Bajaj Electricals Limited (500031) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Bajaj Electricals Limited Q4 FY '20 Post Result Analyst Conference Call hosted by AMBIT Capital. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Dhruv Jain from AMBIT Capital. Thank you, and over to you, sir.

Thank you. Hello, everyone. Welcome to the Bajaj Electricals 4Q FY '20 Conference Call. From the management today, we have with us, Chairman and Managing Director, Mr. Shekhar Bajaj; Executive Director, Mr. Anuj Poddar; and CFO, Mr. Anant Purandare. Over to you, sir, for your opening comments.

I would also like to mention that I have invited our Director, my daughter-in-law, Pooja Bajaj also. I said it will be a good experience for her to go through this thing. So she is also with me, for your information. Welcome to all of you for this conference call. I think you must be happy to see the fourth quarter results. And for the year, I mean in spite of the last 1 week having lost out because of lockdown, we could have -- for the fourth quarter, we could have a positive growth, which is something which I think in the industry, we are the only one who has had a positive growth for the fourth quarter. And -- in the CP business, I'm talking about. And luckily, our margins have also improved from 4.9% to 6.8% and from INR 36.7 crores, it has gone to INR 50.48 crores EBIT, which is, I think, something which we are very satisfied with. And as per our strategy and plan, our EPC business was to be brought down, and which is going as per schedule. For the year, two good things have happened; one is our objective of EPC business going down to below 40% has succeeded, it's around 39%; and our growth is negative 50% as far as this is concerned. And our 13 -- in spite of COVID, 13% growth has taken place for the year for the CP business. Also, the most important thing that has happened is that we decided last year that we were looking at the top line growth and bottom line was coming, but we were improving our profit and loss, but balance sheet was in a real mess in terms of our debt. Our debt-to-equity ratio was 1.5. We're happy to inform you that, that has been brought down to 0.8 -- 0.7, sorry, 0.7, it has been brought down to. And from a level of INR 2,000 crore, it is now around INR 1,000 crore, 700 -- INR 350 crores has come out of rights issue and another INR 621 crores has come out of cash flow from operations. And because of which our interest costs which was -- which is now brought down to a level of INR 170 crores for the year. And for the coming year, it may -- we are really looking at this interest cost to substantially come down to around INR 100 crores. So therefore, it is something which is very satisfying. And we are hoping that for the next year, as far as the consumer business is concerned, in spite of the few months loss; in the month of April, we had 0 sales; in the month of May, we had around 60%, 65% of our last year's level; and June, we should do 80% to 90%; and then July onwards, we should be normal. For the year, we are looking at, at least, trying to reach last year's level. In consumer business, we want to reach last year's level, that is our minimum objective. And on that basis, we have started working, and I think we are happy because we are luckily in the small appliances and fans and lighting and not in the large consumer durables, where there is a lot of sluggishness and, therefore, when people put consumer durables in one breath, they must separate out small appliances, which is a necessity compared to a large appliance, which is a -- which is something which can be postponed, can be avoided. So therefore, to that extent, we think there will be a good opportunity for us to continue to do well in the current year also. With these words, I would like to now ask Anuj Poddar, if he would like to add something and then open it up for people to talk.

Thank you, Mr. Chairman. This is Anuj Poddar. Good evening, everybody. I think he has covered the overall perspective on everything, so not so much to add. I will just maybe repeat a few points, but just present that in the context of our results. Like he said, there were 3 focus areas strategically, and I've been saying the same things over the last few earning calls, which is to relook at our business structure, drive growth in consumer, while be little more risk and profit and cash focused on EPC. So that's the reason for growing consumer, containing EPC; number 2 has been generating actual cash from operations for the business; and third is repaying debt and fixing balance sheet. Headline numbers and all of these, you have the numbers, I won't repeat all the numbers, but just the achievements: the consumer has beaten industry and maintained flat. This is on the back of actually 2 very strong double-digit growth months in January and February and then the negative impact of March, which has helped us even it out. On the bottom line, on consumer, it has grown very smartly at 37%. I just want to caveat that while that is very strong -- smart growth, 37% growth is not necessarily what we'll be able to deliver every month. We did pull back on some costs and expenses in March, particularly publicity expenses, which is why that growth is a little higher than it otherwise anyways would have been very healthy double-digit and ahead of industry on that. EPC, like we've said, it is -- the degrowth is intentional. You do see some losses on the EPC business segmentally in Q4. We have maintained that we will have a few quarters of losses, I think, running into most of this year. It is slightly higher in Q4 because we've chosen to take some provisions in the EPC business. However, these are provisions, and therefore, these are noncash items or noncash losses. And that's proven by the fact that despite these losses in the EPC otherwise, our cash generation in this quarter, like all the previous quarters, has been extremely healthy. This quarter, particularly, we've generated cash from operations of INR 127 crores. When you add this to the rights issue money that we've raised just before COVID in early March and all of that being used to repay debt, our balance sheet, as he has already shared, has improved significantly and debt equity has improved. I think all of this holds us good -- in good stead as we start this year. And despite the COVID pressures and challenges that we started the year with, we are working aggressively to mitigate the impact of the top line on COVID by cost containment such that at least bottom line we can try and protect to the extent feasible. I'll just take a pause at this, and we can get into the questions and answers. Thank you.

[Operator Instructions] We have a first question from the line of Renu Baid from IIFL.

Good to see a strong performance from consumer portfolio. My first question is to understand a bit more in terms of the drivers for the business, especially how has been the performance of the subsegments in the consumer portfolio? And given the COVID experience in the last couple of months, what are your expectations with respect to consumer offtake in the coming months? And do you foresee any particular tailwinds in particular subcategories for us, given that we are very well placed in the mass market?

