Q1 23/24

Aug 10, 2023

Summary

Q1 income rose to INR 162 crore, while EBITDA fell YoY as higher operating costs offset improved gross margins. Management prioritized material and fixed-cost reductions, stronger sales execution and higher capacity utilization, with fuller margin benefits expected in Q4.

Ladies and gentlemen, good day, and welcome to the IFB Industries Limited Q1 FY24 earnings conference call 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 Mr. Prashil Gandhi from Nirmal Bang Equities. Thank you, and over to you, sir. Thank you, Rizan, and good evening, everyone. Nirmal Bang Institutional Equities welcomes you all to 1Q FY24 earnings conference call for IFB Industries. On the onset of call, I would like to thank the management for giving us the opportunity to host the call. The management team here today is represented by Mr. Prabir Chatterjee, Director and CFO, Mr. Raj 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 management for opening remarks, after which we can take questions from the participants. Thank you, and over to you, sir. Thank you, Prashil. Good evening, everyone. I welcome you all for IFB Industries Limited call for the first quarter FY24. Joining with me today are Mr. Raj Ray, MD and CEO of Home Appliance Division, Mr. Arup Das, Head of Marketing, Engineering Division, and Mr. Anand Reddy, CEO of Motor Division. Now I give you a brief overview of the company's performance during the first quarter FY24. Growth during this quarter is marginally higher than last year, but below expectation. Lower revenue growth is mainly in appliance division. However, engineering division made similarly good growth. The company has reported a total income of INR 162 crores compared to INR 149 crores during the same quarter last year. During the first quarter, EBITDA was INR 30.68 crores compared to INR 38.4 crores for the same period last year. Despite improved gross margins and marginal growth in revenues, gross margin improvement is mainly because of the reduction in material cost and better mix. However, increase in gross margin to a large extent was offset by higher operating expenses and staff cost. Increase in operating expenses was mainly in the area of sales promotion expenses, traveling, and other expenses. With this, I will request you to start the question and answer session, please. Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your 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 on the line of Abiral Jain from Siguler Guff. Please go ahead. Sure. I have three lines of questions basically. One is, and we've been asking this question for the past few quarters. I just wanted to understand, basis the current or the realized sales of ACs in the last quarter, what's the gross margin and EBITDA margin differential between AC sales and rest of the home appliance division as a whole? The second question I have is, if you can give the breakup of AC sales by value between contract manufacturer third-party brand sales and own brand sales for the quarter. Mr. Raj Ray. The third question, Mr. Prabir Chatterjee, would you like to answer this? Yeah. Okay. So in terms of the gross margin structure on the air conditioner, if you look at the Q1, then with respect to the company, it is lower. We do not specifically give figures in terms of product category figures. Just to give you an idea, if the company level gross margins are X, then the air conditioner gross margin would probably be around 30%-40% lower as on date. Okay. When you say as a company, as a whole, this includes the engineering division as well. No, no. I am only talking home appliances. Home appliances. Okay. Only talking home appliances. Now, in terms of the work that is being done to fix this, the work is essentially led by a material cost reduction program. If you see in Q1, there has been an improvement in the material cost percentage, which you will see in the results. The second part of this program is going to end in November this year. In terms of the gross margin structure on the AC coming closer to the overall company average, we will get close to that in the Q4 of this year. That was the first question you asked. You also asked about the differential between the gross margin and the EBITDA level. The EBITDA is essentially the overhead distributed across product categories. I think what is more meaningful for us in terms of the profitability issue getting addressed is being able to address the gross margin on the AC. That was the first question. The second question you asked is break up by volumes. That, I think Mr. Prabir Chatterjee can give it to you separately in terms of the break up between the OEM and the brand, et cetera. You said that there were two questions. What would be the first? Yeah. Third. Basically, the PBT loss for the AC division is being reported. If you could just help us understand what is the quarterly interest and depreciation attributed only for the AC division, then we can work backwards from our numbers. If you can just give us those two numbers on a quarterly basis, only attributed to the AC division. Yeah. Mr. Prabir Chatterjee, would you like to answer that? I will give it to you separately. Okay. Yes, sir. Thank you so much, sir. Mr. Jain, does that answer your question? Partially yes, sir. Partially no. We will get into that with Mr. Chatterjee. Second, there is some sales or some mention about the refrigerator sales. Has the commercial understanding been arrived at with IFB Refrigeration between transfer pricing or sales bookings? What is the commercial arrangement given? Yeah, that is under discussion in terms of the OEM arrangement between IFB Refrigeration Limited and IFB Industries Limited. It will be completed within this quarter. I think in the next investor call, we should be able to give you a very clear picture in terms of the buying relationship. Sir, from what I am gathering from your words, IFB Refrigeration would be sort of an OEM manufacturer for IFB Industries. Is that how it will be in the first place? Yes, that is what is under discussion. I think it is best to treat the subject comprehensively once everything is fully signed off. Sure. Then to formally make a presentation to everybody. I think we will do that once this quarter is over. Those