Q2 23/24

Nov 13, 2023

Summary

Q2 EBITDA margin improved to 6.97% as lower material costs offset weak revenue and higher expenses. Cost savings and sales-force changes underpin a target of sustainable 10%+ home-appliance margins from the next fiscal year, but subdued demand and share losses remain challenges.

Ladies and gentlemen, good day and welcome to the Q2 FY2024 earnings conference call of IFB Industries Limited, hosted by Nirmal Bang Equities 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. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Natasha Jain from Nirmal Bang Equities. Thank you, and over to you. Thank you, Natasha, and good afternoon, everyone. Nirmal Bang Institutional Equities welcomes you all to the second quarter FY2024 results conference call of 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. Prabir Chatterjee, Director and CFO, Mr. Raj Shankar Ray, MD and CEO, Home Appliance Division, Mr. Arup Das, Head of Marketing, Engineering Division, and Mr. Anand Reddy, CEO of Motor Division. I now hand over the call to the management for opening remarks, post which we will take questions from participants. Thank you, and over to you, sir. Thank you, Natasha. Good afternoon, everyone. I welcome you all for IFB Industries investors call for the second quarter FY2024. Joining with me today are Mr. Raj Shankar Ray, MD and CEO of Home Appliance Division, Mr. Arup Das, Head of Marketing, Engineering Division, and Mr. Anand Reddy, CEO of Motor Division. I will now start with the result of this quarter. During the quarter, revenue was below our expectation and was marginally lower than the same quarter last year. The company has reported a total income of INR 1,074.12 crore compared to INR 1,101.92 crore during the same quarter last year. During the second quarter, the EBITDA was INR 74.83 crore with a margin of 6.97%, compared to INR 73.98 crore with 6.71% for the same period last year. Margin was marginally higher than last year. Despite lower revenue, gross margin improved mainly because of the reduction of material cost that was partially offset by the higher sales promotion, staff and operating expenses. We have already initiated number of cost reduction actions to further reduce the other operating expenses to improve the margin. For the first half of the year, company has reported a total income of INR 2,136.97 crore of revenue compared to INR 2,151.19 crore for the same period last year. EBITDA margin for the first half was INR 115.54 crore, 5.41%, compared to INR 112.42 crore, 5.23%, of same period last year. EBITDA margin during the period was marginally higher compared to last year. Improvement in margin is mainly due to the reduction in material cost. During the year, company's net cash position improved. With this, I will request you to start the question and answer session, please. 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. We have our first question from the line of Manoj Gori from Equirus Securities. Please go ahead. Yeah, thanks for the opportunity, team. We went through the presentation, a very detailed one, and of course you have highlighted probably the cost savings that you would be doing during Q3 and Q4 on account of RM benefits and probably if you are looking secondly on the fixed cost operating expenses. Can you throw some light when we say about benefit of COGS of roughly around INR 44 crores in Q4, so what do we refer here? Is it basically from the lower RM prices, or we are doing some value engineering? Can you throw some light over here? Manoj, Raj Shankar here. The estimate of the cost reduction on the material cost side is based on three factors. One is, of course, the lower commodity baselines. The second and the third are the consolidation in the purchases where, let's say we had independent purchases from two different suppliers for washers and air conditioners, and we are combining those purchases. The third is the redesign, including VAVE. The bulk of this estimate of INR 44 crores benefit is from the second and the third. That's right. Related to consolidation in purchases and VAVE and redesign. About maybe 20%-30% will be a result of the reductions in the commodity overall. Right. The reason as far as- Sorry. Yes, please. Yeah. The reason why I asked this question was basically, if you look at if competitive intensity moves on the higher side, probably peer companies will also pass on the RM benefit. That was the key reason, just to understand where we would be saving on the gross margin side. Secondly, if you look at-- We have also highlighted about 8 crore of savings on monthly basis on the fixed operating. Can you throw some light over here? These are on seven or eight heads, and these relate to areas of non-productive manning. They relate to areas of freight, warehousing costs. They are in office expenses, in terms of better organized travel. They are in terms of the cost of, let us say, the e-waste related area where we are having costs, and we put a different process in place in terms of realizing more from machines that we scrap. There are about 8 or 10 heads on the fixed cost areas, and the work that we are doing on them, our committed target is to reduce INR 8 crore a month on that. Right, sir. If I understand- This will be on the same level of sales as last year, base March. Okay. Here we are not assuming any sales growth, just based on the last year figures, we are expecting this saving. Yes, that is right. Right. The internal brief is on the same base level as March, these savings have to be made. Right, sir. Sir, lastly, on the demand side, even in the festive season, we have got a very mixed feedback that during the discount period, sales have been very robust, but during non-discount have dipped. Accordingly, probably the entire festive season might not be as healthy as industry was expecting. Can you throw some