Bajaj Electricals Limited (500031) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Bajaj Electricals Limited Q4 FY'21 Post Results Analyst Conference Call hosted by AMBIT Capital Private Limited. [Operator Instructions] Please note that 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.

Welcome to the 4Q FY'21 earnings call in Bajaj Electricals, from the company's end, we have with us Mr. Anuj Poddar, Executive Director; Mr. Anant Purandare, President and CFO; and Mr. E.C. Prasad, Financial Controller. Thank you, and over to you, sir, for your opening remarks.

Thank you, Dhruv. Thank you, everybody. Welcome to our call. This is Anuj Poddar. Hopefully, you've all got a chance to see the numbers. I will just share some opening comments and some insights or qualitative comments behind the numbers. For us, it's been another good quarter. We are pleased with the quarter. It is completely consistent with all the strategic direction and steps that we've been taking focus, as you know, has been on driving growth of the consumer business. We've done that. I will talk specific numbers soon. Also on margin expansion of the consumer business, we've delivered on that. On better capital allocation, we've delivered on that. And overall, this is the highest ever net profit and profitability in percentage terms for Bajaj Electricals. Some specifics. Our consumer business in this quarter has grown by 31%, one of the important things that I want to call out here, unlike industry or certain other players, our growth in the consumer is not coming off a low base effect. So last year, Q4, March '20 we did not have a degrowth because of the lockdown. If you go back and visit our numbers, we are flat or actually 0.5% growth last year in Q4 as well. So this year's growth of 31% needs to be seen in that light. It's a good growth number on that front. Our consumer business EBIT margin has increased Y-o-Y from 6.8% to 8.7%. This, again, factors in two things: Our publicity expenses have increased. We have not cut back. So last year, Q4 was about 2.1%. This year, it is at 3.7%. And we've also taken an increase in employee costs or employee salary increments from 1st of January, so this margin expansion is after factoring in both of these elements. Our finance costs are down, as you know, PBT, PAT numbers are up. I'm not calling those numbers out. On the EPC front, like we've been saying, our focus is not on topline, but on better bottom line. So while our topline has compressed, we can talk about the makeup of that later. Bottom line, we managed to further reduce our losses on the EPC business. A quick commentary on the cash flow and balance sheet. Our cash flow from operations for Q4 was INR 50 crores. And our overall debt is sitting at INR 471 crores on gross and I think it's about INR 425 crores on a net basis. This is, again, an improvement. We've pulled back capital from the EPC business. It would have been even better, but we have consciously increased our consumer products inventory as of March 21. So that at March 21, sits at about INR 793 crores. which is up from about INR 623 crores in December. So it's a further, if I may emphasize that, INR 50 crores cash flow from operations in Q4 is despite stocking up of inventory by almost a INR 170 crores incremental in this quarter. So you must see that in that light. So that's, again, on track. This is inventory that will release cash over the coming months, and we'll see a positive effect of that also. Finally, a PD receivables, we'll talk about that later, but our power distribution receivables also continue to come down. So overall, on a P&L basis and a performance on margins and on a cash flow and balance sheet basis, we are pleased, and we continue to be on track with our execution on our strategic direction. Thank you. And I'll give it now over back to you for questions.

[Operator Instructions] The first question is from the line of Rahul from Haitong.

So I think it's a good performance. And given the fact that I think Bajaj Electricals sells more of wholesales rather than push sale. I think 30% is a good. My first question is on the demand sensation as you see Vale, can you understand given pandemic things are likely to be difficult on the, but I want to understand your thoughts on the demand situation. And connected with this would be under profitability also, given the fact that we've seen a steep increase in commodity and freight costs. How have you taken price hikes? Have they been absorbed medially by the market or you take some resistance, do you need to take into more buy sides. So profitability and demand side? That's the first question.

Thanks, Rahul. Let me answer the second part first on the impact of commodity increases. Like we all know, commodity prices have been increasing since last September. We faced less of that in Q3 because we are carrying inventory from the past. And therefore, we have now, in Q4, you're seeing the full impact of commodity price increases on our performance. Okay, number one. Number two, we've taken a price hike between 6% to 8% in January. And we've taken a further price hike, about 3% to 4% as of 1st of May. The January price hike is built into the numbers and has actually effectively been absorbed in the marketplace. The May price hike, while we rolled it out, quite frankly, because of a lockdown situation, that is not translated into any real difference on the ground. As and when the market is open and the lockdown is lifted, that's when the effect of the price hike into play in the marketplace there. In terms of the impact on margins, I think there will -- we've seen some impact on margins in Q4. By that, I mean that had it not been for this price -- commodity price impact, we would have seen better margins. So we had grown, but we have grown more had it not been for that. The reason for that is simple, typically would like to pass on the entire price impact to consumers. But given how sharp and how rapid it has been and the fact that it continues, I think there will always be a certain lag effect before we absorbed that before that gets fully passed on to the marketplace. My guess, and I can be wrong on this, is that we are probably going to see another 3, 4 or 5 months of commodity price increase, but it should start stabilizing after that. So as management, quite frankly, to me, these are tactical issues, not strategic issues. We just have to keep head low, deal with this in this quarter, which is Q1 maybe partly in Q2. We've done that last year. We're already looking at cost cuts within this quarter to deal with the impact of lockdown, just like we did last year. And we know we'll -- I mean, obviously, Q1 will not be as we like it to be, but we'll take that in our stride, and so be it. Strategically, we will yet remain on the parts I've been talking about. And those are some of the investments that we will not shy away from making because that's imperative for our long-term growth. So whether it's product, brand, CapEx, other things, we will continue to make that to the extent we need to make that. And tactically, we'll deal with some of these short-term issues that we have.

