Ladies and gentlemen, good day, and welcome to Havel's India Limited Q1 FY 'twenty two Conference Call hosted by Batriwal and Karani Securities India Private 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. Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shet from Batniwala and Karani Securities India Private Limited.
Thank you, and over to you, sir.
Sure. Thank you, Malika. And I would like to welcome the management of Rivers India Limited on the call and would like to thank them for giving us this opportunity. From the Rivers management, we have mister Amin Rai Gupta, chairman and managing director mister Rajesh Kumar Gupta, director finance and group CFO mister Rajiv Goel, executive director and mister Amit Kumar Gupta, full time director. I would request Anil sir to give us some opening remarks, post which we will open the floor for in q and a.
Over to you, sir. Thank you very much, Kunal. Good morning, everyone. Hope you would have reviewed the Q1 results. We are satisfied with the operational performance.
As COVID recedes further, we expect the demand environment to stabilize and improve. The structural shift in favor of the organized sector and recovery in projects and institutional segment augurs well for the demand outlook. We may now proceed for Q and A
may press and one on the touch tone telephone. If you wish to remove yourself from the question queue, you may press and 2. 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 Tominathan from Spark Capital.
Sir, congrats on a good set of numbers. My first question is with respect to the margins in the switch gear and cable segment. They have seen year on year improvement and even sequential improvement in spite of the fact that input costs have gone up. So if you could explain what is behind the reason for the margins going up? Is it because of price action, or is it because of mix improvement?
If you can give throw some light, it will be great, sir.
I think, Shajir, generally speaking, you know, our margins have remained in this,
you know, band.
And, you know, depending upon the certain quarter, depending upon the demand. But this quarter, what we saw as compared to last year's same quarter was that the demand for the SwitchCare had been better as compared to last year. Because last year, if you remember all the projects, the contracting and everything was stopped. So this year, because that continued, so we could get a good traction in such care, which actually helped maintain the margins also. And we we were able to compensate some sales from the exports also.
So that has helped. On the cables and wires, I believe, you know, this particular quarter, there was a little bit of a better pricing because, you know, generally speaking, there there is when these commodities are rising, then you get some advantage of some stocks which are lying at the lower cost and you pass it on to the market. Otherwise, that's the reason for the expansion in the margin. Over the next one or two quarters, things should come back to normalized levels that we have been gaining getting in cable and wires in the past. But the SwiftCare margins have generally remained in this band between 38% to 40%.
Got it, sir. And with respect to ad spends, so, basically, this quarter is around 1.7% of sales, where whereas the normal run rate used to be, 3.5% of sales. Last year, obviously, first quarter wasn't that much today, that much high in terms of ad spend. So do you see this 1.7% of sales normalizing, say, over the next few quarters in terms of ad spends? If so, will you go back to the old levels?
It will be increasing because this year, also, when we started before the lockdown, certain advertising decisions were taken, which were, you know, slowed down as the lockdowns happened. We will now continue to review the markets, how they open up because certain markets still are not fully opened up. So we will continue to review that. And going forward, yes, this will increase, may not be at the same levels fully in the next one or two quarters because that will take some time to recover fully to their normalized levels. But in the last one or two years, the media is also changing, the digital trends are increasing.
We just have to review in the next few quarters what is the normalized levels of advertising.
Got it. And any further price increases that might be on cards across all the products, switches, switch gears, fans, lighting, that might be taken over the next six months?
I think pretty much because the commodities have stabilized now So pretty much most of the actions have been taken. Some of them may be with a lag effect will effect in this particular quarter. Otherwise, the actions have already been taken.
Got it, sir. And my last question is with respect to cash flows. Cash flows this quarter had been negative. Should we read too much into it? Or I mean, can you give an idea as to why it was negative this quarter?
As you can imagine, the first quarter, the production levels were down, hence the procedures were down. And we have always maintained during the first lockdown as well as in this lockdown as well that we've never delayed the payments to the vendors. So the trade payables actually contracted in this particular quarter, which when the production levels come back to normalized levels, we'll and plus the inventories are also at a higher level because the summer season buildup for air conditioners and fans was not able to achieve the full sales, which will again normalize in one or two quarters.
Got it, sir. Thanks.
Thank you.
Thank you. Thank you. The next question is from the line of Ankur Sharma from HGSE Standard Life Insurance. Please go ahead.
Yeah. Hi, sir. Good morning. Thanks for your time. A couple of questions.
One, you know, just on the overall demand recovery, and clearly, you know, we've seen a very strong bounce back in the last quarter. So just wanted your thoughts. You know, one, you know, how do you see this recovery compared to the first wave? Is it broad based? Is it more b two c?
You know? Because last time I remember, two b was very late to recover. You know, so just wanted your thoughts. And more importantly, do you think this will also sustain? Because last time also, saw Q2, Q3, Q4, the rapid recovery happening.
So would you expect a similar trend?