light on what has happened in the washing machine category and probably on the overall categories that you are present into? I will answer this with three points, Manoj. Yeah. The first is that your feedback is right. The sales that happened during the events period of e-commerce, I wouldn't call that a discount period, but there was an online event, let me put it that way. The sales were actually very good. But post that, in terms of general sales over the, let's say, the last three weeks, or if I can add up, let's say, October and November together, even though they have been better than the initial period of, let's say, the end of Q1 and Q2 middle, the sales have still been subdued. It's not typically what you would expect in a season. Those are the first two points. The third point is that how we look at it internally is that we still feel that given the network that we have, we are not doing a good enough job as far as sales is concerned. So in terms of our performance on the AC category or what we can get out of washers, given the network and position we have, we still feel that we have a lot of headroom for growth, but we're not just doing simply a good job on the sales side as we should be doing. So in terms of restructuring the sales force and making the changes that are required, we think that on point three, on the plus side is much more than any market related conditions on point one and point two. Right. Have I been able to explain this? Yeah. So all the efforts that we are taking for better extraction, probably by when should we see this flowing into our revenues? Manoj, our internal commitment is that we have been doing this for about, let's say, two, three quarters now, and in a much more intense manner over the last three, four months in terms of changes in the sales team, restructuring. There is a lot of effort we are making on the distribution network that we have in terms of rationalizing distribution, changing distribution, and also in terms of the large account extractions, et cetera. Our internal commitment is that we will finish whatever we have to do by end of this quarter, so that starting the fourth quarter, ending this year and full benefit next year. We need to complete whatever is on the agenda in terms of the sales effectiveness. Right. One last question. If you look at in the refrigerator, probably we have highlighted in the profit and loss from associates, which was more than 7 crores. Can you throw some light, like what should be the normal steady run rate that we can expect here? In this quarter, it was roughly around 7.5, 7.8 CR. What should be the steady rate that we can expect over here? I'll sort of give you a market view on this, and then Mr. Chatterjee can sort of answer the financial side of it. IFB Refrigeration Limited, the company is servicing some markets directly, and IFB Industries Limited is servicing some markets. Both combined, the estimate that is there is that we will reach a sales of roughly about 50,000 a month from the Q4 in the first phase. As far as IFB Industries Limited is concerned, that figure will be in the range of 15,000 to 20,000 refrigerators a month. That you could call as a phase one level. As far as the commercials around this are concerned, I would request Mr. Chatterjee, if he could please answer that. Yeah, Manoj, during this quarter, actually, we sold around 11,119, revenue of INR 14.62. We made a PBDIT of INR 0.94 crores. For IFBRL, I think they are revamping the products and other things. It will stabilize over a period of next three to six months. Right, sir. Got it, sir. Thank you and wish you all the best, sir. Thank you. We have our next question from the line of Nisarg Vakharia from NV Alpha Fund Management LLP. Please go ahead. Good afternoon, gentlemen. At the outset, let me just say that this is one of the best corporate governance standards that we have seen across companies in the market on how firmly the company wants to walk the talk, and has given in extreme detail on the cost savings that the company will do over the next two, three quarters. Never seen such a guidance in any consumer company for that matter. Sir, I have a slightly broader question, that we have had effective sales growth for the last 10 years but have never focused on sustainable margins. Just want to understand the broader thought process on why there is a sudden emphasis on margins now, and were there so many cost inefficiencies when we are drilled down into why we were not making margins. I hope I have expressed my question clearly. Yes, this is Raj Shankar here. I will try and answer that, and then Mr. Chatterjee can also add it. The third quarter of FY 2021 was when we actually registered a very healthy financial performance. From the fourth quarter of that year onwards, when the material cost indices really went up and we couldn't pass the input side increases onto the market side. Since then, actually, the financial performance was well below whatever we would have been happy with. Now, given the investments that we have made, for example, on the ACs related area, IFB Industries Limited, the investment it has made in IFB Refrigeration, the new company, and also investments that we are making in terms of a range overhaul on the washer side. The need for us to be sustainable in terms of profit margins and the need to ensure that we get the market revenue right. I will not say that we have not been doing this earlier, but yes, definitely over the period of the last two odd quarters, the focus on getting the material cost profile to the best level possible and getting the sales side right, where we are actually quite unhappy with the kind of revenue side that we have been registering for some time. The amount of detailing focus, regularity of internal reviews has definitely been much more before that. Have I been able to answer the question that