Amber Enterprises India Limited (AMBER) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the Amber Enterprises India Limited Q4 FY '20 Earnings Conference Call. This conference call may contain forward-looking statements about the company which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jasbir Singh, Chairman and CEO of Amber Enterprises India Limited. Thank you, and over to you, sir.

Hello and good morning, everyone. First and foremost, I hope you all are keeping safe and healthy. On the call, I have with me Mr. Daljit Singh, Managing Director; Mr. Sudhir Goyal, our CFO and SGA, Strategic Growth Advisors, our Investor Relations Advisors. We have uploaded our results presentation on the exchanges, and I hope everybody had an opportunity to go through the same. Let me begin with the impact of COVID-19 pandemic on the economy on a broader front first. This is a very unusual and a very extraordinary time where no company, no government, no individual has ever seen a crisis of this magnitude and this scale. The black swan event of COVID-19 has taken a huge toll on life, not just from medical point of view, but also economically. The pandemic has paralyzed economies compelling businesses to reevaluate their strategies. As far as our industry is concerned, AC is a highly seasonal sales product, with the March to May period in a calendar year accounting for approximately 35% to 40% of the sale, the industry did witness a slowdown given the lockdown during the peak season, which also forced the companies to shut their manufacturing units. However, as we talk today, almost all the consumer durable players have resumed partial or full operations. We believe this is the category to be among the first ones to see demand normalize over a period of time. Now from a number point of view, due to the lockdown situation in India, we were prohibited to manufacture the products for our customers towards the end of the March, which continued until May 2020. In the start of May 2020, we partially resumed our operations, which gradually increased in over time after adhering to guidelines issued by the governing authorities. I will now speak on what we are doing to navigate through these challenging times. First, during the lockdown, we had swiftly moved to work-from-home model. We also provided training to employees in multiple functions to enhance skills and improve productivity and extended our support to the workforce financially and mentally. Now after the ease in lockdown, we have restarted offices with limited workforce. While operating, we have ensured to follow all required measures to ensure safety and security of all our employees. As our lockdown has eased, our customers are leading the pent-up demand from end customers. Since the lockdown was announced during end of March, which also appears to be the peak season for us, the dealers had already stocked up inventory, which they are liquidating now. We are seeing signs of consumer demand revival, but yet it is early to comment on the overall demand scenario and how it will pan out. We have been able to meet our orders with sufficient raw materials in hand. Also, we do not foresee any impact on manufacturing operations on account of unavailability of raw materials going forward. From a labor point of view, we are not facing any issues since 80% of the laborers are from nearby vicinity. However, we have curtailed the number of employees working at all the offices and manufacturing locations at a time in accordance with the guidelines issued by governing authority. On the cost control measures, all the cost heads are being reviewed with increased focus on improving productivity and rationalizing the costs. Strict monitoring on fixed costs has been implemented to improve operating efficiencies. As per our responsibility towards the nation, promoters have contributed INR 11 lakhs each to the Prime Minister Relief Fund, and our staff has contributed 2-day salary of April month 2020 as a support to fight this pandemic. Promoters will take 50% salary cut for 3 months: May, June and July. And our staff has also contributed in terms of salary revisions to support the organization in this difficult time. On the working capital side, our working capital days have improved from 54 days in FY '19 to 37 days in FY '20 due to improving collection efficiency, better inventory management and better trade terms with our suppliers. However, there may be impact on receivable cycle from customers going forward due to overall impact on liquidity position of the companies across the countries. Having said that, we do not foresee any major risk of receivables given the high quality of customers and strong balance sheet of Amber to support operations. We are also in constant touch with our key vendors and working with them to mutually partner each other in such unprecedented times. Now let me take you through the opportunities we foresee in coming years. First, one of the biggest positive in this challenging environment is the acceleration of China, plus one strategy. Many companies are showing the intent even strongly to reduce their dependency on China to develop and alternate and reliable source of supply. With humble pride, we like to say that Amber will be their preferred choice of vendor. Few brands who have been importing from China have approached us and now talking actively. Second, another opportunity we see is that various initiatives are taken by government under vocal for local and being self-reliant to boost the local manufacturing. We believe under this initiative, the component industry ecosystem will be created to support domestic manufacturing and reduce dependence on imports for components and finished goods. Third, even when we say this, our customers are optimistic on the future outlook of the industry growth and long-term potential. Fourth, we have continued our investments in R&D for new product developments and better energy-efficient products, expanding our products portfolio in commercial air conditioning space to leverage and increase our wallet share in existing customers as well as acquire new customers. And we expect the demand revival since we believe that customers cannot hold the purchases over a longer period of time. Now I'll take you through the impact on COVID-19 on Amber in near term. We believe there will be impact in revenue and profitability for quarter 1 FY '21 as our operations were shut since end of March 2020 and were gradually started in May 2020. The demand of our air conditioners in the retail and e-com markets have also been disrupted on account of COVID-19, and therefore, demand from our customers have been impacted as well. Considering the fact that the situation is exceptional and is changing dynamically, the company is not in position to gauge with certainty the future impact on its operations. However, the company is confident about adapting to changing business environment and respond suitably to fulfill the needs of its customers. Our strong business model, spread across multiple customers and increased penetration in the HVAC industry is expected to withstand the weak demand outlook in short term. I will now take you through the consolidated financial numbers. Our revenues for FY '20 grew by 10% from INR 1,196 crores to INR 1,315 crores. Growth from subsidiaries has been significantly up as compared to last year with better margins. FY '20 revenue stood at INR 3,963 crores as compared to INR 2,752 crores in FY '19, a growth of 44%. Our revenues from Room Air Conditioners has increased by 39% and Components & Mobility Applications business has increased 52% for FY '20. Components & Mobile Application business now contributes 39% of our overall revenues as compared to 37% of FY '19. Our volumes for Q4 FY '20 stood at 1 million units. FY '20 volumes were 30.28 lakhs as compared to 21.16 lakhs in FY '19, a growth of 43% Y-o-Y basis. We are happy to report that we have clocked in a volume of 3 million-plus units for FY '20. Operating EBITDA for Q4 FY '20 stood at INR 119 crores as compared to INR 108 crores in Q4 FY '19, up by 10%. Operating EBITDA for FY '20 stood at INR 326 crore as compared to INR 213 crores in FY '19, up by 53%. Operating EBITDA margin for FY '20 stood at 8.2%, an increase of 50 bps on Y-o-Y basis. PAT for the quarter stood at INR 63 crores. PAT for FY '20 stood at INR 164 crores as compared to INR 95 crores in FY '19, up by 73%. FY '20 PAT margin stood at 4.1%, an increase of 70 bps as compared to last year. We have not taken benefits of lower tax rates since we have accumulated MAT credit in our books for stand-alone entity Amber and IL JIN. However, lower tax benefits have been availed for the other subsidiaries. We have, however, restated the deferred tax liability as per the new revised tax rate, which has a positive impact on our Q4 and FY '20 PAT. Our net debt on consolidated basis for 31st March 2020 stood at INR 246 crores. With prudent capital management policies, we have been able to bring down our working capital days from 54 days in FY '19 to 37 days in FY '20. Our return on capital employed are on an improving trajectory. ROC for FY '20 stood at 18.5% as against 14.5% in FY '19. ROE for FY '20 stood at 15.1% as against 10% in FY '19. Now coming to subsidiaries update. Our Mobility Business segment has not been sharply impacted with COVID-19 pandemic. Strong order book and due to the tender-based business, we do not foresee any loss of revenue in this segment, might be there will be some spillover in revenues. FY '20 revenues for Sidwal, which got consolidated a number for 11 months as it got consolidated on 2nd of May this month -- this year, stood at INR 226 crores and EBITDA stood at INR 63 crores. Q4 FY '20 revenue for Sidwal was INR 65 crores. With healthy order book in hand and increasing metros and air conditioned coaches being manufactured, we are confident on the growth outlook for Sidwal going forward. Revenues for PICL stood at INR 185 crores for FY '20 and INR 57 crore for quarter 4 FY '20. Increased demand for locally manufactured components, product basket addition and customer addition has increased the share of business among customers. EBITDA for PICL stood at INR 11 crores, with EBITDA margins of 6%. Revenue for IL JIN stood at INR 325 crore in FY '20. And in Ever, revenue stood at INR 297 crores in FY '20, with an EBITDA margin of 5.6% and 3.4%, respectively, for FY '20. Quarter 4 FY '20 revenue for IL JIN stood at INR 92 crores and Ever stood at INR 83 crores. With increasing efficiency and addition of new customers, we envisage an increase of margins in Ever going forward. As the market is moving rapidly towards inverter ACs, we are confident of growing our revenue share from IL JIN and Ever going forward. Our constant endeavor would be to increase penetration and increase our wallet share in the existing customers, continuously add new customers and enhance our products with new technologies by focusing on R&D. With this, I open the floor for discussion.

