Ladies and gentlemen, good day and welcome to the Voltas Limited Q1 FY22 earnings conference call hosted by HDFC Securities 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. I now hand the conference over to Mr. Naveen Trivedi from HDFC Securities Limited. Thank you, and over to you, sir.
Hi, good afternoon, everyone. On behalf of HDFC Securities, I would like to welcome the management of Voltas Limited to discuss the post Q1 FY22 results. We have with us today the senior management of Voltas, represented by Mr. Jitender Verma, EVP and CFO, Mr. Manish Desai at corporate finance, Mr. Vaibhav Vora, manager, corporate finance. I would now hand over the call to the management for their comments. Thank you, and over to you, sir.
Hi, good afternoon, everyone. I hope I'm audible for everyone. On behalf of Voltas, we'd like to present to you the analysis of results for quarter ending 30th June 2021, which is the quarter one for financial year 2022. As we were ending the quarter four 2021, on the lower base of the previous year, economics and corporates alike projected for robust growth given the visibility of multiple green shoots in forthcoming quarters. However, exactly at the same time, the pandemic re-erupted like a tsunami wave in several countries across the globe. Pace of vaccinations assisted in controlling the casualty. The anticipated growth in recoveries does not seem to be a surety, even in geographies where infections seem to be under control. To add fuel to the pandemic growth, the commodity prices have seen unabated increase quarter-on-quarter, which is causing inflation inching towards pre-pandemic levels.
In addition, the container freight rates have seen a sharp escalation amid the global trade disruptions, widening supply-demand gap owing to pandemic. Considering the above facts, the global economy is projected to grow at the rate of 6% in 2021, and an estimated 4.9% in 2022. However, prospects for emerging markets and developing economies have been downgraded for 2021, especially for Asia, amid the severity of second wave impacting the economic recovery. Back home in India, impact of second COVID wave was more severe and resulted in loss of life and slowed down the economic activities at unprecedented level. Consequences of the same have been witnessed in the fall of PMI and rising of inflation, given the supply chain disruption and cost increases.
Unlike the nationwide lockdown imposed by the center in previous year, continuation of business activity this year was governed by the states given the spread of the virus. These regional lockdowns had mixed impact to demand and supply of consumer durables. Optimism was evident across equity markets in contrast to real economy, and Sensex touched new highs, supported by significant FII flows and a growing number of retail participants. In this overall context, we at Voltas continued our growth journey and reported a 39% growth revenue from operations at INR 1,767 crores as compared to previous quarter. The profit before tax saw even a higher growth, over 56%, from INR 108 crores to INR 168 crores in current quarter. Non-annualized EPS for a face value per share of INR 1 for the quarter was consequently higher at INR 3.68, ahead of the previous year at INR 2.45.
A snapshot of our results this quarter show Segment A, Unitary Cooling, quarter one at INR 963 crores. Segment B, Engineering Projects at INR 688 crores. Segment C, Engineering Products at INR 115 crores, for a total income from operations of INR 1,767 crores. The profit before tax for Segment A, Unitary Cooling, INR 118 crores. Segment B, Engineering Projects, INR 31 crores. Segment C, Engineering Products at INR 38 crores, and allocated of INR 18 crores, contributing to profit before tax of INR 168 crores. In our Segment A, Unitary Cooling Products, limited operational hours and days imposed as part of regional lockdowns by various states and local authorities throughout the quarter took its toll on the consumer durables industry as a whole, especially for cooling products market during the period that has traditionally been the peak season for sales.
Quick and nimble to respond, aided by strong 22,000 touch points across the country, Team Voltas grabbed the opportunity and managed to grow even in such unprecedented times. Meanwhile, patchy summers in South and East regions continued to be a challenge, but robust sales in North and Central regions helped balance the performance. Focus on the inverter subcategory with competitive pricing and larger number of SKUs yielded a favorable outcome. Inverter sales growth was 18%, well ahead of the previous year. Overall, in the AC segment, Voltas continues to retain undisputed leadership with an exit June market share of 26.7% at multi-brand outlets. Continued leverage with trade and distribution, contribution from exports, healthier model mix from B2B accounts helped a stellar growth in the commercial refrigeration vertical in quarter one.
