Ladies and gentlemen, good day, and welcome to the Q4 FY 2023 earnings conference call of Orient Electric Limited, hosted by PhillipCapital (India) Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. 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. Deepak Agarwal from PhillipCapital (India) Private Limited. Thank you, and over to you, sir.
Thanks, good morning, everyone. On behalf of PhillipCapital (India) Private Limited, I welcome you all to Orient Electric Limited Q4 FY 2023 earnings conference call. Today we have the top management represented by Mr. Rajan Gupta, Managing Director and CEO, Mr. Saibal Sengupta, Chief Financial Officer. Without taking much of time, I would like to hand over the floor to the management for the opening remarks. Post which we will open the floor for Q&A. Thanks, over to you, sir. Thank you.
Thanks, Deepak. Good morning, ladies and gentlemen. My name is Rajan Gupta. I joined as MD and CEO for Orient Electric on 4th April 2023. I am sure you would have gone through our Q4 result presentation. Before we answer your queries on that, I would like to share some perspective on growth strategy for our company for FY 2024. Over the last 14 years or so, I have traveled across most of our locations, meeting trade partners, consumers, our internal teams, visiting all our factory locations. There is one common theme emerging from all these interactions. There is a lot of acceptability and trust for brand Orient and enthusiasm for all new products and other growth initiatives launched in FY 2023. I am really excited to work on converting these initiatives into tangible business results. I'll be now sharing some specific growth initiatives for FY 2024.
First of all, we identified hero products across all our business units. These are our products where we have concluded through consumer insights that they have potential of significantly scaling up our growth numbers. Supply chain alignment for same has been done, and most of the sales, marketing, gifting initiatives for FY 2024 will be sharply focused on these hero products. Secondly, premiumization initiatives across all BUs will drive incremental revenue for FY 2024. Groundwork on identifying these FQs has been done, and by Q1 end, most of this plan will get rolled out. In the lighting BU, we aim to continue last three years of trend of industry-leading growth through a recent focus on value-added categories, along with ramping up distribution and continued brand investments. We now have a full range of professional luminaire products to make aggressive inroads in the B2B segment.
This, along with strengthening our design capabilities for profile lighting and other lighting solutions, will help us deliver disproportionate growth in the B2B segment. We have developed products and infrastructure to make sure 5% of the overall company revenue growth in FY 2024 come from switchgear and the wire segment. We identified some states to go deeper, and we use power of our new product range and initiatives around electricians and contractors to make scalable, profitable model which can be taken to other states in 2025. We are rolling out Centre of Excellence on NPD. The objective is to increase our focus on getting consumer insights-driven profitable products ready for FY 2025. Going forward, this will be a major growth driver for both bottom line and top line. We are targeting approximately 15% revenue from NPD in FY 2025.
We are institutionalizing cost reduction initiatives through a new cost excellence center to deliver on our goal of cost leadership. FY 2024, we have plan of increasing EBITDA by approximately INR 50 crore based on accruals of work done in FY 2023 on cost reduction through Sanjay initiatives done along with McKinsey. Over and above, our new initiatives will further add to the EBITDA in FY 2024. We have established a new COE on sales capability development, which will work with all our BUs to help them cover all white spaces in our distribution network. All gaps have been identified and our work on plugging these gaps has started. We are expanding our e-commerce capability and aim to double the share of e-commerce business in the overall mix in the current financial year. We'll launch our own D2C platform this year.
I also would like to update all participants that our company is privileged to be certified as a Great Place to Work for the fourth time in a row. Before we move to the Q&A, I would like my colleague, Saibal Sengupta, CFO Orient Electric, to give some brief comments on Q4 performance.
Thank you, Rajan. Good morning to all distinguished participants. Well, in Q4, we had an impressive growth of around 12% in our lighting and switchgear segment. Fans performance was akin to market trends that was impacted by erratic weather conditions, leading to muted consumer demand and high channel stocking. Air coolers and water heaters witnessed strong growth. During the quarter, we launched our innovative product in the premium space, the Cloud 3 fan with advanced Cloudchill Technology and digital platform.
We now have a wide range of BLDC fans across the price segments and supported by a new campaign in six languages for pan-India appeal. Considerable effort has been put in reducing inventory and receivables and improving working capital, which has now reduced from 28 days March last year to 24 days this year-end. As a result, we moderately strengthened our year-end net cash position. Consequently, revenue was around INR 658 crores in Q4 of FY 2023, with a minus almost 13% year-on-year, with lighting and switchgear up by close to 12% to INR 200 crores, while ECD at INR 458 crores was a -2 0% year-on-year. Our gross profit was INR 186 crores with a - 11% year-on-year, with EBITDA at INR 46 crores, degrowing by 42% year-on-year due to operating deleverage, higher investments in brand and capability building initiatives.
PAT was at INR 235 crores, with a -48% year-on-year. You would have all seen our investor presentation that we had uploaded along with the results. With this, I would like to open the floor for Q&A and hand over to the moderator. Can we have the opening of the Q&A session, please?
Thank you very much, sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star then 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 Capital. Please go ahead.
