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 '22 Earnings Conference Call, hosted by HDFC Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Naveen Trivedi from HDFC Securities Limited. Thank you, and over to you, sir.
Yes. Good afternoon, everyone. On behalf of HDFC Securities, I would like to welcome the management of Voltas Limited to discuss the post 1Q F '22 results. We have with us today the senior management of Voltas, represented by Mr. Jitender Verma, EVP and CFO; Mr. Manish Desai, Corporate Finance; Mr. Vaibhav Vora, Manager, Corporate Finance. I would now hand over the call to the management for their comments. Thank you, and over to you, sir.
Hi. Good afternoon, everyone. I hope I'm audible for everyone. So on behalf of Voltas, we like to present to you the analysis of results for quarter ended 30 June, 2021, which is the quarter 1 for financial year '22. As we were ending the quarter 4 2021, on the lower base of the previous year, economics and corporates alike projected for robust growth given the visibility of multiple green shoots in forthcoming quarters. However, exactly at the same time, the pandemic re-erupted like a tsunami wave in several countries across the globe. Pace of vaccinations assisted in controlling the casualty, the anticipated growth in recoveries does not seem to be a surety even in geographies where infections seem to be under control. To add fuel to the pandemic growth, the commodity prices have seen unabated increase quarter-on-quarter, which is causing inflation inching towards pre-pandemic level. In addition, the container freight rates have been -- have seen a sharp escalation amid the global trade disruptions widening supply-demand gap owning to pandemic. Considering the above facts, the global economy is projected to grow at the rate of 6% in 2021, and an estimated 4.9% in 2022. However, prospects for emerging markets and developing economies have been downgraded for 2021, especially for Asia amid the severity of second wave impacting the economic recovery. Back home in India, impact of second COVID wave was more severe and resulted in loss of life and slowed down the economic activities at unprecedented level. Consequences of the same have been witnessed in the fall of PMI and rising of inflation given the supply chain disruption and cost increases. Unlike the nationwide lockdown imposed by the center in previous year, continuation of business activity this year was governed by the states given the spread of the virus. These regional lockdowns had mixed impact to demand and supply of consumer durables. Optimism was evident across the equity markets in contrast to real economy, and Sensex touched new highs supported by significant FII inflows and a growing number of retail participants. In this overall context, we, at Voltas, continued our growth journey and reported a 39% growth revenue from operations at INR 1,767 crores as compared to previous quarter. The profit before tax saw even a higher growth over 56% from INR 108 crores to INR 168 crores in current quarter. Nonannualized EPS for a face value per share of INR 1 for the quarter was consequently higher at INR 3.68, ahead of the previous year at INR 2.45.A snapshot of our results: this quarter show Segment A, Unitary Cooling quarter 1 at INR 963 crores. Segment B, Engineering Projects at INR 688 crores. Segment C, Engineering Products at INR 115 crores for a total income from operations of INR 1,767 crores. The profit before tax of Segment A, Unitary Cooling, INR 118 crores. Segment B, Engineering Projects, INR 31 crores. Segment C, Engineering Products, at INR 38 crores, unallocated of INR 18 crores, contributing to profit before tax of INR 168 crores. In our Segment A Unitary Cooling products, limited operational hours and days imposed as part of regional lockdowns by various states and local authorities throughout the quarter took a stroll on the consumer durables industry as a whole, especially for cooling products market during the period that has traditionally been the peak season for sales. Quick and nimble to respond aided by strong 22,000 touch points across the country. Team Voltas grabbed the opportunity and managed to grow even in such unprecedented times. Meanwhile, patchy summers in South and East regions continued to be a challenge, but robust sales in North and Central regions helped balance the performance. Focus on the inverter subcategory with competitive pricing and larger number of SKUs yielded a favorable outcome. Inverter sales growth was 18%, well ahead of the previous year. Overall, in the AC segment, Voltas continues to retain undisputed leadership with an exit June market share of 26.7% at multi-brand outlets. Continued leverage with trade and distribution, contribution from exports, healthier model mix from B2B accounts helped a stellar growth in the commercial refrigeration vertical in quarter 1. Launch of new SKUs, increased number of touch points and acceptance of products resulted in higher growth in the current quarter despite availability of limited time window of sales for air cooler category. Effective 1st April, 2021, the group has reorganized the reporting of commercial air conditioning and customer care business from Segment B, Electro-Mechanical Projects and Services to Segment A under Unitary Cooling Products