you asked? Please. Broadly, sir, yes. I was looking at your sales growth right from 2015, 2016. We have never delivered more than 3.5%, 4%, 5% operating margin in any single year. Now, within two quarters, we are guiding towards almost 9%, 10% operating margins. I am just trying to understand how has this shift happened overnight. Of course, not taking away from the fact that you have worked really hard in these cost efficiencies. I think when, sometime around mid of last year when the material cost detailing had really reached a mature level in terms of what is possible for us on the cost side. Simply by consolidating, resourcing, renegotiating. That figure was a very large figure. We delivered part last year, which you can see in the gross margin improvement this year. But there is still a 50% plus to be delivered by the end of this year. Now that we have also detailed the fixed cost side, which definitely is something that we have done only over the last, let us say, three, four months. Getting our cost profile right for the same level of sales is priority number one right now within the company. Okay. Does this also mean that now going ahead, we will have base case high single digit EBITDA margins or sustainable margins that we have guided for over the next 2, 3 quarters as we build on the organization in the future? Mr. Chatterjee, would you like to answer that, please? Sure. Depending upon the consistency of the revenue and our efforts that, or action that we have initiated in terms of operating expenses and the material cost, We are expected to do well. And with the increase in the revenue in all products, especially in the AC in the fourth quarter. Okay. My last question on this is that have we employed some consultant to sort of work on these efficiencies for us, or have we done all these things internally? This is all done by internal team. Okay, great. Thank you so much and all the very best, Chandrashekhar. Thank you. Thank you. We have our next question from the line of Sumil Sethi from Siguler Guff India Advisors. Please go ahead. Hi, sir. Congratulations for a great set of numbers. I have questions across three categories. I wanted to understand a few things on the gross margin side. You mentioned that you are doing cost improvement to the extent of INR 12 crores and INR 46 crores in the respective quarters. I just wanted to understand what's the base which we are referring to while calculating these improvements. Is it on the expected sales that we are about to do in Q3, Q4, or is it on the sales that happened over the past year? All the savings targets which are given here are on the base of March 2023. On the March. Yeah. These are on the same level of sales. Whatever is additional by higher sales is separate. Okay. These cost improvements will be largely from a particular product, let's say ACs, or it's kind of blended across home appliances. They're coming across all products. Understood. Sir, last quarter you used to give a cumulative PBT loss for ACs. Any sense of what that number is this quarter? Mr. Chandrashekhar, would you like to answer that, please? Overall, this thing is around INR 50, INR 45 to INR 45 crores during the first half. Okay. Do we have numbers around what depreciation or interest cost we allocated? Yeah, we have actually. The interest for this thing is INR 5.51 crore for the quarter, and the depreciation is INR 6.75 crores. Understood. For that quarter. This is as allocated air conditioners. Only AC. PC, what about the half year? Half year is INR 11 crores is for the interest, and the depreciation is INR 30.49 crores. Understood. Sir, what I understand from the previous calls as well, that we have been giving slightly higher sales promotion for ACs versus the other home appliances. Can I get a sense of what that differential is? Is it a 10%-12% kind of a differential, or is it a 20%-25% kind of a differential? Just an indicated range. In the first half of the year, in terms of promotions, we invested behind two categories. One was the air conditioner, and the second was a new range of front loaders under an umbrella platform called DeepClean that we had introduced. In the first half, in terms of what we've invested in news print, in digital, et cetera, it is an incremental expense of about INR 11 CR-INR 12 CR for the year so far. In terms of the results, we feel that in air conditioners we've still underperformed, so the investment hasn't really returned results for the company so far. As far as the new front loader platform under the umbrella DeepClean, we feel that that campaign or that investment has had an impact in terms of the traction that we are seeing in September, October, and November. We have to sustain that kind of growth that we are getting from this new platform now. Understood. Do you think we are getting good realization of our ACs on a market operating price vis-à-vis competition? Do you think there's still some gaps regarding that? So we are more or less. The market is segmented in two sorts of categories. One could be the entry or the lower level of pricing, which is operated by some players. The other is the set of players who we benchmark, which would be Blue Star, LG, Daikin. So vis-à-vis them, our price in the market in terms of customer price is more or less benchmarked. Okay. Just one last question. We witnessed a significant degrowth in our front loaders over H1 of last year in sales terms, so some 6%-7% of degrowth. I just wanted to understand, is this because of a delay in the festive season by 2 or 3 weeks? Consequently, is the entire industry affected here, or are we losing market share in this category? So, we have lost market share, and we specifically lost market share in 2 cases. One was that the capacity segment of 9 and 10 kgs is a segment that has been expanding. That was a segment till last year we had no representation. This