Yeah. Hi, good morning, and thank you so much for the opportunity. Welcome, Rajan, to Orient, and best wishes. Since Rajan is on the call, I'm taking this liberty to ask three questions, one to him, and two on the business to Saibalji. Firstly, Rajan, you know, obviously you're taking over at a situation when Orient is not having a very good time. I know you said you traveled and you met a lot of partners. During your initial interaction, what do you think are the things that take your, you know, top of your mind share and need immediate attention? If you could, you know, share a bit more on this, please. Thank you.
Thanks, Rahul. Very meaningful question. As I already mentioned, you know, the last 40 days wherever I traveled, I think few things are emerging. Okay. I spoke about lighting BU. Okay. There a lot of work has happened on B2C segment there in terms of developing value-added products. You know, and now we have full range ready there. I think there's a lot of growth potential there. There's very high trade and consumer acceptability there, and more referring to our decorative range, more referring to value-added products in the lighting segment. Okay.
Continuing with lighting in the B2B, okay, we have been growing at exponential rate for last some years now and the way growth seems, you know, planned in future and the kind of immediate pipeline in order is there, we should have very meaningful increase in further contribution of B2B. Okay? I think there is a nice story going on there with the continuous market share gains and, we'll further strengthen that. That's the initial kind of signals I'm getting from all stakeholders there. That's about lighting. You know, switchgear and the whole wires part, we are launching couple of states, the wires. Switchgear obviously has been there. There look like we can go deeper now in six to eight states. That's the current plan, you know, because idea is to grow profitably.
These are the states where we see lot of traction coming in. Once we scale there, obviously we can go pan-India. Coming to the ECD part, which probably you mentioned about the subdued demand and all that. There's a lot of things are going right there as well. If you see the whole BLDC, for example, in fans, you know, we were the early pioneer of that many years back. We are one of the few companies where the full range in BLDC is ready. I see a lot of innovation pipeline. Last 40 days itself, the kind of workshops we have done on NPD and the way, you know, the whole NPD pipeline is ready, that gives me a lot of confidence.
On fans, if you remember, we have been sharing in last few calls, the kind of gains we have made in DTM markets. You know, the six states we will launch DTM. More importantly, we've taken learnings, with the kind of, you know, work which has happened at retailers and consumer end in terms of DMS, in terms of, you know, sales force automation, et cetera. I remain very excited about taking this work to our markets managed by master distributors. You know, because finally markets are same learnings can be applied there. Okay? On appliances, I have seen very high acceptability for our water heater and cooler segment. While coolers and fan are little affected by unseasonal rains in April and delayed start of season in some of the markets, but now we see heat picking up.
Essentially these two products, there's a very high traction. In all, Rahul, while we see, you know, some tepid quarters, et cetera, but I think there's a very, very strong foundation, you know, which we are ready for delivering the growth objectives for FY 2024.
Got, sir. Just getting into my second question and bit more specific. Outlook on fans, right? I mean, I just want to know on the way ahead. Fiscal 2023, I don't know if the fan sales will actually grow or degrow for the company. If the base is, like, really favorable and given what you're saying, should we expect like 20% revenue growth next year on fans? Is that how we should think about it?
Rahul, look, you know, as you know, it's always difficult to predict a number. But with the kind of foundation which has built up, like for example, the DTM states, okay? Already we grew by very high double digits, you know, last year itself. With the foundation which is ready, these are our states which are ready to explode. Okay. We are doing extremely well in our e-commerce in fan. You know, April itself has been a great month. Okay. I think, you know, the focus is on improving profitability as well. The idea is to gain market share profitably. Okay. You know, a lot of work on margin corrections based on more product mix change, based on our cost savings through our R&D and central initiative that's happening.
Idea is to grow and gain market share profitably, I think, April itself has been very meaningful in that sense. Let's see where we land, but we understand, you know, last year hasn't been that great, we have a responsibility to deliver healthy categories.
Got it, sir. Lastly, on lighting. I understand the fourth quarter numbers obviously include wires and switchgear sales. I don't think it's entirely reflecting top line growth for lighting and just, you know, the margins also, you know, been quite high. Could you help me break down that, Saibalji, both on revenue and EBIT level, what is, you know, what is lighting and everything else separately, please?
Rahul, the switchgear share of business is a very, very small one. As I had mentioned earlier as well, that ranges only between 2%-3% annually, and that is continuing to remain. The wires, as we had mentioned, we had launched just about five months back, and that too as an extension of the portfolio for completion. We are getting initial positive response, and that is why we are feeling confident to further extend this. As of today, it continues to remain to that around about 3% range of the total share of revenue to the business.
All the margin in, you know, benefits is all because of product mix into lighting. Is that what you're saying?
You know, mainly, yes, you're right.
Okay, perfect. I'll come back in the queue. All the best. Thank you so much.
Thank you, Rahul.
Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants in the conference, please limit your questions to two per participant. Should you have a follow-up question, please rejoin the queue. Thank you. We have the next question from the line of Bhavin Vithlani from SBI Mutual Fund. Please go ahead.
Good morning, gentlemen. Thank you for taking my question. Mr. Gupta, just one question from my side. As an outsider, when you see, when we look at a fan company, Atomberg just coming primarily on the back of e-commerce, do you believe that, one of the critical modes of the electrical company like yours, which is the distribution reach, is getting disrupted? How is it that you're looking to mitigate it? You did speak about e-commerce, more thoughts on that will be helpful.
