Ladies and gentlemen, good day and welcome to the Q4 FY 2022 earnings conference call of Havells India Limited, hosted by IIFL Securities Limited. As a reminder, all participant lines will be in the 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 star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Renu Baid from IIFL Securities Limited. Thank you, and over to you, ma'am.
Thank you, Rutuja. A very good morning to everyone. On behalf of IIFL Securities, I would like to welcome everyone to the 4Q FY 2022 earnings call of Havells India. Today, the management is represented by Mr. Anil Rai Gupta, Chairman and Managing Director, Mr. Rajesh Kumar Gupta, Whole-time Director Finance and Group CFO, Mr. Ameet Kumar Gupta, Whole-time Director, Mr. Rajiv Goel, Executive Director, and other members of the leadership team. Without taking much time, I would now hand over the call to Anil for his opening comments. Thereafter, we can move on to the Q&A. Thank you, and over to you, sir.
Thank you, Renu. Good morning, everyone. We hope everyone is staying safe. You will now have reviewed the results. We feel encouraged by operating performance with healthy value and volume growth across the segments. While the initial few weeks of the quarter four were impacted by COVID in demand markets and slowdown in some construction activity, there was swift recovery in the latter half of the quarter. Timely onset of summer and pent-up demand helped wires register high revenue growth. Contribution margins continue to be impacted due to high material inflation and time lag in passing on increased costs. We expect gradual recovery here. We exited the year on a momentum and remain confident on sustaining the same. We may now proceed to Q&A.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets 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 Ravi Swaminathan from Spark Capital. Please go ahead.
Hi, sir. Good morning. Thanks for taking my question. My first question is with respect to the volume growth that we would have seen, this year over the previous year. What kind of volume growth roughly that we would have seen across each segment?
For the entire year for each segment, you are asking?
Yes, sir.
I think these numbers, if you can specifically talk to the IR team, that would be better because it may be difficult. Overall, it's around 11%-12%.
11%-12% volume growth over last year.
Yes.
Got it, sir. With respect to price increase, are there any further price increase that we are likely to take across segments, given the fact that input costs have gone up one leg in the last quarter?
Yeah, I think, you know, to some extent, we are holding some price increases because there has been quite an unprecedented price increase in the last six-eight months. We are waiting to see the, you know, medium-term trend of these raw material prices. You know, as you can see, even in the fourth quarter, we were expecting some respite, but the geopolitical situation was not conducive, and hence, the raw material prices went up in the fourth quarter as well. We've not entirely passed on the prices, and we will continue to wait for some more time to see how they behave.
Got it, sir. What kind of growth that one can expect over the next one to two years that we are looking at, keeping in mind the real estate recovery, the new product launches that we are doing, the channel reach expansion, et cetera, that we are expecting? If you can give your thought process.
I think overall we are positive on growth, consumer side, real estate side as well as, you know, a lot of impetus from the government on industrial and infra as well. The CapEx cycle should also improve with many industries doing better because of the commodity cycle. I think overall demand should remain strong for the next one or two years. The only negative could be the high material inflation. That is something which we need to watch out for. Otherwise we are positive for good growth in the coming months.
Early teens kind of volume growth is something that we will be gunning for over the next two years?
Yes. That's what something which you should expect.
Got it, sir. Thanks a lot.
Thank you. The next question is from the line of Naval Seth from Emkay Global. Please go ahead.
Yeah, thank you for the opportunity. I have two questions. First on Lloyd. There has been phenomenal growth on top line. If you can highlight the way you stated last time, market share was 10%. What would be your exit market share for 4Q? You know, given that you have stated price hikes will not be fully passed on, so at what level of revenues one can expect at least breakeven at the Lloyd level?
You know, again, difficult to give market share figures at this present moment because we are still waiting for the consumer research reports. But we would say our primary sales increased at a higher level, probably a little bit higher than the industry. There could be some market share gains there as well. But I think overall the industry has done well because over the last two years, you know, pent-up demand as well, and the summer is also coming at the right time. I think overall industry has also done well. As far as you know margins are concerned, I think you know just not based on volumes, we are expecting contribution margins also should improve to bring back profitability once the raw material prices stabilize.
While market shares and growth is extremely important, but I think, overall, we need our contribution margins also to start kicking back, with the right, you know, difference between revenue as well as cost price.
Okay. If not market share, but can you share what would have been the reach increase in FY 2022 for Lloyd? Distribution reach increase?