So Renu, thanks for your questions. And thanks for the comment on the consumer business. As -- if you see, the entire business this quarter is flat. Most of the segments are close to flat, not wide variation, but just to call that out, lighting has declined by 4.1% in Q4, appliances has grown by 1.4%, and fans has grown by 0.3% and Morphy Richards has grown by 5.7%, but Morphy, as you recall, is a smaller base absolute number and giving a cumulative growth of 0.5% across these 4 segments. All of these segments, the first 2 months have had actually healthy double digits. So what you're seeing really is the impact of March. Just to add to what the Chairman said, while the lockdown was in the last week of March, in reality, the sales had started dropping across the industry by around 15th of March. So it's actually almost half of March that has been impacted. You must also remember that we -- summer is a big season for us, particularly for fans and coolers. And therefore, at the end of March or end of that quarter is actually normally a big important period for us from a sales perspective. In terms of just outlook and COVID and now, as he already shared, April, of course, was complete 0 sales; May is when sales started picking up, it did pick up faster than we anticipated at the start of May; and June has had a very, very promising start. So I think -- or we would expect that the bounce back in our category should be faster and sharper than many other industry segments there.

Sir, at least on the inventory side or the secondary sale offtake for you would have been fairly strong, especially for fans, coolers portfolio?

Yes. So to be candid, fans for us even in primary sales has done very well post the lift of lockdown. Coolers, in general, feedback from the industry is that it's yet been a slower offtake than fans has been relatively. Summer in Delhi, while it was strong, I do also -- the ground feedback was in Delhi and northern areas, some -- mornings and evenings were yet fairly pleasant, so I think cooler sales didn't take off the way we'd like to have seen that or not at our level. In the market, the inventory that was already in the channels would have sold, but we did not have enough of reselling that happened as we'd have liked in the season. But we're yet -- in the middle of June, we yet have another 10 days to go, North India is yet to get change of weather, and we'll yet try and see what we can accomplish in this rest of the month.

Sure. And my second question would be around the projects business and the balance sheet side. So given the end of March, again, how are we positioned with respect to the rest of execution for UP projects and the pending receivables on book? If you can also highlight what was the quantum of provisions created or impacted in the last quarter on account of projects? And vis-à-vis that, the refinancing that we are trying to do through NCDs, is it more from a financing perspective or do you think the credit cycles to be slightly more elongated?

Okay, then. Thank you, that's a lot of questions, but listened to one. I'll just answer part of them and ask our CFO to answer. On the execution front, we were running at good speed till early March. In fact, what happened is, this early March, I think Holi was March 10, if I remember correct, 10th or 12th of March, it does slow down a little bit in the 2 weeks running up to Holi because that's when a lot of people go off on leave, but all our plants were to pick up pace again by 10th, 12th March. Unfortunately, that's the time when this whole COVID scenario started and that labor did not come back. So in a way, we did suffer a 1-month or 6-week or 5-week impact on the project execution within this quarter itself. That has continued till the lockdown is not lifted. As we speak now, all the projects are back in operational, but the labor is yet coming back at different projects, at different states to a different extent. There are certain ground realities on the labor return because many of these are not coming in across state, but within the state labor, but the interstate labor or ground force is not necessarily fully coming back. In terms of the provisions and other numbers and receivables, I'll hand it over to CFO. You had -- and the NCDs. You had one more question that I thought I wanted to answer before I give it to him. Maybe I'm slipping that. Or why don't I let the CFO answer, then I'll answer your -- pending on that one. So Mr. Purandare, on the -- yes.

Yes. So as far as provisioning is concerned, as you know, we always have a very conservative approach while making provisions for receivables or even for the project cost of completion. So those all provisions are already taken in the books. So that's what I would say. And as far as our proposal for INR 500 crores of NCD or commercial paper is approved by the Board, this is mainly we have taken for the issuing commercial paper. Because with the improved balance sheet, we are expecting that our rating should improve, short-term rating, and we'll be able to issue the commercial paper, whereby you can save some interest cost with the lower interest -- with the issuing commercial paper at lower interest rate.

Right. So it's more of refinancing of debt that is happening on the interest NCD side?

Exactly. This is for interest arbitrage.

And if you can quantify what was the impact of provisions in last year's full year and fourth quarter?

I think we don't give such details on the call. If we can -- offline, we can take it.

Then, I'll take it offline later.

But one thing I must add that our objective is that from a level of 0.7%, which is our debt at this moment, debt equity ratio, we want to bring it down to around 0.4. That means INR 300 crores to INR 400 crores is the amount net, we want to improve our debt.

In FY '21.

Yes. We've already done INR 2,000 crores in the -- around INR 1,950 crores in '19/'20, another -- 2021, another INR 300 crores to INR 400 crores further reduction in our debt is what our objective is.

We have next question from the line of Rahul Gajare from Haitong Securities.

I actually joined a little late so I have missed some of your opening remarks. Sir, what I want to understand is, I've got 2 questions, one on each business. In the consumers business right now you know -- hello?

Yes. Go ahead, Rahul.

In the consumer business, given that we've had lockdown extended right till May, we were actually looking at this business growing at about 20% to 25% on a CAGR, over the next couple of years. After the lockdown that we've had, and how do you see this business over the next 3 years in terms of the growth? And within that, which are the segments you think will be the main drivers for that growth? That is on the consumer business.

Okay. Do you want to add the EPC question, then I'll answer both together.

