Crompton Greaves Consumer Electricals Limited (CROMPTON) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Crompton Greaves Consumer Electricals Limited conference call hosted by Kotak Institutional Equities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ritesh Gupta from Kotak Institutional Equities. Thank you, and over to you, Mr. Gupta.

Thank you. Hi, everyone. Good afternoon. I welcome you all on behalf of Kotak Institutional Equities. Today, we have with us management of Crompton Greaves Consumer Electricals Limited to discuss the update on the business acquisition. The management team is represented by Mr. Shantanu Khosla, Managing Director; Mr. Mathew Job, Executive Director and Chief Executive Officer; Mr. Sandeep Batra, Chief Financial Officer; and Mr. Yeshwant Rege, Vice President, Strategy and Financial Planning. So without much ado, I think I'll hand over the call to Mr. Shantanu Khosla for his opening comments, and then probably we can take Q&A.

Thank you, Shantanu here. Good afternoon, and thank you all for joining our call. Obviously, we wanted to share with you our thoughts and address any questions you may have with reference to our morning's announcement about the acquisition of controlling stake in Butterfly Gandhimathi Appliances Ltd. I hope all of you have had a chance to access and look at the investor deck, which we put up. So I will try and keep my opening remarks brief and really address the key highlights, leaving us maximum amount of time to address any questions you may have. We are extremely excited that we have brought the deal to the stage. Butterfly is a brand and a business which has actually been delivering strong industry-leading revenue growth over the last 4, 5 years and very competitive margins. It is a business which currently is more developed in the south. But obviously, as we track awareness, we see great opportunities in markets other than the south. Butterfly has a business which is largely in the small appliances and kitchen area. They have leadership positions across mixers, wet grinders, LPG stores and also pressure cookers. We are extremely excited by this business and especially the mid- and long-term potential of this business for a couple of very critical and important reasons. As we've talked in the past, the small appliances and kitchen area is a key focus area, and we see a huge potential for growth. I would actually like to broaden and not just talk about small appliances, but talk about it from a consumer point of view of the kitchen. And we think the kitchen is a huge opportunity for long-term growth. We are seeing a lot of social trends, urbanization, nuclear family, working women, all which are going to increase the potential to better meet these needs by developing leadership positions in the kitchen. Butterfly offers us an immediate scale in this area. And enables us to begin to start better meeting needs, bring innovation strongly into this category and even drive longer-term industry-leading growth superior to what has happened in the past. The second critical thing which we think Butterfly helps us is, as you might be aware, Butterfly has a strong manufacturing base and manufactures itself a large percentage of what it sells under the Butterfly brand. Importantly, this manufacturing base is backward integrated to a reasonably large extent, all the way to molding, et cetera. This, we think, is a very, very critical capability which is going to significantly help us in the future as we transform our combined brand businesses in this area. Butterfly also brings to bear, and that's been one of the key reasons of recent success, a lot of design capability in this area. They've got R&D and design across this kitchen area, which has enabled them to develop brands, which the consumer sees are attractive, reliable and great value. Of course, on top of this, when we look at the 2 brands and businesses together, we see, as we have demonstrated over the last 5, 6 years with the Crompton transformation itself, significant scope for synergies across both brands, synergies in terms of revenue synergies, but also importantly, synergies in terms of cost and efficiency synergies as we move forward. So net, we see it as opening up wonderful new possibilities, both for the Crompton brand and also importantly for the Butterfly brand and people and organization. We think that from a financial point of view, we fully expect that this transaction will be EPS-neutral in year 1 and will be accretive from year 2. So we also see it as a financially attractive proposition. That really is all I wanted to say in my opening remarks to give you the key highlights of the rationale as to why we want to do this and why we are so excited about this. With that, we're happy to take on any questions you may have.

[Operator Instructions] The first question is from the line of Latika Chopra from JPMorgan.

So my first question basically is around trying to just understand what is the positioning of the brand in terms of current market shares across key segments that it operates in? If you could share some numbers we saw -- you've talked about #1, #2 position in the slides that you shared. But what is the market share on all India basis or within south regions? And how should one look at the addressable market sizes for some of these categories and the growth expectations for these categories? If you could talk a little more about that.

