Ladies and gentlemen, good day and welcome to Voltas Limited Q2 FY 2022 investor conference call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in listen only mode. 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 and zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Renjith Sivaram from ICICI Securities. Thank you, and over to you, sir.
Good evening all. Thanks, Tanu. On behalf of ICICI Securities, I invite you all to discuss the Q2 FY 2022 results call of Voltas Limited. We have the management represented by Mr. Jitender Verma, EVP and Chief Financial Officer, Mr. Manish Desai, Head Corporate Finance, and Mr. Vaibhav Vora, our Manager of Corporate Finance. We will have an initial presentation by the management and we'll follow that with Q&A. Over to you, sir.
Hi, good afternoon, everyone. This is Jitender Verma from Voltas. As we have all seen, in quarter two, the global economic recovery has continued for this financial year, even as the pandemic resurged in some or the other way because of the entry of new variants like Delta or Delta Plus of the virus. Access to the vaccine and early policy support by the central banks of the countries across the globe continue to remain principal drivers of growth. The unabated increase in commodity prices, along with supply chain disruptions, pose a challenge in availability of key inputs, overriding demand over supply, resulting into higher inflation. We note that although the central banks are directing their policy measures towards growth, the risk of inflation cannot be overlooked. IMF has reaffirmed the growth projection for India for financial year 2022 to be at 9.5%.
Albeit in India, persistence of supply side disruptions and surge in commodity prices, including crude oil, pose adverse risks to both growth and inflation. This has also led USD-INR to depreciate, which is trading above 75. Some central banks have started reversing pandemic stimulation, although most are still doing it gradually. RBI has embarked on liquidity and rate normalization over four to six quarters, which would even flatten the yield curve. Despite these headwinds, quarter two showed a positive pre-festive cheer reflected by growth in GST collection and IIP numbers. In our business, the pent-up demand in unitary cooling product segment helped us post a growth of 5% in income from operations at INR 1,669 crores as compared to same quarter last year.
Profit before tax saw even a higher growth over 24% from INR 115 crores to INR 143 crores in current quarter. Non-annualized earnings per share for the quarter was consequently higher at INR 3.13, ahead of the previous years, which was at INR 2.37. The corporate balance sheet continues to remain healthy with minimal borrowings, which are required mostly for our overseas operations. While operational cash flow during the first six months have been weak, given the context of the second wave lockdowns and sales loss of consumer durable products in high season for the second time. Availability of liquidity on our balance sheet continues to be a definite strength for Voltas. Our snapshot of our results this quarter is presented herewith. Our revenue is in three segments.
Our main segment A, of Unitary Cooling Products contributes about 60% of total revenue for Voltas, stood at INR 1,700 crore, higher than same quarter last year which was at INR 750 crore. In segment B, engineering projects stood at 32% of total income from operations at INR 536 crore. Segment C, engineering products contributed 8% of total revenue stood at INR 125 crore in comparison to the previous year. The same quarter previous year, at INR 93 crore. Our profit before tax for Segment A Unitary Cooling Products stood at INR 102 crore, higher from the same quarter last year of INR 86 crore. This is 10.1% of the revenue from the same segment, which was lower compared to the same quarter last year at 11.42%.
Segment B, Engineering Projects, we reported INR 11 crore PBT in this quarter. The same was zero for the quarter, same quarter last year. In Segment C, Engineering Products, we reported a profit of INR 39 crore compared to INR 29 crore same quarter last year. All in all, the profit before tax for Voltas as a whole was INR 143 crores compared to INR 115 crores same quarter last year. This is 8.56% of total income from operations as compared to 7.24% for the same quarter last year. In terms of our divisional performance, in Segment A, Unitary Cooling Products, a swift recovery post opening of the regional lockdowns after the second wave, pent-up demand ahead of festive season, and multiple offers to consumers helped this business segment register a growth of 34% during the quarter.
However, erratic weather and insufficient rains in latter part of the quarter witnessed in many parts of the country slowed the sales momentum gained in beginning of the quarter. Segment achieved overall volume growth of 24%. We continue to sustain market leadership position in room air conditioner business with year-to-date August market share of 25.9%. Focus on the inverter subcategory with competitive pricing and increased number of SKUs yielded a favorable outcome. Inverter AC registered a growth of 40% in quarter two, financial year 2022. Contribution of inverter AC within overall AC increased to 54% in quarter two against 46% in quarter two last year. Focus on strengthening contracts with OEM and new product expansion helped growth of 31% in commercial refrigeration vertical in quarter two. Both OEM and retail segments have registered growth consistently over past few quarters.
