Voltas Ltd
NSE:VOLTAS
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Ladies and gentlemen, good day, and welcome to Voltas Limited Q1 FY '21 Earnings Conference Call, hosted by Asian Market Securities Private Limited. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Amber Singhania from Asian Markets Securities. Thank you. And over to you, sir.
Thank you, Steven. Good afternoon, everyone. On behalf of Asian Market Securities, I welcome you all for Q1 FY '21 Earnings Conference Call for Voltas Limited. We have with us today, Mr. Anil George, Deputy MD and CFO; Mr. Manish Desai, Head, Corporate Finance; Mr. Vaibhav Vora, Manager, Corporate Finance, representing the company.Without further delay, I would like to hand the call to Mr. George for his opening remarks, and then we shall proceed to Q&A session. Over to you, sir.
Thank you very much, Amber. Ladies and gentlemen, before I begin a short summary in terms of analysis of results, and then we can take Q&A thereafter. For the quarter ended 30 June 2020, we are now well past the halfway mark of the calendar year that will go down as one of the most stressful periods in modern history. COVID cases across the globe have crossed the 20 million mark, and India has become the fourth most affected country with more than 10% of the cases being reported here. Despite various measures adopted by governments across the world, the collective ability to contain the spread of the virus in the shorter term remains indeterminate, particularly in the absence of a well-tested and reliable vaccine. From an economic standpoint, global predictions for FY '21 are rather gloomy with year-on-year GDP estimated to decline by 4.9% and global trade by a sizable 22.6%.While China's real GDP growth seems set to sharply decelerate to around 1%, there are forecasts of a full year recession across almost all the other G20 countries including the U.S. and Eurozone nations. Extending support to businesses and households, central banks have cut interest rates, and governments have increasingly adopted the route of fiscal expansion. Closer home, GCC countries are scaling down the expenditure and the base of construction given the decline of oil prices, in fact, a mid- to high single-digit real GDP contraction is anticipated across the Middle East where we have businesses.Although estimates for the Indian economy vary, the general consensus is a degrowth upward of 5%, given the impact of many macroeconomic constraints. Manufacturing PMI dropped 4 months straight to 46, and Service PMI dropped even further to 34. With job losses and pay cuts hitting household incomes, consumer confidence has plummeted. Meanwhile, political tension at our borders with China, intermittent lockdowns, national calamities and floods across various parts of India have dampened the overall sentiment. The country-wide lockdown for the first half of the quarter led to a compete washout of sales, and it was only by the 3rd week of May that industry could resume a semblance of activity.Quick and nimble to respond, Voltas managed to grab the opportunity and sold over 3.4 lakh units of Unitary Cooling products in a window of just 45 days. Given its nature, the project businesses, however, remained more susceptible to the downside of the intermittent lockdowns, resulting in slow execution of work amidst poor availability of labor, not to mention certification delays and liquidity concerns impacting collection. Against this challenging background, the consolidated total income for the quarter ended 30 June 2020 was lower at INR 1,364 crores compared to the INR 2,697 crores in the previous year. Similarly, profit before tax was lower at INR 108 crores.In terms of results, the revenue spread was INR 707 crores for Unitary Cooling, INR 518 crores for engineering projects and INR 48 crores for engineering products. And in terms of profit before tax, INR 110 crores for Unitary Cooling, minus INR 39 crores for engineering projects and plus INR 20 crores for engineering products.Let me now deal with some comments on each of the segments. Segment A, Unitary Cooling products. Intermittent lock and unlock decisions announced by various states and local authorities throughout the quarter has taken its toll on the AC industry, resulting in a volume de-growth of 49% during what has traditionally been peak season for sales. Yet, on a higher base of the previous year, Voltas was able to firmly contain the downside to 45%, amply visible in a significantly improved YTD market share of 26.2%. In fact, for the exit month of June, Voltas had a lead of over 1,400 basis points above the nearest competitor, also well ahead of the market shares of both #2 and #3 player combined.In parallel, leadership in the Inverter AC category has also been reinforced with the latest market share of 22.9% in June. Inverter ACs now accounts for 63% of the split air conditioner and 44% of the overall AC sales.The heat waves experienced in parts of the country during May, coupled with Voltas' well-known distribution reach and the Tata brand loyalty, helped to partially neutralize the absence of adequate footfall across lockdown impacted retail outlets. Mainly the North and parts of South and East saw a fair bit of demand, while the West was largely passive given containment measures and onset of early rains. Adding to these challenges, the sheer quantum of unsold inventory across the value chain had invariably led to aggressive discounting and price disruption across markets.Armed with an artillery for innovative products and a customer-centric approach, Voltas was able to navigate this turbulence without resorting to any substantial price cuts. Cost-effective cash back and consumer offers were sensibly combined with the digital marketing thrust to promote sales. At the other end, improved product mix, balanced with an agile supply chain overcoming manpower issues in logistics and warehousing helped improve overall margin by 240 basis points for the quarter to 15.5%, even under these trying circumstances.Given the relatively small seasonal window for sale of air coolers, category performance has been affected. We registered a negative growth of 70% over the previous year in line with industrial trend. However, the better availability of electricity in villages, humid environment in most parts of the country and the promise of a cooling comfort at a relatively lower price point augurs well for the future of this category.The performance of the Commercial Refrigeration category was also unfortunately influenced by the repeated lockdowns, affecting consumption of impulse purchase items like ice cream, chocolates and beverages. Here again, change in consumer life style along with expanding mini cold chain facilities across mom-and-pop store, kirana-type stores in the 2 tier and 3 tier cities, supports the basis for increased focus on this category. Equally, the width and depth of our sales network with over 19,000 touch points is a catalyst for distributive