Once in January, we move to new BEE norms for fans and air conditioners. What price hikes will be required in both categories? Considering steep competitive intensity plus huge inventory in the market, do you see potential whether the price hikes can get easily absorbed without much impact on volumes? And can you quantify the current inventory in terms of how much it is more than the normal inventory? Channel-wise which are the channels having maximum inventory impact?
We are confident that whatever the cost increase will be there. Yes, there are challenges of inventory levels within the secondary trade, but we will be able to pass on. Of course, you can say it depends upon the competition also, but the kind of price increases, which will happen will have to be passed on to the consumer. This is unfortunate that the GST reduction is not fully being passed on to the consumers because of these changes, which will happen in the 1st of January. So which means the prices will come back to almost the same levels as before. But otherwise, yes, the cost increases will be passed on. And as a company, we'll be responsible to pass on those benefits. The inventory levels are varying between channel to channel and product to product - coolers, ACs, fans. It will be very difficult to quantify it. But yes, these are generally higher than normal at the end of second quarter. Particularly air conditioning inventory is higher than even the fans.
On wires and cables - your Tumkur expansion last year came on stream only in September. Even at 70-80% utilization, should have given a growth delta of around 7-8% on Y-o-Y. So is wires under pressure? Competitively peers have reported better numbers. Any insights on wires?
I think cables, as you rightly said, is continuing on a very good growth pattern like in the first quarter and second quarter. If you see first quarter, our wires sales were showing a much higher growth. If you actually see the first 6 months, it also depends upon stocking of material at the dealers and depending upon the price increases or price reduction. So I would not see wire performance on a quarter-on-quarter basis. So what we track is market shares, and I think we continue to be very strong in wires. And overall, if you see the first half of the year, our growth in wires has been quite good, mid-double digits. So that's a very good sign for the wires business as well. Cable continues to do well with the enhanced capacities.
On switchgear - we are hearing globally Legrand is looking for consolidation. If sale happens and India portfolio is acquired by any large company, do you think this could create increased competitive intensity in switchgear category which has been struggling on growth and profitability?
You're saying the Legrand buys somebody or sells revenue or what, I didn't understand. No, no, I don't think so.
While the entire buzz in automotive has been very bullish after GST rate cuts, for FMEG or consumer electricals there's bit of inventory and festive offtake. Directionally, do you think some of the government initiatives should drive material uptick in consumption or a lot needs to be done beyond GST rate cuts?
No, no, I think we are very hopeful things should come up in the second half.
If you could help us between volume and value growth for cables and wires growth this quarter? And given GST norms are fairly set, how has demand been post the GST norm change? Any green shoots in demand for festive for ECD portfolio?
I think as far as cables is concerned, the value and volume growth is the same. And as far as wires is concerned, there is a volume growth lower than the value growth because copper prices have gone up if you compare to the last year. We don't give figures separately for cables and wires. Actually, there is no GST change in the ECD portfolio for us. So it's only, as I said, in air conditioners, LED TVs and solar business. So for ECD, there is no change. But as you rightly said, the first half was affected by the summer season, which was not very strong. The second half, hopefully, with all these changes & positive outlook, we are hopeful for a good second half.
Can you highlight what are the portfolio gaps that we have right now? Your product portfolio looks very wide across segments. Is there any obvious portfolio gaps that you could fill over next 6-12 months which could drive incremental growth?
Look, this is a question which has been there in all calls since 10 years. Every time we keep adding something or the other, like chimneys and hobs has been added in ECD segment. We are creating a renewable segment wherein we are looking at EV chargers also coming in along with our solar. Automation, we are looking at automation in a big way. So a lot of things get added within our existing portfolio. So it's not right to say that it's a pretty wide portfolio. But within those portfolios also, there's always -- within cables, for example, there's constant addition of maybe higher category of industrial cables or higher voltage cables. So there is constant addition, and it's difficult to say each and every product category that we introduce in an investor call. I mean this is more for our consumers and customers, which we constantly continue to look at our gaps and keep filling that.
When we do checks at ground level, we see couple of brands including yours have been carrying relatively higher inventories for room air conditioners. What has actually triggered this or is there mismatch versus your data points?
