Ladies and gentlemen, good day and welcome to Orient Electric Limited 2Q FY 2022 earnings conference call 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, and many thanks for joining in Orient Electric Limited Q2 FY22 earnings call. Today we have with us management represented by Mr. Rakesh Khanna, Managing Director, Mr. Saibal Sengupta, Chief Financial Officer. We thank management for giving us the opportunity to host this call. Without taking much time, I would like to hand over the floor to the management for their opening remarks, post which we'll open the floor for Q&A. Thank you, sir, and over to you.
Thank you, Deepak. Good morning, everyone. Thank you for attending the second earnings call of Orient Electric, and thank you team PhillipCapital for organizing the call. Though situation across the country has substantially improved over the past few months, the risk continues to remain, and exercising caution is the need of the hour while we roll back to normal life. We at Orient Electric have resumed our normal ways of working with every possible precaution at all locations. The central COVID Response Team remains on high alert, monitoring the health situation every day. All eligible employees of the company are now fully vaccinated. Coming to the market scenario in Q2, pent-up demand was noticeable in the early period of the quarter as the economy recovered from second wave. General trade, large format stores and e-commerce remained the dominant drivers, whereas encouraging upsells came in exports business.
B2B business has also shown significant improvement with strong inquiry funnel. However, tender business continued to remain quite sluggish in the absence of risk tenders and slow-paced execution of the current orders. Towards the end of the quarter, starting from third week of September, we have witnessed tapering off of pent-up demand on the consumer side sell-out. We remain optimistic that sell-out levels will accelerate through the festive period. Orient Electric continues its journey in the silent premium category while also effectively meeting the growing bottom-of-pyramid demand across categories. Multiple new products have been launched in the quarter under the review with best-in-class features and contemporary aesthetics. A new range of switches, Stella, has been launched in the market, powered by consumer insights and user-centric features. Featuring unique anti-viral technology, inbuilt LED, and a long lifespan of 100,000 clicks, the product range has been receiving good traction in the market.
Distribution strengthening continued and was supported by DMS and SFA to drive accelerated growth in select territories. Visibility on e-commerce platform has been enhanced, and e-commerce capabilities are being ramped up. Consumer lighting continued to do well and further improved the product mix towards consumer luminaire, building on the premiumization journey. Non-tender B2B lighting business has witnessed increased inquiry activity and is likely to witness execution traction from quarter three. Our façade and landscape lighting business continues to grow substantially. We have recently completed façade lighting project at Bhakra Nangal Dam and are working on illuminating Kedarnath Temple premises and Habibganj Railway Station in Bhopal, amongst some others. The commodity cost escalation trend continued unabated through the quarter. Steel, copper, aluminum, and engineering plastics experienced price escalation in excess of 20% in the quarter over previous year. ICs continued to remain in short supply.
Commodity price escalation has been countered through price increases and aggressive cost reduction programs. Cost-saving initiatives through the Sanchay program have helped to offset the steep cost increase impact by over 1% of the cost. The impact of commodities has been more severe in our ECD portfolio as compared to our lighting and switchgear portfolio. To ensure supply continuity and to de-risk from any supply chain disruptions due to wave three, OEL stocked up on critical raw material and finished goods inventory, established alternate sources of raw material, and developed alternate components to those in short supply. This planned strategic inventory stocking has resulted in increase in working capital, which will normalize over the next two quarters. Subsequently, the cash position underwent a change to accommodate this strategy. Lighting driver unit has been successfully installed at our lighting plant in Noida.
The greenfield manufacturing project in South India is on track, with final possession of land being completed. Coming to the financials, the company posted a 37% increase in revenue, with uniform growth across segments. Fans grew in line with entity, primarily led by premium entry-level range and portable fans. Water heaters and small appliances grew by over 50% over last year and more than doubled from pre-COVID financial 2020 levels. Consumer lighting grew by over 50%, aided by favorable mix, product availability, and distribution expansion. Exports recorded a high growth of 50% on a suppressed base of last year. Despite the increasing commodity cost, gross margins increased sequentially by 125 basis points, but have reduced by over 490 basis points compared to a high base of last year.