year, when we sort of introduced models for the 9 and 10 kg segment, and they have now ramped up to a volume of roughly about 12,000 to 14,000 in a month. Our agenda is to take it to about 20,000 in the month. The segment size right now is about 25,000 a month. We expect it to go to about 35,000-40,000 a month. So that is one area we've lost share. Till about, let's say, September, we have also lost share even the 8 kg capacity in front loaders. That was because there was a price undercutting which was being done from LG and Samsung. We have answered that now sort of in terms of reaching the range and ensuring that the price differential reduces. That segment we still have to regain the share. So the degrowth that we are having is because of the loss of share in these 2 segments. Also on the overall point that I said in the beginning to Manoj, that in terms of sales effectiveness, we are quite unhappy with what we are delivering to the company as on date. Given the network we have, even though we may have, let's say, issues on 9 and 10 kg, we should be doing far higher numbers overall. That we have to complete during this fiscal year to overcome that. Understood. We are very impressed to see the improvement in margin in your engineering division. It continues to show good profitability on a quarter-on-quarter on an annual basis. Just wanted to understand, is this margin growth, is this margin profile stable for the quarters or years to come, or is there a one-time kind of impact? Mr. De, I will answer that. Yes, please. Hi. This is Bikramjit Nag here. I think the margin thing, as far as the company is concerned, we are very clear. As far as engineering division goes, we should be operating at a higher margin than whatever we have achieved in Q2. We are not happy with Q2 numbers. The reason we are not happy with Q2 numbers, you will see there is hardly any growth in Q2. Yes. Yeah. On the sales front, we have not done well at all. We have taken up this point. Margin growth is one thing, sales growth is equally important. Anything sub 20%, the board is not at all happy with. The board is absolutely clear on this. We have spoken to the division. By end of Q4, our numbers have to be in place. Getting those numbers in place on top line will further expand bottom line. If you see the stamping business, the stamping business also, our internal target used to be about INR 7.5 crores a month. We have done below that. So we are not happy with that as well. Appliance division, we are very, very clear. The board is clear. We need double-digit margin, which means 10% at least we should hit. AC has to hit a certain number, which is 300,000 plus. Washing machine has to be at a certain number also, which the board is clear on, which is about 65,000 per month. Top loader has to be at around 35,000, 40,000 a month. Our sales team is being rejigged in order to meet these immediate ambition goals. As I said last time, the sales team is being thoroughly rejigged. Mr. De is doing this state by state, wherever requirements are there. The states are being looked at district-wise to see where are we weak in a district, and changes are being made. We will do this meticulously in order to achieve our ambition. These questions are coming up quarter after quarter. The fact that we have not kept pace with requirements is something that the management and I are not happy with. We will deliver as per strict expectations. That is what we need to do. I am also saying, on this call now, I am in Singapore because my father has been very unwell. He is in the hospital. I am in the hospital here now. So at some time, I may just log off. He has been in the hospital since the 23rd of July. So it has been a long time. He is in HDU. It is a high dependency ward. He is stable, but his condition is serious. Having said that, company has to perform, and nothing is stopping. Whatever we need to do in order to put margins and sales back on track, we will do. Next question, please. Thank you. We have our next question from the line of Vivek Kumar from Best Pals Research and Advisory LLP. Please go ahead. Sir, thank you for the opportunity. Am I audible? Yes. Yes, please. Sir, my question is regarding the same thing that you have been repeating quarter after quarter, so pardon me because the sales and extraction from the channel is what you are using that you are not able to get the sale. So my doubt is, as the customer enters any big retail shop where these are sold, every category has a fixed number of brands. Like if you take ACs or washing machine or microwave or whatever you take, five to six brands are there, and retailer also, beyond a point, will not just put your products just for the discount that you give because he has to have the turnover, asset turnover, retail asset turnover for him, that inventory turnover. So where are we lacking in the sense of product-wise? Because retailers cannot definitely have 20 brands like which can happen in small FMCG products. So definitely there is a room for five, six products because of the space constraint and all in every retailer. How do you go and take space for yourself with such a huge competition across categories? How are you thinking from a product perspective and ability to extract from the channel, ability, convince the distributor that you really can generate sales for him. So what are the steps you are taking? If you can go in more details so that we can understand. Thank you. Did I make myself clear, sir? Yeah. Raj Shankar here. I'll try and answer this. As far as IFB is concerned, you will see this action that we have to complete in two parts. As far as washers is concerned, we have the placements, and here it is not an issue of whether the channel will place us or not. We are placed, and we need to ensure extraction. This extraction has to be on two heads. One is this point about