[Operator Instructions] The first question is from the line of Aditya Bhartia from Investec.

My first question is on the import substitution opportunity for IDUs. Just want to understand how much has it already played out? And what proportion of IDUs would currently be getting imported?

So Aditya, thanks for asking this question. And -- so I will answer it -- I'll take you a little bit about a year back when 2019 budget, government increased the custom duty on IDUs from 10% to 20%. So partially shift happened because of that. And now because of this COVID-19 situation, the remaining IDUs, we are likely seeing that a lot of customers have started talking again, who still continue to import despite our custom duty increase. So that is one shift which we are envisaging that it will come in the near term from the importer side. On the volume side, how much is getting imported? We do not have the exact breakup of how much IDUs are getting imported. But on a value terms, 28% of air conditioners still continue to get imported. So there has been a lot of deliberations to government. And especially after the Atmanirbhar Scheme of being self-reliant India, there is a lot of meetings happening at the government level, which we expect that there will be some policy interventions from government side to curb imports. But however, right now, it is only deliberations, which are happening. So it may take some time for coming into action, but we are looking into that. But given that now in companies like us, we are gaining scale as economies of scales are coming. Our capability of being competitive in some models, which we were not earlier is also increasing. So that -- we are expecting that at least whatever is getting imported right now in IDUs, in a rough manner, if I would say, at least about close to 2 million IDUs will be still -- this is a very rough number, I still need to get through research -- proper research, but around in that range should be imported, which can come to India.