I don't think we would be very different than the industry. And maybe there could be some push sales in the first quarter or something which -- because the season didn't really come in the second quarter. It might be a reason. There are certain different practices by different industry players, but I don't think it will be very different. And as I said, third quarter would be normalized...
Can you elaborate on rooftop solar business - investment in Goldi Solar is now 2-3 quarters ago. What revenue we are looking at in 3 years, what should be profitability, what additional investment required? And on Havells not being in some new age businesses like hearables, wearables or CCTV cameras - any plan to get into such new age products?
So as far as solar business is concerned, we have definitely good plans. We've made a large investment in Goldi. It's not been 2 or 3 quarters, it's starting of this quarter, last quarter only. The real benefits of that will start coming from the supplies point of view, strategic supplies. So because of these, we will continue to have a very good growth in the coming 2 or 3 years, as you have asked. And we can provide more details as we go along. As far as other product categories are concerned, look, I said earlier also in the call, there is a constant evaluation of new product categories by Havells. And when it makes sense for our brand, distribution channel, our kind of brand expansion, then we would inform you that we are investing that. But as I said, there are always white spaces available for a brand like Havells.
On premiumization trend - could you give clarity on what is the mix currently in case of fans, premiumization trend in case of air conditioners selling 5-star inverter ACs? What is the mix in that category? More color on premiumization mix across larger subcategories? And how should we look at margin profiles improving from here on - is there scope for margins improving by 150-200 bps over medium term due to premiumization?
Yes, we can provide you these things because we track it regularly and how we are increasing the mix of premium products. All I can say on this call is that in products like fans, appliances, room heaters, air conditioners, our share of premium products and that there's a certain definition, share of premium products in the overall portfolio is high & increasing. In the medium to long term, yes. But initially, when we do that, there is always over investment in R&D spend as well as marketing spend. But over a period of time, you are absolutely right that this should help improve margins in the long term.
On the Lloyd front - inventories will get liquidated by 3Q. So during November and December when channel will be building inventories for old star-rated ACs, do we see pressure during Q3 on primary sales? And on customer support schemes that led to significant decline into contribution margins for Lloyd - are these in form of customer support schemes or price cut?
Right. So as far as the first question is concerned, yes, there will be liquidation of inventories in the third quarter because of the BEE rating changes. Depending upon how much inventory is there, depending upon how much of the old ratings will be produced, we'll definitely be offloading that inventory to the channel. The channel can sell that inventory to the consumers in the coming quarter as well. But the manufacturers will limit their production to that extent as it can be liquidated during the third quarter. So I believe that's why I'm saying that the inventory, at least at the manufacturer level, will normalize by the end of the quarter. And as far as consumer schemes are concerned, yes, because it was a shorter summer and that overhang continued in July, which was also a very strong summer last year. So the channel which was holding inventory were offered certain direct consumer schemes so that consumers get attracted to lift the product during the off-season. Otherwise, there was no price reduction from the company side. For material, which was already in the channel, certain schemes were offered.
And this customer support schemes are likely to continue till? And contribution margins, at least we should see normalcy from third quarter onwards?
No, those were for a shorter period of time, and they have been withdrawn because of the GST changes. They've already been withdrawn. Yes, we will start seeing improvement in third quarter, but real effect will come in fourth quarter. But ontribution margin is also greatly affected by the under-absorption of manufacturing overhead because as you can imagine, because of the high inventory levels at the end of the first quarter, the production levels were also scaled down.
While inventory definitely we might see clearing at the brand level, how do you see secondary moving? When we talk to our channel partners, they tell us they have huge inventory and entire cash flow is blocked. So third quarter, do you expect channel partners to fill up very aggressively given they already have stocks and they do not have that kind of cash flow?
See, there are various kinds of channels, distributors, large format chains, e-commerce and certain channels would have higher inventory because they have higher stock buildup capacity. I would assume that largely the distribution channels, which is almost more than 50% of the sales will be definitely normalized by the end of the third quarter. And that is the kind of channel which generally picks up more material during the third quarter. Anyway, the modern format retail and the e-commerce channels generally pick up in the fourth quarter.
On ECD - degrowth is at 1.7% Y-o-Y. When we went on the ground, fans degrowth is in high single digit, around 8% to 9%. What product categories supported in reducing the degrowth? Some qualitative color on how the large appliances, small appliances did versus fans?