Okay. The -- if we just look at the kitchen appliances segment, this is about INR 8,000 crore segment. This segment is -- I mean, Butterfly itself has been demonstrating over the last 3, 4 years the CAGR of about 15% to 20%, right? Clearly, we are seeing that this segment, if we do our job well and execute well, will continue to have long-term double-digit growth potential as we did. I don't have the exact market share numbers with me by segment and region, but we can always provide that to you later. But suffice to say that we are now a really meaningful player in this segment on an all-India basis. If I look at just the south, we would be among the leaders, if I look at the total business. If I look at the north, no. We would not be in the top 2 or 3 in totality brands, and those are the opportunities to grow. But when I average it out among the natural players, when I look at all these key kitchen segments, the hubs and stoves, the pressure cookers, mixers, wet grinders, we would be in that top 3 position on a national basis.

Sure. I know you cannot share the market share numbers, but is there a way to get a better breakup of revenue? I know the company shares kitchen appliances and cookware, split and others. But is it fair to get a little more granular data of how revenue mix within kitchen appliances platform?

About -- and correct me if I am wrong, about 80% of the total revenue comprises of mixers, wet grinders, pressure cookers and hubs and stoves. So these 4 categories, which, by the way, happens to be the larger categories in this kitchen play, comprise about 80-plus percent of the business. All of them are meaningful in that. It's not that one segment to completely dominate the other.

[Operator Instructions] The next question is from the line of Renu Baid from IIFL.

Congratulations for this M&A. My question would be to understand, as you mentioned that this opens up a wider opportunity. So what is the big story behind just the acquisition of this INR 1,000 crore portfolio? Are we planning to get big into the large appliances market also for products like chimneys, et cetera, which technically are listed as product ranges for Butterfly, but we haven't seen much growth or acceleration in that portfolio? And how does the company plan to fill in the key leadership positions and the senior team to drive GTM products for this portfolio since it was a family-owned and managed business?

Okay. Let me start with the second. Our first objective, because you must remember, as I mentioned, Butterfly is a business which has been doing well. Obviously, has further growth opportunities, but it's a strong business, which is doing well. So in the immediate term, our first focus is to transition and stabilize the business and make sure it continues to deliver as it has been delivering. Because transition sometimes can result in, if not managed carefully, can lead to short-term challenges. So that's our first focus. Once we have over a few months' confidence that the business has been stabilized, we will then begin to look at what are the capabilities which we want to build further to help further drive the Butterfly business. These capabilities could come from existing capabilities, which already exist in Crompton. They could come by enhancing existing capabilities, which already exist in Butterfly because you must remember, they have strong capabilities and [ variabilites ] also. And finally, they could come, if we find it not there by bringing in the capabilities from outside both companies. This, if you think about it, is pretty much the way we approached an initial content consumer restructuring and operation. What we are doing right in the beginning is we are -- we have assigned one of our best leaders to be -- let me call it right now the CEO designate of the Butterfly business. Obviously, this is then subject to appropriate approvals, et cetera, right. This person has had a wonderfully successful run for us and Sriram, who has until now been running our Fans business. He is, in fact, already on the ground in Chennai. So he will begin along with my help, Sandeep's help and Matthew's help to define what we need more and develop the short-term plan and then the more medium-term and long-term transition plan. So we're very, very aware that the knowledge which today exists in the promoter needs to be transferred to us. We're very, very aware that some skills and capabilities, the Butterfly company will lose because they reside with the promoters. We have worked specific with some of the promoter families, specific individual transition plans. But that is a top priority really over the next, let me call it, 3 months. Now, Renu, I've forgotten your first question.

The larger picture...

Okay, like all things, it is a matter of the time frame in which we talk. I think, like I said, the strategic playground for us is the kitchen. Now obviously, the kitchen means many types of appliances. But again, equally obviously, we won't try and do every possible appliance at the same time. The starting point, now I believe we have with the Butterfly brand, is to get a meaningful position in some critical segments. But the endgame is we want to be the leader in kitchen and we want to be the leader in improving lives, improving convenience, improving performance, improving aesthetics and designs of the experience India has in the kitchens. Now obviously, that will take time, but we see a huge runway there.

[Operator Instructions] The next question is from the line of Nitin Arora from Axis Mutual Fund.