discussions are ongoing, basically. Sure. Thank you so much, sir. Thank you. The next question is on the line of Vivek Kumar from Best Pals Advisory LLP. Please go ahead. Thanks for the opportunity. I am new to the company since I have just started following recently in last 1 month. My doubt is regarding the home appliances division. General understanding of how management or the promoter think before entering any new segment, because I see you are leaders in front load, you have a good market share in microwave ovens, and you are introducing new player. Wherever you have gaps, you are introducing and filling it up. How do you think about getting into ACs, where there are already too many players, and then also refrigeration. I am not saying you should not or you should, but what is the thinking that goes behind and what are the strengths of the DNA of the company that you think that is giving us the confidence to put in CapEx, do some kind of backward integration and be present across channels. You keep on writing in your annual report that, "Boss, we are not getting the sales we want from this, but we want to extract more from the channel." What is the confidence in terms of the DNA of the company that is giving you confidence that you can enter refrigeration also, ACs also, when there are already so many players? When I say confidence in terms of making good ROCE in the long run, I am not talking about 1 to 3 years, but I just wanted to understand how IFB thinks in terms of selecting and introducing new categories, especially when this market is like modular kitchens you are doing. So many people are going on there. How to understand and appreciate what you are doing and comprehend what you are trying to create for the future. Sir, if I can make myself clear, I think I have made myself clear. Yes, I have understood your question, and I will try and answer this. It is a very interesting question you have asked, sir. Now, if you look at it from the management point of view or the board point of view, as far as the appliances sector is concerned, it rests on three pillars. One is what you would call as laundry, washing. The second is what you would call as cooking. And the third is what you would call as cooling. So whether India or globally, the entire sector actually rests on these three verticals. So laundry is the washing machines, the dryers, whether front load, whether top loads. And cooking is products like microwaves, hobs, chimneys, built-in ovens. You would also add a dishwasher either into washing or in cooking, depending upon how you classified it. And cooling is the air conditioner and the refrigerator. Okay. Now, I am glad you asked this point about the long-term angle in this. That if you look at the dominant players in this sector, which is primarily the two Korean companies- Okay they span all the three verticals. Okay. IFB's intent is to also basically be significantly and strongly present in all the three. Now, you asked about this question of DNA, so under washing, IFB has a DNA. We have strength there both in terms of product configuration and our legacy and the brand power. We are also very strong in cooking. We go head-to-head with the competing companies in the markets in which we compete. Okay. The cooling segment was one that was essentially very weak. So air conditioners, we have been manufacturing since 2020, but we are ourselves very unhappy with the kind of progress we have made, and it remains a weak vertical to be fixed. Refrigerator sort of completes the story in terms of the market presence. Now, why the three verticals are important is that if you look at the physical attribute, which is the store, and you see a salesperson who enters that store to extract business from that store, then that store is actually displaying products in washing, displaying products in cooking, and displaying products in cooling. Okay. Unless you are able to span all three effectively, Okay you lose something in terms of the market placement power. Okay. And what we see happening in the short term is that this channel presence that we have written about in previous reports, which we have expanded over the last 2, 3 years, we still feel that we have not got the extraction that we want from this. The channel itself is significantly increased when we ramp up facing the way we should be doing and with the introduction of the refrigerators. And the placement of those products actually helps the pull of the other products. For example, if you have a counter which has air conditioners and refrigerators placed, then the next product that goes into that is a top load or a microwave, followed then by, let's say, a dishwasher or a front-loading washing machine. Over the long term, the IFB presence in all the three is something that the management and the board feel is very important in terms of equal strength in all the three verticals. For IFB specifically, across these four, I mean these three verticals, we also have a horizontal line, which is our service. So that is another area to be strengthened in the company in terms of the service connect with consumers and the related revenue opportunity that comes from all the three verticals, whether it is laundry, whether it is cooking or whether it is cooling. Have I been able to answer your question, Keith? If I can ask just a follow on. Let's take the cooling. Just for my understanding, I am not trying to take the weak point just to probe, but just for my deeper understanding. Let's say you take AC and you have entered it. So in the long run, what is giving you the confidence that we will have reasonable— I am not saying you become the leader, but reasonable returns from this and reasonable market share by presenting it? Because there are many people doing this, so that is where the doubt is coming. I agree that you want to be everywhere, but there are companies who are specializing in one single thing. My only doubt is what is giving you the confidence in the next 7, 8, 9 years that you will have a reasonable market share in ACs or refrigeration? What are the strengths that you have which is giving you Because I see too many people there. That is the confusion I think if you can address. Yeah. I will tell you, the confidence can come from three