Ladies and gentlemen, good day and welcome to Havells India Limited, Q1 FY2025 earnings conference call, hosted by JM Financial. As a reminder, all participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing the star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Deepak Agarwal. Thank you, and over to you, Mr. Deepak.
Thanks, good afternoon, all. On behalf of JM Financial Institutional Securities, I welcome you all to Havells India Q1 FY2025 analyst conference call. Today, we have with us management represented by Mr. Anil Rai Gupta, Chairman and Managing Director, Mr. Rajesh Kumar Gupta, Whole-Time Director and Group CEO, Mr. Ameet Kumar Gupta , Whole-Time Director, and Mr. Rajiv Goel, Joint Director. I would like to thank management for giving us the opportunity to host this call, and now I'd like to hand over the floor to management, who will switch and open the floor for Q&A. Thank you. Over to you, sir.
Thank you, Deepak. Thank you. Good evening, and thank you everyone for attending the call today. Hope you would have reviewed the results by now. Q1 posted good growth as cooling products capitalized on a favorable summer. Categories like air conditioners, fans, and air coolers performed well as we leveraged our manufacturing capacity, brand strength, and omnichannel presence to tap into the market opportunity. As we witnessed many first-time buyers of air conditioner, we feel that this may trigger an inflection point for the under-penetrated AC industry. Industrial and infrastructure continue to perform well, albeit some impact due to elections. Cables registered double-digit growth, but wires revenue was impacted by channel destocking, with sharp commodity price declined in June 2024.
As cost efficiency initiatives yielding results in form of improved profitability of Lloyd's, we continue to strengthen our market position with investment into brand building, differentiated offerings, and talent pool. We can now move to Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Natasha Jain, from Nirmal Bang Equities. Please go ahead.
Yeah. Hi, thank you for the opportunity. First question is on the ECD segment. Now, I see a top line growth of.
Sorry to interrupt, ma'am. Could you please speak a bit louder? Your voice is coming very low.
Yeah. So my segment, while I see that there is a revenue growth of 20% and flat, now channel been a restock, premium fans have moved. So that means there has been an ASP expansion on that front. So can you just call out what really led to a flattish margin growth here? Was it mainly ad spend, or is there a significant ASP compression in other segments or other product categories in the ECD? Also, you could call out the growth for fans, particularly.
Sorry, your voice broke in between. Can you just repeat quickly the gist of the question?
Yeah, so my question is on the ECD. In ECD, while the growth has been 20%, the margin expansion has been pretty much flat. Now, on the ground level, we understand that fans is a product. Within that, premium fans have done well. So that would ideally mean expansion on that front. So I just want to understand, why are we at flattish margins? Is it mainly because of higher ad spend, or is there a significant degrowth in some other category?
So actually, if you look at the contribution margin, the contribution margin have improved, both due to, you know, premiumization as well as, the cost-saving initiatives over the last one or two years. You know, quarter on quarter, there could be differentiated segment results because of the, sometimes the ad spends are higher, sometimes, lower. So I think we need, we should track the contribution margin stability or expansion there.
So my next question is on switches and switchgear. Now, we've seen domination by local or unlisted players like Goldmedal, or probably your exact competitors would be Norisys, Schneider or Legrand. Now, all of these brands are. Most of these brands are giving credit period days as high as 100- 150 days, with product SKUs, probably 2x of, minimum 2x of what Havells has. So, and therefore, a strong push, you know, by dealers and distributors on the ground. While our revenue contribution is approximately 10%, margin contribution is still close to one-third. So, going forward, do you feel that this increased competitive intensity can further, you know, compress our margins in this segment?
Well, I think, you know, the increased competitive intensity or similar competitive intensity has been there for quite some time. And, when you say, you know, local players, I don't know how you calculate, how you are taking, national players, like even Goldmedal or Norisys or Schneider and Legrand as regional players. They're not regional players, they are national players. And, I believe that they are also premium, price players. Despite all that, I think over a period of time, over a longer period of time, we have, ranged in our switchgear margins in a very, you know, close-bound, range between 38%-41%. So that, that's been there. Quarter on quarter, it can vary, but otherwise, generally, we have been range-bound, and I think we'll continue to strive to be there.