Understood. Understood. And sir, when you say 28% of Room ACs in value terms are getting imported, this includes the value of components and compressors as well, right?

No. Compressors and components are separate because this is exactly finished goods which are being imported. There is -- yes. So components like compressors, some models of motors, some inverter PCB boards, the copper, aluminum, cross-flow fans and the valves, they are continuing to get imported.

[Operator Instructions] The next question is from the line of Bhalchandra Shinde from Max Life Insurance.

Sir, I would like to know, as per the channel check relatively inventory levels have been relatively higher in Room ACs. So how our production might get affected? Or how we see over next 1 year because now our base will be relatively also slightly higher than earlier, so how we see the growth prospects?

So you see as far as post-pandemic COVID-19 situation is concerned, we are all living in realm of speculation these days. There are various theories which we are listening about V-shaped recovery, U-shaped recovery or even Nike Swoosh type recovery. But this is -- my personal opinion is that this is one of the products, which is kind of essentials, though government has not declared it as essential, but it is kind of essential product now. You cannot stay without air conditioners. Even while working from home, you need air conditioners. Just in recent case when partial lockdown in the green zones were opened and air conditioners' showrooms were allowed to be operated, we are seeing a very strong demand in the air conditioner segment. I mean in April itself, there are very good numbers which are coming in. And in North India, especially, there have been some pockets where dealers have reported that their complete inventory has been sold off. So there are 2 types of inventories remaining when the lockdown was announced. First part is at the dealer's end and second is at the company's end and third one is with companies like us. So we generally don't keep any finished goods inventories more than of 24 hours. So on the finished goods side, we don't have inventories. We have inventories in the raw material form of basic copper and aluminum and compressor side. Now with the heat wave going on, I believe that the inventories of dealers should be liquidated in next 15 to 20 days' time. And then partial liquidity of the curve -- inventories lying in the warehouses will also get start liquidating. So though it is very difficult to -- in such a dynamic state of economy today, it's very difficult to give you any number, but my personal opinion is that maybe from -- like we are seeing some demand has started coming in our factories, we have started supplying on small volumes, but it has started. So I think by -- maybe in next 4 to 5 quarters, we should see that the demand will start -- the liquid inventories will be liquidated to the levels at which they were used to be earlier and then the demand will start coming up.

Okay. Great, sir. And on the component side, how we see growth prospects? Because there, again, we are adding more and more customers. So there, probably we may be able to grow in a much faster way because there will be likely import substitution kind of a scenario also happening?

Yes. See this is the uniqueness of Amber's buffet of products offering. We have components and finished goods. And within components, we have not only 1 component, we have a number of critical components with us. So component space, we are very optimistic because post COVID situation in China plus one strategy as well as in the Atmanirbhar Scheme of government, there is a lot of positive wave which has started for Make in India programs, even for the domestic companies, which were earlier importing. So we foresee that not in the short term because these are reliability components. If somebody has to shift its vendor base, they have to start the process of reliability. But in the midterm cycle, component will be definitely a very big opportunity for Amber. And I would like to highlight one more point that we have already started exporting our motors to U.S.A., and we are seeing a lot of positive RFQs coming in and a lot of demand is there for motors and PCBs and heat exchangers as well as for finished goods. So the customers, which we were just talking from last 2 years, have now started actively responding to our communications. And they are also willing to explore this opportunity of COVID -- during COVID-19 situation on China plus one strategy. So in component space, yes, definitely, we are very optimistic.

[Operator Instructions] The next question is from the line of Bhoomika Nair from IDFC Securities.

Congratulations for a good set of numbers in a challenging environment. Sir, I wanted to just delve a little deeper into this component ecosystem that you spoke about where there's still a lot of components being imported apart from compressors. So how easy or what kind of scale is required that can expand this ecosystem? And my second question would be on the commercial refrigeration space that you spoke about, where are we in entering into that space? And how quickly can it ramp up?

Sure. So Bhoomika, on the component system, industry has been -- our value-add in India is very little right now. And that is what government wants to intervene with the correct policy measures and force the industry or maybe provide a nudge to the industry so that the imports starts coming down and manufacturing starts happen. I'll just give you an example of automobile industry in 1999 or 2000, their value-add in India was only 25%. But then gradually, government and the buyers and sellers all put together, they moved hand-in-hand. And today, about 95% of automobile, whether it is 4-wheeler or 2-wheeler, is manufactured in India, including the engines and the critical parts. So that wave has started in our industry. And Amber is very rightly placed industry because we already have 3 critical components and experience in that and a strong R&D behind it. So with the move of Make in India strategy, motors, inverter PCB boards, then heat exchangers and these other things like compressors and cross-flow fans and valves, they will gradually start manufacturing in India. As far as your question goes that how easy it is for somebody to shift? Now these are reliability components where some functionality, the final products performance is dependent on the functionality of these components. So companies who will shift their vendor base to India, they will definitely go through the reliability cycle, which, in some cases, it takes about 6 months, and in space like cases of inverter PCB boards, it takes about a year time or maybe some time more. So once that is crossed -- that milestone is crossed, then definitely the traction of production and suppliers -- supplies will start. This is about the component ecosystem. On the commercial refrigeration space, we have developed our models of commercial air conditioners, not refrigeration. Actually, it is deductible range from 7.5 tonne to 8.5 tonne, 11 tonne, 12.5 tonne. So those -- that range is ready. Because of COVID-19 situation, we were not able to start the production, but we are expecting to start the production of commercial air conditioners in small volumes in the month of June end or maybe first week of July.

