Voltas Ltd
NSE:VOLTAS
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Voltas Ltd
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Ladies and gentlemen, good day and welcome to the Voltas Limited Q1 FY '20 Earnings Conference Call hosted by Asian Market Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I'll now hand the conference over to Mr. Amber Singhania from Asian Market Securities. Thank you, and over to you, sir.
Thank you, Evan. Good afternoon, everyone. On behalf of Asian Market Securities, I welcome you all for 1Q FY '20 Earnings Conference Call for Voltas Limited. We have with us today, Mr. Anil George, Deputy MD and CFO; Mr. Utsav Shah, Head, Corporate Finance; Ms. Asawari Sathaye, Head, Corporate Communication and Investor Relations from the Voltas Limited. Without further delay, I would like to hand the call to Ms. Asawari Sathaye for her remarks, and then we can move to the question-and-answer session. Over to you, Asawari.
Thank you, Amber. Good afternoon, and welcome everybody to the earnings call. I'll be taking you through the snapshot of the results and the details of the same will be shared with you post the call. Our analysis of results for the quarter ended June 30, 2019. In the more recent past, global economic stability has become increasingly fragile as the U.S.-China trade war ramps up. The repercussions of the U.S. punitive status and China's retaliation, including allowing the yuan to depreciate, has far-reaching implications in global trade and associated growth. While many of these will unfold as the year progresses, there is a lack of clarity on how the new U.K. leadership will deal with Brexit issues. Closer home in the Middle East, oil is looking for directions, as economic anxiety jostles with regional tension in the backdrop of the escalating Iran situation. Back in India, we have witnessed harsh summers and a delayed monsoon. Although inflation is under control, and the government has announced many reforms and its substructure investments, consumer mood appears depressed. We are witnessing sluggish private sector investment and unemployment issues, apart from negative growth in core industrial sectors, such as automobile. Issues in the banking sector and a series of defaults are dampening the economic sentiment. Slowdown concerns have been voiced by many industry stalwarts, and the fact that evident in GDP growth, which is at a 5-year low of 5.8% in the March quarter compared to 6.6% in the December quarter. Just yesterday, the Central Bank has announced a 35 basis points rate cut in the reporting, hopefully, forcing banks to reduce rates and kickstart the lending activity. Given this background, the consolidated gross sales from operations for the quarter ended 30th June, 2019 was higher by 24% at INR 2,647 crores, as compared to INR 2,134 crores in the corresponding quarter last year, contributed mainly by UPBG, with a growth of 47% over last year. Profit before exceptional items and tax was higher by 14% at INR 301 crores after considering our share of joint ventures with associates, and a one-off provision of INR 17 crores in investment income, a write-down by one of the MS schemes we were invested. Profit before tax was marginally lower at INR 258 cores, but only after considering impact of an exceptional item, the voluntary retirement scheme aggregating to INR 43 crores. Consolidated profit after tax was at INR 166 crores due to reversal of deferred tax assets, created in a subsidiary, RIN, resulting into higher tax expenses and lower profits in current quarter. Earnings per share -- face value per share of INR 1, not annualized, as of June 30, 2019, was at INR 4.99. We now present our detailed comments on the performance of various business segments in which we operate. Segment A, Unitary Cooling Products. Coming off a challenging year, this season started with a nationwide heatwave and delayed monsoon. Temperatures rose across the length and breadth of the country, benefiting the industry as a whole. While the market grew by a substantial 36% as compared to last year, Voltas grew even stronger as evidenced by the increase in externally reported market share. It may be noted that Voltas sustained its #1 market position in the Unitary Cooling Products business for the eighth consecutive year, with a market share of 24.1% for quarter 1 FY '20 and 25.3% for the month of June 2019 at multi-brand outlets. Within these numbers, our focus on inverter AC sales has paid rich dividends, which we are today the #2 player in this segment, with a clear strategy of becoming the leader there as well. In motor ACs today, accounts for a little over 50% of our total AC sales. The segment's revenue smartly increased by 47% and was INR 1,749 crores as compared to INR 1,191 crores last year. At the same time, result was higher at INR 230 crores as compared to INR 149 crores in the previous year. Better quality by the range of products before distribution and sensible advertising, combined with attractive consumer offers and pricing have strengthened our presence. We have also reduced our inventory levels substantially. This year, the company launched the flexible -- adjustable inverter AC range, that comes with the unique value proposition of flexible air-conditioning, a concept which has been received well in the market. As a pioneer in bringing energy-efficient models in India, Voltas has partnered with EESL to offer 50,000 super energy-efficient and environment-friendly ACs available at an affordable price. Technologically superior, these are 44% more energy-efficient than conventional 3-Star ACs and showed lower noise operation and have a longer life. The ACs will be initially distributed to the Delhi consumers of BSES Yamuna Power Limited, BSES Rajdhani Power Limited and Tata Power Delhi Distribution Limited. With the wider range of consumer durable products that are now available via Voltas-Beko, we have now more than 150 exclusive brand outlets, increasing the brand's presence on India. These outlets deliver a unique customer walk-through experience, displaying the entire range of Voltas and Voltas-Beko products, and have seen an increased traction in both