Thanks, Bhavin. You know, essentially, if you see, we see opportunity, A, in all consumer segments. We see opportunity in all channels. You spoke about BLDC. As I mentioned earlier, we are one of the pioneer in launching BLDC. Today, we have the maximum range of BLDC products. Potential, of course, is there in all segments of fan market at consumer level. There are people at the bottom of pyramid who will still need a one-star fan. Even their aspirations are to get a little better product. They're looking for more color options. They're looking for a little bit more of a decoration, even in the economy, in the base segment of the fans.
I think as a large, you know, fan company, which is consistently among the top three players in all segments, we have to cater to all consumer segments. Having said that, BLDC will remain engine of growth. You know, I see next couple of years BLDC even kind of, you know, crossing high teens. Okay. That's the kind of growth we are looking at. Okay. In terms of channels, look, again, we had to be omni-channel, so we are not going to get restricted to one channel. Okay. Distribution has been our strength and through all the initiatives in DTM market and replicating and learning in MD markets, we see distribution further increasing with time. Currently, e-commerce, modern trade, LFR. LFR are small and retail stores. Okay. I think we have an excellent product range ready for these channels. Okay.
There's an excellent traction already coming in the last couple of months. You know, there are separate teams all together. We developed the whole digital team and the modern trade team and lot of recruitment was done in last two quarters. There are separate teams handling these channels. I personally see all the channels growing pretty well with the kind of range we have.
Sure. Would it be possible to share what's the underlying distribution share between the conventional e-com, modern, retail, and what was it maybe, four, five years ago, and how do you see it going forward?
You know, unfortunately, I don't think so I can share an exact number. I can only tell you, we see the way e-commerce and the modern trade and large format stores, their contribution, you know, doubling up in next couple of years' time.
Sure. Yeah. Thank you so much for taking my questions.
Thank you. The next question is from the line of Bhargav Buddhadev from Kotak Mutual Fund. Please go ahead.
Good morning, team, and thank you for the opportunity. My first question is that the resignation of Mr. Khanna obviously came as a surprise. Just to be sure, is it fair to say that a few of the steps that Mr. Khanna had initiated would still continue as far as the strategy is concerned, for instance, the direct-to-market transition which happened in six states, as you mentioned. Is it fair to say that we will continue with that or we'll again resort back to our old practices of appointing master distributors?
You know, as far as Mr. Khanna resignation is concerned, you know, company has already done a press release, and, frankly, we have nothing more to add on that. Okay? As you all understand, we have been sharing the kind of team capability which has been developed over the years. We are a very strong team of CXOs, supported by a very, very strong board, okay, and guided by them. I think that all is in place. Now, specifically reacting to your point on, continuing of, some strategic pillars. If you see my initial speech itself, that clearly carry continuing most of them actually, because strategy is obviously not one person. Okay? Specifically coming to DTM, six states where we launched, no, I mentioned already we are seeing high teens growth.
Lot of learnings that come in terms of consumer segmentation because we are much more closer to consumer there and retailer there. Okay? Those are the learning which we'll gonna take to MD markets as well. Growing business in detail sales remains critical to our overall fan growth, so no discontinuity there.
Okay. Okay, I understand. Is there any sort of long-term incentives which have been planned maybe in the last 40 days to ensure there is no further attrition as far as the senior management is concerned?
Frankly, first, I don't even know if there's a concern there. Okay. The senior management, you know, if you see, has been quite consistent. Okay. We have made some plan changes. Okay. We have a kind of fan BU head, you know, who came on board in the month of January. We want to develop our digital and organize trade, the modern trade space. We recruited a leader for that some in the month of February. The CMO and CHRO had come last year. Okay. CFO has been very stable. Essentially there is a CXO team which is all in place and all of them are doing meaningful contribution. Whatever we need to engage them, that's happening on a continuous basis.
Bharat, just to add on top of what Rajan already said. As you are aware, we have our ESOP scheme in place, which is running for last several years, and some of the leadership team members are already covered in that, for which we have taken approvals as well. That part of the incentive is still on. This is just to double up what Rajan just spoke about. Thank you.
My last question is, you alluded to new product development. Post the Aero Series in fans, Orient hasn't come up with sort of new launches which can be considered as very differentiated. If you can highlight on that. Also you mentioned about a few hero products that you identified. If you can share some examples, that would be very helpful. This is my last question.
No, on NPD, you know, I think a lot of focus has been there already for last few years. Okay? Since you want to name a well known product, for example, we launched EcoTech Supreme last year. You know, I was in market in East, I was in market in South. We are seeing in fact a lot of shortage of that. We are seeing a lot of consumer traction around that. Some of the new colors which we introduced, they are picking up huge amount of traction. Okay? I think NPD pipeline always has been there. Okay? Going forward, we understand our responsibility to use NPD as a lever much more, which is where we have taken an ambitious target of 15% of revenue for FY 2025 to come from that.
A lot of work on that is already happening.
Okay. Thank you.
Thank you. The next question is from the line of Achal Lohade from JM Financial. Please go ahead.
