On the solar rooftop business, you spelled out the overall opportunity size. How are we thinking of scaling up, what targets have we set, and given we are a slightly late entrant, what's going to be our competitive edge?
The size of the market is actually larger but we specifically targeted Rs. 20,000 Cr as the segment we'll be targeting. We have hired the right people and figured out detailing about the product and execution. Brand counts for a lot in this business, demonstrated in pumps, combined with execution and sourcing capability - we should be able to ramp up quite quickly.
You spoke about sourcing capability in this business. What do you really mean by that? What's the advantage that we'll be having over competitors, especially as we have seen Havells acquiring a stake in Goldi Solar?
I don't want to spell out too much just now. Suffice it to say these are things that we've been working on for a while. We should be competitive in our sense.
On the pump side, you alluded to strong solar pump revenue last year. Given close to maybe Rs. 25 Cr orders pending, should we expect that momentum to sustain in FY26 or will it depend on number of orders you take going ahead?
Look, I didn't actually talk about the order book actually. But we do think that we should continue to have good momentum in solar pumps.
Regarding the capex of Rs. 350 Cr for the manufacturing facility, will the first phase only do fans or something else? Rs. 350 Cr sounds like a big amount for a fan factory - some breakdowns on how this capex in different phases will look like?
Yes, this is initially for fans. In due course the next phase will also include other products. The first phase includes the cost of the entire land. We are a large fans company with growing requirements - this should be a state-of-the-art facility, well integrated, for a material size of plant. I'll come back with greater details about where, what, how once T's are crossed.
On Butterfly, you talked about NPD for Crompton. How are you going about NPD and measuring effectiveness for Butterfly? And on brand positioning and architecture, can you give some colour on how the brand would be positioned for both Crompton and Butterfly in common markets and in price points?
Let me reiterate that you should be able to see some of these things play out fairly soon. There's a fair amount of activity on the brand as well as new product launches at Butterfly. The idea is to get those out ahead of the kitchen appliance season, which is different from fans/air cooler season. You will get clarity on the questions soon, but it's not fair to lay it out ahead of the actual launch.
On Lighting margins driven by improved mix, is this very specific to this quarter where we've seen this sharp jump, or something where we can start seeing improvement towards these high double-digit or teen-levels of margins?
Lighting price decline is not something in our control from output product perspective. Our flagship cost reduction programme Unnati helps reduce direct and indirect costs across the organisation. Our mix is improving from LED bulbs to panels and ceiling. We have started reinvesting some part of margin behind the brand - the idea is not continuously expand margins but also look at growth.
On Large Kitchen Appliances, while EBITDA losses have started coming down, revenue has remained flattish YoY. What has been happening, and what's the longer-term ambition for that business?
The revenue growth has not been what we anticipated, hence the changes to the team. We are convinced we have a very good differentiated product, and consumers are willing to buy it. We need to improve execution, targeting and product mix - you will see narrowing of losses going forward as well as a pickup in the trajectory to what this business deserves.
On the ECD segment, demand sentiments were subdued at industry level in the quarter. How do you expect recovery to play out for the coming year, and was there any contribution from premium launches in Q4 or should we expect that to drive growth in coming year?
There was contribution of some new launches in fans but it's fair to say the contribution was fairly limited as we did a limited launch last quarter. You'll begin to see benefits this quarter, including the Fluido Fan launch which won a Red Dot award. Weather conditions delayed Q1 demand with consistent rains across the country, but we believe things will change going forward.
What is the time period over which we should model this capex in our estimates?
My guess is that we should be producing two to three years is when we should be producing this. Our capital position continues to be quite strong - we are strongly net debt positive. You should expect that this comes into production about 2.5 years.
The fans volume growth this year wasn't that high. Would it be fair to assume you would in-source most of the incremental production, and effectively go from 50% outsourced to entirely in-sourcing after three years?
Not really. We are not going to go to a fully in-sourced model. Our own expectations of volume growth imply we will continue to have a reasonable amount of outsourcing going forward. The overall quality of our supply chain will improve. We add 1 million to 1.5 million fans annually - the size of many companies' total fans business - so we plan greenfield from a 5-year demand view.
