Ladies and gentlemen, good day, and welcome to Orient Electric Q3 FY 2024 earnings conference call, hosted by ICICI Securities. As a reminder, all participants' 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. Aniruddha Joshi from ICICI Securities. Thank you, and over to you, sir.
Yeah. Thanks, Manuja. On behalf of ICICI Securities, we welcome you all to Q3 FY 2024 results conference call of Orient Electric. We are with our senior management, represented by Mr. Desh Deepak Khetrapal, Vice Chairman and Managing Director, and Mr. Saibal Sengupta, Chief Financial Officer. Now, I hand over the call to the management for initial comments on the quarterly performance, and then we will open the floor for question and answer session. Thanks, and over to you, sir.
Thank you. Thank you, Aniruddha, and thank you everyone who found time to join us on this call and get a little bit more flavor into the results that I'm sure all of you would have seen by the time you've come to attend this call. I think the results have been in the public domain, as has been our media release a little bit on what's happened. I guess people who were with us on the investor call in the previous quarter, Q2 investors call, would have been pleased or reassured to note that our Q3 results have been in line with what our briefing to the investors was at the end of Q2 as to how we are looking going forward.
I personally, my view is that I'm not saying that we have great numbers, but we've had what I call a satisfactory top line numbers. The better part is the improvement in our gross margins, even when the top line is, I would say, has a modest growth. The investments in our organization to strengthen the organization to take on the larger long-term aspirations have been continued. As a result, despite improved margins, the earnings at EBITDA level or PBT, PAT levels, they continue to lag over the previous year. But as I have stated earlier also, we expect to come through this phase, maybe in another two quarters, is what my guess is.
When these investments that we are making start bringing up the volumes and the operating leverage for which these investments are to be precursor. And without these investments, I think getting to those kind of aspirational targets would be difficult. So that phase is in its final stages. My guess is another 2 quarters, and we should be out of that phase, and all the overheads that we've created will start getting absorbed by the higher sales and volumes and the operating leverage. So that's the broad, I think, statement on that. If you ask me, definitely, the industry as a whole, the results and even the talk that we have with our peers in the competition in the industry.
Consumer demand, not just in consumer electricals, but I think across many consumer sectors, has been muted in Q3. When the demand is low and the consumers are not coming to pick up, it's, I guess, in the hope, I would say, of finding better traction in the market, some players find it more attractive to either cut prices or to be very with a heavy discounting and channel incentives to the channels so that they buy and they stock up with them, and so the company can book top-line sales. In an atmosphere like that, obviously, it's very difficult to keep the ambition going, going forward.
But net-net, I think in terms of numbers, we're still, I would say, yeah, not happy, but satisfied that we have at least a top-line growth, it's a modest, below 2% growth, in top line, which is at INR 725 crore for Q3. Within that, ECD actually almost flat, marginal fall below last year, same quarter. But, the flavor in that is that, while the fans business has reported a degrowth of low single digits, is the robust growth in appliances. That's a small business, but the robust growth in appliances have helped us in reporting an almost flattish ECD top line.
While it's flattish over last year, but given the seasonal trends every year, on QoQ basis, as would be expected from Q2 to Q3, we have a 47% growth in ECD business. Lighting and switchgear, which is not so even impacted and not so seasonal, there we had 8%+ growth. The QoQ growth in lighting has been at 6.5% roughly. I'm sure you would have seen those numbers that we already sent out.
The reason I said we would have found our sales, at least in the fans, in like, though they are less than last year same quarter, but that I'm saying it is in line with your expectations, because last year in the last quarter in this call, I very clearly been mentioning that Q3 of FY 2023 was so exceptionally large because of the transition from non-star fans to star fans, that the whole industry had offloaded a lot of material, and the channels were filled up with all the non-star fans in Q3 of the previous year. And we knew that this year, Q3 is going to struggle when we compare our sales to Q3 of last year. That was known to all of us.
I think we had at least I know I had very clearly spelled it out in my briefing in the previous investors' call. So the corollary or the good news there is that because Q3 last year had a base effect for us, which makes us look poorer in Q3 this year, as a corollary of that, Q4 last year happened to be rather poor. And we had explained that there was so much material lying in the channels that Q4 had to be poor. We knew that.
My own expectation at this stage, as we speak, is that on in Q4, we should be able to more than make up for the, I would say, small decrease in fans that we've had, and come out with much better numbers, even making up the normal growth that we should have had in Q3. So that's the, I would say, the fallout of Q3, Q4 distortion in the previous financial year. And this year, the Q3 has become normalized, and Q4 will become normalized. So at a normal level of Q4, we should have strong, robust growth in the fans industry in Q4, and we, I'm sure, we will, you know, try and do better than the industry in Q4 growth. So that, that's on the on the growth in fans business.
Our appliances business in Q3 also has done well, and that enabled us to have flattish AC sales. Within fans, the categories and some of the assortment that we have in our portfolio, they have, they've had better traction. We've actually struggled more perhaps in the base and economy, the cheaper range of fans. But in the premium range and some other specific assortment that we carry with us, we've had very, very strong growth there. I think the big win, the big story in our, let's say, performance, is that the 7 states in which we've gone direct to market, and this is a transition that had started sometime last year, there we continue to get very encouraging returns. I think in quarter three, we are about 46% YoY growth.