The first question, Shantanu, to you is when we look at these categories across, you see a lot of local or unorganized brands also are very relevant in these particular categories. And that's the reason there are only 2, 3 names, let's say, which comes at the, let's say, at a very branded level, let's say, TTK or a Hawkins or a Butterfly. So the question to you is how would you tackle this challenge because there are a lot of companies who had a very strong distribution in the same category or let's say, in the other categories to increase their presence in kitchen appliances, but really struggled a lot against these local brands. So if you can -- and I'm sure you would have looked at this point, so if you can help us understand what are the challenges you think you need to tackle to really overcome these local brands or the market share gain, if you can do from an unorganized segment? And do you think that changing brand, let's say, from a name of Butterfly, which is not known, let's say, in the western part of the country or in the northern part of the country too much, you think changing the brand would also be a step for us? That's my first question.

Okay. Let me take the first part first. First part is conceptually very simple, executionally difficult to do. Conceptually, better understand the consumer needs, innovate to develop a superior product with better meets that need and have best-in-class cost. So you're not overpriced. If you can do those things, you will win versus organized and unorganized. And we have seen time again, the closer we get to doing these 3 things, you win. So that's what our focus will be on just like it has been on things on the Compton brand. And we see lots of opportunity. In fact, if we can deliver innovative products while still being best-in-class cost, larger unorganized players actually means a bigger opportunity for growth from our perspective. Your second question was?

The second question was more related with changing any brand name? Will it be also a thought process?

At present, we don't -- are not thinking of changing any brand name. Over time, we will clearly have 2 brands available to us, which will be in different positions. And I think over time, as we grow bigger and bigger, a multi-brand available option actually provides us with more opportunities. The challenge as we look to the business in growing in areas, for example, let's say, the North or the East is you need to make sure that you are investing sufficiently in creating consumer awareness and consideration. And then also, of course, make sure you have a strong enough go-to-market. Now, one of the synergies we see over time is the Crompton go-to-market in these areas gives us step jump versus what the Butterfly brand had earlier. Second, Crompton's larger base on financial abilities, it will enable us to invest more in the brand in these areas. Without making these 2 investments, it is difficult to succeed. But now we are much, much better positioned to make those investments, and we will make them sequentially to keep growing. But we're not thinking about having to change a brand because we think that the brand per se, especially for example, if I look at the west, the awareness is actually very good. Its inability to have driven the go-to-market and the marketing investment, which has been the limiter more.

Got it. Got it. This is helpful. And just one thing, can you help us -- one clarification I needed a lot of these companies in south do a lot of tender business, especially done for a politician and all. So is there all the sales what Butterfly is reporting and you have taken into account is all B2C or there is an element of B2B also in that part?

It's pretty much all B2C. What used to happen is about 5, 6 years ago, the Butterfly used to do a lot of this tender business with oil company -- oil marketing companies slightly on the low-end scores. They are pretty much completely got out of that business. And that focus has actually been one of the things which has delivered a stronger results in -- over the last 4 or 5 years.

Any impact on CapEx?

Well, if we are going to keep growing, both on the Butterfly business and on the Crompton brand, we are obviously going to need to keep building capacity. So yes, over time, there will be CapEx, right? Because we will need more and more capacity, which is why, in fact, as has been mentioned, one of the additional things is separate to the Butterfly business and brand, we've also bought some extra land, adjacent to the existing facility, which gives us scope for continuing to build our capacity and manufacturing capability or whichever brand we may need to do it.

[Operator Instructions] The next question is from the line of Atul Tiwari from Citi.

Congratulations on this M&A. Sir, my question is on the mechanics of this 3 -- so Crompton, we have about 81% stake post the completion of open offer. But the company will still remain a separately listed company for time being, so how will you achieve the full benefits of integration and cost benefits because all kinds of related party transaction and [indiscernible] transition rules will apply to Crompton and this company.

Okay. There are 2 parts of this. One part is how do we, over time, operate in an integrated manner, in dependent of the legal entity structure. And it is possible. I did that for 10 years in Procter & Gamble and Gillette. So there are certain things which you can get benefits on if you can simply think about how you operate your business in a more integrated manner. Apart from that, obviously, there are further benefits and synergies, if you can integrate as organization in terms of structure. This is, of course, as you're well aware, something which needs various approvals, including minority shareholder approval. So at the appropriate time, it will be 1 of the alternatives which will be considered. And if it is the right alternative, we would recommend it and take it from there.