the capacity segment that I just spoke about a little while back, and the other has to be in terms of manning. So you spoke about this point of entering a counter. When you enter a counter, there are salespeople who assist the customer to arrive at a decision. Our completing the manning gaps we have in those counters where we don't have a person to meet and greet a customer, has a direct bearing on our market share overall for that counter. As far as washer is concerned, we just have to do a better job at ensuring that our manning is right and that we don't leave any gaps in segments like it happened to us in the 9 and 10 kg. Okay. As far as ACs and refrigerators are concerned, we think that the two will actually help the aspect of distribution. If you look at distributors that we've had, largely the products on which they have had to have sustainable revenues have been the washers. On air conditioners, where we have still to get a proper market presence. What is happening to the same distributors with the arrival of the refrigerator is that the ability to reach a dealer with a basket has actually improved. Oh. In terms of being a company that has a product range, basically, across both washing, cooling, and cooking segments, the range actually with the investment the company has done is quite complete now. This range, our need to finish action is that much more urgent, but it is also becoming easier because we are offering a full basket to our dealers. We just have to complete the job. You are right that we have been speaking about this for many quarters, and we failed to actually deliver whatever we have been discussing. But this is the main job to be completed, and we are completely committed to this. The range is actually going to help the sales team more than anything else. Because, sir, my doubt is, every category has that occupied. Let us take refrigeration. He will have a limited space to put up five to six brands. How will we convince him? Because ultimately, the customer decides what will move, because beyond a point, discounts will not help because retailer will not put up just because you are giving more discount. How do you win that customer, and is it just the range of products that will help? Just placement is enough with the distributor, or something else to be done from the customer angle so that we start building a brand and growing? I was not able to understand that. It is a good question because the doubt is a correct doubt to have. If you see, as far as washer is concerned, the product and the position is accepted in the market. Like I said, it is just our efficiency on how much we can extract. Experience we have had with the refrigerator introduction is that the product has been very well accepted. And why somebody should buy an IFB refrigerator vis-à-vis the three major brands, that argument is quite clear on the floor. This point that you said about why IFB should be given space is a point that we are really having to deal with as far as the air conditioners are concerned. Because the product at the end of the day is like a box. Yes Even if you have a very good air conditioner, people don't necessarily give you the realization that you want, and it's a problem that we faced right since the beginning. The problem that we have to solve as far as why should I place IFB is true for air conditioners, but for the rest, actually, it is purely dependent on our efficiency and how much quickly we can move into the market. What I was trying to explain to you is that the AC can actually ride on the other products as well. That is the basic thing that we think is possible in the market. No, but his point is correct, Mr. Ray. It also depends on how we are going to communicate and educate the customer as to why they should buy either ref or AC. Correct. That communication has to be improved further. Correct. No, sir, I was asking because ultimately distributors will not keep products which don't move for discount so on, and there's a limited space for every item. Keep products which don't move. Yes, correct. Absolutely right. Distributor will not keep product, so we have to improve on this part. When will we see the results in terms of when do you hope to see the real numbers flowing in terms of sales across categories like ACs and refrigeration, and also increasing your share in washer. How many quarters or years do you think we will be able to see at least we are in the right direction? I think we should be ready by February, March in totality, because I think the sales reboot will be done, and we should be ready by then, fully. Thank you, sir. Thank you very much for that. We are on course. We actually believe that by, is it January, Mr. A, that we should hit overall ref sales of around 40,000 to 50,000 a month? Yes. January? Yes. We'll have to see whether we are on course or not. As far as ACs goes, we sincerely hope that by January we'll stabilize at about 30,000. We are nowhere near that, but January we hope to do it. Okay. Thank you, sir. All the best, sir. Thank you. Thank you. Thank you. We have our next question from the line of Aviral Jain from Siguler Guff India Advisors. Please go ahead. Yeah. Thank you, sir. First of all, there's been a lot of discussion around the revenue growth and what needs to be done. At a fundamental level, what is the share of direct customer sales, which are, say, large format stores versus a distributor to dealer-driven sales? What is the current breakup like for the company for appliances division as a whole, and how is it different or similar in the AC segment? The distribution that sales overall for the company as a whole is about 25%. This percentage increase when we do well on air conditioners and refrigerators, because a lot of that sale is distribution led. If you look at the percentage to consumer directly, you could look at the sales from our IFB