Well, this year, the sales buildup has been different than last year on many counts. One, you know, last year when things opened up because the markets had been completely closed, there was a pent up demand more so from the consumer side. And but there was contraction in demand for the industrial and infrastructure projects. Plus, we because of that, also because the projects were slow, the eight cities eight eight category cities took more time to come back, and B and C was compensating that, you know, downtrend and plus the rural markets. This year, actually, if you see, the markets have opened up very in a very staggered manner.
In the June, things started opening up, and still there were intermittent lockdowns. Even now, you know, there are certain markets where the lockdowns and certain markets are still there. So that's been slow. The second thing is that there is no pent up demand because, you know, the markets are generally open at least for a few hours in a day or a few days, you know, weeks. So they were open, so there is no pent up demand, especially on the consumer side.
Third, there is, you know, I would say, a secular growth in whether it's A class cities, B cities, rural areas. The kind of jump that's happened in the rural areas is not seen, but it is also compensated by the fact that A category cities have not come down drastically. And fourth, very importantly, the projects in the investor segment has done well in the last quarter, which should continue. Last year, it came down, and it took a long time to actually recover. So I think there are many factors which are very different than last year.
But overall, if you see in the last few weeks, we are definitely seeing growth over last year.
Perfect. Okay. And so just going back to your opening remarks, where you said something on market share gains from the unorganized, and that's something we've seen over the last three to four quarters. So our assumption would be that continues, right, in terms of the large getting larger and the smaller players actually do some share?
So last year, post the lockdown, again, because of the supply chain disruptions, there was a sudden shift in market share from the unorganized sectors to the organized sector, which actually sustained during the year. And I would not just attribute the market share gains only from the unorganized sectors in the organized sector. It also happened because of many initiatives and the actions taken by the company, not only last one year or two, the last couple of years, addition of channels, whether it is ecommerce, modern format, rural areas, addition of product categories, enhancement of distribution reach. Many actions were taken, which actually has helped us gain market share in the industry overall per se, not just for the unorganized to the organizers.
Right. And just one last question, if I may, on Lloyd. You know, again, this year, we've seen, you know, lockdowns in the peak summer season. Right? So if you could talk about the inventory situation, both with the company as also in the channel, maybe at an industry level and also for Lloyd and by when do you think the situation normalizes?
Yes.
That's also my concern. Thank you. So I would say that the inventory levels are high because March, the inventory was built up for the season. And that didn't happen the season. You know, April and May are the biggest month for air conditioners.
That deal was washed out. So the inventory levels continue to remain high at the end of the quarter. And but at least in the trade, the inventory levels are not high because that's also a time when the trade starts destocking the product. So their secondaries have been better than what the primaries have been for the companies. So I would say that for the companies, the inventory levels are high, which will get normalized within a quarter or two.
The
next question is from the line of Rahul Agarwal from Ingrid Capital. So
a couple of questions, sir. One is on the demand outlook. So could we discuss that more elaborately on the five key segments you have? Let's say, switchgear, lighting, cables, Lloyds and ECD. Would you want to highlight, like, which one is doing better than the other?
And how do you see that for the full year? That's the first question. It's very general question. I would say it's very difficult to answer. I think I've given you the market trends, which actually give you the demand outlook.
And I would not say that it's very different to the Indi segments. Okay. Got it. On the ECD margin, the second question was on the ECD margins. It did 11.7% for the quarter on the EBIT level.
You've highlighted that adverse operating level actually hit. Assuming that the price hikes have already been taken, would we see it going back to 40%, fifty % for the full year?
If it is the same for
the full year, but in the coming quarters, yes, it will go up. It will take some time because this segment has been impacted by the commodity price increases. And to continue to remain competitive and gain market share, we'll take calibrated decisions on the price hikes. And so definitely because of the operating leverage and not the entire price hikes being passed on, so the margins have remained low, which will come back. Got it.
And lastly, the CapEx. So last quarter, we discussed about INR 500 crores for the year and about 1,000 crores plan for next two years. Does any change in this plan? Not at the present moment. We'll continue to evaluate as the markets are opening up and looking at the demand scenario.
The next question is from the line of Chirandeep Singh from DSC Mutual Fund. Please go ahead.
Hello, sir. Good morning. Congratulations on your base set of numbers. So my first question is on the especially on the real estate market, you know, because that's one of the key end markets for most of our product categories. So if you can highlight, you know, from maybe next two to three years perspective, how do you perceive this market?
Are we seeing kind of bottoming out and then
pick up in terms of, you
know, this market, which is having a more implications for different products that we need?
Tell me, your voice was not very clear, but I assume you're talking about the real estate. So
Correct. Yes.
Yeah. You also you also track real estate, though we do see certain traction in in real estate. I think, initially, it was largely on the handing over of the either semi made or the almost finished apartments. But lately, are seeing some traction even on the new sort of launches being announced. So again, I think we need to see this market.