No, I'll come to EPC later on.

Okay. Okay. So yes, we've been growing. We've grown this year at about 13% in consumer business, that is post the COVID impact, otherwise we'd have been higher. To be honest, Rahul, 20% to 25% CAGR, I don't think is -- would be a huge stretch. I think industry is growing at 10%, 11%; if we grow at 15% also, that would be way ahead of industry. We can always aspire to do more, we would aspire to do more, we've said that in private conversations that we aspire to do more, but that's not a public guidance of what we may be able to achieve 25%. In terms of the specific categories, fans, for example, is a very low -- typically, industry growth figures are pegged at 6%, but given that we are trying to improve our market share and ranking, to us, that's a key growth area, and we will grow that or aim to grow that in double digits as we've done this year except for Q4, followed by appliances and kitchen appliances, which -- where we already leaders, but we intend to grow that further by focusing on certain of the subsegments within kitchen appliances. Let me put it out in terms of our key focus categories. So fans, kitchen appliances, water heaters and coolers, these are the 4, to my mind, driver categories and scale that would follow by lighting and irons, but I think the core drivers of growth for us would be these first 4 categories.

Okay. Okay. On EPC, could you tell me what is the order backlog that you have right now? And what is your status on the UP segment?

Yes. Mr. Purandare, you can share the order book.

Yes. The current order book, as of 1st of April of this year, we have given number is INR 1,730 crores, comprises of transmission line tower INR 705 crores, power distribution INR 829 crores, and illumination INR 197 crores.

This is broadly around the same what it was in the earlier quarter.

Right. And power distribution fluctuates because it's effect of the scope reduction or additional scope. So every time you'd be seeing it, it is hovering between INR 700 crores, INR 800 crores.

Yes. And UP, if I'm not missing, was closer to INR 400-odd crore in the PD business?

400-odd...

UP project was -- the balance of UP project was around INR 400-odd crores, right?

Yes, yes, yes. Correct, correct, correct.

And sir, in the last couple of months, how have been the movement on receivable basically in this particular business?

So you're talking Q4, right, JFM?

Yes.

Mr. Purandare?

Yes. See, if you see the receivable, December EPC receivables were 19 -- INR 1,960 crores. Those are increased to INR 1,973 crores. But obviously, there is a billing. So if you see, there is a collection, which has happened. And if you see year-on-year basis, obviously, EPC receivables has reduced from INR 2,630 crores to INR 1,973 crores. So from cash flow, if you see, as CMD mentioned, that we have cash flow from operations of INR 626 crores is mainly if we see it's because of reduction in working capital. That is what proves that, that the money is collected.

Correct. Okay. Sir, actually, FY '20, it was a very good year from a balance sheet perspective. We've had significant reduction in the debt side, we've had strong cash generation. Now for FY '21, I was actually surprised, why are -- were we talking about only a reduction of INR 300 crores to INR 400 crores of debt number? I mean, given the kind of cash flow that you have generated last year, you think that number can be higher than the INR 300 crores, INR 400 crores?

So Rahul, normally, your cash generation should approximate your actual profitability of the business, right, except for certain adjustments of depreciation and/or other noncash items. So INR 300 crores, INR 400 crores is yet showing an overachievement on that based on a reduction of past working capitals or receivables, but to -- it can't be disproportionately higher than your normal business operational results, right?

Okay. Fair enough.

Also, Rahul, in terms of our top line because of this 2 months of disruption in April-May, unlike a 15% to 17% type of growth we would have looked at normally, we are saying that this year, we hope that we will do better than last year, that is almost 0 growth or 2%, 3% growth may take place. So automatically your profitability gets impacted because of the loss of sales, the top line isn't coming, and therefore, and our overheads, of course, we are trying to cut down our overheads substantially. Since the overheads cannot just come down and therefore, to that extent, profitability is going to get impacted. Of course, it's going to be much better in the current year, but it is not going to be anything which in a normal year would have been. If this COVID would have not come, we would have done at least additional couple of hundred crores, and that couple of hundred crores would have given us at least INR 40 crores, INR 50 crores of profit.

Yes, which is what I was looking for. I was looking at INR 50 crores, but nevertheless, let's see how '21 is. All the best for '21 and '22.

Thank you, Rahul.

[Operator Instructions] We have next question from the line of Sagar Jethwani from PhillipCapital (India).

Sir, what percentage of supplies are from China? And any change in strategy going ahead? This is my first question.

Sure. Should I take that on, Sagar?

Yes.

So we have in the teens, so it's less than 20%, close to 15 plus/minus percent in value terms of imports that come from China. So almost 80% to 85% of our sourcing and manufacturing is from India. Of this also, sorry, this 15%-odd that I said is all imports, but the bulk of that is from China, some of it is from certain other territories. We are aggressively looking at, we've already been on that work since the last 3 to 4 weeks, on possible alternatives at 2 levels, one is imports, but other than China. So if we can move some of the China imports to other countries, and that's particularly usually Southeast Asia, and more importantly, to moving it to local and from other Indian sources or manufacturers or raw material sources. That said, not all of it will happen overnight. There is a phased plan that we'll end up with. Some things that are ready in terms of suppliers, one will yet have to work with them to create tools, molds, testing, quality approvals, et cetera, before one can start sourcing that locally. Some other elements or products within raw material form or finished goods do not have the right ecosystem or supplies in India, and that will take that much longer to be created. Some of these are not specific to us, but those are industry level issues. For example, if you take the whole lighting industry, LED, the chips, all the assembly units, a lot of that except the external unit, comes from China, Taiwan, et cetera. And that ecosystem will take time to develop in India, entire value chain has to be created. With MeitY and the Ministry and the industry, we are working on that. Similarly, if you take certain product categories like microwave ovens, almost entirely, those are made in China. It's also a technological issue of the magnetronics. So category by category, one has to look at, there will be some low-hanging fruits and some longer-term conversion items here.