Yeah, good morning. Thank you for the opportunity. Sir, two questions. One is, you know, in terms of the direct to market, if you could talk a bit about how much ground have we covered, how much do we plan to cover in FY 2024? In the same context, what has been the fans decline or, you know, change in fans revenue in FY 2023? What market share would we have achieved in FY 2023?
In DTM markets, I already mentioned last year's the full year we have grown, you know in double digit high teens, which of course has led to market share gain because as you all know, fan market hasn't grown that much. Okay? As I mentioned earlier, a lot of learning which has come in terms of consumer segmentation that help us in identifying the right products, you know, that help us in doing the right kind of merchandising in a lot of these retail situations, okay, which is gradually resulting in our mix change in these markets. We are becoming much more profitable. Okay? That's giving us learning for getting more NPD, you know, to address the different consumer segments. Okay? Now that will continue, but these markets are more or less stable now. Okay?
There was some work which needed to be done on AP and Telangana, which also has got completed to the large extent. This is a year when we should see explosive growth from these markets and more important learning from these markets are going to other markets being managed by master distributors and over a period will help them also do steady gains.
Sorry, sir. Just to clarify, you know six to eight states, if you were to quantify, how much would they be as a percentage of total revenue for fans? I presume this is largely for fans product or is this for all the product categories?
First of all, retail is only for fans. Other categories already we have a direct distribution structure. In the past we have indicated around 25% of the revenue on the fans coming from retail sales. The current trend is more or less similar. These markets are growing higher, so you will see a gradually increasing contribution of these markets.
Just a related question. Did you comment about what the next steps are? Are we gonna go for more states or now this is this about it, and now it's more to do with the organic growth?
No, I think I mentioned that earlier. Maybe I can clarify once again. Idea is to take learning from these markets to all other markets being managed by master distributors as well. We are hopeful our partners will help us improve execution in all markets, and they help us improve numeric distributions, help us improve merchandising standard at all the outlets, push lot of NPD which we have in pipeline. Frankly, we're going to review it every quarter. Wherever we see there's scope for any change, you know, we are not going to hesitate to make the decision. As of now, we remain very optimistic that even in all the MD markets, we should see a meaningful shift towards the kind of product range we want to do, towards the kind of execution we want to do.
Understood. sir, in terms of the fans, revenue, change, you know, whether a growth or a decline and the market shares, what are a number you could share, sir?
Uh-
FY 2023.
You're talking about the market or are we talking about ours?
For us. What has been the fans decline?
For us. Yeah, yeah. As you have seen, ECT is already at -20% for that quarter, which is indicative because the lion's share of that comes from fans and appliances has actually grown, has had a healthy growth. It's quite obvious that the fans has a decline in quarter four, and quarter four being a bigger quarter for obvious reasons that you're aware from the market side in terms of transition, weaker demand, channel inventory going up as a result. That's, that's the position as on fans. Essentially out of the entire basket, it is fans which has led to this decline.
If you could clarify on for the full year FY 2023.
For the full year FY 2023 also, if you would recall, H1 was not a very steady period for fans in those that period of time. If you take an aggregated, it was a very flattish kind of a growth for fans for the full year as well.
It's a flat, YoY for fans and appliances have grown.
Yes. Yes. Yes. Flattish.
Would you double check appliances growth?
Appliances will be yes. Appliances will be a moderate.
Got it. Just one more question, if I may, sir, with respect to lighting business. If you could clarify what is the mix of B2B and B2C as we speak, for FY 2023 and, you know, the margins seem to be extremely robust. Do you think these 4Q margins are sustainable for this lighting and switches segment?
B2B is currently around 15%. Obviously, it varies quarter to quarter based on seasonality, but it's broadly in that range. As I mentioned, the B2B is gonna be one lever of growth based on the kind of demands we are getting from, you know, the facade lighting, you know, various national highway projects, et cetera. Okay. That contribution will gradually increase.
The margins? Are 4Q margins sustainable or is there any write backs or anything which has driven this margin improvement to 19.5%?
No, no. Nothing. There is no exceptional as far as lighting is concerned. These are steady margins that we are getting as far as lighting is concerned.
Got it. Thank you so much. I'll come back in the queue, sir. Thank you.
Thank you. A reminder to all the participants, anyone who wishes to ask a question may press star then one now. The next question is from the line of Nikunj Gala from Sundaram AMC. Please go ahead.
Yeah. good morning, everyone. Just one question from my side on fans. It's been 4.5 months of, you know, new rating, you know, application. Can you help us with, you know, where the consumer demand is settling in in terms of star-rated fans? Like, whether consumers are preferring 1- star, 2- star, like, where the large amount of demand is settling in.
Nikunj, essentially speaking, most of the non star-rated inventory in the trade, you know, you know, is more or less not there. Okay. While some counters are still carrying the old inventory, because obviously there was a push which has happened December at industry level. Okay.
Mm-hmm.
No company selling, non star-rated fans from January, but the trade has been carrying a lot of inventory. Okay. Of course, the whole premium segment or the BLDC segment, which is the 4- star or 5- star rating, that has seen little higher growth. We are yet to see the, you know, lot of consumer traction around the whole star rating thing, like the way it is in many other categories. Okay. These are very early days, you know, we should have more clear trends by next quarter end.