for Comfort and Commercial Use to align with the business objectives.Commercial air conditioning business includes sales of VRF systems, chillers, ducted units, vapor absorption machines, et cetera, and customer care and retrofit business. Performance from this vertical also improved during the quarter. With this restatement, all product sales will henceforth be reported under Segment A, Unitary Cooling Products for Comfort and Commercial Use. Better product mix coupled with planned procurement of inventories helped to partially mitigate the increased cost of commodity prices and higher logistics costs. We have continued with various cost austerity measures, however, certain customer-centric sales promotional expenses were incurred during the quarter, leading to higher selling and distribution expenses. As a result, turnover grew about 19% in current quarter, and the segment EBIT was INR 118 crores as compared to INR 114 crores in the previous year. For Segment B, which is Electro-Mechanical Projects and Services, construction activities were allowed in the current quarter, unlike national lockdown in previous year. This provided relatively easier access to the project sites, resulting in higher progress in execution of projects in both domestic and international markets, leading to a 67% growth in segment revenue for the quarter to INR 688 crores as compared to the previous corresponding quarter of INR 412 crores. Progress of the projects and a centrally driven focus on the collection helped to restrict ECL provisions, resulting in improvement in segment profit of INR 31 crores as compared to loss of INR 44 crores in previous year. That said, weakened sentiment of delay in announcement of CapEx plans by potential clients across the operational geographies, coupled with diligent choice of orders, has actually translated into subdued but high-quality order booking during the quarter. Nevertheless, total carryforward order book at INR 6,149 crores as at 30th June, 2021, provides an adequate level of forward revenue visibility. The carryforward order book for domestic projects at INR 3,702 crores contained a mix of orders across water, H-VAC, rural electrification, solar and urban infra activity. The international order book of INR 2,447 crores represented MEP work, mainly in UAE and Qatar. Segment C, that is Engineering Products and Services. Segment revenue and results for the quarter were at INR 115 crores and INR 38 crores, depicting growth of 142% and 93%, respectively. Both Mozambique and India operations have contributed to this performance backed by renewal of the contracts as well as strong order book for crushing and screening achievements. Aftersales support and renewed demand for capital machinery, both in spinning and post-spinning has contributed significantly to the bottom line for this vertical. Announcement of much-awaited PLI scheme will further boost the sentiment for capital machinery industries. However, supply chain disruption may pose some interim challenges. Voltas Beko. Production at our Sanand factory surpassed milestone of 5 lakh units since its opening and cumulative sales since inception crossed 1 million units. Voltbek products continue to be accepted well in the market, and we are happy to witness significant demand pull from the trade. We are also happy to inform that Voltbek's market share in the highly competitive segment of refrigerators and washing machines has improved to 3.1% and 2.7% year-to-date, respectively. In terms of distribution, billing points have been scaled up to exceed 1,200 in numbers. Accelerated opening of exclusive brands shops and experience zones, along with cost-effective digital marketing, should have in increasing reach and augmenting brand visibility. Distribution and other synergies with Voltas continue to be aggressively leveraged to achieve the overall objective of breakeven and the targeted market share. Outlook. Although quarter 2 is a lean period for cooling products, the start of festival period may witness a spurt in demand. It will be, however, interesting to see the impact of myriad of factors such as anticipated third COVID wave, pace of vaccination and opening up of economy at large. We continue with our sharper focus on working capital management and conservation of cash while remaining cautiously optimistic. Thank you for my presentation. We can take up the question and answers once the host is ready with that.
[Operator Instructions] The first question is from the line of Ravi Swaminathan from Spark Capital.
My first question is with respect to the reorganization of the reporting of Commercial Air Conditioning segment. So what kind of revenue which got reported from the Electro-Mechanical Projects segment to the UCP segment and what kind of profitability was there for that revenue?
Ravi, this is -- yes. Yes. Ravi, can you hear me?
Yes. Yes, sir. I'm able to hear you.
Yes. Ravi, this is Manish over here. In terms of the CSE, we would not like to give the specific numbers. But in terms of the overall contribution, it is marginal. If I look from the profitability perspective, it is slightly lower than what we have in UPBG. But since our focus is there to improve on our CAC side, gradually, we may see that the -- on an EBIT margin perspective as well, we have seen a good amount of improvement.