Understood, sir. Thank you. I'll get back in the queue.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Venkatesh Balasubramanian from Axis Capital. Please go ahead.
Yeah, thank you for the opportunity. Mr. Gupta, I just had questions all on the Lloyd's part of the business. Now, what we are observing is for two quarters now, you have delivered, you know, you have broken even. I think fourth quarter, you did almost 2.8% margins. In this quarter, you did around 3.5% margins. Now, what exactly has contributed for this whole business going from a loss to a profit? Is it just that now you've hit a scale where you can consistently deliver positive EBIT margin, or there has been some price action you have taken? Or is it because there are cost savings, you're manufacturing in-house? If you could throw a little more light on what has caused these numbers to go up to a profitability part.
The second part of the question is, this 3.5%, is this a reasonable number which we can assume for the full year of the current year? That is it possible for Lloyd to deliver 3.5%-4% kind of EBIT margins for the full year in the current year? And where do you think this number can go, according to you, if everything goes according to plan over the next couple of years? This is all related to the Lloyd business.
My God! You've put 10 questions in one question. So look, you know, I don't want to keep repeating myself again and again over various conference calls. Lloyd is a gem, right? And again, you know, I frankly don't even look at 2.8%, 3.5% for the whole year. We're making huge investments in Lloyd for quite some time, and we will continue to do so. Even if you see our brand building efforts spending close to more than 4, 4.5% in Lloyd, this clearly indicates, you know, a long-term investment, because we see a huge growth opportunity in Lloyd. It's a very large industry, and our market shares are small in many categories, so hence we see a huge growth opportunity there.
Now, having said that, you know, whatever things that you mentioned, it's not pricing action, but it is premiumization over a long period of time. Ability for trade to accept a certain price level and the consumer to give a certain price level to a brand, that's again, a long-term thing. Bringing efficiencies in manufacturing and cost efficiencies, that's also a major contributor towards sustained profitability over the continuing period. Having said that, you have also said about the third and s orry, fourth quarter and the first quarter. This is the period when, primarily, 65%-70% of the sales happen for air conditioners. So we do get operating leverage also during this two quarters.
Second and third quarter, because we are still overweight on air conditioner, second and third quarter will always remain challenging. But over the year, Lloyd is now on a much stronger wicket than it was earlier. I would not give any number associated, as you are probably asking me on this call, but I would say that there will be improved price realization and reduced costs over a longer period of time, as well as growth will be the major you know driver for Lloyd for us. And also we'll continue to make investments in brand building, R&D, and manufacturing.
Thank you very much. All the very best.
Thank you.
Thank you. The next question is from the line of Bhumika Nair from DAM Capital. Please go ahead.
Yeah, good evening, sir. So just wanted to get a color on the demand perspective. If you look at ECD, shown a 20% growth for the quarter, you know, how is the i f you can give some more color in terms of volume growth, particularly for, say, fans, and also some of the other segments within the space and the kitchen appliances as well, which we are kind of looking at. So if you the first question is around that, please.
I think, over the last couple of years, we've seen some tepid growth in the consumer segment. And, in this particular quarter, you know, one, the summer definitely helped. Secondly, a low base over last year also contributed to a higher growth. Whether we are seeing a sustained improvement in consumer demand, I would still say I hope it continues, but, you know, we are not very sure whether this is just a one-off, and it is looking better, but I would not say, again, say it is very different than what we have seen in the first, last one or two years.
But, having said that, you know, the actions that we are taking, whether it's for fan outreach in smaller towns and villages, as well as our kitchen appliances gaining better traction in the minds of the consumer. So those things will continue to help us in increasing the sales in the ECD segment. So we are hopeful for our growth. Obviously, our tailwind from the consumer side will also help us get in faster growth.
Sir, any color on how fans would have done in this particular quarter?
Fans has done very well in this quarter.
Okay. Secondly, sir, on the cables and wires segment, clearly, the raw material volatility has impacted revenues. But as we move ahead into July, I understand it's a very short time frame, have you seen kind of any pickup or bounce back in terms of inventory filling back by the dealers?