Points, which hover between 14%-15%, or you could look at the e-commerce sales, which is also essentially direct to consumers. That percentage, depending on the month of the year, varies between 15%-20%. Is that the detail that you were looking for, please? No. My question was more about, so sir, one is a channel which is distributor led, which goes to the dealer and in turn, so it's a two-tier distribution there, whereas you mentioned, the distributor, once you have a bigger basket of product, the ACs and refrigerators could ride on washers as well as on microwaves. But there are direct sales to large format stores where there is no distributor, where there is actually a fight for space, which are direct customer sales from IFB, which in turn, so it's a single-tier distribution structure. I am not talking about e-commerce or IFB Points where there is no middleman, so to say, or intermediary, but between a distributor dealer led sales and a direct customer to consumer sales. Customer- Yeah I would mean is a chain. Understood. If you look at multi-brand sales directly serviced by IFB, which includes the large chains, and from our total sales, we take out distribution, which is two tiers, and IFB Points and e-commerce, then roughly around 45%-50% of sales is what is going through the directly serviced- The person you are speaking with has put you on- Hello? Sorry, sir. There was some. Yeah. So- The multi-brand sales directly serviced, which includes the chain counters and the large format retail stores. From our total sales, if you subtract distribution, IFB Points and e-commerce, then roughly around 45%-50% of sales is to this channel, which is direct from IFB to a retailer and retailer to customer. Sure. There it is far more challenging for a newer product, say ACs or a refrigerator to create that space and to create. Manning is that more important in this channel. Is this the channel where we are under-indexed versus competition for ACs and refrigerator? Refrigerator is a new product asset, but is there where ACs is sort of not performing to your plan? Yes. More than- You are absolutely right. For air conditioners specifically, the market segment or the percentage of the market that this channel has versus what we are getting out of it, we are severely under-indexed. Okay. No, also, I think Mr. A, you could just talk to him that there are about 50 of these retailers, and we've now made a team to actually go out and target all of them. Out of 50, I think we've already got through to 15 for ACs and the balance is in 6. Can you just expand on that, Mr. A? These are the, we call them key accounts. These are accounts which have multiple counters and they could be within the same state or across states. So the identified number is 50. We've put a process and a team in place to actually go and ensure that we get extraction. The discussion with them is That look at IFB as a full basket player. Like Mr. Nag just said, we have sign-offs with about 15 of them done. By end of this quarter, we would expect to be in at least 75%, 80% of them with all the products. How many counters do these 50 key accounts have? These 50 accounts are about 2,600-2,700 individual stores, counters across the country. Would it be fair to say that I am just trying to get that we are with ACs, the presence is just 20% or 30%, and in the kind of quantities or stock rates that you would be happy with till now, which is what you are changing. Can you just repeat that? I did not understand the question. My question was, out of these 2,600 individual touchpoints or counters, the AC penetration would be 20%, 30%, while washer could be 80%, 90%. Is that the kind of split you are talking about here? Yeah. So effective presence in AC right now would be only 10%-15%. And washers is, yes, it is 75%-80%. Okay. But on the other direct-to-consumer channel, which is IFB Point, e-commerce, you mentioned, and distributor-led, there the AC salience of sales is much better versus washers, fair to say? The salience in an IFB Point for ACs has improved from last year. In e-commerce, till now, we have kept the ACs away from e-commerce. Our main concerns were on whether we would be able to control pricing. But the decision we have taken is that in this season, we will be having effective presence of ACs on e-commerce. For ACs, there is also a significant opportunity in terms of direct sales, which is in terms of institutions, direct to customers. There are lots of sales and service channel partners that we can sell to. So we have begun to put a team on this. We have had success this year, but the numbers are still very low, and that is also a segment for air conditioners that has to be expanded. Sure. And this loss of market share, which you mentioned on the washer side, that given IFB is the market leader in front loaders, that is what our primary research had suggested. That is temporary in nature. I think this is more indexed to primary, but effectively there is no change in, say, offtake percentage given the MOP, market operating price, for the end consumers or end purchasers, it is still pretty much well indexed. I mean, there could be higher channel promotion services, which is what led to some loss of sales in first half. Is my understanding correct? No. The loss in share came from product segment not represented, which was the 9 and 10 kg higher-end segment. In terms of 8 kgs, we had a particular price position, but LG, Samsung specifically undercut by a significant amount. That was a price reduction, effective price reduction to consumers. That problem we have addressed last month by introducing a new product which is appropriately priced. As far as IFB is concerned, there have been no reductions as far as the market operating prices are concerned. That position we still held. We have not discounted. If we talk say volume-wise, the overall market