Q1 24/25

Aug 6, 2024

Summary

Q1 revenue rose 17% YoY and EBITDA more than doubled, while washer sales remained weak. Management’s growth ambition depends on washer range upgrades, stronger sales execution and continued cost reductions.

Ladies and gentlemen, good day, and welcome to the IFB Industries Limited Q1 FY 2025 earnings conference call, hosted by Nirmal Bang Institutional Equities Limited. As a reminder, all participant lines will be in 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 touch tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Natasha Jain from Nirmal Bang Equities. Thank you, and over to you, ma'am. Thank you, and good afternoon, everyone. Nirmal Bang Institutional Equity welcomes you all to the first quarter FY 2025 results conference call for IFB Industries. I would like to thank the management of IFB Industries for giving us an opportunity to host the call. Management is represented by Mr. Bikramjit Nag, Chairman, Mr. Raj Shankar Ray, MD and CEO, Home Appliances Division, Mr. P.H. Narayanan, Managing Director, Engineering Division, Mr. Soumitra Goswami, CFO, and Mr. Jayanta Chanda, CFO of Engineering Division. I would now like to hand over the call to the management for their opening remarks, after which we shall open the floor for Q&A. Thank you, and over to you, sir. Good day, everybody. I welcome you all to IFB Industries Limited Investor Call for first quarter of FY 2024-2025. I am Soumitra Goswami, the Chief Financial Officer of IFB Industries Limited. I have with me Mr. Bikramjit Nag, Chairman of IFB Industries Limited, Mr. Raj Shankar Ray, Managing Director and Chief Executive of our Home Appliance division, Mr. P.H. Narayanan, Managing Director and Chief Executive of our Engineering division, Mr. Jay Chanda, CFO of our Engineering division. Now I will inform you about quarter one results. Revenue for the quarter was INR 1,244.44 crores against last year INR 1,062.85 crores, which is a growth of 17%. EBITDA for the period was INR 86.95 crores and its percentage to revenue was- The conference is now being recorded. Its percentage to revenue was 6.95% as compared to last year INR 40.68 crores, which was 3.83% on revenue. EBITDA amount came across a growth of 113% year-on-year. Rise in EBITDA amount is due to rise in gross contribution amount, which is on account of 17% increase in revenue. Fixed expenditure for the quarter was well below budget and was at par with last year, which helped the company to improve margin as compared to last year's corresponding quarter. PBT for the period was INR 52.40 crores against last year's figure of INR 3.55 crores. Q1 PAT was INR 38.84 crores, which was 3.12% on revenue. With this, I will request to start the question and answer session. 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 their 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 Shreyansh Jain from Swan Investments. Please go ahead. Hello. Please go ahead with your question. Mr. Jain? Mr. Jain, please go ahead with your question. Your line is unmuted. Yeah. Hello. Can you hear me? Yeah. My first question is, little better. Last few quarters we've been talking about improvement in our material costs. That whole quarter, if I were to look at your gross margin from 43%, now we are at about 38% odd percent, 43, 40 and now 38. Just wanted to get a sense, the effort that you gave us, what is happening here because is there some discounting that we've done in this quarter for Aircons? That's my first question, sir. Will you tell me the question, please? Yeah. The voice was a little muffled. I think you are trying to relate the material cost reduction with the gross contribution. Did I understand the question correctly? Yes, yes. Okay. What will happen is, typically in a quarter like this Q1, the percentage contribution from an Aircon category would be very high. And the gross contribution ratios at company level between the various product categories are different. What you see as an aggregated value is also affected by the fact that a lower gross contribution category like Aircon, which is very high as far as the revenue is concerned. As far as the point on material cost is concerned, we had confirmed in the previous quarter as well that the material cost reductions have slowed into the P&L. They have also been helpful to the margin improvement that you see in this quarter. And if you look at periods like quarter 3 or quarter 2, when the washer contribution rises, you will see a real link between the cost contribution and the material cost the way you are wanting to tally it. Does that answer your question, please? Yes, it does. My second question is on the washers category. Now, if I were to look at your performance as well as the industry. We understand the industry has been flat or maybe negative. But I am just trying to relate to what you were saying in the last 2, 3 quarters. We have done a lot of product innovation, new product launches. I am trying to just reconcile the fact that we would have placed a lot of primaries of these new products in the channel in the market. What I am trying to ask you is, sir, in the existing product category, have we faced some sort of volume degrowth because a lot of new products would have flown into the market, so a lot of primaries would have been built there. So x of that, where are we in the washers category, sir? Have we faced some volume degrowth or some kind of degrowth in that category? Yes. We have had degrowth in the washers category. And if you see the investor reports where actually category-wise, the sales figures are represented as well, you will see that there is a degrowth that we have had. We are not happy about what we have been able to do in the washer category. And I think the key area of focus is in terms of our sales team looking at the key accounts, the distribution accounts, and ensuring that we keep the extraction that we require. Currently, the level of work that we are doing, we are not happy with what is happening. So yes, there is a degrowth in this quarter as far as the volume and value is concerned. Okay. Sir, my last question is more on the extraction bit that you have mentioned in the presentation. I am just trying to understand when you talk about channel extraction, what are you specifically talking about? Can you help us qualitatively, what are you trying to do there? Because one of your competitors has said, placing a company's sales representatives in the