I think, as we have always said that over the last four or five years, the biggest investment that Havells, Lloyd has made is in distribution outreach. Today, we are present across the country in all kinds of segments, whether it is, you know, regional retailers, modern format retailers, distribution, Tier 2, Tier 3 towns, and since last one year online as well. You know, which was something which was not there with Lloyd. Havells was strong in online, but Lloyd was not there. Now it is, I would say, you know, just like Havells strategy, Lloyd is an omnipresent product category. AC is well established in terms of distribution outreach, but still work is going on in terms of increasing outreach for washing machines and refrigerators. That's a work in progress.
Sure. Second and last question is on ad spend. Although in the previous calls you have stated ad spend as a percentage of sales will normalize gradually. We are seeing that you are able to control whichever quarter you are able to. Is it fair to assume that there are some structural changes which has happened, and they are still giving you a similar share of voice at lower spend also, be it, you know, that you might have gone heavy on digital with lower cost, hence, share of voice is not impacted, and your overall cost is kind of underlying cost is kind of controlled?
I think the last two years, you can't really see it as normalized years for the industry as well as for Havells. You know, share of voice was not impacted, mainly because the industry was also not spending very high on this. Digital spends have increased. In this coming year, especially during the season, we do see normalized advertising promotion levels coming back.
Got it. Thank you and wish you all the best.
Thank you. The next question is from the line of Latika Chopra from J.P. Morgan. Please go ahead.
Yeah, hi. Thank you for the opportunity. My questions are on Lloyd, actually. One, I wanted to check what kind of difference was there on primary and secondary sales in Q4, and if you could comment on the inventory levels in the channel at this point. The other bit I wanted to understand was, you know, what's some thoughts on how you intend to revise profitability in this business. You know, what should be our reasonable expectation on margin share. This quarter was quite big on top line, but definitely there were challenges on profit. On a strategic level, how are you looking to balance market share growth versus margins in the AC category.
The third bit was around, you know, if you could also share some color on consumer response to washing machine and refrigerator, you know, launches. How are they tracking versus your plan? You know, how is your price and distribution positioning for these products? And any sense on what kind of revenue contribution one could expect from these segments over the next two-three years? Thank you.
Right. As far as primary and secondary goes, I think this is generally a very good season. The inventory in the system is at a lower level. If you look at the primaries, they start getting built from November onwards. There is generally shelf filling till the month of February, and the March, April is the season where, you know, secondary start happening in a big way. I would say that, you know, end of April, which is the inventory levels in the trade are not very high, because the summer season has gone well.
As far as profitability is concerned, I think, you know, generally, Havells has always been in the strategy of profit and growth and, you know, that will continue to remain the strategy for Lloyd as well. However, over a period of time, this will come. The focus right now is to establish a decent market share, in the air conditioning category, which we, as we said, we had lost out a little bit in the last two or three years because of, the reestablishment of distribution, the brand positioning. Now things are coming back, so the focus will continue to remain there. The profitability will come over a period of time, but, you know, the raw material prices also need to help there a little bit.
The investments in the brand, the distribution will continue to happen, including R&D and new product launches. The third question about refrigerators and washing machines, that also is doing extremely well in the sense not so much big in numbers because AC is also growing very fast. At least their response from the consumer as well as from the trade is extremely positive.
All right, thank you.
Thank you. The next question is from the line of Rahul Agarwal from InCred Capital. Please go ahead.
Yeah. Hi, thank you. Thank you for the opportunity. Two questions again on Lloyd. Firstly, you know, the performance was pretty stellar, right? I mean, you did like almost INR 1,000 crores in top line. Could you help us understand what drove this performance in terms of product mix, for the quarter or the full year, whatever is comfortable? Where are we in terms of washing machine and ref in terms of, you know, product portfolio, in terms of SKU presence? I know lastly on Lloyd is basically, you know, could we understand, what could be a peak revenue possibility for Lloyd, given the current capacities both in-house and outsourced across, you know, all category, AC, washing machine, refs? Because, you know, this number of INR 1,000 crores was pretty large. Obviously it's seasonal, but overall, you know, how should we see?
Can you repeat the entire question, please? There was some disturbance in the call.
Okay, I'll repeat that. Essentially on Lloyd, you know, INR 1,000 crore number was, you know, a pretty strong number. What I wanted to understand is could you help us understand a bit of product mix for the quarter or the full year, whatever is comfortable? Between washing machines and refs, you know, where are we in terms of product portfolio, SKU, you know, launches? What is the peak revenue for Lloyd which is possible given current capacities across AC, wash and refs?
Okay, as far as the number for the quarter is concerned, I think the revenue mix was almost ACs was almost.
80%.