This market has been into sort of cold storage for quite some time. But we believe, and we have also seen the leading real estate players being very bullish on the new launches and the demands being high for over the last decade as well. So I think we also need to watch watchful of that. But right now, the things look improving on the real estate front, which definitely augurs pretty well for a company like Havel's because a lot of our products go into homes.
Okay. Sir, on cables and wire strength, if you can, you know, split into the volume growth and the value growth. And in terms of the price hikes, what's the kind of quantum of price hike that you have taken, and any further price hikes that you're expecting in cables and wires?
So around the 30 to 35 has been because of the price increases you've seen with the cable and and wire growth. And, definitely, there's been a decent volume growth as well. But as you know, the commodity high 73 CV are particularly in this segment. So I think around 35% of this could be attributed towards the price hikes. And others will be around 10%, but you were asking.
So so sorry, sir. Can you can you repeat that? The 10%? I think
you talked about the cable and wire segment. Correct?
Correct. Yes.
Yeah.
Okay. In cable and wire segment, around 35% of the growth will be attributed to the price increase.
Okay. And, sir, just lastly on the switchgear part, you know, you also touched upon the exports as a, you know, segment which would have picked up. So on the exports opportunity, if you can highlight, you know, how you see that going forward, not only in switchgear, but in any other categories also. Yeah. That's the last question from my side.
So switchgear switchgear con continues to be the leading product category for export. The market is fairly concentrated in, you know, have us in among the top 10 manufacturing in the world now in switch gears. So I think the larger opportunity lies in switch gear, and the next big opportunity we foresee for also will be air conditioners. But, look, it's early days for air conditioners. But, yes, we are very, very bullish on the export opportunity.
We believe we're the China plus one as well. And we are seeing good traction happening, but this will become meaningful in couple of years. But as of now, on the switchgear side, we are we we are having a good account opening, and this is that much we can discuss about that.
Okay, sir. That's all from my side, sir. Thanks for taking my questions.
Thank you. The next question is from the line of Sonali Salgankar from Jefferies India. Please go ahead.
Sir, good morning, and thank you for the opportunity. Congratulations on a great set of numbers. So my first question is, again, an extension of the earlier question in terms of price hikes. Sir, could you quantify approximately what are the price hikes that we have taken, say, YTV across the product segments?
I mean, that will be difficult. The only thing we can say is that on the X Cable and Wire, our price increases have been in the range of around 10 to 10 to 15. 10 to 15%. And most of the price increases have been taken looking at, as we just mentioned, the calibrated approach, the market competitive scenario and how much has been the commodity increase. So these are mix of everything.
Maybe the all the commodity costs may not have been passed on. But you see that these are decisions which are taken into account several factors impacting the market and the demand scenario.
15% x cables and wires, what would
be the approximate quantum taken in q one?
I mean, that will be difficult to talk about. But I think you asked what has happened in the last since the commodity cycle begin. That's what we have given. All we can say is that most of the pricing is effective because we see some stabilization in commodity cost as well. So as of now, they are not much anticipated price increases in the offering.
Understand, sir. So my second question is regarding your alternate channels, ecommerce and Google. Sir, could you help us understand or give an update on the development of sales into both the channels?
So ecommerce continues to do very well. Part of that could be also that our presence has been limited in the past, but as of now, we can claim the strength of the brand, which has been sort of demonstrated in the offline channel for last so many years. I think it's pretty much evident in the online channel as well. One of the leading platform, we already ranked number one in terms of fans. So I think we are extremely sort of satisfied, and we're very sort of bullish on how this channel will pan out for us.
Because we are doing everything to keep in the harmonization between various channel. This is what we discussed earlier as well. Even rural is is tracking pretty well, and we are introducing more and more products into the into the rural channel. So both these channels, I think, continue to do pretty well with a strong promise of how they will pan out in near future.
Understand, sir. And how much would the sales from both the channels would have grown in q one? Because last year, we saw phenomenal growth. Of course, the base was a little lower, but right now with the base catching up
on So we can look
What is the kind of steady state growth that we could end the search from the channel?
Look, you know, these these are bases are very low, so the percentage will be sort of meaningless to discuss. But all I can say is they will become meaningful in terms of the share of the sales in next sort of year or two. All I can say as of now are they are tracking pretty well, sometimes even exceeding our own expectations.
Understand, sir. Sir, and last question would be on the distribution. Currently, what could be our distribution pan India, and how much of that would be rural versus urban?
So we have about 45 14,500 distributors all across India for all product categories, and we have a retailer base about 85,000 retailers all across the country. This includes the. We have close to about 25,000 outlets registered in the rural channel.
Sure, sir. Thank you.
Thank you. The next question is from the line of Siddharth Bera from Nomura. Please go ahead.