channel has helped them grow. The second part to this question is, sir, I am just trying to understand your ROI on advertisements and promotion. I just saw the annual report numbers. We spent about 6% of our sales on A&P. I look at the industry, sir, your clear closest competitor spends less than 1% of its sales on A&P. We spend 6%. One of the leading players spends, I am just giving you some data points here. Last 10 years, sir, we have spent about INR 1,500 odd crores on A&P for a INR 3,500 crore top line, whereas the other guys have spent INR 500 crores and on a size of INR 8,000 crores of top line. I am just trying to understand, sir, where is the ROI? What are we looking at when we spend 6% of sales on our A&P? When is the leverage that you keep talking about will come in this line item specifically? Because this is one of your largest cost items in the other OPEX ratio. Okay. I will answer the question on extraction first. The work that we have to do on extraction is on two heads. The first is this point that you spoke about, which you said was a market feedback which you got, which is the presence of people in a counter where the products are displayed. Currently there are a percentage of counters, specifically the key account counters, where IFB has a product displayed, but IFB doesn't have a representative to sell. The presence of that person is critical to extraction. If you don't have the person, you actually don't sell anything. Once you have it, then IFB does enjoy a dominant share. One of the key tasks we have is to ensure that we fill up all the accounts physically, and their counters with people from IFB who we call as counter sales representatives. In extraction, this is the action one. The second was, which we have been writing about for the last two quarters, is that there were some capacity and some price points where we have lost share over the last few quarters. For example, an 8 kg front-loading capacity point was one. Top loading some of the highest capacity price points was the second. Starting from the month of August, there is a complete changeover of the range of front loaders and top loaders which has begun, which will happen between, let us say, this first week of August going up to mid-October. In terms of ensuring that the product range is tightly positioned as far as the market requirements are concerned, and also the IFB offering to consumers is significantly upgraded. This is the second part of the extraction. One is the presence of a person, the other is what you have as a consumer proposition is strengthened as much as possible. This is the first point as far as extraction is concerned. The second question that you had was vis-à-vis the A&P figures. I would just request Soumitra to also chip into this, because in the representation of the A&P heads, what heads are being considered as reported by IFB versus what is reported by others? I am not sure that this difference is 1%-6%, et cetera. Having said that, over the last few odd months, in terms of the money that is spent under the head of A&P and how we can make that expense more productive, better utilized, is an exercise that is internally going on, which by the end of this quarter will be fully stabilized. The specific question that you had is as far as the investments in the A&P head are concerned, have we been able to get the ROIs or the returns that we should get? Currently, the answer is no. For the spends that we had, definitely our leverage should have been much more as far as this is concerned. Okay, sir. I will fall back in the queue. Yes, Sumit, would you like to add to this point, please, on a specific comparison? Yes, Mr. Ray. In our sales promotion expenditure head, there are two kind of expenditure. One is promotional expenditure, which is pure promotional expenditure. Another is CSR expenditure, which Mr. Ray was talking about, the BTL who are present in different counters. In case of pure sales promotional expenditure, as compared to quarter one of last year, this year the expenditure has gone down by INR 13.7 crores because we have cut down many expenditure which are not necessary. We have cut down those heads, and in case of CSR, it has remained in the same level. If you take both sales promotion and CSR expenditure, total expenditure for quarter one this year is INR 66 crores as compared to last year, INR 76 crores. In terms of percentage of turnover, percentage is 5.30% in this year as compared to last year, 7.37%. There is a gain of 2.08% in the P&L. Is it clear? Yes, sir. That helps. And sir, what other line items would have helped us in reducing our OPEX percentage to sales this quarter? I am talking about pure sales promotion expenditure. As compared to last year, INR 32 crores has come down to INR 28 crores. It is a gain of INR 13.69 crores. We have cut down many expenditure. There are many heads here. BTL activity, which our branches are doing, digital marketing and many other things. There are seven, eight line items. We have cut down some of the expenditure which are not necessary. In this quarter we have cut down on those heads and it resulted into a saving of INR 13.7 crores for this quarter as compared to last year's corresponding quarter. As a result, including consistent CSR expenditure also, we have gained INR 12.45 crores in the total promotion expenditure over last year. Okay. Sir, my last question is, when do we see the full benefits of all the efforts that you have taken on the SG&A and the material cost reductions to come through? Because I think last quarter you were talking about Q1, Q2 and even on the employee cost. If you look at the way our material cost profile as well as the fixed expenses profile is today, the key thing to a significant profitability is the sale of the washer segment. And our gross margins are the highest on that category and the potential is also high. So between quarter 2, quarter 3, we are able to fully address the volumes from both the front load and top load segments with the work which is already completed in terms of material cost, the kind of volumes that we have seen on the Aircon from this season onwards, we will be able to deliver the profile that you are talking about as far as margin is concerned. Does that answer your question, please? Yes, sir. I will fall back in the queue. I have a few more questions. Thank you. Thank you very much. Next question is from the line of Prolin Nandu from Edelweiss Public