Focused efforts on expansion of dealer network, expanded product portfolios in each of the subcategory, and launch of new SKUs supported a growth of 78% in air cooler category. As informed in Q1, effective April 1st, 2021, the group had reorganized the reporting of commercial air conditioning and customer care business from Segment B to Segment A. This was to align with our business objectives. Resumption of commercial activities along with high retention of customers and enhanced focus on after-sales service resulted in healthy growth of this commercial air conditioning business in quarter two over the previous year. In addition, in continuation of our efforts to be customer-friendly, the company has also launched an exclusive online web store with the URL www.voltaslounge.com in this quarter. This web store comprehensively showcases the consumer products lineup from the house of Voltas.
Better product mix, coupled with planned procurement of inventory, helped to partially mitigate the increased cost of commodity prices and higher logistics costs. However, acceptance of price increase from trades continues to be a challenge, resulting in a moderate drop in the overall margin, given a time lag in passing of the input costs. In spite of this, segment revenue increased to INR 1,007 crores as compared to INR 750 crores in the corresponding quarter last year, an increase of 34% year-on-year. Segment results were higher at INR 102 crores as compared to INR 86 crores in previous year. During the quarter, Voltas made an application in government-announced PLI scheme in low value intermediary with large investment category, with a committed investment value of INR 100 crores.
We plan to manufacture various components at Waghodia and Pantnagar plants with the objective of strengthening the supply chain. Segment B, electromechanical projects and servicing. Construction activities continued to be allowed in the current quarter. However, erratic climatic conditions lowered the progress in execution of some of the projects. Segment revenue for the quarter was INR 536 crores as compared to the previous corresponding quarter of INR 734 crores. However, segment reported a profit of INR 11 crores despite delay in work certification, time-based and other conservative provisions. The domestic project business performance was satisfactory given the weather-bound conditions. The carry-forward order path is INR 3,426 crores spread across water, HVAC, and urban infra activities. Some of the high-value order projects are nearing completion for international business. The pace of the execution was better.
However, the certification of the work remains slow. The order inflow for the quarter was at INR 272 crore, largely in United Arab Emirates. The carry forward order book is INR 2,377 crore, representing MEP work, mainly in United Arab Emirates, Oman, and Qatar. Segment C, engineering products and services. Segment revenue and results for the quarter were at INR 125 crore and INR 39 crore, depicting a strong growth of 34% and 36% respectively. Both our Mozambique and India operations have contributed to this performance, backed by renewal of the contracts as well as strong order book of crushing and screening equipment. Growing exports and extension of export incentives has pushed demand for screening and crushing capital machinery, which has contributed significantly to the bottom line for this vertical.
However, a price increase announced by almost all the post-screening principals with the stress in supply chain may pose some inherent challenges. Announcement of much-awaited PLI scheme for textile industry is also expected to boost the sentiment for the capital machinery industry. Voltas Beko, our JV, Voltas Beko, continued its journey of product expansion and providing value for money products to the end consumers. As part of increasing localization, the production of its top-load washing machine has commenced at existing Sanand factory in Gujarat. Further driven by the demand from the channel partner for the direct cool refrigerator, the refrigerator manufacturing capacity of the units will further be expanded, which will also include capacity for frost free refrigeration category up to a certain literage. Voltas products continue to be accepted well in the market and witnessed a significant demand pull from the trade.
We report Voltas market share of 2.7% and 2.6% year- to- date in the highly competitive segment of refrigerator and washing machine respectively. In terms of distribution, selling points have been scaled up to exceed 1,400 for Voltas. Accelerated opening of exclusive brand outlets in here and experience zones along with cost-effective digital marketing should help in increasing reach and augmenting brand visibility. Distribution and other synergies with Voltas continue to be aggressively leveraged to achieve the overall objective of targeted market share. Outlook. As we move into quarter three, we are witnessing healthy sign of economic activity followed by a double-digit growth in consumption and GST collections are topping INR 1 lakh crore per month on recovery in both manufacturing and services PMI.
