There have been times when we have seen sharp RM inflation, but I cannot remember any time when we saw margins as low as in the ECD vertical. What exactly has been playing out and by when should we be expecting these margins to be recovering? What should we now start expecting as sustainable margins for this segment?
On comparative to previous year - it is a combination of our seasonal categories not bringing in the revenue, which is on a higher gross margin. So mix on that has got adverse. Sequentially, from Q1 FY26, it is largely due to operating leverage. Q1 FY26 is a large seasonal quarter, and we do not have that scale. Going forward, a price increase has been communicated for November. There will be a few more initiatives. Unnati is getting accelerated, so we will look at further cost saving. We continue to lead on margin and are confident to restore it as we move forward.
On the panel side, would it be possible for you to elaborate on who our partners here would be in terms of sourcing partners? Panel availability is a constraint and at what price - how are we covered? Do we have annual rate contracts with some of the larger suppliers?
If you do not mind, we will not disclose who our partners are. The solar rooftop business, we have clarity of what price we are going to get the panels at. Because we have such a large scale in solar pumps as well as in solar rooftop, that enables us to get well-negotiated prices in the solar panel business. If you have 50,000 units that you have a scale already in, that obviously significantly steps up your ability to get better prices for these products.
Is it fair to say that this is now the new normal margins? Would that be a fair assessment?
From a forward-looking perspective, Achal, as you know, we do not give guidance. But having said that, the idea is to also reinvest back to get lighting on growth. So we also look at opportunities to step up our A&P in this.
Both schemes have got high ROCE and high growth. But if we exclude the benefits in PM-KUSUM and PM Surya Ghar, eventually consumers may not like to get into these products. If government realizes middlemen are making high ROCE, they may cut subsidy. Assuming subsidy goes down to zero, can businesses still generate high ROCE? What does high ROCE mean - 25%, 30%?
It is a high ROCE business for us because of brand pull and scale in manufacturing, sourcing, and partner investments. In pumps, the government is doing an auction - somebody can bid lower, but the farmer recognizes one or two brands only. The government is not giving subsidy just like that - it is giving subsidy so farmers do not draw electricity from the grid. As scale grows, governments find that it is not necessary for the subsidy to continue because the math makes sense for people anyway. We should not approach this business as being a short run business.
In terms of newer categories, are we looking at something more in tune with our distribution channel, like wires? Wires have a strong double-digit outlook in the future - why are we not getting into this category? Our distribution strength is so good - can we leverage and cross-sell?
Natasha, this is for a quarterly earnings call of what has happened in Q2 FY26. We would refrain from giving you insights on future product categories we will enter. We have called out the way in which we would enter. At appropriate time, you will hear from us about it. We are well aware of our strengths. When we formally announce entry into a segment, it is after having done some homework in the background.
What is the salience of e-commerce and modern trade channels for ECD? How does the margin stack for these channels? Do we see any pressure or downward risk on margins if their salience grows over the near-term?
We do not share specific channel category wise data. The unit economics are strong - that is something we underpin for all categories and channels. The channel margins initially tend to be a little lower in MOR and e-commerce. But the e-commerce and MOR mix structurally is higher in our kitchen appliances business than in ECD. In Butterfly, where e-commerce salience is quite high, we have worked very hard to materially improve the profitability. When you are one of the largest consumer product companies, that makes a difference when negotiating with e-commerce channels.
On the Rs. 500 Cr. order book in solar rooftop, executable over 12 months - should we assume a Rs. 100 Cr.- Rs. 125 Cr. quarterly run rate?
Look, guys, how exactly it will bunch I do not want to tell you. But yes, the expectation is that over the next 6 months to 12 months, the order will be executed.
My first question is on the ECD margins. The margin drop has been quite sharp and sudden - is it largely only in the fans category and SDA category wherein we are seeing this margin erosion? On the fans side, when do you expect these margins to be coming back with the pricing actions taken? And is there a competition angle also attached?
I do not know how you concluded that the margin drop is attributable to fans and SDA. The margin drop is a consequence of, one, commodity price increases in our ECD businesses; secondly, it is attributable to the TPW and the LDA businesses. Both are significantly impacted by seasonality, and the channel had stocked up some, that is impacted their ability to come back and purchase more. There has been considerable competitor activity. We do expect the price increases we are taking will help. We have also significantly stepped up our investments in transformation, which are currently not giving the returns yet.
On this price hike in the fan's portfolio, is it possible to highlight the quantum, how much has been taken, and is it for the entire portfolio? At a portfolio level, you have talked about solar being Rs. 2,000 Cr. type of revenue in two years. How should we think about the profitability of this portfolio?
We have taken a price increase of about 1.4% in our fans business. That is what we have started with. I do not think we are able to particularly take price increases in the LDA business just yet. The solar business has a very similar margin profile to the rest of the company in terms of EBIT margins. This is a business in which much of the gross margin flows through directly to the EBIT. It is a high ROCE business, especially the rooftop business where much of the payment comes in pretty much with the installation.
I had a follow-up on this solar pump. You indicated a strong order pipeline. Is it possible to highlight the quantum of the order pipeline?
The current order pipeline is Rs. 255 Cr, as we speak. That is the unexecuted order. Not to get into numbers, that is growing at 100%+ YoY.
On the solar rooftop portfolio - it will be an outsourced business model for us. How would the net working capital intensity and the key risk on the execution side be? Any warranty obligations required on the performance of the panels? On performance, to what extent it would be back-to-back covered with the panel supplier?