Alternatives. Please go ahead. Yeah, hi, team. Thank you for taking my question. First of all, Mr. Raj Shankar, all the best for your next role. My question to the management is that what is our game plan to replace Mr. Raj Shankar? Are we looking at somebody internal and by when can we hear an announcement about his replacement? Right. This is Bikram here. This is something that the board is thinking through and we will revert on this front which will be by around September end, September end, beginning October. Mr. Ray is fully in charge and the team below him is fully equipped and is fully in charge. Sure. That's comforting to know. Now the second question again is something as a follow-up to the previous participant's question. Last quarter we faced some supply issues in Aircon. This quarter again, washers have not lived up to our mark, our expectation. While we have identified the problem in terms of increasing our presence on the counter, in terms of having the right manpower, in the past we have also identified the challenges to meet this objective is difficulty of finding the right kind of a people who may be within the region or the state or a particular geographical area. Apart from these challenges, what are the other challenges that are preventing us from solving this issue once and for all? Let's say for example, strategy A has not worked. How have we changed the strategy to solve for this particular problem? Raj Shankar here. It's a very interesting question that you asked because what we have seen internally is that this idea that we have a counter and the counter has an IFB presence, and it requires a person to ensure that we get extraction. In geographies where we have our manning rights in terms of the leadership at a state level or a zonal level where the sales team is fully focused as far as implementation is concerned, we find that we don't have any issues. Conversely, if we don't get the leadership right, there are lots of issues and among them, this is one of them. The point that you're making is right, that we have a particular strategy that we've been chasing. With that strategy, the counters are not completely filled. Are we making a change in strategy per se as of now? No, because we believe that it's essentially an implementation issue, and if we are able to get implementation right in terms of an entire alignment from the sales team and other enablers from the central teams, it is something that we should be able to close, and we should be able to close within the next few months itself. No, sir. Rajan, sir, I agree with you that I'm not asking you to change the strategy. To solve this problem, it's a very large problem in some sense. It's a cross-segment problem. Quality is not good, which requires us to go to the back end. The costing is not good, which again requires us to probably think about the gross margins and all. All these problems that we have are already solved in some sense. Yes. This is the problem which is taking a slightly longer time, right? I'm not asking you to change the strategy. What I wanted to understand was that, how are we changing the implementation of the strategy to get the results as soon as possible? Also, just when you answered that you are expecting a good Q3, Q2, Q3, right? In terms of washers. Again, if we don't have these people on the counter, how is that going to happen, right? Can you help us understand? Because now we are in August. Around 40 days of the quarter has already been passed. So we would be knowing, do we have people, right people on the counter or not in some sense. Is it that there is slight improvement on this particular issue on a quarter basis that makes us hopeful that Q2 and Q3 would be better? The answer to your point is that have we made a significant improvement as far as the manning completion is concerned? The answer is no. But what has improved is in terms of the alignment within the system, which is the sales team, in terms of the importance of this single parameter as far as the washer category sales is concerned, that is a very high level. So when I said that we have this belief that we will improve this parameter quickly over this quarter and the next quarter, it comes from that. But as a specific response to you, are we doing anything different in terms of the way that we look for people or the way we induct people? As of now, we haven't changed anything as far as those points are concerned. Sure. Thank you. Thank you so much. One last question, sir, before I join back the queue. Is there anything unexpected or one-off that we expect during the next 2 to 3 quarters like we had supply issues in Q4 for Aircon? Anything that you foresee that can derail our own internal expectation of how this year will pan out to be? As far as the market is concerned, we don't expect any disruption per se. The only risk that we are working on internally, which I would classify as an internal risk, is the BIS processes that the government of India has introduced, where there is an active discouragement of imports into India which could be at a finished goods level or it could be at a component level. Over the last few months, there has been an acceleration by the government on pushing this agenda forward. So that is the only possible area of a problem because in some areas, maybe the industry is not completely complete right now in terms of being able to source from within India or from sources outside of China. There is a possible risk there. But we are working with the supplier base and internal teams to mitigate this, and there's a lot of work happening at the industry level as well. So I would look at that as the only one possible area of risk. The market, I think, is still there to be accessed and potential still remains high as far as medium term is concerned. Sure. Thanks a lot and all the best. Thank you very much. The next question is from the line of Navid Virani from Bastion Research. Please go ahead. Hi, team. Thank you for the opportunity. I have a few questions. First one is on the M&A bit which we saw in our presentation. In your presentation, you mentioned that we are looking at an acquisition to be made. Is it only pertaining to the Engineering Division or this also stands true for the Home Appliances Division? Only the Engineering Division. Understood. Thanks for the clarification. Secondly, wanted to understand that we have also talked about the input cost reduction. Can you please share