On YoY basis, direct to market, seven states, we are 68% higher than last year. Which is in line with what our purpose to move away, move away from the legacy distribution and go direct to the market. That conviction of ours is being played out in the market by our direct approach. There is a bit of a challenge still that we are having with our legacy distribution channels, where the sales continue to be sluggish. But we are in select markets, we have very clearly we have good enough distribution partners who would like to sort of help them to sort of recover the business and make it more robust.
And wherever we don't see, don't see the potential with our distribution partners, legacy distribution partners, maybe we'll pick up another 3-4 states in the next financial year, to sort of make those transitions, to make sure that none of our markets where we are is serviced or is, let's say, serviced at a suboptimal level. So that's on the fans market, I think our optimism keeps growing more and more as we taste success in the DTM markets. And we believe we have a formula that will win in many more markets, using the same approach, the same strategy that we have adopted.
There is a respectable growth, I would say, in our lighting and switchgear business, and this is despite the continuous erosion in selling price, which is happening in lamps and buttons. The reason why we have robust growth in our lighting division is coming mainly from the fact that we've actually made up for, I would say, loss in sales numbers from the standard plain vanilla commodity kind of products into more value-added products. The high wattage lamps, the professional looms away from seed looms, and that mix change has been helping us in making up for the numbers that the lamps keep losing to the industry, as the whole industry is losing lamps, as you know.
But obviously, many of the new products that we have and many of the new projects that we managed to bag with us in either B2B or even in a segment where we actually do the complete installation, and I'll come to that later, facade lighting. All those things put together have helped us to maintain and grow the top line, as well as see very, very good results even in terms of our gross margins improving from that market. Coming to margins, because I've spoken about margins a few times, I think we've been working on the product and market mix to improve our realization on the one hand.
We've continued to improve our procurement and our manufacturing efficiencies to find some cost savings, and have also had the advantage that the rest of the industry are somewhat denying commodity prices, which is always a good tailwind to have with us when we are trying to struggle with the, the improvement in margins. The overall gross margins, you would have seen, they have actually improved year-on-year by 120 basis points, reaching very close to 30%. But despite that, yeah, we have some way to go because the EBITDA does appear at INR 49 crore, which is at 6.5%, reflecting year-on-year drop of nearly 92 basis points again. It's below by 92 basis points, point nine two.
So that's overall, like I said, the margins story is again in line with what we had said, that the growth we will keep getting. The gross contribution, gross margin, gross profit, whatever you want to call it, that is improving. And the EBITDA, which again, I repeat, is being impacted by the high overhead that we built to strengthen the organization, they are going to take another two quarters before they become fully productive and get converted into higher EBITDA and high profitability of the other metrics. Within the margins, as you would have seen, the unit margins for lighting and switchgear business, that has sequentially expanded by another 98 basis points, which I think is one of the best things that we could have got given the overall situation in the market.
And that, again, is a result of the strategic shifts that we've, as I mentioned, we've been making in our product mix and also in our market mix. We are doing a lot more to do B2B, we are doing a lot more professional, we're doing more into even B2G business, the large projects that we've won and done. So that's the reason behind the obtaining the significant improvements in our, our gross margins. On the going forward strategy, in keeping with the trend that's in the market of increased demand for the power efficient fans, the BLDC fans, all of, all of our efforts are moving towards that direction.
One of the challenges that we need to sort of keep in mind is that, although the current, I would say, announcements by the government say that BIS will be made mandatory very, very soon, and frankly, we could be prepared with that. We have all the- everything done. What we understand now that the testing that the, authorities or the regulators have to get done, or we have to go through their, testing with our products, we, we have an impression currently that maybe they are not ready to test everyone's product. There's a huge waiting line there for the products to get tested and to be given the BIS marks.
Because of this, I don't think the announced deadline is looking likely at point today's date, but if it does, if it doesn't happen now, it, it may happen in another maybe quarter's time or maximum two quarters' time, but that will happen, which I think organized players like us who believe in any case to deliver a quality product, it favors us. Because for us, BIS certification will, should be a cakewalk. And lots of other smaller competitors in the market who perhaps will not do the manufacturing with as much quality assurance as we need by the products, I think we should have some, some advantage over those kind of players in the market.
So that's, that's good for us, provided the agencies are in place to start giving the ISI label that we can start using on the products. But that's imminent, we know that. And another imminent challenge, we also keep hearing about this extended producer's responsibility, which under environmental norms is being imposed on the industry. It's being imposed across the industry, and obviously, there, there are a lot of, I would just say, confusion, lack of clarity as to how it will apply, how it will be calculated, who will have to bear it, how to be recovered. But those are two, I would say, on the horizon, there are a few things which are appearing like a challenge for... in the extended producer's responsibility, it's all industries.
We are not alone in electric appliances. But on BIS, I think fans and these kind of products, perhaps many of the products have it, our products, many of the products didn't have it, so that will become mandatory. We'll have to cope with that, which is not a problem for us. I feel confident about the quality parameters becoming more demanding in the marketplace, simply because we have a very strong R&D setup of our own, and we are actually currently busy leveraging our R&D to create superior products in-house.
Including our own, I would say, some level of electronics, like PCBs and all, which we believe that we should be able to not only produce ourselves more economical, and more robust PCBs, but we should also be able to add some innovative features in our BLDC fans, which perhaps may not be available in the PCBs that we've been buying from the market in large numbers in the past. The whole industry has been doing that. So those are some of the strengths that we'll build, we'll leverage going forward. We've also taken some specific initiatives in the last three, four months in terms of improving the after-sale service of our products. In fact, as we speak, we are still in the middle of...