On the demand side?

Demand side, yes, sorry about that. I think on the demand front, clearly, right now, of course, demand is fully impacted with the lockdown. So the shutdown, there is no physical measure of demand. But once things open up, I am hopeful that by June, at least some states or districts within states, should start either opening up or seeing some relaxations. When I say relaxation, they can take various forms. It could be relaxation in terms of timings or days of the week state governments can choose to allow marketplaces to operate. I mean physical marketplaces. It could be relaxation in terms of product categories that they allow online and other channels to sell, to expand the that. Or it could be at a district to geographical, sub geographic level where they could start opening up and removing the lockdown given the positivity rates there. So I would expect in June, some of that should come back. When that happens, will we see a spurt in demand? Yes. Will the spurt of demand be same as last year? Possibly not for two reasons: One is that I think -- and again, you may pick up commentary from various industries. That the general economic or consumer sentiment this year is slightly weaker than last year. And overall impact of pent-up demand may not be as strong as it was last year. So in summary, I would say, we would see some spurt in demand, but may not be as sharp as it was last year.

Okay. And you've tied up with for the logistical arrangement and the BRS. All of this will help you in terms of profitably. Is it possible you can quantify some of some aspects, how do you see that moving over the next couple of years?

So on the logistics part, it's again a long-term tie-up. This is a year of transition, and I shared that probably in the earlier call on some media interaction. That the impact of that will start flowing in from next fiscal or maybe from Q4 of this year. Because we are doing a phase wise transition from our own logistics warehouse rentals CFAs to Mahindra over this year across different zones and geographies and therefore, that will have fully transitioned somewhere by Q4. The benefit of that will start coming in there on or fully into next year. On an overall basis, we would expect to share of about 1.5 to 2 percentage points through this logistics efficiencies over the next 3 to 4 years.

No, that's another 6 months.

You mentioned something else?

There's a VRS element also that you are doing at your...

VRS, frankly, is at our inlabs unit in Shokubai. It was -- actually, that's not a very significant cost contributor to our employee costs. So while these are little cost that we will keep optimizing, but that will not move the needle on a big basis. But if you look at our employee cost for this quarter also over the last 3, 4 quarters, we have managed to keep that fairly optimal in terms of not having a very sharp increase. Particularly, this quarter, if you look at it, we've actually done a full increment for our employees, but the effect of that on the P&L is fairly well contained by certain internal measures. So we are very conscious of how we balance that out such that we are able to deliver better efficiency in the P&L.

Okay. My last question on consumer business. You've put out a detailed -- details of the Star light, so I'm sure that is going to happen. Could you throw some light on the synergies that will bring once it is inside any way you were sourcing from staff what will happen once this company actually comes within Bajaj Electricals? And also the benefit of inland on the overall manufacturing side also, how your manufacturing will ramp up?

I'll take two, three minutes to share this for the benefit of everybody. This is, again, part of the overall transformation cleanup that we've been doing as a company since last 2 years. If you look at the company, and those of you who've been studying our company since many years, know that both of these companies have been part of the Bajaj Electricals ecosystem. In lamps, being part of that Star Light and middle left, okay? Directionally, what we want to do is simplify our overall corporate structure and holdings. And ultimately move to single consolidated enterprise. I think that's far more efficient from multiple parameters, operationally, governance, et cetera, et cetera. Okay. And also in the process, brings in greater performance efficiency. Starlight specifically was a 47% joint venture of ours where Bajaj Electricals had a 47% stake. You had 13% held by the Bajaj family through a family holding company, and 40% by the joint venture partner, third party. This has been a joint venture since several years. I think can correct me since 2007.

Right.

Yes. It was originally a Lighting company, manufacturing, traditional lighting, moved on to CFL. There was a large investment made in CFL several years ago, which went bad because the technology moved to LED. And then since then, that company has been relatively sick company, but also then started expanding into other product categories, including water heaters. And then last year, we also moved that into certain mix of blinders, et cetera. What we've been doing operationally is, therefore, turning around that company into a non company. We operationally -- when I say was Starlight became operationally positive in October of 2019 through some of our efforts. And going forward, also in a couple of years, we expect it to become bottom line positive after factoring in the debt that, that company is carrying in its balance sheet, okay? I think a lot of this, firstly, operationally, because it's an important supplier for us. Our water heater, significant part of our water heater supply comes from there. Going forward, it will supply mixer grinders and lenders, certain other categories of products to us. I think operationally, it's an important backward supply company for us. Because we've held that stake, we have a natural interest in the financial turnaround of that company. But the way it was currently structured as 47% owner, we are not in full control of its destiny operations. And therefore not able to get the full benefit of turning it around and get the upside of that turnaround and that something, okay? Number two, historically, structurally, we have extended because that was a sick company. We've extended guarantees for the loans that Starlight has taken from external banks, et cetera. And therefore, if you look at our balance sheet, we've always disclosed that. It's been sitting below the line as a contingent liability, where we had about INR 240 crores of loans of Starlight that were guaranteed by Bajaj Electricals. And therefore, indirectly, we have been servicing those loans and providing for the gap in the cash flow of Starlite through an arm's length transaction. I think we want to simplify all of these things, bring everything on to balance sheet, clean up this and move forward. And that's the intent behind buying out the JV partner from Starlight. And ultimately being able to treat that fully under our control. And once we have that, then our ability to replace the high cost loans for which we were anyway indirectly liable with much cheaper cost loans becomes better. So we will have a financial positive leverage on that. In the short term, you will see the balance sheet consolidation, which means those loans, which were sitting in Starlight's balance sheet will consolidate with our balance sheet. But ultimately, or frankly speaking, we were anyway servicing those loans, we'll only be in a better position to pay them back faster and have a lower interest cost on that, okay? And be able to turn around the company much faster. So that's the larger reason for doing this. Operationally, we see it being an important win supplier for us. We see an upside operationally in that. And financially also it is something that we were carrying on us. We want to simplify that structure, be able to resolve for that much faster and take that forward. Last point, being a company, they were also carrying crude losses in their balance sheet. So all of that will transition over to we will make relevant accounting entries for that year.