Okay. My second question is, you mentioned that May and June are -- ongoing June are relatively better months in terms of expectations, so better than expectation, I would call it. So some of this demand would be pent up in nature. When do you see this demand normalizing going ahead, of course, in some months?

Very hard to predict very accurately, Sagar. But a lot of our -- the earlier sales started on 4th May because that's when some parts of the lockdown lifted, but actual trend line started coming on 17th May, that's when more of the lockdown lifted, okay? So from 17th of May to now, we do have 4 weeks of data to look at. I think it's a little more than just basic pent-up demand that's coming in. That said, there are yet key urban centers that have not opened up fully, and that includes places like Mumbai, Delhi and Ahmedabad. Chennai has gone back into shutdown; Calcutta, which was impacted, and these do constitute disproportionate value of the market size or opportunity. So what we're seeing now is despite these 4 or 5 key urban centers not being operational or fully opened. In terms of -- just to give a sense of our distributor base, about 80% of our distributors are operational, 20% are not. Of that 80%, about 40% are fully operational in terms of their market mapping and 40% are not. So I would want to see a little more data, a little more time and across a complete geography to have a very more robust predictability. But given all these constraints, the numbers that we're seeing, I think, is yet fairly promising. I would not put this only to pent-up demand or rebound. While -- sorry, I think Mr. Bajaj was saying something.

Yes. I would like to mention that I don't think there's any pent-up demand. A lot of people are looking at -- because there is no rush to get an iron or a toaster or a mixie, I don't think there's a rush. So whatever is required, luckily, we had inventory because end of March whatever we had planned to sell, that got stuck in the -- with ourselves -- we had that inventory plus our dealer distributor had their inventory. So I don't think there's hardly any item, which really is stocked out or anything like that. There's no that type of pent-up demand that 2 months -- suddenly, everybody says, I had 2 months, I have got nothing, so I'm going to go and pick it up. But things like microwave, things like OTG, things like induction cooker and all in addition to fans, which is a seasonal time, so these items will be more required because a lot of people now are working from home, a lot of people are stuck at home. And therefore, I think the husbands have also started cooking and wives are wanting to get them pizzas and toasts and all. So therefore, I think there's a good demand for our products, which is not like a washing machine or a dishwasher or an air conditioner, which can be avoided. I don't think a person will not get a toaster just because the COVID is coming.

Okay. And sir, last question, not sure if this is repetitive, but any plans to raise some more funds going ahead?

Not at all.

We have next question from the line of Akshay Bhor from Premji Invest.

Congratulations team on good set of numbers. My first question is on the EBITDA margin. You've always said that from the 6% to 7% on the consumer business, you want to go to 10% over a period of time. Can you highlight like specific steps that you are taking or do you intend to take over the next year or so? Any granularity there would be helpful.

So thanks, Akshay. Like I said, we are looking at increasing our EBITDA margins, but I've always maintained, it will be more hockey stick. So be happy if we are able to do that in a linear manner. I'm happy to say this year, on a full year basis, we've expanded margins by 0.5 percentage point, I'm talking consumer from 6% to 6.5%. This is despite the allocation impact of because of reallocation between EPC and consumer. So if you build that in, it's actually 1.4% margin expansion. The elements to drive margin expansion currently are going forward. I think on first is -- on the first level margin, which is the gross margin, we are looking at steps on both optimizing our sourcing cost and tweaking our product mix and some of that is starting to payoff. So we will see some of the margin coming from the first level margin. And then we're also attacking overheads and certain other costs line items, including relooking at our logistics cost. Some of these are projects or initiatives that have just been initiated, particularly logistics cost this year. I don't expect to see any gains of the logistics initiatives this year, but I think the gains of that would start from calendar year '21, which is actually into fiscal '21-'22. But I think that's a journey. So as we start these exercise of initiatives now, we'll be in a position where every year we'll start seeing some gains going forward. So we are starting these. The third point I want to make there is some of -- we do also have maintained that we have to invest a little more in product and in brand development. But what we're trying to do is self-fund that. So rather than eat into our margins or profitability on that, use some of these cutback or efficiencies or nonproductive or nondirectly productive costs and save there to self-fund some of these spends that we need to do. And that's the reason I talk of the hockey stick because today we are self-funding some areas that we need to invest in while keeping or protecting margins. But as that moves into normal mode, you will see the margins get released from these initiatives and the gains from these to come in.

Understood. Just one more thing on the EBITDA margin side. When we look at some of your comparable companies or peers, they're actually well ahead of the 10% market as well. I wanted to understand how much of impact does, let's say, the make versus buy decision have on the EBITDA margin? Because I'm sure that some part of the margins have been -- because you're higher on the outsourcing side, some part of the margins are being absorbed by your vendors. So any sense on what percentage margins are -- can be explained by that make versus buy?