We've started off with a project, but I think it's finding a huge amount of success where in the eight cities where winter is pretty severe, so we've actually given a assurance of a service call being attended to within eight hours. And I would like to say many of the service calls were attended within two hours. I'm talking of heating products which are critically needed in the cold. So we're trying to sort of, in a way, learn from this project that if we have to provide very, very quick after-sale service when the customer needs it, what kind of capabilities and what kind of resources and infrastructure we need to create? So it's a very good learning, but the good news is that we actually call this project the eight, eight, eighty-eight.
That basically meant that in 8 cities, service in 8 hours over the next 88 days. That was the winter day. And it's actually created such a buzz in the market that we're getting very strong feedback from the marketplace regarding the initiative like this. It's it's very good to actually see the positive sentiment coming around because we've provided a service which perhaps is the first in the industry, of fixing somebody's water heater within 2 hours of the purchase. And as we get a call and immediately somebody goes and fixes this product. I know it should have been done long ago, but I think we as an industry have never geared up.
We are preparing ourselves by running some of these experiments, you call them, some of these projects, which is give good news in terms of preparing us for even better targets to take up as we go forward. On the other good news has been on the financial business front. All of you do know that we do sell our products, exports, and export products and fans and also switchgear and all. We've had a strong, I would say, high teens growth in our international business in this quarter. Although we do see some challenges with the geopolitical conflict that's going on, especially around the Red Sea and the movement of the ships around certain channels which are more efficient to approach some of our markets.
That's a bit of a concern, so let's see how that gets resolved. But as of now, we are reporting a strong growth in Q3 in export business also. And unless we are set back by this challenge in logistics, especially if we are talking about ocean logistics, I think we should continue with the good growth in our international markets. In the appliances business specifically, I would like to call out our very strong performance in heating products in this winter season. And we have got a very, very good volume growth. The festival sales in appliances saw very good traction in e-commerce channel for us.
We also saw, I would say, one of the tidbits that I would like to sort of, in a way, mention to you that we've managed to sell recently, as many as 100,000, 1 lakh water heaters over the digital channel itself, which is, internally we have taken up some targets. That brings me to, I told you about 8, 8, 88 project, that we also had an internal project taken up by our digital division, basically the e-commerce and modern retail and things like that. We had a project, we had turned INR 100 crore in 100 days, which seemed like quite a big leap for us who are still learning about those channels.
I'm happy to say we missed that INR 100 crore mark in 100 days by a whisker. We were almost there. And these kind of projects are actually creating a very different level of self-belief and confidence in our teams, that we can actually take up really audacious projects and make an impact in the market. The concerns remain around the price erosion that continues in the lighting division. And despite the strong double-digit volume growth, we can't find in terms of rupee terms the growth in the value, which is a matter of concern. But like I mentioned earlier, these headwinds we can fight only through finding some diversification away from the products which are losing value. They're not losing margins or profitability, they're just losing the sales value.
It's coming out of the savings in costs, which are coming out of the technological shifts that are being made in plans. I did mention the, and our, let's say, B2B or professional luminaires, as we call them. There also we've reached a double-digit growth in rupee terms, in value terms. And that's a significant part of that has been coming to us through the trust that we see from the government side. And lots of sales have been done to the B2G segment that we run quite efficient in our company. And with the continued execution of some of the large projects, we are very confident that more and more qualifications that we are running to bag these projects.
Some of the notable projects that we have either completed or are in very close to completion, they include. I would say, I'll call out maybe a city like Srinagar Smart City project that we completed. We are almost in the final stages of, you know, coming out of that project. We've done Yamuna landscape and facade there, Amritsar Municipal Corporation, in industrial, we've done Bharat Aluminium. So there is lots of these projects. I don't want to give out the whole list, but some very prestigious and different significant projects, in a real professional environment we've been able to deliver. And as you know, this business snowballs, because as you do more project, you get more, more qualification and more and more people and consultants and influencers are willing to give us a try.
So that seems to be on a roll. In terms of, I would say, traction on, as I did mention about e-commerce growth, I spoke about INR 100 crore in 100 days. I spoke about, you know, selling more than 100,000 water heaters on e-commerce. Overall, that segment for us continues to give us very, very strong growth, and we've, I think, found success, which is perhaps more than even what we anticipated to start with. We had the ambitions, but we were a little bit unsure of our confidence. But thankfully, our team there has done a fabulous job and continuing to record, what should I say? Close to 100% growth, year-over-year. And even on a quarter-over-quarter basis, we find very, very strong double-digit growth, continuing to be in this digital...
In which we were perhaps behind the curve, but we've caught up, well, and I think this growth will continue and the acceleration going forward with that channel are very, very strong. Same thing, same program besides digital in the large format retail business, but again, we had not found enough space in the large stores. Slowly, gradually, with the new products and with the new, I would say, assurance of support to the stores and also on quality and service, we are finding more and more large stores giving us an opportunity to be available with them. Our cost savings program, our efficiency program, procurement becoming more competitive, all those things continue, and we consolidate all those savings under our Project Sunshine, on which we've been reporting on quarterly quarter basis.