My last question is on the EPC business. On the EPC business, can you give us some sense on how is the receivable position is shaping up right now?

Rande, can you comment on this, please?

Yes. So broadly, if you look at the EPC receivables, there is a substantial reduction. And if you want to just know the numbers as of March '20 the EPC receivables were 1973. It has reduced to [ 14 25 ]. So you can clearly see that the sites are coming down. Specifically, if you want to know about up, if you remember, last March, our receivables in UP was in the range of around INR 840 crores, INR 850 crores, which has come down to INR 563 crores. Similarly, Bihar, our receivables as of March '20 was around INR 525 crores. It has come down to INR 400 crores. So if you see overall around all 400 odd cases are collected. For the EPC power distribution business?

[Operator Instructions] Next question is from the line of Marino Bail from Indiainfoline.

My first question would be to understand on the demand statin for the consumer business. Given that you mentioned that this tender pent-up is unlikely to have the same quantum, the impact in small towns and rural is far more intense in the second wave. So you think -- how does the current 2 months we have seen in April, may compare versus last year's log down. And under these circumstances, do you still believe there is a scope for double-digit growth in revenues and double-digit margins next year in the consumer business?

On the demand side, April has clearly been much better than last year because April was almost effectively a full lock down last year. Okay. So there's almost off of a very, very low base, right? May, unfortunately, has -- will -- or has been lower trending than last year because may, while the markets opened up, I forget the exact date, possibly around some time in the 20th plus May. We had a greater lockdown in May year we do effectively have a nationwide lockdown without calling it a nationwide lock down at present. June will really tell us, therefore, how much better off we are. I think June, that's why I remain hopeful that we will see some opening up, if not in many -- all of India and some parts of India, okay? Number two on rural urban. From what I remember, the rural trend, right, from June of last year until about September, rural had increased its share over its normal share that it used to contribute to our business. From September, October, it came back to normal levels of share between rural and urban. This year, clearly, from what we read, rural -- the spread of the COVID disease in rural India has been stronger. That said, if urban India performs, I'm happy enough because urban is yet more than 2/3 of our total contribution, actually upwards of 70%. So even rural while last year did contribute better. It's not enough to actually compensate for India as loss, right? So if this year, while we like rural to perform, if it underperforms. But if urban performs, we'll be fine with that overall. In terms of how much will be the spurt in pent-up demand, a little early to say, we would want to wait and watch. But for the reasons I mentioned earlier, it may not be as strong as it was last year. In terms of whether we'll see double-digit growth? A little early to say, but we're yet targeting double-digit growth on a full year basis. Assuming June, we start seeing opening up, then we should be there. If this lockdown really extends into July or something beyond, then we'll revisit our expectations on that. On margins, I think sometimes success works against you. Our original guidance always has been that by FY'23 is when we want to hit double-digit margins for the reasons that we've shared earlier. We've been slightly ahead of the curve. This year, we had 9.6% on a full year basis in FY'21. We will try to improve on that margin in the coming year, but we'll see. The reason I'm hedging my bets on net is because as a company, we are investing in many things, including our product pipeline, R&D, future technology, et cetera. We do not want to shy away from those investments just to deliver short-term margin because I think the next 5 to 7 years, these investments will hold us in good stead here.

Sure. And can you share with us the split of the growth across the different segments within the consumer Products business, and what has been the market share gains for us over the last 1 year across some of these categories?

So on the growth segments, our Appliances for this quarter has grown by 37%, Fans has grown by 36%. Our Morphy Richards has grown by 30% and lighting has degrown by 4%. A notable market share gain? We don't quantify that or share that simply because the industry data is not available. But anecdotally, in appliances, fans, offer, it's not a product category. But otherwise, if you look at as a segment, we would have grown share. Over average industry. In lighting, hard to say, we may yet be better-than-average industry. But clearly, from what I know, we are not better off than the top 3 or 4 players in lighting right now.

Sure. Second question is on the EPC business side. If you look at the order book mix, there is not tilt in the order backlog towards elimination and PLT. An PD now has clearly shrunk. So what should be the outlook on margins in this segment going forward? And what is the quantum of cost under recovery, which is still sitting in this segment because of the shrinking size of the business?