As commodities have a significant play in ECD segment, the adverse gross margin impact in the ECD segment has been higher, whereas in lighting and switchgear, the margins have been stable. Employee expenses grew 16% year-on-year during the quarter to support higher activity levels over last year by engaging more manpower at plants, strengthening key functions, combined with salary increases over an eroded base of last year. Other expenses have grown by 32% over last year as travel, administrative spends, logistics, and distribution expenses and A&P spends have resumed at normal operating levels post-lockdown. On a percentage to revenue basis, they have reduced by 40 basis points. Finance cost increased by 11% year-on-year due to higher utilization of vendor financing that supported liquidity of all vendors, thus improving price negotiations while also maintaining strong partnerships.
Amortization and digitalization spends and increased capitalization have resulted in debt position increase. Effective working capital as of September 30, 2021, has increased by 14 days from last year levels. Subsequently, the cash surplus dropped from INR 77 crores to INR 34 crores sequentially, mainly due to planned ramp-up of inventory. Further details are available on investor release document uploaded on website. Thank you all once again for your constant support and encouragement. I wish you and your families good health. Thank you.
Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is on the line of Ravi Swaminathan from Spark Capital. Please go ahead.
Hi, sir. Good morning. Thanks for taking my question. You had mentioned that the demand in the month of September had been slightly soft. With that in mind, and with input costs going up further, just wanted to check with you how much more room is there for us to do more price revisions going forward in the second half of this year?
Hi, Ravi. When I say the demand has tapered down, what I meant is the pent-up demand has tapered down.
Okay.
Consumers continue to buy, and once again, it reaffirms our belief that at the total size of the wallet, the product categories we are in, they form a very small part of the size of wallet of any consumer.
Therefore, we did not see much of reluctance from customer in buying the product. We are very hopeful as the season comes, the demand will again be good. It is just that the pent-up demand tapered down.
Okay, got it, sir. Second half of last year was slightly on a higher base, so are we confident that we will see a growth over that base, or it will be kind of flattish? How do you view that?
Ravi, that we will be able to tell you only by end of quarter three. We will also see how the market responds and how the consumers respond. Yes, we remain bullish as of now. We believe consumers are continuing to be there in the market. The buying is good. We will see by end of the quarter.
Got it, sir. It'd be great if you can give a breakup of the revenue between fans, water heater, switch gears, lighting at a percentage term or a whole number would be great. Thanks.
Ravi, we generally do not give that much of a recap. As I told you
Uh-
-idea to all of you is that basically there are SKUs. We have opening cycles in between the quarters, so therefore it is not advisable to look at the breakup on a quarterly basis. On an annualized basis, as you would have seen between ECD and lighting switchgear, it is more or less a 70-30, 72-28. That kind of a mix that keeps continuing, lighting obviously is on a good growth footing. On top of that, between fans and appliances within the ECD, it again fluctuates in between 80%-85% between fans and appliances. Lighting switchgear, it is predominantly lighting switchgear, as of today is just about hardly 1%-2%. That kind of an equation normally prevails.
Again, with a little bit of caveat, I would like to say, when you see our distribution amongst the 4 categories, please see it on an annualized basis because of the cyclical nature of business.
Mr. Swaminathan, the request to join the queue for any follow-up. All participants are requested to limit their question to two per participant. If time permits, you may join the queue for any follow-up. We have the next question from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Hi, sir. Thanks for taking my question. Just on, again, sorry for dwelling on the demand side. If one has to draw any conclusion, I know you don't give the breakup of the fans and all, but if one has to draw a conclusion on the ECD part, can you tell us more? How was the volume versus value growth? That's number one. Second, how is the channel inventory as of now? Because we keep hearing that channel is not taking much of the stock because overall mass consumption is slowing down a little bit. Just need your comment on that.
Yeah. In terms of volume versus value, I would put it close to 50/50. Although in different product segments it will behave differently. Yes, there is a fairly significant amount of value growth also because of price increases. A lot goes towards mix. In terms of the channel inventory, I would say it's just at a healthy level. The channel inventory is neither very high nor less. Retailers have stocked well. As an organization, we are also reasonably well-stocked, and as we said that we have stocked a little higher than normal because of a planned move to de-risk any kind of a supply chain disruption which could have possibly come in case of wave three. Our inventories are at very healthy level, and trade inventories are at reasonably good level.