Launch of new SKUs, increased number of touch points, and acceptance of products resulted in higher growth in the current quarter, despite availability of limited time window of sales for air cooler category. Effective 1st April 2021, the group has reorganized the reporting of commercial air conditioning and customer care business from Segment B, Electro-Mechanical Projects and Services, to Segment A, Unitary Cooling Products for Comfort and Commercial Use, to align with the business objectives of the company. Commercial air conditioning business includes sales of VRF systems, chillers, ducted units, vapor absorption machines, et cetera, and customer care and retrofit businesses. Performance from this vertical also improved during the quarter. With this restatement, all product sales will henceforth be reported under Segment A, Unitary Cooling Products for Comfort and Commercial Use.
Better product mix, coupled with planned procurement of inventories, helped to partially mitigate the increased cost of commodity prices and higher logistics costs. We have continued with various cost austerity measures. However, certain customer-centric sales promotional expenses were incurred during the quarter, leading to higher selling and distribution expenses. As a result, turnover grew about 19% in current quarter, and the segment EBIT was INR 118 crores as compared to INR 114 crores in the previous year. For Segment B, which is Electro-Mechanical Projects and Services, construction activities were allowed in the current quarter, unlike national lockdown in previous year. This provided relatively easier access to the project sites, resulting in higher progress in execution of projects in both domestic and international markets, leading to a 67% growth in segment revenue for the quarter to INR 688 crores as compared to the previous corresponding quarter of INR 412 crores.
Progress of the projects and a centrally driven focus on the collection helped to restrict ECL provisions, resulting in improvement in segment profit of INR 31 crores as compared to loss of INR 44 crores in previous year. That said, weakened sentiments of delaying announcement of CapEx plans by potential clients across the operational geographies, coupled with diligent choice of orders, has actually translated into subdued but high quality order booking during the quarter. Nevertheless, total carry forward order book at INR 6,149 crores as at 30th June 2021, provides an adequate level of forward revenue visibility. The carry forward order book for domestic projects at INR 3,702 crores contained a mix of orders across water, HVAC, rural electrification, solar and urban infra activities. The international order book of INR 2,447 crores represented MEP work mainly in UAE and Qatar. Segment C, that is Engineering Products and Services.
Segment revenue and results for the quarter were at INR 115 crores and INR 38 crores, depicting growth of 142% and 93%, respectively. Both Mozambique and India operations have contributed to this performance, backed by renewal of the contracts as well as strong order book for crushing and screening equipment. After-sales support and renewed demand for capital machinery, both in spinning and post-spinning, has contributed significantly to the bottom line for this vertical. Announcement of much-awaited PLI scheme will further boost the sentiments for capital machinery industry. However, supply chain disruption may pose some inherent challenges. Voltas Beko. Production at our Sanand factory surpassed milestone of 5 lakh units since its opening, and cumulative sales since inception crossed 1 million units. Voltbek products continue to be accepted well in the market, and we are happy to witness significant demand pull from the trade.
We are also happy to inform that Voltbek's market share in the highly competitive segment of refrigerators and washing machines has improved to 3.1% and 2.7% year- to- date, respectively. In terms of distribution, billing points have been scaled up to exceed 4,200 in numbers. Accelerated opening of exclusive brand shops 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 breakeven and the targeted market share. Outlook. Although quarter two is a lean period for cooling products, the start of festival period may witness a spurt in demand. It will be, however, interesting to see the impact of myriad of factors, such as anticipated third COVID wave, pace of vaccination, and opening up of economy at large.
We continue with our sharper focus on working capital management and conservation of cash while remaining cautiously optimistic. Thank you for my presentation. We can take up the question answers once the host is ready with that.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone 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. Reminder to the participants. Anyone who wishes to ask a question may press star and one at this time. The first question is from the line of Ravi Swaminathan from Spark Capital. Please go ahead.
Sir, thanks a lot for taking my question. My first question is with respect to the reorganization of the reporting of commercial air conditioning segment. What kind of revenue which got reported from the electromechanical project segment to the UPBG segment, and what kind of profitability was there for that revenue?
Ravi, this is
Thank you.
Yeah. Ravi, can you hear me?
Yeah. Sir, I'm able to hear you.
Yeah. Ravi, this is Manish over here.
In terms of the CAC, we would not like to give any specific numbers, but in terms of the overall contribution, it is marginal. If I look from the profitability perspective, it is slightly lower than what we have in UPBG. Since our focus is there to improve on our CAC side, gradually, we may see that on a EBIT margin perspective as well, we are seeing a good amount of improvement.