advantage.Let me now move on to Segment B, Electromechanical Projects and Services. Segment revenue for the quarter was lower at INR 518 crores as compared to INR 824 crores in the corresponding quarter last year. All across the industry, both top and bottom line has been impacted as a direct consequence of the pandemic, combined with the general and, yet, overbearing liquidity led sluggishness surrounding the incurrence of any and all expenditure.In the domestic markets, the nonavailability of requisite skilled labor, together with the regulated access to job sites and mandatory social distancing norms has considerably slowed down the pace of work. At the same time, managing inward transport and receipt of materials, including parts and components posed some challenges based on the source of their supply. The slower pace of project execution has in turn manifested itself into delayed certification and consequent difficulties in reckoning turnover and the appropriate margin. Additionally, for almost 1/2 of the quarter, idle costs were incurred on staff and other personnel at various sites without being specifically accretive to project turnover. In keeping with accounting norms, such costs have been identified and charged to expenses.As far as the international business in the Middle East is concerned, project activities are deemed to be part of essential services. While in theory, this should have meant 0 COVID impact in reality, site productivity is badly affected owing to the adherence of extra strict safety guidelines. At the same time, mega events like Expo 2020 has been postponed, and we see ample evidence of clients consciously going slow on project completion. All of this adversely impacts timely handing over of project sites and demobilization of workers in a well-planned and effective manner. In certain cases, we also await the formalization of extension of time agreements with proper acceptance of costs.The general tendency of delaying certification and holding payment against due receivables has resulted in time-based ECL and other consolidated provisions, affecting results for the current quarter. Overall conditions and outlook remains sedate for the next 2 to 3 quarters, especially given the probable need for accelerated provisions in the absence of secure collections. Needless to state, all required steps to eagerly and contractually protect our interest has been taken to mitigate forward risk.Project orders booked during the quarter of INR 366 crores reflects the general environment and our need to balance risk with potential reward in these uncertain times. While private investments in India continue to be subdued, infrastructure spend is expected to be on the lower side, given limited resources available in the hands of central and state governments.In international as well, the GCC economy remains weak as a consequence of anticipated decline in oil-based revenue and other disruptions, impacting the financial outlay for expenditure on infrastructure. Voltas currently has a carryforward order book of INR 7,663 crores which includes INR 4,755 crores for domestic projects and INR 2,908 crores for international, significantly providing sufficient forward visibility.Segment C, Engineering Products and Services. Segment revenue and results for the quarter were at INR 48 crores and INR 20 crores respectively. Fresh capital investment owing to weak demand, both at home and in the export market, has continued to decelerate during this quarter, affecting the results for Textile Machinery vertical. However, the earlier focus on accelerating after sales revenue comprising parts and services together with efforts to partner new post-spinning principles has helped balance the revenue shortfall in spinning machinery.Mining support activities for Vale in Mozambique has been expanded even further with the addition of more equipment under annual maintenance contracts. The operation thus far has remained secure from COVID and contributes significantly to the segment results. Mining India business remains rather slow. At the same time, Crushing & Screening Equipment and parts sales has de-grown owing to delayed infrastructure projects and limited running of mining sites. Allow me to now make a couple of comments about Voltas Beko. Long months of extended lockdown and seemingly endless household chores has spurred the demand for high convenience and comfort-based home appliances. While certain categories like washing machines, dishwashers and microwaves are finding increased traction across households, the sale of Direct Cool Refrigerators have also substantially increased. The aesthetics and quality of our products has been greatly appreciated by our channel partners and customers alike, with extra marks given for higher value for money proposition and India habit-centric design and functionality.In parallel, a strong and cost-effective digital marketing communication has been launched, resulting in even more traction with our target audience. Post unlock 1.0, the new factory at Sanand has continued to accelerate its production. To accommodate the swelling demand for DC Refrigerators from the trade.Despite being a relatively new introduction to the market, it is indeed satisfying to note that we are able to leverage the strength of Voltas through distribution and sell without extending credit. Voltas Beko currently has 6,000 touch points, which will be progressively increased as we build sufficient output capacity at Sanand to service these outlets.Earlier anticipated JV synergies, in-sourcing, supply chain, after sale service and distribution network is working to plan and will be strengthened further. On a combined synergistic basis, we now have around 130 EBOs selling a range of Voltas and Voltas set of products, not to mention, a superbly large and well-trained force of In-Shop Demonstrators, or ISDs.To sum up, and in essence, although the performance of Q1 has been impacted by COVID, we take satisfaction in that we appear to have done relatively better than the competition in our consumer-facing business. The improved market share in ACs, together with deeper market acceptance and better traction of Voltas Beko products, is certainly encouraging. The project businesses are unfortunately more susceptible to lockdown constraints, and will take a couple of quarters to bounce back. Although Q2 is a lean period for cooling products, it will be interesting to see the gradual development and release of pent-up demand as we move into the festival season.Amidst dealing with various issues presented by COVID, a digital transformation and improvement of various processes and systems are underway. We are equally determined to proactively manage corporate expenditure in an austere manner to better face the challenges of the environment. Sharper focus on working capital management and conservation of cash will additionally ensure the ongoing strength of our balance sheet.I'll pause here, and we'll take your questions now.