Got it. Thank you. Thank you very much. I'll come back in the queue. Thank you.
Thank you. The next question is from the line of Renu Baid from IIFL. Please go ahead.
Yeah, good morning, and thank you for the opportunity. The first question is, while you did mention that on average we did witness about 20% overall increase in the cost structure on a YOY basis. If you can help us understand what was the quantum of pricing action that we have taken till date across some of the larger categories. Given that commodities have started to look up again, do you think the customer would be willing to absorb a further price hike? If not, do you perceive risk of down trading to be seen with customers, as in they might move to a lower price SKU or a different product within the same range of different brands? Your thoughts on this would be appreciated. That's the first question.
Great, Renu. First thing I would say, we've not seen any significant down trading from the customer. That's not happening. Our product mix is fairly good in terms of all the categories, the premium, et cetera. It's fairly good. There is enough of customers coming for high-end products as much as the bottom of pyramid is expanding. Both are playing equally well. In terms of will consumers take higher price increase, well, as of now we have been able to pass significant cost increase in the market and the demand has not really come down. It's more a question of the competition landscape what also is one of the drivers on how much we can pass on in the market. We will have to see how the overall competitive landscape behaves and we will accordingly take the action.
Sure. Second would be, can you quantify here what was the quantum of cumulative pricing action that was taken till date?
Renu, very difficult to say. You see, we have such a whole lot of product categories.
as a category, at least for that, because that was more impacted by commodity.
Again, difficult. What you can do is a little mathematics of how much the cost has gone up and how much the margin has come down. The difference will tell you by and large a kind of a price increase that has been passed on in the market. At some level where it is not very competition sensitive, we have been able to pass on nearly 100%. Some products which are competition sensitive, we had to hold on to the price increases. It's all a mix. It's not possible that I can put one kind of a percentage increase across all the products. That doesn't happen.
Got it, sir. Secondly, if you can help us share what has been the kind of cumulative, say over the last 1 and a half years, the market share gains that we have had in some of the key categories like fans, consumer lighting
Do you perceive now with the inflationary pressures or some supply chain disruptions which could still be seen around, these kind of market share gains will be sustainable from a longer-term perspective?
Unfortunately, there is no very good and reliable data available in the market that I can talk about. However, by going by the growth that we have been seeing in many of the categories, there is definitely an increase in our market share, be it in terms of water heaters, kitchen appliances, lighting, luminaires, fans. In some of the categories of fans, we have done brilliantly well. We have gained market shares across, but there is no syndicated data which is fully reliable that I would want to quote.
Thank you, Mr. Deep. Request to join the queue for any follow-up. Next question is from the line of Dhaval Shah from Swan Investments. Please go ahead.
Hello. Sure. Questions on the price hike. Typically in such an inflationary scenario, at one point in time, what sort of price increase you would have taken or would be absorbed by the customer, and the frequency of the price increase you would be taking, the time gap between the different price increase? That's my first question. The second question is, to go back to, say, your last year's margin, what sort of price increase would you want to take considering there's no further inflation in your raw material?
Thanks, Dhaval. Good questions, very loaded questions, very difficult to answer by anyone. According to me, I think customer will take the price increase. As you said, it's more a question of the competitive landscape which allows the price increase. You see, the dealers are carrying stocks, okay? You can't simply go and increase the prices. Okay? Really speaking, we have been taking small price increases over a period of time, these have not been one-time price increase on everything on one go. They always happen depending on the pipeline inventory, depending on how the category is behaving in different categories at different times, we take the price increase.
Okay.
In terms of how much price increase is required, once again, if you would just take the last year gross margins versus this year gross margins, you will know the difference that you have to take off to match the price margins. That's a simple math.
When you say small price increase, that would be two, 3%, or higher, lower than that?
There have been times we have taken even 8%-10% price increases at one time in some categories. In some categories, we have taken in small bits of 4%, 5% at higher frequencies.
Okay.
There are no rules to this.
No, sure. I agree. I know. I'm just trying to understand the market reaction in terms of how much it can absorb and that I'm trying to understand. Lastly, what has been the minimum gap between two price increases so far in last six, eight months from the time market has started growing?