And how large is this opportunity for us?

See, deductible air conditioners is -- this will be the first time that industry will be going for outsourcing model. Generally, this was manufactured in-house by the brands. So now because they have tasted good results in outsourcing in Room Air Conditioners because of asset-light strategies and other positive things, so they are now. So I think in first year, I don't see that it's a very big number, which we are seeing. But on a long-term basis, it is a very big opportunity. So today, if I see a commercial air conditioner space, in total value terms, if HVAC industry is close to about INR 48,000-crore industry, out of which, Room Air Conditioner is only INR 18,000-crore industry, so remaining is the commercial part. So we are now graduating. With acquisition of Sidwal, we actually expanded our product portfolio in the mobility application. And this part is missing, which is a bigger part of the pie of HVAC. Now we are gradually getting into this. So it's a big opportunity going forward.

[Operator Instructions] The next question is from the line of Manoj Gori from Equirus Securities.

Sir, a couple of questions. If you look at subsidiary performances, the sales have increased significantly even on a sequential basis. However, gross margins and EBITDA margins have declined on a sequential basis. Can you throw some light over there?

No. Gross margins -- sales actually in -- if you see, I'll take you through subsidiary-to-subsidiary wise. In Sidwal, there's both increase in gross margins as well as EBITDA margins, PAT margins and the sales volume. In PICL, we have also -- if you see, there's a big jump in revenue as well as the EBITDA percentages and also the gross margin. In IL JIN and Ever, yes, you are right the sales have not got increased because we gave away some low-margin businesses, and we changed our strategies for the higher-margin businesses with the right product mix in that. So sales were not increased, but the EBITDA percentages are getting increased on year-on-year basis. When we acquired these 2 companies in -- 2 years back, the total consolidated EBITDA was only INR 14 crores in the same sales which we are doing today. But the sales -- the EBITDA has now increased in the same sales through -- close to about INR 11 crore plus INR 16 crores, so about INR 26 crores, INR 27 crores. So INR 14 crores has gone INR 27 crores. So there is a big jump in the EBITDA just because of the right product mix and the gross margin increase.

Right. Sir, I was talking more from a Q-o-Q point of view because if you look at sequential...

Sorry, I cannot hear.

I was just referring to Q-o-Q performance. So if you look at sequentially on a quarter-on-quarter basis, our subsidiaries have grown roughly around 20% plus. And if you look at the gross margins from roughly around 26.5%, are at roughly around 23%, and EBITDA margin from 12% plus to 9.6%, if I'm not wrong. So...

So you see, that keep on changing. Over a period of year, product mix keep on changing. Like in Railways, there are components with a 50% gross margin and there are products, which have 25% gross margin and that is all depending on the delivery. So it will vary from quarter-to-quarter because in some -- like in metro air conditioners, there was a tender, which was supposed to be there, which got postponed to next quarter. So those kind of things will definitely happen. But you need to see a complete holistic yearly performance. Quarterly, because of product mix, this will keep on changing because I think you are seeing from a percentage point of view.

Right. Understood. And sir, Sidwal should be a normal year for us? Like are we expecting any disruption for Sidwal as well for FY '21?

No, no. In fact, Sidwal is standing very strong despite of 0 sales in April. We are still looking for delivering at least 15% to 20% growth in Sidwal. In case we don't get hit by a second wave of pandemic.

[Operator Instructions] The next question is from the line of Abhishek Ghosh from DSP Mutual Funds.

Sir, just a couple of questions. Other expenses in the current quarter seems to have moved up sharply. So -- and you have also mentioned that there's a ForEx element in it. So what is that element if we can understand? And is it because of that or is there something else also sitting there?

Sudhir, can you please answer this question?

Yes. So in the current financial year, rather in the last quarter, the foreign exchange impact is around INR 16 crore on the reinstatement losses and the same is pass-through to the customer in the coming future. So that is our business model.

Okay. Okay. So that's a predominant part of increase in INR 16-odd crores.

Yes. Yes.

Okay. Okay. And quickly just one more thing. In the current year, if you look at your cash flow statement, while you've generated a good amount of operating cash flow, but that's really not flowed down to any free cash generation because of the acquisition because of the CapEx and that's also resulted in debt being largely there. So how should we look at your free cash generation and the CapEx element going forward in next 1 or 2 years?

See, currently, our free cash flow, if we talk about the tax plus depreciation is around INR 102 crores. And it is after the CapEx, which we have done in the current financial year. So otherwise, operating cash flow generation is around INR 234 crores. And going forward, since it's too early to say how this current situation will pan out in future, it's difficult to say that, but -- how the current year we will perform. So we need to wait a little bit so that we can come up with a new update on the business side. But you see this is the -- this is -- last year has been a good year for us, where we've demonstrated a good free cash flow. And if you see into our debt position, which was there, and now in 9 months -- in the first 9 months, we had about INR 325-odd crores net debt, which has come down to INR 244 crores. So that's a big reduction there.