areas. One is we are confident because we've done it and we are able to tell you that we've done it. I think that is the simplest thing that we can do, which unfortunately, we have not been able to deliver. We've discussed this in previous calls as well. So our confidence going forward currently is coming from another set of three points. One is, do we have a product that is good, and is it better than most? The answer to that we believe is a yes. Whatever presence we have in the market today and the customer feedback or the channel feedback that we have tells us that, yes, we have a good product. So our confidence for the future comes from this first point. The second point is that do we have the gross margin profile and the material cost profile of the product right? Because you have a good product, you need the right material cost before you actually reach the market. Now, this is an area where we have failed till last year because our material costs were high when we benchmarked it to the market. We've made 50% progress in this quarter, and we are fully confident of achieving the right material cost profile by end of Q3 for full impact in Q4. So the second area of confidence will be material cost profile for the product that we want to make. Okay. The third comes from being able to get it right in the market, which is in terms of placement, having the people who can drive properly, ensuring that we are able to get extraction from the counter once we have placed. Now, this third area is the area where we have not been able to deliver what we have ourselves wanted. We've also not delivered things that we've been discussing during calls like this. Now, this is the area that we have to fix, but this point needs to be fixed not just for AC, but it also needs to be fixed for the other products that I have referred. This is related to people and getting processes right. Our entire attention from the senior team today is on getting this third angle fixed. I hope I've been able to explain to you where our- So are you targeting any market? Yes, sir, I got it, sir. But are you targeting any market share in each of these products or no, you just take care of the product's quality and you just be present in the channel and you- I'm not saying assume, but you wish that this will turn into some market share in the long run. So did I understand it right or? No, we know that for a sustainable play in air conditioners we need to be 10% plus of the market, and that is the figure that we are working with. It's not like we'll just take whatever comes. We need to be at 10% plus to have a meaningful footprint here. That is where my question was coming on how are you confident that you will be there. Because of the competition. I think you are saying it's costing and distribution, marketing will be your- Yes. And you know also since you've asked me so specifically, if you look around India and you look at places where we've got our sales management right, we've got our network addressability and connect side. Actually today, IFB is logging market share in excess of 10%. At an all-India level today, there is a lot of work we need to do. But in the pockets where our sales team has been right, we've got our processes right, we've actually got this share. And hence, our commitment internally as well that we need to make this product category a success, because it is very helpful in terms of gross margin overhead absorption and also in helping general network reach to improve. Okay. I think I'll join back with you, sir. Thank you very much, sir, for detailed answers. Thank you. Reminder to the participants, anyone wishing to ask a question may please press star and one. The next question is from the line of Madhur Rathi from Counter Cyclical Investments. Please go ahead. Hello. Thank you for the opportunity, sir. Sorry to interrupt. Mr. Rathi, your audio is sounding very low. Can you- Am I audible right now? Much better. Thank you. Yes, sir, so I have a few questions. Sir, what is your current capacity utilization, and what kind of revenue can you generate at full capacity utilization in both divisions, the home appliances as well as the fine blanking division? Sir, going forward, what kind of steady state operating margin that we can expect since quarterly things are moving in our direction in the refrigeration, as you said. If you could answer these, I will ask my other question afterwards. Mr. Chatterjee, would you like to answer that, please? Hello? Hello. Yes, sir. Yeah. Mr. Chatterjee, would you like to answer that, please? Mr. Prabir Chatterjee, are you able to hear us? Yeah, I can hear you now. Can you repeat the question, please? Yes, sir. Sir, what will be your current capacity utilization in both our divisions, and what will be the revenue that we can expect at full capacity utilization in these divisions? And what will be the steady state operating margin that we can maintain since Q3, our refrigeration unit gets in full kitchen theme. So if you could answer me these. The washing machine capacity utilization is around 85%-90%. AC capacity utilization is slightly lower now. Engineering division capacity utilization together is around 90% plus. Regarding the revenue, when we build up the total capacity utilization, we do not normally give any guidance on revenue on earnings growth. Okay, sir. Sir, we have invested 44% in IFB Refrigeration. What is the rationale for buying only 44%? Are there any plans to take it further ahead? Sorry to interrupt. The line from Mr. Prabir Chatterjee has got disconnected. Please stay connected while I reconnect him. We have the line from Mr. Prabir Chatterjee reconnected. Over to you, sir. Yeah. Hello, sir. Sir, my question is regarding the rationale for buying only 44% in IFB- I'm not being able to hear you. It's a little out of the Yeah. Am I audible, sir? Yeah. Yeah. Sir, so what is the rationale for buying only 44% in IFB Refrigeration? And are there any plans to take our shareholding further ahead? Sorry to interrupt, but the line from Mr. Prabir Chatterjee has got disconnected once again. Please stay connected while we reconnect him. Should I Mr. Prabir Chatterjee, are you there? Hello? We have the line from Mr. Prabir Chatterjee reconnected. Over to you, sir. Sir, can I repeat