Okay. My second question is with respect to the you had mentioned about some customer-centric spend which we had done. If you can tell what is that? And once again, if you can quantify that, it will be great.
Ravi, this is Jitender. In terms of the customer-centric sales promotion activities, first I'd like to mention to you that last year when the national lockdown happened, that happened all across, and no activities, nothing was allowed to be done. Therefore, the expenses at that time did not happen or occur. However, in this quarter, the lockdown was sporadic, regional, and I think we all remember that the IPL itself had also started in the beginning for some days.
Keeping in mind that certain expenses related to advertising, related to product promotion, we had already started those activities, and those expenses were spent. Therefore, when you compare from previous quarter to this quarter, there is a additional spend in this quarter. As a policy, I cannot disclose the number of that spend because we do not provide numbers for how much we have spent on advertisements and stuff like that. I hope I have answered.
Got it, sir. My final question is with respect to price increases. Are we done with the price increases to compensate for the input cost increase, or is there some more on the cards? Thanks.
As far as the price increases are concerned, I would say this is an ongoing dynamic process. The commodity cost increases, which have happened in the past, have actually necessitated an increase in our prices across products. We also have to watch the competition, though we continue to maintain our leadership position. I wouldn't say that there is a kind of a full stop on anything. It's a dynamic market. We have to wait and watch at all given times, and we will take the approach which is most judicious for the optimum profitability, and also keeping in mind the steps taken by the competition and the acceptance by the customers.
What kind of price increase you would have taken in AC, sir, past six months? Any rough strength?
If I want to talk about the price increase, there is what Mr. Verma rightly said, there is a timeline impact between the cost and the price hike. The judicious call being taken looking to demographics and the dynamics of the market, including the competition. General price increase, what we have taken in the current year, if I look into the current year, will range anywhere between 8%-10%. That's where it stands. Some of the hike will be across the market, and some of the price hike will be specific to the SKUs and specific to the markets where we feel that we can accept or we can pass on the increased cost to them.
Got it. Thanks.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in the conference, please limit your questions up to two per participant. Should you have a follow-up question, we would request you to rejoin the question queue. The next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Hi, sir. Thanks for taking my question. I'm sorry, I'm just harping back on the same reorganization of the commercial AC revenue in the UCP segment. Sir, when you have given your numbers restating Q4 and Q1, there is a difference of restated numbers and the numbers which were earlier given, and it's about closer to INR 218 crores for Q4 and INR 104 crores on the revenue in the Q1 last year, FY 2021. Similarly, on the EBIT level, there is a difference of INR 36 crores and INR 4.5 crores on the EBIT side. I understand you said it's minimal, but it will be really great if you can throw some light, what's the kind of size of revenue this business is for us, and what was the rationale of this move?
That'll be really helpful because it's still on a quarterly basis looking at heavy numbers. T Hat'll be really helpful, sir.
Nitin Arora, let me talk about the business first. We have clearly specified the kind of products we are selling under the commercial air conditioner, which includes your VRF, ductable, and the other stuff. In terms of the overall revenue, I can say that if I were to merge both the businesses, the CAC business will contribute anywhere between 10%-15% on the overall turnover side. If I look from the EBIT result perspective, our contribution will not be so high because we are in the process of strengthening the business to a larger extent, both in terms of the revenue as well as on the result to revenue percentage. Having said that, if I look the rationale behind it is, as you all know, that we have executed the business transfer agreement to transfer the domestic project business to the Universal over there.
Originally, the project business and the CAC Business is working closely on that. The CAC Business itself is going into expansion to adaptable and all, which clearly classify under the cooling product segment. That was the precise reason why we have decided that we should reorganize or re-reporting the numbers to a cooling product because if I look from the customer profile or the review or the kind of mechanism in which we are looking at both the businesses are almost identical, and we are trying to leverage the sourcing as well as the distribution strength for the CAC Business as well.
Thanks for answering that. Lastly, on the UPBG side, given that we have further increased our market share, just your take on the inventory positioning of the market, our inventory, and how you are looking the secondary sales moving forward? Just a take on that will be really helpful. Thank you, sir.
If I look from our inventory perspective, it is almost comparable to what we have seen in the Q1 last year, because both quarters have actually impacted because of the pandemic. Absolute value-wise, it will be a difference of hardly anything if I were to compare with the last quarter actual numbers. If I look from the channel partner perspective, there's a sea change over there. In the last quarter, what we have seen is that nobody has witnessed pandemic to such a great extent. Even trade was not prepared to have a balance in their act. However, in the second wave, they have actually, I can say, balanced their working capital management and other stuff, and largely the offtake from them on a need basis, how the secondary is taking place.
