it will make any -- much impact to the financials.
The next question is from the line of Abhineet Anand from SBICAP Securities.
Yes, just on Voltbek JV, apart from the CapEx that we have highlighted and all. For the current year, what would be the add [indiscernible] that there is anticipated backlog effect that we have set out here?
I don't think it would be possible for us to give any figures for the JV in terms of the specific question to your add on marketing spend. We have commented that our aspiration is to have a significant presence in the Indian marketplace over a period of time. And obviously, we will be launching products in the coming first 2 seasons. So we will do all that it requires to support these products. And as with any new product launch, there will be marketing cost and related costs to ensure its successful launch.
Yes. Let me try and answer that separately and also say that these questions are a little bit difficult to answer because it would really mean that I am going to tell you that so much is going to be spent on the marketing spend on a public listing. It becomes difficult. So I please request that you don't go there. These are parts of our own strategy in terms of how to launch, how to do that. And we will spend what is required and we will make sure that the launch is successful.
Okay. I appreciate that. Secondly, in the segment 2, which is the projects part, do you see that general indexing of some of the other space that will happen will impact...
We are not able to hear you very clearly. I think you have moved away from your phone maybe.
Sorry, sir. What I was saying is that with general expense at the end of maybe FY '19 and some other [indiscernible] do you see some impact on inflows for segment 2?
Well, we are not seeing it immediately, but we will also estimate that there will also be a certain amount of spend which the government agencies would do. And I think so far as we are concerned, our projects are in a sense longer term in nature. If you see part of our project is in global electrification, part of it is in terms of urban transportation, which is the metro rail projects. So I think these are really longer gestation and longer-term projects for which we see some of the contract awards going on in the normal way.
The next question is from the line of Anupam Gupta from IIFL.
Sir, this first question is on the UCP segment. So what is the like-to-like comparison in terms of earnings? Because 1Q FY '18 was [indiscernible] so what is the like-to-like number for that for '17?
About 7% higher, I would say, as compared to...
So [indiscernible] effect if you do like...
Yes. So then if I then take it -- if you take it last year, we have said that our growth was -- there are 2 ways to measure it. If you take it in the way that we have said it in our financials, our increase for the company would be about 10.08% if you take the -- as against about 9%., if you take the impact of [ XL 2].
And majority of that would pertain to UCP, right?
Yes.
And secondly, can you talk a bit on the project business, order inflow books. Have you seen any uptick from the commercial and private side in terms of inquiries, apart from the government that did that?
We have -- in a way, we have said in our earlier calls that our focus in the domestic project business has been to focus on projects and to focus on government business because we see a spend in the government projects. And we have -- so for the last few quarters seen that the spend from private projects was not happening to the extent that one would have liked. I think that situation continues to a great extent and we still see that there are -- that the spend from government is where we are focusing on and we continue to focus on that in this quarter.
The next question is from the line of Renjith Sivaram from ICICI Securities.
Sir, I just wanted to understand, do we do any price hikes in our room AC division for the quarter?
I think Mr. George has mentioned in one of the -- in the response to one of the earlier questions that we have been judicious in our price hike in a sense that we have been -- that it is -- we have taken price hikes in certain products and certain categories of products and in certain regions of the country, just depending on the local market conditions and depending on the local competitive intensity, which at times can be different from the overall all-in product intensity. So we have made some adjustments to the price during the quarter.
And under the project vision, was there any major project closures, and because of that, we made provisions and provisions right, that this is in the normal course? Was there any major provision guide back or some action like that which has led to this kind of margins? Or there is nothing...
Yes, we have mentioned in our write up that in the current quarter, as you know, and I think as Mr. George has mentioned in response to another question, that we have some internal thresholds for reckoning margins on our projects business. And in the current quarter, some of the projects that we are currently working on have crossed this internal threshold and that's what we have been -- where we have started to recognize margins on these projects, and that has been one of the reasons. In addition, as I think we have said on many of our past calls, our focus in the project business has been to look at risk-mitigated projects, to look at which projects we work on very closely and to do an extensive risk assessment prior to signing onto projects. And also focus on efficient execution of the projects that we are working on. I think it's a combination of all of these, which would have led to the margin.
But there is no major exceptional or a particular project which is closing and because of -- just your normal course of business kind of a margin.
But the normal course of business in projects based understanding of how business is carried out.
The next question is from the line of Amber Singhania from Asian Markets Securities.
Just one thing is -- I wanted to know -- or as we have already seen a tough summer season this quarter for the entire industry as such. Going forward, how do you see the business and then the 3 signing order in the room AC side for this year, what is your outlook on that part for the entire industry growth as such? And secondly, I would like to know the breakup of domestic and international order book, domestic, per se, how much is order, how much is through the acquisition, how much is on the [indiscernible] AC and international is geography if you can see it?