I think in this year, so far, we've managed to save around INR 40-45 crore purely through cost-saving initiatives. That's on the numbers side. I think two of the topics I know that almost every one of you will be curious about, and let me address that upfront. One is, where are we on our Hyderabad project commissioning, right? And as we keep mentioning, we invested most of the money has already been invested, so the civil structure is ready. We were, if you recall, being held back by lack of visas, which we needed for some Chinese engineers who had to come and commission the plants.
The plant equipment was here, everything was there, but we were not able to get the technicians to come, to bring them in and commission them. I think I did mention to you in the last investor call that we were personally approaching the consulates in the respective cities in China from where we had to apply for visas for these technicians. We had very small partial success. We needed quite until we needed 13 technicians here. Out of which the visas have been issued so far only to 2 technicians who've been here for a few weeks now.
Not quite what we needed, but at least a start has been made, and as a result of that, currently we are in the process of, let's say, as far as the TPW fan are concerned, which basically means that they will produce wall fans, or in one word, non-ceiling fans. On those lines, we've been able to make significant progress and actually right now the testing of the equipment and the fine-tuning is going on. And there is a lot of optimism that at least the PPW lines that we have in Hyderabad, they'll start producing commercially viable fans, if not by the end of this financially or very, very early in April, we should be in the market with the PPW fans from Hyderabad plant. Ceiling fans, there is a little bit still, there is a struggle there.
We are putting up capacity there in the state-of-the-art. The technicians from one of our vendors, we've not been able to find. We are still trying to find some way if we don't get the vendors from China. We're requesting the vendors. They apparently have some other business partner or some technicians in Korea, and we will try and get them from Korea and come in. But it's been slightly behind what we needed it to be. But there is progress, though, not enough progress, and that's what I thought I'll at least highlight that it's not—there's been a significant move forward, even with just three engineers and putting our own resources together.
Our own people who are part of our teams currently, they worked diligently and very hard with just three engineers to get us the progress that we have. Even in the ceiling fans, we have made progress in connecting and assembling. But commercial production ceiling fans has not progressed as much as the PPW fans have progressed. So that is one update on the Hyderabad plant commissioning, and I'm hoping that we should have better news very soon, even in the BLDC fans. And the moment that happens, and it's on my mind that we maybe will host one of the investors meet at our Hyderabad plant on commissioning. So let's see. I'm keeping that plan ready with me.
Let's see when we are ready and announce the date for a meet there so that we can people come in and see the kind of investment we made in the Hyderabad plant. Last, before I open it for questions, because that question is going to come perhaps the first one, and let me address it right away. In terms of where are we in terms of hiring our new executive CEO to take charge at Orient Electric. The last time I mentioned the progress was sincerely on, and I'm happy to report that we have made very strong progress, and we are in the final stages. In my own, as of now, the estimate is it should not be longer than two weeks in which we will actually confirm that the candidate.
We have a very small, very, very short shortlist of candidates who we think can fill the bill, and there's a very close, I would say, competence level between the, the, the shortlist that we have. And the final, final, final screening and interviews are actually now done at the level of the promoters, and very soon we should be able to finalize and sign up the candidate in less than the two weeks' time. This would then mean, whatever it takes in terms of roughly three months. So as I'm saying now, in February, let's assume that in mid-February, later February, the February, the person gets signed up, and we should then expect, by May, the person to be on board, taking charge of this company. So that's on the main vectors of the search process.
You might have also seen we released a small intimation about over a month ago, a few weeks actually, that we had unfortunately lost the person who was driving the lighting business and the head of our lighting SBU. The search for that position again is progressing well, but it's not, it's still going to take a few more weeks before we're ready to pick up the candidate who we think has the potential to take our lighting business where it deserves to be.
So those are the three organizational, I would say, updates, which I thought I'd share with you upfront so that you have some assurance that we may have had our problems, but we are very close to getting out of those problems and resuming life with full thrust on in the market. So those are my, let's say, greetings to all of you, and I open the lines for the questions that I'll address gladly. Thank you.
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 your touchtone telephone. Please note that if you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.... The first question is from the line of Rahul Agarwal from InCred Equity. Please go ahead.
Yeah, hi, very good evening, Deepak and Mr. Saibal. Thanks for the opportunity and very encouraging to see the results and the detailed commentary. Question is more a bit longer term, Deepakji. Basically, looking at fourth quarter and next year, you've already given a lot of data points on what's happening with the quarter on segments. But, you know, on- I will just divide this question two parts, ECD and lighting. So ECD, fiscal 2023, we saw, like, you know, 0% growth. Fiscal 2024 is, looks like a 10% YoY and obviously getting better.
With the demand, you know, assumed to be recovering next year from consumption, the new plant coming up on stream, you know, plus exports, I'm assuming that things should settle down there as well, and appliances doing well, does that mean ECD should get back to 14%-15% CAGR in terms of revenue growth over the next three years?
Absolutely. Without saying, perhaps, perhaps even more. Our ambition will be even higher than that.
Okay, and-
We need to sweat our asset we're investing maybe INR 300 crore in a new facility. Unless we manage to grow that way, you know, we'll be murdered for not making the new investment work for us.
Sure. Okay, get it. And lighting, you know, we had a good last year. I think YTD is 6%, but that is because of price erosion is happening. Has the erosion stopped? That is one question. And second is, can we expect volume growth equal to value growth, let's say 15% next year for lighting?