Yeah. So, you know, June was a particular month where suddenly there was a huge destocking because, you know, we had seen stocking in the March, April, May period. So June, more heavy destocking happened because of the raw material fluctuation. We are seeing July to be coming back to normal levels.
Sure. Well, sir, I'll come back in the questions. Thank you very much, and all the best.
Thank you. The next question is from the line of Siddhartha from Nomura. Please go ahead.
Yes, sir. Thanks for the opportunity. Sir, first question, again, continuing on the cable and wire side, I mean, we had a new capacity coming up in the quarter. Any update on that? Is it completely on stream? And, going ahead also, we plan to add more capacity by the end of next year. If you can share some insight into which segments in the cable are you expanding? Some color there will be helpful.
We're just awaiting the final approvals for our, you know, final sales to start happening from the new capacity. So it should start within this quarter. So that first phase of expansion is over, but we are continuing to add capacity both for exports and for domestic segment, and for a larger range of underground cables. For domestic wires, we have capacity, and that's a continuous process we've been building for. But for power cables, we are expanding capacity in various segments, including for export. So yes, you are right. For the next 1.5 years, we'll see more capacity expansion in cable and wire.
Got it. Sir, second question is on the export side. I mean, we have done multiple JVs in the U.S. also for selling ACs and lights. Can you share some medium-term outlook? Like, exports is nearly 3% of our revenues now over the next couple of years. Given these initiatives, any numbers that you can share, you want to sort of get from the export markets? If you can share some color, it will be helpful.
So I think these, the U.S. JV is, you see, we have just sort of instituted them, so I think, they will pick up the pace in time to come. So our endeavor is definitely to tap the global opportunity, and that's what, we are doing, either directly from here, also creating sort of these, marketing, ventures there. So I think let's give it some time. I think it will be difficult to give, any outlook right now. But clearly, I think we should continuously improve over a period of time. I think, we want to maybe, I think over a period of time, we maybe want 10% of our business should come from international. But that's the aspiration. I think we are not holding out any medium targets for that. But the opportunity is definitely there, and I think it's something which can be leveraged by us.
Got it, sir. Thanks a lot, sir, and come back in the queue.
Thank you. The next question is from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah, thanks for the opportunity. So two questions. Now, considering the commodity inflation we have seen, some instances of price hikes by various durable companies. So how do we see Havells in terms of price hikes? Have we initiated any price hike in Q1? And now, what is the current stance on the price hikes? That is question number one. And question two, now we can see Crabtree brand is getting rebranded as Havells Crabtree. So, should we read similar things happening with Standard, Reo, as well as Lloyd also? And, is there any plan to make Havells as a mother brand, and in terms of reducing overall spends in terms of ads, etc. ? So how should we read on these lines? These are the two questions. Yeah. Thank you.
So, as far as the price increases are concerned, most of that has been done in many product categories, including consumer durables, in the first quarter. So as long as this raw materials remain at this level, we've taken all the pricing actions as of now. As far as the branding is concerned, you know, Havells Switches used to operate in two different brands, in Crabtree and Havells, other than Reo and Standard. But what we realized was that there was overlapping of customer segments and the influencers in Havells and Crabtree, and even in the channels, and hence we decided to merge these two brands.
So all switching solutions from the Havells brand, are now termed as Havells Crabtree, and Crabtree, because of the legacy, brand of the switches, so we'll continue with that brand for all switching solutions from Havells. But Crabtree, whether it is Standard, Reo and Lloyd, they will continue to remain as independent brands even in the foreseeable future, because we see a clear differentiation of the consumer segments in all these three brands. So we don't see, Havells to act as a mother brand for the, the other three brands.
Okay, sure, sir. Very helpful. Understood. Just in terms of quantum of the price hike, if you can, elaborate a bit, and anything which is different.
Very different for different product categories, so it's. You know, many times it happens over months.
Correct.
So it is different for different product categories.
Cool. Sure, sir. Okay, thank you.
Thank you. The next question is from the line of Rahul Agarwal from Ikigai Asset Management. Please go ahead.