Yes. Hi, sir, and thanks for the opportunity. Sir, my first question again is on this ECB and Lloyd segment. If you can just talk about a few product introductions you are working in, which can help us in the growth And on the margins as well, on the Lloyd's side, how how how do you think we should look at maybe next year in terms of the improvement from LBR?
So on the ECG side, there are continuous product instructions which are happening. You know, despite the fact that the fan was a complicated quarter, there were very good new models which were launched on the air purification side as well as on the aesthetic side. Technological and aesthetic new product innovations have happened. Even in air conditioners, even in voyage, there have a huge revamp of the washing machine range, refrigerator range continues to enhance. So there has been a continuous innovation process in both these product categories.
Going forward, I believe this actually, the new product innovations will definitely help increase the sales. And as far as Lloyd's margins are concerned, last couple of years have actually been a bit of a dampener because the sales in the seasonal times were affected. So I think next year's from next year, we should definitely see good traction of margins in Lloyd as well.
So, I mean, to be specific so in Lloyd, we had introduced this entire range of washing machines and refrigerators. So, I mean, by when can we see meaningful pickup in some of these segments? And I think on the margin side, I mean, should we expect close to double digit margins we should aim for in Lloyd in the next one, two years?
See, you when you asked this question about meaningful contribution, it will take at least four, three years for them to start making a meaningful contribution. Look, Lloyd will continue to be our growth engine. And so the main focus there would be to gain market share, gain entry into each segment. And yes, of course, because of the volumes, the margins will improve. It's difficult to say how much margin will it be, but it will improve from the present role.
The next question is from the line of Naval from MK Global Financial Services. Congratulations
on good set of numbers. So my question is on revenue distribution, the way you elaborated on Tier two, Tier three towns and how urban is picking up. Any sense you can provide on how geographical mix was in the last quarter? Not the exact numbers, but if at all qualitative trend, which, you know, geography would have outpaced the growth number and how trends are happening in current month as well? Because you also stated the way there are localized lockdowns in South, so that are still impacting, you know, overall recovery.
Yeah. There has been, you know, a variation in the, let's say, the extent of pickup in sales. The South and East have been weak in the first quarter, and North has definitely been much stronger. West has been fine. But South and East are quite slow.
Even East, the biggest market for us, Westing was took a long time to open up. So that will start improving in the East has started improving in the second quarter, but South is still a bit weak as it is in it.
And anything specific on Lloyd's because of the strong heat wave in North? So how traction would have been, say, last twenty, thirty days because of this? Or this would have accelerated channel inventory liquidation far more exceeding your expectation? Was that also the trend in Lloyd's?
Yes. In the North, actually, you're right. The channel inventory reduction was beyond our expectations because, you know, the lockdown actually opened much later as compared to last year this year. So we not saw a good pickup in sales for air conditioners because of the heat wave. But now because of the monsoon coming, things have started normalizing back again.
So the first quarter saw that benefit, so the losses which happened in the East and South were compensated by now.
Understood. Thank you, and all the best.
Thank you. The next question is from the line of Aditya Bhartia from Investec. Please go ahead.
Hi, sir. Sir, if you could just share some insights on how three months of the quarter have panned out. May, I guess, would have been very weak, but how strong was exactly the growth that we saw in June?
Yes. I mean, this is quite general. Until the April 15, things were quite normal. And then suddenly, the lockdown happened, the COVID, you know, the ferocious COVID wave started around the April 15 and continued till the May when things started opening up on a very cautious manner. I think June was the month where things were much better compared to April and May.
Sure, sir. And so this has been you know, where we have seen the reduction in a number of employees. I mean, I FY twenty one was the second consecutive year where we saw a reduction in total number of employees. So which are the areas or verticals wherein we are seeing employee deduction, and why exactly is it panning out? Fine.
There is
no reduction. I don't know where are you getting this impression from. If it is driven from the value, you see these are because there are all variables which are also included in the value. So I think this impression is is is not sort of correctly placed. There is no reduction in the number of people.
In fact, we have added the number of people.
So I was just taking the data from the annual report wherein it is the manpower number that you mentioned that appears to be going down, which is why the question.
No. And if you compare the last 10 numbers are the same, maybe you can take it offline with Manish.
Sure, sir.
I can do that. I do that.
But I must I must correct it because you are you are asking it on this call. Let me say it very clearly. There has been no reduction in the number of people in in any discipline. With all the numbers are going to increase because we are fairly sanguine about the growth which is not going to happen in this country, and I think we are very well positioned to take advantage of that.
Understood, sir. Perfect. Thank you so much.
Thank you. The next question is from the line of Balaji from ROE. Please go ahead.
Thank you for the opportunity. Congratulations on the good set of numbers, sir. My question is relating to Mister
Balaji, sir, this is the conference operator. There's a slight disturbance coming from your line, sir.
Okay. Is this better now?
So the disturbance is still there.
Hello? Is this better now?
Slight airy disturbance, sir. Now? Now it's better, sir. You may go ahead. Okay.