Okay. So I mean, merging affinity eventually with Crompton is also an option on the table over a period of time?

It is right, obviously, it's something which advance we can only recommend because it means various approvals along the way. But like I said, our focus right now, first focus is let's manage a seamless transition and let's get going on this. And then we will evaluate further opportunities because we're not buying the stake for a year or 2 years. We're buying this brand and business for 100 years. So we'll come to that at the appropriate time, and we'll take the right appropriate decision for the business and the stakeholders.

Okay. Great. And sir, my last one, what is the kind of timelines we are looking at to complete the deal.

Sandeep?

So we will close the transaction in this financial year.

Okay. So both the open offer part and as well as the first chance to [indiscernible]

I know the promoter stake will happen, and then the open offer will take whatever is the semi-prescribe timelines.

The next question is from the line of [indiscernible]

My question is if you look at the core operating margins of Butterfly, they are at about 9% to 10%, whereas the core operating margin for Crompton is at about 14% to 15%. So could you please give us a sense as to how you foresee the operating margins of Butterfly to go going forward? And also, if you could quantify any sense of revenue growth margins or any quantification on the synergies that you expect to accrue from this acquisition?

Okay. First, like I said, financially, we expect this to be EPS-accretive from year 2 and in year 1, it was EPS-neutral. See, i am sorry Sonali, but the only other answer I can give you is just like we've talked on, on Crompton, our goal will be to grow top line faster than the respective markets and to grow margin at least in line with top line. We do believe and obviously, we have taken into account, whether you sort of put you those EPS estimates, certain amounts of synergies. We're pretty confident especially given our experience with -- over the last 5, 6 years with Crompton that we would be able to deliver our synergies, which we have identified over time as per schedule, right? But the goal is to grow top line path to the market, become best-in-class cost and make sure that the margin is growing at least in line with top line, if not faster, and the best-in-class cost use that to invest behind ideas to further grow the business. Just like the Crompton approach.

The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

Your press release mentions about certain butterfly trademarks where you paid about INR 30-odd crores. Could you elaborate what is part of the acquisition, what is not? Is there a time frame for this trademarks? Also about the non-compete clause that you would have, can they use this same trademark for other categories or can Crompton use this trademark for other categories within the kitchen? It will be useful to understand on this aspect, please.

Sure. Bhavin, Sandeep here. I'll take this question. So first of all, the operating company, which is Gandhimathi Butterfly, they had all trademarks that were relevant for their business. So those brands, the ownership of those IP decided in the operating company. And therefore, there is no transfer of that from any entity to the other entity. However, what we did find as part of their diligence was that because this whole business was being run like a group, right? So there were other legal entities outside the listed company, all owned by the promoter, which also had rights to the Butterfly brand. And that was something that we could not leave out of the transaction. And you would know how these promoter group companies work, right? It's like -- it's one large family group, some other related party or promoter group also was using the Butterfly brand, and -- but those were in some categories that were relevant for us. But I think the sheer risk of leaving that IP outside, however insignificant it may be in today's context, was something that made us buy these brands. So now all IP to Butterfly besides -- either in butterfly or by virtue of this small transaction that we did is owned by Crompton.

Sure. So could you, let's say, another categories within kitchen, outside kitchen, can the Butterfly brand be used by Crompton?

So the Butterfly brand cannot be used by anybody else. Butterfly brand can only be used by Gandhimathi Butterfly. But only for very few, very small value is, whatever brand purchase that we did. I will give you an example just to make the point. The Butterfly was not distributing spares for their products. That revenue is about INR 10 crores in a year. That was being done by a group company, which has right to the Butterfly brand. Revenue is not much, some INR 10 crores a year. But the fact that they have ownership of the Butterfly brand was not something that we could let continue post the transaction. So like that, there were some small businesses which we have now taken. Now in -- as part of this brand purchase, there are a couple of products to which Butterfly had -- the promoter group companies has the right. For example, pumps and motors, so that, again, we could not leave, even though that was not part of Butterfly business, but we could not leave it outside the transaction. And that is something that is very core to us. So we then -- that's why Crompton took the decision to buy that brand.