The festival season is approaching and Voltas has launched Mahotsav, a combination of various consumer-led schemes including extended warranty, attractive product exchange, and exciting finance schemes, making purchasing even more attractive for customers. In terms of readiness, we remained well poised to seize all available opportunities to profitably grow our business in a sustainable manner. While the cost-push price increase is inevitable, we remain positive on overall growth. Going forward in our project business, we will continue to focus on building our order books following a cautious and risk mitigated approach. A further pickup in pace of infrastructure activities can reasonably be expected in the coming quarters. Various process improvements, cost control measures and efficiencies which were strengthened over a period of time provide a degree of comfort on future outlook. Project execution and related challenges will continue to be monitored closely.
With this, we thank all participants, and we may open for question and answer session.
Thank you very much, sir. 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. We request all the participants to limit their questions to two per participant. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Ravi Swaminathan from Spark Capital. Please go ahead.
Hi, sir. Good afternoon, and thanks for taking my question. My first question is with respect to the room AC revenues in the UCP segment. Can you give a sense on the two-year CAGR in terms of either volume or revenue for the room AC business? That is, this quarter's revenue compared to 2Q FY 2020.
On the revenue side, we see positive growth compared to.
Mm-hmm.
at FY 2020 up to now. I would see it's in double digits. I would say high double digits. Sorry, high teens.
That's on an absolute basis, sir, or a CAGR?
On a CAGR, about 18%-19%.
18%-19%.
Yeah.
Okay.{audio distortion] Hello?
Sorry, we lost the voice. You'll have to repeat your question.
Yeah. On the commercial air conditioning business which we have clubbed with the UCP business, if you can give the revenue or what percentage of the overall revenue of the UCP segment is this for this quarter?
The overall percentage for this quarter, we are not disclosing at this stage, so I'll have to defer that question.
Wonderful. Margins, the gross margins have been slightly on the weaker side compared to last year, obviously due to commodities going up, et cetera. How do you see it going forward? What are the efforts that we are taking to mitigate margin pressure? Would we go back to last year's level?
Our general guidelines, I mean, these margins although have dropped, but they remain within the general guidelines. How the cost push will happen and what's going to happen in the market is something which we'll also have to monitor as we go along. Up to now, we have seen that there is generally a tendency to say no to the price increases by the channel partners. Slowly and steadily everybody accepts that these price increases are inevitable. Although we are a price leader in our segments, we see that we still continue to maintain our market share as well, which means that we should be able to manage this going forward also. We have achieved certain value engineering also to cushion the impact of the cost increases.
With our [judicial] purchasing, we are able to monitor and control our prices within the range.
Got it. With respect to the project business, basically, order book has been slightly on the weaker side. Is it like we are consciously avoiding a few orders, low priced orders or something of that sort, given the fact that export activity seems to be right on track? My second derivative question within that is, are you seeing increased activity in Middle East because of the rise in oil prices, thanks?
Sorry, your voice was not very clear. Could you repeat your questions?
With respect to the project business, our order book has been slightly on the weaker side. Is it because of the fact that we are kind of being a bit cautious with respect to orders which probably might be on the lower margin side? With respect to the same project business in the Middle East, oil prices are going up, so are we kind of looking at improved ordering activity there?
Okay. For the project business, I mean, I would see that there is a slight weakness in the carried forward orders, but still it's a very strong, healthy. If you add up the two numbers, I think we are close to INR 6,000 crore worth of orders in hand, so which is a strong. We see that we are selective in what orders we take. We are selective on the contribution of the orders as well as the credibility of the contractor from whom we are going to deal with, the credibility of the customer.
Mainly because of the fact that in the past there had been situations where we have to take heavy provisions, and so therefore credibility becomes a criteria for us. We are going more and more for government projects, which tend to be slow to come forward, and we are also being choosy on that. On the international side, just because of the fact that oil prices are increasing, we cannot say that the number of projects will increase because there are many other factors which are in the place, specifically in the contracts in which we participate. Still we see a healthy growth, and it should be positive for things to as we see it going forward.
Thank you.
Thank you. The next question is from the line of Siddhant Dang from Goodwill Investment. Please go ahead.
Yeah, hi. I'm focused with retail, that is Croma. They've been using the Tata brand and selling ACs under their own private label. I don't think it is very healthy, you know, because we've created the entire AC segment of the Tata brand ourselves and they are cannibalizing it. Will you be taking any action or something?
Siddhant, this is Manish over here.
Yeah.
The channel partners, the e-commerce partners and all are anyway selling the products under their private label brand. In a way we cannot stop them to do that under the free trade policy or the agreements what we have. What we are saying is whatever the products they sell of the Voltas, we always maintain the market operating price ceiling level to the end consumers. In terms of the private label brand, you have seen that even Reliance was having their own private brand including
Yes, that's a Tata Group company.