By and large, we try to ensure that there is a 45 days to two months time between two price increases, the way the cost has been going up, there have been times that the price increases have been even a little faster. Once again, they've not been across the categories. For some products, the prices go up even in between.
Got it. Okay, sir. Thank you very much. I'll come back in the queue.
Yeah. Thank you.
Thank you. Our next question is from the line of Charanjit Singh from DSP Mutual Fund. Please go ahead.
Yes, good morning. Thanks for the opportunity. My first question is, you talked about that inventory levels in the channel are fairly stocked up. If you can just talk about in terms of months of inventory and at these levels, if they've already stocked up, we will see that maybe incremental stocking for the sector will not happen. Generally, from the other companies, we are getting to know that the inventory levels in the channel are much more leaner. In terms of our strategy versus other players and even from the dealers' perspective, the propensity to stock up, how is that looking like?
The market behavior will be more or less consistent across, Charanjit, because the trader thinks alike for all the brands. It's a fact that when the price goes up and trader is stocked up, trader sometimes is little reluctant on buying further stock at a higher price. There is definitely a kind of a hope that the prices will stabilize, and they will come back to normal levels. Given that, a trader doesn't want to always stock up unless it's very clear to the trader that, look, the cost is definitely going to continue to go up. The kind of behaviors that you said you've been hearing from other places, that behavior will be consistent across.
Okay. sir, supply chain impact while if you look at a lot of companies in consumer electricals, there has been always this hypothesis that there's not much of the imports which are involved. can you just give us more clarity on the supply chain impact, which components you are seeing, how much of this is import-related? Yeah, that'll be the second question.
We are largely dependent on all the domestic production. We are one of the largest manufacturers, as you are aware, and even what is outsourced is largely domestic. There are a few things which we all are dependent on imports. Electronics is one of them. ICs is one of the critical ones, which in India, the supplies are not available. Semiconductors is also there. To that extent, we are dependent on imports. There also, we don't see much of a disruption if the planning is good. We've not faced any crisis or any disruption as of now. Well-planned can be managed because it's a small value in the total baseline.
Okay. This is last question from my side on the lighting segment. If you can touch upon how are the growth prospects going forward, especially now B2B. B2C has done well, but B2B is still lagging behind. When do you see that revival coming soon?
In B2B, there are two parts. One is the B2B and non-tender, second is the tender part. The non-tender, it started showing very good traction. The funnel is growing very fast. Our order executions are happening. Sorry, can you hear me?
Yes, sir, I can hear you now. We can hear you now. Please go ahead.
Yes, sir.
In tender, there has been a slowdown. We do expect that will also come in place because government spending has to continue, because they're all infrastructure-based investments, and those investments will continue. I think for some time, government has been more focused on fighting COVID, and as that goes behind us, the focus will again get more into infrastructure development, and these tenders will also start.
Sir, thanks for taking my question. That's all from my side. Thank you.
Thank you. A reminder to our participants, if you wish to ask a question, please press star and one. The next question is from the line of Parag Bhutada from Kotak. Please go ahead.
Good morning team. Congrats for a good set of performance. My first question is on our channel financing books. Out of our receivables of about INR 292 crores, how much would be sort of now contributing from the channel financing front?
Sorry, Parag, can you repeat the question once again, please?
How big would be our channel financing book now for Orient?
The channel financing now is at the current levels of about 35%-40% of the trade receivables, the domestic receivables.
Okay. Is it fair to say around INR 80 crore-INR 100 crore would be the book size?
Roughly, you can assume, yes. More or less estimated around that level. Just be mindful of the fact this is dependent on the volume scaling up and down. Not 100% of distributors are covered under this, so therefore, a good amount comes through the volume. As and when we scale up, maybe in H2, these ratios will also go up.
Just to understand the trajectory, I mean, in the next two- three years, is there any plan to ramp it up to maybe 50%, 55%? As that happens, can our receivable days further go down?
Yes, absolutely. We are definitely aiming towards getting at a 50% mark by close of this year. Hopefully, if the volumes and the distributors have already been onboarded. We are expecting that, yes, directionally, that is what we are aiming for.
Okay. All this is non-recourse, right?
Yes.