my question once again? Yes, please. Yeah, sir. Sir, just wanted to understand the rationale behind buying only 44% in IFB Refrigeration, and are there any plans to take this further ahead? Yeah. Mr. Prabir Chatterjee, are you there? Sorry, but we have lost- Okay. Yeah. This is Mr. Raj Ray here. In terms of the holding structure in IFB Refrigeration Limited, this question that you are seeking, I think it would be right if this is addressed as a part of the overall discussion on the refrigerators business, including the question which you had asked earlier. If it is okay with you, if this is done comprehensively in the next investor call, would that be okay? Because then not just this point, the other points could also be discussed. Yes, sir, that will work. And just my final question, sir. Sir, when I look at the trade and trade schemes and discount for FY 2023 versus FY 2022, it has gone up materially. Are we giving out more discounts and offerings or can you help me understand this? That would be very helpful. So there has been no change in the discount structure as far as the market is concerned. The figure that you see at the overall company level is a blended figure that is coming from discount structures on air conditioners, microwaves, washers, all put together. If the AC sales rise like they did the last year, then the air conditioners are at a higher discount structure, so the company overall percentage increases. But on a given product category or for a particular channel, there is no change as far as the discount structure is concerned. Okay. Thank you, sir. That was very helpful and all the best. Thank you. The next question is on the line of Narendra Shah from Broco Capital. Please go ahead. Yeah, thanks for the opportunity. I would like to ask about the margins. Are we doing anything to improve on that front or are you happy with the current levels? Is Mr. Chatterjee there, please? Sir, I am just trying to connect him. Yeah, you can just connect him. Sure, sir. We have Mr. Chatterjee. We connected. Yeah. Should I repeat my question? Yes, please. You could just repeat your question. Yes, please. Yeah. I was asking about the margins. Are we working on improving our margins or are we happy with the current level? If you could throw some light on it. We are not at all happy with the current margins. There are several areas to improve margins. One is increasing the revenue. Second is we are also taking a number of steps in terms of material cost reduction of other fixed expenses to improve the margins. I am sorry. I am sorry. I am just interrupting. There was a number in Singapore that will be connected. Could you please connect that once again, please? Yeah. He has come. Mr. Ray, can you hear me now? Yeah. We can hear you. Yeah. Mr. Ray, can you hear me? Yes, we can hear you. Okay. I think we see. Hi. This is Bikram Nag. I have gone through the conference call minutes for the last few quarters, and I am very well aware of the fact that we have not delivered on what we have said, especially in air conditioners. I have had a clear chat with the management, with Mr. Ray, Mr. Chatterjee, and others, and a lot of work is being done to put things right. However, it is taking a lot of time because state by state, when we are going to restructure sales team wherever required, that is really taking much, much longer than I would have liked. There is no excuse for this, but that is what is happening. I think a significant portion of the sales structure has to be changed, which Mr. Ray is doing. Mr. Ray and Rajan are doing this. It is just taking longer than what we thought it would take us. I missed a part of the thing, but the question from AC is absolutely valid. There was no reason to get into this and then having the issues that we have had. Having said that, the product has been received well, which is the most important thing. If you have a very good product and you cannot sell it, then that is an absolute disaster. This is being put right state by state. Unfortunately, in some of the states, we really had an issue with people understanding distribution requirements. We are certain before the season starts again, which is normally in AC, I think Mr. Ray, the dealers start picking up stock by December, January. January, I think. Yes. December. Before that, I think issues will be fixed. More importantly, the material cost, et cetera, which has an impact on pricing, will also be fixed. We have this review every Saturday morning. I attend the review, and huge amount of work has been done, and I think the effect of that will be very visible. To a question I heard on refrigerator, et cetera, the last speaker was talking about it, regarding why did we buy 44% and all of that. I think the major reason there was strategically, IFB Industries should not get into it from the point of view of taking debt on its balance sheet. Hence we have de-risked that part. I think the ref stuff started being accepted well. It just started, I think, 2 and a half months back. It just started. Now we are doing about, Mr. Ray, how much are we doing? We are doing about 1,000, 1,100 a day. Yeah. About 1,100 a day, and I think it will be ramped up. Regarding the point on capacity utilization, I think FL business by the fourth quarter, I think should be fully utilized. I think, or near to being fully utilized. Mr. Ray, if I am wrong anyway, you please come ahead. Regarding Mr. Prabir Chatterjee's point on washer, it is not fully accurate from the point of view, we are still working one single shift. So we have a lot more we can do. We have taken the decision to look at exports, et cetera, including OEM, et cetera, and we will see how to increase capacity utilization. We will be ready with this in the next few months. I have given clear instructions that capacities must be fully utilized, and that is when overall costs will fall, and we become much more viable. Yeah, that is all that I have to say. The rest, Mr. Ray, carry on, please. Yes, please. You can now go back to the question sequence please, Ananya. Thank you. The next question is from the line of Vivek Kumar from Best Pals Advisory LLP. Please go ahead. Thanks for giving opportunity. This is continuous of my previous question. I did not want to take time, so I just