Pardon?
It's a Tata Group company that is cannibalizing.
Yeah, it's a free trade policy we have, no. They can keep their private label brand. Any which way, what we have gathered data from the market, the traction of the private brand is very much low. Since the import model is now getting banned, you all, we all know that for them to have, or for any player to have the business model of import and put on the shelf is not commercially viable given the regulation changes done by the government. We may see that the brands will be losing the strengths in their businesses.
Okay, perfect. Yeah. We don't plan to tie up with Croma because, you know, we are under that anyway.
When you say tie up, we do have a tie up. Our ACs are being displayed over there. Our products are being displayed over there.
Okay, not for the Croma.
We cannot stop them to not to display any other brand including their own private label brand.
Okay. Okay.
It's a matter of data, what sales space you are occupying. I'm sure when you walk into any of the stores, compared to the units which are put on the shelf, you find that we are occupying reasonably a larger shelf on their retail outlets.
Okay. Thank you.
Thank you. The next question is from the line of Sandeep Tulsyan from JM Financial. Please go ahead.
Yeah, a very good evening. Firstly again harping on the same point, if you can share with us a brief mix of the UCP segment between RAC, CAC as well as commercial refrigeration for 2Q as well as first half. Just make it easier for us to compare numbers and growth.
Sandeep, we give these numbers, but I was suddenly surprised because investors have more data with them and since our last quarter too if you can compare it was without CAC part of the UPBG. Someone can easily make it out. Now going into the UPBG as a part of the CAC. Any which way to go on a lighter side on this call, roughly around approximately 20% of the contribution is coming from the CAC business to the overall UPBG segment what we are reporting. It fluctuates quarter-on-quarter because unlike the seasonal product of the air conditioner, in a commercial air conditioner, it all depends upon how the commercial market is moving besides their contribution towards the revenue and the bottom line.
In terms of the commercial refrigerator, the growth is now we have seen. We have stated over there in opening remark. It is consistently growing quarter-on-quarter. It is occupying somewhere around 20% of the overall turnover of the UPBG now.
Got it.
Close to 20% I can say for now.
20%, 60% is the mix. Got it. This is for second quarter or first half?
Put together almost the same over there, so nothing much.
Secondly in terms of order book, was this segment also order book driven or, because when we split the order book, kind of did not get restated for last year, so from that point?
Yes, this CAC business does go based upon the order book because generally the contract period of this commercial air conditioner is more than even six months. Many times it's driven by the order book.
I would request if you know we can share historical data for order book for this segment also. That would be very helpful.
Okay, Sandeep. For point noted, we'll share with you subsequently.
Last question is on the Voltas side. Will you be giving any guidance on sales or where do you see these losses getting capped in the current financial year?
If I look from the Voltas side, as I said, the Voltas is expanding its footprint. It is difficult to compare with the growth in the system because it has to be on a higher side. Once you have the scale with you, definitely it will result into the operational synergy and by virtue of that loss will certainly come down as we move forward. The increased loss what you are seeing today in the results is largely on account of some kind of sales promotion activities, what we carried out in the quarter, coupled with the increased cost pressure, because there's a time lag between the passing of the increase input cost to the consumers. It's the impact of both of these factors.
Going forward, since all brands are going to have, or the price increase is inevitable to match or to compete with or to pass on the increased input cost, we see some kind of moderation coming in terms of the results to be rolled back.
Got it. Lastly, any thoughts on the industry volumes? Where do you see the industry volumes going in FY 2022 this year, as compared to FY 2020, where they were? That's my last question. Thank you.
If I look from the FY 2022 perspective for air conditioner as a category, the industry may end up with a 10%-13% growth over FY 2021. However, in terms of the FY 2020, we will find that the level coming closer to what we had in FY 2020. You won't find a good amount of growth coming into FY 2020 compared to FY 2020, but certainly a growth in double digits, when we compare with the FY 2021.
Thank you.
Thank you. The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance. Please go ahead.
Hi, sir, good afternoon. Thanks for your time. Firstly on the projects business, sorry to admit that the sharp decline in top line that we see this quarter, what is that driven by? Is it domestic? Is it overseas? Could you just tell us a little bit more what's happening there? More importantly, how do you see the next few quarters in terms of kind of rebound?