80%-85% in this current quarter. The SKU availability or the SKU launches in terms of washing machines and refrigerators is a continuous process. It will take its own time, but you know, the company is really investing very heavily in developing new product categories. Hopefully by the end of this current financial year, we would have a comprehensive range both in washing machines and refrigerators, and most of it will be in-house manufactured or at least in-house developed. As far as the air conditioning capacity is concerned, we have a 1 million capacity at our world-class facility at Ghiloth. We are setting up another capacity in south in Sri City. That should be operational by the end of the financial year.
We are looking at, you know, expanding capacity in Lloyd.
Any comments on the peak revenue possible given the existing capacity right now, whatever is available today?
No, I said we are manufacturing 1 million. We can manufacture 1 million and of course there is some bit of outsourcing which is the kind of product that we don't manufacture. That's not really a big constraint.
Got it, sir. Lastly, on the other category for Havells, it's almost like INR 750 crore of sales now for the full year. Could you help with the sales mix here, like top three line items or a new evolving category which might be separated out of others now? Because that's a large number going forward.
A large number of that is electric motors, and then followed by water purifiers and
PG, solar.
Domestic pumps and personal grooming as well as solar. It's a mix of five product categories.
The largest would be motors, right?
Largest would be motors.
Okay. I'll come back in the queue. Thank you so much for answering my questions. All the best.
Thank you. The next question is from the line of Charanjit Singh from DSP Mutual Fund. Please go ahead.
Hello, sir. First of all, congratulations on a, you know, good set of numbers in a very tough environment. My first question is firstly on the ECD segment. If you look at, you know, the segment has shown very strong growth on a very high base. If you can, you know, give more granular details on the, you know, category-wise, and from here on, how we should see the growth in this, you know, segment coming in. We have also seen a very good, you know, QoQ improvement in the margin. If you can also, you know, explain that, what has led to the improvement in the margin in the ECD segment? That's my first question.
Well, I think if you look at the segment, you know, fans came back strongly with a good season coming in. All the product categories, appliances continues to be a fast growth category. Water heaters did well. This is a very low quarter for water heaters. In terms of margins, I think at the third quarter conference call also we had mentioned that there was an unprecedented cost increase, which we would pass on over a period of time. In the fourth quarter, some cost increases were passed on. We expect the margins to continue to, you know, improve. Generally I've also mentioned that, you know, consumer demand continues to remain strong. Our distribution continues to increase.
We are expecting ECD should be a good growth driver for the company.
Okay, sir. Sir, on the lighting side, you know, while the growth has come back, but it was clear that the B2B side was missing in this particular category. Can you touch upon, you know, B2B versus B2C in lighting, how those two, you know, parts of the market are behaving?
You know, out of lighting, almost one third of our business is B2B, and it is slower growth as compared to the B2C segment. It is, you know, we try not to get into, you know, very price competitive tenders and all that. It's a very focused business for us to go into, you know, architectural segment. I think it's a high margin business just like the consumer business for us.
Yeah. Sir, if I may just squeeze in another question, you know, on the distribution side, if you can, you know, touch upon, you know, in terms of the distribution channel growth next year, what's the kind of expectation which we have in terms of adding more touchpoints or getting into more new geographies? That's my last question, sir. Thank you.
This is a continuous activity. You know, we are getting deeper into smaller towns. The not so strong markets like southern markets or western markets, our presence is becoming stronger there. You know, distribution also these days include, you know, all kinds of presence, whether it is CSD, whether it is modern format, online, everywhere our presence is continuing to enhance. It's a continuous activity for the company on all product categories.
Thanks, sir. That's all from my side. Thank you for taking my questions.
Thank you. The next question is from the line of Siddhartha Bera from Nomura. Please go ahead.
Yeah, thanks for the opportunity. First question is on the AC. Like you have said, there has been some bit of under-recovery in the-
Sorry to interrupt you, Siddhartha, but your voice is not that clear, sir.
Is it better now?
Yes.
My first question is on the AC. Like, sir, you said that there has been some bit of under-recovery. Will it be possible to indicate, I mean, from current levels, how much price increase you need to take, for you to reach your double-digit contribution margin levels, for the segment, going ahead?
I think we'll have to. As I said, you know, the raw material prices are at a high level, and, you know, we want to see this season go off, and then over a period of time, hopefully the raw material prices also should stabilize, and then we should see contribution margins coming back. But there has been a lag between the cost increase and the price increase.
I will put it online.
Thank you. The next question is from the line of Mayur Patel from IIFL Asset Management. Please go ahead.
Hi. Thanks for the opportunity. Just a small question. Actually, two questions. First, can you give some breakup or at least, you know, some idea about the volume growth in ECD segment?
Hello?
Hello.
Yeah, just hold on for a second. Yeah. Approximately around 15%.