Okay. And my second question is with respect to the -- you had mentioned about some customer-centric spend, which we had done. So if you can tell what is that? And once again, if you can quantify that, it will be great.
Ravi, this is Jitender. In terms of the customer-centric sales promotion activities, first, I'd like to mention to you that last year when the national lockdown happened, that happened all across. And no activities, nothing was allowed to be done. So therefore, the expenses at that time did not happen or occur. However, in this quarter, the lockdown was sporadic, regional. And I think we all remember that the IPL itself had also started in the beginning for some days. So keeping in mind that certain expenses related to advertising, related to product promotion, we had already started those activities and those expenses were spent. And therefore, when you compare from previous quarter to this quarter, there is a additional spend in this quarter. And as a policy, we -- I cannot disclose the number of that spend because we do not provide numbers for how much we have spent on advertisements and stuff like that. I hope I've answered.
Got it, sir. And my final question is with respect to price increases. Have we done -- are we done with the price increases to compensate for the input cost increase? Or is there some more on cards?
As far as the price increases are concerned, I would say this is an ongoing dynamic process. The commodity cost increases, which have happened in the past, have actually necessitated an increase in our prices across products. We also have to watch the competition, though we continue to maintain our leadership position, so I wouldn't say that there is a kind of a full stop on anything. I mean it's a dynamic market. We have to wait and watch at all given times. And we will take the approach, which is most judicious for the optimum profitability and also keeping in mind the steps taken by the competition and the acceptance by the customers.
What kind of price increase you would have taken in AC, sir, past 6 months? Any rough percent?
If I want to talk about the price increase, there is what Mr. Verma rightly said, there is a time lag impact between the cost and the price hike. The judicious call being taken looking to demographics and the dynamics of the market, including the competition. General price increase, what we have taken in the current year if I look into the current calendar year, you range anywhere between 8% to 10%. So that's where it stands. The -- some of the hike will be across the market and some of the price hike will be specific to their skills and specific to the graph in the markets where we feel that we can expect or we can pass on the increase cost today.
[Operator Instructions] The next question is from the line of Nitin Arora from Axis Mutual Fund.
I'm sorry, I'm just harping back on the same reorganization of the commercial revenue -- commercial AC revenue in the UCP segment. Sir, when you have given your numbers restating Q4 and Q1, there is a difference of restated numbers and the numbers which were earlier given, it's about closer to INR 218 crores for Q4 and INR 104 crores on the revenue in the Q1 last year, [ '21 ]. And similarly, on the EBIT level, there is a difference of INR 36 crores and INR 4.5 crores on the EBIT side. So I understand you said it's minimal, but it will be really great if you can throw some light, what's the kind of size of revenues this business is for us? And what was the rationale of this move? That will be really helpful because it's still on a quarterly basis, looking a heavy number. So that will be really helpful, sir.
Nitin, if I look from the -- see, let me talk about the business first. We have clearly specified the kind of products we are selling under the commercial air conditioner, which includes the VRF ductable and the other stuff. In terms of the overall revenue, I can say that if I were to merge both the businesses, the CSC business will contribute anywhere between 10% to 15% on the overall turnover side. And if I look from the EBIT result perspective, a contribution will not be so high because we make the process of strengthening the business to a larger extent, both in terms of the revenue as well as on the result of revenue percentage. Having said that, if I look, the rationale behind it is, as you all know, that we have executed the business transfer agreement to transfer the domestic project business to the universal over there. Originally, the project business and the CSC business is working closely on that. Now the CSC business itself is going into expansion to ductable and all, which clearly classify under the cooling product segment. So that was the precise reason why we have decided that we should reorganize or re-reporting the numbers to a cooling product because if I look from the customer profile or the review or the kind of mechanism in which we are looking at both the businesses, are almost identical, and we are trying to leverage the sourcing as well as the distribution strength for the CSC business as well.
And just lastly, on the UCP side, just your take on given that we have further increased our market share, just your take on the inventory positioning of the market, our inventory and how you're looking the secondary sales moving forward? Just the take on that will be really helpful.