Okay. Thank you for the opportunity, and congrats on the great set of numbers, sir. My question is relating to contributions in ECD. When we are comparing it with FY twenty last to last year pre pandemic, we see that there's a drop by 700 basis points. Is that because of delayed price action or any other reason because of commodity price increase?
Or is there a mix change? Because you said that France has seen a stressed quarter.
No. So I think what you're comparing is that this is the fan season quarter, which is q one of FY twenty. That obviously is a quarter where the fan season the fan sales are the highest, and hence, it helps bump up the contribution. And so I would say that it's not really a good comparison. And, yes, of course, because the commodity prices have increased, some corrective pricing actions have been taken.
There is always a delay. I think going forward in the next two or three quarters, you'll have to see how the situation comes in. It's it's not a great comparison to do a full quarter and that to the highest season quarter with this truncated quarter.
So as a follow-up to that, I'm just doing a comparison because you the revenues are comparable. FY twenty revenues were around 562 crores, and this year, ECD revenues are $5.76. So was that truncation in fans?
It is growth in many categories. For example, water heaters, appliances. Pans, obviously, you know, where the manufacturing is high, and season and highest in April and May, which was lost. So it's not a again, I'm saying, this is not a great comparison to do a full quarter comparison with this particular completed quarter.
Understood. Understood, sir. Understood. And any any so the Lloyd's another question again on Lloyd's contribution. You did mention that the contributions will be going up two to three quarters down the line.
In the longer run with newer product mix coming in, what the refrigeration and washing machine, any any any sort of expectation on what it can go up to?
We don't want to give a number, but, yes, they will be in full in two minutes.
Okay. Okay.
Thank you, sir. Thank you.
Thank you. The next question is from the line of Nitin Arora from Access Mutual Fund.
And I'm sorry, I joined the call a little late. And I'm sorry if you have to repeat, and this question has been asked. Sir, this is the second quarter where the cash flow is negative. Just wanted your guidance how one should look at it, and if you can throw some light on how the secondary sales in the channel has moved.
So I think the cash flow in this quarter is largely attributed, as you mentioned, the two products, particularly ACs and fans, you were kept still kept in high inventory, which could not get liquidated as anticipated because of the particularly large peak season got impacted by COVID. And second, maybe because of technical, but since there was a truncated quarter, the packages were low, but only you kept paying the regular credit payment. So what happened, the credit goes down, which I think we simply just recover over a few quarters. So I don't think that should be cause of much worry. As well as secondary, I think secondary sales continue to track well.
And we have said this earlier also, since demonetization, we have seen the channel inventory continues to be tracking pretty much the secondary sales because I think there has been a repeated whether it was demon and GST, then COVID. I think there is a bit of a sort of semblance in the dealer channel where they want to keep the inventory, which is not too high compared to what they see the secondary trend. So secondary, the sales are pretty resilient, and we believe they should improve as as we said the COVID this season. Hopefully, there is much more reopening of the markets.
So if I remove if you look at the inventory, excluding cable and wire, the inventory is at an optimal level, not too high, not too low. Is that the right
way to look at it?
Oh, sorry. We will not see cable wire. We will Our inventory our inventory is high for the big diesel product like ACs and fans. ACs and fans? We maintain, right, not cable and wire that much.
No. No, sir. My question is if I exclude the cable and wire business, the rest of the inventory in the channel, is that the optimum level? Is that the way to look at it? Not Yeah.
Yeah. Yeah.
That's that's right. That's right.
Okay. And, sir, any comments of yours towards the market share gain from the unorganized sector? Is it still happening, or you think unorganized now is stable coming back? How because that was a good share of gain you witnessed last year, and I think it will continue.
Just some comments on that. Thank you, sir.
So as you said, we joined late. We did mention this in the beginning, but maybe for the sake of repetition. I think we have mentioned that there has been overall gains for Havel's. And so these are the combination of efforts over years. These are not sort of one quarter or one year effort, whether efforts into new channels, seeding sort of new product categories, looking at a new customer category.
So I think these these have what has helped to gain the the market the market share, which we believe is overall, there could be something attributed to organize, something attributed to the organized as well. However, the pie of organized seems to be growing because of there is a continuous shift from unorganized to organized. And one cannot try really on a quarter to quarter basis, but we believe the trend which started, you see, because of COVID continues to remain. So this is the only way we we can sort of, as of now, explain the same. K.
But there is no mister
Rora, sir, request you to rejoin the team.
I'll come
back in the queue. Thank you. Fine.
Thank you. The next question is from the line of Bhavan Vittlani from SBA Mutual Fund. Please go ahead.
Okay. Thank you for the opportunity, and congratulations for So I have two questions. First is if you could guide us on what is the expected capital expenditure for the current year? And if you could also highlight what it could be for the next couple of years and the categories in which we are investing towards capital expenditure? Second is if you could comment, we would we are expecting to see new energy ratings for fans as well as air conditioners from early twenty twenty two.