Yeah, hi, good evening. Thank you so much for the opportunity. Sir, two questions. Firstly, could you talk a bit on the non-AC portfolio of Lloyd's please? Largely, you know, my sense is it's 25% of overall Lloyd business. Incremental growth and, you know, capacity has been coming up in your investments, and how do you see the Indian market for that? And secondly, on the international side, just a small question there. Whatever we are doing right now, the efforts are all focused on the U.S. market specifically, or is it like U.S., Europe, across? That's the first question.
The first question was on the non-AC.
Yeah.
So non-AC categories, you see, in this quarter, obviously, the AC is dominating. It is almost 85%, 87%. And, as you always maintained, and I think, we mentioned earlier in the call also that this is, say, Lloyd is a journey. So I think the journey will cover the other product categories as well. So obviously, as you'd expect, the refrigerator being a summer product, there has been good growth in that for our business, even though it's something, still, sort of, as an emerging category in our portfolio. But I think on the overall, non-AC category, we have also done well. I think that growth has been also pretty good. And I think the investment will continue to grow behind that.
We have maintained that the refrigerators and the washing machine will be the key focus for us in the non-AC categories. So that's your first. The second one on the international, look, U.S. is a market we are approaching differently. That's why I think you see a lot of this visibility around U.S. But, yes, our focus is large, will be the SAARC, the MESA, and the developed nations. Where I think we believe the opportunity is, is there in both U.S., Australia and Europe. Europe, at times, you see, have been, have not been that open, you see, as the U.S. has been. So that is the only difference. But we are not, we are not sort of riding one over the other. It's just the sheer size and the openness of the market.
Got it, sir. And secondly, you know, I noticed inventory, you know, at 63 days of sales. If I look at last five years, I think there is significant and meaningful improvement in this cycle. Could you comment a bit on this? Like, is it sustainable here? You know, there are meaningful steps being taken, consciously reducing this inventory, or is this, like, very ideal right now?
Look, everybody, we want to improve that, but you have to balance the growth and the inventory. Also, a lot of this has been overly increased because of Lloyd. As a business, this got added, and it has a lot of seasonality, sort of, ratio in this. Seasonality always demands you to be prepared. For instance, you know, this time there was a stockpile in the industry for AC. Nobody could have prepared this kind of a scenario. But it does bring the importance of having some inventory. You can't really get too efficient in these things as well. Particularly market like India, very pretty unpredictable in terms of the demand planning. But you see, having our own manufacturing facilities and all, sort of, make us believe that there's something which can still be improved upon.
I would say, yes, there is a scope for improvement in the same. I think we should see some better sort of ratios in that going forward.
Got it. So Rajiv, lastly, on CapEx, you could clarify fiscal 2025, what is the budget and where are you going to spend the numbers, please? Thank you.
I think we have already announced it, last time it was around INR 800 crore, so I think we continue to maintain that.
But wouldn't that change because you announced the cable CapEx after that, right?
Yeah. You see, there is always this, what is announced and then how much it will be spent, because there is spillovers in that. Further, there is a spillover from what we announced last year as well, basically. So I would say on a cash basis, it could be INR 800 or it could be INR 900. Depends upon how we ultimately end up sort of spending on the same.
Got it. Thank you so much for answering. I'll come back in with you. Thank you. All the best.
Mm-hmm.
Thank you. The next question is from the line of Deepak Gupta from SBI Pension Funds. Please go ahead.
Hi, good afternoon, sir. Thank you for taking my question. My first question is on the switchgear segment. You know, we've seen a sharp decline in the contribution margins for the switchgear segment in the last, post-COVID, and it's consistently been declining. Just want to know your thoughts around it, and, do you think, at what levels could these contribution margins stabilize?
Yeah. Yeah. So Deepak, on the, on the contribution margin for switchgear, I think, as we said, I think post-COVID may not be the right way if you see long term, switches and switchgear together, we have been in the range of between sort of 40-41 to around 37-38. So I think sometime in the quarter, these things, these things will happen. And look, the way we are investing in the business, there will always be, you see, some, some dilution in that, which is possible. But we believe that the long-term range which one should assume for this business is between 38 to sort of 41. And I think that's something we believe is something we'll continue to maintain.
So right now, just to understand, right now the margins are 24.6% contribution margins for the quarter. You think that can potentially go back to 30%?
That is not contribution, because that is a segment result. That is more like a, more something I think close to an EBIT basically.