Okay. Rest is mainly due to price hike.
That's right.
Just one related question, Mr. Gupta. You know, given the kind of price hikes we have seen across fans, water heaters and appliances and the entire ECD segment, do you see these price hikes have started to dent underlying volume growth, volume demand, or the demand remain healthy in your view?
I think at the present moment, the demand is healthy, mainly because of, you know, in these products there was some pent-up demand because last two summer seasons were low. The real estate segment is doing well. I would still say that, you know, these are, you know, unsustainable kind of prices, especially for copper, aluminum, steel, and I think hopefully over a period of time, these should start stabilizing, and hence, you know, we should hope to see that the demand continues to remain strong. These are really very high price levels. I think right now we're not seeing an effect on demand, but long term if it remains, it could start affecting demand.
Okay. There's one more question, if I can squeeze in. In terms of Lloyd, clearly a blockbuster performance in terms. It's clearly one can undoubtedly say there is some decent market share gain which you have garnered. Is it possible to give, you know, who would be losing market share in the industry of late?
Well, I think, you know, I mentioned at the start of the call that we also anticipate that we may have lost out some market share in the last two or three years because of, you know, reestablishment of the distribution network and, repositioning of the brand as well. You know, the factory coming up and, you know, sourcing going down in the network being expanded. I believe that we have regained our market share and, maybe a little bit of gain somewhere. You know, the industry itself has grown very well because of the pent-up demand. I think, overall put together, you know, it's difficult to say that you may have, you know, difficult to point out, if anybody would have lost out.
Everybody would have done well in this kind of a growth scenario.
Sure. Thank you. All the best.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to two per participant. If you have a follow-up question, you may rejoin the queue. The next question is from the line of Rahul Gajare from Haitong Securities. Please go ahead.
Hi, I have two questions. You've indicated high CapEx for this year. You know, I think that number was around INR 700-INR 800 crore rupees.
Could you indicate where exactly is this money being spent? You indicated Sri City facility will be operational by end of this year. Which are the other areas that you are looking at spending money? That is the first question.
It is primarily because last year we saw increased capacity in washing machines and cables and wires, but we also anticipate more capacity increase in cables and wires, a completely new facility in south for air conditioners. Primarily it will be dominated by air conditioners and cables and wires.
This will be INR 700 crore-INR 800 crore in this year?
That's it. Approximately, it may trickle some of it to the next year, but we are anticipating, you know, all the projects to start at least during the current year.
Okay. The second question is on Lloyd. You know, could you highlight which is the area, geography areas that have done well for you all? You know, which markets have really kicked for you all in this particular quarter? How much price increase
Yeah. Pretty much it was all over.
How much price?
Yeah, sorry. Go ahead, please.
Sorry. How much price increase have you actually taken through this year?
I think if we look at Lloyd in the fourth quarter, you know, pretty much all the areas started doing well. There were certain weaker markets of Lloyd, especially eastern region or western, Maharashtra, where we started getting a lot of traction in this year. So I would say that from a primary sales point of view, all the markets did well. North started doing better. North and East started doing better from a seasonal point of view in tertiary sales, in the month of March and April, and I think now South is doing better. South had lower tertiary sales in the month of March and April, but it started doing well now.
Okay. Thank you very much.
Thank you. The next question is from the line of Achal Vohra from JM Financial. Please go ahead.
Good morning. Thank you for the opportunity, sir. Can you help us understand the price hike what you have taken in fourth quarter, and if any in the current quarter?
No, most of the price hikes were taken during the third quarter and some amount of price hikes in Switchgear and ECB in the fourth quarter as well. As far as Lloyd is concerned, the price hikes mostly were taken by the end of December.
Would you be able to quantify, sir?
In terms of for the year, if we take it Lloyd, it's almost about 10%.
For FY 2022. Understood. The second question I had is it possible to give some color with respect to fans market share what we had in FY 2022?
No.
Got it. Just a clarification, in one of the interviews, you had mentioned that you're looking at exports going up to 10%. Just thought of checking, you know, if you could elaborate a bit on that.
Yeah. This is a medium-term strategy for Havells. We want exports to, you know, go up to that level. Actually, the growth in exports almost was close to about 40%-45% in this year. We continue to believe that this will be a strong growth segment for Havells in the coming times. We are seeing good traction both in Switchgear, Lloyd products also because now we are manufacturing in-house cables and wires. All product categories are showing good traction, so we are expecting decent growth in the coming years as well.
Got it. Thank you so much. I'll come back in this queue, sir. Thank you.
Thank you. The next question is from the line of Renjith from Mahindra Manulife Mutual Fund. Please go ahead.