So one is, like you said, this is consistent with what we've been saying. The segmentation within EPC is important. We've always maintained that IOM is something we will grow. Transmission mission line is something that we will maintain. In PDs where our focus has been on proper completion of the projects on hand and reducing the total capital employed in that. And therefore, the order book is reflecting exactly that. Illumination, we remain bullish. We've got a decent order book. We delivered growth in the last couple of quarters, hopefully, in the coming year also, we should deliver both in the illumination business and our topline. And the bottom line, we've been improving the bottom line contribution from illumination. On transmission line, our order book, like you know, is about INR 476 crores. We'd be happy to have a little more order book there, but that's a function of the CapEx cycle or the marketplace out there. We did see a slowdown in the total contracts in bidding in the marketplace post pandemic last year. As that comes up, we would hope to be able to take a little more share of that, but don't want to go too much out on that, okay? We're comfortable broadly in this plus a little more range, okay? Our focus there, again, is to do timely completion and therefore, improve our bottom line there. A loss really is coming from the power distribution side. I think this year, we should be able to put that behind us. My original guidance is that beyond Q2, we should not be having losses in EPC. As things stand, I will give you a good news and not so good news. First, not so good news because of the pandemic again this year. Q1, in a way, we've lost that quarter. And therefore, there could be some spillover on project completion or being able to turn that around in Q2 versus spilling over into some months of Q3. Having said that, the good news is I would yet want to hold to our guidance that if we can make up for some of this, if June can come back on track, we yet want to turn positive on EPC overall to treat itself onwards. But definitely, we will exit Q3 having -- sorry, we'll exit this year, having resolved the EPC loss situation.

Perfect. And one last question, if I can. What is the operating profitability of Starlight and the net loss in that business that were sitting for FY'21?

Operationally, which is an at EBIT level since October '19, it is positive. So when we consolidate that at an EBIT level, it will be positive. But there is -- because of the crude losses, and the debt on that balance sheet is carrying interest cost, which is not fully absorbed or covered by the operating profits. So that is something that we will end up consolidating. But that, like I said, today, sits at a much higher debt level at a high cost of interest because of Starlight's balance sheet. As having taken control, we will look to leverage that and bring that -- leverage that in the sense that replace that with much lower cost of borrowing. So I think our financial cost impact will also come down.

But the losses would be to the tune of like INR 50 crores-plus kind of number? Or what range are the losses in that business?

Can you comment on this, please?

It will be a little lower than INR 50 crores.

So that's the historical in reality now having transitioned to BL, then you'll start seeing a run rate, much lower losses on that?

Yes, because mainly the losses is because of interest.

Clarify that, the losses that he spoke about from Starlight includes interest payment to Bajaj Electricals that they were booking, okay? But because Bajaj had impaired some of that, we were not recognizing that full income. So the external borrowing of Starlight is in the range of INR 230 crores to INR 240 crores. So the interest cost, we may consolidate will only be to that extent, yes. That's why I meant that we will be -- you'll see significant efficiency coming once it's with Bajaj control.

And the next question is from the line of Nitin Arora from Axis Mutual Fund.

The first question the opening the MAC of Invest, you're saying that we have upped the inventory in this quarter due to which the cash flows were a little constrained. Can you just elaborate on the reason, what was the need of putting a higher inventory at the dealers were at like a very below suboptimal level? That's the first question. And if we look at a INR 150 crores increase in inventory, I think quarter-on-quarter, what I can understand your has gone down. Despite that, also, the debt has not reduced if you can throw some light on that? Then I have one more question, and I'll pick up after that.

Sure. Let me answer the first question. I didn't get the second. I'll come back to you on that. So the inventory increase typically every March, you see it's the highest inventory that we exit at because it's a cusp of summer up in stock up on fans and coolers inventory preparing for summer, which is a peak month for us, a big quarter for us, okay? So April, May, June. This year, we also stocked up a little more than normal. This is learnings from COVID. Where last year, all of us struggled with supplies and inventories, so rather than saving working capital and ending up with a loss of sale, we stocked up a little more to derisk ourselves from supply chain related kind of issues, okay? Quite honestly, as it turned out, none of us anticipated the lockdown to become as pervasive and as long as it has. And therefore, to that extent, the summer destocking has not happened as fast as much as we would have liked to do happen. That said, this inventory is not all summer inventory. It also includes other appliances, et cetera, et cetera, all our product categories. So I think this will release cash into the system, if not in Q1, definitely by Q2. So Q1 also could have released, had you had a normal Q1. But if not, it will spill on to Q2. So you will see a destocking of this into positive cash. So it is not any negative buildup in that sense, right? That's number one. Your second question, your voice is cracking, I couldn't hear you fully.

Sorry. So basically, I was just trying to understand that is this -- because we run a lean inventory model now. So the question why there was a need. So I understand.

So -- but I see you also had a question on the debt. So December to March, our debt has increased by, I think, about INR 30-odd crores. That's for the reason of this inventory stocking that I told you. So it is not into EPC business elsewhere. It's probably gone into consumer business, stocking up of inventory. So an increase of INR 30 crores, but actually an increase of almost INR 170 crores of inventory, if you see that here.