So okay. Let me answer that differently. One is, if you talk about competition, I know there are people like Havells, which are much higher on the reported margins. And then if I remember correctly, people like Orient, which are on the lower side, okay? But I don't want to comment on the specifics on those companies. But if you do look at the one which are on the higher side, you look at a lot of the costs sitting in the unallocated bucket. We do not have very high cost on unallocated. So almost all our costs in the segmental reporting also are allocated and, therefore, our margins are less, that's point one. Point two, I think on the make versus buy, my view is that it should not be looked at purely from a cost prism because that's a short-term view and maybe that releases 1 or 2 percentage points on margins. But on a longer term, what strategically does that give you more flexibility and agility to move with times, and I think it would to have a lower -- that's my thinking to have a lower internal make and have more flexibility on sourcing, so we can focus on making what is strategically important. But like all consumer companies, if you see, their focus is to be a market front brand-led consumer oriented company. The manufacturing is, to my mind, not the best use of capital, but more importantly, does not allow you to move with the time as fast as one would like. A very extreme example of that is the lighting industry and our investments in CFL or otherwise in the past. At that point may have looked attractive from a profitability point of view, but over a longer arc of time, sometimes it weighs you down. So I don't think nonlighting industry is as rapid in evolution, but I think the principle stays the same. I would rather have flexibility at the cost of that 1% margin, my ROC will be higher.

Yes. Did you just say that that 1% to 2% is the delta there that is related...

Anyhow, this year it's all related -- adding to this, the COVID is a great example. COVID with everything changing, my guess is not having these fixed costs in my head in manufacturing units makes me more nimble to have dealt with here.

Let me also add one point that what Anuj is saying, I'm seeing one step more. Over the earlier years, the type of R&D, the type of development or the change of scenario was taking its own time. A lamp was there for the 50 years, there was no change in lamp. CFL, I thought is going to be forever and suddenly it died. So therefore, similarly, a lot of new innovation is taking place. So with the result, if I've got my own investment in a very big way and the market is down, like you said, just now for 2, 3 months or suppose like airline business is there or, let us say, air conditioning business is down. So as a company, if I just compare with Havells, who has put in a lot of money in the air conditioning business and the air conditioning business is down, they get very much impacted. If it was a variable cost, then to that extent, we don't get so much impacted. So we are happy in terms of return on capital employed is most critical, which is over 50% we are having in our consumer business, that is how we are going to increase it from 50% to 55%, 60%, 70%. That's the most important. If it's a limited capital, how can you get a better return on capital employed should be the basis on which one does an investment. It is much more than the 1% and 2%, which additional margin that may be available to you because you're producing yourselves, but your total asset increases in terms of capital expenditure and, therefore, ROCE does not go up necessarily.

So if you look at our annual CapEx also, it's very contained. It's in two-digit crores, et cetera. We don't have those CapEx-heavy requirements.

That's great.

You were asking something else, Akshay. Sorry I had cut you off...

No. I think you clarified. I just wanted to check if it's just 1% or 2% that makes a difference between make or buy because when I look at some of these vendors that make, such as lighting for you, and they are making like 10% margin. So it's kind of confusing with the spread that you...

No, no. Nobody makes 10% margin. We give them, say, gross margin of 10%, they have their costs also, which you must consider. Average, I would say they will be making a margin of maybe around 3% is what I would say. 3% is considered to be a normal margin, 3% to 4% maybe. But the issue is that in terms of -- which we don't count, the manager, the owner himself is running the show. I'll have to have a Vice President, I'll have to have a Managing Director, I'll have to have a General Manager, all those costs, which are involved and organized sector has to pay union, all those other problems as they are manufacturing and flexibility -- you tell them, you have to double the production, they can do it in 3 months' time. If you tell them, okay, you have to half the production, you can do it. Here, when we decided to shift to Himachal in fans, our factory in Pune could not shift and all other vendors shifted within 3 to 6 months. We could not shift because the union did not give permission, the state government did not give permission. So there are a lot of restrictions, which come in if you have the own manufacturer as an organized player. So those are issues also which come into play.

We have next question from the line of Bhavin Vithlani from SBI Mutual Funds.

I would like to compliment on the efforts on the cash flow generation even despite such challenging times. My question is more on the consumer side. So if you could define your efforts on the innovation side, build in your product categories that you are pushing on, so whatever you can divulge and, obviously, can give more directionally, that will give you an accelerator because your target is to grow 2x the industry. So maybe if you could help us on that.

Sure, Bhavin. So just say, as a data point, we've launched about 150 product SKUs in the consumer business in this last fiscal. A lot of that revolves around plugging what we see as portfolio gaps or segment gaps. So as I said to one of the earlier questions, we're not looking to add more categories, but within the categories that we presented, we think there are various segment or targeting of positioning gaps that we have, which is what our R&D or product development is focused on, number one. Number two, this is being done, while at the same time, we're actually reducing our overall portfolio in terms of number of SKUs. So we are rationalizing on the one hand and while adding more, so I think that the message there is to just churn that faster and be more contemporary and relevant to the products that we offer in the marketplace. The word, I think innovation is a good word, but sometimes it can be a distracting word because innovation, if it's being led by a consumer need or is it being led by a scientific engineering feel good? The kind of innovation that we want to focus on is that is solving a consumer problem, creating a differentiated product, which a consumer is willing to pay for and which we think is a sizable business opportunity. It has to take those parameters for us to do it. We are not trying to do innovation that earns us patents, but does not give us a wide enough scalable commercial opportunities. What that typically means is that I don't need to be ahead of the curve on innovation or cutting-edge innovation, but I need to be business savvy innovation, and the 2 are fundamentally different. So the way we're addressing a lot of that is having a consumer-first approach to everything. R&D team is exposed to research and consumer insights. They are -- the engineers are taught not to think as engineers, but to think as marketers, and we've connected the dots on some of that stuff. So that, just in a nutshell, is the way we're driving our product development. And you'll see a lot more product output, but focused on what makes hard business sense for us here. I'll leave it at that. Specific products, what we're doing, obviously, is something I cannot divulge here.