If I look from our inventory perspective, it is almost comparable to what we have seen in the quarter 1 last year because both quarters have actually impacted because of the pandemic. Absolute value-wise, it will be a difference of hardly anything if I compare -- if I were to compare with the last quarter actual numbers. So I look from the channel partner perspective, there's a scene change over there. In the last quarter, what we have seen is that nobody has witnessed pandemic to such a great extent. So when trade was not prepared to have a balancing their act. However, in the second wave, they have actually, I can say, balanced their working capital management and investor and largely the offtake from them on a need basis, how the secondary is taking place. So in a way, if I look from the channel partner perspective, they are very well prepared and managed to have inventory in their shop floors, based upon the requirement or based on the underlying demand. From the company perspective, yes, the manufacturers and we were expecting some kind of growth over Q1 last year. And to that extent, some higher value of inventory being kept with us by the manufacturer. But anyway, this all inventories, what we have in the form of raw material, which should help us going forward if we are seeing the same rebound of demand, what we have seen in the last quarter, so the last year for the rest of the period.
The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance.
Two questions from my side. One, if you could help us understand this impact of the rating change, I believe, which happened end of this year. So what could be the kind of price increase that you would have to again take force with rating changes? And more importantly, would you expect a prebuy, which typically happens in the December quarter?
If I look from the rating change perspective, the -- if you recollect, the ratings have been changed from the current year, which is January 2021, but because of the pandemic situation, the manufacturers have represented to the ministry and requested for some more time. Now in this year also, the industry faced with the COVID 2 wave and similar request been made to the ministry to defer this increased rating increase or rating change from January 2022 to a different or to a longer period. We are hopeful of listening to our request by the minister because pandemic situation is being widely known to all. And you cannot have a rating change when the manufacturers with all industry players are carrying with them some kind of inventories, which will undergo a change due to this rating exercise -- rating division being exercised by them. So we are hopeful that it will be done and the progress is good, I can say on that front. If at all it is getting changed, if you have to go up on a change basis, the cost increase will be somewhere around, I can say, 1% or 2% at the most on the product cost, knowing that the demand for 4 and 5 star actually picking up nowadays knowing the kind of advantage what they get it in terms of largely very good categories.
Okay, perfect. And my second question, sir, would be on the room AC industry volumes for FY '22. A, as the market leader, how do you see that kind of shaping up? And, B, do you believe we could maybe match FY '20 levels of volumes given the way we are? And so just trying to get a sense how are things being forced the opening up and therefore, how do you see the entire year shaping up in terms of volumes? Obviously, value-wise, it will be better because of the price hikes, but just trying to understand from a volume perspective, that's all.
If I give you a perception of the idea about the volumes, the industry, as you all know, has degrown in the March '21 and the degrowth is close to 30%. If I look the fallback on this current quarter and if I more go with the 2 months comparative because April was worse off last year. And this year, we have seen the May was falling some kind of shot over there. So industry growth is not there to a great extent. However, we are attributing those factors to our pandemic situations, whereby the second COVID wave was more severe in terms of losing of lives and losing of jobs and other stuff in this wave. So this is a temporary phase we are seeing there because the economy once grows and bounce back and looking into the per capita income grant, which we all are, I think the minimal population with us and the kind of penetration we have, Ankur, is a good opportunity, a big opportunity for this category to grow. However, we expect that the -- what we have perceived at the start of the year '21 financial year on a growth or going back to the '19, '20 level, looks like '21, '22 to achieve that level will be a difficult task. However, to see some kind of growth over 2021 is possible because we have seen we are entering now into festive seasons, things are settling up. The havoc rate of the third COVID wave, which other countries will start witnessing into it. But if I look into the overall resolution program and the kind of care that the government is pursuing on that matter, we should not see high fatalities on a COVID 3 wave and things should go normalize as we move forward. And Ankur, one more thing. In fact, somebody asked about the rating change price increase -- cost increase. It was not 1% or 2%, it will be somewhere around 3% to 4% of the product cost. I understand and corrected in the...
The next question is from the line of Renjith Sivaram from ICICI Securities.
Hello. Am I audible?
Yes, Renjith, very much.
Yes. Congrats on good performance and even the pandemic scenario, good to see growth. So in this whole context like when I look at your other expenditure, there has been an increase even in a sequential basis, INR 214 crores. So what has led to this increase in other expenditures?