In a way, if I look from the channel partner perspective, they are very well prepared and managed to have inventory in their shop floors based upon the requirement available and demand. From the company perspective, yes, the manufacturers and we were expecting some kind of growth over Q1 last year. To that extent, some higher value of inventory being kept with us by the manufacturer. Anyway, this all inventories what we have in the form of raw material, which should help us going forward if we are seeing the same amount of demand, what we have seen in the last quarter, so the last year, for the rest of the year.
Got it. Thank you so much. I'll come back in the queue.
Thank you. The next question is from the line of Ankur Sharma from HDFC Standard Life Insurance. Please go ahead.
Yeah. Hi, sir. Good afternoon. Few questions from my side. One, if you could help us understand the impact of the rating change, I believe, which happened end of this year. What could be the kind of price increase that you would have to again take post this rating changes and, more importantly, would you expect a pre-buy, which typically happens in the December quarter?
If I look from the rating change perspective, if you recollect, the ratings would have been changed from the current year, which is January 2021. Because of the pandemic situation, the manufacturers have represented to the ministry and requested for some more time. Now, in this year also, the industry faced with the COVID-2 wave, and similar request been made to the ministry to defer this increase or rating change from January 2022 to a longer period. We are hopeful of listening our request by the ministry because pandemic situation is being widely known to all, and you cannot have a rating change when the manufacturers or all industry players are carrying with them some kind of inventories which will undergo a change if this rating exercise or rating decision been exercised by them.
We are hopeful that it will be done, and the progress is good, I can say on that front. If at all it is getting change, if you have to go up on a change basis, the cost increase will be somewhere around, I can say, 1% or 2% at the most on the product cost. Knowing that the demand for 4 and 5 star actually picking up nowadays, knowing the kind of advantage what they get it in terms of margin, they go the categories.
Okay, perfect. My second question, sir, would be on the Room AC industry volumes for FY 2022. As the market leader, how do you see that kind of shaping up? Do you believe we could maybe match a FY 2020 levels of volumes, given the way we are? Just trying to get a sense how are things being post the opening up, and therefore, how do you see the entire year shaping up in terms of volumes? Obviously, value-wise will be better because of the price hikes. Just trying to understand from a volume perspective. That's all.
If I give you a perception of the idea about the volume, the industry, as you all know, has grown in the March 2021, and the degrowth is close to 30%. If I look the fallback on this current quarter, and if I more go with the two months comparative, because April was washed out the last year, and this year we have seen the May was falling some kind of short over there. Industry growth is not there to a great extent. However, we are attributing these factors to a pandemic situations whereby the second COVID wave was more severe in terms of losing of lives and losing of jobs and other stuff in this wave.
This is a temporary phase we are seeing there because the economy once grows and bounce back, and looking into the per capita income range which we all are, having the millennial population with us, and the kind of penetration we have on cool is a good opportunity, is a big opportunity for this category to grow. However, we expect that what we have pursued at the start of the year 2021, financial year, on a growth or going back to the 1920 level, looks like 2021- 2022 to achieve that level will be a difficult task. However, to see some kind of growth over 2021 is possible because we have seen we are entering now into a phase seasons. Things are settling up. We have a threat of the third COVID wave, which other countries have start witnessing into it.
If I look into the overall vaccination program and the kind of care where the government is pursuing on that matter, we should not see a high fatalities on a COVID-3 wave, and things should go normalize as we move forward.
Okay. Okay, sir. Thank you.
Ankur, one more thing. In fact, somebody asked about the rating change price increase, cost increase. It was not 1% or 2%, it will be somewhere around 3%-4% of the product cost. I stand corrected on that.
Okay.
Thank you. The next question is from the line of Renjith Sivaram from ICICI Securities. Please go ahead.
Hello, am I audible?
Yes, you are audible, sir.
Renjith, very much.
Yeah. Congrats on good performance even the pandemic scenario, it's good to see it grow. In this whole context, like when I look at your other expenditure, there's been an increase even in a sequential basis, INR 214 crore. What has led to this increase in other expenditure?