some specifics as to what is expected to bring in this input cost reduction? I understand your answer to the previous question about product mix changing to more washers. Are there any other things which you are planning specifically which can improve this input cost? There were two areas of cost reduction that we've been reporting. One has been the material cost related mixture. There were reductions made over the past two fiscals, which will flow into the P&L this fiscal. For this fiscal, again, we have taken a material cost reduction target on this work is happening. But the more important cost reduction element was this area of fixed cost reduction. Mr. Soumitra Goswami has spoke about some areas of fixed costs on which there have been reductions. There are another set of fixed cost areas that we are working on, and that is actually more of a priority than the material cost area for, let's say, this quarter and the next two quarters. That is an area on which we had reported a commitment in the investor reporting deck. Against that, there is still a lot of work to be done. That is the biggest lever in the quarters ahead. If I have to simplify what you said, you said that we can observe some gross margin level improvement in this fiscal, but a much larger set of improvement will take place at the lower end of the level, which should be seen in EBITDA margin. Is that understanding correct? Yes, because I think if you look at the data, you will find that the gross margins that we enjoy are already quite healthy. You can see them by value on their own, or you can see them as comparisons to players within this sector. The most important thing is to get the revenues in line with potential. As you rightly said, below the gross margin, working on the fixed cost elements is also a very large lever which we have to deliver in the next few quarters basically. You are right in the way you summarized it. Perfect. Thank you. Last one was on the growth guidance, which you mentioned in the presentation. You are talking about 20% kind of growth there. I want to understand where are we getting this confidence from? Also if you could share the specifics on what are the efforts which you are currently taking to achieve this kind of a number going forward. So, you are referring to page 24. Mr. Nag's point to the teams has always been that the kind of product range that currently the company enjoys and specifically an improvement on the Aircon segment and the addition of the refrigerators. His point is that 20% is actually suboptimal even as a value, because if you look at the potential that comes from the washer segment and the addition of the AC and the refrigerators, there is no reason why the company should not grow more than 20% on an annual basis. The point that he makes to the internal teams is what is captured here. Our confidence is coming from that in terms of the range that IFB carries today and also the kind of investments that have been made on the washer side which are now rolling out, plus what is already available from ACs and refrigerators. Does that answer your question, please? Perfectly pointed. Thank you. Thank you for all the answers and all the best to the team. Yeah. Thank you very much. The next question is from the line of Sunil Sethi from Sekular Capital. Please go ahead. Hi. Thank you so much for your presentation. I have two questions to ask Mr. Raj Shankar today and one is for Mr. Nag. Mr. Raj Shankar, I just wanted to check with you on the washer category. Earlier you had mentioned that there was a gap in the larger segment that is 9 kg, 10 kg which was filled in the middle of last year. Just wanted to understand that given that we had a gap in our product portfolio one year back and in this quarter we have seen some de-growth of 17% compared to last year similar quarter. Is it because we are drying up the channel going to a launch of new product portfolio or is this a larger trend across the industry in terms of trade output? No, there is no intention to dry up the channel per se because our channel inventories are actually much lesser than others. That is not the point. We are not happy about the de-growth as I shared earlier, and we believe that it has more to do with our implementation ability of points like expansion of the channel and getting extraction vis-à-vis the manning at the counter levels. The data shows that the industry has de-grown, but our internal analysis and consensus with all the sales team is that essentially our opportunity is much larger than what the industry reports per se, whether it is growth or de-growth. I would say 90% is to do with our own implementation ability and getting results through the market and 10% may be something related to the industry. Understood. I understand it from the Aircon numbers that the new range has been received really well. I think the new position differently as compared to the earlier one, and that's what you had mentioned in the previous call that maybe as this reducing our value prop or VAG bit towards the mid-premium segment, I believe that has worked well. Yes, you're right, because we've been wanting to position in the mid-premium for some time now. I think there was a resistance from the market to accepting us into that position. But with the work the teams have done, two things happened this season. One is we were much better placed across all the relevant channels. So whether it was e-commerce or whether the larger accounts, we had a much better representation this time. Therefore, the positioning of the IFB Aircon as something more towards the mid-premium side was accepted more easily. The second was that there was definitely a lift, which helped in terms of the overall growth in the industry, which was really very significant. Because we were present everywhere, we also benefited from that. There is still a lot of work to be done from our end in terms of really keeping the conditioner sales to the potentials that we see. But I think the initial steps in the fourth quarter have been good steps for the sales team. Yeah. Thank you so much, sir. My last question is to Mr. Nag. Mr. Nag, just wanted to understand since Mr. Rajendra Ray is leaving from the company, what's the thought process to go ahead in terms of hiring a replacement? Would it be a CEO? Are you looking for a candidate who is more towards the manufacturing side or more towards the sales and marketing side? Board is still evaluating