In terms of your second question, in terms of the breakup of the order book, we will be able to give it to you later. In terms of your first question, I think we have said that our -- like many of the industry peers, our long-term growth focus of the air-conditioning industry continues to be robust, particularly in the low penetration levels and rising income and a number of other [ revenue ] factors which would, over the longer term, contribute to the growth of the business. In the short term, we are also -- as we have mentioned in response to an earlier question, we're also hopeful that the second summer, which is prevalent in many parts of the country, and the oncoming festival season, will be opportunities for us to sell late season, to some extent probably make up for some of the issues that we faced in the first 2 months of the year.
Couldn't you say it was [indiscernible] can see industry growth this year? Or is it more or less like what is your sense of numbers [indiscernible]?
In the first quarter, for industry has been a negative of something like 11%. So if you -- and this is supposed to be traditionally a very strong quarter for the industry. So that being what it is, it is unlikely that -- the industry as a whole might grow this year, I don't know, depending on how January, February, March [ stick ] an offtake happens. But having said that, one of the things that you would have noticed is that, within whatever is happening in the industry, we are able to consistently do better than the competition and in turn our market shares.
True. Sir, just one clarification...
The next question is from the line of Aditya Bhartia from Investec.
Sir, the UCP margins which have declined by almost 160, 170 basis points this quarter on a year-on-year basis. Just wanted to understand, could you break that up for between what's the gross margin decline and the impact of fixed growth [indiscernible] this quarter?
No, we'll not be -- no, I don't think we'll be able to do that. That is something which we don't share.
Okay. And sir, for the UCP segment, what's the [indiscernible] why assets have risen which is on -- which possibly would be on account of inventories that you have spoke about. Even liabilities have increased by a fairly sharp number. So what is that on account of? And should we be expecting longer payment days going forward [ also ]?
It wall also -- as it does in the normal course of business, because I think it also is a function of the payment terms that we have agreed with our suppliers. And with some of our suppliers we're able to agree payment terms which are anywhere between 90 to 120 days from the date of supply and that will also be something that will be sitting in this [indiscernible] also.
Exactly. So I just wanted to understand that, have we been able to extend those payment terms -- whether it's what we used to have earlier?
This will be in a normal part of our payment terms that we had agreed. I don't think we have specifically extended the payment terms.
Okay. And lastly, just a clarification. What was like-for-like revenue growth that you have spoke about for the UCP segment this quarter?
If we answer that question that is also in the note to our accounts that -- so I think we expect that for the company, we are saying that the revenue growth would have been 9 to 10 – that it would have been 10.0 if it is taken from a like-to-like basis.
The next question comes from the line of Sandeep Tulsiyan from JM Financial.
I have 2 questions. One is pertaining to currency movement, although we've seen a sharp depreciation in INR versus dollar, at the same time we have fairly appreciated against yuan. So how are the contracts based with the procurement that we do from China? And if these -- if these contracts are yuan-denominated, probably the impact wouldn't have been much in terms of price increase.
Our contracts are based in U.S. dollar which is the normal international trading currency. And, I mean, I take your point about the yuan and dollar.
All right. And so second question is, given that our volumes are now significantly higher, 1 million-plus kind of ACs that we do sell in India annually. What is the plan going forward on indigenizing some of the components that you procure from other countries? And what kind of reduction can you think about in the import content from whatever, 55%, 60% where it is right now?
I think we have ongoing plans for indigenization for more reasons than just the cost, the -- it is also in a way to build flexibility in our supply chain to be able to bring down the raw material inventory. So there are a number of things and a number of advantages. So there are -- for example, we have invested, as I've -- as we have said earlier, in some of our molds for indoor users. So rather than getting indoor units imported, we would be manufacturing indoor units locally based on the molds that we are building right now. And some of those are already in production, as we speak. There are also components in terms of controllers, et cetera, which is a key component for the inverter AC, while again we are looking at alternative supply sources within India. There are also -- some of the global suppliers from home resource, some critical components, some of these suppliers are also looking at setting up facilities in India. So that would be another source of supply for us in the coming future.
So how much can it come down to on a maybe 3-year basis or a 5-year basis?
It would be difficult for me to state a number as to how much it would come down to in 3- to 5-year basis.
Our next question is from the line of Fatema Pacha from ICICI Prudential Life Insurance.
[indiscernible]
We were unable to hear you. I think there's some echo on the line.
Yes. Sir, I just wanted to understand like the focus on people in the industry and the [indiscernible] China on the [indiscernible] had a growth in the AC demand. So does it impact the Chinese surplus market and the Chinese AC manufacturing overall is likely to change [indiscernible] price or procurement cost out there?
Sorry, Fatema, we were not able to actually hear you properly. Can you [indiscernible]?
Yes. We got to know that China had a surplus, like China grew its AC demand last year first time in many years. And are you seeing any inflation in the procurement prices for ACs because at the margin, the surplus will shrink?
Yes. What you're asking, if I could just repeat, was so you're saying that it's [indiscernible] some of our competitors and I understand that China had a bumper market for ACs last year. And therefore, there is certain pressure on all the input prices that are being quoted at this particular point of time.
Exactly.