Renjith, you know very well we are in the seasonality of the business. If I look from the one category, which is EPBG, which is the larger, I can say, driven by the seasonality nature, you find that the expenditure, like what Mr. Verma explained in terms of the sales brand promotion expenses, we have the consumer subvention scheme and the aggressive brand rollout scheme, which we carried out among the shop with the channel partners, has resulted into some kind of increase. Over and above, since my volume is also growing, the variable costs related to it will also have seen some kind of increase over there. These are the things contributing towards, on a sequential basis, the higher [O&M] expenditures.
Okay. If I rephrase it is largely towards this branding and some kind of a discount kind of incentive which you have to pay. That has led to this.
I'll put largely a sales and marketing expenses, something related to my consumer-centric driven, what I can say, about consumer subvention expenses, because we have seen a good amount of volume coming under the consumer subvention scheme in the current quarter compared to the last quarter of the previous year. Third thing is, since my volume is growing, some of the expenses which are directly related to my volume will also see a spurt over there. Furthermore, one more aspect of inventory or logistic cost, which you have all seen on a hike of the or continuous increase of the oil, which has also contributed to certain extent.
Okay. Do you expect this to stabilize going forward, or will it be there for a couple of quarters more?
Renjith, it's a seasonality in nature, definitely quarter two generally for cooling products is a lean period. However, since we are entering into festive season, some of the expenditure on sales and marketing will certainly be there, and we may come out with some kind of aggressive scheme from the consumer perspective, because we are reasonably sure that if we give ample opportunities to the consumers to make them walk into the shop floor, it will certainly driven the secondary at the channel partners end. Some of the expenses will certainly be there. However, we need to wait and watch. I won't be able to quantify any amount, but obviously it will be slightly moderated over the season period.
Okay. Secondly on this, your engineering product, we are hearing a very good uptick in textiles and the cycle has turned around. Do you foresee this growth momentum to continue and because we are also there not only in the spinning, even in the weaving segment. Will it be a really great time for us, or is it like on the ground still things are taking time?
Renjith, we see that there has been an effort from the government also to help push in this sector of textile machinery and therefore there is a PLI scheme also helping the textile machinery users. We can expect that this impetus to the growth will continue in quarters to come. Of course, it is a competitive market where the supply of machinery is from various suppliers and also that how the positioning of our textile producers vis-a-vis other countries takes place. I would say that on a positive note, yes, we expect this sector to grow, but at the same time, many other things have to fall in place. We'll have to see the policies of the government, how they go ahead on that. Yes.
Thank you. Mr. Shivaram, may we request that you return to the question queue for follow-up questions? Thank you. The next question is from the line of Charanjit Singh from DSP Mutual Fund. Please go ahead.
Hello, sir. Thanks for the opportunity. My question is, one, on the Room AC segment, you talked about that we had built up the inventory and a lot of companies are talking about maybe the pent-up demand may not come up in this time frame like we saw last year. What kind of inventory level liquidation, how much time it might take? That's my first question. Secondly, on the market share front, if you can highlight the changes among the larger players, how the market share would have moved in the Room AC space. Is there any major loss of market share by any particular other larger player? If you have gained, you would have gained from which players usually? Yeah, that's my first question.
Okay. If I want to give the time period to require or liquidate the inventory, I say, Charanjit, that the larger inventory what we have, and I'm sure with all the manufacturers, are in the form of raw materials. We are, I can say, won't settle with this kind of inventory. Second thing is it may turn out to be a blessing in disguise because you know very well the commodity prices are inching up quarter-on-quarter. Many times your old inventory may give you some kind of helping hand when you like to leverage on your sourcing cost and try to moderate the price hike to the end consumer. I won't say that we will utilize this opportunity to moderate the price hike.
The question that is that if I have a raw material, I can convert easily into the fixed or the complete unit by seeing the demand how it is shaping up. Demand may not come up, what you rightly said, the general feeling in the market is if the third COVID wave is going to hit, it may impact the overall demand. We need to be optimistic and seeing the past trend what we have seen. The underlying situation has not undergone a major change. People are working from home. The summer is harsh. We have seen how the temperature was running north during our entire country in the May and June period when it was window available for us to sell. Second summer is also expected to be going to be harsh. Country goes through a second summer by October, from the August- September till November end.