inquiries and sales. Alongside ACs, Commercial Refrigeration also witnessed better traction and healthy growth. Voltas' Fresh Air Coolers continued to provide despite the harsh summer, with the brand gaining more ground and posting a substantial growth coming off a challenging year. We have also put in place a dedicated team to focus on and drive aggressive growth in these categories. The company has recently launched air purifiers with 3 variants in the current year. Product response from customers have been encouraging and further product portfolio expansions are planned to tap the potential. Segment B, Electro-Mechanical Projects and Services. Segment revenue and results for the quarter was lower at INR 824 crores and INR 66 crores, respectively. Carryforward order book for the segment was marginally higher at INR 4,756 crores compared to INR 4,623 crores in the corresponding quarter last year. The breakup: international is INR 1,852 crores and domestic INR 2,904 crores. Order inflow for the quarter INR 680 crores, of which domestic is INR 450 crores. The Domestic Project Group, the general election, which inadvertently slows down order finalization has concluded, but the economic continues to reel under pressure, with slower-than-usual private spending. Few of the orders picked up in the recent past are currently in the early stages of execution and will provide an uptick to earnings in the forward quarters. That apart, some LOIs are in the pipeline, which will act for our practice we will announce only when finalized. The government spend [indiscernible], such as water, electrification, et cetera, continued to remain the focus. Given the subdued investment climate, the management has strategically focused on the industrial sector and government orders. The growth in RIN, a subsidiary focused on rural electrification, has been encouraging. Seeing the inspections from the government on sustainable forms of energy, the company has planned to foreweigh into solar business, and has recently commenced developing capability to address this market. International operations Business Group. The Middle Eastern economies are going through turbulent times, notwithstanding the volatile oil markets, governments in some of the Middle Eastern countries have announced some investments in long-term infrastructure projects. Our strategy in this environment is to look for good quality orders with reasonable margins and promotion terms. But now as the market is also seemingly opening up, and we are considering business that meets our risk mitigation criteria. Meanwhile, the challenges faced by our JV partner, Carillion, which is the main contractor in Oman continue, and we are watching the situation closely. Segment 3, Engineering Products and Services. The Indian textile industry went through yet another period of turbulence, as China with its significant surplus stock of cotton cut down on yarn imports from India. Many of the spinning mills are cash strapped, and have resorted to either full or partial shutdown. In this environment, orders for new capital machinery of Q1 than before. Meanwhile, our strategy focused on other growth avenues, including for spinning and the services and parts business continues. The mining business has continued its good performance in Mozambique, while the India mining story is at an impasse. On the positive side, we are seeing some pickup in spending in rural construction activity, Voltbek Home Appliances Limited. As you are aware, we have recently launched a JV with Arçelik to offer a range of home appliances under the brand Voltas-Beko. Although relatively new in the space, the business is stabilizing itself in line with internal plans and have done reasonably well. We are in the process of setting up the manufacturing plant at Salem, which will be functional from 2019 year-end. This factory will produce direct cool refrigerators and washing machines. The brand has launched several SKUs of refrigerators, washing machines, dishwasher and microwave ovens, which have been received well by the trade. Consumers are also appreciative of the many India-centric product features, and we expect to increase our penetration and market reach further. To sum up, the rural AC business is better aligned, and we would like the rest of the industry look forward to the second summer and the upcoming festive season to maximize sales volume. Nevertheless, we remain determined, even while we are cognizant of the slowdown in the consumer durable sector and the liquidity strengthened economics. With the statement of government pushing the agenda on growth and infrastructure, we expect several opportunities to grow in the project business. We remain suitably conscious of the associated risk, while picking up orders in the middle east. Needless to say, the strength of our balance sheet will result in good step to grow further. We are now open for Q&A. And as stated earlier, the details of the note will be shared later on.
Sure. Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Nitin Arora from Axis Mutual Fund.
Sir, I just wanted to ask you, given that the kind of market share gain you have seen in the starting of the season itself, in respect to margin, does that give you confidence because of -- in the last year, because there was so much fluctuation in the weather, we didn't meet our guidance in that so because of the late summer coming up. But given that you have started this year on a very strong note, also increasing your market share part, you did have 13% kind of an EBIT margin in the UCP business. So does that give you enough confidence that it would -- should look at the margins beyond 11% now on the higher side? That's first part of my question. And the second question is related to -- with respect to the Voltas-Beko. Given the season is coming in some time, I'm talking about the festive season, if you can take us through that -- whether that will be important for Voltas-Beko this year or we could be -- again, it would have a similar year as compared to last year, because the plant is still not operational. So will we be able to cater this festive season or not? Those are my questions.