Lighting is a more difficult one to answer, Rahul, quite honestly, because while we could look for volume growth for sure, as far as the... I would say the non-typical B2C products that we have, you know, lamps and batteries. In that, I will be able to say that the volume growth and value growth will come together. The gap may, because right now we're not seeing any further opportunity for costs falling, for the prices to fall, right? So to that extent, the erosion may not be as steep as we experienced in recent past, but are the prices likely to start going up? That doesn't look likely. But the gap will be far smaller between volume growth and value growth for next year.
That is the current scenario, unless a new surprise comes in the market and the costs go down further, at which stage the consumers keep gaining, and we don't get the top line. So it's a little difficult one, but to the extent that we are taking initiatives to grow bigger in the professional lighting side. I think that part we are quite a lot more confident with our team's capabilities and what we have set up in the last two, three years. Again, major investments have gone into professional lighting side, from our side, you know. The team which is going and, and getting lots of, our products specified or approved by very large buyers, and so that, that continues to happen. Our, our, our order book is already looking very good on the professional side.
Overall, my summary would be, will it match the value and the volumes? Perhaps not, but the gap will be far shorter. And today we're talking about, you know, double-digit volume growth, giving us negative value growth. Now, that's a huge gap, right? That should narrow down for sure.
Right. So let's say if I assume price erosion stops, I mean, that should reflect 13%-14% volume, right? Just theoretically.
Correct. Correct, correct. Yes.
Okay, perfect. And lastly, on margins, you know, 5.5 YTD, obviously, we are investing. Long, long-term average is about 9%. How far are we from this? You obviously mentioned two quarters, so I'm not talking about next two quarters. I'm talking about, like, three years. You know, are we headed towards that, including, you know, whatever OpEx we'll have from the new plant, you know, and what other changes we are doing on the DTM side? Net-net, on a consol basis, should we head towards 9% in two years?
I think you've given us too long a rope. 9% in two years, I mean, you know, I think, as I mentioned, we should be able to get very close to that within the new financial year, starting within the first year next year, almost positively, it should be more than 9%. Absolutely.
Okay, and one follow-up-
It should be back in double digits. I mean, this question has been asked about, you know, being in double digits, and double digits starts at 10, not at nine. I'm very conscious about that.
Perfect. That, that really helps. One smaller question on DTM, and then I'll come back in the queue. When you talk about growth, you know, we're not able to understand the base. Does this also mean that sales are back to the pre-DTM levels? Does that... Is that correct?
In fact, higher than pre-DTM levels.
Okay, perfect. I'll come back in the queue, Deepak. Thank you so much for answering. All the best.
Thank you, Rahul. Thanks. Thank you very much.
Thank you very much. The next question is from the line of Swati Jhunjhunwala from BOB Capital. Please go ahead.
Yes, thank you for taking my question. I missed the first part, so this might be repetitive, but can you just talk a little about the fan business? How much was... Like, how much did it grow or decrease, and were margins lower or higher? And secondly, on the CapEx, so is there any further CapEx that you're planning in FY 2025?
Again, our fans, it's unfortunate that we missed, but no, fans, I have reported we have a low single digit degrowth in fans. ECD as a whole has flat, been flattish, but the, there was a small degrowth in fans, largely coming out of the fact that last year Q3 was exceptionally large because there was a transition from non-star fans to star fans, where, industry, the entire industry had, reported huge sales in Q3 and very poor sales in Q4. This year, Q3 has got to normal, which is, I mean, 4% below last year, doesn't mean anything. Traditionally, Q3, historically, we are fine. And because Q4 became very poor in the last financial year, this year we should have a much stronger Q4. So that's, that's in fans.
I think, margins-wise, due to change in product mix and due to our procurement savings largely and some efficiency savings, we are improving the margins. That will continue.
Got it. And, secondly, on the CapEx, so is there any further CapEx after the Hyderabad plant?
I know. I think CapEx, the, in terms of large CapEx of putting up new plant, new capacity will not be there. But the plan definitely is to also make our Faridabad plant a little more modern than what it is. There's a plant which was set up in the fifty, right? A lot of things need to done, to be done there. My own guess is that CapEx well, talk will be what? INR 20-odd crores perhaps, not more than that. But that should give us a lot, lot more... Because, you know, as the product quality that, that comes from Hyderabad looks, start looking a lot better, we can't have Faridabad products not matching up in quality and customer experience. So we definitely need to upgrade some of the facilities at Faridabad, and that investment we'll make.
But it's, like I said, in small sums, I mean, given the cash generation, cash on hand, I don't think that should even be causing a lot of concern.
Got it. All right. Thank you so much.
Thank you.
Thank you very much. A reminder to all the participants, you may press Star and One to ask a question. Thank you. The next question is from the line of Akshay Thakur from Pico Capital Limited. Please go ahead.
Very good evening, and, thanks for the opportunity. My question is more about on, more on your export strategy across different product categories. So, which are the major countries you are currently exporting to and have a good base in? And, how do you see those geographies and any additional geographies evolving in future?
Well, currently, our focus, to be very honest, has largely been in the markets which are in West Asia and Africa. Typically, you know, most of the Indian exports of engineered goods go there, and we are no exception. Meanwhile, we have our international office in the city of Dubai, and from there we cover almost every country in West Asia, and we are also trying to sort of penetrate further towards the Eastern Europe side. That effort is on. I don't think we found, you know, success yet. Going forward, one of the things that I'd just like to remind every participant here, internationally, the markets which are much larger for exports are actually the PPW fans, not ceiling fans. That's a fact.