[Operator Instructions] The first question is from the line of Rahul Gajare from Haitong Securities.
The first quarter has obviously been a difficult quarter, and it is actually heartening to see we've improved our market share along with the margins in the UCP business, actually when the industry has seen a sharp decline in the revolver.Now my first question is, you did touch upon that, but I wanted to understand more upon this. Besides the product mix, and I'm assuming a lower advertising spend, what would be the other reasons which have created the margin jump to 15.5% in the UCP business? Also along with this, if you can comment on the inventory in the system. That will be my first question.
Okay. Yes. Thank you firstly for that compliment. I think we have tried to do as best as we can under these trying circumstances, and we'll always continue to do that. As far as the margin improvement, I did comment about a 240 basis point improvement as compared to the previous years. And that has been, as you rightly said, a result of a better product mix, and somewhere else in my opening, I had mentioned that the sale of inverter ACs has considerably picked up. So that's one answer to the product mix solution.The second part of it, again, very rightly, advertising costs have been saved. The fact this would have been normally quite a heavy advertising season. But in the absence of the stores being open as lockdown conditions have bust, we've decided to strategically, as most of the other industry players had to, discontinue advertisement and go heavily on the digital media. So this has, of course, paid good dividends.The third part of it is also that we have been able to get some synergistic benefits from the -- from material costs, et cetera. And if you remember that we always plan a few quarters ahead for the next season. And in a manner of speaking, we had a certain amount of inventory in-house before all the duty elements, et cetera, started going up. So it's a mix of all of these things that has contributed to what I would think is a fairly good margin for our industry.
Right, and regarding the inventory in the system?
So inventory in the system, actually, we've got something like about INR 1,100 crores or so of inventory, which you would also see in the capital employed statement which is the -- which includes the entire UPBG material, yes?And the -- it is -- we preferred something like about 140 days of inventory in our system. In addition, there is something like about 40 or 45 days of inventory with that rate. So that's the situation that we find ourselves in. And I think that this is fairly representative of most of the industry peers.
Okay. Sir, my second question is, you all were planning to set up a manufacturing setup at Tirupati to cater to the demand in the South and the Western regions. But the same has been deferred since last year. Now given the cost of local manufacturing by the government, what is your road map to increase the in-sourcing of the ACs? And connected with the same thing, given that GMCC's compressor plant is expected to go live some time by end of this year, what would be your arrangement with them, if any?
Thanks, Rahul. Again, a very interesting question. I think as far as the manufacturing unit in southern part of India is concerned, we are very, very keen to do that and we will do it. However, what we have also done is that we have introduced a certain amount of balancing equipment in our current factories at the Pantnagar and have been able to bridge the requirement of production quite satisfactorily. If you really look at the import components of our ACs, the major import is the compressors and maybe another 5%, 6% comes from PCB controllers and display sensors, motors and all those kind of things. And that's where we have also been hit by the duties which is now, for compressors, something like 12.5% than for the PCB and other parts, which is almost 10%.Our -- given that Highly and GMC (sic) [ GMCC ] have started compressor manufacturing in India, one of the things that we are doing is that we're also creating longer-term supply chain equations with them. So that we can secure our backward supply chain. And it doesn't make sense for us currently now to backward integrate into any of these products, such as compressors or specifically, PCB controllers. There are other people who can do it much more efficiently and better than us.So in a gist, we are very much interested, and we will set up our Sanand factory. The fact that we have got into this COVID and a lot of other things that are coming our way is -- has created a little bit of a setback in that. But nevertheless, we will be back online by the first quarter of next year.