came back. Sir, you told that you wanted to be. There are two Korean players, Samsung and LG. I am not asking to name them, but given their scale and given their different number of years of experience, how do you normally think about when you take on these people? Because the competition intensity is also very high and when you dig into refrigeration, when you get into AC. This is where I am coming from, sir. Even my first question was related to this. When you see these two players being across the segments and you are also trying to take on these big guys. When I say take on, I am not saying you will displace them, but get market share where these guys have inherent strengths, age-old strengths. How do you go ahead and be there and get your share of market in the long run? If you can. Because the competition intensity is so high in this, which area of your home appliances do you suggest, especially? There is no perfect answer to this, but the way we look at it is that we like to do our own thing, which is in terms of our product, which is true to the IFB product beliefs that customers have, our positioning and our customer connect and our effort in the field. I do not think it is in our mind so much an IFB versus an LG or a Samsung. It is more about IFB and what potential it can realize for itself. I would assume that if you were to scan the market and visit some stores, you would see that there is a distinct customer base for IFB, given our reputation for product quality and our presence in India over many years. And we want to leverage that strength. We do not per se in our discussions think so much of growth in terms of taking somebody else's growth to grow ourselves. It is more about realizing what market potential there is for the company. Also, Mr. Ray. I hope I've been able to answer your question, yeah. Mr. Ray, can we answer one more? Yes, please. I think for us, LG, Samsung is actually two very inspiring stories. Okay. Because you look at these companies, you see what they come out with so fast. You see how they straddle the market. You see their designing competence, et cetera, vis-à-vis the Europeans. I think you should learn from them. Hence we took the decision to bring in Koreans into our company. It is very difficult to be competing with them, but I think they are two very inspiring stories to learn from. I think, and this is what I tell my team day in and day out, "You do the best that you can. Okay. The problem today that we are facing is in many markets or segments, we are not doing the best that we can, and that is where we are failing. I do not think we are failing on the product side per se. I think in certain cases we failed in bringing our products fast enough, and hence Mr. Ray has revised our entire project management team, et cetera. I think these are things that we need to grapple with. But I think the market is big enough for everyone to be doing well and for us to be doing well. I think we started getting market share back in FL, and we have a clear strategy to get back to a significant market share lead over others. I think you will see that by Q4. Okay. You are saying there is enough market and there are things that we can do to improve ourselves and not maybe like them, but go near them and some areas be better than them, and the market is large enough for us to have our share of market. Right? Can I take it like that? I think so, yes. Yes. Thank you, sir. Thank you very much for answering. Thank you. Thank you. The next question is from the line of Manoj Gori from Equirus Securities. Please go ahead. Yes, thank you for the opportunity, and thanks to Vikramji for sharing his views on this call. My question first would be, if you look at the home appliances, over the last three, four years, we have definitely been off track with regards to growth. Historically, when we look at, we have consistently delivered 15% kind of CAGR growth into home appliances. But over the last three, four years, we have somehow missed that part. Probably whatever growth we have seen in last couple of years has been largely because of the Room AC side. Correct me if I am wrong. Probably some contribution would have been from the price side as well. Can you throw some light, what are we missing here? Because in terms of product position, I think we are well-placed. Mr. A. Manoj, the answer to that is that we should have grown much more than what we have grown, and we have just not done a good enough job as far as extraction is concerned. Growth can come from two ways. It can come from increasing extraction from the same counter, and it can come by just increasing the reach, and therefore getting more growth. The reason why over the last two, three years, we have not got the growth that we should get is because we need to do a much better job as far as the market extraction is concerned in terms of reach. This is a point that Mr. Nag is also making in terms of reviewing the sales approach, ensuring that we have people who understand distribution better. Those are the areas where a lot of work is being done now to ensure that those type of growth percentages come back. Your point is right, and there is no explanation for it other than the fact that we should have done a much better job. Mr. A, can you please explain to them regarding our data, which talks about counters where we have CSRs and counters where we don't have CSRs, and how the thing works? Yeah. Manoj, if you recall, in one of the earlier investor calls, we had spoken about these many new counters. Yes. Which the industry calls as in-shop demonstrators, and our terminology is counter sales representatives. Our data shows that currently we have about 30%, 35% odd of counters, which would be typically the large counters, which could be the chain stores or the modern retail formats, where we are currently not placed with people, and therefore we lose sales there. But where IFB is placed and we have a person basically representing the product and explaining it to consumers, our shares within the counter are significantly high. One of the key agendas that we set for ourselves is by end of September or probably October, to ensure that each of these vacant gaps are bridged, and that itself, if you do the maths, is pretty good growth