Yeah. Hello. Hi, sir. Just, on this working capital, like when I see we had a decent enough cash flows, but when I see the creditor days have increased by five days. Just wanted to understand your thought process, like despite having a good cash flows, why there is a delay in terms of paying the suppliers, or is there any other strategy towards that, or is it just a
There is no delay in payments to any vendor, and that has never been the strategy of Havells. All the vendors are paid on due date. This is just normalized levels. You know, it depends upon the product mix, the kind of sourcing that we are doing.
Inventory reduced and correspondingly in 38 days, creditors so now. Okay. Also, there has been a substantial reduction in inventory. Is that we should read that the dealers have been stocked up for this summer? Will we see this? Is that also a timing thing?
No, I think, you know, you're comparing with last year March, and then there was anticipated inventory increase for the summer season. That is not there in this season. It looks like a substantial reduction. But there is, you know, basically whatever reduction is there is through efficiencies, not really something which is dependent upon the season for the current year.
Okay. Okay, sir. Thanks.
Thank you. The next question is from the line of Vishal Vaja from Max Life Insurance. Please go ahead.
Thank you. Mr. Gupta, this awesome growth in air conditioners that we've seen, would it have been supported by giving higher margins to the dealers or better credit terms?
Higher subvention for our products, higher financing. Anything that you could specify as to why what led to the spurt in sales over the last three, four months? Thank you.
Well, as I said, three or four reasons. First of all, there is no change in policy for Lloyd in terms of distribution, as far as distribution, in terms of payment terms or anything is concerned. Three or four reasons. One, we said, you know, the distribution revamps which happened over couple last few years, that was fully in operation because, you know, last two seasons were not good. So it was fully in operation. The positioning, brand positioning had commissioned or had happened. The plant which was commissioned in early January 2020 or December 2019 was fully in operation in for the first year because in the last year we could not operate it fully. Plus, you know, a pent-up demand in the industry. So the industry overall doing well and the summer season kicking in.
A lot of reasons for this growth in Lloyd in the coming last quarter.
Any sort of downtrading that you are seeing, because we've, over the years, we've seen a trend of premiumization. Because of higher prices of the products across, is there any sense of downtrading either in fans or in Lloyd?
I would say in both these product categories, we've actually seen a little bit of upgrading towards more energy efficient products because products becoming, you know, more expensive. People are going in for a little bit higher, you know, one-time cost and then, you know, focusing more on the electricity consumption. We've seen some, you know, good improvement. You know, we see almost 70%-80% is inverter-based air conditioners now. You also see, you know, the fact that people are going in for higher efficiency. Even in fans, we've seen that kind of an upgrade because of the high costs.
Okay. Thank you very much.
Thank you. The next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Hi, sir. Thanks for taking my question. It's just,
Sorry to interrupt you, Mr. Nitin, but your voice is a little low. Can you please speak a little louder?
Yeah. I'm audible now?
Yes. Please go ahead.
Thank you. Again, asking on Lloyd. Generally you said, you know, there is a lead lag of a price hike, which should reflect going forward. Given the volumes which we have done, and as you said, there's a market share gain, there is only a concept of operational leverage. What I'm trying to understand here is at INR 960 crore, we're doing a 2.8% EBIT, and volumes would have been grown significantly for you quarter-on-quarter. How much impact did you see on the commodity, which really didn't lead any increase in profitability?
Either we are gaining market by, you know, going very aggressive in pricing, and trying to gain that market, which if season doesn't go well in any year, then it, you know, pushes back very fast, to the same category. Just wanted to understand is, first, the impact of commodity specifically on this particular category, which didn't lead to you increasing profitability. Is there some aggressiveness in pricing which is leading to this market share gain?
Well, the entire, you know, impact on profitability is due to the aggressive increase in costs and not passing it on entirely to the market. This is not necessarily to gain market share, but this is to actually ensure that, you know, the demand does not get affected, because of unprecedented price increases in this market.
Mm-hmm.
That's an industry trend.
Okay.
Lloyd is at a different position because we still are at a lower market share and lower volume, and hence.
Mm-hmm
... it will take time for the operating leverage to kick in. Which is, you know, which when we start sustaining these kind of volumes over long period.
Mm-hmm
... finally the growth continues. That's when we start seeing operating leverage kicking in. At these levels, the kind of price increases because of anyway lower gross margins in this product category. You know, you really can't get a whole lot of operating leverage.
Mm-hmm
If the raw material prices, costs go up so much.
Getting it. Generally, in the next quarter, if, as you said, Lloyd has taken a 10% price increase on an annual basis, if we take 10%-15% more, given the season is good, we should be back to 7%-8% EBIT in your view, or there would be some more pressure on the commodity here?