Sure, sure, sure. And just last one from my side. But in this kind of scenario, the imports that you were seeing from China, how is the pricing post crisis because China also must be seeing a lot of demand erosion for their exports. So they must be trying to push a lot of supplies into India. So have they cut a lot of amount of pricing? And have they become a lot competitive vis-à-vis your cost of production or the delivery -- delivered cost here?

So right now, everybody is sitting with the inventory. So nobody is buying from China. So everybody is prioritizing that their inventories should get liquidated, and then they will start buying. But looking into the COVID situation, whosoever was importing, they had cut down their orders to China. And in case China come to a predatory pricing kind of a thing, then there are clauses in the Custom Duties Act, which will be enabled to safeguard the Indian industry. So -- and looking into the current situation, in fact, companies have actually started looking into very seriously towards outsourcing model because they have seen that they are left with the -- especially the -- especially coming to India after this whole COVID-19 situation. Because if the importers are facing more blunt due to -- they were importing and as the pandemic hit, they have complete inventories lying up at the ports and there are inventory goods. But whereas the companies which are buying from India, they are sitting on a leaner inventories. So that is what is actually shifting their behavior towards Make in India and buying from India.

[Operator Instructions] The next question is from the line of Naval Seth from Emkay Global.

Sir, I have 2 questions. One, if you can give some numbers or say, revenue loss because of lockdown in last 10, 15 days of March? And second question, as you stated that inventory liquidation at primary -- at secondary level has started at accelerated pace, so is it fair to assume that we would be close to last year's number in 2Q or that would also be substantially lower because of gradual ramp-up in production and demand scenario?

Okay. So on the inventory side, Naval, basically, I think that it all depends on how June month's sales goes on in the market. At the -- like if I continue to look at the last 10 days' sales, it has been very, very demand -- very, very peak demand -- good demand in the market. And in case the same run rate we consider, then, yes, what you are saying is right that quarter 2 should be a normal quarter. But in case it slows down because of -- like we are seeing that a lot of states are making a U turn as far as the decisions of lockdowns are concerned and there are some times they are making it more stringent in some of the states. So it will all depend on how the June sales will go on. In case June sales doesn't go that well as we are speaking at the current run rate, then definitely, there will be some spillover of lack of demand in quarter 2 also. And what was the second question you asked? You asked about the delta of...

Volume loss that would have happened because of...

Yes. So we were at a run rate of about close to about INR 18 crores to INR 19 crores on daily basis when the lockdown happened. So we have lost about INR 150 crore to INR 160 crore worth of sales, which would have generated at least INR 20 crore more EBITDA and a good amount of PAT has been lost because of that because -- and this is the reason why you would be saying because in anticipation of the good demand, the fixed cost and the variable expenses are increased to meet the demand and that was the position when the lockdown happened. So we lost our profitability also because of the last 10 days.

Okay. And lastly, sir, ETR for FY '21, any guidance on that?

Sorry, say that again, Naval.

Effective tax rate for '21, sir?

Sudhir, can you please answer?

Yes. So effective tax rate for current financial year will remain same. For Amber Enterprises is around 35% as the last year because we have still a good amount of MAT credit available with us. And on all the other entities, we'll be shifting to a new tax regime of 22% plus surcharges.

The next question is from the line of Ankur Sharma from HDFC Life Insurance.

Just 2 questions. One, on the Room AC side, I'm not able to understand is that since the lockdown started from the mid of March, and there was really very little or no sales all the way till end April, early May, there was, as we all know, a lot of inventory piled up and the numbers floating around are in the region of -- anywhere in the region of 2 million to 2.5 million units. So if, a, you could help us understand, in your view, what would that number be? And second, I'm just wondering, even if, let's say, June sales do happen at the current pace, would that be enough to actually -- because now the rains has started going into June and July, so I'm just wondering, when do you really start seeing primaries happen both from the brand and then also from your side? If you could just help us there?

Sure. As far as the primary is concerned, the lockdown -- partial lockdown -- unlockdown was made effective from mid of May and especially in the green zones when the showroom started. So they took about 10 days' time to liquidate inventory. And most of the brands have started primary sales. The secondary is, especially in Delhi, NCR region and in UP areas, Agra, and we are hearing a lot of dealers who have started buying from the company. So primary sales have started happening. In the month of May, the latest data, I don't know exactly the last -- yesterday's data, but already about 4.5 lakh to 5 lakh air conditions have been sold in the last 15 days so because of the heat wave going on. As I told you that this is a sort of an essential item, which is not categorized -- which was not categorized in essential category, but especially working from home also you need it and from -- in offices also. So you're right that close to about -- in the range of -- there are various reports, which are saying that the inventory total held up in the range because of the lockdown happened to be about 2 million to 2.5 million. But at the current run rate, normally, the trade used to carry an inventory of about 1.5 million, out of which 4 lakhs to 5 lakhs used to be with the dealers and remaining used to be in the warehouses of the company, that was a normal style. So if we see a good kind of run rate basis -- the current run rate at what it is going, this inventory will be coming to a normal rate in next just 3, 4 weeks.

Okay. Okay. Okay. And sir -- okay, that's very helpful. So therefore, the answer to the previous question that you would expect that going into Q2, even your sales would start normalizing. Okay. So that makes sense.

Yes. That's right. That's right.