The second question is that earlier Orient was primarily known as a fans company, but no longer now with great acceptance seen on the appliances and the lighting side. Switch gear obviously is one of the products which sort of remains still very small as compared to our peers. Obviously, in the presentation, we did read that we are looking at upping our influencer programs and advertising programs. Is it fair to say that over the next two to three years, the missing leg of switchgear should also sort of see acceptance as we strengthen our influencer program? Obviously, our product portfolio and pricing seems to be very attractive. It was just the marketing push which was a bit lagging. What are your thoughts on that, sir?
Switchgear, definitely, we believe that it's a very healthy product portfolio for us, and it has a lot of potential.
Good.
We will ensure that switchgear becomes an important part of the portfolio.
Okay. Any broad guidance on that front? What size are you looking at or as a percentage of overall revenue? Can it reach double digits or any broad, difficult to quantify?
No. We don't normally give any kind of a future guidance, All I can say is that switchgear is important. We believe it has a huge potential. It's a profitable product, We will ensure that it becomes a healthy part for our portfolio. We'll go after the marketing spending on the product. Meaning obviously that will be the precursor on say, being a successful switchgear item business. Parag Bhutada, let me put it this way. We are already spending marketing money on the switchgear. Are we spending disproportionately high? The answer is no. Okay?
Yeah. That's true.
Because in marketing, what's important is when we spend money on marketing, we also have to ensure that the product is available, the distribution is adequate, et cetera. Currently, it is more focused marketing, which is BTL, influencing, training, giving a lot of training and spreading awareness on the benefits of the product to the trade, to the electricians, to the contractors. That's where the marketing money is going.
Thank you, Mr. Bhutada. We request you to join the queue for any follow-up. We have our next question from the line of Rahul from InCred Capital. Please go ahead.
Yeah. Hi, good morning. Sir, following up on an earlier question, which was touching on the import aspect. I want to understand, while you may not have a very substantial part of direct imports, a lot of your vendors whom you basically outsource things from. Y ou would have a lot of second-level imports. Do you have some sense on what is that in the overall scheme of things? That is one part, and the second part continue to that is, there was a container shortage that a lot of companies were facing. I wanted to understand from you, how are container shortage issues with you all now? That's the first question.
Rahul, yes, when I spoke about the electronic components, be it the semiconductor or ICs, I meant it is the first level or the second level, both combined. Beyond that, there is not much of dependence on imported products. Now, if you can say what part of imported steel comes to us, now that's a little mixed bag, very difficult to isolate each one of them. Largely, we are dependent on the domestic supplies. In terms of containers, yes, we all know containers has been an issue, and we do face difficulty in containers. There are delays in terms of our exports. I think by and large, we are learning to live with it and plan a little better so that the delay in containers doesn't affect us much. There are cost increases, but that's all built into the total cost.
Okay. I think that is fair. The second question I've got is, on the price increases that you talked about. What I want to understand is, I mean, while all companies have taken staggered price increases over the past several months. I think even the discounting aspect has increased. It basically means, a lot of cost is basically borne by the companies. I want to understand, if there is any way you could tell us how discounting has changed over the past, say, six months or so. We actually can get a sense of the impact that will come on the profitability.
Rahul, I don't know have I understood your question completely. The discounting is a part of pricing. One can take the price up by changing the billing price, or one can take the price up by reducing the discounting. These are various ways of managing the pricing. Actually speaking, there has been a cost increase, which we all know to the level that it has been. There is a pressure on the margin, which we also can see what pressure, and there is a difference that there is a lag in terms of ability to pass on the entire cost increase immediately to the market. As I said earlier also, by and large, we have been able to pass on the cost increases to the market.
Market is able to accept these price increases because the kind of space we are operating in, the cost is not a very big part of the wallet size of a customer. Customers are able to accept the price increases. Have I answered your question? I don't know.
No, yeah. I mean, partly yes. What I was actually trying to understand was, I understand the discounting and pricing increase aspects. When things have been slow in terms of pricing and all those kind of things, where goods were not moving very fast. I think additional schemes or incentives, that is essentially what I was trying to refer to. Have you had to significantly step up those kind of costs basically, of incentives and higher discounting and all? That is what I was referring to.
No, not really, Rahul. No. There has been no such kind of very significant changes that I can talk about.