The next question is from the line of Prashant Kutty from Sundaram Mutual Fund.
Sir, firstly, if you could just give us some sense in terms of -- I understand the season is largely over. But you said that June, we saw a very sharp increase in the market share, the gap between the second leader. In terms of primary demand, how would be -- how much would we have reached back to, let's say, pre-COVID level as far as June was concerned and progressively in May and July as well?
So the first thing that I would remind you is that June is a very, very -- not a very strong month as far as AC is concerned, yes? But if you take in isolation, just the month of June, actually, we have done 1% ahead of volumes of the comparable quarter in the previous year, yes?But we -- for the total quarter, we just had only 45 days of sales really to reckon with. So there is a certain amount of pent-up demand, and in certain parts of the country, as I mentioned, there's been a heat wave, and we've been able to move and our distributors are also very keen to buy. And even as we speak, I think, the market is moving, but not moving at the kind of speed that you would have possibly seen in the earlier quarter and the summer season has anyway missed out.
Okay. So -- okay, but, sir, you said -- but -- while I understand that it's not the season for July, it's probably not the season, unlike you said for June. But again, would -- July would have been, again -- the trends would have been similar to June? Would that be a fair assumption?
No. July is even more weaker month because the rains have come and things have cooled, and in Bombay now, I mean, who would really worry about buying an AC.
I'm asking purely from a Y-o-Y perspective. So I understand it's a weak quarter, I just...
I bet -- I think there's two things. Firstly, I cannot give you a forward-looking comment on what the next quarter is probably looking like. I can only say that we are posting along and that this quarter is a weak quarter.
Sure. Good. Sir, second question is on the margin side, while you said that we did get the benefit of product mix and also advertising costs helping as a result. So prior to COVID, you used to always speak about 11%, 12% being easily the benchmark for margins as far as Unitary Cooling segment is concerned. Does this post-COVID period make it any better going forward, given that there are a lot of measures of cost savings, which have probably fallen into place as well? So does that trajectory change for us?
No. No. The margin, as Rahul had mentioned earlier, we have got the advantage of also cutting the advertising expenditure in the first quarter. So on one hand, while the volumes have gone down, we have also had unstable savings on other things that build into the net margin. And therefore, when you see that the advertising has moved out, that itself has given me a certain strength. So there are 2 or 3 cases we're cautious for the improvement of the margin which I spoke about, yes?I think that if your question is really that, will I be able to sustain at around 15%-plus, my forward guidance has always been and continues to be in the 11% to 12% kind of a range because I do not know what competition will throw at me and what I will need to protect my market shares.So as of now, I mean, we go quarter-to-quarter. This quarter has been great in terms of despite low volume, we've picked up our margins. Next quarter, the volumes will also be low and you can expect that the margins will also not be so very great in terms of speaking. And moving on to the quarter 4, you'll see that the margins start picking up because the volumes also start picking up. And therefore, there is a capability to absorb more of the fixed costs by the costs of the sheer volume of products that we sell.
[Operator Instructions] The next question is from the line of Bhavin Vithlani from SBI Mutual Funds.
Compliments from our side on the increase in market share despite difficult times. A quick question is on Voltas Beko, if you could highlight what's the total investments by the JV company or the total capital employed by the JV company?Second is on the target total reach, where have -- where are we now at present? And do you have a target in terms of what could be the -- in the current year and the next year?And last on this is, any expectations of market share that if you could guide, what could be the market share that we could see over the next 2, 3 years from Beko? And these are my questions.
Okay. Yes, first, question -- firstly, thanks for the compliment on the market share. As far as our total investment in Voltas Beko is concerned, you will recall that it's a 50/50 JV, yes? Partly done from us and partly from Arçelik. We have invested a total of something like about INR 373 crores. And the current capacity is about 1 million DC refrigerators that we had just inaugurated the factory in January this year. And the current capacity is about 1 million units, yes?As you can see, we don't consolidate the turnover. And a line-to-line consolidation does not happen as far as Voltas Beko is concerned. But one indicator that you can definitely see and appreciate is in the P&L, where we have the share of profits of joint ventures and associates which has come down from INR 31 crores last year to about INR 12 crores this year. So that probably gives you an indication of the direction in which we are going. Our sales and the -- is working well. In fact, the integration synergies that we had planned with the Voltas distribution system is going along in a great manner.In the Voltas system, we have about 19,000 touch points. But as far as Voltas Beko is concerned, we are now at around approximately around 6,000. The truth is that, at this point of time, we have certain supply constraints. And that supply constraints still the factory really picks up in terms of volume. And as the volumes increase, we will increase our distribution and reach to every different corner of the country.The last part of the question was, how are we targeting? What do we really look at? What we had commented and, I hold to that commitment, is that by the year 2025, we'll have a 10% market share in the product categories that Voltas Beko indulgences in, one. Number two is that we have also said that we would breakeven by then. And my own feeling is that perhaps we might be a year or so earlier in terms of breakeven.