Sure. Then if I can ask from your production perspective, how big will be one star and two star at this point of time?
While I may not be able to give you exact numbers, I mentioned earlier the hero products which are going to drive our growth, okay? A lot of those hero products are obviously 4-star and 5-star rated. You know, these are products which are gaining traction in consumers. These are premium products, and which are taking care of consumer aspirations in different pricing segments. You will see some of these products driving growth and gradually contribution will increase.
Sure. Thank you. Thanks for your time, sir. Yeah.
Thank you. The next question is from the line of Kuvam Chugh from Birla Mutual Fund. Please go ahead.
Yes. Good morning, and thank you for the opportunity. My first question is on our margin profile. It looks historically, Orient's margin profile has been significantly lower than competitors by 300 basis points-400 basis points. Coming in the last 40 days-45 days, what have you noticed at the source of our margin increase or decrease?
If you see last few quarters or the last full year itself, we have been sharing the kind of investment which is happening in terms of, you know, A&M costs, in terms of people costs. Idea is to take business to a very different level. The management felt that all this investment is needed to take it to the next level. That is one of the reason when margins have been little lower. Okay. Even going forward, essentially there's a clear plan to grow gross margins, which will come out of the mix change, pricing wherever possible. I mentioned about premiumization, et cetera. We'll continue to invest on A&M and people because we believe these are the two levers which will help us take to the next orbit.
When you speak about margin improvement in the current year, is it mostly a return to pre-COVID level of margins, or should we expect our margins to converge to the market leader level of our competitors that is 14%, 16%?
As I mentioned, there will be a steady increase. Nothing can be increased in only one quarter, but it will be led by income margins and the fixed costs, which will be people and, you know, A&M and some of the consumer fees, costs that will continue. First improvements you will see is in margin percentage.
Kum, I would also like to add to what Rajan mentioned. If you recall in the previous quarters also we had mentioned that this margin improvement will be gradual during, in the next few quarters, which we have told earlier also. If you would recall, in the previous year, we had implications both in terms of inflation as well as in terms of realizations coming down because of intense competitive pressures prior to the transition. Those things are getting addressed now. They are all behind us. As Rajan already mentioned, almost like a 10-point program that he had mentioned that we had, we have all these things in place to improve realizations, to improve mix. There will be two ways of improving the margins, and that will go up gradually.
Number one is the gross margin, and number two is the operating deleverage which we had suffered last year. Moment the operating leverage comes up with accelerated growth, that also will be taken care of and a bit of margins you will see that improvement gradually growing. It will be gradual. It will not be on a specific quarter because we will have to cover up this stage as well. This is something in line of our action plan, which we already had. With further actions that is being planned now with Rajan coming in, this will definitely help in further accelerating it. I just wanted to clarify that point.
Yes, certainly. That's very helpful. Just finally, one bookkeeping question. Are unallocated corporate expenses in the segmental P&L have increased quite dramatically this year? I think it's close to 7% of sales in unallocated expenses. We used to historically be around 4%. Is that a policy change and what is actually in this increase of unallocated expenses?
You are talking about increase in unallocated expenses for that in the segment. That's what you're talking about, right?
Yes. Yes.
Okay. Increase in unallocated expenses fee mainly happens in terms of the shared costs, which is the central costs, mainly the corporate costs, et cetera. If you are seeing year-over-year, this has obviously happened with over the last 12 months, 13 months, lot of new CXOs have joined, leadership team has got strengthened. Those kind of costs will definitely add to it. On top of that, there are certain central costs also which we have been discussing from time to time, which has gone up, and some of the investments that we have made. Most of these are on a central basis, and that's why you see the unallocated costs going up.
Okay. All right. Thank you, Rajan. Thank you. Thank you very, very helpful.
Thank you. The next question is from the line of Rahul Gajare from Haitong Securities India Private Limited. Please go ahead.
Thank you, gentlemen, for the opportunity. Congratulation and best wishes to Rajan for assuming the role of MD at Orient Electric. My first question is, you know, coming back to the hero product that you built upon earlier. Now, I want to understand, you know, if these hero products are restricted to fans or you have hero products across all categories. You could talk about the industry potential and why is it that you think that there is a very strong growth potential in these particular hero products. Thank you.
Thanks, Rahul. Essentially hero products are across all BUs, okay? These products are, I can divide them probably into two categories. One, products which were already launched in last two years. You know, we felt that there is scope to improve demand planning, there's scope to have a decent focus on them, okay? That's what our consumer insights told us and that also got, you know, supplemented by various market visits which we have done for meeting with consumers, et cetera. Finally, you know, these are the products where we are realigning our supply chain so that we can actually meet, you know, all the demand from the market. That's one category. Second thing, which we are already in the process of launching, okay?
It could be different colors, it could be certain add-ons, and it could be entire new product altogether. Okay? The mix of these two things is what make hero products. you know, in fans we spoke about it. In lighting we spoke about decorative lighting, for example. Okay. Switchgear we have a new range which is in place. hero products are essentially all across BUs.