which is going to be taken. But this won't have any incremental impact on the employee cost, right? Actually, no, it doesn't because the counter sales representative has a salary cost, yes. But they also operate on a variable earning based on the sales. In terms of a per-unit cost, actually, it is not much. As long as we get- No, but the point is valid, Mr. A. If you take a person in the counter and the person doesn't sell the amount he should sell. Then it's an added cost. Very fair. We have to get the productivity, Manoj, and then that cost is very good cost for the company. Right. But the sales opportunity is far in excess of the cost, basically. Right. So this is one area, like placing our employees or promoters on the counters would be doing better sales. Can you throw some light, in a detailed manner, what are the efforts we are taking to improve the gross margin? Because of late, I would like to appreciate that during AGM and even today, we have emphasized, and even in the previous con call, we have emphasized a lot on margin improvement. So we have identified the areas. Can you throw some light, like what would be the measures that we would be taking to improve that? There are two specific measures, Manoj, and we've committed this internally to the board, and it is also shared, for example, in a public platform like the AGM. The two specific measures for the gross margin improvement are, A, the material cost. Some part of that we have already shown in Q1, but there is a significantly higher percentage which will be completed by end of Q3. We are fully committed to this. The third, which is more specific to IFB Appliances for us, is a reduction in the fixed cost base, and we have set a target for that. That is also being reviewed at Mr. Nag and the board's level. That is something that we have to complete by Q3. The impact of both will begin to show from Q3, and at full realization in Q4. That will fix this gross margin percentage that you're talking about. Right. Probably now, from a trend point of view, from Q4 onwards on sequential basis or probably at least in the directional manner, we should see improvement in margin gradually from Q4 onwards. Yes, we are committed to that, Manoj. We are committed to that. That for us, I think, is 80% of our priority now. Right, sir. Lastly, on the capacity utilization. If I am not wrong, Mr. Prabir Chatterjee just shared that we are operating at 80%-85% for washing machines. Is that correct? Manoj, it is actually lower because Mr. Manoj Gori just pointed out, the plants are running at a single shift on the assembly line. Some of the back end are running two shifts. So if we are able to generate the sales throughput, then the plants can actually produce much more. So it may not be 85%. Maybe we can increase capacity from whatever we are delivering now by as much as 50%-60% more. So capacity is something that is very quickly upgradeable, Manoj, and it does not call for much CapEx per se. It is just supply capacity getting upgraded. So if I look at washers overall, which is top load and front load put together, then if we get the sales throughput, the plants could go up by 50%-60% from wherever they are today. Right. So on the refrigerator part, you just mentioned, like we are doing on daily basis 1,000 to 1,500 units. So if I do a account, like proper math, probably we are somewhere around No, Manoj ji. We are not doing that. Manoj ji, that is being done by IFB Refrigeration Limited, not by us. Okay. Got it. That has to be corrected. Some amount we sell through IFB Industries, so that is still being worked out. Right. Thanks for that clarity, sir. Thanks, and wish you all the best. Thanks. Thank you, Manoj. Thank you. The next question is on the line of Sumil Sethi from Siguler Guff. Please go ahead. Hi, sir. Thanks for the opportunity. I just wanted to check a few things. So, in the investor presentation you have given sales split by product category. Is this split based on gross sales or net sales, net of promotion discounts? Mr. Chatterjee, would you like to answer that, please? You are talking about the pie graph? Yeah, the pie graph that is given for the home appliances. That is under gross sales. That is under gross sales. Okay. Yes. Just a follow-up question here. You earlier mentioned that you are giving the higher promotional discount on ACs as compared to your other home appliances. Is this bound to converge towards the home appliance number any time in the future as your price realization improves? Or in general, in the industry, ACs operate at a higher discount as compared to other home appliances. So, if you typically see the structure in the market, ACs do operate at higher discount percentages. But ultimately, I think what really matters is irrespective of what that percentage is, are we being able to generate a healthy gross margin? So I would look at it more like that. Okay. And sir, you mentioned that currently you are making a 13%-14% lower gross margin on ACs as compared to your home appliances, and a large part of that recovery will be done through material cost reduction program, which will be done through the end of this year. So I just wanted to understand, would improvement in price realization going forward will also be a big portion, or do you think that the ACs are priced well in the market as of now? Whatever internal targets we are setting for ourselves are minus any increase in sales realization. For a specific answer to what you've asked, given the sort of dynamics in the AC market over the last six, seven months, the scope for any price realization improvement as of now looks quite far-fetched. We don't anticipate any increases from price realization as of now. Whatever we are doing is purely led either by material cost or by delivering the sales that we should be delivering in any case. Does that answer your question, please? Yeah. That answers my question. Just one other small question. So can you give me the capacity utilization for the AC plant as of this quarter? The AC plant capacity is 500,000 per annum. Yeah. On the assembly line running at a single shift basis. Okay. The rest of the plant, which will be, let's say, the feeder lines for making the coils, evaporators, et cetera, all of them running on a three shifts