Renjith, you know very well, we are in the seasonality of the business. And the -- if I look from the one category, which is UPBG, which is the larger, I can say, driven by the seasonal in nature, you find that the expenditure, like what Mr. Verma explained in terms of the sales brand promotion expenses, we have the consumer subvention scheme. And the aggressive brand rollout scheme, which we carried out on the shop with the channel partners has resulted into some kind of increase over and above. Since my volume is also growing, the variable costs related to it will also have seen some kind of increase over there. So these are the things contributing to us on a sequential basis, the higher R&D expenditure.
Okay. If I rephrase it, it is largely towards this branding and some kind of a discount kind of incentives which you have to pay, that has contributed...
I'll put largely a sales and market expenses, something related to my consumer-centric driven what I can say bout consumer subvention expenses because we have seen a good amount of volume coming under the consumer subvention scheme in the current quarter compared to the last quarter of the previous year. And third thing is since my volume is growing, some of the expenses, which are directly related to my volume will also see a spot over there. And furthermore, one more aspect of inventory or a logistic cost, which we all see on a hike of your continuous increase of the oil, which has also contributed to a certain extent.
Okay. And do we expect this to stabilize going forward? Or is it kind of -- will it be there for a couple of quarters?
Renjith, it's a seasonality in nature. So definitely, quarter 2 generally for cooling products is the lean period, however, since we are entering into festive season, some of the expenditure in our sales and marketing will certainly be there. We may come out with some kind of aggressive scene from the consumer perspective because we are reasonably sure that if you give ample opportunities to the consumers to let them walk with a shop flow, it will certainly drive the secondary at the channel partners' end. So some of the expenses will certainly be there. However, we need to wait and watch, I won't be able to quantify any amount. But obviously, it will be slightly moderated over the seasonality period -- over the season period.
Okay. And secondly, on this engineering product, we are hearing a very good uptick in textiles and the cycle has turned around. So do you foresee this growth, the momentum to continue? And like will that be -- because we are also there in the not only in the spin, even in the leasing segment. So will it be a very really great time for us? Or is it like on the ground still things are taking time?
Renjith, we see that there has been an effort from the government also to help push in this sector of textile machinery. And therefore, there is a PLI scheme also helping the textile machinery users. We can expect that this impetus to the road will continue in quarters to come. Of course, it is a competitive market, where the supply of machinery is from various suppliers and also that how the positioning of our textile producers vis-a-vis other countries takes place. So I would say that on a positive note, yes, we expect this sector to grow. But at the same time, many other things have to fall in place. We'll have to see the policies of the government, how they go ahead on that. Yes.
The next question is from the line of Charanjit Singh from DSP Mutual Fund.
Sir, my question is, one, on the room AC segment. You have talked about that we had built up the inventory. And a lot of companies are talking about maybe the pent-up demand may not come up in this timeframes like we saw last year. So what kind of inventory level liquidation, how much time it might take? That's my first question. And secondly, on the market share front, if you can highlight the changes among the larger players, how the market share could have moved in the room AC space? If there is no any there major loss of market share by any particular other larger players? And if we have gained, you would have gained from which players usually? Yes. That's my first question.
Okay. If I want to give the time period to require or liquidate the inventory, I say, Charanjit, that the larger inventory what we have, and I'm sure with all the manufacturers, are in the form of raw materials. So we are -- I can so won't settle with this kind of inventory. Second thing is it may turn out to be a blessing in disguise because you know very well the commodity prices are inching up quarter-on-quarter. So some many times your old inventory may give you some kind of helping in, when you like to leverage on your sourcing costs and try to moderate the price hike to the end consumer. I won't say that we will utilize this opportunity to moderate the price hike. But the question that is that if I have a raw material, I can convert we believe to the fixed -- the complete unit by seeing the demand how it is shaping up. Demand may not come up what you rightly said, but general feeling in the market is if the third COVID wave is going to hit, it may impact the overall demand. However we need to be optimistic and seeing a fast trend what we've seen, the underlying situation has not undergone a major change. People are working from home. Summer is harsh. We have seen how the temperature was running North during the -- or entire country in the May and June period and it was window available for us to see. Second summer is also expected to be going to be harsh, country goes to second summer by October between September -- from the August, September till November end. So these are the, I can say, a possible opportunities are there for us to push or to agree with the demand from the consumer perspective. If I want to give you a time frame, it is difficult to give time frame for it, but the kind of inventory we have. And if I do a sale, exactly what I've done we were in the last year has been in 0 growth. We are not expecting this inventory even last even beyond October or at least November for that matter. However, if we are seeing the growth, certainly definitely liquidation will be much faster than what we are talking about currently. If I look from the market share perspective, yes, the major gain I can say, we have done it from the LG. Among the other players, we have not seen any much changes in the ranking of the competition. However to a certain extent, we have seen that Daikin and Hitachi and Lloyd also increased their market share a bit. However, Samsung has received, I can say, a slowdown on this trajectory of the gearing market share. But the point of loss is not so high. It was ranging between 100, 200 basis points over there.