this, and board always takes a comprehensive person who knows both things. Board's first choice would, of course, be like that. Mr. Ray was fully adept at both ends. We will go for a similar profile, either internal or external. That is still not decided. Sure. Thank you so much for that. Thank you. Thank you very much. Next question is from the line of Manoj Gori from Equirus Capital. Please go ahead. Yeah. Thanks for the opportunity, sir. Sir, apologies, I joined a bit late. If I understand correctly, we are guiding somewhere around 20% growth during FY 2025, which would be obviously led by Aircon sales plus revival in washing machine sales, where we have seen some pressure in Q1, but we expect it to come back on a healthier note in the subsequent quarter. Is my understanding correct? Yes, Manoj. That point of 20% is actually a point that I just made a few minutes back. If Mr. Nag would agree, with the kind of product range that we have, there is no logical reason why we should not be delivering that or more for that matter. That's the point. Right. Sir, after the tough quarter for washing machine during Q1, with monsoon obviously kicking in, have we seen that it will pick up from July onwards, and the momentum continues? Manoj, we haven't seen anything specific in July, but speaking to the channel, also e-commerce indicators, because they get the first feel of the consumer interest much earlier than the rest of the industry, things seem to be okay from August onwards. These are initial feedback, please note. Right, sir. Sir, on the margin side, obviously when we look at the Q1 product mix, it seems to be relatively unfavorable given that our costs are relatively higher in Aircon. But if we look at from Q2 and Q3, when our product mix relatively remains better towards washers. Should we expect sequential margin improvement? Obviously, you have talked a lot on this, but just given the visibility is limited for having results now, should we see improvement and sustainability on the profitability and the trend should continue to head northwards in the coming quarters? Manoj Gori, we don't specifically give a forward guidance because that would not be right. Yeah. But the single agenda that we have is to get the washer sales right. And with the gross margin that they carry, it has a very positive impact on the company's performance. As far as the sales team is concerned, or central teams for that matter, in this quarter and the next quarter, getting washer's potential, which will also be helped by the new range which is rolling out, is priority number one as far as we are concerned. Okay. Thanks, sir. Thanks, sir. Rajendraji, wish you all the best. It has been lovely interacting with you over the years, sir. Thank you, sir. Okay. Thank you very much. Next question is from the line of Madhur Rathi from Countercyclical Investments. Please go ahead. Hi. Thank you for the opportunity, sir. Sir, similar question on the margin front. Sir, with operating leverage kicking in, are sales improving? As well as I would expect that our refrigeration segment would turn mostly breakeven in next one or two quarters. Similarly, sir, can we expect a double-digit margin towards the year-end or high single digit to low double-digit kind of a margin towards the year-end? Soumitra, would you like to take this? Our intention is to- I will take this one. Soumitra Bagdia. As I had said, our intent is to get to double-digit margin fast, and we are still not there. In Engineering Division, we are at about 15%, and we would like to increase this further. In the appliance business, we need to get to double-digit margin first, which means if we get to that sort of a level, the overall margin for the company would have substantially increased. I think the first phase is that this will come from increasing sales, cutting of material costs and other costs, and reorganizing certain positions, et cetera. The work on that is ongoing. It will also include, of course, the margins will also come from introducing more higher-end products, et cetera. Yes, that's exactly. On the future, I understand your strategy, your goal, increase your margins. My question was, can we expect this to be achieved by the year-end, FY 2025 when the- Well, we had genuinely thought that we would have achieved it by now, but we have not. Our hope is that it will be done, as far as I'm concerned, this year. It's just taking much, much longer than I thought. Yes, if we can do it by November, December, it will be fabulous, and hope we can get there or at least nearly there. The issue with October, November is that the season is there. That time the sales spike up, et cetera, and the margins normally rise. We have to see on a constant basis where are we. We just have to work to it. Yes, I hope it will be a much, much better push. Okay. Sir, what kind of margins, either on a gross level or EBITDA level, could we achieve in our Aircon segment for the Q1? Sorry, what segment? Sir, Aircon segment, what kind of margins did we earn for the Q1 and can we expect a similar margin for the whole year? Mr. Ray? Yeah. When there are actually- Mr. Soumitra. Sorry, Soumitra, please. In Aircon product category, in quarter 1 of 2024-2025, we achieved a sale of 1.37 lakh units, which is a net revenue of INR 323 crores. We have achieved positive EBITDA for the first time, INR 8.78 crore, which is 2.72% on net revenue. Last year corresponding period, the profit was loss of INR 13.58 crores. There is a positive swing of INR 22.37 crores as compared to last year corresponding quarter to this year quarter 1. Okay. Sir, that was very encouraging. Just a final question, sir. Sir, we have guided that we will do an acquisition on the engineering side that will most likely double our revenues. What kind of IRR or ROC would this acquisition have a minimal IRR expectation that you have from this acquisition? Will this be margin accretive, like moving our margin from current 15% to low teens, high teens or mid-20s kind of thing? Engineering Division currently operates at about 15%, approximately. The company that we hope to buy as soon as that is done, probably will not have that sort of margin at the beginning because otherwise you pay a very high premium for such a company. Our view is that we buy something which makes sense for us strategically, and then we have to do some work in order to improve margins. ROC, at present, Engineering Division operates at around 34%. When