So when you look at INR 30 crores, can you hear me? So INR 30 crores increase in debt. And I think quarter-on-quarter, your receivables have come down from INR 1,700 crores to INR 1,450 crores, what was mentioned in the call. Yes where does that amount went?

I mean We are overall working -- yes. So we can share the cash flow separately, but just to give you headlines. We had INR 50 crores of operating cash flow this quarter, right? We have an interest cost that you service. We've had some CapEx. You have some CapEx every quarter. And we've had some loans -- intercompany loans to a satellite lap, et cetera, for ramping up things.

Okay. To those numbers off-line, I got it because the numbers were not matching. So I thought I'd ask. No problem.

I take that. So it's a combination of these 3 or 4 items. In fact, I think if you see, I don't remember often, this 441 to 471 is gross level, but at a net level, increase is lesser because Seguelen has also gone up from December to March, maybe by INR 15-odd crores or something.

Okay. Last question from my side. When we look at directionally, the margin trajectory, what you were -- we were giving that confidence and you were delivering I understand there are a few expenses you talked about in this quarter. This is normally the nature of the business or, let's say, there are no one-offs. I'm saying, generally, that's how you work for, right, giving employee bonuses and salaries. Gas is struggle for everyone in the industry in terms of commodity pressure and everyone design when the growth will start coming back. But do you still have internal levers with you in terms of what you talked about earlier cost savings and reduction plan, where you still feel confident that margins can be doable in the double digit?

A couple of things: A, quarter-on-quarter things vary, right? Because based on signally, water heaters, typically, which is Q3 is the higher-margin product in where we are not premium below margin. So that's one in a quarter-on-quarter swing. So therefore, annualized better base to look at for a company like ours. Number two, my long-term messaging, Nitin, you and I have had lesser conversation than maybe some other investors has been that we are committed to delivering a 1 percentage point margin expansion per annum, which is what we've been saying since 2 years to hit the 10% by FY'23. We stay committed to that. Number three, the way we are looking at doing that is shaving off some of the inefficiencies while yet continuing to invest in product and brand, which we've done in the last 1 or 2 years, we will do in the current year also, okay, which is why you'll not see a sharper expansion in margin because we need to invest for the future. Number four, some of these structural improvements in margins. So there's two forms of margin improvement. One is quicker, shorter-term margin improvements by cost cutting, overhedge efficiencies. Second is structural improvements. The logistics was one example of that. These payoffs will start coming with a lag. So which is why, I think between our short-term measures and the long-term measures, we remain confident of margin expansion. But what I'd like to shy away from is seeing a sudden spurt in margin because we need to walk this journey, and this is our own journey. So I don't like to come under pressure of competitive forces because we have to live our journey out if you want to deliver the next 5 or 10 years.

The next question is from the line of Aditya Bagul from Axis Capital.

And congratulations on a great set of numbers. Original question is more to do with medium term. If you can elaborate both in the categories of appliances and fans, how do you see the competitive intensity on two accounts. One is in terms of the commodity cost in the near-term and the overall theme of underpinning consolidation from smaller and pinch players. So given these two points, how do you see the competitive intensity in these two categories? And what does that mean for our growth in the next 3 to 5 years?

So if I may answer this candidly. I think competitive intensity in our industry is extremely high, and it has only been getting more and more intense over the last 2, 3 years, okay? Primarily because we operate in a very low entry barrier sector business. It's very easy for somebody to enter that. But to that extent, I would say that's also true for FMCG or even other product categories, making a shampoo or so for wafers or whatever is easy. And therefore, I think our only defense for the long-term is to run faster to be better and to nurture and protect our brand. Even distribution over a longer-term is becoming more and more accessible for our competitors post the advent of online, et cetera. So our only securities, can we remain a top 3 player in every category that we operate in? And can we continue to hold that position and grow that affinity with consumers and our availability and preference across all our distribution partners, okay? And therefore, all our focus and energy is to maintain our share and leadership in every category that we operate in and focus on those rather than distract ourselves to get into more and more categories. But be laggards in that because I don't think will survive in the long term, okay? So short answer to your question, whether it's competition, whether it's commodity price impact, whether it's short-term changes on unorganized was organized a long-term. I think the only solution for that is to keep getting sharper and sharper and rapid in terms of introduction of products, We have, in this year, include about 170 SKUs in our core consumer Appliance Fans business, excluding lighting and illumination. We intend to continue to maintain that 100 going forward and continue to nurture and building a brand. If we do that, I think our medium-term and long-term will be well served.

Understood. Understood. So if I were to ask you the same question slightly differently. Within the 3 cohorts of our Appliance business and what the and appliances maybe, which are the -- if you could rank them in terms of your growth optimism, that would be very helpful.

I think maximum, in quantitative terms, growth potential for us is in fans for two reasons because it is one of the largest segments compared -- largest product subcategories compared to water heater or mixer grinder, et cetera, et cetera. And because we've been lagging. So to me, our weakness there gives the greatest potential for growth because we've been the #5 player for reasons of our own weakness, which we are trying to address and fix, okay? Having said that, where we are leaders of strong players, whether it's water heaters or kitchen appliances, individually, they're small categories. But cumulatively, that's a very large business for us. We want to aggressively defend our position on that. And therefore, if you look at whether it's new product introductions, the SKUs I spoke about, branding, go to market, et cetera. We will stay focused on that also. So again, short answer, single subcategory the maximum growth opportunity. But I would want to bundle all of kitchen together, if I bundle that together. I think that's an equally strong growth opportunity that we will defend aggressively.