Okay. But so what kind of EBIT margins can one look from segment one, if it could?
I would say these are decent margins, and just looking at the nature of the industry investments we made, like somebody said, Havells Crabtree as a brand. I think we also need to invest behind the brand. So overall, I think again, this has been between 24-28, 30. So I think there's some ratio returning band we expect to maintain.
Understand. And my second question is on the advertisement expenses. How should we look at it? Like, I understand the quarters where Lloyd contributes meaningfully or the A&P expenses move up. But on an overall company perspective and from Lloyd's perspective, if you could give us an outlook, what should be the A&P expenses typically should be for the company? Thanks.
Yeah. But overall, I think, generally, Lloyd is between 4% and 4.5%, and Havells is about 2.5%. So overall it's about 3%-3.5%. Yeah.
Understand. Okay, thank you so much.
Thank you. The next question is from the line of Umang Mehta from Kotak Securities. Please go ahead.
Hi, thank you for the opportunity. My question was again on exports. So while you did share some details, could you share some more on in terms of approvals, timelines, particularly looking at it from Lloyd's perspective, what can help us improve capacity utilization from where they are currently?
Look, Lloyd, we are, we are, you know, we have already started some degree of supplies, but the real, I think traction will take around 12 months. So I think, as you rightly asked, we are in the different phases of the approval and particularly the UL approval is typically for the entire range, like, we have already got one of the range approved, but I think the full range which is required to tap the opportunity, I think we should set our target around 12 months from now. So that's what we are, we are, we are looking at. So that's where we're in the journey for the HVAC. Also for cables, because that's another large opportunity.
I think now we are getting more of the, more and more approvals there, and I would say another sort of 9-12 months, we should have a full bouquet of approvals for cables in place. These are two critical categories, you see, in terms of the growth, particularly in the U.S.
Understood. This is helpful. And, just on cables front, so given that we've seen very large CapEx announcements by almost all players, particularly on cable side, not in wires, do you see demand keep pace with that? Or do you expect any volatility from supply coming up? Maybe not immediately this year, but next year.
No, I think it's not. One can talk long term with a lot of certainty. I think medium term, we believe that not only India, but globally there is a requirement for these. And I think the way the power consumptions are going up, again, not in India, but globally, and the need to invest in the infrastructure, which has been neglected for years. But we believe this is at least a three to five year opportunity and not just one year opportunity.
Okay, sure. Thank you. All the best.
Thank you. The next question is from the line of Girish Achhipalia from Morgan Stanley. Please go ahead.
Yes, sir. Just had a question on your CapEx for FY 2026 and 2027. Should one assume that number of INR 800 crore-INR 900 crore continue? And if you could say, probably 35%-40% could be cable and wire.
Yeah. And I think if we, we have announced INR 300 crore, we did last year around INR 1,000 crore to INR 1,100 crore will be the overall CapEx if we include that. And yes, 30% of that, I think, 30%-35% of that will be, will be cables. Maybe almost 40%.
Okay, so that would continue into next couple of years also. Okay.
Yeah.
Just sir, on the quarter, if you can just quantify the volume growth for AC segment, and any comment on channel inventory for the industry?
So channel inventory is not there. Actually, you are aware that a lot of both manufacturer and the channels are running out of the inventory. So there is not much inventory at the channel. And you are aware that we do not share volume growth, so I think you have to get the value for now.
Would it be fair to say that 90% contribution would be AC, roughly? Like, because it's a seasonal quarter and the growth has been very strong.
Yeah, around 85% growth is ACs.
Okay, thank you.
Thank you.
Thank you. The next question is from the line of Latika Chopra from JPMorgan. Please go ahead.
Hi, thanks for the opportunity. This is Latika from JPMorgan. Two questions. First, you know, it sounds that you find contribution margin across all your divisions to be in a healthy zone.
Ma'am, I'm sorry to interrupt. Your voice was cracking a little. Could you please repeat your question?
Sorry. It appears that, you know, contribution margins across all your divisions seem to be in a healthy zone. I was just wondering, you know, beyond contribution margins, is it right to assume that level of, brand investments, staff investments, capability enhancements will remain firm, so incremental, opportunity to expand operating margins will be more modest going forward? O r do you see, you know, further scope for improvement in operating margins and identifying issues with the company? I know product mix should take operations at a broad basis.