basis. Okay. If loosely translated, that comes to roughly about 40,000 per month. That is the AC capacity. What is the capacity utilization for this quarter? For this quarter, it is much lesser. It is not that ambitious. I will give you the figures separately. Okay. What we are working on is how to get 100% capacity utilization by, let us say, mid third quarter or latest 100% by fourth quarter. Okay. Sir, just wanted to understand what is the strategy around contract manufacturing? Is this something that you will continue to do for the longer run? Just wanted to understand, are you supplying to the brands which will be perceived as your competitive, or you are supplying a completely different range of ACs for the contract manufacturing fees? That's a good question, and what we have explained in some of the earlier calls is, the way we look at it is that the OEM supplies that we are doing help plant capacity utilization. Let's say if we were to do 500,000 per annum in the short term, and we would have 300 odd thousand brand sales and 200,000 OEM, it helps the plant to cover overheads. It also helps purchasing power because volumes are ramping up. That was the intent with which we began the OEM supplies. Going forward, we still see that the selective volume supplies will continue. The product that is being supplied is essentially similar, but there are differences in terms of features, aesthetics, based on whatever the volume suppliers want. The DNA is the same, but it would be minus some features, some performance areas, et cetera. That's a customer requirement that we fulfill. You're saying it's the same platform, basically? The platform, yes. The platform is the same. The platform is the same. Yes. Understood. Thanks so much. Mr. Ray, one thing I think what he is trying to get at is, what is our strategy for OEM, et cetera. I think the strategy must be much more robust for us to get a much higher share of the OEM business. I think we have discussed that point, whether in India or outside. I think now that you have got a person fully dealing with this, I think you will get positive results in the coming months. But I think you have to set a target for OEM and then really chase that, and to make definitive margin in that. Just like we make in engineering business, we are in the OEM business in a different way. I mean, we supply to OEMs in engineering division, and I do not think this is different. Okay. Thank you. The next question is on the line of Madhur Rathi from Counter Cyclical Investments. Please go ahead. Thank you for the privileged question, sir. Sir, can you just guide me what will be our margins in a steady state operating environment, and when will we reach to a double digit kind of margins? Mr. Prabir Chatterjee, would you like to answer that, please? Sorry, I couldn't hear it properly. Some issue. Yeah. Sir, what will be our operating margins in a steady state environment going forward, and when can we achieve a double digit operating margin? Yeah. You see, what he's asking is, when are you going to have steady double-digit margin, et cetera, going forward? Yes. So once we fix up the revenue between all products, including AC, capacity utilization is doing better, and the steps regarding the material cost reduction and other fixed cost reduction steps that we are taking, these are all implemented, we will be in a better position and the margins would be better. Okay, so no exact year timeline that you can give me right now? No, I do not think we would like to give a guidance, but I am being very emphatic on this. We as the principal shareholders are, of course, not happy about the fact that margins have been low or the fact that we have not achieved numbers. We are the most affected by this. So all the discussion within the company, day in, day out, is to ensure we have a robust team in place which can deliver on what we discussed, point number one, state by state. I am emphasizing this point on state by state because that is very important. It is our intent that in appliance division, we hit over double-digit margin. That is what we would like. This is not a guiding statement, but that is what we would like. And of course, for engineering division, which is now operating at decent margins, we need far more growth and a much higher margin also. I would like, or I would like to think at least, that by end of Q3 or thereabout, November, December, I think we should be in a much, much better place. But double digit, I think to be steady. That is your question. I think from Q4 onwards should be Mr. Ray and Mr. Prabir Chatterjee's drive. That is what we would also like as principal shareholders. Thank you so much, sir. That is very reassuring. Sir, just a follow-up question. Sir, with increasing EV penetration Sorry to interrupt, Madhur Rathi. Can you speak a bit louder? We are not able to hear you. Yeah. Sir, with the increasing EV penetration on our engineering business, so the fine blanking decisions here, can you just highlight what are our plan going ahead, and are we looking for some kind of acquisition instead of setting up our own capacity in this segment? No, Madhur Rathi. I think the existing capacities that we have And cater to sizable EV business. Whatever little CapEx we need to do, we can do internally. I think we have got orders of nearly INR 50 crores-INR 60 crores for EV business. This will significantly improve because marketing has been directed to get more EV business. Sorry, EV business. ICE engine neutral business, sorry. I think a significant amount of work is being done. We have started supplying via media to people like Tesla, et cetera. I think a lot more work on this will be done. As far as acquisitions go in the auto component space, we are on the lookout. At this point itself, we are talking to some companies, and these are all ICE engine neutral businesses. I feel that for engineering business to grow, our strategic decision has been, we cannot grow by being CapEx led because it takes a long time. We have to be acquisition led, but we need CapEx in the existing plant, whatever little that we need. Therefore, we need to purchase a sizable business. Now, what that word sizable can mean, that is still being discussed within the company, and how we will finance