we buy whatever we are proposing to buy into course, obviously on day number zero or day number one, IRR will not be high. With time, I think we would get to day 15, we are at. Okay. Sir, I understand that we will try to buy a subpar company and improve it to our levels. Just what kind of payback can we expect from this acquisition, like in 3 years or 4 years, can we expect our- Sorry to interrupt, sir. May we request you- Just a final question. Just a follow-up question on that. Just final question that is on our screen. We are looking into various options. We still haven't come up with the right things, so hence we can't answer that. But ideally, anything between 4 to 6 years is what we look for in terms of payback. Okay, sir. Thank you so much, and all the best. Thank you. Thank you. Thank you very much. The next question is from the line of Natasha Jain from Nirmal Bang. Please go ahead. Thank you for the opportunity. My first question is on the P&L statement. Historically, if I see, while gross margins have been the best for us, the translation from gross margin to EBITDA margin has been comparatively weaker. If I see your numbers historically, even at 40% gross margins, we landed at mid-single to low single EBITDA margins. I understand in terms of gross margin improvement, you are doing a lot of material cost reduction. What I want to know is what are we working on in terms of the fixed costs, which can help us in terms of healthy translation from our gross margin to a better EBITDA margin than we have gotten currently? My first question is that. Okay. This is Rajan here. I will answer that. Specific to our decision, our understanding was that the fixed costs that we were carrying were not right-sized. There are seven or eight lines of cost heads in terms of looking at the employee productivity and the employee costs. Things like e-waste compliance costs, office costs, travel costs. It was actually first principle-based evaluation of how much we could reduce without really affecting the overall approach to the market, and we set a target. That is what we are working on. Our understanding is that that opportunity is anywhere between 10 to 12 CR a month. That is the target which has been distributed between various teams and what we need to deliver. We have been working on this over the last two quarters. The results are still not really on the table, but in terms of this point which you made about having very high gross contribution but not being able to translate it to the bottom line, at the same level of sales, it is this area of fixed cost that we need to work on. Does that answer your question, please? Yes, sir, it does. My next question is, given that we are entering the washing machine season, I just want to understand, first off, what is our channel mix in terms of GT versus non-GT? If you could call out what kind of incentives are we rolling out to the GT channel. Just some color on that. So if you look at the channel mix, then e-commerce and IFB Points typically range between 15%-16% of sales. E-commerce is sometimes higher when we have events, et cetera, but overall is around this. In terms of the general market channels, you have essentially three routes. One is what is typically called as large format retail, which is the three big chains. Then you have multi-brand, and then you have distribution that is smaller multi-brand stores. Distribution for us is roughly around 15%-20%, and the remaining is split between the large format retail and the key accounts across the country. As far as the incentive structures are concerned, we typically don't look at any channel incentive. We look at an accounts level. So we look at an account, we look at what returns we can get, and over the last few quarters or more than a year now, we've been looking at whether we can get the complete range representation from key accounts, ACs, refrigerators, front loaders, front washers, microwaves, dishwashers. Then we look at what the commercial discussion should be with that account. Another point which we are working on is in terms of the channel incentives or commercials that we have. Commercials, the returns that we are getting, what improvements we can make on them. So we typically don't have a channel approach to incentives. It is more an account-based approach. Understood, sir. Sir, one last quick question. In terms of ad spend, definitely we've seen that you've maintained your runway from the ad spend hasn't changed over past few quarters. Just want to understand or rather if you can throw some color as to where exactly is this capital or is this amount being deployed as to how are we doing those spends in terms of marketing? If you can throw some color on that. Thank you. Currently, the various heads of ad spend that we're looking at are in terms of in-store investments. So if you have a store which has just opened or a big store which is already there in terms of the fixturing that IFB has, the branding inside the store, those are the areas where we are prioritizing investments now, which would essentially be in-store. Then the second head of ad spend is in terms of displays of products in the format of exhibitions where dealers of a particular area come and look at what we have, and there are discussions between the company and the channel representatives all together. The third head is digitals which would be approach to existing consumers or approach to consumers who are searching for the products that we offer. So the bulk of the spend is on these three areas. And then, of course, there are multiple smaller heads on which investment is required in other things. Is that the detail that you wanted, please? Yes, sir. Sir, thank you so much. That was very helpful, and all the best. Thank you very much. The next question is from the line of Aditya, an individual investor. Please go ahead. Hello. Am I audible? Yeah, sir. You are audible. Yes. My first question was on the manning side with respect to sales. Management has been very clear that we are not doing enough on the sales execution side. What is the current status, and have we got the manning in place or it is still work in progress? That will be my first question. There are two types of manning. One is the manning at a sales supervisory level covering a particular market, so that manning is in place. The second manning, which we were discussing a little while back, was in-counter manning. When you walk into a store