These are the, I can say, possible opportunities are there for us to push or to aggregate the demand from the consumer perspective. If I want to give you a timeframe, it is difficult to give timeframe for it. The kind of inventory we have, and if I do a sale, exactly what I have done even in the last year is a big zero growth. We are not expecting this inventory even beyond October or mid-November for that matter. However, if we are seeing the growth, certainly, definitely the liquidation will be much faster than what we are talking about currently. If I look from the market share perspective, yes, the major gain I can say we have done it from the LG. Among the other players, we have not seen any much changes in the ranking of the competition.
However, to certain extent, we have seen that Daikin and Hitachi and Lloyd also increased their market share a bit. However, Samsung has received, I can say, has slowed down on this trajectory of the gaining market share, but the point of loss is not so high. It is ranging between 100-2 00 basis points over there.
Okay. Thanks for that answer. Just one more question from my side on the project business. This time we saw that the projects overall were not impacted significantly because manpower, so they were the site level in the other contractors. For your project business, if you can highlight how do you see the trajectory going forward in terms of execution on both domestic as well as on the international side?
Since the second wave under the COVID-2 wave, the construction activity been allowed to operate. We did face it. It is wrong to say that we didn't face any challenge, although the activity was allowed as a normal activity because we have seen some kind of migration of the labor force and because that productivity got impacted. Still in an overall summary, it is better than what we have seen the quarter one last year. As you all know, the quarter two and quarter three onwards, we started getting normalized as far as the workforce and the productivity and the access to the project site is concerned. This year we have to work upon on a quarter two to quarter three on execution of the project what we have in our hand.
We are expecting that it should work in a normal way unless until COVID-3 turns out to be a much harsher than what we have seen so far in the COVID-2 and COVID-1 wave. Leaving aside those factors, we are not seeing any kind of challenges as far as the project execution is concerned. We are geared up in terms of attaining those deadlines which are there on the project-specific, both for domestic and international. We may see some kind of substitute as far as the order inflow is concerned because the governments are now busy in handling this pandemic, so lesser number of projects are getting announced. We are also following very cautious approach towards it in order to ensure that whatever is picked up will turn out to be a healthy and profitable one on a sustainable basis.
Okay, sir. Thanks for taking my question. That is all from my side.
Thank you. The next question is from the line of Bhavin Vithlani from SBI Mutual Fund. Please go ahead.
Thank you for the opportunity. The first question is on the inventory. Previous year you mentioned that the inventory levels were about INR 1,000 odd crores. If you could help us with the number this year, it'll be useful. The second one is on the A&P spend for the year as a whole on a sustainable basis. What is the level as a percentage of sales that is most sustainable and that we should be expecting?
Bhavin, if I want to see to give numbers, I would not like to disclose any one of them because number has no meaning on the inventory side. If we are seeing the good quarters growth in the coming year, which is rest of the period for the current year quarter to quarter three, and I have given answer on my earlier question that if we are seeing zero growth, even then the inventory can be liquidated by October, November. If you are seeing the growth, the liquidation will be much faster. Probably would like to stick to that rather giving you absolute numbers to mislead the investors over there. If I have to give you a second answer to the question, I'll answer the second on the A&P side.
Generally, if you see in the past, in a good, healthy, profitable year, our brand promotion expenses are in the range of 3% - 3.5% of the revenue. Probably, it is very premature to say how much it will be there for 2021-2022, because larger part of the spend, which we do out of that 4% and 3.5% what I told you, it is in the first quarter. The first quarter is already over now. We are looking into quarter two and quarter three, which is also driven by the festival season. Our spend anyway traditionally is lower and not so great during this quarter two, quarter three. Fortunately, we have the IPL getting resumed in the September, October month as the schedule has been allotted to us. That coincides with good amount of festival like Diwali, Dussehra, and all.
We may see some kind of spend, but overall, I won't see that spend touching to a 3.5%-4% of the overall turnover. We have to see how the thing is shaping up, but it will certainly remain low till we can see the volume is coming up in early quarter four.
Sure. The last part is on the profitability front. We've been beating our longer-term guidance on the unitary cooling. Would you like to increase our longer-term sustainable guidance on the margins given the changes that we have seen on the policy front and the taxation front?
See, probably, Bhavin, what we look into what could be a sustainable margin for this category. We believe that in addition to the market share, what we have with relationship with market share, we have a substantial leadership on the margin trajectory as well when I compare with our competition as such. What we keep on saying that we love to increase our margin, but it should not become a counterproductive or I can say, a counter narrative in order to sustain or in order to further expand our business. Definitely, if we are having more margin, we would like to put back into brand visibility, R&D, and coming out with innovative products, or I can say, giving ammunition to the consumers to spread or to make aware or to fulfill or I can say penetrate more into this category.