Yes. So we are seeing good growth in the water heater channel as well as the consumer small appliances. We have actually seen a degrowth of fans, not necessarily high single digits, but mid-single digits. But we've also seen a significant degrowth in the cooler because there was already high levels of inventory in the channel. And hence, the second quarter sales, there is a high level of degrowth. So overall degrowth is about 2%, but there is good growth in the appliances as well as water heater.
Cables and wires, we have seen a massive improvement in profitability. So is it fair to assume the profit margins are close to the peak level? Or there is still further potential to see margin moving upwards?
I think this particular quarter, if you compare it with the last year's same quarter, this was a depressed quarter because of the fluctuation in the prices of the raw material. This particular quarter, there was a benefit because the prices were constantly increasing and there were certain benefits on the inventory. I would say with our blend of cables and wires, 15% to 16% is the right contribution margin to assume and so that will continue to strive. Depending upon quarter-to-quarter, some variations may happen, but otherwise, that's what we are striving for.
On ECD side - despite some recovery in growth rates, contribution margins seem to have come down sequentially. Has there been any pull forward of investments given early festive? Should we expect things to pick up better in Q3 and Q4? How should we look at margins for the ECD segment?
Yes, I think ECD segment is on the positive side for the contribution margin. Second quarter is generally a little bit more depressed because of fans off-season. In this particular quarter, it was lower. So hence, there is some under-absorption of manufacturing overheads for the fans plant. So whatever we see reduction there is mainly because of the fans margins. Otherwise, in other product categories, we are seeing improvement as well as also coolers, so both fans and coolers. So I think it is consumed, and we are hoping for better contribution margins. It's not comparable as against last year because EPR liabilities have also increased in the current year, which obviously when the season comes, when we are in a position to pass on that price to the market, we'll have to do that. But right now, because of low season, we've also been restrained to do so.
On switchgears - if you look at EBIT margins, Q1 you talked about adverse mix which led to lower margins. This quarter also margins seems to have come down a bit sequentially. What should be the range we should think about in switchgears? Do we see scope of improvement or these are steady state numbers?
I think switchgears, you can fairly assume contribution margin to be around 38%, sometimes 37%, sometimes 39%, 40%. So 37% to 40% is the right range to assume, depending upon the product mix in a particular quarter. That's the right number...
On the initial few festive period in terms of demand recovery, how are you seeing trends? In ACs not conducive in environment, but how about ECD & Lloyd TVs and other segments? Can you throw color on how recovery has been in beginning part of Q3?
I think we definitely see positive momentum, especially also because of the fact that there was some pent-up demand. Until 22nd of September, there was a slowdown of sales. So the channel is also picking up materials. They're also clearing their old inventories also in the system. But we do believe that there is a better pickup. The rural area's growth is also coming back. And I think overall, this positive change in GST also. Though in many of our product categories, there is no change, but there is a positive feeling amongst the consumer right now during the season.
On Lloyd - these offers given to liquidate secondary channel stocks - were these recorded below contribution margin or above? And then the pressure should ease going forward right?
Above contribution margin. That's it.
On 'Others' segment - while this was seasonal quarter with respect to rains and monsoons, by when and what color should we expect growth in solar portfolio to come through?
Generally, second quarter is a low season for the solar business. I think third and fourth quarter, we are expecting very decent growth in the solar. In this quarter, it is good, but real growth will come in third and fourth. Second half is generally a good time period for the solar.
Material scale up in business volumes after investing in Goldi and having acquisition to better supply chain components - that factor will start playing out from second half of current fiscal? And margins thereafter should improve for 'others' as a segment?
That's correct. In fact, it had started playing out in the second quarter itself. The growth was decent, but it is generally a low quarter anyway. But over the last year, there is a good growth in this business. And third and fourth quarter, the real benefit of the supply chain would start up. Yes, hopefully.
Within Lloyd's portfolio - LG after listing announced aggressive pricing for mass premium and mass market lower price points. Do you think this can impact our penetration or expansion plans for non-RAC portfolio, namely REF or washer side, especially in smaller towns?
LG has been a strong player in these segments, and they continue to be a mass premium player. They are not really a luxury player only. They continue to be a mass premium player in these segments, and this will only enhance the penetration for these products. We are still a very decent player in these categories. And there is a lot more we have to do for distribution reach and all that. So I don't think we can face some headwinds against that.