as a consumer, you have a representative who explains the product to you. There we still have gaps which we need to close. And by when are we targeting to complete that side? As Mr. Nag said a little while back, that target was actually yesterday. We are already very late as far as completion of this work is concerned. The bulk of this work we need to definitely complete before we enter the season to be able to really use the season well. Within quarter 2 and quarter 3, essentially, the whole thing has to be completed by us. Okay, thank you. My second question was on the advertising side. Just as a general public visibility of the brand, because IFB is just not made in India, it is born in India. Just making a connect with the audience, will it help from the advertising front and translating into sales? I just wanted to understand the lookout of management. What is the specific question, please, you wanted to understand? Visibility of advertising in day-to-day life of IFB as a brand. Like you said, most of the spend is in in-store and around the store. Are we targeting greater visibility for IFB as a brand? Yeah. It is a beautiful question you have asked, and one of the points that Mr. Nag has been making to internal teams is that this urgent need to fix the margin side and also to conserve spend on the A&P side by picking a few different categories. Both of these actually help to generate revenues and margins, which then will enable us to invest as far as the brand is concerned. It is a very important agenda with the product range that we have of being able to communicate at a larger level about the IFB brand, its presence in the market. To do that well, we need to fix the issue of margins first. That is the point that you heard him speak about a little while earlier, and for us, that is the core agenda. I hope that answers your question. Yeah. Thank you. Thank you so much. Thank you very much. Next question is from the line of Naveen Ved from Nuvama Asset Management. Please go ahead. Yeah. Thank you. My question has been answered. Next question is from the line of Shubham Jain, from NV Alpha Fund. Please go ahead. Good evening. I had one question on the distribution front that you had mentioned earlier. Just wanted to understand what is the profitability across our distribution channels and specifically the IFB Points. Is it profitable for us as a channel? Distribution is profitable for us as a channel, and in fact, it is more profitable than some of the key account and large format channels. Specifically for Aircon, refrigerators, top loaders, and also now for front loaders, the distribution is an excellent lever for the company, not only for growth, but also from the margin point of view. Understood. In the presentation, you mentioned that they were doing a revamp of the distribution points that we have. So what exactly is the revamp that we're doing? Are we just adding product category? How are we seeing the performance after the revamp in the 180 stores that we have renovated? You are talking about the revamp of the design of the IFB Points, not distribution, right? Yes. Yeah. So I think you will find it in the market. There is a new design that we have started rolling out from about three quarters back. It just makes the store look better. The feedback that we have received is in terms of the lighting, in terms of the product representation, in terms of the feel of the store, which is different from a typical appliance store, and the designs have been doing well. Now we have been surveying this, and the feedback is, one, from the counter sales person who is inside the store about what they say about the new design, and also the data in terms of whether sales has increased or not. The feedback from the people inside the store has been very positive. As far as the data on a specific sales increase only because of the design change, that is a 50/50. In some stores we have got results, in some it is not so good. But the design just makes the store look and feel better. If you are in the market, you can always check it out. You will be able to experience it, and it will be good to hear from you whether you also like what you see as the new design. More definitely. If I got it right, you mentioned that IFB Points account for 15%-16% of sales for us at the moment. Is that correct? Yes. About 14%, 15%. Sometimes a little lesser, but roughly around that margin. What was this number, say, five years back? It was similar. In fact, I think we were a little higher, let's say, a year or two back. The percentage has reduced a little bit over the last two years. Got it. In terms of hierarchy post the IFB Points, what's the hierarchy in terms of margins for distribution for us? Sorry, could you just repeat? In terms of hierarchy of margins from a distribution point of view, you mentioned that IFB Points is one of the better margin channels for us. Just wanted to understand what is the pecking order. Post IFB Points, what is the next most profitable distribution channel for us? No. I was actually answering the distribution as a channel. Distribution is a profitable channel for us. IFB Points are also more profitable than some of the higher cost channels. We don't specifically look at a channel-wide hierarchy the way I answered it a little earlier. We look at it from an account point of view. So even within a channel, there would be a variation. There could be a distributor who's very large and some are small. Similarly, there could be a multi-brand dealer who's very large and some are small. So we look at it at an account level. We don't really look at it at a channel level. Yeah. Got it. Understood. Thank you so much. Thank you very much. Ladies and gentlemen, we will now take a last question from the line of Shreyansh Jain from Swan Investments. Please go ahead. Thanks for the opportunity again, sir. My first question now is, when you look at washers as a category for the year, obviously now we are 40 days into the quarter. I am not looking at any specific guidance, but how do you see this product category doing for us in FY 2025? That is my first question. I can answer this on three counts. The first is that, as I said a little while earlier, the first accounts for channels which pick up feedback on consumer movement are the e-commerce channels because their systems are very direct to consumer. Over the last one month or so, we have seen a significant uptick in both customer visits