So your comment on how is Havel's position towards that? And will this also aid in terms of market share gains due to Havel's superior investment and research and innovation?
So on the CapEx side, we did mention we had earlier guided INR500 crores for the year and INR1000 crores in two years. As we said, we'll continue evaluating, look, there could be something shift because first quarter due to COVID, there have been some reduction. So the market the factories could not be open for all these kind of construction activities and all. But as of now, we are not changing guidance on the same. I think we'll continue to evaluate that.
On your second question on the BE and all, in fact, we were already ready. The government obviously delayed the notification for right reasons. But we were already ready in terms of our fans and AC, position is also there. So as of now, think we are government, are fairly well prepared with the new range. You see it's fully compliant with the new BE norms.
So we do not face much issues on that. And you are aware, we see our CRI or R and D efforts are pretty sort of future focused. We have a large team as well. So we continue to evaluate how the new B norms will affect not only the company, but also the customer orientation towards that. So in terms of a specific question, the answer is we are already ready with the range we are complying with the new BE notes.
Sure. Just a follow-up on this. Do you expect these to be delayed further as they were last year because we've got a strong status?
As of now, there is no indication like that. We do not feel there'll be any meaningful shift, if any, by the government on the same now.
Sure. Thank you so much for taking my questions.
Thank you. The next question is from the line of Achal Lawade from GM Financial. Please go ahead.
Yeah. Good morning. Thank you for the opportunity. Can I can I can you hear me, sir? Yes.
Am I audible?
Okay.
Sir, congratulations for the great set of numbers. My question is, if you're looking at, you know, normalization in commodities and, you know, growth picking up, how do we look at the margins, you know, what we have delivered in the first quarter? Do we think that this is kind of a a sustainable number? I know there is an element of seasonality here, but from a from a annual number perspective, is it fair to say that these numbers are these margins are sustainable?
I believe that if you don't set the entire annual, but on an annualized basis, yes, the margins should start coming back in most of the product categories. So, you know, sir, in, like, in cable, the buyer is from the higher side and ECB is from the lower side. I think we should be coming back to normalized levels soon.
Understood. And my second question is, you is there any thoughts on inorganic opportunity side? You know, are we are we looking at any opportunities or, you know, given the kind of product profile we already have, you know, we may not be really keen on the opportunities?
No. Look. First of all, we we have a strong organic traction in our product categories. You are aware after the acquisition of Lloyd, the the kind of runway we have in terms of product categories, can it is fairly sizable. So we have mentioned before also, we do not feel the need of inorganic acquisition to support our growth.
We are there we see a strong traction in organically as well. However, again, you see, there are opportunities, you see, which fit into our portfolio at a at a right pricing, which, again, is a very difficult thing in India. So I think that something will always remain open. So but let me just clarify once again that this not something which we need to fulfill our ambition of becoming a sort of a much larger player in industry. We will remain open.
That's fine. But we feel very satisfied with the kind of opportunity we see organically in the entire portfolio we have at Heaven.
Understood. Thank you so much. I'll come back in a
Thank you. The next question is from the line of Mayank Bandari from Nirmal Bank. Please go ahead.
Yes. Thanks for the opportunity. Sir, my first question is on. So we have grown about 60% Y o Y. Any idea how much industry growth has been?
Well, I think we have we have not much idea, because that is your. But we believe I think we have we have pretty much sort of maintained and grown our sort of market share in this. But look, the last year, this was very different maybe for that as well. So difficult to look at one quarter and then decide how others have done. I mean, let's go wait for the whole year performance, and then the picture would emerge better.
And, sir, how has been the growth in the July month, specifically given there is extended summer in northern part of the country? How how would you any comment on that?
July, I think they're difficult to comment, and we like to stick to q one performances only.
Okay. Okay. And, sir, in the q one, as you highlighted, that the contribution from industrial has been has increased. So how much would have been the contribution from the industrial side of the business?
Overall, on the Haval side, we see that almost about 27% of the business is from industrial.
27%?
Yes. Industrial and intra.
Okay. And lastly, sir, we have seen a dip in our other expense. Other expense as percentage of sales is pretty low when we look at the last year or nine quarters. So is that the savings which we have realized in the pandemic year is now kind of resulting in better margin for us?
I think in
some sense, this could not be compared with last sort of three quarters because we as we said, the quarter has been sort of truncated. A lot of areas, there have been sort of local lockdowns as well. So maybe I think let's view them over next two quarters, and then we can see the trend. So I don't think these are sort of really compelling we can draw on this quarter, which has been fairly sort of lopsided in some way or the other.
Okay, sir. Thanks. Thanks.
Thank you. The next question is from the line of Aniruddha Jooshi from ICC Securities. Please go ahead.
Yeah. Thank you, sir. Thanks for the opportunity. Sir, one question on the distribution. So we have around one lakh 55,000 retail outlets.