Sure. Thank you. My second question is, you know, given that, you know, we've seen a fairly sharp drop in revenue, can you comment if there is any pricing action that was taken in the fourth quarter? I think Mr. Saibal also indicated, you know, that fans were flattish in FY 2024. With DLE comes, there's a pricing action. I just want to understand, you know, break this flattish into, you know, volume number. Thank you.
No. There was a pricing action which happened in the month of January, okay? To the tune of what, 4%, Saibal?
Yeah.
Okay. Approximately in that range based on the SKUs and based on the different categories, okay, which was essentially because of increase in, you know, cost because of whole rating change. Okay. We have taken one more action in the month of April. Okay. Around 2.5% weighted average price increase has already happened. Many of our competitors haven't done that. Okay. So market MOPs, the operating prices, have still not gone up. Okay. We are hoping as somebody is taking up, the entire industry will follow. You know, because fans obviously now have much better quality because of star rating. They deserve to have better MOPs. We are hopeful that MOPs will increase in next few weeks.
My last question is, you know, on the profitability. You know, we understand, you know, that there is a negative operating leverage which is played out in this particular quarter. You also indicated that there has been a significant increase in the A&P spending for brand building, et cetera. Is it possible if you highlight those numbers and comparable numbers for the last year? Thank you.
A&M numbers, you know, are in the range of 4%-5%. You know, even going forward, as I mentioned, we are now going to reduce some of this investment, okay? Especially the people and A&M. This investment will continue. This is a broad range we're talking about. Saibal, you want to add?
Yeah. Rahul, this is the trend that we had followed earlier also. There you will see some base effect because of the carry forward of the COVID effect. Other than that, we are maintaining that 4.5% of ratio to revenue, and that will continue. As and when the revenues grow up, obviously the absolute amount will keep growing to that extent. In terms of investments, that level will still we will still maintain it.
Does that answer your question?
Yes, sir. Thank you very much.
Thank you. A reminder to all the participants to please limit your questions to one or two per participant. Should you have a follow-up question, please rejoin the queue. Also, anyone who wishes to ask a question may press star then one on their touchtone telephone. We have the next question from the line of Aniruddha Joshi from ICICI Securities. Please go ahead.
Yeah. Thanks.
I'm sorry to interrupt, Mr. Joshi. There is a static from your line. I will request you to mute your microphone.
Yeah. Is it okay now?
Yes, sir. Please proceed.
Excuse me, sir. There is a static on your line. Is it okay now?
Yes, sir. Please proceed.
Sir, two questions. One, what is the difference in trade margin between the direct states that we are doing and the other states where we are having a relatively longer trade channel. What is the difference in between the trade margins? That is point number one. Second is what is the inventory in number of days or weeks right now of the non-star rated fans in the trade as per your best estimates for Orient as well as for the industry? I mean, do you see any impact of that inventory again on Q1 results? Yeah. That's it from my side. Thank you.
Sorry, I'm a little confused, you know, the lengthy question towards the second part. Okay, first part, the whole DTM, the trade margins. Okay. Look, we have clarified in earlier calls as well. The DTM was not done to increase profitability. Our profitability for DTM and non-DTM state is approximately same. Our channel schemes, our channel margins are same all across India. Okay. DTM was done primarily to come closer to retailer and consumer, which I mentioned earlier, the benefits coming from that. So there's no major difference in either trade margins or our own profitability for DTM versus non-DTM markets. Okay. On channel inventory. Look, it's very difficult to give a figure because it varies from state to state based on how season has picked up. Some states it has been quite hot, other states season is delayed, of course.
The, the last weekend was very, very good. You know, we remain quite optimistic. If I had to hazard a guess, you know, average inventory would be in the range of 30 days-45 days for all fans in many of the states.
Sir, will it increase in the Q1 numbers?
For Q1, all the growth initiatives have been already shared, I don't think the channel inventory will be a bigger factor influencing that. Of course, we had a delayed start of April, as a lot of us are aware about it. We are seeing unseasonal rains in many parts of the country. That had some impact on April. Okay. I think we had a very meaningful April, specifically it's coming on a high base of last year April and we remain very, very optimistic.
Okay. Sure, sir. Thank you.
Thank you. The next question is from the line of Deepak Lalwani from Unifi Capital. Please go ahead.
Hi, sir. Thank you for the opportunity. I have two questions. Since you've answered, you know, the recent phenomena that April, you know, was better than last year. If you can mention, you know, on the profitability side, you know, since most of your margin improvements will be driven by gross margin, we're still at the lower end of the margin band at 28%. Can you indicate if this is a short-term scenario, and we should see improvement starting Q1 itself?
I think I mentioned this earlier as well. You know, we understand there's scope for margins and gross margin is the one which will drive overall profitability increase. I mentioned about price increase, which were taken in the month of April itself. Okay? We didn't wait for any of the leaders in any market to do that. We are one of the first one to do that. If you notice our initiatives around premiumization or focused SKUs, I spoke about BLDC driving growth in fan. I spoke about premium range of water heaters and coolers, the whole decorative lighting. All those initiatives are obviously centered around putting in place, you know, higher profitable products which will change the whole mix. Essentially that's the plan.
Right. We should assume that, you know, Orient comes back to the 30%-32%, which was there pre-COVID, sooner by at least the start of Q2.