On solar pumps, do we look at it as an episodic business, or can we build on the revenue achieved so far? Just asking from a modelling perspective whether to build growth on Rs. 200 Cr?
The entire solar business is not built on the thesis that PM KUSUM scheme will continue to build this business. Similar to EV, FAME-I and FAME-II subsidies are out but the business is still continuing. For a market leader like us in residential pumps, Agri is going to be an area of focus and solar pumps positions us well - we don't see this as sporadic but sustainable for a longer period.
When we acquired Butterfly which was a brand strong in South, will there still be opportunities for cross-pollination, taking the brand pan-India and leveraging synergies in network, and similarly for Crompton in south?
Absolutely, it is our intent over time to take Butterfly to other parts of India. What you're seeing happen now is Butterfly focusing on strengthening the core - it's a brand very strong in the south, but we needed to do things to ensure our core was further strengthened. You will see more of these happen soon, while we also see opportunity of taking Butterfly to other parts of the country.
Crompton has historically enjoyed very high ROCEs and the flexibility of sourcing because of outsourced model. With this capex, is the objective to have a better view on sourcing or better returns or both? Will this be ROCE accretive?
Both. We don't want to get into specifics yet, but we do think this investment will generate good ROCE for us. More importantly, this is something that will elevate the Crompton supply chain - new products, new technologies, quality, faster to market. The investments we are making in next-generation fan platforms will translate into market differentiation.
You talked about unseasonal rain and cooler weather. With that context, how is the trade inventory levels currently? Is it significantly higher than normal seasonality, or something that can be drawn down if things improve?
The trade does stock up ahead of the season. With unseasonal rains, the trade is holding higher stocks than anticipated. Having said that, it's not like the season is gone, it's just shifted. As the weather gets warmer, this will get addressed - it is beginning to get warmer in some parts of India. You need an agile supply chain system to deal with shifting season timings.
So Lighting where there was a lack of growth either in top line or margin profile, that is coming back towards a balanced growth - that's the way to think about it as we move ahead?
That's right. Also, some of the growth initiatives which are adjacent to lighting will also now get announced as we get comfortable with the fact that the lighting business is back on track.
On Butterfly, we've done a very good job, seen improvement in margin profile and double-digit growth, with margins further improving to historical 9%-10%?
We called out a strategic road map for Butterfly about a year back - first job was getting channel mix right, pricing actions right, go-to-market started, team in place. Phase 1 has been well done. Phase 2 is FY26 onwards with brand repositioning and NPDs. We are at about 7-7.5% EBITDA margin, the idea is to take to about 8-8.5%. In medium to long run (3-5 years) we expect Butterfly to grow at mid-teens and reach close to double-digit EBITDA margin.
Last time at the Investor Meet, you had showcased the 5-star induction fan. I went to the channel and found your products but couldn't find other 5-star indexed fans of competitors. Can you give feedback on how the channel is accepting that?
When we talked about the HS 5 Star, it's an industry first. The 5-star is probably the best energy saving fan under an induction motor, similar to BLDC. The market today is positioning this largely towards BLDC for energy efficiency, but the durability and consumer experience is far better in induction motor 5-star. We have been a pioneer to start this initiative and expect this to scale up at industry level.
On the solar rooftop panel business, can you give more colour on both sourcing and distribution? And in the initial period, will it be margin accretive given it would be more outsourcing-based to begin with?
It's a TAM of about Rs. 20,000-25,000 Cr. We did something similar in solar pumps - in five quarters we reached a run rate of almost Rs. 240 Cr per annum, highly profitable and cash accretive. For solar rooftop, the fundamental differentiator will be a strong brand with consumer trust. Our distribution is strong both B2B and B2G. Right now it's going to be outsourced - it will be margin accretive similar to solar pumps.
Just one clarification - how much of this business is incentive or tender-based? And how much is government support directly or indirectly driving growth or demand in this sector today?
This is starting with an initiative from the Government of India which is a subsidy-driven business. The payback for the consumer is very strong, which is what is driving move towards solar rooftop. Similar to EV that went through FAME 1/2 and solar pump through PM KUSUM, this would also become mainstream even when government initiative goes away. For the next four to five years, the subsidy is here to stay.