Thank you, Nitin, for those questions. In the first place, the one that you asked with respect to margin. You made a comment very quickly saying that we were not able to meet our guidance. And I think that is not right because, always, we have been guiding at a margin about 11% to 12%. And that is something that we have stuck to. And the reason why we guide that those kind of margins is not to say that we don't have an ambition to top up those margins. But it is more to say that in every quarter, we face different types of competitive activity. And for example, the second question you asked also about the festive season. In a festive season, everyone is out there trying to do something or rather to get their products flying off their shelves. And that puts us as the market leader under pressure. And we have to also very often respond to some of those things. Yes. So this quarter, yes, we have got a 13% EBIT margin, and this EBIT margin, you have to understand, from the point of view that the season was extremely good. And in retrospect, I think I would be honest in saying that not only Voltas, but the entire industry, missed a trick in not being able to take up prices earlier in January. Because had we known that the weather was going to be so intense, most people would have taken prices. But what was the situation? The situation was really that because of the depressing conditions last year, everyone had huge amounts of inventory. And everyone was concerned about how do we get this inventory out? And so no one took price increases. At the same time, we've had some impacts, like for example, the change in UP structure, which went up from 10% to 20% for IDUs and ODUs, compressors went up from 7.5% to 10%, and all of those factors. So considering all of that, I would really think that getting at a 13% EBIT margin despite the volumes and everything was a fairly good job, and I hope you see it in the same light. Moving on to the second question. So I -- as a rule, I do not give out forward guidance in terms of margins. But I would only say that watch our performance. We believe that we can do better and it will certainly be our aspiration. But if you ask me what is the longer-term guidance, I would still say in and around 12%, till I'm able to actually look at and understand at what the competitive intensity is going to be. Because in fact, I think that as Asawari also mentioned that we have done extremely well in Voltas. And it has grown disproportionately well. And so we do not know what the competitive activity will be. And we need to conserve a certain amount of our margin to be able to beat and to be able to both meet and beat these kind of competitive activities. Yes? Coming to Voltas, Voltas-Beko, yes, the festive season is important. But at this particular point in time, we do not have the full range of products, as you said, because the Direct Cooled Refrigerators, which is the large part of the market, has not actually -- we don't have that with us at this particular point in time. But what's the good thing? The good thing is that we're establishing our market well. We have increased our distribution quite a lot. People are getting to touch and feel parts of our products and are feeling reasonably happy with the price and the quality equation. And we believe that we are well placed to be able to meet up to our longer-term ambitions, and we will get there in and according to plan. As of the moment, Voltas-Beko is progressing completely according to plan, and we are not seeing any significant deviation, although there are some ups and downs in regional markets.
That's a fair point. Thanks for a detailed answer. So basically, what our guidance was for the...
Come again, Nitin?
So I'm saying, whatever be the guidance for us for last year of 11%, at least in this environment and given you've started on a very strong note, you do see a 12% should be doable. I understand the economy changing too fast, but it's still higher than the last year, that's where you see it.
We have started off well. And I don't know what else those -- because when the economy gets there, you, Nitin, for your [ follow ] the market -- the market's over. Every day is a new wicket, you're waking up to see different things happening. So that's the way that we will look at it. And we are reasonably confident, but at the same time, I wouldn't like to give it as a firm assurance, yes?
The next question is from the line of Aditya Bhartia from Investec.
Sir my first question is on the [ VRS ] scheme. Just wanted to understand what could be the likely charge in Q2? And what are the kind of annual savings that we are anticipating from this?
Aditya, I -- one of the things that I would say is that this quarter, the number is quite evident there, yes? When we announce what we have done in that we have reopened the scheme again because there seems to be a lot more of interest in the [ VRS ]. Now how many people will take it, et cetera, is not something that I can really comment upon, because the scheme is still on in a manner of speaking, yes? So the -- what is the end purpose of all these [ VRS ] schemes? We are not in the habit, as you are well aware, that we are throwing off money. So there has to be certain productivity enticements to this. There is a longer-term IRR in doing all of these things, and that's how we would treat it. And it is a scheme that has gone through the rigors of both the Board audit committed our Board before we have already announced it. So I don't really want to come back and say what the return is or what the prices are going to be, but let me say that wherever a company implements a sensible [ VRS ], it pays off longer-term dividends in terms of productivity, et cetera. Remember also that we as a 60-year old company, we do have quite a number of employees, as you know, who are at a certain level, a large number of employees with productivity picking up new norms, with new ways of doing things, computerization and artificial intelligence, et cetera, it makes sense to look at more -- or shall I say, effective smaller teams and all of those kind of things. And that's where we're coming from.