The next question is from the line of Nitin Arora from Axis Mutual Fund.
Just before I move ahead with the question, you said on the Voltas Beko that we might be ahead in breakeven in terms of our long-term target. This INR 11 crore loss is also a function of lower ad spend? I mean, I'm sorry, I'm asking too much on a quarterly basis, but being too much volatile, I'm saying a INR 9 crore loss quarter-on-quarter reduction is also a functional ad spend or you think this is something which will further improve only from here?
No. It depends on quarter-to-quarter, you see, and what is the mix of the products. But what I am saying is, largely, the trend is as we had expected and as we had planned, yes?So what I would affirm is that we don't see that the product acceptance is great. In fact, I also mentioned in my opening comments that I don't think there are very many new companies which can come and really boast about selling into the trade without extending credit. We have not extended credit. It has gone down the same channel that we use for Voltas.And in fact, there are suppliers who have been -- there are distributors who are willing to give advance with -- to pick up the products. But we don't have enough. We are only able to manufacture something like about 1,300 to 1,500 units of refrigerators per day. And this is getting increased as we go along. Despite COVID and all of that, I think we're doing a fairly good job. So as per sales increase, I think the -- again, the power of the absolute gross margin will take care of the other fixed expenses.
My second question is on the MEP segment, company -- in a lot of cycles, you highlighted initially third, fourth cycle you received. The reason could be different this time. Just want to get a sense that both at the domestic and as well as the Middle East, do you see any client really going back this time, which can impact us?I understand you're already providing the expected credit loss, which is not a cash loss eventually, but just want your commentary both on the domestic market and overseas?
Yes. Thanks, Nitin. Nitin, the thing is that as far as the Middle East is concerned, and you are an experienced investor who covers these markets, you know that there is not sufficient amount of transparency into the financial dealing or the financial standing of many clients. We only know certain links, what is internally happening is something that no one really knows. But what we do is that we look at the past history, we look at how the payments have been, what is their relationship, where are they linked up with royalty, all of these kind of things that we do before we actually engage with our clients in terms of taking on contracts.So I can't -- all that I have to say is that seeing the risk that in these markets, we have consciously taken our leg off the accelerator in terms of picking up orders, left, right and center. We've all -- we have never done that, and we will not do that.So as we go forward, we will look for very risk-mitigated orders where we have a confidence that the client will pay and the fact that they will not delay the progress of projects. At this point of time, with the tourist traffic drying down and I've already mentioned about Expo being postponed, many other projects are getting postponed in terms of completion, and that's only to be expected because why would they want to complete the project when they don't see the footfalls really going up in the country.Now as coming to whether do I see some people going bust or whatever, as I had mentioned and you'll recall from some of the earlier conferences that I've held, we do have one problem of Carillion. Actually, when Carillion went bust some time back in U.K., we had significant exposure, both in UAE and slightly lower exposure in Oman.As far as UAE is concerned, we were able to come out of this completely because the partner in UAE was very strong, and he took over all of Carillion liabilities and we have got out there without burning up engines.In Oman, we have a project called Kempinski, where there is still a certain amount of doubt. The local partner says he'll pay, he'll pay, he'll pay. But the point is that unless we are able to get that payment in a certain time-defined frame, I will need to be taking provisions in our books. And that is also some of the things that have happened in this quarter.So apart from that, I really can't gauge what the situation is, but the markets are weak. People are being much more careful about where they're spending their money. And that is bound to continue for some time.
The next question is from the line of Ankur Sharma from HDFC Life Insurance.
A couple of questions, sir. One, just continuing with what Nitin was asking. So on the project side, at least on the domestic, this was even before COVID, we were seeing a slowdown at least on the top line for the last couple of quarters. And I remember you mentioned some of the RE projects weren't exactly up to the need, et cetera. And of course, you also had a slightly lower opening order book last year in FY '20.So just trying to understand, so you did talk a lot of details on the overseas side. How are you seeing things pan out on the domestic? And that's close to 65%, 70% of order book. So if you could just maybe talk on that?
The -- in the domestic business, I think this particular quarter has seen a particular amount of weakness. And as you know, here for almost about 45 days of the quarter, we were not able to actually do any significant work. At the same time, we were incurring idle costs and on keeping people, security issues, all of that.Once we opened up also the receipt of materials, et cetera, could not be as smooth as on a non-COVID situation. And even today, we have bought only something like about 70% of our original labor force back. And our work being now in MEP and slightly more complicated, shall I say, skin variety, we cannot just manage with any and every one. We have to have skilled labor. So that's affected that.And in terms of orders, you will see that the carryforward order book of something like about INR 4,000-odd crores is a fairly good order book, and it comprises of, in fact, INR 4,755 crores, it comprises of MEP of about INR 2,150 crores; electrical of about INR 730 crores; solar, where we have started taking new orders of about INR 150 crores; and water of INR 1,700 crores. And in all of these we have at least at the bidding stage ensured that there is sufficient margin and there is sufficient contingency built into it.Now with the appearance of COVID and the question mark on how long will it really last to get to proper normalcy, there are certain amount of trust, doubts there. However, we will manage as best as possible. And I think I can only comment on this on a quarter-to-quarter basis. But other things being equal, if COVID was not there and we're able to do our job well, I think the quality of the INR 4,755 crores that we have on our order book is fairly good and secure.