No. You're saying 10%-15% more price rise in this season, that's not possible.
Got it. No, because I'm coming from your comment to me that demand is very strong, but we can't take the price increase because demand will go down. That's why I was trying to catch where exactly the problem is, if everything is good.
Demand is.
Got it.
Would be elastic to this kind of a price increase.
Got it. Clear, sir. Thank you very much, sir, as always. Thank you. Thanks a lot.
Thank you. The next question is from the line of Praveen Sahay from Edelweiss Financial. Please go ahead.
Thank you for taking the question. My question is related to the volume growth, as you had mentioned for a year, 11%-12%. Can you give, in the pre-COVID era, how was the overall volume growth for the company?
Yeah, we'll have to come back to you on this.
you know, what's the element of pent-up demand in this 11%-12% volume growth in the FY 2022?
I don't know.
Thank you.
Thank you. The next question is from the line of Aniruddha Joshi from ICICI Securities.
Yeah. Thanks for the opportunity. Sir, is the volume growth momentum remains strong in April also? That is one. Secondly, most likely there will be star ratings on fans soon. So, Havells has also introduced multiple premium fans. So do you see there is a significant scope to gain market share? Unorganized, and even some of the organized players are also behind the curve in terms of new product launches or getting the BLDC fan rights at right price points. So do you see a significant scope to gain market share in this? That is. Third is just on the clarification required on volume growth.
First of all, is it value-weighted volume growth, or is it based just on the number of units sold irrespective of price point? Means basically is the change in value mix and change in premiumization, up and down trading getting captured in volume growth or it's getting captured in price-led growth? Yeah, that's it.
Generally the momentum continues to remain strong after the fourth quarter, and we hope that this continues to remain strong. I would assume that most of the companies, organized companies would be ready for the energy efficiency change, and that should not lead to a massive change in the market structure or market share structures. We would assume, hopefully, you know, with the cost increases based on the energy efficiency, I really hope that the unorganized sector doesn't gain any market share. Hopefully it should not, but you know, this is always a scare when the prices go up too much. To answer your question, I don't see a major disruption in market shares with the energy efficiency changes. Third question, I really haven't understood.
Maybe you can get back to our IR department and, you know, just get some numbers on that.
Does that answer your question, Mr. Aniruddha?
Yes, yes. Thanks.
Thank you. The next question is from the line of Bhavin Vithlani from SBI Mutual Fund. Please go ahead.
Thank you for the opportunity. Just one question on the white goods segment. Now, this segment is dominated by the Korean MNCs, and we are seeing some of these Chinese MNC giants also looking to gain entry and spending pretty large sums of capital in this space and billions of dollars on R&D. For Havells to be successful in this segment, what is the strategy? Is it to differentiate on the cost, to differentiate on the technology front? Where do you see Havells on a three-four year basis, and what's the kind of sustainable profitability is there in your planning that we see a reasonable return on capital on this segment?
Your first part of the question was, is very interesting, as now again you come to numbers of, you know, profitability. No, seriously, I think, you know, Havells is probably the one of the few companies who's proven that they've stood against the large multinationals in terms of whether it's manufacturing or quality or technology in any product category, this, you know, be it lighting, be it switchgear, you know, where there are large multinationals who are spending, you know, as in your words, billion dollars. I think, you know, that's a long-term strategy or play that Havells has taken for Lloyd as well, that we will continue to invest big time in four major things. One is technology, two manufacturing, three brand, and four distribution.
We believe that, you know, sustained investment and the right strategy behind all these four things will definitely lead to, you know, a reasonable position for Lloyd in the market. I would not say that, you know, we'll be the dominant players, and we are never not dominant players even in electrical industry. At least in the four-five years, we should be a very reasonable player in this industry as well. That would lead to, you know, a decent return on capital for this business.
Sure. I mean, is the target return on capital mid-teens over a four-five years a reasonable expectation or it will be an aggressive expectation on a four-five year basis?
No, I think, you know, we would be definitely expecting at least that much.
Okay, great. Thank you so much for taking my questions.
Thank you.
Welcome.
The next question is from the line of Pulkit Patni from Goldman Sachs. Please go ahead.
Yeah, thanks for taking my question. It's related to the one Bhavin asked. I just want to understand again, over the next three-four years, what do you think are the gaps in the portfolio which we would want to focus on? And secondly, how would we want to do it? Just, you know, given we have INR 2,500 crore of cash on the books, would we want to do it on our own, or are we likely to look at, you know, some sort of M&A? Just a strategy over three-four years in terms of what more we could do in terms of portfolio product segments, et cetera, et cetera.