Understood, sir. And sir, you mentioned that inventory in the channel as well as with the company has largely been liquidated. Is it fair to assume that, that should help the industry in taking price hikes? And also a related question, what kind of price hikes do you think we need to be taking in order to reach back to 13.5%, 14% kind of margins that we have done in the past?
The first question, if you really look at the segment results, also you will see that we have a negative working capital for this quarter. So that just gives you an indication of that we have substantially reduced our inventory. But at the same time, we are now building back inventory because we also want to be in readiness for the second summer and the festival season and all of those kind of things. Now as far as price hike is concerned, I think it would be grossly inappropriate for me to say that I'm going to take a price hike or I'm not going to take a price hike. We will really have to look at it in terms of what is required at each region, what is required in terms of each competition, how will we really budget? At the end of the day, we are -- our strategy and our focus is on 2 things: one is generously protect our market share; number 2 is make sure that market share is not coming at the cost of your profitability. So -- and like someone commented the other day, market share is not something that you can put into the bank. And we are intensely aware of that.
Right. Right. And sir my last question is on the budget scheme. How's the execution going for those orders? And how's the cash collection progressing? And do you think that we will continue to see impetus in the scheme, especially as the initial rate is coming to an end?
What is happening as far as that rural electrification scheme is concerned, one is that, given the election, and as Asawari mentioned, inadvertently, a lot of things slow down. You don't get cash, you don't get the completions and all of those kind of things. So a little bit of delayed increase, yes? But we are now in 4 or 5 states, and we are doing a fairly good job in terms of the last [ micro ] connectivity, and now there would be other kinds of jobs that will be opening up after the scheme, such as underground cabling, because people don't want to be going with these poles stretched out, they want to do underground. There are other things like, for example, feeder separation, all of these activities also that comes in. So I frankly feel that it's not as if that, just because a scheme is coming to an end, that is the end of the story for electrification. There will always be new and new avenues that will come up. At the same time, I want to also mention that water is a very significant opportunity that we are seeing now, and our ability to be able to connect various points in the rural electrification is also a strength. And we are now learning and experiencing how we can do this better. At some point in time, like the Prime Minister has ambition to say that they will deliver bulbs at least in every single house of this country. The other way of looking at it is, there needs to be a tap of flowing water in every single home of this country. And that's where we'll be heading to. So there is a very continued -- continual business. And I think our strategy of looking at the government, the all or government supporters or externally funded projects, and to that, the strength of the initiatives that we took about 2 or 3 bad years back to focus on it, has really paid off. So we are not seeing the kind of [ intense spend ] that many other companies are going through is that we in the project business, as far as we are concerned at as of this moment. And we will watch, of course, there is -- a big part of it, is the economy. A big part of all business how various things go. But we are cautiously optimistic about the future.
The next question is from the line of Venugopal Garre from Bernstein.
On Voltbek, I just wanted to take a stock of the situation now in terms of the SKUs that you have currently for all the products that you have. What is the sort of SKUs that you have for, for example, the refrigerator, or dishwasher, washing machine, et cetera. So I wanted to understand that. And number two is, from a point of view of optimal reach, how much -- even with these SKUs, how much time could it take us for us to reach an optimal reach across the country, which is basically having optimal number of SKUs per store and also reaching [ back ] India at a larger number of stores?
So if you really look at it at this particular point of time, one of the things that we have always believed in, is that there must be ample amount of choice as far as the consumer is concerned. And so your question is bang on. Okay? Now I don't really want to go into specifics, but since you asked for it, let me tell you that in refrigerators, we've got 31 SKUs at this particular point of time, including water-mounted refrigerator and all of those things. In washing machines, just in front-loaded load washing machines, we've got something like 5 SKUs. We've got 12 SKUs of top load washing machines and so on and so forth. Many of microwaves, et cetera, et cetera. So we have a certain range. But this is not to say that we have the full range. For example, if you look at our AC business, we've got something like about 70 to 80 SKUs we've got now. And we do recognize that people like to see a lot more of SKUs. So as we go into deeper and deeper, and as our market prominence gets better, we will be introducing more and more SKUs, and that will be one of any -- apart from distribution, that will be an important part of getting a foothold in the market. In the refrigerators, for example, now that you raised it, there is a lot of demand, for example, for floral designs. Many of the upper-end refrigerators tend to be a muted color. But at the range that we are talking about, let us say, 200 to 300 liters, et cetera, lots of people are preferring the floral designs, and let me say, dark colors and different shades. So that's something that we are really catering to and that will be our intention. But the market itself, we will have sufficient number of frost-frees, et cetera, for the Diwali, but it's not going to be as good as the time that we had the production going from our factory, because there are costs involved and logistics issues in terms of transporting DC refrigerators, which happened to be the larger part of the market.