Okay. Just one more question from my side on the project business. So this time, we saw that the projects overall were not impacted significantly because manpowers were there over the site level in the other contractors. So for your project business, if you can highlight how do you see the trajectory going forward in terms of execution on both domestic as well as in the international side?
Since the second wave, pandemic COVID 2 wave, the construction activity being allowed to operate, but we did face it. It is wrong to say that we didn't face any challenge although the activity was allowed as a normal activity because we have seen some kind of migration of the labor force and because of that, productivity got impacted. But still, in an overall summary, it is better than what we have seen in the quarter 1 last year. As you all know, the quarter 2 and quarter 3 onwards, we started getting normalized as far as the workforce and the productivity and access to the project side is concerned. This year, we have to work upon on a quarter-to-quarter on execution of the project what we have in our hand. We are expecting that it should work in a normal way, unless until COVID 3 turns out to be much harsher than what we have seen so far in the COVID 2 and COVID 1 wave. Leaving aside those factors, we are not seeing any kind of challenges as far as support to execution is concerned. The -- we are geared up in terms of attaining those deadlines, which are there on the project specific, both for domestic and international. We may see some kind of subdued as far as order inflow is concerned, because the governments are now busy in handling this pandemic. So fewer -- lesser number of projects are getting announced, but we are also following a very cautious approach towards it in order to assure that whatever has picked up will turn out to be a healthy and profitable one on a sustainable basis.
The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.
The first question is on the inventory. Previous year, you mentioned that the inventory levels were about INR 1,000-odd crores. If you could help us with the number this year, it will be useful? The second one is on the A&P spend for the year as a whole on a sustainable basis. What is the level as a percentage of sales that is more sustainable and that we should be expecting?
Bhavin, if I want to -- see, to give numbers, I would not like to please to anyone of them because number has no meaning on the inventory side. If you are seeing the good quarters growth in the coming year, which is rest of the period for the third year quarter-to-quarter. I think I have given answer on my earlier question, that I can -- if we are seeing 0 growth, even then the liquidity can -- the inventory can be liquidity, by October, November, if you are seeing the growth, the liquidation is much faster. So probably we would like to stick to that rather the absolute numbers that we see delays over there. And if I give you a second answer the question -- answer the second on the A&P side. Generally, if you see in the past, in a good, healthy, profitable year, our brand promotion expenses are in the range of 3% to 3.5% of the revenue. Probably, it is very premature to say how much it will be there for '21, '22 because a larger part of the spend, which we do out of that 4% or 3.5% what I told you, it is in the first quarter. The first quarter is already over now. We are looking into quarter 2 and quarter 3, which is also driven by the festive season. But our spend anywhere traditional is lower and not so great during this quarter 2, quarter 3. Fortunately, we have the IPL getting resumed in the September, October month as the schedule has been allotted to us. That coincides with a good amount of festival like Diwali, Dussehra and all, we may see some kind of spend. But overall, I won't see that spend touching to a 3%, 3.5% to 4% of the overall turnover. We have to see how the things shaping up, but it will certainly remain low until we can see the volume is coming up in quarter 4.
Okay. Sure. And the last part is on the profitability front, we have been beating our longer-term guidance on the Unitary Cooling. Would you like to increase our longer-term sustainable guidance on the margins given the changes that we have seen on the policy front and the taxation front?