Understood. One last question from my end. If you could probably just highlight what is our geographic mix in terms of our revenue and within the ECD business, between North, South East West? And if there are any white spaces within the same?

You just pulled out actual numbers. My team will just pull out actual numbers, but on a cumulative basis, we are very evenly spent, okay? Between the fans and appliances and all put together. But when you break that up by categories, then the geographical split start. So for example, fans and kitchen, we are weak in south of India. And to us, therefore, that's a growth opportunity. But that gets offset by other categories. And therefore, and cumulatively, we are fairly even. Within that, East and West does core well for us. I'll just wait for the team to pull out. We can take some other questions. I'll come and share actual numbers with you in a couple of minutes here.

Yes. Ander, just one last question. We had a higher other income this quarter. Can you just elaborate what was the reason for that?

Can you share, I think that was on an annual basis that you'll see not this quarter, but just check on that?

One is, we have canceled some lease agreements, right? So that is one impact. And another is we have sold some properties. So there are two major items which contributed to the increase in the other income.

And that would roughly be about INR 30 crores?

That is a property side is around 70 -- profit and sale of properties around INR 17 crores. And Suketu lease, what is the? Yes. So the gain on termination on the ride of these assets is roughly INR 5 crores for the quarter.

A quick commentary on the geographical question. So East and West, like I said, is highest, East at 31%, West at 27%, followed by North at 26%. And South, as I told you, the one that lags, at 16%. East, 31%; West 27%; North 26%; South 16%.

[Operator Instructions] The next question is from the line of Ashish Poddar from Anand Rathi.

So my question is, again, on the margin, while we were clocking healthy margins in the last 2 quarters. Perhaps on the cost savings largely on that front. But this quarter, on the gross level also, I think this was a bit lower than the general. Because when we look at results of other companies, we don't see this much of impact on a sequential basis as well. So is there any one off, as you can highlight what there in your case? Or do you think that this 8%, 8.5% kind of EBIT margin for consumer durable business will continue for next few quarters? And then from that level, perhaps some uptick -- some 0.5%, 1% kind of additional benefit will come in the course of time. So particularly, your comment on that.

So thanks, Ashish. So I think I made some reference earlier. Our margins, you have to look at Y-on-Y and not Q-on-Q because of the seasonality of our products. In Q3, you did have water heaters, which contributes to significant sales. And those are typically higher-margin for us, and we are leaders there. Q4, we have fans, which are lower margin because also we are not premium, et cetera, okay? So therefore, because of different product categories, a Q-on-Q or sequential margins are not always comparable. Second point, there is also the fact that we did have very strong operating leverage in Q3. We had some of that in Q4, not to that extent. And third point, of course, is the impact of the commodity price impact, which was in full play for Q4. In Q3, it was not as much. So I think these three factors together explain the sequential margin movement. But I think if you look at us every year, Y-on-Y is where we should be able to deliver growth because each that respective seasonal product category, we should be able to optimize that. Ashish, did I answer that fully?

Yes. Sir, my second question is on the growth side. So in the consumer product business, like you mentioned that the kitchen and fans continue to be the focus area, but is there any product category you are seeing in the next 6, 12 months, whether you want to enter or in the existing product category, you want to scale up in a faster and gain market share. So your comments?

Not new categories, within each of our categories, we do intend to strengthen. Fans like I've always called out, we are lagging, but I think that's going to be 2, 3-year journey as we strengthen that, but we are strengthening that every year, okay? Portfolio -- product portfolio. And as we strengthen the product portfolio, I think there's a certain lag by which the market also recognizes accepts that. Had we not had a washout last summer or the summer, then hopefully we could have made some dent because you need to give it that full play off a season to make that difference in the market in the core season. Off-season to make that meaningful difference, become that much harder, right? And then followed by coolers also, while we're reasonably strong players in coolers, I do realize there's a lot of competitive intensity in cooler. So they're also -- we're looking at strengthening. You'll see that in the next couple of years. On the flip side, Kitchen sector, where we're already strong, we continue to roll out products. That remains a priority product category for us across the whole spectrum that it's all the mixing appliances, OTGs, which we did very well for us last year, even smaller categories like hand blenders, induction cookers did well for us last year. So not taking all the names, but across that whole range of kitchen appliances, we do want to strengthen the portfolio as a whole. In the past, typically, we've been focusing on 1 or 2 subcategories there. And from a marketing advertising point of view. But going forward, we're going to tweak some of that advertising perspective also to start covering a wider gamut of product categories there.

Yes. So my last question is on the geography you mentioned. So South currently is the lowest contribution for us. So what are we doing there to expand our presence? And I believe that South is more competitive -- or in terms of brand loyalty, it's significantly higher as compared to North. So what's your plan or strategy to expand in South?

Yes, absolutely well put. I think it is not an easy market to break into in terms of brand loyalty, and therefore, you have to keep shipping away at that, okay? We started that journey last year, which is end of 2019, about 1.5 years ago. I think we will stay at that. I think kitchen appliances category overall is not just a cold product, but it's a very high involvement, emotionally high affinity product category. And therefore, and it's got a lot of cultural to it. And therefore, one also sees South has a lot of south specific brands in this segment, unlike rest of India. And therefore, I think that conversion pace will be slightly slower. But in the long run, we are very focused to make sure that we had a meaningful share of the South market.