But that is all subject to how the sales happened in June. Okay. But do you really think, sir, even in the southern parts of the country, this would sustain? Because we are all hearing of a heat wave in the northern parts because especially in the west now we -- sorry, go ahead.

See, in monsoon area, once you have -- once you get one air conditioner in your home, in monsoons, you would need it more because the temperatures are humid and this will -- in southern -- in fact, the southern part of India, the sales continue for at least 9 to 10 months. So we are expecting that -- yes, it will go down. It will not be at the same pace as what it is in North India, but sales will continue.

[Operator Instructions] The next question is from the line of from Bhavin Vithlani from SBI Mutual Fund.

So first, a data-related question. In your presentation, you mentioned INR 2,400 crores revenue from RAC and components revenue of INR 577 crores in stand-alone. It will be helpful if you actually give some volume-related information? And what was your market share in the fiscal year '20 for complete air conditioners? And if you take the components into consideration, what would be your total market share?

So basically, this INR 2,400 crore, INR 2,500 crore of RAC business was at INR 1,741 crores in FY '19. So there's a jump of 39% there. And as we told the volumes already that from 2.1 million, we have already crossed 3 million this year. So there's a 43% jump in the volumes. In component space, there is a 52% jump from INR 1,000 crores to INR 1,500 crores. So in components, actually giving a volume is -- doesn't make sense because different kind of components are there, number of PCBs, sheet metal, plastic injection parts, motors, heat exchangers. So in that, volume doesn't need -- the value, which is -- which shouldn't be a matter.

And what would be your market share in India?

Well, I mean we have now touched to close to about 22% market share of the Room Air Conditioners in manufacturing part. Because we are not a brand, but as far as the complete market goes, we are there. And we are almost about 55% plus in the ODM category of products, which are outsourced market.

Understood. Could we -- second question is, could you talk about competition? Because last year, we saw LEEL actually in trouble. Have you seen any newer competition coming up? You mentioned your market share is very strong at 55%, how do you see that playing up?

No, we haven't seen any new competition coming up because, yes, yes, you rightly said that LEEL went into a different thing. But as far as Amber is concerned, we haven't seen any big competition, which is coming up at the moment. And because of post-COVID situation, I don't think so that we will see it for another 1 year or 2 years' time. And with local production happening and especially the local -- vocal-for-local campaign will certainly help companies like India.

[Operator Instructions] The next question is from the line of Ravi Swaminathan from Spark Capital.

I just wanted to know the opportunity from exports' perspective given the anti-China sentiment which is there, have you started seeing inquiries from other countries for Room Air Conditioners?

So this is -- in the first week of February, we first time participated in the biggest air conditioning show in U.S. And the prime reason of us participating was to sense the market there and to understand the products. Because U.S. markets have a different kind of products. They don't run the similar splits or windows what we have. They have a special P type -- PTAC units type. And we were positively surprised by the response we got, and a lot of companies pre-COVID situation were also planning for China plus one strategy. Now post COVID, they have -- it has actually strengthened their decision. And they are also talking to us. So we have got a prototype order for some new type of development, which we are doing. And as I explained to you earlier, that already the shipments of motors have started going to U.S. markets. And there are increased demand from U.S. markets. So U.S. itself imports about 2 crore air conditioners annually from China and Thailand. So that is one big opportunity which is available in the finished goods category. And for the products which are being manufactured in U.S. markets and European markets, majority of them were buying components from China. So as this China plus one strategy plays well, definitely, we will be in the right spot to address that opportunity.

Okay. But do you see this as a material revenue needing more for you over a 4- to 5-year period -- I mean exports as such, in general?

On a long run, yes, there are still disability factors because of Make in India due to certain reasons, which we have already deliberated to our government. And in case there is some kind of a support given by government, definitely, this can be leveraged quickly. But as you rightly said that in 4 to 5 years' time, yes, we are targeting to be -- to have exports as a significant contributor.

The next question is from the line of [ Jeetu Panjabi ] from EM Capital Advisors.

Jasbir, I think great performance in the environment. I have one bigger question. When you kind of look at the next 6 to 9 months -- for the next 6 to 12 months, what would you, as a team, do differently relative to what you were doing in the past on multiple accounts, on the customer account, on the operational account and on the financial side?

See, there are very different kind of a measure which we have taken as far as we are speeding up our R&D activities for bringing up the products, which we were not offering to our customers earlier. So that is 1 part which we are doing, like we are bringing up cassette air conditioners, which was not into our portfolio. There were other smaller window air conditioners, which were not into our portfolio. There were smaller tonnages of air conditioners. This is on one part. Secondly, we are really driving a smart air conditioners drive to give a solution to our customers where it is like a connected device embedded with artificial intelligence on the -- on it, where you can talk to a machine and also you can map it with the Google Maps and start your machines wherever and whenever required. So these kind of unique solutions we are offering to our customers in all Room Air Conditioners as well as into -- in Railways also, a lot of data projection mechanisms are being embedded in the Railways side. And then on the financial side, certainly, there is -- there are a lot of things which are happening. As explained, we have already taken some salary cuts. Everybody is contributing towards that, but not only that, on a longer term, there is a big drive on curtailing down the expenses and monitoring on the fixed costs is more serious now as compared to last couple of years. So our SLE 50 drive has now been very aggressive where we are bringing in every penny, which is on the inefficiency side, we are monitoring that on this. And then on the raw material side, also, we are doing a lot of things in -- along with our R&D to map up the bill of material in an innovative way where we can reduce so we can bring efficiencies level. So team is working on a -- I mean cost innovation sides from a productivity point of view, from all other parameters, like maintenance point of view, HR point of view, purchase point of view, everyway the teams are working.