would have probably still grown by 10 odd percent from last year first half. Value-wise, probably much more. We do not have market figures per se. But our understanding is as far as front loaders are concerned, it is flat or slightly less this year so far. Your first half numbers take into account the festive season delay by 2 weeks this year. Has it had any bearing on your reported numbers? If we were to take, say, primary till October end or first 2 weeks of November, is the fall still as stark or has some bit of recovery in terms of percentage decline in sales been addressed? October plus November together will definitely be a recovery. We have still 2 weeks to go for November and normally post Diwali, the channel replenishes, et cetera. We will know by end of November. If you look at last year's base, October plus November will definitely be better. My question was April to November this year versus April to November last year. We will have to wait for November to be able to answer that. Got it. Okay. What you mentioned is you will have to increase manning because ACs are only in 10% of the counters, as you mentioned. One of your points of fixed cost expense reduction, what you had mentioned was you are also focusing on unproductive manning. While I understand there is a big difference between productive and unproductive manning, how much of this unproductive manning is constituted by sales staff not being able to deliver the kind of volume numbers that you would expect them to deliver on the counter? Is that a big number? Because these are two counterintuitive points that you have laid out. You need manning to improve sales and you need to cut manning to cut fixed costs. That is an interesting question, and there are two parts to this. One is that there is one manning, which is the in-counter manning, which is when you walk into a store as a consumer, somebody meets you and explains the product to you. We call them counter sales representatives, and we have gaps there. If you see in terms of these 2,600 key account counters that we were speaking about, currently we are only present with our representative in about 75% of those counters. So 25% counters is effectively empty. Because if you do not have someone present, you cannot sell. That is what happens when the shops here. This manning is inherently a variable manning. There is of course, a salary, but the component is that if you do well, you earn an incentive, you sell more and you earn more. We have only focused on making this manning productive. There is no focus on reducing these numbers per se. In fact, this is an area that we are investing in. As far as the other manning is concerned, this is the fixed manning in terms of people in the plants, people in sales, in service and warehousing, in logistics. There we think that there is definitely scope to reduce based on restructuring. For example, we would have people in warehouses, but when we move to C&F arrangements, the cost becomes variable and if negotiated well, the costs actually reduce. That is the agenda that is being pursued on the manning side. Okay. Sure. I understood it very clearly. One final question is, you mentioned about an AC, sorry, you repeated this question many times. There has always been a big differential between the realized gross margin on AC side versus appliances as a category X of ACs. How is that looking like? As in obviously you have given a certain fixed or gross profit or, sorry, material margin improvement numbers, which is INR 10 crores and INR 44 crores for the next two quarters. But is ACs coming in line with the appliances in general? Or how do you, at a steady state, maybe two quarters from now, four quarters from now, once all the older inventory is flushed out and you will have the ideal cost structure from a sourcing efficiency and design perspective, what the steady state gross margin profile would look like? I mean, the biggest point that you are saying is there is no pricing action or adverse pricing action in the market, which the company will have to match. If you look at the first phase, if I can use that word, when we have finished the material cost reduction within the fourth quarter, the gross margins on the air conditioner will improve, but they will still not be in line with the washer segment because the washers are also improving. As far as the company is concerned, between the average cost margin of the company to the air conditioner, there will still be a gap. But this improvement in the air conditioner from where we are today to what will be completed by Q4 will improve the overall profitability of the company significantly. Sure. Now, once we have completed that, essentially the largest job is in getting the sales that we should get. This is an area that we have failed in for many quarters now, even though we have been internally talking about it, and it is also been something discussed quite frequently in this investor call. We have just failed to deliver the results, and we just have to go out and do it and show that in quarter four. So if we get the sales right, the figure that was mentioned a while back, sales roughly to a level about 300,000 a year, and the material cost work should be completed within Q4, I think both put together will give the company level double-digit margins that we are committed to. I hope that answers your question. Yeah, it does. It does. Okay. That's it from my side, sir. Thank you so much. Thank you. We have our next question from the line of Viraj Mehta from Equirus. Please go ahead. Mr. Mehta, please unmute your line. My questions have been answered. Thank you. Thank you. We have our next question from the line of Amish Thakkar from SG India. Please go ahead. Mr. Thakkar, please proceed with your question. Since there is no response, we will move to the next question from the line of Keshav Garg from