We, as at Orient, at Orient Electric, and, I think India as a country as a whole was never competitive in PPW fans. We are largely a ceiling fan country. Our Hyderabad facility, with the state-of-the-art PPW lines, I'm sure we will leverage to address a lot many more markets which only buy PPW fans and don't buy the ceiling fans, which so far we've been exporting. So the new opportunity that we are creating through our Hyderabad facility, to start exporting a new category of fans, which we've not been able to do so far, from our existing plants. So, that the strategy is new product lines, which enable us to go to markets which need that product. That's the main first area.
Our international office, which is located away from India, they travel a lot more across the world and keep finding customers for us.
Oh, thank you. Thank you, sir. One more question. So we very happy to see an Indian company in global markets. So, five years down the line, what is the export revenue share that we are targeting in our sales mix? And, is the focus for exports only on TPW fans, or, any other categories also? And, about on the margins front, on the TPW fans coming from Hyderabad factory, are they any enhanced as compared to the domestic market?
Well, and lots of questions in one question that you're putting together. I don't know what other people in the queue will do. See, as I mentioned to you, PPW is a new export category. It's not that we're going to give up on our existing products. Existing products in the market, they are going, they, they will keep going and they'll keep growing. PPW will allow us to address a new market segment, which we've not been able to address so far. Okay? Margins on that, definitely in export market, it's how difficult it is to compete in a product line that a country like China has taken strong hold, strong hold all over the place, right? So let's start getting into the market and let's start understanding what the markets need, first in on the product lines and features.
And thankfully, the setup that we have created is a setup which should give us a competitive product internationally, including from countries like China, right? As of now, I would say margins like wait and watch. We are not going to dump the entire capacity and take lower prices at a very, very low margin or at a loss. But it's a learning curve that we'll get on, at least in the PPW fan export market, for sure. We've never been in that market, please understand that. On the product lines which look most promising to us, definitely ceiling fans to the markets which consume ceiling fans. PPW fans or rest of the fans work, our big potential that we see is also in our switchgear business...
Where the quality that we manufacture with the, European technology that we had with us, that's a very, very good technology, and we already are exporting switchgear to international markets, including to the technology providers who have sold that technology to us. So we are able to make more competitive product here and export. Lighting is an area which we've been trying to grow, we haven't found enough traction. On appliances, it's a function of almost every country has their own, approval processes, which are neither easy nor cheap. So the efforts are on to expand with our other product categories also, but it's a fraction of how much do we want to invest in each market in terms of getting the approvals from the local. And for example, in India also, you know, the approval system they are there.
Any electrical product you can't bring from another country and just start using or selling in India. There are local approvals needed. Same process applies to every country. Not so much in fans or switchgear, but more importantly in appliances side. So it's a journey that we are starting on. I would not want to give away any number for the next five years. Let's wait for at least two, three quarters of Hyderabad operations, then we talk about it. Okay. Thank you so much. Thank you. Very helpful. Thank you. Thank you.
Thank you very much. A reminder to all the participants, you may press star and one to ask a question. The next question is from the line of Tonal Manisha from Prescient Capital. Please go ahead.
Hello, am I audible?
Yes, I can hear you.
Okay. There was some echo in the middle. Okay.
There is some echo, but it's, at least I'm able to make out, but there is some echo for sure around you.
Okay, sir. Let me reach. Hello?
Yeah.
Much better, sir? Okay.
Please, please continue. Where I'm struggling, I'll let you know.
Sure. Okay. So I first of all wanted to understand, sir, the working capital that you have around the lighting business and more so around the project business. Any color around working capital, improving working capital being stressed around that business that will help understand that business a little bit more detail, specifically around the project business. And second question was around the switchgear and the wire business. How large roughly are these businesses, if you could just give a ballpark?
Look, in terms of working capital, all of us know that when you get in the projects business, their terms are such that these payments come in at various levels of completing the project. So, I wouldn't use the term that working capital is stressed or stressed. It is, it's the nature of the business, and that we factor in in the time we accept the orders. We try and make sure that the cash flows that get stuck with them for the duration of warranty or whatever, that we are not leaving cash behind with them from our, at least, the cost that we need to recover. But, would it always have more number of days outstanding with projects? Yes, that's the nature of the beast. We have no choice.
But fortunately for us, that kind of business for our company as a whole is a small fraction. Right? We are not huge in that business. And to that extent, even if there's a stretch in working capital for the projects, it does not... at the company level, it does not hold very well. Our larger businesses are fairly efficient in terms of coming around the working capital. I'm sure you, you've seen that in the past as well.
Yes, sir.
If last year our inventories were low, our receivables had gone high because of the typical, you know, Q3 closing last year of non-rated fans. This year, our inventories are not gone to the market. They will go in this particular quarter because that's the typical season for the fans. In which case, our inventories are higher, the receivables become low. So it's a, you know, the rhythm of the business. But we are not going to bet our company on the project business getting, let's say, hundreds of INR crores and things like that in a company our size.
No, we are still learning, we're still progressing, and we are making sure that we can take on the projects, which don't sort of, in a way, end up being more harmful to us than good. So that we are being very, very careful and selective about.
Understand that, sir. Okay. And any subjective color or any rough ballpark around how large is your switchgear and wire business as we speak right now? Any challenges you're facing in the wire business?