Yeah, Latika, I think you were breaking, but we just got the gist of what you are asking. So, look, investment will continue. I think right now the base is already set, but I think we expect that these will moderate over a period of time. So, look, we are not suggesting that it will change next quarter or in two quarters, but gradually there'll be a moderation. And to some extent, I think these investments are being made because we expect better growth trajectory as well. So I think as the growth picks up, I think you will see a better flow-through to the EBIT. I think this is what your question is.
Yes.
I think it will go both ways. These growth will also moderate in costs, whether it's staff or, or let's say, ANP. And also, I think we expected better growth, you see in the core categories as well. And, like somebody asked about the consumer sentiments and all. We continue to believe and, and, that the consumer turnaround is, hopefully near, near. And in few quarters, we should see that, which should help the core also to grow much better, which ultimately will transmit to the EBIT margins.
Thank you. No, this is very clear. The second bit is, just, you know, follow-through of what you just said, sir. You know, I understand this was a seasonal quarter, and I completely appreciate the fact that, you know, there is still some skepticism on, you know, the firmness of consumer revival on demand side. But I was just wondering, you know, from the data that you get, you know, from your, you know, dealers, from a month-on-month, you know, consumer purchase behavior, is there something to suggest that you are seeing, you know, a more positive, behavior in smaller cities and rural? And, is there any cause of concern, in some of the bigger cities? You know, just trying to sense, you know, what are you picking up from the ground?
I think nothing substantive, which we could extrapolate. So, I know it may not answer your question, but the fact is there's no real sort of clear answer to this. So let's wait for some more time. We really don't want to jump onto something which is very sketchy.
All right. Understood. Thank you so much.
Thank you. The next question is from the line of Keval Parikh from ICICI Prudential. Please go ahead.
Thank you. Congratulations to the team for good results. Just first question, probably partially you answered. I mean, the question was on overall consumer category growth. You talked about some destocking in house wires, but that is about primary sales. So overall, are you seeing any either pickup in demand or any signs of pickup in demand on, say, non-summer or non-seasonal kind of product or product which are linked to real estate? So that is my first question.
Look, some pickup is definitely there, and that's why I think this growth—like, for instance, fans, yes, summer season has, but some fans are also penetrated category. So there we believe some degree. We have been changes. There are constructions which has happened around, let's say, 24-30 months before. Normally, they start kicking in. But it has also happened that it has been such a serious summer, where the construction activity actually has been impacted, is it because there is a lack of construction labor and also because of election. So if you mix all of that, that's what I said, there is a pickup, but what we are really afraid of commenting right now, saying this, this pickup is something which is not sustainable, the things are back, and everything is hunky-dory.
I think we want to just avoid that kind of impression. That's why we are hesitant to put these things out. But clearly, there is a sentiment improvement. The demand pickup is definitely better if you look at for a preceding quarter than this quarter.
Okay. Sir, second question is on the Lloyd. So, I mean, probably I would say that we have used AC as an instrument to build brand Lloyd over years. And now, should we assume that that journey would be relatively easier for the non-AC categories? Or to put it different way, whatever the unit economics are there for the AC, are they better for say ref and washing machine right now? Or we should assume that we'll have to see similar journey in those product as well, so that is like lower or negative margins, and then it takes some more time to be profitable, or they are better margin right from the beginning?
I think brand investment definitely will be lower because you are creating the brand for the full category. And there's a whole idea of creating a brand and then expanding into the category. So that, I think, the heavy lifting has been done by the air conditioner. And the margins are sort of better, but let's agree that this is fiercely competitive categories as well. So I think those investments, whether in people, in the manufacturing will have to be done. So what may have been done before is the way you have built up the brand. And also the channel affiliation, I believe, is far more sort of favorable than maybe what AC has gone through.
So yes, some part of the journey has been covered, but some part of the journey will have to be covered by the individual categories as well.
Understood. Noted. Thanks a lot. All the best. We'll get back in the queue.
Thank you. The next question is from the line of Niransh from BNP Paribas . Please go ahead.