I think for -- so let me be a bit more specific here. So it was -- so when we spoke to Midea, they said that incrementally the consumer durable products are getting more connected, more digital, so that is one on the product side. Second is maybe when you speak to Hawkins, they had an issue with respect to -- because similar to you, they are dealing with N number of SKUs. And so they invested in technology where they get live data, something like a TOC, it helped them manage their SKUs better. So if you could -- anything on these sort, which actually helps you -- I mean, innovation can be product, can be a process, but which actually helps you to embark on your journey on accelerated growth, which is 2x the market growth?

So Bhavin, I think you answered your question. If I want 2x, then this is not the answer because 2x comes from a median of the market, not the niche of the market. These innovations tend to make you look good, make me look good as a management, but is not the one that will take me to 2x. I will yet do some of these selectively, but I have to be conscious that I'm doing that for brand building. So for example, we launched this year an IoT water heater. It is, to my mind, shows our ability to develop and launch a cutting-edge innovative water heater product, but that will never give us the value or volumes that we seek. So we have to be very careful on whether we're doing innovation to expect numbers or if we're doing that for positioning or earning brownie points, then it has to have very limited investments in that and limited number of products there. But behind that one water heater, we've actually launched multiple other water heaters that don't make for headlines on innovation, but actually sell better in the marketplace. So that's the view that I have on this.

Sure. The second one is if you can help us...

I'm sorry, just to add to that, there's a certain light bulb that's been launched now that's connected and costing INR 1,500. There is more newsprint on that one light bulb, not by us by competition than any all the other light bulbs or LED products out there in the last 6 months. But that's not the one that's going to sell in India, which is I think -- at scale.

Understood. And sir, the second question is, if you can help us with your market share and how it has risen over the last 1 year in your top 5 product categories, that will be helpful?

So I've shared this earlier. We don't publish or share market share specifically for the reason that actually they're not accurately available. All the data, third-party data that we have either comes with a lag or there are 2 such studies that are done even at association level, which I'm part of, that have varying numbers. We, in turn, actually rely on our own data, which we feel is more accurate and more current because it comes with less lag. But then that's ours are not really certifiable, like we don't put out. A simple submission to you is, if you look at our growth rates versus industrial competition growth rates, to me, that's the biggest, for us, takeaway on whether like market share is expanding. Mr. Purandare, did you have something to add on this based on what you shared earlier?

As you rightly said, we don't have any obfuscated market business.

So Bhavin, we do track it for ourselves. But like I said, if it's our own anecdotal data, it's not something fair to put out as such.

Also, on major items, our appliances, there is no appliances association. And therefore, there is no data to talk about appliances. All -- it's only conjecture or we're discussing with the industry, but there is no -- like at least fans data -- fan manufacturer association, there is some data available or ELCOMA has some lighting data. But as far as appliances, which is 70% of our business, there is no data available because there is no organized association, which is doing it. We are trying to create an association, which -- where some data can be created. But at this moment, there's nothing available.

We have next question from the line of Chetan Gindodia from AlfAccurate Advisors.

Congratulations on the balance...

Chetan, can I request you to be a little louder?

Yes, sir, we can't -- please use the handset, sir. Thank you.

Is it audible now?

Yes.

Yes. Congratulations, first of all, there has been really a turnaround of the balance sheet. So kudos to you on that. And my question is on the EPC segment. So now this year, we are reducing the turnover of the EPC segment, and we have a loss of 33 -- we have a loss. So how do you look at the loss of the EPC segment for FY '21 and '22? And how is it -- can we make the EPC loss 0 in FY '21 is my first question?

So EPC segment, this year was the big year of drop and change. I think going from here, it will be more stable. So we don't expect it to shrink from here, but probably hold at these numbers. Within that, the mix may keep changing between illumination, transmission and distribution. But on an aggregate basis, I think the larger number should stay in this region, point 1. Point 2, yes, the losses are there. I think the losses may continue for another couple of quarters, but on an annualized basis, we hope to actually have that EPC also breaking even in FY '21, subject to some of these uncertainties around COVID and projects and CapEx, et cetera. But broadly, that's our target, so to make that profitable. As we go forward, our exit run rate in FY '21 actually should be positive on EPC also, so that FY '22 is a win-win on both segments.

Okay. Okay. And just one question on the balance sheet side. So our current financial liabilities have increased by around roughly INR 300 crores. So what exactly is this number? And what has led to the increase?

I'll ask our CFO to answer.

Financial liabilities, you are saying?

Yes, current financial liabilities.

Yes, this is basically the accrued interest on the NCDs. And that is one part of it. And B, is there is 116 introduced, that is the liability of -- lease liability is coming as a financial liability.

Okay. Okay. And any outlook you can share on the different -- on our subsidiaries and how are we planning to reduce the losses of our subsidiaries in FY '21 and '22?

So Mr. Purandare, do you want to take that on in the context of the entity where the corporate action is there now?

Yes. As you are all aware that Hind Lamps Limited, which is one of our associates, we already got the order from the NCLT for demerge their manufacturing facility and merge with Bajaj Electricals. Obviously, that is coming with the assets and the liabilities of the manufacturing business of Hind Lamps Limited, which is a factory which is manufacturing LED bulbs and battens and having the surplus land available for the future expansion if we are going to do -- invest in the future expansion. So that is on Hind Lamps Limited. Starlite Lighting, obviously, which was basically the joint venture for the CFL manufacturing, but it is carrying the losses because of CFL got dead, and that investment has become a bad. But however, we are adding a few more products like mixers, and it is also manufacturing water heaters for Bajaj and some other brands. So we are looking at -- we can turn it around by adding a few more products and improve the capacity utilization of Starlite Limited, so which will get turned around in a couple of years.