I think in every business of Havells, there is enough of, you know, opportunity to grow categories. You know, just take Lloyd, there's immense potential to grow on the other consumer durables and air conditioners. There, you know, capital allocation will continue to happen. You take consumer durables, electric consumer durables, there is enough opportunity in appliances and in fans to grow categories, to grow you know, the distribution inside, to give us a sustained growth over the coming years. Lighting segment itself, even in professional lighting, there is huge opportunity to grow into newer areas like stadium lighting, museum lighting. Many opportunities are there for growth in every category, and I can't name all of them, including cables and wires.
In every business category, there is organic growth opportunity, where company would continue to put in capital. As well as we are always open to look at more, you know, adjacencies, within the business or very close to the business, and hence, inorganic opportunities are always constantly evaluated. You know, as somebody asked this question, we are also quite focused on the right capital allocation, where at least in the next five-10 years of any business or acquisition, we do expect the shareholders to expect a decent return on capital.
Understood, sir. Sir, just related to this, what I understand from your answer is that there are no real big gaps. It's only enhancing of the existing product portfolio. Can we expect anything in terms of mobility, et cetera, from the company on the electronic side anytime, or nothing on that front?
At this moment, it will be too early to say, to comment anything on that.
Sure. That's useful. Thank you so much, sir.
Thank you.
Thank you. The next question is from the line of Ashish Jain from Macquarie. Please go ahead. Ashish, you may-
Hello.
Go ahead with your question. Your line is unmuted.
Hi, sir. Good morning. Sir, I have two questions. One housekeeping. What is the growth in AC revenues for us on a YoY basis this quarter?
Sorry, Ashish, as I said, almost 80%-85% of revenues for the quarter were air conditioners, so you can say sizable growth of air conditioners in this quarter.
Okay. Sir, secondly, from a margin standpoint, you know, you did touch upon that this, there could be some underrecovery on the commodity side. Is it possible to quantify in your assessment what is the, you know, blended underrecovery today? And also, given the strong demand momentum that is there, are we kind of contemplating price hike, maybe, you know, in the next few weeks or so, or there's a longer wait and watch policy on pricing side?
If you're specifically talking about air conditioners, I think, you know, pretty much this season will be over by the end of this quarter. You know, even if there are more price hikes in the coming times, there might not be a major, you know, impact. As well as, you know, again, energy rating changes are coming, kicking in from the first of July, which would anyway, you know, alter the price structure. I think there will be a wait and watch, till the end of the first quarter.
Sir, the same thing in our Lloyd consumer durable business, the margin underrecovery today, and are we contemplating a price hike at some point of time?
That's very similar. Again, you know, even in the consumer durables side, most of it is fans and, you know, first this is the season, the first quarter, you know, after that the energy rating kicks in. So a lot of changes are happening around the first quarter end.
Sir, if I can just, you know, persist on this one. Like, the point which I wanted to understand was, you know, input cost is kind of high, price hikes we have not taken much, advertising costs will definitely go up, like you indicated earlier. Are we kind of?
Sorry for stopping you. We have taken considerable price increases, but don't go just by quarter-to-quarter. Look at the entire year. There have been considerable price increases, but it has not matched the kind of raw material price increases which has happened in just the last three or four months.
Right. Okay. Got it, sir. Thanks. Thanks so much.
Thank you.
Thank you. The next question is from the line of Madhu Babu from Canara HSBC. Please go ahead.
Hi, sir. Just on Lloyd, if it continues to see a good traction, will it dilute the overall margin profile of the company? Because, as of now, the margin profile of Lloyd is much lower. Second is on the exports, which are the subsegments we are targeting, and with the current kind of container costs, would that be an impact on the strategy? Thanks.
On what you asked on the margin profile, definitely I think there is a product mix. I think as we mentioned earlier also, as the margin profile improves, I think it will also improve the overall level. As of now, this is a fact. There is a portfolio mix. As Lloyd increases, there will be some dilution. We expect over a period of time, I think we gravitate to our normal Havells as a whole. Your second question on export, what category are we targeting? Is that the question?
Yeah, yeah.
Pretty much the whole portfolio, but you see we are very strong in switchgear, and now we are trying to make Lloyd, particularly the AC category, is a big category, because they are the dominant in China, and we believe that China plus one could work, for Lloyd in particular. All categories we've been focused, cables, ACs and switchgear. As we said, our intent is that it should be 10% of our, which we believe is something reasonable to expect in a few years.
Okay, sir. Thanks a lot.