Yes. In this quarter, it's mainly driven by, you know, the weather pattern as you see the onset of monsoons, specifically in the Indian part in our domestic business. It traditionally quarter two tends to be lower. Now, this got coupled with the fact of certain slow executions coming from the lockdown in the previous months. We should see this rebound activity in quarter three and quarter four. On the IBD side or our international business side, we saw that certain of our bigger projects were coming to the conclusion, and therefore the numbers or the activity top line showed a little lower compared to the same quarter last year.
Okay. Fair. Essentially, it's more weather driven. You don't see too much of, you know, because slow execution as well, is it more cash flow driven from the consumer side? Is it, you know, focus on cash making you go slow? Is that also one of the reasons, or you believe that reschedule of projects?
It's more like a rescheduling of projects.
Yeah. Fair. Okay. Second, I think you spoke about participating in the PLI scheme and looking at INR 1 billion kind of investment you have to make components. What exactly are you looking to manufacture? What kind of capacity or targets you have in mind, assuming you know you are eligible under the PLI scheme?
Ankur, in fact, we have applied for a component super category, which we have just talked about it. Probably would like to give more details once the outcome comes from the authority in terms of approving our application. Because it will be not fair to speak right away because of the outcome.
Sure.
Yeah, because it will be, the industry will or the ministry will finalize the list by November 15, in terms of the application what we made. But what we spoke, what we had a communication earlier, it is talk about the components. Largely, it's covering the coils and some of the plastic components. In terms of the capacity, we may like to have almost 50% of the capacity or 50% of our annual requirement comes up in the phase one while we are looking for such kind of backward integration.
50%. Okay. Fair. All right.
We have, Ankur, as I said, this is where we, you know, we are eyeing for it.
Okay, wonderful. Actually, thirdly, you know, you were talking about price hikes or some resistance to pushing through price hikes from the channel. If you could talk about what have been the price hikes, say, YTD this calendar, you know, across the V-Mate portfolio and if any more are planned, given the way, you know, raw material costs have moved?
Ankur, if I take from the base of the last year, the price increase what we announced so far will be in the range in excess of 10%. It hovers between 13%-15%, over the last year when I take quarter to the last year. Now, since we are not seeing any downward trend for the commodities, which means that all the new material which we are getting into the inventory, because we all know the industry will start preparing for the new season requirement of the 2022-2023.
Right.
Therefore, the all new material which will be coming at a slightly higher cost. Obviously, when we come to the material input cost is increasing, we have to find a way to pass on this cost to the end consumers. In this, being a leader in this industry, we further announced a 3%-5% increase in the month of October. When we talk about the resistance from the channel partner, the prime reason behind it is because we are in the midst of the festive season. Furthermore, we have to look into the competition landscape as well, because the competition is not probably in a matter of removing or liquidating some of the old inventories, can be not as aggressive in terms of price increase.
What, as a leader, we are doing it, but that's where, you know, the resistance of the channel partner comes from. We are reasonably confident that sooner or later this become a reality for every players if the objective is to have a healthy and sustainable growth, both in revenue as well as in bottom line.
Okay. Just one last one from my side. On the demand and the mix of demand, more importantly. A, you know, how is effective demand? Are you seeing any slowdown or is it kind of as per your expectations? More importantly, you know, what we see in other categories is the entry-level products actually seeing the mid and premium doing better. Is this something you've also seen in your, you know, the product mix where you see less of economy models and more of the higher rated models. Yeah, thanks.
Ankur, if the growth number which you have just spelled out, it is over quarter two of 2021. We all know that quarter two 2021 has given a growth over quarter two 2019/2020. You can say that demand is there in the market because we are seeing consistent growth in this quarter two over the last two years as such. There is no. I can say the products are available to the consumers, and consumers are coming to the retail shops for various reasons. Demand, we are not seeing any kind of tapering the demand. We believe that it will continue or we expect that it should continue in the months to come.
As far as the between the SKUs, if you look from the low, mid and high price kind of SKU planning or collections for that matter, we have seen some kind of upward trend in the five-star categories, which has seen some kind of higher offtake from the consumers, largely it's coming from the metro and Tier One cities. Entry-level product are also doing well. In and out, I can say that all the entry as well as mid and the premium segments are showing a reasonable growth over the last year.
Okay, understood. Great. Thank you for that. That's all.
Thank you. The next question is from the line of Praveen Sahay from Edelweiss Financial. Please go ahead.
Yeah, thank you for taking my question. Just on the RAC segment, can you give some light on the channel inventory, on the sector front? How is that and how that's shaping up?