Okay. And as a follow-up, sir, would you be able to share out of this INR 4,800-odd crores of domestic, how much would be say commercial or residential reality of the total? I don't know if you can share that kind of detail, but...
No. In fact what I'd suggest, Ankur, is that maybe you can be get in touch with Manish or Vaibhav later and then just check out on what it is. But largely, if you're thinking in terms of commercial and real estate and stuff like that, we don't deal with them very actively mainly because of the fact that we are never sure about the realization of money. So our contracts are more in terms of the strategic content. What we have always decided is that we will go for government contracts where the payments might be delayed, but they will come nevertheless, yes?so if you look at our water projects or the electrical projects, they're mostly with the government and also have a secondary funding leg either from JICA or World Bank, et cetera. And many of these lending agencies also put in monitoring agencies to ensure that the money is spent and vendors are paid appropriately.As far as MEP is concerned, the INR 2,150 crores that I spoke about, this is split up into metros, various other kind of things. But if you look at Mumbai, for example, there has been sporadic lockdowns. We are not exactly able to progress on these projects, yes?
Right. And sir, if I may, just a last question to reaffirm. I think the numbers you spoke about on the Room Air Con side, I think, you said a 49% de-growth for the industry and a 45% for yourself. Is that right for Q1?
Yes. This is secondary sales. This is a third-party well-known agency that you can also buy and access the reports if you like.
The next question is from the line of Sandeep Tulsiyan from JM Financial.
Sir, firstly, I would like to harp on the margin aspect in UCP segment. You did mention that 2 factors other than, of course, the production fees, you had some inventory, which was procured at a lower import duty rates? And also, I think, typically, a bunch of ad spends are in 1Q versus other quarters. So could you quantify some of that proportional spend, say INR 70 crores, INR 75 crores annually on ad, what percentage would typically get bunched up in 1Q that was...
I would only say a significant part of it. Yes, because typically, it will be in the order of around INR 50-odd crores of advertising spend that you would see in various theme and scheme spends than in the first quarter because that's the large quarter, yes?
Okay, INR 50 crores out of INR 75 crores, you're saying this...
Yes. Roughly, I'm just giving you a ballpark. It depends upon whether or not dealers sell during that period, what opportunities we had, whether we can. So you can't keep -- it's only on a comparable basis that we could look at it.
Understood, understood, that helps. Secondly, sir, also in your own opinion, I mean, foreseeing a commendable gain in market share, but one were to look at it in the perspective of various regions, of course, Voltas commands more than 40% market share in North, which did not see as much disruption as the other areas, and of course, the market share will be sub-20% in the other regions.So would you save the gain market share in North also or is it purely a function of the regional mix, which probably would revert back in coming -- how would you look at this entire phenomena? Would you really comment that you have gained market share successfully across regions?
Yes. But see, there is -- see, if you really look at the overall market share, I did mention that we are 1,400 basis points ahead of our nearest competitor, okay? And if you want to have that kind of a lead, I mean, there is no such way that you can be #4 or #5 in one region and just a part of not get to be the market leader with this kind of a gap. It cannot happen, yes?So let me just assure you that, yes, you're absolutely right. In terms of North, North is our large market, and there we are extremely strong and have been strong for several years. And -- but there are big markets also, for example, South is about 20%; west, in this quarter, has been particularly low at around something like about 16%, 17%; and East is something like about 12%.I mean, this would be the kind of range that you're talking about. And the -- yes, we are very strong in North and, I think, there is hope to improve across the regions. And as the year goes through, I think that you would see that with the Voltas Beko products also coming in and greater synergies coming out from the various distributor outlets, et cetera, et cetera, I am reasonably confident that we will be able to protect our market shares and also grow it reasonably.
The next question is from the line of Charanjit Singh from DSP Mutual Fund.
Sir, first, congratulations on managing this quarter very well in a very tough environment. Sir, on the market share front, if you can just help us understand in terms of how the competition actually fared? And in terms of the market share shift, will it be among the top 5 players where the market share would have changed significantly or they were facing significant supply side issues or there were some quality liked issues with any of the larger players? Can you give color on that aspect?