And the reach perspective? Distribution reach perspective, on what is...
Distribution reach, I mentioned to you that we've got close to about 500-odd people now at this particular point of time. But it's expanding. On a daily basis, we are appointing and things, but it is also has to be balanced with the product availability. Because one of the things that we think about is that, when we do have distributors, we also insist on having a fair range displayed there. Apart from that, Asawari went and mentioned also that there are about 130 exclusive outlets, which caters towards both Voltas and Voltas-Beko that have been started. And this is something that we did not have earlier. And the reason we did not have it earlier was because that we only had air conditioners. Now we have a complete range of products, so consumer has a very good walk-through experience in terms of what he can see for many of the consumer-durable products that he or she uses at the home. And at this time, I'm glad to say that the response at the videos in terms of Voltas inquiries and sales have been pretty good. And in some places, it's actually going beyond our own expectations.
One last question on air conditioners. Now these margins that you reported in this quarter, of course, there's been a discussion by some other participants too. I just wanted to understand, given that we had last year, weak summers and there was a baggage of inventory that the system was carrying competitors as well as us and the channel. So is it more a issue with the beginning of the quarter when nobody was sure of how summer would be even, let's say, the end of March or early April? Because of which, it would have had been some degree of inventory sort of push of very [ rapid ] prices, et cetera? And thereafter things stabilized, and hence, you know...
It's a combination of all of those. Like I admitted, I think the entire industry could have done with a price increase had they seen this kind of intense summer. But then hindsight is a great thing yes, but then we -- at the very same time that we were talking to you in quarter 3, you were also expressing a lot of concern about the level of inventory and saying -- asking, does this mean that your margins will actually go down below 10% because you'll have to liquidate your inventory? So the proof of the pudding is in the eating and the fact that we have been able to get the volume growth of this substantial number and still maintain 13%, I think, is something that you should -- I mean, I don't know want to suggest here, but it should be a good tick in our box.
One last remark on this, I want to add is that -- so I mean, assuming in the next season, you have good summers. Now since it's at the back of good summers, with the same level of revenues that you reported in this quarter, which is good, ideally margins would be higher, because you don't have the -- is it the right way to look at it? Assuming competition doesn't really distort a change as -- and it's as bad as it is?
But it never stays like that, it is always -- every week is different. We even went ahead, just on -- in the beginning of this month, we've went and launched our own program in Southern India. Now we do not know what is going to come up from competition and how we need to get it. So I can't make a broad assumption that assuming that competition is going to be constant, price is going to be constant and other things. That is not the way the business is meant to be, and that's never the way that business will ever be. So every day, that we wake up, we are bowing to a new wicket. But every day, we also sharpen our wits and have sufficient insights into the market and to the consumer to be able to do better.
The next question is from the line of Arafat Saiyed from Reliance Securities.
[indiscernible]
You're a little garbled, come again.
Yes. So my question is on solar business, that Asawari mentioned, that they're looking to inventories in solar business as well. So can you throw some light on that, what exactly you will be doing so in this space?
What we plan to do is that we -- as you know, much of our project business is about executing projects, not so much into the equipment. So we are not planning to buy solar cells and deal with them. What we are planning to do is to get together with people who have plants for large solar farms, we want to change those things. And then do the execution for them in terms of design of the stands, in terms of fixing it, in terms of making sure that it flows through properly. And the fact that we have certain expertise in dealing with electricity and power helps, and this is the way that we want to take it forward. It is at still a very initial nascent space, but the way it is going, both in terms of our -- you've seen those announcements on the cars now, very soon that I personally believe that they will come up with systems where you will be able to have your own solar panels on top of your buildings and supply into the grid, like indeed, what is happening in the international market. So we do see an opportunity, and we are now putting our capability into play. We are -- we have picked up a few people, and we are now ratcheting up houses. It is not to say that it is going to -- next quarter, it's going to be a big business, no. But it is going to be a big business as we go forward. Just the same way as we've entered into rural electrification at a time, we are now currently venturing into water now. We are just seeing the opportunities that lie ahead, and we are moving into a position of where we can be in considerable advantage as we go forward.
And my second question is more on last month, that you may look into the succession of this project business. So any light on that, sir?
Well, see -- I think this question has been asked, if I recall right, right from the point of time. When I first started addressing this conference in 2011, people used to -- used to ask me, why don't you just get rid of all the AC business, and go fully into project business? Then after some time, people have been changing it the other way around. Though these kind of speculations will remain, we don't have any comments to offer really. I think, as you would have seen, the fact that we have got multiple businesses has really helped us in the past, and we are continuing to do well in all the sectors that we are concentrating on. And so -- and if there is anything of this at like for like, any other intelligent business, and we look at our portfolios continuously. We look at what we should be doing, what area we should be focusing, what should we be focused, et cetera. But I don't want to really get into saying that, this is what we're doing, et cetera, et cetera. No. Well, if and when something of this nature thing, you will be amongst the first to know.