Counter Cyclical PMS. Please go ahead. Sir, my question is regarding. Sir, I want to know your thoughts about contract manufacturing, that we already have some contract manufacturing plans for our AC division. What about the rest of the verticals? Sir, can't we ramp up our capacity utilization by contract manufacturing and exports so that our fixed costs can get distributed? That was the first question. It's a very correct point, and as far as exports is concerned, we really didn't look at it the way we should for quite some time. Two quarters back, we put a formal structure in place and specifically for the air conditioners and also the washers, we are looking at opportunities for export markets. There is a lot of work happening on that, and we are setting targets, which we will also present to all of you from the next financial year onwards. As far as contract manufacturing is concerned, we are still talking to the same set of players. That is the projection we have on the air conditioners, which will help in terms of capacity utilization. On washers, we've really not discussed this option in terms of contract manufacturing. It is being evaluated, but we haven't reached a conclusion as yet. With the new investments that we are making for the new platforms, for a product like top loaders, for example, there will be an opportunity for contract manufacturing, but we have to still evaluate it internally and conclude it. Sir, secondly, sir, I wanted to understand, why are we trying to get into modular kitchen, which is not even clocking sales of INR 5 crores. It is not enough to move the needle for the company as a whole, but it is diverting the management bandwidth and our time and effort. Instead, will it not be better to focus on the major categories like AC, which can have a meaningful impact on the company, even if we succeed? Whereas modular kitchen, even if we succeed, I don't know how much on an overall company basis will it move the needle for us. It's a good point, and the way we are thinking about it is that we have a lot at stake as far as the IFB Points are concerned, because that is the only channel where we have a complete range representation. There is a dedicated customer base we have, and we have a need for them to see IFB and all that it offers in an IFB Point. It's a segment on which we've been very serious in terms of building a right retail presence. Now, if you see the markets where we have the IFB Points with the modular kitchens, it actually significantly increases the way you represent your products to the consumer, which is the modular kitchen itself and the products that go with the modular kitchen. So kitchen appliances, because when someone does modular kitchens, they change a lot of the products in the kitchen. We think that the modular kitchen business actually has a great impact on the overall IFB Point presence. In the markets that we are in, it also contributes to the profitability of the various state-level branches that we have, because even though volumes may be small, but realizations are high, and it is very helpful to the gross margins. The point about it not having a significant impact on the company overall is a correct point. It may not be the case today, but in future, definitely this can be a segment which can grow quite significantly. That's why we are still committed to it. Sure. And sir, lastly, all said and done, sir, your aspiration about reaching 10% margins of the home appliances business. By when do you foresee us reaching there? There must be some timeline in your mind that may be in the first half of next financial year or second half of next financial year. Our internal commitments, which we've given, like it was discussed just a little while back on the call, is to finish whatever work we have to do for these sustainable margins within Q4. Our internal commitment is to be able to show these sort of sustainable margins when the new fiscal year starts. Great, sir. Thank you very much, and best of luck. Thank you. We have our next question from the line of Sumil Sethi from Siguler Guff India Advisors. Please go ahead. Hi, sir, just a follow-up question on contract manufacturing of air conditioners. Can you shed some light on what percentage of AC revenues are from contract manufacturing of AC versus our own brand? Mr. Chadha, would you like to answer that? Sorry, I couldn't follow the question. Can you repeat? Sure. Sir, what percentage of our AC revenues are from contract manufacturing versus our own brands? I'll give to Ajit. It is now 25%. As of now, up to Q4. And this is for the first half? Yeah. Understood. What kind of a volume spread we see in the book? Total we have done around 105,000. 105K from that. Okay, got it. Just one question on refrigerators. Last time you mentioned that since the refrigerators are built by your associate company, IFB Refrigeration Limited, you are sort of finalizing the sort of asset arrangements with them. Now that the commercial production has started to happen, and I think there are actually 20 crores of sales for refrigerators sitting in IFB Industries book. I just wanted to get a sense of what the commercial terms are with regards to transfer pricing arrangements with IFB Refrigeration Limited. Mr. Chadha, would you like to answer that? Mr. A, Mr. A? Yes. Hello. That is all done on arm's length basis. As for norms, I don't think there is any issue there. Are we making a similar kind of a gross margin on refrigerators compared to- Refrigerators margin will be higher than AC. It will be higher than AC? AC. Understood. Mr. Sethi? Yeah. Does that answer your question? Yeah, that is fine. Thank you. Okay, thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you. Thank you, everybody, for joining the call today. Thank you. Yeah, on behalf of Nirmal Bang Equity, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.