And sir, LED?

And they are also manufacturing LED bulbs and battens.

We have next question from the line of Achal Lohade from JM Financial.

Just wanted to understand, so for the consumer business, if I get right, you're talking about a flattish kind of a year for FY '21, is that right?

That's correct.

And how about the margins? Would we expect then margins to improve, given the way we're looking at the cost reduction?

Yes. So that's our endeavor that to the extent we can cut costs and, therefore, recoup some of the bottom line impact. We'll not escape it fully. But we do want to improve and enhance margins on consumer business to get higher profitability. Besides at operating level, the big jump up will come because of the interest cost savings that was over and above this here.

Right. Can you also help us with the inventory and the trade payables for EPC business, sir?

Mr. Purandare.

What was the question, Achal?

For the EPC business, what is the inventory and the trade payables? You gave the debtors already, just wanted the inventory and the trade payable.

Okay. For EPC, the inventory is INR 190 crores.

Sorry, could you please repeat that, sir? I didn't get you?

Inventory is INR 190 crores.

Okay.

Outstanding is INR 1,973 crores.

Right.

And then other assets, which are basically advances, and this is INR 282 crores.

And the payables?

Payables of -- total liabilities and creditors is 1,000 -- INR 1,104 crores.

Understood. And -- sorry, please go ahead, sir.

So capital employed of EPC is INR 1,414 crores.

Got it. And with respect to the tax rate, how do we look at now for FY '21 and '22?

It should be 25.17%.

Understood. And just one more question with respect to the appliances, consumer products business, have you seen in last 4 or 5 weeks a more pickup from the online? And do you see this -- could we more offer a structural change, which you probably look at online? And also, just wanted to know the number for A&P for FY '20, how much have we spent?

So the online, in general, has been outgrowing the offline or the general trade, even through FY '20. Events like this tend to accelerate trends that are already in place. So online, post COVID, I do expect it to grow even faster than it was growing in terms of share -- eating share into that, even particularly now because people are worried to step out, et cetera. That said, the trend in the last 5, 6 weeks has actually been the reverse. Online has been lower than -- our share of online business last 5, 6 weeks has been lower than it has in the past. But the reason for that is not market, it's the government policy because they allowed the stores to open earlier but did not allow online to start selling nonessential products for a much longer time, particularly in the red zones. So -- and Amazon and Flipkart have started selling nonessentials in the red zones more recently and as that's starting to happen, particularly in the last 2 weeks, we are seeing online get back to its normal share. But going forward, I would expect it to pick up and increase its share. On the A&P spend, the finance -- CFO can give you the exact numbers. But keep in mind, we pulled back the spend significantly in March, we canceled all our spends there. That is when we do a fair amount of spend because it's a cusp of the summer season. And fans and coolers tends to be advertised heavily over there, so these are suppressed and not normal spends here.

Right. Purandare, sir, can you help me with the FY '20...

So in terms of numbers, actually, let me give you percentage. So we were normally operating at 3.5%. With a pullback because of this summer, we've brought it down to about 2.9% in FY '20. But going forward, like I've always guided, that 3.5% itself was expected to go to between 4.5% and 5%. But this year, again, is an odd year, so we'll see based on how market movements happen, what exact number we will settle that at. And that is something we will self-fund through other cost savings. Mr. Purandare, you can give the absolute number.

Yes. See, the spend on advertisement and publicity is INR 94 crores against last year INR 99 crores.

And for the fourth quarter, how much was the reduction broadly?

About INR 25 crores.

Understood. And if I may, if -- with respect to the unallocable, what you mentioned, would you be able to quantify how much was the unallocable, which got opposition to the segment?

To actually reallocate it from the other side, yes, Mr. Purandare, you have that number, I think.

You are talking about the reallocation because of the mix of business exchange?

Yes.

That impact is...

So the number I have, Mr. Purandare, you can confirm me. If I look at just Q4, Q4 consumer margin is at 6.8% which, without that allocation impact, would have been 7.8%. So that's a 1 percentage point. Having said all this, this is for comparing FY '19 to '20, which is why we have been sharing this, this year. Going forward, it would be more fair to take our current year numbers as the base because now this allocation, I don't see that changing in future years.

[Operator Instructions] We have next question from the line of Nisha Malhotra from HSBC.

My first question is that the EPC net segment assets, if I look at that, does not decline very sharply vis-à-vis the revenue, which has declined significantly. So what is the reason for that? Is it because of a lot of retention money or there are some other issues?

Mr. Purandare, you can share asset reduction.

Just a second.

By the time he is calculating, let me explain to you that the fact is that the government is saying when this lockdown has taken place that please pay to all your contractors, pay everybody their salaries. But from the government, the money is not coming. So our receivables from our project business has not been very exciting. We've been able to collect some money, but not up to the type of thing, which is due to us. So that's one of the reasons why our basis are continuing with that. We've -- by now, I think Purandare, you can now explain the numbers.

Yes. So overall receivables, which were as of March INR 3,144 crores is reduced to INR 2,537 crores.

Yes, Vis-à-vis the revenue, which actually dropped significantly. So basically, so I understand that the government is not releasing payments and hence your funds are stuck and there is no other issue. This is just to be a matter of time and eventually, I mean, you're confident about the recovery?