And I think in the last 2 years, we have seen fantastic improvement in overall business. And I hope that in coming years, it will be more stronger.

The next question is from the line of Kundana from JM Financial Services.

Just a couple of questions. Firstly, if you can help us with the gross margin that you have recorded in CPE segment in 4Q FY'21 and for the full year FY'21 as well. And also within that, you will take some price hike. So what is the commodity price inflation that you saw for your basket? And what is the extent that's still planning to be passed on?

So our overall impact on the -- because of RM, it's a moving number because that's continuing to increase. And across the different product categories, it varies. And as a product mix varies. That also varies. But on a broad brush basis, I would say, it's between 6% to 9% is the impact of the commodity price increase till date, okay? In terms of passing that on, like I said, we've worked to pass that on. I think quarter-on-quarter, there may be a lag, but on a cumulative basis, we should have passed it all on by -- when the markets open, another couple of months, et cetera, on that front. On the gross margin level, we frankly don't report that at the segmental level. We report the EBIT operating profit and the total company wise gross margin available. But frankly, I do understand that doesn't really help the analysis here. Sorry about that, but that's the way we report our numbers.

Okay. Sir, secondly, can you help us understand what is the extent of orders impact of the margins? I remember I think around last year, you said that around 100 CP margins for impact due to come or due to EPS segment. So what is it the extent currently?

So, do you have that, which is the change of allocation driven impact?

No, we have not worked out that way.

Just give us a couple of minutes. If the team has had that, then they'll share with me in a couple of minutes. Some impact because our CP contribution this year has gone up further. I think last year was about 67 odd percent. This search, 70-plus percent. So there will be some impact. We've not quantified that. I'll just check with the team if they can share that.

[Operator Instructions] The next question is from the line of Rakesh Roy from Indsec Securities.

Sir, can you say the full number for FY'21 for 5 fan, appliance and lighting, Morphy Richards number?

Full year growth for Appliances is 11%. Morphy Richards is 13%; for fans is 5%; and for lighting is a de-growth of 5%.

Okay. Sir, in the Appliance business, can you break up the domestic appliance, how much the domestic appliance sir?

We don't break that up publicly.

Okay. Right, sir. Sir, can you say the other things like how much market share we gained in fan and other business like mixer, grinder for this year, FY'21?

So that's what I shared earlier, we don't publicly put out data because we have internal estimates for that, but there is no official published industry size estimate for that for us to publish that. But given what we know of an average industry growth, we have gained share in all of this, along with the other 3, 4 leading players versus the average industry.

The next question is from the line of [ Anul Joshi ] from ICICI Securities.

Most of my questions were answered. But in terms of EPC business, I guess you indicated in the call earlier that by end of FY '22, the losses will come down to almost 0 level. But how do we see in terms of the revenues level? So how do you see the revenue mix changing between consumer products as well as EPC at the end of FY'22 or indicatively also at the end of FY '23?

If you look at our current run rate, now we're already at 75% plus being consumer in less than 25% in EPC. I think going forward also, I think that mix should continue in that kind of 20%, 75-odd percent. While consumer countries to grow, EPC should reduce. In terms of the profitability, like I said, this will reconfirm, we intend to exit this year at having put the losses of PC behind. Our internal target remains to make that happen had it not been for this current lockdown in pandemic, we would have delivered on that. I'm just hedging my bets on that, but we're at targeting to make that happen by Q3 [ FY'22 ].

Okay. Okay. Sure, sure. And lastly, I missed again the number on the price hike that you had said. So that number across categories, if you can share. And also the retail outside expansion that we are having right now. So in FY'20 versus FY'21? And if you can share that number? And lastly, where do we stand in terms of those. We cannot share the market share numbers. But in the major categories like fans or appliances, et cetera, coolers, so where do we stand in terms of the ranking? Are we number one, number two, number three? If you can share that, that will be great?

So on the retail network expansion, this year, we've not had significant expansion, a couple of thousand only because now increasingly, we think we are well penetrated. So our focus now is not so much in terms of priority to expand retail reach as opposed to mine that better, which means generate more sales from the existing retail reach that we have. And therefore, increase our share per retail counter. So we are focusing on that right now. Secondly, I think your first question was on the price side? Is that correct?

Correct, correct, correct.

So on price hike, we've taken a price hike about 6% to 8% in January and a further 3% to 4% hike in May, okay?

If you can share by category wise or product wise?

No. So we don't put that out. But I think 3% to 4% would be general across most of them. So mixer grinders, we've done that. Fans, we've done that now. I'll just have to look at that. In fact, we can share this. Can you take that off-line from us, we'll be able to share some of that over there? Yes. And then in terms of ranking, I think you asked us. So mixers, irons, water heaters, et cetera, we are leaders. In air coolers, we are #3. And in fans, we are #5, maybe by some estimates, #4.

Next question is from the line of Achal Lohade from JM Financial Service.

My question was if you could talk a bit -- I know you've covered this in the past. But in terms of the R&D part, what kind of team size we have, what kind of budget are we looking at? If you could give some color on that? What kind of product -- I mean, the category or the range kind of a target we have, the frequency of refresh in the range? That would be very useful, sir?