So in net, and correct me if wrong, Sandeep, all butterfly trademarks or anything like either with this company where we are acquiring a controlling stake and a small amount lie with Crompton consumer, yes. No one else can add rights to any Butterfly trademark.

The only other question you had was whether we can expand the butterfly trademark to other categories within the future. This is a product like we would do for Crompton. If you are tomorrow going to put Crompton in a new category in the future, we would have to go through due process. We could also have to be forward in other plan.

And this is still perpetuity?

There is no life. We are like Crompton is owned by us for perpetuity. Butterfly is also owned by the operating company for perpetuity. It also had section on non-compete and -- but also we have the customary arrangements in place so that for a reasonably finite period of time, the promoters or their family members can get into competing businesses. Neither can they use the brand in perpetuity nor can they get into competing businesses for the finite period of the non-compete arrangement.

[Operator Instructions] The next question is from the line of [indiscernible].

Congratulations on this acquisition. Sir, just 2 questions. One, if you look at the product portfolio, which you have shown in the presentation, it includes kitchen appliances, pressure cooker and others. Can you can pass it on the addressable market opportunity in each of these segments? How large is that? Unorganized versus organized how the shift difference will be in each of these segments? And going forward, as the shift happens more towards organized, what's the kind of growth rate which you can see in these core markets systems? My second question is on the distribution channel because distribution channel for the kitchen side tends to be totally different from the consumer electrical side. So in terms of integrating that channel, waiting is up, what are your thoughts on the channel sector? These are the 2 questions.

Okay. Let me come to the second. You're absolutely right. There is some amount of meaningful difference between the channel for small kitchen appliances versus consumer electricals. That actually is one of the potential revenue synergies as we make and operate on the synergy plan. Obviously, like I said, that is not something which we're going to begin changing from day one. But as we understand the business and move forward, it is clearly an opportunity for driving. It's an opportunity for us learning how to do more of this, for example, in the east. So it's a revenue synergy opportunity without a doubt. I am afraid the details of the other question you asked is you have to give us a little bit of time to understand the business at such an operational level. So before I can give you details by segment and relative growth rates.

Roughly -- these categories, which we spoke about is roughly INR 8,000 crores in terms of market size, with mixer grinders being the biggest, almost 40% of those that -- we spoke about unorganized. I think -- if you compare this industry with our consumer electric industry, the share of the top 5 players is not significantly different. So I think that the assumption that there is a very high level of fragmentation is not really true. If you look at the fans and lighting and compare it with these, it's very similar in terms of the -- how much market share the top 5 actually command. So I don't think there is any significant difference.

The next question is from the line of Aniruddha Joshi from ICICI.

Congrats for the M&A activity. Sir, as far as the current promoters are concerned of Butterfly, they will continue to have 10% plus shares. So what will be the exact role of these promoters? Will they continue to have some board seat? Or will they continue to have say in the business operations also? And as considering they are still in the business, so can -- there is a non-compete agreement that we can sign. So that is one question. And the second question is on the Crompton also has got its own kitchen appliances. So what will happen to these products per se? So like in your same example, B&G versus Gillette. So after acquisition of Gillette, Old Spice is slightly on the back [indiscernible] or that's what we see. So what will happen to Crompton's own kitchen appliances? .

Let me address your first question. [Technical Difficulty] Yes. When we complete share purchase, as Sandeep said, the existing promoters will be left holding something around 9%. They will step down and they will be imports -- depromoterized. So they are not considered promoters. They are also stepping down from their director positions. So they will step down from management. So they will have no operating role of any form or manner in the company. They will continue to be minority shareholders with this 9%, which is really something which they will decide upon over time as to what they want to do with that, hold it, not hold it, et cetera, that's their personal decision. In terms of the non-compete, as I think Sandeep mentioned earlier, we have a very comprehensive non-compete agreement. This non-complete agreement applies to the promoters and also their immediate family because some of their immediate family do work in the current Butterfly business. And there is a period which is defined and is very comprehensive, and they cannot enter those categories as mentioned earlier. They cannot obviously, for anything use the Butterfly brand name in perpetuity. Because that is owned by the company where we are taking over control or a few of those micrometers.