Um, yeah. And so understand on the cables and wires, I mean, we have been looking at a very strong demand, announced another 25% capacity increase right after commissioning the new facility. So do we also expect any impact on the margins, considering that we have a higher mix moving towards cables in our portfolio? That's my first question. And secondly, just wanted to check on the overall inventory levels across channels, especially for the summer-related products after a strong demand. Because we saw a very strong primary growth for Lloyd this quarter, but how is the inventory channel after the summer? And any price action taken by Lloyd, particularly in the last quarter? So, yeah, if you can share any, if you can quantify that price hike that was taken, that, that's all from my side. Thank you.
Yeah. So on the, on the live, we did say that, whatever price hikes were appropriate to keep a whole pack, and not just Lloyd, but all the product categories, because of the commodity had been, had been taken. So we won't go into individual set of categories, on the same. What was the other thing you said? Yeah. So I think, yes, I think the cables are opportunities there, which we are sort of investing behind. But we are expecting other categories also to grow, so I can't. We have already built capacity.
Yeah.
It's not that the other businesses will not grow at the same pace. Cables, we had underinvested over the last few years, so right now we are catching up with investment.
With the growth, we believe that the... We do not expect any significant sort of margin dilution, see, because of the increase in the cable sales. I think we are expecting all other categories to be aligned, and I think that there are some things we are not expecting. I think your question is whether margins will be dilutive because of product mix, and that's something we do not foresee.
Sure, sir. Thank you so much for the opportunity.
Thank you. The next question is from the line of Yakunum from AMSEC Securities. Please go ahead.
Hi, thank you for the opportunity. So out of the INR 800 crore or so CapEx we are talking, so were you able to give some colors towards Lloyd, how much we will be spending?
So as, Mr. Rajiv mentioned, the 800+ the announcement that we.
Around 1,100.
INR 1,100. Out of which, Lloyd is lower because most of the capacity, I think, is about INR 100 crores for Lloyd.
All right, sir. And, just any update you would like to share on the raw material pricing currently, and its impact on, say, gross margins up to 3-6 months?
No, we've already said that, you know, there have been some increasing in raw material prices over the last few months, and corrective pricing, pricing actions have already been taken.
All right, sir. Thank you. That's all.
Thank you.
Thank you. The next question is from the line of Shrinidhi Karleka r from HSBC. Please go ahead.
Yeah, hi. Thank you for the opportunity and congratulations on good set of numbers. So a couple of questions on Lloyd business. So in Lloyd business, we have seen about 70 basis points sequential improvement in contribution margin, and that looks smaller, given that sequentially, our revenue growth is about 40%. Just wondering, in that business, is the operating leverage benefit to an extent offset by lower gross margin, sequentially?
Look, normally, Q4 also has a lot of annual impact. So Q4, I don't think you should really compare on that basis. I think these Q1 results have an amalgamation of, you see, cost benefits which have accrued over the period, also the operating leverage. Operating leverage has really played out, and I think nobody can discount the power of this high growth. I think that has helped the business overall.
Yeah.
So, we are very satisfied with how the margins have panned out. And yes, I think there's always a scope for doing better, which something we are striving for as well.
Yes. And one related question, would you say your gross margin in Lloyd business are already hitting 20%+ levels?
So that we can't comment. I think we have already shared matters we have to share. So I think that's something we will refrain from commenting.
Thank you. Thank you for answering my question and all the very best.
Thank you. The next question is from the line of Amit Mahawar from UBS. Please go ahead.
Yeah, thank you. First of all, congratulations, Anilji, for great showing Lloyd. My first question is on Lloyd. We are broadly at the highest scale in terms of what capacity we have with the second plant coming. And, barring compressors and maybe motors, everything else is internalized in Lloyd. So how has your experience been on the manufacturing ramp-up? And do you think in maybe 2025, 2026, we will reach the profitability that the top two, three incumbents have in room ACs? Thank you.
So I, you know, manufacturing definitely has helped us, not only in terms of improved margins, but also in the fact that we are able to start giving differentiated products in the market and, also our own R&D. I mean, you know, as we have always said, Lloyd is a journey towards not only gaining market share, but also to improve profits. How much, whether it is in the top two, three?