The next question is from the line of Sandeep Tulsiyan from JM Financial.
Sir, my first question is pertaining to the recent import duty hike, which was announced in the budget? As well as you've seen some weakening of foreign currency post end of July. So just want to understand from these 2 incremental data points, how are we looking at the pricing scenario going forward? And related question to that is, how is Voltas' back-end integration result in competitors on the plastic molding? And because -- I mean, it's obviously different over there?
I can give this to you. So as far as the duty hike in the units was concerned, you are aware that we have already started investing in some of our malls, and we would obviously prefer to indigenize more and reduce the exposure on exports. We believe the major impact of this has not happened in the current season, but probably in the next ordering cycle, which will happen for the next season is where probably some impact will happen. Considering the fact that we are planning to look at more indignation and reduce the dependency of imports from China, there will not be a very mutual impact because of the increase of [ customs business ].
Okay. As far as the question on backward integration is concerned, I think it is essentially, as you probably know, in the country today, we do not have good manufacturers of compressors. Compressors constitute roughly around 35% to 40% of the cost of an AC. So that is something that will always, in our mind, at this point of time, remain outside the manufacturing consideration horizon, because compressors are very, very different, they are different for an air-conditioner, for an inverter, depending upon the gas used, depending upon whether it's a refrigerator, whether there's a water cooler there. That doesn't matter. And you need to have a critical mass, if you really need to be able to make these things. So that to me seems to be like, and like it is for most of the players seems to be bought-out item and that will probably remain so. Having said that, some people are investing in India to start compressor manufacturer, and we will figure out how we can possibly make some intelligent tie-ups with them on a supply chain basis, et cetera, et cetera, like we will procure from 8-Star vendor. The other bit of integration you know that we are planning and investing in certain manufacturing activities, and like what [ Sathaye ] mentioned, much of the high-volume IDUs, also, we have been investing in malls, and we have been doing our own manufacture. But the all-use button sale for the compressors are largely made locally. Many of the other products that we deal with in the overall Unit Recooling Products category are also manufactured locally. So over a period of time, our strategy has both been tactical short term, and strategic long term. So when we look at it, we don't think that the China or the import option is something that is going to be permanently here. We do differentiate and try and see what sorts the time, both from a short-term, medium-term and a longer-term perspective.
Sure. So my second question was on this energy-efficient AC orders that you've taken for 50,000 units. I recall that our stance on this energy-efficient products has always been that the margins are not healthy or the one which would like to operate on in this particular segment. But their ability understand over here, if you could just give us some more color on how this market is evolving? And what is different in the current tender vis-à-vis the old tenders?
So in the first place, I don't think that we have ever said that this does not impact Voltas. One of those people, if you recall, we were the first to use Star-rate air conditioners. Much before the law and the statute required. And why was that? Because, as a company, we believed that energy efficiency is the way to go. It is definitely something that is important to the nation and to the progress of this country. And when we deal with -- and I have always said, we've responded to questions when questions come up saying that, the star rating has changed. How much will it cost you? I have responded by saying INR 400 or INR 500 depending upon the star rating or whatever it is. But I've never ever said that this is something that we don't want to do all across our business, no. As far as the [ AC ] order of the 50,000 units is concerned, it is a -- to us, it gives us a great amount of pleasure, because for the first time, it actually -- it's an acceptance of the technological superiority that we can actually bring to the table. And the price that we have done with the TSL is also not at a price where we are getting that order without making margin, no. Please be rest assured that we are doing business, once again, not for market share, not for publicity, but, at the end of it, for safeguarding our stockholders -- stakeholders and for the prosperity of the company in general. So it is at a reasonable margin.
Understood. Thanks for clarifying that. And lastly...
The next question is from the line of Shrinidhi Karlekar from HSBC.
And congratulations on the great set of numbers. Sir I have just one question. Sir we touched upon at the inventory, the bull sized level has kind of normalized, it seems it has gone down to below normal levels. With this, I want to know, can one extrapolate that it may be the case for all the industry players as well? And much more importantly, I just want to hear your thoughts on the channel inventory, sir? Would you say that the channel, so just comment on whether they're carrying a normalized level of inventory? Or it continues to be slightly higher than what they should be carrying?