Okay. I think that's it from my side. Thank you.
Thank you. The next question is from the line of Srinidhi Karlekar from HSBC. Please go ahead.
Yeah, hi. Thank you for the opportunity. Congratulations on good set of numbers. I just want to know, was there any noticeable divergence in revenue growth across regions for you?
Hi, Srinidhi. Thank you. Yes, different regions do perform differently, and there are seasonality trends, there are other trends. For example, there are some places which suffered floods, etc., they did not do as well. Some other places which were prospering and doing well, and not much of COVID issue, they did much better. Yes, there are differences, but by and large, it was consistent across the country that we saw the growth.
Okay. Sir, there seems like a good acceleration in consumer lighting portfolio. What, according to you, has driven that? Sir, is it possible to, like the way you bifurcated ECD revenue growth, like 50% volume ballpark, 50% price and mix. Would it be possible to share similar numbers for lighting as that?
Yes, sure. In lighting, the material cost increase has not been very high, and therefore, the price increase is substantially because of the growth in volumes, and largely it is in mix. Consumer luminaires has grown a lot more, and consumer luminaires' average price is much higher. It's also a reflection of the consumer behavior change, the consumption pattern of consumer. Consumers are more indulgent in now lighting, and they tend to go for more luminaires rather than simply batten and bulb . Those are the reasons why we are able to see significant growth. A lot is led by distribution expansion, new product introductions, range expansion in luminaires. All of them have been responsible for improvement in lighting.
Great, sir. Just one more, if I may. Sir, if you compare our portfolio of consumer lighting versus large two companies, and how is it different on the professional lighting part? As in, I want to understand, are there any product gaps that need to be filled, particularly on the professional luminaire side?
Definitely. There is still a gap. We are still small when it comes to professional luminaires. I'm not talking about the tender-based professional luminaire, streetlights, etc. There, we are equally good, and in some of the cases, I think we are even faster than our leading competitors. In terms of other B2B professional lighting, the range is much smaller because our size is smaller. The range has to be in line with the business size.
Right.
We are more focused on the important categories, fast-moving categories as of now. We are adding very fast. There is no other deterrent or restriction for us to increase the range. It is just the size of the business at this stage at which we can expand to accommodate the range expansion. We are on that journey. The range expansion will happen as the business continues to pick up.
Thank you, Mr. Karlekar. I request you to join the queue for any follow-up. We have the next question from the line of Harish Pandya from ICICI Prudential Life Insurance. Please go ahead.
Thanks for the opportunity. Congratulations for the team for good results. Sir, first question is on the exports. This time you have mentioned about the strong export. Even before COVID, there were some challenges in exports. Anything which we need to know and what has changed in export, or is it just a normalization of demand on the export front?
In export, of course, there have been difficulties, as you know, internationally in terms of logistics, in terms of supply chain. Definitely, there are some opportunities where we are able to respond faster, we are able to gain some of those opportunities. To some extent, the market's coming back to the pre-COVID levels. That's helping us. On both sides.
Okay. Sir, second question on the cost front. Probably, in last five or six quarters, this would be more normalized quarter than the earlier ones. When the costs have normalized or anything which is yet to come back from pre-COVID levels. This is barring some of the structural cost changes that you have done. Just to understand where are the current cost levels, what is normalized cost structures which we expect?
Yeah, very good question. I think most of the costs have normalized now. There'll be very little more that will come up, but by and large, we are completely operational now. All the kind of costs that should be there are already there now. It's fairly normalized structure as of now.
Okay, understood, sir. Sir, thanks a lot. All the very best. We will get back in the queue. Thank you.
Thank you.
Thank you. A reminder to our participants, we request you all to limit your question to one per participant. If time permits, you may join the queue for any follow-up. We have the next question from the line of Achal Lohade from JM Financial. Please go ahead.
Yeah, thank you for the opportunity, sir. My first question is, you said that the channel has stocked up. Were you referring to the channel for us or at the industry aggregate level as well?
Hi, sir. Thank you. Good question. When I said channel, I meant the complete channel. Aggregate level.
Aggregate level only. Okay, understood. The second question I had was, with respect to the distribution, is it possible to give us a broad sense in terms of what is the penetration level we have in terms of dealer to retailer count? What's the thought process there on next three-five years?