If I look from the channel partner perspective, definitely it's a festive buying and nobody would like to lose the sales, given there is a uncertainty in supply perspective because of the supply chain disruption. To our reading, the inventory with the channel partner will be close to 45 days today. Although some of the retailers have got into a discipline of fill up the shelf based on the demand, given the supply chain disruptions, the average inventory across all channel partners is a range of 45 days.
Okay. If you can compare with the last quarter, how is that?
Probably we have seen the moment the growth is visible in the sector, I can say, or in the categories, obviously the confidence of the channel partner is growing. When it is growing, definitely they would like to move on a slightly better on a inventory front rather losing out the business during the peak time. If I compare with even last year, similar period, because we have seen the growth over last year, obviously the inventory level remains almost at 30-45 days level, where it was there in the last year as well. Are you talking about quarter two of the last year, right? Not the Q1.
Yes.
Where there is no comparison between Q1 and Q2.
Comparison. Yeah, correct.
Yeah.
The next question is, sir, related to inverter AC contribution for this quarter. How much is that?
It has touched 54% within the overall air conditioning category.
Okay. Thank you, sir. All the best.
Thank you. The next question is from the line of Keyur Harish Pandya from ICICI Prudential Life Insurance. Please proceed.
Thanks. Sir, first question is on the pricing. Should we assume that there is any disparity between price hike from top four, five players or five, six major players? Just in context of steel driving input prices, I mean, even to this date, how do you see margin going forward? Should we see even a blip on the downside even for a quarter also?
Chief, if you look from there, I would not like to or we would not like to comment about the pricing policy followed by the competitor because everyone will look after their own business in that sense. What we are seeing and what, if I look from the Voltas perspective, although there is a time lag in passing on the increased input cost vis-à-vis what we have done so far, the price increase, the impact that you can see today is hardly 100 basis points. Which means that with the various value engineering initiatives, doing an efficient supply chain and bringing vendors on a par with our terms and conditions, we could arrest or we could do better in terms of managing the risk on account of the cost-to-revenue ratio. We are not going to leave it upon this.
We definitely are going to work more aggressively to ensure that although I have a little some kind of price lag or time lag will continue, but we will be continuing to drive our margin. We may not reach to our last year because we already told that 15.1% what we have been referring to is an exception because the lot of cost which otherwise we would incur to have a product visibility on the ground was not incurred because of the complete lockdown. Our guidance, which is there to have this continuous 10 double-digit margin, and we'll definitely try to stick to it to the extent possible.
Okay. No, sir, I did not want to go into, say, competitor pricing. I just want to understand whether there is discipline or not because that ultimately will determine the RM if you take price hike also.
See, I would not like to say discipline because someone has to make a move early, right?
Okay. Correct.
When you make, you can't say that Voltas has made a first move or other players are moving, but other players are moving maybe with a gap of 15-30 days or depending upon some market, maybe for SKUs, not for all across SKUs and all. There are various variants here because if I want to talk about the price is a dynamic factor. Yeah, I can go to SKU, I can go to the market, I can go to a particular category, and if I decide so, I can go to the across, you know, all markets, all SKU put together.
You find the aim is to say that wherever we can do or wherever is possible for us to pass on the increase in input cost, we won't leave that opportunity to do so.
Okay, sir, second question is on the working capital employed. If I see sequentially, in UCP business we have seen flattish or we can say slight increase in the working capital employed. Generally, in a lean season, what reason can be assigned to, say, higher capital employed in UCP?
This is in fact, if you look from the quarter two, there is an improvement in the working capital compared to the last quarter two. Generally, in terms of the components of the capital employed, inventory plays a larger role because we are in the seasonal kind of product category. Although we get a good amount of extended credit from the suppliers, but any disruptions like COVID and all will not make good use of whatever credit you get from the supplier perspective. That will result in a slight increase in the overall capital employed for a UCP segment. If you want to compare with the quarter two last year, I'm sure our numbers are giving a significant improvement over quarter two of the last year.
Okay. Understood, sir. Sir, just last one question on the Voltas side. As of now, which are the products that are being imported? And, eventually, what, I mean, any specific timeline when they would be, say, indigenized or either own manufacturing or OEM within India?