Let me -- yes, you are absolutely right, as far as Voltas is concerned, we have been able to reduce our inventory. Now when people buy our products, this is because they see something about our products. And the -- what do they see about the product, they see a value proposition, that in terms of money, in terms of spend, in terms of quality, in terms of the products, quality assurance from the house of Tata and all of those kind of things. And so it typically, I would say that we have been fortunate with our branded base, with our pricing, with our consumer offers, et cetera. Our inventory has gone down substantially. Now as far as other competition is concerned, I would not want to go there or comment on that. That's a question that you really need to ask them in terms of what their inventory is. And once those inventories are exhausted, would be the -- when an inventory is exhausted, what it really means is the distributor now has empty shelves and has money. And therefore, he wants to invest that money. Now also, how well can fill those shelves back again is an index of how well your company will do in the upcoming quarters. So that is something that we are aspiring to do. And I'm sure that, as part of the summer, most of the people have done very well, because that's why [indiscernible] sales has a 36% growth in the industry in secondary sales during the first quarter. And so that's where we are. And we will make all efforts to make sure that we have the right amount of inventory and try and fill in the channels as soon as possible.
And sir, just one more question. So the 36% number looks great number even if one adjusts for like the base, which will be 9. But I just want to understand your thoughts of -- because at the end of the day, a lot of AC [indiscernible]. So how large part of this growth just qualitatively can be attributed to the heatwave? And how far could we like a normal growth rate of this benefit and net growth in adoption of AC? So just comment on how would you look at like splitting this growth like more into heatwave and more into like natural growth for this product?
I always mention that our product is weather-resilient or weather-relevant. So if there's a hot summer, and if it continues, ACs will sell, yes? This is part of the reason in a sense, AC and the refrigerator market has been partially immune to all the consumer slowdown that we have seen in the first quarter and what we -- what we are seeing now. People have gone away from automobile, for example, as you've seen in July, almost a 31% decline is what they're talking about. Many people have shut down. Lots of other activities are happening. But -- and even ACs, if for example, if the heat is not there, and the consumer sentiment seems to be what it is, ACs will also drop like in the normal way. Take the case of LCDs and TVs, normally, I mean, these people had pumped stock in the context of the World Cup matches, but it really did not take off very well. So what I'm really saying is that, the nature of our business is that we will always have a tendency to move to higher growth with higher -- with the harsher summers and difficult weather. That's the nature of our industry. But having said that, within -- whatever be the situation, we still will have a certain portion, if 100 ACs are sold, 25 ACs of that will bear the Voltas name. That's the way we look at it.
Before we take the next question, we'd like to inform participants to limit your questions to one per participant. [Operator Instructions]. The next question is from the line of [indiscernible] from Edelweiss Broking.
Sir, my question is regarding the Custom Duty multi-government has imposed on indoor and outdoor units just recently. So as for the annual report for Voltas has [ sold ] nearly 50% of AC volumes through import in FY '19. So do we see scope to increase the -- our AC prices in the near future to mitigate the impact of increasing Custom Duty in an already deep consumer market sentiment? Or would we need to take a hit on our margin in the near future?
One of the things you have mentioned, in Custom Duty, we, of course, from our perspective, we do wish that it had not happened, yes. But things like this keep happening. And sensible business always finds ways to get cost efficiencies out of the system or the customers, et cetera. So whenever something like that happens, we kind of rebalance our expenditure and look at it more carefully, either in terms of advertisement, either in terms of schemes. So many of the other things we balance it in such a way that our sales is not impacted. Having said that, ideally, ideally, yes, we would like to take a price increase. But at the same time, we also have competition, which is now will be looking at lowering the prices in a sense, because of the fact that they will be saying that, here is a company like Voltas which at a certain price level as this seems to be increasing its market share. So should we be looking at a lower price? This might be a thought that might go through that. The other part of it is that, a price increase is never sensibly taken in a lean season. It is much better when there is at a harsh summer or something that it will motivate people to spend. So we have to balance these 2 things appropriately. And the price increases also, we have very seldom actually taken it across the board, all in the kind of price increase. We don't know that. We will look at it from a regional perspective from what is selling in that market. What are the -- sort of that the schemes available and then make sure that we take something that does not affect and actually grows our contribution from the dealers. That's the way that we view it.
Okay. Sir, my second question is, like, if you can give us some sense of how much of the other expense amount is going to be booked in the September quarter? It would be really great.
As I mentioned, I answered this question to summarize also that I'm not very sure. But I doubt, I don't think it is going to be as large as what we had taken. At any rates, one of the things that I'd like to underline, again, is that voluntary separation is an exceptional item. And while -- and we have cash on our balance sheet, but at the same time, when you do that, there is certainly an IRR in the payoff at a longer time that you would expect, yes?
Before we take the next question, I would remind the participants please limit your questions to one per participant. The next question is from the line of Abhineet Anand from SBI Securities.
I just wanted to know, the market today, how's it played in terms of inverter, fixed period and windows? I think you guys mentioned that inverters has significant increased in this quarter, especially for Voltas?