I think in terms of the distribution, let me say there are two parts of distribution, the visible and the not visible. Okay. The visible is what is visible to us, what we are directly handling, managing, and influencing. The not visible is the next level of distribution where the product goes because there is a consumer demand, and there is an old established product distribution system, which we do not directly influence. We do influence, but indirectly we influence. If I look at the total distribution of the penetration, from sufficient number of reports that we have, a lot of them are not very immediate. They are one year, two years old reports. The distribution of Orient products is in the range of 125,000+ retail outlets. We directly do not influence all of them. We are working on improving our own distribution.
That's a separate number. I would not want to talk on that number. There, what we are addressing is a large part is the quality of distribution. We are working on our store presence, we are working on our market shares, we are working on training, education, service levels, et cetera. These are two separate things.
Thank you. Mr. Lohade, we request you to join the queue for any follow-up. The next question is from the line of V.P. Rajesh from Banyan Capital. I'm sorry. Yeah, please go ahead.
Yeah. Hi. Thanks for the opportunity. Just two questions, Rakesh Khanna. If you can just talk about the price increases you have taken year-over-year and the corresponding increase in the raw material that you are seeing year-over-year till September 30th.
Price increase in the corresponding?
In last one year, roughly across your product portfolio, what is the percentage increase in price you have done in the market?
I didn't understand.
Can you reframe your question, please? Sorry, we were unable to follow that question properly.
Okay. Yes. Like, last year, in the September quarter, your revenue was INR 100. Given the price increases that you have taken, what the impact will be in the September quarter this year?
It's a little difficult to answer an average price increase. I think we will have to do a little mathematics to give you an answer. Essentially, if we understand that our cost increases have been in the range of 20%, you can take the margin depression, and that's the difference which has been passed on in the market in terms of price increase.
Okay, got it. That's very helpful. My second question is you called out some of the facade projects. I was just curious, what is the typical size of these kind of projects that you are doing in Central or in Nangal Dam, et cetera?
In facade lighting?
Yes.
Okay. The facade lighting projects, what do you want to know? You want to know what is the average size of the project?
Yeah. For us, what is the revenue that is coming out from these type of projects, which are sort of marquee projects for you?
Okay. Currently, the revenue size is not very large. They would be in the range of anywhere INR one and a half crore to INR three and a half or 4 crores. That's the kind of range they will come in. What's important about facade is it's a different skill set, and facade is growing, and it provides a lot of visibility, and we are glad that we are progressing well in that direction.
Thank you. Our next question is from the line of Praveen Sahay from Edelweiss Financial. Please go ahead.
Yeah, thank you for taking my question. The only question I have is how much of a saving as a percentage have you achieved from the Sanchay program which you are running, and how much of further room for improvement or saving percentage increase is going to happen? If you can give some color on that.
Look, let me say Sanchay is one of the cost-saving program which is largely focused on the manufacturing efficiencies, et cetera. Through Sanchay, as we said, that barely 1% of the cost is what we have been able to realize. It will be in similar range. It will be a little higher. There are other cost-saving initiatives that we are taking in terms of re-engineering, redesigning completely. Those are over and above.
Sahay, is your question answered?
Can you quantify segment-wise, any color on that? As you had mentioned that one part is of the manufacturing. How much you are like 1% as you achieve, how much in the other segments you can achieve?
Is it possible to quantify that?
Difficult to answer this question. As I said, in Sanchay, we can talk that we're currently at 1%, and we should be looking at higher than this by end of the year. The rest of it, how much is coming because of re-engineering and completely redesigning will be a little difficult to state.
Okay. Thank you, sir.
Thank you. Our next question is from the line of Ashish Poddar from Systematix Institutional Equities. Please go ahead.
Yeah. Thank you, Orient team, for a great set of results, especially on the top line. My question is more on the competition. Just wanted to know how are the small regional players now reacting to the current inflationary environment. Are they really cutting on the price, and that is forcing large players not to take reasonable or inadequate price hikes? How are the organized players also behaving in the current scenario? When we hear from large organized players, everybody says that they have gained market share. Who is actually losing market share? My question is that. On the CapEx side, how is that running in the current? Thank you.