Today, if I want to give you a perspective after the plan to have a frost-free refrigerator also manufacturing at a Sanand plant, probably few SKUs of the frost-free refrigerator above the particular literage and microwave and the front load washing machine probably will be import sourced. Rest, largely all products will be indigenized. I'm not talking about the dishwasher because dishwasher also largely, considering the volume has been outsourced through import. But once we have the washing machine line, the channel can be or the manufacturing plant can be configured in such a way that if you want to go for a dishwasher, it is still possible to make dishwasher based upon the volume and the scale what we are in for.
Front loads are now manufactured in India only. Front load and top load, fully automatic.
Top load washing machines are getting manufactured in India. In case of refrigerator, you have a frost-free refrigerator above a particular literage will be import driven. In case of washing machine, you will find that the front load washing machine will be outsourced through import. Although once we have the scale achieving washing machine in our factory, we have planned to convert that front load also going forward as a totally indigenized product. Microwave continues to be outsourced. When I say outsourced, it's import outsource because in case of even semi-automatic washing machine, we are not manufacturing within factory because the plan is to go on a top load washing machine and front load, seeing the volume and other stuff. Semi-automatic, it is indigenized, but with the help of our OEMs.
Okay. Understood, sir. Sir, thanks a lot and all the very best.
Thank you. Okay. Thank you.
Thank you. The next question is from the line of Abhilasha Satale from Dalal & Broacha. Please go ahead.
Thank you for taking my question. I have a question on the Kigali Agreement. India has signed Kigali Agreement. You know, production of HFC-23 will be phased out by 2024. What will be the impact of this agreement on our production? Will there be any capacity because of phasing out HFC-23? This is my first question. The next question, I want to know utilization level of our Sanand facility and, how much for refrigerator and how much do we expect it to reach by the end of this year?
Abhilasha, I could not get your second question. Can you just repeat it?
Sir, I want to know the current utilization of our Sanand facility? For the refrigerator, yeah. How much, you know, we want to increase it by the end of the year.
Okay. Abhilasha, in terms of the HFC, let me answer that. We cannot wait for the end date. All our air conditioner today have been migrate to less pollutant or kind of less ozone subsidized kind of refrigerant, which we sell at the R32. All our air conditioner in the last 18 months got migrated from R22 to a R32 refrigerant, so we have been fully complied with it, with the CapEx, with the minimal CapEx what we incurred at our production facility. As far as the, I hope this is the answer of the first one, so then I can move to the second one.
Yeah. Thank you.
Okay. For the second question, the refrigerator. Currently, what we are doing is we are producing almost 50,000 refrigerators per month, which we are taking up to 75,000 in the existing setup itself. Our plan, once we try to have the four-door refrigerator also up to a particular linkage, we'd like to expand this capacity close to 1.1 million in the near future.
Okay. Yeah. Thank you.
Thank you. Participants, if you have any questions, please enter star and one. The next question is from the line of Bhoomika from DAM Capital. Please go ahead.
Good evening, sir. On the project segment, you know, we've seen there's been extra provision which has kind of pulled down the margins for the last couple of quarters. Now, when do we see the execution kind of normalize and margins reverting to normalized level of 6 odd percent?
Bhoomika, if I could have seen this future, I would have given you a date by which or by quarter by which we'll get normalized. What is happening is the, maybe you can say Voltas is following a very much conservative policy in terms of certification or in terms of any provisioning norms. But we believe that there's a prudent one because if we are seeing some kind of delay, even in certification work, the job being done by us, we have to cautiously picking up this kind of provision. In terms of the margin going back to a 6% level, I will say it may take some more time. We have touched to a 4.4% in our quarter one.
On account of our lower execution of the projects on some of the sites, we have come down from that level. However, in terms of future, probably we can say we'll be taking another three to six months timeframe minimum before we see a light of 4.5%-5% margin. 6% margin, we are also optimistic about what guidance we normally used to give. However, given the situation today where we are, probably it may take slightly a longer time to go back to a 6%, 6.5% kind of trajectory.
Sure. In terms of, you know
Sorry, Bhoomika. One thing is very sure, that the kind of projects which we are taking today are well risk mitigated with the foreseen risk what we are seeing today while picking up the project. If something didn't come out unforeseen situation, then it will be difficult to predict right now. All foreseeable risk today has been properly mitigated while tendering for a new contract. That way, we are adequately covered for ourself for all such kind of eventualities of delay in certification or a likely to industries or whatever you can say from that perspective.
Sure. In terms of, you know, new ordering, so because it's been kind of weak in the last couple of quarters, you know, when do we see that kind of going back to, you know, quarterly run rate of say INR 1,000-INR 1,500 crore? From which areas are you seeing it, both in domestic and in international markets?