Can you indicate what would be the universe, or how much is the scope to expand the penetration further? Also, in rural areas, we have just 25,000 outlets. So how much can be the penetration expands expansion scope in that? And we have started the initiative rural. Again, what are the initiatives that we are doing in that?
Yeah. That is one question. And second question is, obviously, in commodity linked categories like cables and wires, we have taken steep price hike of almost 35%. But let's say, if the input prices decline, will the company be again reducing the selling prices, or it will stick to the current selling prices means how it will be playing in that scenario? Yeah.
That's it from my side.
I'll take your second question first. You know, normally, cables and wires is the prices in the market follow the monetary trends. So whether it is an increase or reduction, within a short period of time, it is passed on to the consumer. That has always been the case. And yes, you are right that if it comes down, that will also be passed on to the consumer.
On your first question, on the base is still very large. I would say with the electrification, you know, going into smaller towns or villages, there is a huge scope to expand this network retail network. And even within the rural segment, you know, right now, we have identified 3,000 towns where the population is below 50,000. Where we are now, in a short period of time, we'll be covering that. But to cover the entire retail network, that will also take time in, you know, adding more and more new product categories within the rural segment.
So I would say that within the rural areas also, we would be still, you know, at a at a very low base at the present moment because, you know, it's just a two or three years old journey for us.
Okay.
That's helpful, sir. So just last question from my side. In case of Lloyd, what are the three key important things that we would be working on to expand the market share? If I guess we already have a large product portfolio in place now, I guess, wise also, we would have already been reaching out to the distribution of most of the outlets that the market leader would be reaching. And in terms of pricing also, we would be relatively more competitive compared to the pricing of the MNC products or even the market leading products.
So what are the three important things that you see will lead to better market share gains for Lloyd?
So according to you, we've already exhausted all our options in the expansion of Lloyd.
No. No, sir. No. No, sir. I mean, that is not that is not the absolutely not the thing.
So It's a it's a it's a it's always a journey that is having the Lloyd. You know, maybe five years ago, you would have asked me, I would have said the same thing, product innovation, branding, distribution reach. That is a continuous process in Huddl, and ten years ago as as well as now. Voigt, I think, gives us far more opportunity to keep investing on branding, product innovation as well as distribution enhancement. So that will continue as a process.
I think whether it is FMCG companies or our kind of companies, that's the those are the three or four main key points that needs to be looked at quite all points of time.
Okay. Sure, sir. Many, many thanks, sir. Many
Thank you. The next question is from the line of Renu Bed from IIFL. Please go ahead.
Yeah. Hi. Good morning, sir, and congratulations for the good results in one q. So I have three questions. First, if you look on the demand side, last year, second half, we had a good pent up demand in addition to the base market.
So when we look at the current year, given that you mentioned that you're not only see you're not seeing any pent up further, how do we target volume growth for the year in this scenario without pent up. So any change in business mix strategy that should be there in place to ensure that we deliver growth or volume growth could be a challenge in your view?
Okay. You know, I I feel that, you know, I've always maintained even last year that the pent up demand could never have been for the entire year. The pent up demand is always for a short period of time when markets open up and there have been delayed purchases because of lockdown. The pent up demand actually played out. The rest of the year was not really a pent up demand, but increased demand from the consumers because of change in, I would say, consumer behavior.
And I would argue that this year, though there is no pent up demand, but the growth in the sector, which is, let's say, without COVID, that growth will continue. And that's where the growth will come, the volume growth, plus, of course, the pricing growth will come. So we we are quite confident that the growth will continue despite the pent up demand not being
Sure. And broadly, given the fact that commodities have also started to taper off, you have taken adequate price increase. Do you believe that the gross margin headwinds are broadly behind now? And how should we look at Lloyd's specifically because volumes as a moderate postseason? What would be the strategy there to improve the margins both in balancing ASP as well as relative pricing in the market?
So, yes, you know, the volatility has abated, and that's that's helpful. But it there will always be pressure on the margin. There is pressure on the margin because, you know, the commodities are at an all time high. And hence, you know, we are always balancing between the LP and the market as well as market shares and the margins. Look, we have always been a growth and margin oriented organization.
So we always have maintained balance between our growth and market share as well as margin. And I think that trade has will continue in the coming times also. We'll have one look on the market share and the other look on the margin. So we believe that the margins will improve from here, but it will be under pressure. It will be under pressure in the sense that it will require far more effort to achieve the requisite margins.
Sure. And also my last question is on the CapEx side.
You to rejoin the queue for follow-up questions.
That's okay. She already mentioned that she has three questions.
Yeah. So just last thing on on the especially for Loyal expansion in the South, 1 of the largest player has called up their South expansion plan. So do you think that the proposition of having another facility in the South makes sense given that PLI also is not focusing on finished products or components here? So are
we looking for a second percentage for now?
Yeah.