See, wire business is absolutely new right now. So our ambitions there also, I think I've mentioned in my earlier briefings as well. In wires, we have no ambition to become a very major cables and wires players. I've got to be honest about it. We got into wires because many of these electricians and technicians, when they started using our switchgear and switches, typically in the market, there is a tradition that people want to use the wires of the same brand, and they used to ask us, "Where are our other wires?" And these are for home wires, these are not commercial wires. So we would want to sort of use wire business as our, I would say, offering a complete bundle of products to the influencers who want it that way, right?
And they are small businesses, they are not big. That's why we've not even made a separate business or a division. It's part of our lighting business. And same thing with switchgear. Switchgear, that business, to our mind, has a lot more potential because we have... We're starting that business with a product which is superior compared to the rest of the market, and that's why we... As one product in which we hit the market with a premium product, it was switchgear. We have large ambitions around that, but not at the lower quality platform, where the bulk of the Indian market is still on the lower quality, lower price. So in that, we have a lot more strength, but I think the markets will take time to get to that level.
We're trying to see how do we make it more competitive, but that again continues to be part of the lighting division. At some point in time, if we have a strategic shift on what we want to do strategically, the switchgear business, given its overall potential, when that plan is finalized, we will share that with the shareholders. But currently, it continues to be a much smaller business within the lighting field. And we are wanting to make sure that we develop the business the right way. Means quality parameters, either switchgear switches should be higher, if they are more expensive, so be it. Many consumers reject our product because higher price we are saying: "Fine, you go and buy a cheaper product, we have only this.
You got it.
So to that extent, the ramp-up process would be slower than what we can achieve by the lower quality and lower price products.
Understand that, sir. Thanks for the detailed explanation. If I may just ask a follow-up question: What part of your total manufacturing do you do in-house, or whatever the base do you do in-house? If there's a ballpark there.
Saibal, do you have that number ready? Because it actually varies across product lines. Fans are very largely in-house. Lighting products is more, I would say, 50/50. So overall company level, Saibal, do we have a number? What's the outsource number versus-
No, I think the bifurcation is fine as of now. That solves it.
Actually-
Okay, Saibal, that's okay.
Okay, okay, fine. Thank you.
Thank you. Thank you. Thank you, sir.
Thank you very much. The next question is from the line of Manan Madlani from Kamayakya Wealth Management. Please go ahead.
Yeah, hi, sir. Thanks for the opportunity. So my question is related to go-to-market strategy. So how is the strategy going for that market? Because I... Correct me if I'm wrong, so we did 68% YOY growth in via that strategy. So what pan out for us and, you know, how is the strategy going forward for the same?
I've already explained, we started in a very small way. By now, in seven states we've gone direct. And the rest of the states, we are still with the legacy distributions, right? Given the success that we've had, now we have a very clear model of what do we need to do to succeed more in states where we are, we are not growing as fast as we can. So if the next strategy, like I mentioned, three, maybe, maybe four states we are going to be taking in the next financial year, again, to go direct, because we already identified those states as areas in which we have a weak presence, and we can strengthen it by going direct.
In the other larger states where we think there is room for growth, we are finding that our distribution partners are also coming around to the fact that if they use the method that we use in going direct, if they start using it, they can get us the growth that we are seeking, right? So it's not, I'm repeating again from the previous two briefings also, there is no policy decision to not work with distribution. No. We will keep moving in a phased manner, depending on how it's meeting our objectives. So wherever objectives are not being met, we are not afraid of going direct now. But if our partners are willing to work with us, invest with us, learn along with us, and improve the market share, we're happy.
End of the day, our product should be available at all the. The right product in the right counter in every market is the strategy to succeed. In that, there are gaps, and we're working on that, either directly or through distribution, but we will remove that gap of the right product not being available at all the counters at the retail level. That's the, that's the purpose of our distribution.
Okay. Yeah, thank you very much. The last question would be, if you have to quantify the benefit of this strategy, so, how much percentage did we save?
Look, when you obviously, as you know, accounting is more about bookkeeping than statement margins. In bookkeeping, what happens is you, whatever margins you give to the distribution partners, that is deducted from the sales, right?
Yeah.
And that margin obviously is going directly, that margin is not being given to distribution because that is in-house. But against that, we need to invest in putting up our own sales forces in the place, sales place, you know, our own logistics networks of the counters. There are many more counters to serve compared to one master distributor for one state. So there are some costs that we are incurring in-house, and that's why perhaps part of the reason why our fixed costs are looking higher and margin are looking lower, partly it's being compensated in pre-paid also. Exact percentage I wouldn't like to spell out, but definitely there are improvements in margins because we're not giving that margin that we were giving, including in my sales revenue.
At the same time, I'm incurring costs which that distribution partner used to incur, which is going in my fixed cost today.
Okay.
So luckily, there is a gain there, but we also know the challenge of trying to go pan-India. A company like ours who's never done direct to market strategy earlier, if suddenly say I'll take on pan-India, suddenly allow and will succeed all over the place, it's too much for, for us to bite at this stage. So we are still, still working with... Still, out of the legacy distributors, a significant number of them, we see the potential of they've been coming, they, they're coming around and, bringing us the business that we need.
... Sure. Yeah, thanks. That's it from my side, and I wish you all the best.
Thank you so much. Thank you. Thank you.