Generally, Bhoomika, if I look from a domestic market first, there are various projects in pipeline for which the tendering is underway. It all depends upon are we qualifying when we bid for it. If it happens so, then probably in the quarter four or so you will find that we are back on the order book or a healthy order inflow for the particular period for that matter. If I still compare with where we are last year in the current quarter, probably we have slightly improved upon it both on a domestic and international projects. However, the quantum of project is not worth to talk about it.
Still, as I said, we will be striving for balance between the order inflow as well as the risk which we are carrying in our books of accounts. If I look from the international project perspective, we have secured almost INR 272 crore of order inflow in the current quarter. Although it's pretty much lower than compared to average what we have. If I compare with last year, similar period, it is still above, significantly above the amount of order which we bid or we took in the last quarter three, quarter four, seeing some good amount of traction coming on the order book side. As I said, we will be definitely weigh against the kind of risk which we are carrying.
We are hopeful that at the end of the FY 2021/2022, we may see order book growing to a reasonable level, what we normally have as a past experience or a past kind of performance.
Sure. Makes sense, sir. Sir, on UCP, this one question is, you know, you spoke about, you know, putting up 50% of annual requirement in phase I, in terms of in-house manufacturing, plus the components which you'll be doing for the PLI scheme, as in whatever gets kind of approved based on whatever license is given by the government. Now, is this a bit of a strategy change where we were kind of outsourcing a lot and now we're getting into our own in-house manufacturing with very limited outsourcing? Is that the way to look at it?
Bhoomika, see this is a long-term supply chain management plan of the Company, and this have been already visualized. It just got accelerated because of the fact that the government of India has increased the customs duties, and the PLI scheme has already come in. In that sense, it's an existing plan where we were always looking to indigenize and nationalize our manufacturing capability. It is part of the same plan, just got accelerated. Yes. When I say 50%, it will come in phases, Bhoomika, but the plan is to reach to a particular level.
Okay. Sure. All the best, and I'll get back with you. Thank you.
Thank you.
Thank you. Due to time constraint, we take the last question from the line of Ashish Jain from Macquarie. Please go ahead.
Hi, sir. Good evening. Sir, my question was on pricing. So we indicated that, you know, we have taken 3%-5% price hike in October. With that, are we now totally covered with the commodity inflation, the way it stands today, or we will need more?
Definitely we would need more. However, we have to wait and watch how the commodity prices are going up. We are right now in the midst of our contracts with our vendors for the next season, next year. So once those contracts get concluded, we would be able to confirm how it would be playing going forward. Price increase, looking at the way the prices have increased, seem to be inevitable and other manufacturers may also have to look at the policies in the same direction.
Right. Sir, how do your contracts work with your domestic and, you know, global vendors in terms of, you know, in terms of the input cost and all? Is it like quarterly reassessed or is there any standard policy around that?
In the continuous increase in the commodity price, none of the contract gets honored, no. If I'm seeing this continuity in commodity increase once in a quarter or something like this, then people do consider to have a price increase at the time of renewal. If you're seeing that every weekly price of the commodities is inching up towards the upside, obviously, whenever you try to place the order at the old price, it further goes into a negotiation, the rate revision for that matter. Also, we balance it out in a very sensible way, but end up somewhere you have to end up doing balancing between your need as well as what the price you are trying to compete with them.
Right. Secondly, you know, in terms of your volume outlook for fiscal 2022, you spoke about, you know, like 12%, 13% kind of growth versus fiscal versus the last year. Now, if I look at 1H, we have grown 19% in 2Q. We grew around 11 odd percent in 1Q. Are we calling for like a high single digit kind of growth in the second half from a volume point of view in the RDC business?
Ashish, I talk about the industry growth. I have not spoken about the Voltas growth.
Okay. Got it, sir. Thank you so much.
Thank you. I now hand the conference over to management for closing comments.
The thing to add about it, the market is competitive and the festival seasons around us. The growth factors are there, and we expect that the pending demand that we have seen in quarter two should continue. The underlying factors in terms of penetrations, in terms of rising aspiration from the end consumers and the rural population that we have, we are hopeful that the industry will clock a double-digit growth in the 2021/2022 over 2021. On this positive note, we'd like to thank all the participants and wish all of you a happy and prosperous Diwali. Thank you very much.
Thank you very much. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Thank you.