That's why we said we like to maintain our trajectory between 11% - 12%. We always believe that doing something more than what we said turns out to be better or works out to be better, rather be highly optimistic and then if it is not sustainable, it will not yield the desired result.
Sure. Yeah. Thank you so much for taking my questions.
Thank you. The next question is from the line of Sheena Barbosa from TRP. Please go ahead.
Yeah. Hi. I think our question is largely answered. We just wanted to understand the impact on the margins. I guess you're saying most of the impact was from the higher sales and promotion rather than commodity costs. Looks like you have passed through a large amount of the commodity cost impact through higher pricing.
Sheena, it will be wrong to say that the commodity price increase will largely pass on to the consumers. Mr. Jitender Verma has clarified that there is a time lag impact. It's a dynamic situation which we have to get and watch the competition as well. One advantage I can say about the carrying the old inventory with us, when I say old, because you are seeing the commodity price increase happening quarter on quarter. Something which I procured even in December, and something which I'm going to place new order in March, definitely if my December inventory is carrying on this quarter, I'll be more at advantageous position compared to any other brand who is now sourcing in February and selling in the same quarter or the next quarter. In that sense, we have some advantage with us on a commodity cost price.
Yes, we have impact on the margin, but in a limited way on account of the commodity price and largely attributable towards the marketing and the other expenses spent, which we explained as answer to the other questions. Going forward, if we are not seeing any, I can say, a shock yet or a sharp kind of on a commodity price, every subsequent purchase will come on a higher price. That will be true for all the competitors, all the players in the industry and will not be unique to Voltas. We can see that some kind of higher impact can be felt in the overall margin attributable towards the commodity price hike.
Got it. In general from here, as volumes increase, you should see some operating leverage as well that would help your margins, right?
How much you can operate in terms of the scale. If copper price and aluminum price are increasing 15%-18% quarter-on-quarter, I'm not talking about year-on-year. We stopped tracking year-on-year now because it is no meaning over there. We track now on a quarter-on-quarter, and the days are not far off when we have to check month-on-month because we'll start procuring for the next season the material required material into it. If you look from a 15% increase quarter-on-quarter, how much leverage you're going to achieve on a volume on a scale basis? It has to pass on. There is no, I can say, a second thought among all the industry players in terms of what kind of price hike we need to give. It's all up to time and who's taking lead in this aspect.
Certainly, Voltas being leader in this category. I'm not saying that we'll do it at the cost of our market share or the cost of our margin, but there are certain things to follow, which is required to be followed. As a leader in the industry, probably we may be the first one to announce the second price hike or a subsequent price hike in the following quarters.
Got it. Thank you very much.
Thank you.
Ladies and gentlemen, please limit your questions to one per participant. Should you have a follow-up question, we would request you to rejoin the question queue. Next question is from the line of Gopal Nawandhar from SBI Life Insurance. Please go ahead.
Hi, sir. Thanks for the opportunity. My question is that, what would have been the growth.
Mr. Nawandhar, sorry to interrupt you. We can't hear your audio, sir. Please increase the volume.
Is it better?
Yeah, better sir.
Is it better now?
Yeah.
Yeah. Thank you. Sir, what would have been the volume growth in the Q1 for the industry and for Voltas?
If I look from the industry perspective, Gopal, in fact, the third agency also now collecting the data based upon the call compared to what kind of field survey they used to carry out earlier. In fact, the current quarter is not comparable with the last quarter because you had the April completely washed out and data was not available in the last quarter. If I look from the rest of the period comparative to the current quarter, the growth is muted, even the industry has not seen a growth of more than 1% or 2%. We are re-weighting this data because we have to put April bill in the last year and some kind of volume attributable to April in the current year. We are awaiting this clarity on the data.
Otherwise, if I look to like-to-like comparison between May and June, because that's what the comparable period, the growth is absolutely muted, is even less than, I can say, 1.5% or 3%.
Okay. If I just ask you the growth in the North and South?
Gopal, we are difficult in getting the data on an all-India basis. Region-wise is creating more kind of difficulty from the channel or a third-party agency perspective. However, we are seeing if I were to map my sales or the Voltas sales to the region-wise, we will see that the North actually has done better. Much better, I can say, compared to the last year, followed by, I can say, Central, West, East, and South.