We are evaluating right now. I think if the PLI would have been on the finished products, maybe that could have, you know, fastened our entry into setting up a manufacturing facility itself. But now we will be taking it, you know, as and when the requirement of the market shares or, you know, volumes and void required. It will not be a decision based on CLI, but it will be based on the fact that how fast we can go into the market.
Got it. Thank you, and all the best, sir.
Thank you.
Thank you. The next question is from the line of Ashish Jain from Macquarie. Sir,
my question pertains to So, you know, fiscal twenty one was the first year where our, you know, operating cash flows were much lower than our profitability and we have than a profit. And in the same,
can you repeat?
Can you repeat?
Sir, sir, fiscal twenty one, the operating cash flows were much lower than our profits because of working capital increase and all, and we have seen the same trend in q one also. So do you think by end of this year, it will normalize and we will go back to a scenario where our operating cash flows are much better than our profits and all?
Yes. I think you rightly mentioned that the last year and the trend continued, but I think the disruption continued in Q1 as well. So yes, we are fairly sort of confident that these things will improve over the next three quarters. And look, structurally, we continue to be a net operating cash flow company. Nothing has changed structurally in the business.
So quarter to quarter, things can vary, but I think if you say that trend wise, we continue to be the same company year earlier, and I think we're only improving upon the same. So I think you will see this pretty much reflecting in the number in the next few quarters.
Right. Sir, my second question was on margins. So one of the comments that you made in the press release was that operating margins were impacted in a couple of segments because of lower sales and all. So what is the, you know, trajectory we are seeing for those specific segments like lighting and consumer durables to have margins kind of normalized now based upon the commodity and the demand momentum that we're seeing today?
So look, under absorption overhead was one part of the part of the reasons why they were lower. As you said, there are sort of competitive pressure as well. There are strategy about balancing the market share gains vis a vis pricing. So part of that over under the optional, I think they will get stabilized once the sort of we have the full quarters and hopefully there are no lockdowns going to happen in the future. Part of the I think will be strategy will be compensated through the higher growth into the business.
These are things which are fairly variable. So I think that needs to be seen only when the quarter plays out. But, yes, I think that part where the under absorption has been, hopefully, with now with the full quarter, that will get addressed.
Okay. Okay. Great. Thank you so much, sir.
Thank you. The next question is from the line of Rahul Soni from Smiths Limited. Please go ahead.
Hello. Yeah. Thanks for taking my question. Sir, my question is on the refrigerator and the washing machine, the new product we had you have launched under the Lloyd brand. So what kind of investment do you have done regarding this product?
And what is your current capacities? And in going forward, will you be manufacturing these in house, or is there is you will also outsource the manufacturing?
That's it. See, as of now, we are using the ODM approach where the designs are propriety. We are developing house through our research, consumer research. And whether
we
do in house, that's something we'll be evaluated as the as we grow in the in the volumes. But, yes, we we if you look at the way we work is that we always prefer to do in house manufacturing, but I think that question is sometime away. And washing machine, part of the washing machine, first, we already brought in house. So that we have done, but still there are large parts of refrigerator and washing machine which we can do also. Like I said, that's something we keep relating, and at the appropriate time, we keep bringing them in house.
Okay.
And what's your current capacity, sir?
Capacity, since we are not doing that much in house, I think that has not much need. We are doing an ODM approach. So these are these are not in house capacity. So capacity is of the vendor who was dedicated on on our behalf. Okay.
Thank you, sir.
Thank you. The last question is from the line of Chetan Seth from Samiksha Capital. Please go ahead.
Thank you for the opportunity. Am I audible?
Yes, sir.
Yeah. Sir, I have only one question. If you can provide a estimated, you know, revenue loss for the quarter because of the second wave, what when we budgeted when we started the quarter, and that will be helpful.
No. That's difficult to estimate. But this time, the lockdown has been sort of bits and pieces, sometime in now, sometime in east. So I think let's let's move forward on this. Think there's no time looking at the past now.
Yeah. But I I was just under trying to understand, you know, because it was a very sudden, you know, lockdown issue came up at the middle of the quarter. We we we will have a very less time to rationalize on the cost as well. So we're trying to gauge if if we have ended up the revenue the way we have anticipated at the start of the quarter, the things would have how things would have looked from that angle. Not the particular number, if any revenue shortfall in terms of percentage would also help.
No. Look. Revenue definitely is lower than what we anticipated. But I think it will be pure conjecture if you try to put some number on that. And, obviously, expenses, unlike last time, would not have been that much with you except for the variable ones.
You see, like, whatever in the date or or travel and all. So as I said, I think we will rather stay away from this, and let's focus on q two, q '3, q '4, and move forward. Sure.
I understand. I understand. Thanks. Thanks, and very well the best, sir.
Thank
you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you very much for joining the call, and look forward to a great year in the coming times. Stay safe and stay healthy. Thank you.
Thank you. On behalf of Batliwala and Karani Securities India Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.