Okay. No, the first thing that I would say is that this market share that we have reported in this quarter or YTD of 26.2% is not really a flash in the pan, yes? Even in the end of last year, if you recall, we were at 24-point something which is as in this period, in the first quarter, we have been, shall I say, a little more agile, a little more thoughtful about how we actually got into the market and did our sales. So that's what it is.So it's not -- and the trend has been here, ever since we gained market share leadership in the year 2012 or 2013, and Manish can correct me if I'm wrong, we have been continuously maintaining that market share lead. And not only that, we have been distancing ourselves further and further from the nearest competitor.Secondly, what happened is that, if we look at the overall market shares, the 2 big players, and I don't want to get into names are at the 10% plus. The rest of them are -- a lot of them are in and out at 10% lower, that kind of scenario. So 2 players are up there and the rest are down there. And it's the same thing that's happening also on the inverter ACs that we are seeing now, where we have achieved a 22.9%, overtaking the competitor who went in first with this product and the mix.
Sir, on the Voltas Beko front now, our Sanand plant is operational, but still the ramp-up on the direct cool lines is not that significant. So from this festive season perspective, how we are positioned from a supply chain for different products from export perspective for frost free and for direct cool refrigerators and washing machines, sir?
Charanjit, what has happened is, I think, one way of looking at it is definitely saying that, yes, we have not been able to ramp our production as much as possible. The other part of this is that we were -- the moment the lockdown was lifted or eased, we were back into the factory, yes?And then we realized that there was -- a half of our trained people were not there. So what did we do? We recruited new people, trained them up and then started production, and then we are picking up the pace.So internally speaking, I really look at it and say that, here is the good job that's being done, despite all the constraints that we are facing in this part of the world with COVID, yes?So right now, we are doing -- we have stepped up the production to about 1,300. It's going into 1,500 pieces/units. And I think this will continue to increase, and we will still be -- we will be able to do what we want. And the good thing about the factory, someone asked a question about the whole investment there, good thing about the factory is that we've already had the layout of the sheds and other things. And we'll be able to quickly expand our production once the manpower is adequately trained.Coming to washing machines, et cetera, the way that we are meeting the demand is by going into third-party manufacturers. And we do that with our own quality people present on their manufacturing lines. And in due course, we will also take up the front-load washing machine manufacturer in the Sanand factory.But at the moment, those front-loads are being imported from Malaysia and the Arçelik factories in Malaysia and Indonesia, et cetera. And as far as the twin-tubs and the single-tub washing machines, et cetera, are concerned, we are locally manufacturing it to our specifications and our design.
The next question is from the line of Tejas Sheth from Nippon India.
Sir, on the sourcing cost side, I mean, you have been benefiting from the China so far. How will you see the sourcing cost over next 2, 3 years with the tariff increase and with our new plant coming up in Southern India?
Yes. Good question. Actually, the way that Voltas has approached its strategy was in terms of one short-term strategy and tactical strategy, where we have been able to take in the advantage of cheaper sourcing when it was available from China. Now as you have rightly pointed out that things might be under a little bit of a question mark as we go into the future. Why do I say that? For example, even compressors which are now at 12.5% now will be gradually stepped up to an import duty of something like 20%.In fact, some of the organizations like CMI, et cetera, have given the government, a phased plan to increase the phasing of the DCD to up to year 5 to 20%. Similarly, a fully imported room air conditioner will go up from 20% to 30%. So you're absolutely right. We cannot take this benefit for granted. And the government is also doing this with a very specific intent to promote Make for India.And we are, as a Tata Group company, we are completely in sync with this direction that the government is giving. And that's the logic and the key rationale for looking at our sovereign taxes.The second part of it is that till some years ago, maybe 1 year or 1.5 years ago, we did not really had critical mass to be able to engage in large-scale manufacturer. So when you have large volumes of production, you would know better than anyone else that the price per unit tends to come down significantly. And that is one way of actually tackling the increase of cost that we see.As a brand, if there are increases in the cost of manufacture, I think we would pass it on to the consumer and not actually put our margin into a great amount of distress. But having said that, we would also make sure that the negotiations that we have for inward supply chains, the sourcing would be of the highest order because we are -- we would be a volume purchaser of these items.So it's a thing that we have to manage. And so far, I think one of the things that you have seen across all the years, I mentioned right, from 2012 onwards, is that we have never sacrificed market share and got margins or sacrificed margins and got market share. It has always been a sensible way of looking at the whole thing in terms of a balanced approach to be able to give the appropriate stakeholder returns over a period of time.
Okay. Sir, second, on the Beko side, what would be your touch points as on today? And how do you see that ramping up over the next 2, 3 years? Because I believe you're still at sub-5000, while the...
My colleague, Manish, is on the line. I didn't get an opportunity to pass on any questions to him. Maybe he would like to take this, Manish?