On overall cost - employee cost growth seems to be under check. Until 2024 we were expanding cost. Last 6-7 quarters obviously growth is not there but employee costs have come down. Is there a conscious effort for the company given growth seeded to look at these costs? In a scenario consumption was to come back, are we rightsized right now or do we have to build on those costs? How do you see the organization placed today in an up cycle scenario?
Well, first of all, over the last few years, if you've gone through our calls, you have seen that we have been investing heavily on rightsizing the company in terms of sales infrastructure, functional infrastructure, R&D, digitization. So there has been a lot of, I would say, investment towards building those teams. We believe that we are well placed in terms of getting the advantages of those investments. And that is now translating also. Now the focus is to continue to increase productivity of this large workforce that we have. And not that we'll not continue to invest, but there will a lot of focus on productivity enhancement. Sometimes it can look a little bit more pronounced because of the lower season and sometimes the contractual workers like the demonstrators and all also get affected because of low season. But otherwise, generally speaking, there is a lot of focus on improving productivity of the manpower.
Is it fair to say in last 3-4 years, competition in each category has actually intensified and pulling down margins for the industry as a whole - whether fans, lighting, small appliances or water heater? Is that a fair assessment? Is it pulling down contribution as well as operating margins at category level?
I think if you look at switchgear or you look at lighting, for example, our contribution margins and our EBIT margins have remained stable. If you compare it with some peaks or troughs, that may not be a right comparison. But generally, we have been very stable. In ECD in the last 2 or 3 years, as we had mentioned, sometimes the raw material prices went up, they are not entirely passed on to the market. Things are actually coming back. In most of the categories, our water heaters, you mentioned, we have industry-leading margins. Switchgears, we have industry-leading margins. Lighting, we have industry-leading margins. Fans, we have industry-leading margins. Yes, we are continuing to invest more in fans because of the change towards BLDC. Almost 40% of our fans are BLDC fans. So there is constant investments going on. But I feel that the real play in Havells kind of a brand is premiumization. So while competitive intensity keeps going up in every category, our focus has always been our strength, innovation, distribution and brand. So I think those continue to remain. And really speaking, if you see even this quarter, Havells stand-alone (excluding Lloyd) continues to be about 12% - 13% EBITDA margins, and this will further improve. So I don't think that's really concern about dilution of margins due to increased competition.
Last quarter we commented if growth is normal we can see 150-200 bps margin expansion for Havells stand-alone. Does that stay intact? Is demand still kind of weak, no significant change in last few weeks? And capex number for FY26-27 - what kind of capex and which segment?
That's why I'm very confident that these are the kind of things with productivity improvement, with cost rationalization, premiumization, I think that's something which we have to achieve. As you rightly said, it's early to say because right now, 22nd of September, as I said, things have slowed down till then because the trade was not picking up. Then post that, it's just too early to comment upon that. I think let's wait for 1 quarter to actually see how things are. It's difficult to get a feel on that. And we are quite genuinely positive. FY 25-26 will be about INR1,450 crores. FY 26-27, right now, it's estimated about INR1,000 crores, but we'll know the exact numbers by end of March.
On broader demand - you commented on B2C. How are you sensing the B2B segment? Specific thoughts on real estate side? And looking at business plans over next 2-3 years, how do you view export opportunity? Which segments excite you on that front?
So Latika, on B2B, we continue to feel that the traction is there. Now one could argue whether the government capex will slow down because of the sort of the spend they have done on the consumer side or the real estate cycle will finally sort of start slowing down. But as of now, I think there is a robustness in the B2B. So if you ask us what we feel currently, we continue to remain positive on the B2B. However, on B2C, we believe the things are sort of improving. You cover FMCG, so I think you will have much better input than ours. But we do feel that the B2C should improve from here. As regards the going forward on the international business, definitely, we see a lot more positivity there despite whatever the global issues being there because we believe these are something which will get resolved over some period of time. And definitely, there key contenders for growth in international will be cable, switchgear and Lloyd (ACs), basically the air conditioners. So those will be the key contenders. And I think we are seeing good traction on the international side. So I think this is something we expect to continue and actually more positive going forward as well.