No. We understand and appreciate your expectations. At this stage, I can share that there will be a meaningful increase which will happen based on all the initiatives and work which is being done.
Okay. Sir, lastly, your presentation mentioned a great point on the diversification that you've done over the last two years. If you can indicate how this journey will go on, you know, starting FY 2024, and if you can highlight which areas will the revenue, you know, streams go on from here on?
Sir, which kind of diversification are you referring to?
Uh-
From the diversification perspective, basically we have launched a few products. If you're talking about last two years, honestly, there has been not too many product launches because given the situation of transition and other factors, we have done something in lighting of course. We have done this Cloud fan, which we have done very, very recently in the month of March, which we have already talked about. Given that the action plan which Rajan just talked about a couple of times, we do have plans to roll out a lot of other products. Why is this something which we got into house wires? It was initially because of the extension of the switchgear product line and the completion of that product portfolio.
Now we are getting very enthused, and we feel that we should be able to scale that up and therefore we will be moderately attempting in some specific states with dedicated sales teams, etc., which also Rajan had also mentioned about. Apart from this, any other things, Rajan you would like? Sir, I just want to add more than diversification. I don't know if I'd say it's a diversification, essentially the plan is across our portfolio there's a range which is higher gross margin. Okay? Where we see scope for market share increase, where we see scope for volume increase. Okay? That's a range we are gonna focus, whether it's a switchgear or it's a fan or water heater or a cooler or other products. Okay? Essentially that's the plan we have.
Right. Thank you, sir. That helps a lot. Yes.
Thank you. The next question is from the line of Nirav Vasa from Anand Rathi. Please go ahead.
Hello, sir, thank you very much for the opportunity. I have a strategic question. Sir, now how do you intend to take this company? Whether Orient Electric would be an asset heavy company wherein you will be investing heavily in increasing your capacities as they reach certain scale, or you prefer to have an outsource model? Yeah, this would be my first question. What can be the CapEx for 2024 and 2025? Thank you.
Excuse me, sir, on the management's line, we are not able to hear you, sir. Kindly unmute yourself and speak, please.
Essentially coming to this whole buy versus make decision, you know, it's a very dynamic decision, okay? Which depends on a lot of factors. You are aware about our Hyderabad factory rollout plan. It was shared earlier. By end of September, by end of Q2, the factory should be fully in place. That will obviously, you know, help us make lot of high quality all our hero product in fans in-house. Okay? We'll continuously keep on evaluating this buy versus make decision, okay? Samuel can share the exact number on CapEx.
Yes. Thanks, Rajan. Well, Nirav, as far as just to build a little bit more on this, buy, make versus buy, as you know, we have always maintained this, that it's a, it's a very, very close commercial call and of course the product quality, et cetera. That we keep on studying to keep the moderations. Our capacity plans and CapEx plans are not really guided by those in-source versus outsource. Obviously, it is subject to availability of capacity. It makes a strong commercial sense, we will not hesitate to make moderate investments. That brings me to the point that you mentioned, whether we will be asset light or asset heavy. Of course, we will continue to remain asset light.
This Hyderabad CapEx that we are making, honestly, it is a fresh greenfield investment in this company after a span of 40 years that we are making. We had been continuously earning on the productivity to be increasing our capacities. Now, from the pre-COVID levels, when we decided to go ahead with Hyderabad, the growth opportunities were very exciting to go ahead with this enhanced capacity in Hyderabad, and that's what we are doing. Coming to numbers, we have already spent about close to INR 78 crores in as far as Hyderabad is concerned. We still have to spend a good amount of money because INR 200 crores, close to INR 200 crores, not exactly INR 200, about INR 185 crores-INR 190 crores is the estimate as of today. The balance we will be spending shortly.
It is going as far as normal CapEx is concerned, which also I had mentioned earlier, it is in the range of 40 crores-50 crores. That will continue to happen year-on-year, because these are the normal either replacement CapExes or they are efficiency CapExes or product improvement CapExes. This is the line of CapEx which will continue to remain. As of today, as we speak, we do not really have any plan of another greenfield or a big project like Hyderabad as of today lined up. In case if it comes up, we will get back to you, but no plans as of today. Hope that answers your question.
Broadly it does. Would it be possible for you to share a bit more on the Hyderabad factory with regards to what can be the capacity there? How do we intend to increase the capacity in phase-wise manner? What can be the maximum output that it can generate?
On a capacity basis, we are adding about additional one-third capacity over there. Let me put it's a combination of both ceiling and PPW that we are adding, which is the combined capacity of Faridabad and Calcutta combined. Another 1/3 we are adding. Having said that, I must say that it will not happen in one go. We will be adding lines almost on an every year basis, depending how the volumes and the capacity requirements go up. We are adding very flexible automated lines to be doing that ramp up on an incremental basis on, and that too on a need basis. We are very conscious and mindful about CapEx investments and not to make it a asset heavy company. Yes, this is what is required for future sustainable growth.
Final question. What was the payment that was done to BCG in FY 2023 and what can be that number for next year? Thank you.
Well, Nirav, it was not BCG. We had engaged McKinsey, if you are referring to that.
Sorry. McKinsey.