Sure, sir. Thank you. So a few key touch points as -- based upon what has been expanded touch point based upon last year second half, as we all know, we have introduced a direct cool which is contributing almost 80% of the all refrigerated products in the last quarter.So it will take some time in terms of doing rapid expansion of the distribution points. That said, we have almost touched to a 6,000 points now. If I look from the universal, yes, it looks very small. How would we ramp up production at our factory for Direct Cool Refrigerator, okay, to expand the expansion points -- expansion looking very smooth now. And you can see a substantial jump in the probably 2 or 3 quarters next when we expand our reach of product to the individual partners.
We'll take the next question from the line of Amish Shah from Bank of America.
Yes, congratulations on the results despite the touch quarter. My question is on -- my question is, again, on Made for India that you spoke about. So the way I look at this is when you made your Tirupati factory plan, clearly the duties and components were not increasing. The view on increasing was not as front-loaded as it is today. So is it fair to say that there is no change in the CapEx plan for the Tirupati factory and most of the in-sourcing will be done through vendors within India. And in case, if there's a cost increase, you can pass it on to the customers as you pointed out in the previous question.
No. This is -- it is -- the business itself, Amit, (sic) [ Amish ] is like everyday morning, you're getting and boarding to a new weekend. So things change, yes?What we do is that we had a certain plan in terms of how much of investment to be done. And now that there is a greater impetus on doing so, we will increase whatever is required. We will not shy back from investment. Why? Because we've got cash on our balance sheet, and you know that we are not financially leveraged. So that's not an issue. But at the same time, we are not in the habit of extraordinary expenditure on either gained capital -- or overhead or whatever it is. So we'll be careful and measure in the way that we do it.In a manner of speaking, the Voltas Beko factory, for example, is very extensively automated. And it has the best of technology in terms of manufacturing. So similarly, when we look at the AC plant as we go into it, that will also have the requisite capital expenditure, the requisite amount of technology and automation as is required to ensure that we not only have a quality product at the end of the day but we are also able to reduce the overall production cost.Scientifically, from time to time, of course, if you see a window of opportunity somewhere, that we can import from our partners here or there, which -- at a great cost and still be able to have a profitable transaction, why not? I mean that does not happen.But our long-term strategy is very clear. We are going to be putting up additional lines of manufacture. And that's the only way that we can sustain going forward. And the critical mass volumes are adequate at this particular point of time to be able to confidently do that as well.
Mr. George, that's very well appreciated. From a next couple of years' perspective, the only question is that it looks inevitable that imports from China will come down. But the local procurement, will it be more -- maybe you cannot get into the competent-specific detail, but if you can give us some percentage that how much percentage of an AC can be manufactured in India? And how much percentage can be locally sourced from your vendors in India versus what is it today? That will also be very useful.
Yes. At this point of time, as I mentioned, the compressors and the PCB controllers and the display sensors and part of the motors are the ones that are really coming in from other -- from outside because fundamentally, there are not -- no sufficiently large players in the Indian market. But with the start of production by GMCC and Highly and there are some other people also considering this now, I think there is a scope for increasing it. So roughly, as for the moment, maybe about 40% of the AC cost is imported in some way or other, whether it is procured locally or whether it is through some other vendor, that's the kind of import component that is there.And I think once the compressor moves out, it gives you an advantage of almost 35% really coming in. But here is the dilemma for us. You know that as a quality product, we are proud to say that we give you a 5-year warranty -- comprehensive warranty on the entire machine that we sell, and we also give you a 10-year or a lifetime warranty on the compressor.So to ensure that these promises withheld and this is held up to be consumer, we also need to make sure that we have quality suppliers, and we are working with some of these parties to ensure that this will be so.
Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to Mr. Amber Singhania for closing comments.
Can I just make one comment, Amber?
Yes. Sure, sure, Anil. Go ahead.
Yes. I realized that time has been short. And there are well over 150 participants in the lineup. So if there are any questions, please feel free to pick up the phone with either Manish or Vaibhav or send us an email. My assurance is that whatever questions that you have will be all answered to your satisfaction. Thank you all for joining us very much.
Thank you, sir. On behalf of Asian Market Securities, I thank everyone for joining this call, and special thanks to the management of Voltas Limited for providing us this opportunity to host this call.Now I'd like to hand the call back to the management for their closing remarks, if any. Over to you, sir.
Manish, any comments?
No comments. In fact, what you said just now, sir, our number of participants have gone up since we've last spoken. So definitely, I'm sure everyone will have some of the other questions to pick it up. We are there to support them and to give them answers, absolutely. Till such time, they can really pick it up and speak to anyone of us. Anyone of us will answer them.
Thank you. Can we sign off?
Yes, sir. Thank you.
Thank you.
Thank you. Ladies and gentlemen, on behalf of Asian Markets Securities, that concludes this conference. Thank you all for joining us. And you may now disconnect your lines.