Actually, you're absolutely right. There is some pressure on the prices, and this is the cumulative effect of many of these things is what is also reflected in the margin change that we are seeing. But again, very importantly, we have been able to -- despite all of these things, we have been able to balance the margin change with the growth in the market, and therefore growth accompanied by margins is within the range that we have always been talking to you about.
We don't see -- like I think a year or 2 years later, do you see that you'd have to significantly shift the sourcing to India or something like that?
I think there are a number of factors at play. In the response to the earlier question, I said it is not just about China and -- it is about China capacity getting constrained. I think that is one of the factors that, as I mentioned earlier, there are new sources of putting up in India that there is a move to indigenize for various reasons. One is cost reason, or there is an efficiency reason, ease of supply reason, et cetera. There are several projects which are coming up in India itself. So you will definitely see that from time to time, we will look at in terms of making our supply chain more lean and more efficient and these efforts will continue.
The next question is from the line of Ankur Sharma from Motilal Oswal Securities.
My first question was on the projects business. You have maybe seen this soft 31% growth on sales. So is this -- is it one of -- a function of the growth in your order book last year which is up some 20% Y-o-Y or is there – and therefore, more importantly, will this sustain or was this more of a one-off quarter in that sense?
We have indicated that the sustainable kind of margin that we see on a longer-term basis will be on of the order of about 7% to 8%, and that's what we will aspire to. In the project business, it tends to be lumpy depending upon how many projects we have closed in the quarter, how many projects that go across the 20% benchmark for the recurring margins, et cetera, et cetera. So generally, as a matter of looking into, some of the projects could be focusing on a faster pace depending upon what is the time duration for those projects. For example, some of those projects that we have taken up for a particular [indiscernible] space could mean that it has to be completed much faster and the execution would also move at a much faster clip than before. So all of these things really build to really give you the higher turnover that we are seeing now. And we hope that it will be maintained at this kind of an order but we have to do something about our order book also. We have to grow our order book to be able to sustain the pace as we go along. That is something that we have commented upon and we [indiscernible].
Okay. Understood. And my second question would be on the Beko JV. Now we were reading in another media article that the launch was planned from August onward and do a nationwide launch by Diwali. So are you broadly on track on that? And if you could also specify which regions are you looking to do -- at the launch initially and then [indiscernible] there?
I wouldn't like to comment on that launch. I would like to keep our business priorities a little secretive at this point in time. Broadly, we could say that we are largely on track and we're doing -- we're going ahead as we had planned earlier in the year.
The next question is from the line of Abhishek Puri of Deutsche Bank.
In the UCP business, last quarter you mentioned about the secondary sales of about 18% for you, inverter was 30% of overall sales. And the industry model is 40%. Can you give us similar numbers for the current quarter, sir?
Basically, you are asking second retail, right?
Yes.
So the second retail for the industry is about 50 and our share would be about [ 14%].
This is for [indiscernible]. And as your secondary sales overall, growth for room AC?
Sorry?
Overall room AC sales growth for you, it was 18% in the last quarter, you said. How much would that be in the current quarter?
Well, the room AC sales growth was roughly around 6%.
Great. So my second question is on your cash utilization plans. So I think you've been accruing it for the last couple of years and have invested into FMPs before that. Are there any acquisitions planned, and that's why you are keeping such a high cash level in the balance sheet right now, especially when we see in the last annual report that Voltas has invested INR 154 crores in LMW, Lakshmi Machine Works, I think, to increase your share to almost 5.3% now?
I don't think we have invested this recently in LMW. LMW has been a shareholding which we have held for a very long time, for a number of [indiscernible] years. And that is part of that relationship that we have had with LMW where we represent LMW and a large -- and some part of our Textile Machinery revenues and profits come from this business. So this is something which has been ongoing. I think if you are talking about the amount of INR 100 crores or something like that, like in the -- like we do mark-to-market on mutual funds which go through the profit and loss account, the mark-to-market of our long-term equity investment goes through other confidential income and that may be the reason why you've seen the figure what you have seen.
Got it. Understood. And if I can ask on the other current...
We will take the last question from the line of Gopal Nawandhar from SBI Life Insurance.
Yes. Sir, this change in the inventory of INR 310 crores in the P&L, this is largely on account of AC inventory which we are telling or...
Well, it will be a combination of the ACs inventory, and we have talked about the reasons for that earlier in the call as well as the project inventories depending on the stage of building of the projects.
Okay. And second thing on these AC-related provisions, I just wanted to understand kind of we diverted this into the results. And when these provisions – because this will come through P&L or this will be again administered in results?
As far as our understanding goes, this will come through P&L.
Okay. And so did we see any – saw any reversal of these this year, like, in this quarter?
Typically, all [indiscernible] that we'll make provisions based on what your project assets are at any point of time. Basically the difference is from [indiscernible] so it's not a one-to-one comparison, it's the provision at any point of time.
That was the last question. I now hand the conference over to the management for their closing comments.
Thank you, everybody, for attending the conference. In case you have any more questions, can you please write in to us and we will be able to reply.
Ladies and gentlemen, on behalf of Emkay Global Financial Services, that concludes this conference call for today. Thank you for joining us and you may now disconnect your lines.