Okay. So the second question is, in your path to normalization, one, do you think you'll be back to 80%, 90% level by the end of the year? And two, what would be the 2 most difficult challenges in this path to normalization?

Well, it all depends on the demand as I earlier said that it's a big kind of realm of speculation, which we all are living in. But looking into the potential of our Air Conditioners segment, I think, and the pent-up demand which we are seeing initially, we should be hitting that number, as you rightly said, of 80%, 90% number. And the challenges will be definitely -- there will be challenges -- small challenges. Right now, we are -- in short term, challenges will be different. In the long term, challenges will be different. Short terms, there are challenges of -- like in some factories, there is a demand, but because of the government regulations, we are unable to get manpower -- complete 100% manpower back to our factories. So we are still restricted to continue with that. So as moving forward in 2 to 3 months' time, I think that will get normalized. So those challenges will get over. And the bigger challenge I also see is the dollar fluctuation. So once -- we need to be very focused on what way the dollar goes because still there is a lot of imports which are happening in air conditioners. So these are the 2 things which we are looking at. And now from June and July months, luckily, we are entering into the off-peak seasons. So we don't see any labor challenges because of that. Because normally, in off-peak season, we have a slow kind of a demand from that perspective.

The next question is from the line of Ansuman Deb from ICICI Securities.

I had a question regarding working capital. So in our last 2, 3 years of numbers if I see, we have -- our working capital increased from 29 days to 50-plus days, and now we have again gone back to 37. So if you could give us some color on what could be the sustainable working capital? And because we have high-quality customers, so what are the risks to working capital, if any?

So our working capital days, generally, as I have been speaking earlier also that it is basically in -- the sustainable levels are in the range of 35 to 40. These are the sustainable levels of working capital. But in case the imported component category shifts to India, then definitely, this can -- this number will change. This number will -- can go down to below 30 also. So -- but that is not happening in near term, maybe in mid-term in 2, 3 years' time, yes, definitely, once that shifting starts, then you don't need to carry that inventories which you normally carry. So those numbers will shift back. So in short term, the sustainability level should be 35 to 40. In midterm, it can go to below 30 levels.

Okay. And sir, one question regarding our tax rate. So as we understand, in FY '21, the tax rate will be somewhere around 25 -- around 30% because our subsidiaries would be at 25% and stand-alone would be at 35%. Is it the right understanding?

Yes.

The next question is from the line of Amber Singhania from AMSEC.

Just 2 questions from my side. One, on the manufacturing efficiency side, where do we stand as the country vis-à-vis Chinese manufacturers? I wanted to understand despite the increased import duty, how are we placed in terms of Chinese competition in India? And second question is, if you can give some idea about what is our total capacity? What is our utilization? And on the best-case basis, which -- what number one can reach in terms of utilization?

So as far as the manufacturing efficiency index is concerned, because the China has a great scale advantage, which they have achieved in last 25 to 30 years. So India in the market of almost 7 million today vis-à-vis China manufacturers about 110 million. So there's a big gap there. And generally, it's a bigger companies, which are making good volumes. But in terms of -- we have already a protection of 20% in both duties. So components and the finished goods in which certain scale has achieved, like window air conditioners have stopped coming from China. Even before custom duty increased, it stopped coming because the scale was there and we were competitive. So we were -- we are still competitive in window air conditioner by close to about 7% to 8%. In outdoor units, India has become competitive. Indoor is one place where we still need to be competitive. In some models, we have achieved that. In some models, we yet to achieve. So as the scale is moving up, as we will cross 10 million mark from 7 million, we will be more competitive. And then 20 million definitely will be at par with Chinese in all terms.

Okay. And in terms of capacity utilization?

Capacity utilization is concerned, so there are 2 ways to look at it. One is from component side of view and then from finished goods side of view. Finished goods, we generally operate -- on a yearly basis, if I see, our capacity utilizations are almost about 55% because we -- because of the seasonality part. But if you see on the peak season month of maybe March or April or May, we will be sitting at about 80%, 85%. But having said that, in capacity expansion in the assembly line is not a very big CapEx. So it's a small CapEx, which are required. And you can also run second shifts which generally is not run in the industry. So whenever required, you can do night shifts also. That is one point. On the capacities of the components, we have different capacities at different components level. Like in electronics, we have 75% capacity utilization. In motors, we are right now running at about 67% capacity utilization. In sheet metal, we are almost about 75% to 80%. And in heat exchangers, we will be at about -- in the peak months, we will be at about 85%. But in off-peak months, we are about 40%, 45%. So these are different capacity indexes.

Okay. Sir, I just wanted to understand on that part that do we need to put any CapEx for, say -- as we have done in the past couple of years, do we continue to meet CapEx to adjust the capacity or we can leverage this capacities and improve our return ratio significantly from here? What are the scope of that part?