O r not, we don't, we don't want to comment right now because we do believe that we are in this for the long term, and we will continue to make investments higher than the competition. Our growth aspirations are higher, and, so we will continue to make investments. Somebody asked this question about brand building for the rest of the non-AC products, so that will also require some amount of investment. May not be at the same levels of, the, what we, what we were required to build for air conditioners, but it will be, it will be there. So it's a long-term journey and, but there will be a continued improvement in both volumes as well as profitability.
Fair, fair. Sir, thank you. And second and last question is on ECD. Of course, we've actually had a very strong growth in last 10, 15 years, but last 1-3 years, the industry itself is going through slowdown and nothing particularly negative about Havells here. We are broadly around industry. Do you think FY2025 is a year where, based on today how we see the market, maybe second half, we will start seeing this industry, you know, triggering 20% kind of growth for Havells? Or do you think it's still a little early and maybe 2026 and 2027? Thank you.
Well, I mean, I can't give a number, 20% growth, but you see, ECD comprises many product categories. It's fans, which is a bit more penetrated category, then we have domestic appliances, where our market shares are still have room to grow. Then we have air coolers, we have products like water heaters. So I think there are various components, and we do believe as the consumer sentiment, as well as the housing and everything improves in India, definitely ECD will be a beneficiary, and we will continue to strive for increased market shares in these categories also. So I think we are definitely hoping for a better year this year, but also next year.
Sure. Rajiv, can I squeeze third small, a very small question on the third question?
Yes, please. Go ahead.
Yeah. So, yeah, I think, is this the best time for Havells to leverage on the balance sheet and Pan India brand image to add, you know, a few categories like, say, kitchen portfolio inorganically? Because some categories doesn't make too much sense going organic, and we've been doing that, but we have to gain regional presence and product presence. So do you think this is the best time, for Havells to look at one or two categories where we can look at regional players, to consolidate? That's it.
I think, look, there is no best or worst time for these kind of opportunities. I think we will have to evaluate on as, as they come. And it's not that we have not evaluated in the past, but frankly, they have to make sense on the, on the pricing, on the, on the capital deployment, the returns thereon. So I think we'll always be open to this. This is something has been our, our stance in the past as well. So but just because few things are happening, I think we'll not rush into anything. So that's the way we'll maintain now as well.
Fair. Thank you, and good luck with the journey.
Thank you. Ladies and gentlemen, in the interest of time, this will be the last question for today's conference call. It is from the line of Ashish Jain from Macquarie. Please go ahead.
Hi, sir. Good evening. Sir, my first question is, you know, the price hikes you spoke about in Q1, is it safe to assume that all of it will reflect in the second quarter, or it's already there in Q1?
No, I think, partially it has been captured and partially it will, it will follow through. But you have to also understand that the cost will also follow through the similar way, so...
Right. Right, right. Sir, secondly, you know, it's, it's more, you know, I just want to understand, like, where, where we were, let's say, 12 months back in terms of our, you know, recovery expectations, especially for the broader ECD portfolio. When you reflect back, what has really disappointed, if you can give some color, is it like one particular region? Is it replacement demand, or is it, you know, new home buyer? You know, because this has been really prolonged now, you know, for the last 3, 3.5 years, we haven't really seen a recovery. So any color you can give on that, like, where do you really think the disappointment has come on the ECD side?
So, as you say, ECD is a portfolio, so there are multiple levers. As you see, fans had gone through their own journey of transition to BEE and things like that. But I think the underlying trend also has been the weak consumer demand, and I think this is not just playing out in ECD, it's also playing out if you look at related categories across industries as well. So we will believe that the consumer sentiment and the spending power has to improve. Hopefully, that's something which will bring the much needed tailwinds to this sort of sector.
Rajiv , can you give any sense like what part of our ECD would be replacement-led demand? Is it possible to have a sense of that?
Largely it is new. Actually, there's not much replacement.
Largely it is new. Okay. Got it, sir. Thank you. Thank you, and best of luck.
Thank you. Ladies and gentlemen, that was the last question for today's conference call. I now hand the conference over to the management for closing comments.
Thank you very much. Thank you, everybody, for joining the call, and look forward.
On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.