See, probably, Bhavin, what we look into, what could be a sustainable margin for this category. And we believe that in this -- in addition to the market share what we have with relationship with market share, we have a substantial leadership over the margin trajectory as well when I compare with our competition as such. And what we keep on saying that we love to increase our margin, but it should not become a counterproductive or, I can say, a counterintuitive in order to sustain or in order to further expand our business. Definitely, if we are earning more margin, we would like to put back into a brand visibility, R&D and coming out the innovative products. Or I can say giving ammunition to the consumers to spread or to make aware or to fulfill or I can say penetrate more into this category. And that's why we said we like to maintain our trajectory between 11% to 12%. And we always believe that doing something more than what we said turns out to be better or wants out to be better, rather be highly optimistic and then if it is not sustainable, it will not yield the desired result.
The next question is from the line of Sheena Barbosa from TRP.
I think my question largely answered, but I just wanted to understand the impact on the margins. I guess you're saying most of the impact was on the higher sales and promotions rather than commodity costs. It looks like you have passed through a large amount of the commodity cost impact through higher pricing?
Sheena, it would be wrong to say that the commodity price increase will largely passed on to the consumers. Mr. Jitender Verma has clarified that there is a time lag effect and it's a dynamic situation because we have to get and watch the competition as well. One advantage I can see about the carrying the old inventory with us, when I say old, because you are seeing the commodity price increase happening quarter-on-quarter. So something which I procured even in December and something which I'm going to place new order in March, definitely, if my December inventory is getting on this quarter, I'll be more at advantageous position compared to any other brand who is now sourcing in February and selling in the same quarter or the next quarter. So in that sense, we have some advantage with us on a commodity cost price. However, yes, we have an impact on the margin, but in a limited way on account of the commodity price and largely attributable towards the marketing and the other expenses spend, which we explained to the -- as answer to the other questions. However, going forward, if we are not seeing any, I can say, a stock gap or a soft kind of on a commodity price, every subsequent purchase will come on a higher price. And that will be true for all the competitors, all the players in the industry and will not be unique to Voltas. And we can see that some kind of -- some kind of higher impact can be felt in the overall margin attributed towards the commodity price hike.
But in general, from here as volumes increase, you should see some uptick in leverage as well that could help your margins, right?
Sheena, how much you can operate in terms of the scale? If copper price and aluminum price are increasing 15% to 18% quarter-on-quarter, I'm not talking about year-on-year. We stopped tracking year-on-year now because there is no meaning over there. So we track now on a quarter-quarter, and the days are not far of value to check month on month because we'll start procuring for the next season then what we require material into it. So if you look from a 15% increase quarter-on-quarter, how much leverage you're going to achieve on a volume or a scale basis is it has to pass out. There is no, I can say, a second thought among all the industry players in terms of what kind of price hike we need to give. It's all up to time and who is taking lead in this aspect. And certainly, Voltas has been leader in this category. I'm not saying that we'll do it at the cost of our market share or the cost of the margin. But there are certain things to follow, which is required to be followed. And as a leader in the industry, probably, we may be the first one to announce the second price hike or a subsequent price hike in the following quarters.
[Operator Instructions] Next question is from the line of Gopal Nawandhar from SBI Life Insurance.
And my question is that, what would have been the growth...
Mr. Nawandhar, sorry to interrupt you, we can't hear your audio, sir. Please increase your volume.
Sir, what would have been the volume growth in the Q1 for the industry and for Voltas?
If I look from the industry perspective, Gopal, impact, the third agency also now collecting the data based upon the call compared to what kind of fridge survey they used to carry out earlier. In fact, the current quarter is not comparable with the last quarter because you had the April completely washed out and data was not available in the last quarter. And if I look from the rest of the period compared to the current quarter, the growth is muted, even the industry has not seen a growth of more than 1% or 2%. But we are reusing this data because we have to put April bill in the last year and some kind of volume attributable to April in the current year. So we are awaiting those clarity on the data. But otherwise, if I look to like-for-like comparisons between May and June, because that's what the comparable period, the growth is absolutely muted, it's even less than, I can say, 1.5% or 3%.
Okay. And if I just ask you the -- the growth in the North and South?
In fact, Gopal, we are difficult in getting the data on an all-India basis. So region-wise, it is creating more kind of difficulty from the channel or a third-party agency perspective. However, we are seeing, if I would to see -- if I would to map my sales or the Voltas sales to region-wise, we will see that the North actually has done better, much better, I can say, compared to the last year and followed by, I can say, Central, West, East and South.