On the second question, sir?

What was the second question? Okay. Two things. One, got to be clear out of these four main segments, right, which I talked about will make up 80-plus, mixer grinder, LPG stoves, pressure cooker and wet grinder, the -- really the overlap is only there in mixer grinder. It's not -- there because a lot of small appliance, what we call small appliances, you must remember in Crompton is actually geysers and coolers. And that is very distinct from the business. We do believe that given the size and the scale of this business, there will be space for 2 unique different brand positions, which we need to develop over time, even in the small appliances area. Okay, one could be premium, one could be less premium, one could be more performance based, one could be more design-based, et cetera. But we need to work that through. But our current small appliances business will continue to get its focus from Crompton. There will be obviously major focus on the Butterfly business. And we will define what are the 2 unique distinctive positions of these 2 brands. Exactly like and at least, I'm only being hypothetical now. Nothing says that in the future, there could not be a Butterfly branded fan, right? So it has 2 brands which are now available to us, both coming with different equities and strengths, which we plan to grow and develop, but the brand equities themselves are so strong that they both have this potential to grow.

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

Just one question. So when I look at the margin profile for Butterfly, gross margins are at close to 40-odd percent, while EBITDA is just about 9.5%. So clearly, overhead, other expenses, employee costs, at least optically appear to be fairly high. So any low-hanging fruits, which are there which you are looking to kind of materialize in the next year or so, which should help improve these EBITDA margins significantly? That's one. And then connected to that is you did talk about being EPS-neutral in the first year, which I'm struggling with as to how clearly, then your margin assumptions or revenue assumptions seem fairly aggressive. So if you could help us understand this a little better, either what targets you have in mind which makes it EPS-neutral.

Let me address the first one, then I'll let Sandeep handle the second one, right? As far as the first one goes, like I said, in the near term, our focus is much more on ensuring a small transition of the business. And that is what we are really focused on because we truly believe getting that smooth transition in start time is the most critical thing to enable us to drive future growth. Do we expect to be able to deliver synergies in the time frame you mentioned year 1, year 2? Yes, of course, we expect to deliver synergies in that time frame. With all those synergies necessarily flow down to the bottom line? Maybe, maybe not because we could well find and discover that the opportunities to reinvest some of these synergies in further growth, be it geographic growth, channel growth or portfolio growth, right? So that's the way we look in it. But yes, of course, within the time frame of a year or 2, we definitely see opportunities of greater synergies. Sandeep, second part on the...

So, Ankur, on EPS, there are various moving parts, various assumptions, so I'm not sure at this stage whether we are in a position to share the details of what we have assumed as the profit of the -- of Butterfly for the year ahead. But I'm very happy to separately discuss with you. Our workings clearly show that it is EPS-neutral in year 1 because there are many assumptions and many levers that we have taken into play. And it is EPS accretive from the year going forward.

Okay. So Ankur, if you want more details, please feel free to talk that with Yeshwant or Sandeep.

The next question is from the line of [indiscernible] from Sundaram Asset Management.

I just want clarity in terms of the group company where you mentioned in the trademark remark. So here the backward integration, the point which you mentioned, which is lying in the Butterfly Gandhimathi, so that will be still part of this or the group companies is still that would be different, the kind of a backward integration the company has?

No, all backward integration is in -- within Butterfly. There is no -- they may -- they do have some related party transactions with group companies, but they are not material. And they are not proprietary in that sense. None of the stuff that they deal with their own group companies as part of the related party transactions. None of it is proprietary in that sense. And the operating company is fully backward integrated.

Which is actually relatively unique in the small appliance industry because the smaller appliance industries, we take as relatively small business. So a lot of them, like us [indiscernible] Crompton have a reasonably small manufacturing base. And these capabilities, we think, is going to be a big deal in terms of agility, flexibility, not just over time for the Butterfly business, but over time, even for the Crompton brand.

The next question is from the line of Keyur Haresh Pandya from ICICI Prudential Life Insurance.