Okay. Sure, sir. Second question is on this. See, there are a lot of inventories in the system with the other players also. Are you seeing any aggressive liquidation in the month of July or in the coming months, which are leading us also putting lower prices and all?
Sorry, I didn't get your question, Gopal. What are you saying?
The question is that, are you seeing any aggressive liquidation of inventory by the competition?
We have seen such kind of aggression in the last quarter as well, which passed by quarter one, because those who are carrying a higher amount of inventory certainly will try to liquidate aggressively the market. This, we are in the industry used to this kind of price disruptions because we know in a long term it is difficult to follow. You may find some kind of price disruption by one or two brands, largely, probably the industry players have been aligned in order to, I can say, taking steps towards how to regulate the market in a better way.
Sure, sir. The last question is regarding this rating changes and all, and this current commodity inflation, all this putting together like it's amount to around 15% to 18% increase in the price of an AC. In such a inflationary environment, how do you see the customers' reactions on the demand?
What will happen, Chief, is if there is a need of the product, inflationary will not play a, I can say, very critical, or I can say deterrent for that matter. We are seeing in the automobile, we have seen none of the industry which has not witnessed a price hike in the last one year on any of the count, maybe commodity, maybe inflation, maybe a general price increase were planned and carried out. Still, we are seeing some of the recovery or maybe some of the better recovery took place on those industry players. What is driving is the need of the product. The need of the product for air conditioner is the comfort and convenience during the summertime. When your larger population is working till today from home to a great extent.
We are hopeful that if the need is there, the industry can align to ensure that the consumers will not be at the receiving end as far as the escalation is concerned. When I say like this, the objective is to give some kind of promotional scheme along with the product. Be it extended warranty or be it on an aggressive consumer subvention scheme, whereby I say, Boss, if my INR 30,000 product now becomes INR 33,000 because of this price hike, I am giving the consumer six months to pay, I'm giving you nine months to pay now without any additional cost to you. Those kind of consumer subvention also plays a larger role as one of the promotional tools to the consumers in order to mitigate their upfront outflow. There are various ways, Chief, in which we can still work around.
If we have to look from the demand perspective, we are reasonably sure that the demand is going to be there for this category considering the penetration level and the comfort and convenience what people are looking for.
Sure, sir. Thank you.
Thank you. The next question is from the line of Siddhartha Bera from Nomura. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity. Sir, my question is on the Voltas Beko part of the business. We have seen sequentially, we have been doing well on the market share side. Would it be possible to share some more color on probably the revenue trends on how they have moved quarter-on-quarter? Because losses have gone up. Is it surely because of operating leverage or the particular reason? Just some thoughts on that.
Okay, Siddharth. See, we keep on saying that for Voltas, the market growth and all the factors are not that kind of relevant because we are very still in niche player as far as the category penetration or category outlook is concerned. For us, the revenue growth is much, much higher than the industry growth, what we have seen our degrowth. Probably industry would have degrown in the last same similar to AC, the growth would have been muted. We are yet to get the data on that front. As far as Voltas is concerned, there is no looking back on the volume side. The volume is good. Similar to the spend on the advertisements, sales promotion what we carried out for the Voltas, we have to do much at a higher level for Voltas as well.
Voltas is a nascent category where require more kind of brand awareness. Some of the expenses towards sales marketing has resulted into a slightly higher losses and some kind of discounts also what we have given or offering on our product resulted into, I can say, higher losses what we observed in the accounts. Otherwise revenue-wise, we won't be able to quantify right now because what we said is let we achieve the 10% target and then we talk about the official numbers to roll out. That's what we have to say, Siddhartha, on this.
Okay, sir. Thanks a lot.
Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Naveen Trivedi for closing comments.
Yeah. Thank you everyone for participating this call. We would like to thank the management of Voltas Limited for giving us this opportunity. Sir, do you have any closing comments?
Well, Naveen, and thank you everyone. Thanks, Manish, for taking all the answers. From our side, Voltas, we would like to thank everyone and on the projections for quarter two, we are looking forward to the season, which is normally a lean period. However, there is a small brief second summer, and we expect that to be playing on the positive side. As a market leader, we are looking at things positively. Thanks once again, everyone, for your time. Thank you.
Thank you. Ladies and gentlemen, on behalf of HDFC Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.
Thanks.
Thanks to all. Bye.