it, et cetera. The engineering division, which is fine blanking and stamping together, has debt of only around INR 30 crores or INR 32 crores. We have inefficient inventory and debtors of around INR 30 crores. So we can pay it off tomorrow, and we can easily leverage. I think by Q3, maybe by October, November, I think we will stabilize at about 16%-17% margin. Therefore, for us to finance a takeover should not be an issue. Thank you, sir. That was very helpful. Just a final question, sir. Sir, is the IFB brand held in- Sorry to interrupt, Madhur Rathi, can you speak a bit louder? Yeah. Audio is not- Yes. Am I audible right now? Yes. Yeah. Sir, is the IFB brand held in the name of our company or the promoters? That will be my final question. No. Promoters don't own anything. Promoters, we have nothing. We only have shares in the company held through other companies, which is disclosed to SEBI. It's very clearly disclosed to SEBI, just like everybody else has done. Promoter does not own the IFB brand at all in his personal name. No. Not at all. Thank you, sir, and all the best. Hope we will get to our margin very soon. Thank you. Thank you. The next question is from the line of Keshav Garg from Counter Cyclical PMS. Please go ahead. Sir, I wanted to get your view, sir. Don't you think that we are trying to do too much that instead of focusing either on the marketing side or on the manufacturing side, we are trying to do too much and the management bandwidth is being distributed in lots of small divisions and hence, we are not able to ramp up our business. Hello. Yes. If this question is for me, which division is small? Because if you look at it, for example, Engineering Division. Engineering Division with fine blanking and stamping is sizable now, and I think we will soon make it much more bigger. It is a very good cash generating business, and it does not take away bandwidth from me per se, because the Engineering Division has its own full-time management in place. Appliance Division has its own full-time management in place. Per se, I don't think management has an issue in terms of time. As far as my team goes, I take decisions for capital allocation, et cetera. in the case of AC, as on date, it has not gone off well. And I am very concerned about it, and we spend a lot of time on it. But I think these things happen, and we will put it right. We need to put it right. But the management of appliances doesn't spend a single second in engineering as well as vice versa. I don't think there is an issue on that. Sir, my question was not that. I am saying that our engineering business is doing just fine. The problem is in the consumer appliances business, in which we are getting into TVs, everything, instead of focusing on the major segments. And sir, now, for example, we have got into motors. So motor, we are making it all. Now for automotive motor also we are trying to make. Sir, there are specialists which are only doing automotive motor. And also we will compete with them part-time, basically. No, I think the appliance motor division and the automotive motor division both have been there for 15, 20 years. Nothing new we've done. The only thing we've done in the appliance motor is we've gone into BLDC motors, which is required by the washing machine division, and air conditioning motors, which is required by the air conditioning division. Nothing else we've done. Air conditioning motor is the only new thing that we've done. Otherwise, everything has been there. And if you see the advent of EV, that clearly tells us that motor is the most important thing there. And strategically, we think motor is an area that we must be in. And I don't see an issue with that per se, but I've understood the question. Sir, my other thing is that, sir, there is a contract manufacturing company, Dixon. Sir, our revenues were more than this company in FY 2016, and now their revenues are 2 times our revenues. Soon they will do 1% what we do annually. Now, sir, they are contract manufacturer. Now their market cap is like 9, 10 times our market cap. They can buy you up in percent equity and raise as much capital as our market cap and set up huge plants from which they will get huge economies of scale. Sir, whereas we are sitting with our small plants and trying to market our own products. Sir, even the OEM, given a choice between IFB and Dixon, they would surely try to buy from Dixon rather than buy with the existing company also. Down the line, once your own AC sales pick up, then the question will arise that will you first cater to your own AC sales or will you cater to the third party? I think if you look at any Chinese company, including Midea, et cetera, brand and OEM have gone hand in hand. I do not think any of the Chinese companies have ever failed the OEM customer, and neither have they failed the market. So we have seen that. For example, we buy microwaves from one company, Galanz. It is only now that we started buying some amount from Midea. Galanz is very strong in microwave brand in China. They also do a sizable OEM business. If you see Beko, for example, that Tata's have tied, Voltas has got a tie-up with Voltas here, Beko. They have grown through OEM. However, our OEM strategy needs a relook, and we really need to look at the volume side of OEM business. We are doing this, and we will relook this and make it extremely viable. So sir, I think the example that you are giving, firstly they scaled up their contract manufacturing business and then- Correct. they started their own business, whereas we are trying to do the reverse. So sir, best of luck to you. Thank you. Thank you. Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments. Mr. A, this point on the contract manufacturing thing- We will discuss it tomorrow, but I think this is a point, and we really need to step on this and have a proper strategy for it. For AC as well as for others. Refrigerator, you already got an order of 100,000. But in AC and all, we really need to fix this. Good. Mr. Prabir Chatterjee, would you like to summarize this? Thank you all for joining our teleconference, FY 2024. Thank you. Thank you, members of the management team. Ladies and gentlemen, on behalf of Nirmal Bang Equities, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.