Okay. Sure, sir. And the second question is on the -- you see, there are a lot of inventories in the system with the other players also. Are you seeing any aggressive liquidation in the month of July or in the coming months, which are leading us also putting lower prices and all?
Sorry, I didn't get your question, Gopal. What you're saying?
My question is that are you seeing any aggressive liquidation of inventory by the competition?
See, we have seen such kind of aggression in the last quarter as well, which passed by quarter 1. Because those who are carrying a higher amount of inventory, certainly, we'll try to liquidate aggressively the market. But this, we are -- in the industry used to this kind of price disruptions because we know in the long term, it is difficult to follow. You may find some kind of price disruption by 1 or 2 brands but largely probably the industry flows have been aligned in order to, I can say, taking steps towards how to regulate the market in a better way.
Sure, sir. And the last question is on this -- regarding this rating changes and all and this current commodity inflation. All these putting together like it amount to around 15% to 18% increase in the price of an AC. In such an inflationary environment, how do you see the customers' reactions on the demand?
See, what will happen is you will see if there is a need of that product, inflationary will not play, I can say, very critical -- or I can say deterrent for that matter. We have seen in the automobile. We have seen none of the industries, which have not witnessed the price hike in the last 1 year on any of the account, maybe commodity, maybe inflation, maybe a general price increase were planned and still carry out. But still, we are seeing some of the recovery or maybe some of the -- better recovery took place on those industry players. Because what is driving is the need of the product. And the need of the product for air conditioner is a comfort and convenient during the summer time. And when your larger population is working till today from home to a great extent. So we are hopeful that if the need is there, the industry can align to ensure that the consumers will not be at receiving end as far as the escalation is concerned. When I say like this, the objective is to give some kind of promotional scheme along with the product, be it extended warranty, or Beko on a aggressive consumer subvention scheme, whereby I say boss, if my INR 30,000 product now become INR 33,000 because it is price high, I'm giving you instead 6 months to pay, I am giving you 9 months to pay now without any additional cost to you. So then those kind of consumer subvention also plays a larger role as one of the promotional tool to the consumers in order to mitigate their upfront outlook. So there are various ways chief in which we can still work around. However, if I -- if we have to look from the demand perspective, we are reasonably sure that the demand is going to be there for this category considering the penetration level and the comfort and convenience what people are looking for.
The next question is from the line of Siddhartha Bera from Nomura.
Sir, my question is on the Voltas Beko part of the business. We have seen sequentially we have been doing well on the market share side. So would it be possible to share some more color on the -- probably the revenue trends on how they have moved quarter-on-quarter because losses have gone up? So is it purely because of operating leverage or the particular reason, so just some thoughts on that?
Okay, Siddhartha. So see, and we keep on saying that for Voltbek, the market growth and all the factors are not that kind of relevant because we are very still a niche player as far as the category penetration or category outlook is concerned. So for us, the revenue growth is much, much higher than the industry growth, what we have seen or degrowth. Probably, industry would have degrown in the last same -- similar to the AC, the growth would have been muted. We are yet to get the data on that front. But as far as Voltbek is concerned, there is no looking back on the volume side, the volume is good. Similar to the spend on the advertisements and promotions what we've carried out for the Voltas, we have to do much at a higher level for Voltbek as well because Voltbek is a missing category where we require a more kind of brand awareness. So some of the expenses towards sales and marketing has resulted into a slightly higher losses and some kind of discounts also what we have given our offering on our product resulted into a, I can say, higher losses what we observe in the accounts. But otherwise, revenue-wise, it's -- we won't be able to quantify right now because what we said is, let me achieve the 10% target and then we talk about the official numbers to spell out. But that's what we have to say, Siddhartha, on this.
Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Naveen Trivedi for closing comments.
Yes. Thank you, everyone, for participating in this call. We would like to thank the management of Voltas Limited for giving us this opportunity. Sir, do you have any closing comments?
Well, Naveen. And thank you, everyone. Thanks, Manish, for taking all the answers. From our side, Voltas, we would like to thank everyone. And on the projections for quarter 2, we are looking forward to this season, which is normally a lean period. However, there is a small brief second summer, and we expect that to be playing on the positive side. And as a market leader, we are looking at things positively. Thanks once again, everyone, for your time. Thank you.
Thank you. Ladies and gentlemen, on behalf of HDFC Securities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thanks. Thanks to all.
Bye-bye.