We do not share exactly numbers. You have to excuse me on that. Yes, that's a engagement that we are having for two years. One year is already gone and the second year is in progress. They are adding good amount of value in the three tracks that we are doing, that we had mentioned earlier, in terms of cost reduction, in terms of GTM support, the GTM scale up, including the DTM, as well as the digital, building up and helping us in building up the capability for the digital, which we have a very ambitious plan to grow that business. That, those results are already coming up. This is the second and the last year of engagement is going on right now as we speak.
Thank you very much. Thank you.
Thank you. The next question is from the line of Aakash Samir Javeri from Perpetual Investment Advisors. Please go ahead.
Good morning, and thank you for the opportunity. My question is with respect to fans. What is the current percentage of BLDC sales out of our overall fan sales? You know, how do we expect this to move in the next two to three years?
Akash, in a way, I answered it already. BLDC range is now going to high single digit as a percentage to overall volume contribution. As I mentioned earlier, entire BLDC range is part of our hero products and a lot of new products are coming in that. We see over a period, now it could be two to three years, BLDC will become high teens kind of contribution to the overall fans, portfolio.
Sure. Thank you so much.
Any further questions, Mr. Javeri?
Oh, no, that's it. Thank you.
Thank you. A reminder to all the participants, may we request limit your questions to one per participant. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Drashti from Thinqwise Wealth Managers. Please go ahead.
Thank you for the opportunity, sir. You've very well put down the strengths of Orient and your measures that you're doing to increase your distribution and further deepen your distribution. I wanted to know that in the last 30 days, that you've joined the company, what are the risks that you see in the company and how do you plan to overcome those? If you could highlight more on that. Thank you.
Drashti, thanks for a very nice question. Risk for any company, essentially, you know, more than any other environmental risk other things, you know, the risk is on growth, risk is on profitable growth. If you see my initial 10 pointers on growth strategy way forward, profitable growth strategy way forward, intent has been there to kind of minimize that risk. That is where this whole entire portfolio change, entire, you know, new products, entire premiumization, and focus on that safe across the BUs. The whole plan on DTM, which is coming closer to our retailers or consumers. The plan to grow channels wherein we haven't done well in historically, for example, the whole e-commerce and modern trade and large format retail stores, that's entirely to de-risk the whole thing.
Thank you. The next question is from the line of Manoj Gori from Equirus Securities. Please go ahead.
Good morning, team, and thanks for the opportunity. Best wishes to Rajan. We have talked a lot on future plans along with robust outlook. However, if you look at the Q3 performance in the ECD segment, given that we were having a favorable base of poor Q FY 2022, are we disappointed with our poor Q performance? When we look at the 3Q, like one of the listed brands obviously reported very strong numbers in the fans portfolio. Has it hurt you or industry at large? Any color here would be very helpful.
Manoj, I'm not very clear on your question. If the idea is to ask how is the Q4 at industry level, okay, from what all numbers we have seen, from the listed company results which have come, Q4 has been a muted quarter for almost all the fan companies. There was a kind of a late start of season and all the non-star rated inventory which has pushed at industry level in the month of December, that of course had an impact. But if the question is there a scope for improvement, that's where all the initiatives we shared with you. We appreciate that, you know, we can do much better and our whole intent which is in place.
Right. Sir, in this case, can we assume like.
I think we have this. Please go-
Hello?
Please continue.
Sir, can we assume that probably apart from the direct states that we would be looking to cater during current year, probably in the rest of the markets also we can outperform the industry growth rates and probably we might see significant growth in fans with respect to the industry?
I think I mentioned earlier, obviously we are taking learning from the direct markets to all our other markets being managed by master distributors. Many of those markets we have built a huge strength over the years. You know, that's where the company has grown over the last many years in these markets. We remain quite constructive about, you know, much of the results coming from these initiatives over a period of time. Okay? Having said that, some of those industry issues are, for example, the late start of season, et cetera, you know, is going to affect almost all markets.
Right, sir. Lastly on wires, can you throw some light on the mid to long-term strategy with regards to investments, any plans of capacity additions, and probably if there is any drag on the EBITDA margin level, that would be helpful, sir.
I think wires we already mentioned. The idea was it started with completing portfolio, but we are seeing very high acceptability in some markets, in couple of states, with electrician, with contractors and the retail channel, which is where, as we mentioned earlier, idea is to go deeper into 6 markets. These are the markets where we feel, you know, we have a case for building a kind of scalable business and, these markets will give a lot of learnings. At this moment, frankly difficult to comment upon that as, we pass through next few quarters and we believe by the end of the year, FY 2024, we should have a more kind of, you know, informed plan which should be there in place. Market potential is of course huge as all of you are aware about it.
Thank you. Ladies and gentlemen, that was the last one for today. I would now like to hand the conference over to the management for closing comments. Over to you, sir.
I would like to thank all participants for their continuous and active interest and engagement with Orient Electric. As I mentioned in my initial remarks, growth initiatives for FY 2024 have been rolled out, and we are committed for steady but consistent and meaningful improvement in both top line and bottom line in coming quarters. Thank you so much and have a good day.
Thank you very much, sir. On behalf of PhillipCapital (India) Private Limited, that concludes this conference call. Thank you for joining us and you may now disconnect your lines. Thank you.