Yeah, you are right, actually. A lot of players, the smaller players, have found difficult, and therefore, a lot of organized players do say that they've gained market shares. Yes. But we're not seeing any major retaliation from any of the smaller players. Please understand, it's very difficult for them to retaliate with any price aggression because the costs that are going up are actually going up for all. It is towards the advantage of more organized players that they can plan well, they can leverage their balance sheets, and ensure that they are able to control the cost better than others. Where the smaller players are finding difficult is in terms of ability to control the cost and maintain their cash flows. We're not seeing any aggression from the smaller players as of now.
CapEx side?
Sorry?
Your CapEx program.
CapEx program, as far as the normal CapEx is concerned, as we normally do it every year, generally it is at an average of INR 40 crores a year in the normal CapEx. This year, we will be probably in the region of INR 60 crores because we have done some one-time CapExes and includes the Hyderabad land also, which we have firmed up in the last quarter. We are seeing it and estimated at around INR 60-65 crores by the end of the year. About half of it is already spent by now. As far as the Hyderabad part is concerned, it is absolutely live and active. We have got possession of the land, and we will be kicking off the project on the ground in another three months or so, maybe early next quarter.
When is it expected to commission?
Around Q4 of FY23.
Okay. Thank you so much and all the very best.
Thank you. Our next question is from the line of Dhaval Shah from Swan Investments. Please go ahead.
Yeah. Sir, when was the last price increase taken? Hello?
Dhaval, normally, as was mentioned, we do it on a staggered basis normally, and it is not across the board. It is category dependent. It is SKU dependent. It is spread over a period of time. It may happen in bits and pieces in one or two months also, but it is not staggered. It's not when price increases are taken, it's not that across the board for all product lines of a particular business. Therefore, price increases keep on happening for the categories, and it's spread across over a period of time.
Okay. Maybe for the large part of your category, if possible, if you can share, when was the last price increase?
For example, lighting we had taken early part, we did not take in this quarter. The end of the last quarter we took, which rolled over to this quarter. Some part of fans was taken in very early part of the last quarter. That's what I'm trying to say.
Got it. Okay, sir. Thank you very much.
Thank you. A reminder to participants, please press star and 1 if you wish to ask a question. We have the next question from the line of Rahul Agarwal from InCred Capital. Please go ahead.
Hi, good morning, and thanks for the opportunity. If I understand correctly, the commentary is basically you're doing better in premium as well as entry-level products. The question is on margins. Going ahead in second half of this year, obviously the base is unfavorable, right? Last year, second half was very strong because of pent-up demand during India opening up. Would you foresee that second half you basically go back to your average yearly margins of 10.5%- 11% in second half? How does that premium and entry-level mix of products impact the overall company margins?
Rahul, let me first tell you.
It is not a given rule that premium will have higher margin and economy will have lower margin. That's not the rule. There would be many premium products where the margin can be lower, and there can be many entry price point where the margin can be very good. Having said that, last year our margins was very high, not for us, but for the industry, essentially because that the commodities had softened so much and there was an advantage that we had. This time, it is the commodities are really going very, very fast upwards, and that's what is hitting the margins. These commodities are likely to correct in some time. As of now, everything is under demand shock and some other related kind of shocks. The commodities should correct. Whenever they correct, we will see an upswing in the margins.
When that happens, I have very little visibility, but logic says that that should happen.
How's been your start to the festive season in terms of ECDs, appliances, and how's that been in October?
Oh, we remain optimistic.
All right. Okay. Thank you so much. All the best.
Thank you so much, Rahul. Thank you.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Deepak Agarwal for closing comments. Thank you, and over to you, Deepak.
Thanks, everyone, for joining this call, and thanks a lot, management, for giving us the opportunity for this call. Management, any closing remarks that you want to make? Thanks.
Thank you, Deepak, and thanks to you, and thanks to entire PhillipCapital team for organizing this event. Thanks once again to all participants who have spent their time joining us. I would just say that I wish all of you good health. Wave three , I think, is behind us. Festive season is coming. I wish you all the best, very, very happy and blessed festive season. I do look forward to good times ahead. Thank you all very much.
Thank you very much. Ladies and gentlemen, on behalf of PhillipCapital India Private Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.