There are 3 components in the CapEx. One is the maintenance CapEx. We have 15 plants. So you can consider about INR 2 crore, INR 2.5 crore per plant is the maintenance CapEx. Then, in the R&D and product development is another INR 25 crores to INR 30 crores, which we don't want to slow it down. So these are the 2 CapExs -- 2 components. The third component is the additional new lines or new customers or maybe new component sector or additional capacity expansion in the particular component sector, which comes into. So there are many opportunities which are right now coming in, sometimes for the new line of business, like we were not making indoors earlier. We started indoor only 1.5 tonne. Then, we get in -- got into 2-tonne capacities. And so those kind of CapExs you have to do on a yearly basis as you are progressing forward to make your product basket stronger as compared to others.

[Operator Instructions] The next question is from the line of Shrinidhi Karlekar from HSBC.

Congratulations on good set of numbers. Sir, as you are aware, we were working on this inverter controller ODM model. I just want to understand the status on that? And how far we are from offering ODM inverter controller to the customers?

So in ODM controller model, we actually did a joint development program with Infineon, which is one of the largest chip manufacturing companies in Germany. And the common R&D resources were polled on with both the companies, and the product is now ready. We have offered it to some of the customers who have tested it in their reliabilities, and they are -- right now, they have given us some initial orders. So we expect now that India -- designed in India, made for India product is ready. And now we have got about 4 customers, which have given us orders for inverter PCB boards. Then another 4 more new customers are in pipeline, which will be covered. Because of pandemic, the reliability cycle little bit got extended because of -- we could not send some samples and all, but now we have sent it recently. So those reliability will resume. And I expect that by November or December, those new 4 customers will also come. So with 8 new customers, we have seen this inverter PCB board at least moving forward, in the next 2 to 3 years' time, about INR 500 crore to INR 600 crore additional opportunity apart from what we are doing right now.

Right, sir. That's very interesting. And sir, on PICL, if I heard correctly, you said margins are about 6%. In your assessment, are those kind of trend level margins? Or is there a significant scope to get those to more of 8%, 10% of level?

No. See, PICL has actually used to have 7% to 8% of margin, then it fell down because PICL used to export its motors to Middle East. Then Middle East crisis happened. So we quickly shifted to domestic markets, and we produced new development. We did new development for domestic markets and now back on track. So we are now about 90% of domestic market and 10% exports. Earlier, it used to be 50-50. So the maintainable margins for PICL are in the range of 8 -- 7% to 8%, which we will come back by next year. I mean not this year, of course, is different year, but we have started moving ahead. And I think by next financial year, we should hit that number of 7% to 8%.

[Operator Instructions] The next question is from the line of Ashwani Kumar from Nippon India Mutual Fund.

I just wanted to ask you, in any of the components, is the spares and service market also open for you and are you addressing it in any fashion?

No. Actually, spare and service, one, I would like to put it this way that we manufacture very good quality air conditioners. So it's hardly any requirement on the spare side. But yes, generally, spare and service is basically controlled by the brands themselves. So it's a profit center for them. There are very small number of motors or heat exchangers which go in the spare market through brands. But that's very, very small number. It's not a very big number.

And in case of Railways, also, would there be any such opportunity of spares? Would you address it if it is there?

Railways, there, we have a very strong business of AMCs, annual maintenance contracts. Railway, we do close to about INR 25 crore to INR 30 crore of business of annual maintenance contracts for all the railway zones all in India. So we have about close to nearly about 450 to 500 people spread across in India on almost each station to service the Railways for air conditionings -- on the roof-mounted air conditioners on the Railways.

Due to time constraints, we take the last question from Praveen Ranjan Sahay from Edelweiss.

So I have 2 queries. So one, in this challenging time, do you expect your debt level to increase from the current level?

Yes. I think because we have some customers who have delayed the payments. And we have import obligations to take care. Though our creditors, the suppliers from import side have extended some credit to us, but that would not be sufficient because some letter of credits are to be honored. And as we move on, when we'll be opening up, definitely, the debt levels will go up at least in quarter 1 and quarter 2, but then it will start coming back once the normalcy comes back.

And next question related to which you are emphasizing on the R&D spending and the R&D speeding up. So can you give any color on when you are expecting to enter in the compressor business as well?

Well, compressor business right now is not on cards for Amber. We do keep on evaluating. It has to be completely feasible for us. But we are looking into expanding our horizons on the electronic component side on more motors, like we have -- we were not present into BLDC motors. So we will be setting up a expansion line on BLDC motors and also on a new range of products where we want to bring in new components categories which we were not into. So yes, there are a lot of opportunities on the components. But right now, on the compressors, we are still evaluating. So currently, in the short term, I don't think so we will be entering into compressors.

I now hand the conference over to Mr. Jasbir Singh for closing comments.

So we believe that business will once again emerge as they were in pre-COVID times, and demand will normalize over a period of time as we move ahead. With the growth opportunities we foresee on the domestic and export front, we believe we are very well positioned to capitalize on the opportunity. Thank you, everyone, for joining us. I hope we have been able to answer to all your queries. In case you require any further details, you may please contact us or our Investor Relations advisers, strategic growth advisers. Thank you all. Stay safe.

Thank you. On behalf of Amber Enterprises, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.