Absolutely.

Yes. Okay. My second question is, when I compare your EPC business with other EPC players, who are also in the distribution business, they have been fairly profitable. So what is the reason of remaking losses in this segment? Is it that there were some fast contracts that we underbid or the projects' scope changed, et cetera?

Most of our competitors are not in the power distribution, that is the rural electrification is one area, where most of people, KEC and others are not there, KEC, Kalpataru and all. We are the only ones among the organized sector who has got into the power distribution, and that is what has given us major money blocked up and major losses have come out of that. Our TLT business -- other EPC business are all profitable.

Okay. Sorry, maybe I didn't understand. KEC and Kalpataru have been fairly profitable in that particular segment. However...

They are not in the rural electrification segment, the power distribution. So that is a segment where we've lost money. We're not lost money in the transmission line tower where KEC and Kalpataru are there. We are not losing money in other businesses. The main reason for losses is our power distribution, where the -- we are not receiving the money back and, therefore, the interest cost is killing us and plus the whole cycle has gone haywire because of that. So power distribution, when you're comparing with other EPC player, I don't think any of them, except for L&T, L&T is the only one who is in power distribution, but they have got so much other business of EPCs that this power distribution for them, that is the transmission -- rural electrification is very limited business of theirs, while for us, it's a major business. That's why it's hurt us.

So Nisha, just to explain that further. The rural electrification part, most of these companies are not operating, except L&T as he shared. Within power distribution, they are doing other projects such as substation work, railway electrification, et cetera. I think KEC, in particular, has been doing railway electrification, which has been profitable for them over the last 2, 3 years. I think we've been, unfortunately, in the rural electrification, which we've learned our lesson, but that's the one that's been dragging our EPC performance.

We have the last question from the line of Amar Kalkundrikar from HDFC.

I have just 1 question, sir. On the consumer margin, can you just explain to us for the full year the various factors? One is, I think the impact you said of increase, this, overhead allocation is roughly what, 1%, 1.5% and that is...

No. That is 0.9%.

For the full year, Amar, it's 0.9%. For the quarter 4, it was 1%. Go ahead and finish your question, I'll answer it, yes.

Okay. No, so quarter 4, actually, if you see absolute basis, EBIT is flat. And in that, you have a INR 25 crore A&P reduction and the increase because of this overhead thing is probably INR 7 crore to INR 10 crores. So I thought the margin improvement is a little lower than expected. So that was thing. And then I wanted to understand it on a full year basis?

No. So sorry, if you're saying quarter 4, EBIT is not flat, it's jumped 37%. So consumer EBIT has gone up from INR 37 crores to INR 50 crores in quarter 4. And that's the 37% increase, and that's on a Y-o-Y from 4.9% to 6.8%. This is without the allocation impact being reversed, okay? Is that number clear, then I'll explain it further?

Okay. Without allocation, it is up from...

INR 37 crores in Q4 of 2019 to INR 50 crores in Q4 of FY '20. This is for consumer EBIT.

Okay.

Okay? So that's a big jump of 37%. In percentage terms, Q4 of FY '19 for consumer was 4.9%; in Q4 of FY '20, 6.8% EBIT margin. If we reverse the allocation impact, then that 6.8% would be 7.8%. So that's a big jump. That said, I think this is slightly exaggerated because of the pullback on ad spends. But not all of the ad spends can be added as a negative because that would also have contributed to some sales. And therefore, now that becomes conjectural, how much of extra cost of ad spend would we have incurred and how much sales and margin contribution would have gotten. Am I clear?

Yes, sure. And...

But nonetheless, there's an improvement. And I think due that, just defining that -- splitting that up is a little academic.

Okay. Fair enough. And on cost savings, is there anything you can share some more details in terms of...

Yes. So we are aggressively cutting costs or expanding margins, let me say, first is at the first level gross margin by just reworking our sourcing, value engineering and product mix. So you are seeing margin expansion on consumer at the first level this year also, and you'll see more of that come into FY '21, that's one. And the second margin expansion initiatives are below the first level margin, which is various overheads, employee costs, et cetera, we are optimizing that. But some of that will be replowed into brand, so you may see a certain evening out over there.

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to the management for closing comments.

So I just want to add one more clarification because somebody had asked me this offline. If you look at employee costs in Q4 this year versus Q4 last year, it shows a big jump, but that is not the case. Q4 of last year was -- had some reversals in the employee cost. So it was actually lower than Q3 of that year. And therefore, actually in reality, it is a very nominal increase in employee cost in Q4 Y-on-Y, except for the base being depressed because of the reversal. So I wanted to clarify that when you look at the numbers. With that, I'll take a pause, I'll let the Chairman offer closing remarks.

I would like to thank all the people who have participated in this conference. I think we are reasonably satisfied with our performance as far as the consumer products are concerned. Also, our direction in terms of EPC also is going perfectly okay. Our whole objective in this year will be on one side, try to expand our activities and business with consumer products. EPC, the main focus would be how do we collect our old outstanding, that amount which was mentioned by Purandare that we have to collect money, and that is everybody, every month just focusing -- rather every week, when we discuss, we focus, what are we doing about collection of funds. So government is just not -- they keep saying, we are putting in INR 20 lakh crore, but I don't see the money. That's the problem. That's all. So thank you very much again, and wish you all the best.

Thank you very much, sir. Ladies and gentlemen, on behalf of AMBIT Capital, that concludes this conference call. Thank you for joining with us. You may now disconnect your lines.

Thank you.

Thank you.

Thank you, everyone.

Thank you, sir.