Thank you. The next question is from the line of Keyur Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thanks. I think I have just one question. The question is that in summer-related products, that is fans, coolers and ACs, probably the demand seems to be, I mean, looks good because of, say, very harsh summer and two years pent-up demand. The summer portfolio, are we seeing any slowdown where it's business as usual or where demand is not very skewed? Are we seeing any impact on the demand?
Well, I think difficult to say as of now. As we said, the momentum is there, which is reflecting pretty much all categories. Here, if you see because there was some construction related restrictions in the first few weeks of this Q4. I think there was some dampening effect on that. That we believe also we, apart from the harsh summer, there's also a fact there's a real estate upcycle. I think that is also a bit of a tailwind for other non-summer related products. In general, we will not single out that only the summer related products are growing. I think there is a good growth in other products as well. Yes, the summer related products because maybe base also and because of the pent-up, the growth is much higher than others.
Okay. Just clarification, actually, what I wanted to understand is that if there is any slowdown because of this inflation, I mean across companies or across sectors, it may not be visible in this summer-related products because there is a pent-up and there is harsh summer. Probably non-summer products would be a right indicator to understand whether how the demand trends are. Thereby if anything is visible. Just one follow-up to this, from your answer, is that after this steep inflation, are we seeing any slowdown in B2B or any construction-related activities, I mean demand from that side? Say, slower inquiry or say some orders or inquiries getting delayed, something of that sort.
Well, some degree of effect will definitely be there, but we will not say something which is because people have been also waiting for years, and sometimes they do believe that some deferment could be there, but not beyond that. As of now, we do not expect a significant dent, but look, this is something to be watched out. As of now, as we speak, things seems to be reasonably well placed even for non-summer related products.
Okay, understood. Sir, thanks a lot and all the best to the team. Thank you.
Thank you. The next question is from the line of Rahul Agarwal from Incred Capital. Please go ahead.
Yeah. Hi. Thanks for the follow-up. Assuming Lloyd, you know, the raw material prices stay where they are, and I believe that Lloyd will eventually take a price hike over the next three to six months, for different categories depending on the season. Could we say that fiscal 2023 would be a bit breakeven year?
I think we will see with Q4 of last year. I think it's difficult to predict what will happen in four quarters of next year. I think let's park it for some time, and maybe discuss it again after a few quarters.
Thank you. The next question is from the line of Renjith from Mahindra Manulife Mutual Fund. Please go ahead.
Yeah, sir, just wanted to reconfirm on that, INR 700 crore-INR 800 crore is the CapEx we are looking for FY 2023 or it will be spread over 2023 and 2024?
'2023.
2023. Okay. How much will be for this room AC in that?
I think taken everything together will be INR 700-INR 800. It could be INR 300-INR 350 for ACs.
Okay. The rest will be largely for cables.
Cables and wires and other miscellaneous. You see, we already have INR 100 crore, INR 150 crore, INR 200 crore regular CapEx as well.
Okay. Sure. Thanks.
Thank you. The next question is from the line of Keyur Harish Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thanks for the opportunity again. Sir, just one quick follow-up. On the margin side, as we saw some, I mean, sharp inflation, say after this Ukraine, Russia conflict, but in the recent past, we have seen it softening. If this trend continues, will we need price hike? I just want to understand, say when we ended Q3 FY 2022 to December 31, even at those levels, was there a need to hike the prices or so this or till that time we had already passed on the prices and this increased inflation is just because of this Ukraine, Russia war?
Good question. In fact, you know, when we entered the third quarter, we were anticipating further price increases, but the raw materials went further up. They have, you know, come down a little bit, but only in the last couple of weeks. You know, they're really choppy right now, so it's very difficult to predict what they will remain. If it continues to keep coming down, then hopefully further price increases may not be required. Let's wait and see.
At current prices, we need a price hike in a quarter.
In certain product categories.
Okay. Sir, can you just clarify those categories which require, which doesn't require, whichever you are comfortable?
Yeah, definitely air conditioners is a clear indication, but even in products like fans and some lighting and appliances, we will definitely need even at these current levels.
Okay. Okay. Thanks a lot. Thank you.
Thank you. Ladies and gentlemen, as this was the last question for today, I now hand the conference over to Ms. Renu Baid for closing comments.
Thank you, Rutuja. On behalf of IIFL Securities , I would like to thank all the participants and the management for their time. Before we close the call, any closing comments or remarks from your side, Anil?
No, thank you very much, Renu, for organizing this call. I would say that, you know, while we are very positive about the demand scenario going forward, but it all, a lot of this, it depends upon the volatility of the raw materials. Let's hope that these, you know, positive signs that we are seeing continue to remain. Thank you very much.
Sure.
Thank you.
Thank you, everyone.