Congratulations on this transaction. Sir, just want to understand, I think to better understand the question asked by the earlier participant, I mean if you can just throw some more light on -- and most of the participants here must be thinking that in year 1, 2 or in near term probably EPS margin or EPS dilutive, what are -- so first priority, you mentioned that to stabilize the organization and to make the transition smoother. But the operational front, which are the low-hanging fruits, whatever you can share at the current moment, I understand it's too early. But if you can throw some more light on that front will be very helpful.

Haresh, to be absolutely clear, we have our due diligence level of work, we have already identified areas, potential timing of these areas and a rough quantification. But I don't think it's appropriate to share the numbers of that detail at this point in time, right? And as we've shared in the investor presentation, I can't share the areas where we see potential synergy, and that's listed on Page 13 of the investor thing, both growth synergy areas, and cost synergy areas, right? For example, one of the cost synergy areas is logistics footprint optimization. Now I don't think I can talk at this point about what logistics, when it will happen, will there be a consolidation of warehouses, et cetera. At some point in time, these are opportunities, okay? So we've seen and we have actually identified these, and we will work this. And like I said in the beginning, we have a pretty high degree of confidence in our own ability to deliver against these synergies because we have gone through this experience ourselves over the last 5, 6 years.

Let me give you an example, Keyur. I think about 12, 15 months back, we started negotiating centrally for all commodities like copper, steel, which not only we were buying but also job workers of Crompton were buying as well as other finished product vendors of Crompton were buying. So independent of the legal entity where the actual steel was being used, we were able to aggregate demand and drive scale-led synergies. Now that same model, we have one more entity to add to our negotiating leverage. So that is one example of doing it. Second, you've seen the kind of savings under a project UNNATI where we've been able to get in Crompton in terms of percentage of the cost base. Now obviously, we have not been able to do that level of detailed work with the portfolio of Butterfly, but we have a fair idea. That if project UNNATI could deliver so much, not necessarily 100% of it, but a fair share or a fair chunk of that can get delivered in this company. One specific example I gave you, which was about scale towards buying common commodities. And then there are other things. For example, let's look at their size. They have a significant interest cost, basis, whatever ratings they have, whatever cost of borrowing that they are able to manage. I'm sure Crompton, which is 5x bigger than them, can certainly add some value there. So like that, we have built our business case. And that certainly shows that this transaction is EPS accretive from year 2 onwards. But if you have to have specific gaps in your worksheet, you can discuss separately.

The next question is from the line of Shrinidhi Karlekar from HSBC.

Congratulations on a very strategic and a big development. Sir, just clarification again on that comment on EPS-neutral in year 1. Sir, by year 1, are we referring to FY '23 or FY '24 here?

'23.

Great. Yes. And sir, I'm sure you would have done a proper due diligence on, but our content investor can be reasonably assured that not much of the Butterfly's existing revenue comes from a distributor, which are basically promoter or family owns extended families?

Correct. There is no promoter family dependence on the distribution. And as I said, at the back end, miniscule, but at the front end, there is no material dependence on promoters connected distributors.

Okay. Great, sir. And last one, sir, if I may. Sir, Crompton has also signed a nondisposal undertaking right? For the most of the remaining part of the promotor shareholding for about 18 months. So is it fair to say that a potential combination of 2 listed companies, whenever you think it is proper is still at least 18 months away?

No, that is not something that, at this moment people in this room can take a call up. It is something that the boards of both the companies will likely appropriate time review and take a...

Correct. And all I can say on that from a point of view of management is we don't decide it. It is something that the board and shareholders decide. As management, however, whenever we believe it's right for the business and the organization, we will recommend it.

Ladies and gentlemen, we'll take that as the last question. I now hand the conference over to the management for closing comments.

Thank you, everyone. Thank you for the time. Thank you for the engagement. Obviously, we are extremely, extremely excited. But like all things, we now have to execute against our own expectations. We believe, over the last 6 years, we have built enough capability. We really believe that the Butterfly brand and organization is going to bring additional capabilities, which is going to help both the business, so this is not just a one-way thing. We truly believe it's a 2-way thing. As always, I'm sorry if we didn't have time to answer everyone's questions, but we are fully available. Please, if you have anything you'd like more to know or talk about just give any of us a call or drop an e-mail, and we will respond immediately. So thank you all, take care. And remember, COVID is not yet over. So stay healthy.

Thank you.

Thank you very much. On behalf of Kotak Institutional Equities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.