These are back-to-back. This is not very different from many of our other businesses. We have a healthy mix of products that we outsource and products that we make in-house. Crompton ensures that the quality of the product, regardless of whether it is made in-house or outsourced, meets the Crompton standard. The working capital intensity of this business is low. On the retail side of the business, solar rooftops, 85% to 90% of the payment is made in advance.
A question related to fans, where we have a table rating change coming through from Jan. Last time, Crompton had been low on inventory ahead of these changes. This time around, do we have a strategy in place? Would we be on the board with other industry peers to up stock on the older rating products ahead of the change, or we would go low on inventory?
Clearly, we have learned our lessons from the last time. There have been two projects which have been running in Crompton for the last six months. They are called Utkarsh 1 and Utkarsh 2. Utkarsh 1 is how the stocking and destocking of current B-rated fans is going to work. Utkarsh 2 is how we are going to start manufacturing new B-rated fans. We are well prepared, technically preparing ourselves not only for BEE 2.0, but also for BEE 3.0. The extent of up stocking in the industry is not going to be probably like what happened the last time.
On lighting - we have had a record margin, how sustainable are these? What has driven this margin expansion? And mid-teens volume growth is pretty encouraging - how do you see that playing out? What is driving any particular sub-segment which is helping in terms of growth?
Lighting comprises B2B and B2C - the growth has been similar in both. In B2C, our product mix used to be lamps and battens (more than 65%), and today is panels, lamps, and battens (about 40% lamps and battens). In B2B, we have been working towards reducing government exposure and increasing industrial. The largest contract is JSW Steel. We have addressed manufacturing costs - Baddi is now a fully dedicated fans business, and Baroda has gone from dedicated lighting to many product lines. The Rs. 20 Cr. restructuring payback is sub two years.
On the solar piece - if I look at solar pumps and rooftop, both are dependent on the government schemes. What is the visibility you have got, particularly on PM-KUSUM? There was expectation that PM-KUSUM 2.0 should come through anytime now - any update?
Both businesses are not government dependent. KUSUM 1.0 is expiring, KUSUM 2.0 has already been announced in September, with aspiration of 36 lakh pumps versus 15 lakh implemented in KUSUM 1. We see opportunity in other states - currently market share 6% from Maharashtra, Rajasthan, and Haryana. On solar rooftop, the first orders are from the government but this is a Rs. 20,000 Cr. retail market. Simultaneously implementing in Andhra and Telangana, we have launched our retail presence in a set of states.
In case of fans, the table will change in January. Also, there is material inflation in commodity prices. How do you see overall price hikes that we may need considering both table change and RM inflation? How much have we taken right now and how much pending price hike will be required?
On fans, as we communicated earlier, 1.5% of price increase has already been taken. There are also actions we will take as we move into BEE 2.0 regulatory change. It need not be price only - we have been running a successful Unnati program that helps optimize cost. Both are running in parallel. This will help get back to margins in due course. Sunrise industries always start with a subsidy. As we move forward with scale, that pays back by itself.
How has been the growth trajectory for fans in October post the monsoon retreat in large parts of the country?
It has been a slight improvement in trajectory, a little bit better than last quarter. We will have to see how that pans out. My expectation for the previous quarter was a better growth trajectory; that did not quite pan out. This time, I hope I will be surprised positively. The fans business, even in a tough market, we have continued to gain market share. Sometimes, tough times are also opportunities for larger players like us.
On Butterfly - we have seen good growth this quarter. If you can share the outlook for Butterfly. Is this growth a one-off? Or should we see it continuing?
You have asked this question for the last few quarters. So this is three-off because the last three quarters is not a one-off but a three-off. It is fair to say that we are optimistic of the trajectory that the business is taking. The Crompton kitchen appliance business has also been growing at a solid rate, consistently.
On the comment that the recovery in fans is positive in October - can you call out how it has panned out across products, TPW, pedestal, etc.? Are we seeing a similar case for coolers as well?
The TPW season is past. But insofar as ceiling fans are concerned, we are seeing some pickup, early days yet. Coolers is again not in season - cooler season has passed. There was some stocking in that segment that impacted profits, but that is episodic. Some fans of ours in the TPW segment will pick up with the crop, because they are used to dry crops. We have quite a strong exposure to rural India. With strong monsoon, presumably the crops are quite good, but I have not seen it yet because it is still raining in some parts.
Is there any particular reason why solar as a category is being prioritized? How are you generally thinking about it internally?
Crompton as a B2C brand has been very well known - it is an 85-year-old brand. We continuously look at categories that we have a right to win. Pumps - Agri pumps will be replaced by solar pumps as an industry. This could potentially be a USD 2 billion to USD 3 billion industry. Solar rooftop - we have been a household name; one of the biggest challenges has been companies with credibility coming in. Combined, we see this scaling up to about Rs. 2,000 Cr. in the next 18-24 months. Profitability is similar to overall Crompton; ROCEs are going to be higher than the average. So this is a sunrise sector ticking all the boxes.
Would you be able to share current inventory levels in fan? Is it normal, more than usual?
Current inventory levels in fans are reasonable. With us and the channel, both are reasonable. We have been running two programs, Utkarsh 1 and Utkarsh 2, and both are progressing apace. Let there be no mistake that we are very, very focused also on our core businesses. In fans, we are now recognized as the largest solar ceiling fan company in the world. The fans business has come through a period where seasonality has impacted the fans business, but even during that time, we have gained market share and made investments in XTech and Nucleus.