Thank you very much. A reminder to all the participants, you may press Star and One to ask a question. The next question is from the line of Rahul Agarwal from InCred Equities. Please go ahead.
Yeah, thank you for the follow-up.
First question and the final question.
Sir, just I had, you know, a few of them, very small ones. EPR, what is the financial implication of this on Orient Electric?
The rough calculations, it could be around, I think, INR 15 odd crores, if it hits us full, full in the face.
That's the provision we need to make, for the current year, is what it means?
We still seeking clarification because, you know, in many investors have been involved, and some of them have been... There is no clarity there on many of the things. Even at the end of the, people are addressing it. So based on the current listing, we think, whether we are making provision in, within this financial year or not, we'll go with the rest of the industry. We are not going to be acting alone in this.
Yeah, sure. I mean, I mean, one of our peers obviously has also started providing for the EPR from this quarter. What I wanted to get from you is, what is the stand you have taken as a company on the EPR provisioning? So firstly, this is like a recurring expenditure, right? So for fiscal 2024, I should assume an INR 15 crore provision, and then next year we'll, you know, we'll talk maybe next quarter. Is that a fair assumption right now?
That is the assumption you are making. I'm not confirming that, but you are free to make your assumption. I would say the basic thing, again, let's see, what are the, how do, how does any industry work? If there is a cost which the industry has never been told about, how does it recover from the market? We, end of the day, whatever cost is added to us, we have to recover from the markets. They start imposing-
Right.
This kind of cost, and it becomes mandatory, we start moving it to the markets. Obviously, we are going to recover the cost from the market. We are not going to pay from our own pocket. We are not, we are not consuming the product. We are not using the product. We are giving it to consumers who are using it. They should be paying for it, no? Why should the producer be penalized for the benefit that a consumer enjoys? So even the very strange, very strong ideological issue here, we are taking last 10 years' production of a certain item and say, incur this cost on it, which was never told to us. Where does the industry go to recover it? It's such an unfair, I would say, decisions that get taken, and we are really, really fighting about it.
Unfortunately, like you said, some of the people, they maybe have cash, and they're not as worried about, you know, the implications on the dynamics and basic fundamentals of the business. We are taking a little more study that we are still examining it closely, whether this year, because the provision will become necessary or not. We are still examining. There's still two months' time. We are working with some consultants who are guiding us. We'll take a view and confirm to you, but in the meantime, if you want to make an assumption, completely up to you.
Got it. And on the Kolkata plant, I mean, obviously, that was more in sync with when Hyderabad comes up, we plan to shift some production there. What is happening on that? Any status update?
I, the day I commission, I'll tell you what is the status. First, my focus is on activating Hyderabad, and then we'll talk about Kolkata.
Okay. The worry was essentially whether we lose... For a brief period, do we lose any revenue there next year, or how, how does that work?
No, no. Not at all. Not at all. Now, there's no way we'll do anything which sort of makes the revenue drop because the right product is not in the market. That we'll never do.
Okay. Lastly, what is the fan sales volume growth for nine months? Is that number available?
I'll refer to Saibal, who's in the call with me. Volume, volume growth he's asking for, Saibal, if you have it.
Rahul, honestly speaking, we do not give so much of granular details. Please excuse us. I think, we have, given you, good enough information, where this is coming from. Because please try to understand, there's a lot of dependency as far as the mix is concerned, and also in terms of Q3, this is a loading season which goes on, the summer selling happens. So there's a lot of mix, mix involvement which happens between Q3 and Q4. So it's, it's not a proper way to look at it. It's an all-India, sorry, sorry, an, annualized kind of a thing that we need to look into. If you want to discuss anything further, we can have it offline.
Saibal, I'd just like to add to your listing. As a thumb rule, again, using our common sense more than the data that we have been able to share, the fact of the matter is the non-rated products typically were cheaper products compared to the products being sold, which are with rating, right? Is that a fair assumption?
Yes.
The moment that has been imposed, obviously, the more. So there is, I would say the value loss that we see perhaps has, the volume gain would be there, and value loss reflected is actually less than the gain in volumes. Because these are more expensive products. I'm just using my common sense here without having the data in front of me.
Well, I was-
Right?
Yeah, I get it. Well, I was more interested to understand, is the fan industry for the nine months, is actually at all grown, and have you gained market share or not?
Again-
That's, that's my point.
No, no. Again, the point that Saibal made is very valid, Rahul. Please understand. What he has told you is that last year third quarter was a distortion in volumes. Until we go through quarter four, it's unfair to take a call only based on Q3, because this was a quarter of formation. At the end of the year, we'll try and share the data on volume with you.
Sure, not a problem.
Wrong, wrong, wrong, wrong point in time to evaluate that.
Got it, Deepak. Thank you so much. I'll take it offline. Thank you. All the best.
Thank you.
Thank you very much. The last-
We're done with the time, I believe. I'll have to close because Monday morning is Orient board meeting. I need to prepare for that as well.
Okay. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Well, thank you for handing it back to me, but the only thing I have to communicate is again my gratitude, my thanks to all of you who show such keen interest in our operations and how we are doing, and keep challenging us with you know, questions which give us more ideas to ponder over. So thank you very much for your support and for being with us, and we'll keep making sure that we don't let you down with the kind of initiatives and strategies we are implementing. Thank you very much. Thanks.
Thank you, everybody. Thanks a lot. Thanks a lot.
Thank you. Bye-bye.
On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.