Yes. So Abhineet, this is Asawari here. So between the split and the windows, it's almost like an 80:20 sort of a ratio for the industry. And in water, they're significantly becoming a bigger part within the split market. For us, as we mentioned earlier, windows still continue to be a little higher than the market. So it's close to about 23% for us, and split is about 76%. And within the split, I mean, for -- in fact, across the entire portfolio for us this quarter, 50% has been those sales of inverters.
The next question is from the line of [indiscernible] from Icarus Securities.
Just wanted to ask your outlook on the [ EMB ] segment, and where would be the sector do you see some growth coming from?
Mainly in the project business, at least on the domestic side, we are looking at a lot more opportunities coming in from the water segment, particularly, given the center's focus on the [indiscernible] and the other schemes that are coming in. Also, the focus on ensuring there is pure tap water reaching each region household. Similarly, more opportunities are also coming into the rural electrification side, as we mentioned earlier, because of the general election results. We're seeing a little bit of a slowdown, but the focus continues on the government side in water, i.e., it also continues on building in urban infra. So mainly around these 3 main sectors is where we're seeing the center also pushing in and more opportunities opening up here on the domestic side.
The next question is from the line of Naveen Trivedi from HDFC Securities.
Sir, if you can mention about -- is there any growth difference between the window and the AC this quarter? And if you can also talk about, considering your inventory levels are normal, what kind of trends you have witnessed during the July month?
The July, I would not want to comment on July. Naveen, you must excuse me for that. But let me just say that, in terms of the overall numbers that we have on -- like Asawari mentioned, we had something like about 24% of our total AC sales is coming from the window air conditioners. They have grown, but they have also grown aggressively, but the pace of growth is not as sharp as inverters or split. Because one of the things that we are beginning to see is that the market is slowly moving into split. And in splits also to inverter. But that is not to say that there is not a market there or that the market is going to completely vanish in the next 1 to 2 years. They will be there for some time. The other important thing that's happening is that people are becoming more and more energy-conscious. And I think, especially in the southern part of the country, we see that there is a great amount of demand for inverters. People want to be doing their best for the environment, one. Number two, also keeps their cost contained suitably.
So the reason for asking you for the July month performance is to understand, considering in most the consumption basket, the slowdown has been impacting since last couple of months. So just trying to understand, considering your inventory levels are low, how should we see the coming quarters per time? Particularly, when the slowdown is at a high level?
Let me once again assure you, that we will -- within whatever competitor field that we are operating in, we will continue to keep up our performance. Yes. I don't want to actually comment on July and say that we have grown so much or we have a grown this much, no. But consumer uptake and the sentiments are coming down in a little way. In fact, one of the financing companies are actually put weight on -- and gone on record to say that they are over 30 days dues, particularly in many of the sectors that they finance has gone up substantially. I don't want to say the names, but that is part of the what is happening in the environment. But notwithstanding within whatever, if you see the industry growing at a nice percentage, I think that I can, at least for the short term, very confidently tell you that we will grow in line or even better than the industry.
Thank you. We'll be able to take one last question. The last question is from the line of [indiscernible] from IDBI Capital.
I have a question regarding what would be the impact of the deal with EESL in terms of cannibalization on the existing product market and the impact on the [ Belgium] margin? And also, whether Voltas is looking to carry these products on its own into other markets beyond where the EESL is providing them?
Yes. I think it's initial stages with EESL, one of the things is that -- it has optimized to the requirement, and it is not something that is across the length and breadth of the entire market. And certainly, at this point of time, not available in the retail chain. That's why Asawari I think mentioned, that these 7-Star air conditioners, are specifically now available to the -- to consumers in Delhi, and I think she mentioned BRPL, [ BSCS ] and Tata Power DDL consumers. And in due course, I think that the -- EESL , the way that they will operate is that they will want more and more exchange, which actually is a good thing for the country, in a sense that it takes away low energy, once and replaces it with a better energy one. So it's a good move and we would continue to support it. And as I had answered in a question earlier, we are not doing it at a loss or at a margin. EESL also understands that if we have to continue to supply them, we have to make a decent margin on that. And we are doing that. So the initial products have started rolling out, and we'll have to watch and see how this actually progresses.
We'll take that as the last question. I would now like to hand the conference back Mr. Amber Singhania for closing comments.
Thank you, Iman. On behalf of Asian Markets Securities, I thank everyone for joining this call. And a special thanks to the management of Voltas Limited, for providing us the opportunity to host the call. I would now like to hand it over to the management for their closing remarks. Over to you, sir?
Thanks everybody for joining in. If you have any further questions, kindly get in touch with myself [indiscernible], and we'll be happy to answer and take all the questions from you. Thank you very much for joining in.
Thank you very much. On behalf of Asian Market Securities, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.