Achal, as you'll understand, R&D is always sensitive for our company. We do -- we've been transparent in sharing that. It's an area of focus, but to put out details in terms of team size, et cetera, will be a little sensitive. If you look at actual product introductions, like I said, we've got about 170 SKUs this year. I don't remember off I now the number last year was similar. What I try to keep out is we also have more products that come out on the LED front for B2B and B2C. That inflates numbers. I'm talking outside of the significant numbers. If I add that, I think it's almost 425 SKUs this year, but that inflates it because of the LED variation. In terms of, therefore, product introductions going forward a churn, I think 170 every year may be very high, but anywhere between 100 to 150 SKUs per annum should be a broad range that we should be looking at here.

Interesting. And would it be possible to share what kind of revenue mix do we have from the products which were introduced or the range what we introduced in last 2, 3 years? What is the range? Is that 20%, 30%? Is that 50%, 60% of the revenue comes from...

I would not put out an absolute number. It is definitely not 50%, 60%. It will be under 20% because we've just started that journey of putting these out there. So there's a maturity curve that they go through. So they will have to go through the maturity curve from introduction to actually maxing out sales.

Understood. Understood. And I don't know if you've answered this, but In terms of the miners, how do you look at this, we think that B2B continues to be weak, B2C is still growing. So what is our thought process here? Because B2B is part of our EPC segment. So how do we look at this space in terms of growth outlook and margin?

So I'm fairly bullish on our B2B Lighting LED illumination business. It has delivered well for us this year. I think going forward also, it should continue to deliver well for us. We did have some issues earlier, but we've been putting them behind us. So we've -- that's the reason we've done well on growth, but also on the bottom line, we're telling that business down. I think it should be a positive contributor to us going forward there.

And what about the B2C so, what kind of growth?

Like I said, we've had a degrowth. I know we are behind our leaders in that, though we do have many other players who are behind us on that. I think we do have weaknesses there. We are working to fix those weaknesses in terms of our cost efficiency on LED and even our product mix on LED. I think some of our competition has a better product mix and better market share and better brand value on LED or lighting. So I think the job or task for us is very well cut out there. We will work to improve on that over the next 2, 3 years. But it will take that time to make happen. It will not have overnight.

Understood. And I don't know if you could comment in terms of volumes. I know it's a very difficult question to answer, but is it fair to say that the volume growth was kind of in single-digit for the full year? Or it was actually kind of a lower volume, price increase, which has driven the revenue growth?

You are talking about consumer business as a whole?

Consumer, yes, yes. Consumer as whole.

So let me do the math in my head because we've delivered 7% growth on a per annum basis, okay? If you dissect that, we haven't had a 7% increase on PRAM. So there is volume growth also. Understand to do the math in my case this 9 months versus 12 months, you would have -- if you look at 9 months to 9 months, you've had a reasonable volume and value growth also, okay? But if you try and extend that over 12 months, then you will have a volume shrinkage of -- volume growth will not look that strong because you had 2.5 months of nonsales here. Was I able to explain myself?

Yes, that's very helpful.

Next question is from the line of Ashutosh from Ocean Dial Asset Management.

Just want one small clarification. You mentioned 3 reasons for the gross margin aspect. One was commodity price increase, second was product mix and what was the third one?

I'm trying to remember myself. So it would have been let. We took our own increases in certain costs, including the publicity, et cetera. I think it's also the -- yes, there's a product mix, which is -- we have the operating leverage that I spoke about, okay? So we had very strong operating leverage in Q3, which was not the normal operating leverage here.

Okay. Okay. And just wanted one more aspect on the gross margin. Since we do our sales more from a full angle as compared to full Hangar, which is the industry norm. Do you think that these gross margins for us will reiterate faster than many of our competitors because the commodity prices are normalized?

I'm not sure that sales side will change the gross margin for us much. Because that's really a function of a sourcing cost, and we maintain a certain price calculation on what we offer to the market. So we do try to kind of maintain that in a certain range, okay? So I don't think the sales model will drive that significantly very different from under. I think the thing that may help us now, hopefully, a little bit is the fact that we ended up stocking extra as of March, okay? So therefore, to that extent, we are slightly insulated from the further increase in raw material costs for the next few months. Extra stock may come, to some extent, to our benefit. That said, to be honest, to the extent that stock is in fans and coolers. Particularly cooler that also adds to a little carrying cost because no 1 has to carry that over for a year. For the other categories, it should help. So in the non-summer products, that should help a little bit.

Ladies and gentlemen, that will be the last question for today. I will now hand the conference over to the management for closing comments.

Thank you, everybody, for joining us today. Just to reassert what I said upfront, we are positive and happy with this current quarter's performance. It is on track with all the strategic directions and steps and plans that we've been sharing with you. We remain very committed and focused on that. We do know that Q1 is going to be a tough quarter for us. But while we are taking tactical measures to deal with that, at no point do we want to shy away from taking strategic calls that we need to take. To that extent, like I've always said, we are on our own journey as a company, and we'll make sure that we track that journey rather than reacting to short-term competitive forces or pressures, et cetera, that are outside of asset. So with that, thank you very much, and we stay committed to adding value for everybody. Thank you.

Thank you very much. On behalf of AMBIT Capital Private Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.