as well as actual purchases. This is one element with which we believe that the next few months on the washer segment, which has over the last year and a half been very subdued and de-growing as far as the industry is concerned, we think there is going to be a change. The second point is that the new range that we are rolling out is a very large lever for growth for us. We have a complete overhaul on the specifications. It is packed with features as far as the consumers are concerned, aesthetically better, and we are very positive about the impact on sales once this is fully ramped up. This is the second lever. The third is something that we discussed quite at length in this call, which is in terms of our execution completion of this in-counter manning. The manning inside the store has the largest impact on washers because washer is most dependent on the retail-based sales. To a specific answer to your question, how do we see the next few months or the next few quarters, based on these three inputs, I would feel that we should be able to deliver results. Okay. Sir, my last question is on your annual report. Sir, there are three parts to this question. Please bear with me. Sir, my third question is we speak about new business verticals. Somewhere you've written in the MD&A that the company has decided to look into manufacturing components for electronic industry and railways. Now is this largely a part of your Engineering Division and motors business, or this you think of doing independently because you're saying you're planning to do some CapEx also after you receive a board approval. Can you just repeat this question again? Different line. Sir, I'm saying in the annual report for this year, you've specifically written that you look to enter manufacturing components for electronic industry and railways. I'm just trying to understand, is this a small portion of your Engineering Division and motors business that you're trying to enter, or this is a specific new vertical that you're looking at? We are looking at running this as an independent vertical for now so that it gets the focus that it needs. Okay. Just trying to harp on this again. Do you think it is the right strategy right now? Because we were also looking to balance our Home Appliances business, and we are somewhere in that journey, and now you are looking at entering manufacturing for a different category where we do not have any presence as of now. Just wanted your sense here, sir. I think the strategy is right because this is all part of, overall, it is just engineering. But we are taking out a few people from the existing Engineering Division, and they will be running this separately. It will not be part of the fine grinding, stamping and motor Division. A team is being set up, which will be a mix of internal people taking out of the existing Engineering Division and new people being recruited for the same. We have to look at this point of capital, et cetera, how much it would entail, et cetera. But we think this is something that we should listen to, and we think it will be long-term lucrative for the company. I do not think this has anything to do with appliances business needing focus or the engineering business needing whatever it is doing. And this would not be too much of a diversification for us because the product categories that we are choosing, this is within what our team presently understands well. Okay. That answers. Sir, my second part to this question is, if I look at your customer schemes and incentives, gross sales minus incentives, that also has gone up from 20% in FY 2023 to 22%, 23% in FY 2024. So I am just trying to understand this particular line item. Going forward, where do you see this number? Do we have to give higher incentives to the channel for pushing our products? This is Raj Shankar here. I'll take this. As I had said on that first question related to gross margin, this line is a resultant figure of a mix of all the categories. If you see this value in quarter one, it has a much more dominant contribution from Aircon, and these run at a typically higher scheme structure as compared to the other product categories. You will see this figure balance out between, let us say, the Q1 to Q2 to Q3. This is a sort of a weighted average number that you're seeing. But sir, you said 15% of your sales comes from IFB Points. Here you don't have to give any incentives. If I take out that 15% of your sales and then look at this number, then this number looks even higher. Actually, there are a set of IFB Points which are run by franchisees. They have similar commercial arrangements like any other retail partner. Even in the stores which are operated by the company, they are also from the listed price to a customer price, there is a discount that appears as far as the net price is concerned. This issue of a scheme is applicable to all channels actually. Okay. My last question, you spoke about saving about 10-12 odd crores from your OpEx fixed cost. If I look at your FY 2024 OpEx breakup, a large part of it is the consumption of stores, freight, octroi, advertisement, and repairs. These four heads are the largest for you. These heads, I think there is limited leverage you can get in these line items. When you talk about 10-12 crores a month saving, which specific thing are you talking about? Personally, I don't see any kind of line item that you can get leverage from. Actually, if you go line by line in terms of the office costs, in terms of the cost of defectives, in terms of cost of compliance to e-waste norms, there is a lot of opportunity. Travel costs, for example, and the productivity associated with that. There are multiple things, and those are the line items that we are working on. Even within the P&L, the way you see it, you will find a large chunk of fixed costs, which was a question a little while back from the gross margins that we enjoy to the kind of bottom line that we report. It is the same point actually. Okay. All right, sir. Thanks, and all the best. Thank you very much. Ladies and gentlemen, I would now like to hand the conference over to Ms. Natasha Jain for closing comments. Request the management to post any closing comments if they have. Thank you very much for joining this call. We will be meeting again after quarter 2. Thank you once again. Thank you, everyone. On behalf of Nirmal Bang Institutional Equities Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you. Thank you.